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As filed with the U.S. Securities and Exchange Commission on September 17, 2021.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Intuity Medical, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2835   71-0880751

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

3500 West Warren Avenue

Fremont, California 94538

(510) 946-8800

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Emory Anderson

President and Chief Executive Officer

Intuity Medical, Inc.

3500 West Warren Avenue

Fremont, California 94538

(510) 946-8800

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Kathleen M. Wells

Brian J. Cuneo

Richard Kim

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

(650) 328-4600

 

Brandon J. Bortner

Paul Hastings LLP

2050 M Street NW

Washington, DC 30026

(202) 551-1700

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

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 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate

offering price(1)

  Amount of
registration fee(2)

Common Stock, par value $0.001 per share

  $75,000,000   $8,182.50

 

 

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the aggregate offering price of additional shares of common stock that the underwriters have the option to purchase.

(2)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated             , 2021

             Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of Intuity Medical, Inc. All of the                      shares of common stock are being sold by the company.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $             and $            .

We intend to apply to list our common stock on the Nasdaq Global Market under the trading symbol “POGO.”

We are an “emerging growth company” as defined under the federal securities laws and will be subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company. See “Prospectus Summary—Implications of Being an Emerging Growth Company and Smaller Reporting Company.”

 

 

See the section titled “Risk Factors” beginning on page 18 to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission nor any state securities commission or any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per Share    Total

Initial public offering price

   $                      $            

Underwriting discounts and commissions(1)

   $    $

Proceeds to us before expenses

   $    $

 

(1)

See the section titled “Underwriting” beginning on page 219 for additional information regarding compensation payable to the underwriters.

To the extent that the underwriters sell more than              shares of common stock, the underwriters have the option to purchase up to an additional              shares from us at the initial price to the public less the underwriting discounts and commissions.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on             , 2021.

 

 

 

Goldman Sachs & Co. LLC   Jefferies   Piper Sandler
  Raymond James  

 

 

Prospectus dated                , 2021


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LOGO

Press Once. GO!™ One-Step™ automatic blood glucose monitoring system that integrates lancing & blood collection into a single 10-test cartridge.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

The Offering

     12  

Summary Financial Data

     15  

Risk Factors

     18  

Special Note Regarding Forward-Looking Statements

     86  

Market and Industry Data

     88  

Use of Proceeds

     89  

Dividend Policy

     91  

Capitalization

     92  

Dilution

     95  

Selected Financial Data

     98  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     100  

Business

     120  

Management

     163  

Executive Compensation

     173  

Certain Relationships and Related Party Transactions

     187  

Principal Stockholders

     198  

Description of Capital Stock

     204  

Shares Eligible for Future Sale

     211  

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

     215  

Underwriting

     219  

Legal Matters

     226  

Experts

     226  

Where You Can Find Additional Information

     226  

Index to Financial Statements

     F-1  

 

 

“Intuity Medical,” “POGO Automatic,” “Patterns,” “One-Step,” “POGO 360,” “Press Once. Go!,” the Intuity Medical logo and other trademarks, trade names or service marks of Intuity Medical, Inc. appearing in this prospectus are the property of Intuity Medical, Inc. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and  symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition and results of operations may have changed since that date.

 

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For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside the United States.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus. You should carefully consider, among other things, the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. Unless the context otherwise requires, the terms “Intuity Medical,” “our company,” “we,” “us,” “our” and similar references in this prospectus refer to Intuity Medical, Inc.

Overview

We are a commercial-stage medical technology and digital health company focused on developing comprehensive solutions to improve the health and quality of life of people with diabetes. We developed our first commercial product, the POGO Automatic Blood Glucose Monitoring System, or POGO Automatic, to revolutionize the blood glucose testing process for individuals living with diabetes. POGO Automatic is a U.S. Food and Drug Administration, or FDA, cleared, automated, self-contained handheld monitor that enables patients to accurately measure blood glucose levels within seconds. POGO Automatic, combined with our Patterns app, offers full connectivity through our secure cloud-based digital health ecosystem, the Patterns app, which centralizes each patient’s blood glucose testing data in a digital form that can be shared with healthcare providers and others who play a central role in assisting with a patient’s diabetes treatment and testing regimen. We believe the convenience and simplicity of POGO Automatic will help remove the barriers to traditional glucose testing for people diagnosed with diabetes, and help them achieve their glucose level goals.

Diabetes is a chronic and progressive, life-threatening disease that requires ongoing monitoring of blood glucose levels. Testing blood glucose levels is an integral part of one’s diabetes treatment regimen as it informs both lifestyle choices and the treatment plans available to manage diabetes. While patients’ treatment plans vary, current American Diabetes Association, or ADA, guidelines recommend that patients with diabetes regularly self-monitor their blood glucose levels up to multiple times a day — with testing frequency increasing with more advanced treatment plans.

Diabetes is a prevalent disease and a large economic burden in the United States and abroad. The International Diabetes Foundation, or IDF, estimated global diabetes prevalence at 463 million people in 2019. According to the Center for Disease Control and Prevention, or CDC, 2020 National Diabetes Statistics Report, in 2018, approximately 34.2 million people in the United States, or approximately 10.5% of the total U.S. population, suffered from diabetes and 26.8 million adults were formally diagnosed and were aware of their condition. We believe POGO Automatic’s simplified approach to blood glucose monitoring offers a better option for patients and has application across the diabetes population.

Traditional blood glucose monitoring, or BGM, and continuous glucose monitoring, or CGM, systems measure glucose levels but have significant practical and lifestyle limitations. BGM testing is a cost-effective and accurate option for monitoring glucose levels because it directly tests a patient’s blood, typically through a finger prick. However, BGM testing involves a complicated, multi-step process that requires users to carry multiple testing supplies, including a meter, test strips, a lancing device and lancets, and also requires the user to dispose of sharp used lancets and other biohazardous waste after each use. The multi-step nature of traditional BGM testing makes it difficult to be performed discreetly or on-the-go. CGM systems address some of the practical limitations of BGM by utilizing implantable sensor technology to test interstitial glucose levels, yet CGM penetration of the


 

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glucose testing market has been limited to date, targeting primarily intensive insulin users. In 2020, approximately only 1.7 million people in the United States, or approximately 6% of the U.S. diagnosed diabetes population, used CGM devices as their primary method of glucose testing, despite having been commercially available to U.S. diabetes patients since 1999. We believe that the limitations of CGM include the inconvenience associated with inserting and regularly replacing the CGM sensor under the skin, physical discomfort and embarrassment associated with wearing the CGM sensor, high out-of-pocket costs for patients, high costs for payors, less reliable testing accuracy associated with monitoring interstitial glucose levels as compared to blood glucose levels and user fatigue due to the constant delivery of data to the user. Notwithstanding its limitations, traditional BGM continues to be the prevailing testing method for individuals in the United States diagnosed with diabetes. We believe POGO Automatic offers an attractive new category of blood glucose monitoring that addresses the many limitations of BGM and CGM.

POGO Automatic is the first and only FDA cleared, automatic blood glucose monitoring system, or ABGM, that lances and collects blood in just One-Step without the need to individually load lancets or test strips, delivering a greatly simplified and discreet blood glucose testing experience that is less disruptive to the user’s everyday life. POGO Automatic’s hand-held monitor integrates 10 lancets and 10 test strips into a single, easily replaceable 10-test Cartridge. Additionally, after each test, the Cartridge automatically retracts the used lancet and test strip back into the Cartridge and automatically provides a fresh lancet and test strip for the next test. As a result, unlike BGM users who must locate a sharps container to dispose of used lancets after each test, a POGO Automatic user only needs to replace and dispose of the Cartridge after a 10-test cycle is complete. POGO Automatic automatically syncs with our Patterns app, which enables users to see their glucose testing results on their smartphone or computer and easily identify changes they can make in their lifestyle choices, such as diet and activity, and treatment plans, such as oral anti-diabetics drugs and insulin injections, to address their blood glucose levels. The Patterns app offers personalized, data-driven insights by analyzing each user’s test results and summarizing those results in a simple interactive platform, one which also enables easy sharing with a healthcare team. Additionally, for POGO Automatic users wanting extra assistance, our app provides access to optional one-on-one live coaching services provided by a third-party service provider for a monthly fee to help participants achieve their personal health goals.

In February 2020, we initiated a limited commercial launch of POGO Automatic through our online POGO Store. We recently launched our HCP-Rx sales channel in 20 territories in August 2021, and our POGO Automatic Monitor and 10-test Cartridges became available upon request at Walgreens through our distribution agreement with AmerisourceBergen. We currently expect POGO Automatic Monitor and 10-test Cartridges to become available upon request at CVS during the fourth quarter 2021 through our distribution agreement with Cardinal Health, subject to the completion and timing, and our compliance with the requirements, of their new supplier and item setup protocols. Our multi-channel approach is designed to provide greater convenience and flexibility for our customers to acquire POGO Automatic Monitors and Cartridges. Our initial focus is on the U.S. commercial insurance and cash pay markets. Our direct sales force will target HCPs who are high prescribers of BGM supplies to promote the exclusive features and benefits of POGO Automatic with fulfillment of prescriptions at retail pharmacies. We also offer a direct-to-consumer, or DTC, online channel, which enables patients who cannot access a retail pharmacy to purchase POGO Automatic at our online POGO Store. We also plan to launch a targeted retail cash pay over-the-counter, or OTC, sales channel as well as an employer sales channel as part of our commercial strategy, which we refer to as our POGO 360 Diabetes Management Program, or POGO 360. To execute our commercial plan, as of August 2021, we had hired and trained approximately 20 HCP Sales Specialists, three HCP Regional Sales Directors, and a Vice President of HCP Sales, who we plan to deploy across 20 U.S. sales markets, which we believe represents over 50% of the U.S. diabetes testing market. We plan to continue expanding in the United States beyond these markets as our business grows, eventually targeting a total of 30 U.S. markets, which we believe accounts for over 65% of the test strip business in the United States.


 

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Glucose Monitoring

Traditional BGM devices

Traditional home use BGM devices were developed in the 1970s and then first introduced to the public in 1980. Traditional BGM is the most prevalent glucose monitoring approach for diabetes patients and requires the use of multiple testing components in order to generate a single blood glucose test result. These components are often referred to collectively as a testing kit. BGM provides a snapshot of a user’s current glucose levels at a specific time. In order to be an effective diabetes management tool, BGM must be performed in regular intervals as often as several times a day and before and/or after various activities such as meals, exercising or driving.

The traditional BGM testing process typically includes a glucose meter, and various supplies such as test strips, control solutions, lancets, lancing devices and alcohol swabs. A patient removes all test supplies from the kit, then removes the lancing device cap to insert a new lancet into the lancing device. The test strip vial is then opened and the test strip is removed and inserted into the BGM meter. The patient then lances the testing site, typically a fingertip, in order to obtain a small drop of blood. The blood drop is then applied to the test strip. The BGM device provides a readout of the patient’s blood glucose level. Once the meter displays the result, the patient then removes and disposes the used testing strip and lancet, and all other supplies are returned to the kit.

Traditional BGM devices are suitable for all therapy types and do not have a wearable component or body attachment. They are more broadly available than CGM devices, and for many, can fulfill their glucose self-monitoring needs.

CGM devices

CGM devices were first approved by the FDA in 1999 and address some of the issues patients and physicians face with BGM. CGM devices enable the constant monitoring of glucose levels via a catheter or sensor inserted subcutaneously in the back of the arm or abdomen and in some cases, a surgical implant that occurs every three to six months, usually in the upper arm. The sensor measures the glucose from the body’s interstitial fluid, a thin layer of fluid that surrounds the cells of tissue below the skin. The sensor tracks changes in glucose levels throughout the day and night, as often as every five to 20 minutes, and provides glucose readings through wireless data transfer to a receiver. Standard CGM displays readings at specific time intervals and flashes glucose monitoring displays readings when a handheld reader is scanned over the sensor.

In comparison to traditional BGM devices, CGM devices are sometimes considered to be less disruptive to a patient’s everyday life due to the reduction of finger pricks and the shorter time required to test. However, glucose measurement with CGM devices are less accurate, and most CGM users also own BGM devices for situations where maximum accuracy is required. Continuous measurements from CGM devices can also provide patients with trend information on their interstitial fluid glucose levels and time spent in their target glucose range.

Even though CGM is not the prevalent method of diabetes monitoring, the global CGM monitoring device market was estimated to be approximately $3.9 billion in 2019 and is projected to grow at a CAGR of 12.7%. In 2020, approximately 1.7 million diabetes patients in the United States used CGM devices.


 

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Limitations and Challenges of Current Testing Solutions

We believe there are clear limitations to both BGM and CGM devices.

 

LOGO

Our Solution

Regular glucose testing is an important part of diabetes management. However, the testing process of traditional BGM devices has remained largely unchanged for many years, requiring multiple manual and cumbersome steps. POGO Automatic offers a solution that simplifies blood glucose monitoring, overcoming complexities and limitations of other existing alternatives in the space.

Traditional BGM continues to be the method by which the majority of the 26.8 million adults diagnosed with diabetes in the United States currently test to determine their blood glucose level. While CGM provides an alternative for glucose testing, it is only recommended to or accessible by a relatively small portion of the diabetes testing population.

As a result, there is a gap that exists in the current market between patient needs and the available testing alternatives. There is a need for a solution that addresses the testing barriers of traditional BGM and is more widely suitable and accessible than CGM. POGO Automatic is intended to resolve this by creating a new category in the glucose testing market, automatic blood glucose monitoring, or ABGM, which we believe can benefit the millions of people with diabetes who are not optimally served by current solutions.

The Benefits of POGO Automatic vs. Traditional BGM

We believe that the POGO Automatic offers the following advantages over traditional BGM devices.

 

   

Incredibly simple One-Step testing: POGO Automatic reduces testing complexity by automating lancing and collecting blood into one simple step.

 

   

Reduced hassle: POGO Automatic integrates all of the components needed for 10 tests — including 10 lancets and 10 strips — into a single, easy-to-use Cartridge.

 

   

Privacy: Because POGO Automatic simplifies and automates the testing process, the test can be performed discreetly in a matter of seconds.


 

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The Benefits of POGO Automatic vs. CGM

We believe that the POGO Automatic offers the following advantages over CGM devices:

 

   

Discreet device with no bodily attachments: POGO Automatic users do not experience physical irritation from continuous sensors being worn on the skin and are able to engage in their choice of physical activity.

 

   

Affordable and accessible to patients: POGO Automatic is typically more broadly accessible to patients without a prescription at retail pharmacy, or purchased without a prescription for cash through our online POGO Store.

 

   

Consistent accuracy: POGO Automatic blood glucose testing does not suffer from lead and lag issues, nor contribute to inaccurate measurements at low glucose levels as can happen with interstitial-fluid-based CGM systems.

 

   

On-demand data with less disruptive alerts: Instead of the burdensome alarms that occur with CGM devices, POGO Automatic users can log into Patterns to review their blood glucose levels in a simplified graphic display.

Our Success Factors

We believe the following success factors will enable us to achieve our mission of simplifying diabetes management for patients.

 

   

Large and growing diabetes testing population. In its 2020 National Diabetes Statistics Report, the CDC estimated that 34.2 million people were living with diabetes in the United States in 2018, of which 26.8 million adults had been diagnosed, and that 1.5 million U.S. adults were newly diagnosed with diabetes during the course of the year, representing an annual increase of 5.6% in diagnosed U.S. adults. The CDC further estimated that in 2018 between 90% and 95% of people with diabetes in the United States had the type 2 form of the disease and that an additional 88 million Americans had “prediabetes,” which means a higher than normal blood glucose level. According to the Permanente Journal, 37% of patients diagnosed with prediabetes who fail to make lifestyle changes could develop type 2 diabetes within four years.

 

   

Differentiated ABGM technology with significant advantages over existing glucose monitoring technologies. POGO Automatic was developed to revolutionize a testing process that has seen limited innovation over the last two decades. POGO Automatic integrates test strips, lancets and a lancing device into an automated, self-contained handheld device. By consolidating a traditional 10-15+ step BGM process into a simplified and easy to use, One-Step test, we believe POGO Automatic has significantly improved the user experience and enables patients to easily obtain test results in seconds. POGO Automatic’s innovative self-contained 10-test Cartridge and Monitor alleviate issues with test strip and lancet handling and disposal and allow convenient, discreet testing. We believe the testing advantages of POGO Automatic over traditional BGM will encourage increased patient testing and engagement, leading to better self-care, fewer emergency room visits and in-patient admissions, and ultimately, a lower cost of care. POGO Automatic also has significant advantages over CGM systems, including greater testing accuracy, freedom from uncomfortable attachments that also interfere with lifestyle and on-demand data with fewer disruptive alerts. We believe that POGO Automatic’s cost-effective, efficient and accurate testing solution will lead to significant penetration of the large and growing U.S. diabetes patient population.

 

   

Complete care circle connectivity through the Patterns app. As part of our comprehensive diabetes management solution, we offer the Patterns app to every POGO Automatic user,


 

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allowing full connectivity to the user’s broader support network including HCPs, caregivers, coaches and employers. The Patterns app offers a native mobile app for Apple iOS and Android and a web portal for HCPs. The POGO Automatic Monitor syncs with the Patterns app to transfer blood glucose testing information, including the blood glucose result, time and day of test result and meal marker information from the Monitor. This information is then synced with a cloud-based database. The Patterns app also syncs with the cloud-based database to automatically download health and activity data such as weight, exercise, sleep and other biometric information from third-party sources, while also including in-app nutrition data. The Patterns app centralizes each patient’s diabetes and other health data and uses a rules engine to provide health observations directly to patients, caregivers and providers, while also providing underlying health data to HCPs for further analysis. The app provides alerts, testing schedule reminders and emergency notifications to promote compliance and provide peace of mind for caregivers and individuals managing their diabetes journeys. The Patterns app offers optional, live, one-on-one professional diabetes coaching provided by a third-party service provider accessible directly through the app for a monthly fee. We believe the Patterns app enhances the user experience and increases patient engagement and testing utilization while also strengthening POGO Automatic account retention.

 

   

Strong consumer and physician preference for POGO Automatic over other solutions. Our market research has shown that POGO Automatic continually elicits strong favorable responses, recommendation and purchase intent from HCPs and patients, if available at a reasonable co-pay or out-of-pocket cost. In a March 2021 study that we commissioned with over 150 endocrinologists, primary care physicians, or PCPs, and Certified Diabetes Care and Education Specialists, or CDCESs, 78% responded that they found POGO Automatic extremely or very unique, while 79% responded that they found POGO Automatic extremely or very relevant to their practice, and 85% would definitely or probably recommend or prescribe POGO Automatic to their patients at a reasonable price or co-pay. A subsequent 2021 study that we commissioned of 200 people with diabetes reached a similar positive conclusion. 87% of those patients surveyed viewed POGO Automatic as much or somewhat better than their current meter while 83% would definitely or probably purchase POGO Automatic if available at a reasonable co-pay or out-of-pocket cost. 83% of people with diabetes surveyed also noted that they would definitely or probably ask their HCP to write a prescription for POGO Automatic while approximately 75% said that the Patterns app makes them more likely to purchase POGO Automatic. We believe these research results reinforce the need for better testing solutions, which POGO Automatic is poised to address in the market.

 

   

Commercial infrastructure with network of prescribing physicians and prescription channel partners. We have assembled a sales force of experienced representatives with in-depth knowledge of our target market in order to build awareness for POGO Automatic and open new commercial accounts across the physician community. We plan for our initial sales force to call on approximately 1,800 of the top endocrinologists and PCPs prescribing diabetes tests which we believe represents over 50% of the U.S. diabetes testing market. We have entered into agreements with two major pharmaceutical wholesale distribution companies, and as part of our expanded launch, our POGO Automatic Monitor and 10-test Cartridges will be available upon request through over 3,600 CVS and Walgreens retail pharmacies, where our customers may fill their prescriptions. Outside of our initial target markets, there are approximately 15,400 CVS and Walgreens pharmacies through which we could sell these products. Through our HCP-Rx sales channel, we plan to make POGO Automatic available through prescription and pharmacy benefit plans, which will be familiar to patients who fill medication and BGM prescriptions. In addition to our HCP-Rx sales channel, patients can purchase a POGO Automatic Monitor and Cartridges directly though the online POGO Store. We have designed our initial physician and pharmacy network to maximize access and convenience for our customers.


 

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Experienced, proven management team with deep industry experience. Our senior management team includes seasoned, proven individuals with management experience across a broad range of disciplines within the diabetes, medical device, pharmaceutical and consumer electronics spaces. They have a track record of successfully bringing products to market, with significant expertise in development, regulatory approval and commercialization activities, and many have held leadership positions in both public and private companies.

Our Growth Strategies

Our goal is to become the standard of care for the millions of patients who regularly test to determine their blood glucose levels. We are implementing the following strategies to achieve this goal and potentially drive revenues:

 

   

grow our commercial infrastructure through additional direct sales and marketing team hires and expand our retail pharmacy coverage;

 

   

continue to improve market access and secure third-party payor coverage and reimbursement for POGO Automatic;

 

   

drive consumer interest through targeted DTC marketing campaigns;

 

   

continue to develop and launch innovative, consumer-focused products and apps to become a prominent player in diabetes testing;

 

   

market POGO 360 to companies seeking to manage the costs of their employees’ healthcare through enhanced diabetes management programs; and

 

   

access the U.S. Medicare patient population opportunity through our remote patient monitoring strategy.

Risks Associated with Our Business

Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common stock. These risks are more fully described in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

 

   

We have a history of net losses, and we may not achieve or maintain profitability in the future. In addition, we may be unable to continue as a going concern. We have only recently begun our expanded commercial launch of POGO Automatic through our multi-channel commercial model and, to date, we have derived only limited revenue from the sale of POGO Automatic through our online POGO Store. We will need to generate significant additional revenue to achieve profitability. It is possible that we will not achieve profitability or that, even if we do achieve profitability, we may not maintain or increase profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

 

   

We operate in a highly competitive industry, and competitive pressures could have a material adverse effect on our business. The worldwide market for diabetes management and glucose monitoring devices is competitive in terms of pricing, product quality, product innovation and time-to-market. We face strong competitors, which have greater resources and stronger financial profiles that may enable them to better exploit changes in our industry on a cost-competitive basis and to be more effective and faster in capturing available market opportunities, which in turn may negatively impact our market share.


 

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There are a variety of glucose monitoring products and technologies, and consumer confusion about product features and technology could lead consumers to purchase competitive products instead of our products, or to conflate any adverse events or safety issues associated with BGMs or CGM products with our products, which could adversely affect our business, financial condition and results of operations. Consumers may not have sufficient information about BGMs generally or how BGM products and technologies compare to each other. This lack of information may result in consumers purchasing BGMs or CGM devices from our competitors instead of POGO Automatic, even if POGO Automatic would provide consumers with their desired product features.

 

   

We currently rely on sales of our POGO Automatic to generate nearly all our revenue. Our core product is POGO Automatic, from which we expect to continue to derive nearly all our revenue. Accordingly, our ability to continue to generate revenue is highly reliant on our ability to market and sell POGO Automatic and to retain consumers who currently use the product. We have not yet established that our multi-channel commercial model will be successful nor that we can execute the transition from a limited DTC model to an expanded commercial launch. We recently launched our HCP-Rx sales channel in 20 territories in August 2021, and our POGO Automatic Monitor and 10-test Cartridges became available upon request at Walgreens through our distribution agreement with AmerisourceBergen. We currently expect POGO Automatic Monitor and 10-test Cartridges to become available upon request at CVS during the fourth quarter 2021 through our distribution agreement with Cardinal Health, subject to the completion and timing, and our compliance with the requirements, of their new supplier and item setup protocols. We cannot control the completion or timing of our distribution partners’ protocols or other internal processes or procedures, and the timing and execution of our expanded launch are dependent on our ability to distribute our products pursuant to our agreements with them.

 

   

Demand for POGO Automatic may not increase as rapidly as we anticipate due to a variety of factors, including competitive pressures. If there is a reduction in consumer demand for BGM and/or CGM products generally, if consumers choose to use a competitive product instead of POGO Automatic, or if the average selling price of POGO Automatic and/or our refill Cartridges declines as a result of economic conditions, competitive pressures or any other reason, these factors could have a material adverse effect on our business, financial condition and results of operations.

 

   

If we cannot innovate at the pace of our BGM and CGM competitors, we may not be able to develop or exploit new technologies in time to remain competitive. A number of companies, medical researchers and pharmaceutical companies are pursuing new delivery devices, delivery technologies, sensing technologies (including non-invasive technologies), procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention of diabetes. For example, “closed-loop” or “hybrid closed-loop” systems that combine CGM and automatic subcutaneous insulin infusion in a manner that delivers appropriate amounts of insulin on a timely basis with reduced user direction could have a material adverse effect on our revenue and future profitability. In addition, the National Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent, cure or improve the treatment of diabetes.

 

   

Failure to comply with post-marketing regulatory requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product from the market. Even though we have obtained FDA clearance for POGO Automatic, we are subject to ongoing and pervasive regulatory requirements governing, among other things, the manufacture, marketing, advertising, medical device reporting, sale, promotion, import, export, registration and listing of devices.

 

   

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership


 

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and other personnel, or otherwise prevent new or modified products from being developed, authorized or commercialized in a timely manner or at all, which could negatively impact our business. If a prolonged government shutdown occurs, or if global health concerns related to COVID-19 continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

 

   

Our business, financial condition, results of operations and growth may be impacted by the effects of the COVID-19 pandemic. The COVID-19 pandemic has negatively impacted our operations by disrupting our manufacturing processes and the operations of manufacturers, suppliers and other third parties with which we do business and may continue to negatively impact our revenues and overall financial condition by harming the ability or willingness of customers to pay for our products due to macro-economic conditions resulting from the pandemic.

 

   

Our suppliers are subject to orders from federal or state governments, including pursuant to the Defense Production Act of 1950, or the DPA, for components of our products, which could adversely affect our business, financial condition and results of operations. A proprietary resin used in the manufacture of key components of our Cartridges has been subject to a U.S. government allocation program since October 2020 because this resin is used in the manufacture of COVID-19 related medical supplies. If the government continues to apply the DPA, or any other law or program, to acquire this resin or additional components of our products, our suppliers may continue to be required to prioritize distribution to certain government agencies or other recipients or allocate inventory, supplies or facilities for government or government-directed use.

 

   

We currently rely on a single manufacturer for the assembly of POGO Automatic Monitors and multiple other third-party suppliers for our Cartridge manufacturing automation line, which suppliers own their respective automation line design drawings. If we encounter manufacturing problems or delays, we may be unable to promptly transition to an alternative manufacturer or third party suppliers and our ability to generate revenue will be limited. We currently rely on a single manufacturer located in Mexico for the manufacturing of all of our Monitors and multiple other third-party suppliers for various parts of our manufacturing automation line. Our manufacturer’s and suppliers’ ability and willingness to meet our demand requirements on a timely basis may be limited for several reasons, including our relative importance as a customer or their ability to provide assembly services to manufacture our products, which may be affected by the COVID-19 pandemic. We have experienced delays in production of parts of our manufacturing automation line at times due to COVID-19 among other reasons.

 

   

The size and expected growth of our addressable market may be smaller than we estimate. Our estimates of the addressable market for our current products and future products are based on a number of internal and third-party estimates and assumptions that may not be correct.

 

   

Our success will depend on our ability to obtain, maintain and protect our intellectual property rights. If we cannot adequately obtain, maintain and enforce our intellectual property rights and proprietary technology, competitors may be able to use our technologies or the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have and our ability to compete, which could harm our business and ability to achieve profitability and/ or cause us to incur significant expenses.


 

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Going Concern

The report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2020 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.

There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements, public offerings and/or debt financing necessary to support our working capital requirements. In addition, no assurance can be given that additional financing will be available, or if available, will be offered to us on acceptable terms. To the extent that funds generated from cash flow from operations or any private placements, public offerings and/or debt financing are insufficient, we may be forced to cease or curtail our operations, which would cause investors to lose some or all of their investment.

Impact of COVID-19

The COVID-19 pandemic has negatively impacted our operations by disrupting our manufacturing processes and the operations of manufacturers, suppliers and other third parties with which we do business and may continue to negatively impact our revenues and overall financial condition by harming the ability or willingness of customers to pay for our products due to macro-economic conditions resulting from the pandemic. At times governmental orders and restrictions related to COVID-19 and positive COVID-19 test results of our employees have resulted in manufacturing stoppages and slowdowns, delays in obtaining manufacturing equipment and disruption to our HCP-driven sales, among other events that have negatively impacted our operations and those of our third-party suppliers. The COVID-19 pandemic has also resulted in supply chain disruptions, and the lead times for some of our key product components have been significantly extended, resulting in the payment of higher prices to secure supplies from alternate providers and, in some cases, redesign and revalidation of our products in order to use these alternate components, which requires additional testing pursuant to FDA guidelines to ensure that the alternate component is an acceptable substitute. While we believe that no additional FDA approvals or clearances would be necessary in connection with these particular modifications, in the event of other product modifications we may be required to seek additional clearances from the FDA consistent with FDA device modification guidance. We expect that these supply chain constraints will continue and could be exacerbated by the prolonged impact of COVID-19.

For additional discussion of the impact of COVID-19 on our business, see “Risk Factors—Our business, financial condition, results of operations and growth may be impacted by the effects of the COVID-19 pandemic” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our Corporate Information

We were incorporated under the laws of the State of Delaware on April 24, 2002 as Rosedale Medical, Inc. Our principal executive offices are located at 3500 West Warren Avenue, Fremont, California 94538, and our telephone number is (510) 946-8800. Our corporate website address is www.presspogo.com. Information contained on, or accessible through, our website shall not be deemed incorporated into and is not a part of this prospectus or the registration statement of which it forms a part. We have included our website in this prospectus solely as an inactive textual reference.


 

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Implications of Being an Emerging Growth Company and Smaller Reporting Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

   

We will present in this prospectus only two years of audited financial statements, plus any required unaudited financial statements, and related management’s discussion and analysis of financial condition and results of operations;

 

   

We will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

   

We will provide less extensive disclosure about our executive compensation arrangements; and

 

   

We will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

Accordingly, the information contained herein may be different than the information you receive from our competitors that are public companies or other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our common stock held by non-affiliates is less than $250.0 million measured on the last business day of the second fiscal quarter of such year, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our common stock held by non-affiliates is less than $700.0 million measured on the last business day of the second fiscal quarter of such year.


 

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THE OFFERING

 

Common stock offered by us

                shares

Underwriters’ option to purchase additional shares

  


             shares

Common stock to be outstanding after this offering

  


             shares (or              shares if the underwriters exercise in full their option to purchase additional shares).

Use of proceeds

  

We estimate that the net proceeds from this offering will be approximately $             million (or approximately $             million if the underwriters exercise in full their option to purchase up to              additional shares of common stock), based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We currently intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, to fund the manufacture and commercialization of POGO Automatic and our Patterns app and for continued research and product development activities, to repay in full approximately $2.0 million due under our Paycheck Protection Program loan, or the PPP Loan, and to pay a success fee of $2.5 million to Oxford Finance LLC, or Oxford, in accordance with the terms of the Amended and Restated Success Fee Agreement with Oxford, or the Oxford Agreement. The remaining funds will be used for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the remaining net proceeds, if any, to acquire complementary businesses, products, service providers or technologies. However, we do not have agreements or commitments for any acquisitions at this time.

 

See the section titled “Use of Proceeds” for additional information.

Risk factors

   You should read the section titled “Risk Factors” for a discussion of factors to consider carefully, together with all the other information included in this prospectus, before deciding to invest in our common stock.

Proposed trading symbol

   “POGO”

 

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The number of shares of our common stock to be outstanding after this offering reflected in the table above is based on                  shares of common stock outstanding as of June 30, 2021 (after giving effect to the conversion of all of our shares of redeemable convertible preferred stock outstanding as of June 30, 2021 into an aggregate of 731,820,423 shares of our common stock immediately prior to the completion of this offering, and the issuance of additional shares of our common stock pursuant to the net exercise of the Investor Warrants (as defined below) and to the holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock, New Series C-1 redeemable convertible preferred stock and our outstanding convertible promissory notes upon the completion of this offering, as further described below) and excludes the following:

 

   

453,726 shares of our common stock issuable upon the exercise of warrants that will remain outstanding after the completion of this offering, excluding the 2020 Warrants and the 2021 Warrants (as such terms are defined below), with a weighted-average exercise price of $1.68 per share;

 

   

             shares of our common stock issuable upon the exercise of warrants issued in October 2020, or the 2020 Warrants, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, with a weighted-average exercise price of $         per share, that will remain outstanding after the completion of this offering;

 

   

             shares of our common stock issuable upon the exercise of outstanding warrants issued in May 2021, or the 2021 Warrants, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, that will remain outstanding after the completion of this offering;

 

   

2,263,096 shares of our common stock issuable upon the exercise of outstanding stock options as of June 30, 2021, with a weighted-average exercise price of $1.07 per share;

 

   

restricted stock unit awards with respect to approximately                  shares of our common stock and/or option awards exercisable for approximately                  shares of our common stock (in each case based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus) that we will grant under our Amended and Restated 2002 Stock Option Plan to our directors and employees (in the case of the restricted stock unit awards, such grants will be effective upon the filing of our registration statement on Form S-8 covering such awards, and in the case of the option awards, upon the pricing of this offering and with an option exercise price equal to the initial public offering price);

 

   

             shares of our common stock reserved for future issuance under our 2021 Incentive Award Plan, or the 2021 Plan, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of common stock reserved for issuance under the 2021 Plan;

 

   

             shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, or the ESPP, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of common stock reserved for issuance under the ESPP; and

 

   

any shares of our common stock that may become issuable upon the exercise of warrants that we may issue in the future pursuant to our credit agreement.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or


 

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decrease by                  and                  shares, respectively, the aggregate number of shares of common stock issuable upon exercise of the 2020 Warrants and the 2021 Warrants.

Unless otherwise indicated, all information contained in this prospectus, including the number of shares of common stock that will be outstanding after this offering, assumes or gives effect to the following:

 

   

the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering;

 

   

the conversion of all the outstanding shares of our redeemable convertible preferred stock into an aggregate of 731,820,423 shares of our common stock, the conversion of which will occur immediately prior to the completion of this offering;

 

   

a         -for-    reverse stock split of our common stock effected on             , 2021;

 

   

             shares of our common stock issuable upon the exercise of outstanding warrants, or the Investor Warrants, to be exercised on a net basis contingent upon the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

   

             shares of our common stock issuable to the holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock and New Series C-1 redeemable convertible preferred stock upon the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

   

             shares of our common stock issuable to the holders of our outstanding convertible promissory notes upon the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

   

no exercise of the outstanding warrants, except the Investor Warrants described above, or options or settlement of restricted stock units subsequent to June 30, 2021; and

 

   

no exercise by the underwriters of their option to purchase up to             additional shares of our common stock.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease by                  and                  shares, respectively, the aggregate number of shares of common stock issuable upon exercise of the Investor Warrants and to holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock, New Series C-1 redeemable convertible preferred stock and our outstanding convertible promissory notes.

For a price sensitivity analysis of the number of shares of our common stock issuable upon exercise of the 2020 Warrants, the 2021 Warrants and the Investor Warrants and to holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock, New Series C-1 redeemable convertible preferred stock and our outstanding convertible promissory notes at various initial public offering prices, see the section titled “Description of Capital Stock.”


 

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SUMMARY FINANCIAL DATA

The following tables set forth our summary financial data for the periods and as of the dates indicated. The following summary statement of operations and comprehensive loss data for the years ended December 31, 2019 and 2020 have been derived from our audited financial statements appearing elsewhere in this prospectus. The summary statement of operations and comprehensive loss data for the six months ended June 30, 2020 and 2021 and the summary balance sheet data as of June 30, 2021 have been derived from our unaudited interim condensed financial statements appearing elsewhere in this prospectus. The unaudited interim condensed financial statements were prepared on a basis consistent with our audited financial statements and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected for any future period. You should read the following summary financial data together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

 

    Year Ended December 31,     Six Months Ended
June 30,
 
    2019     2020     2020     2021  
    (in thousands, except share and per share amounts)  

Statements of Operations and Comprehensive Loss Data:

       

Revenue

  $ —       $ 34     $ 7     $ 43  

Cost of revenue

    —         5,640       2,971       4,409  
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross loss

    —         (5,606     (2,964     (4,366

Operating expenses:

       

Research and development

    22,989       18,223       8,463       10,282  

Sales and marketing

    4,344       5,835       2,930       7,000  

General and administrative

    2,850       3,618       1,815       3,043  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    30,183       27,676       13,208       20,325  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (30,183     (33,282     (16,172     (24,691

Interest income

    114       4       3       8  

Interest expense

    (2,704     (6,266     (3,567     (856

Change in fair value of derivatives

    (349     7,153       3,920       (5,635

Loss on extinguishment of notes payable

    —         —         —         (121

Other expense, net

    (39     (180     (11     (195
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    (2,978     711       345       (6,799
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

  $ (33,161   $ (32,571   $ (15,827   $ (31,490
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted(1)

  $ (22.05   $ (0.28   $ (0.33   $ (0.18
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share, basic and diluted(1)

    1,503,782       115,555,954       47,698,885       172,463,955  
 

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited pro forma net loss per share, basic and diluted(2)

    $         $    
   

 

 

     

 

 

 

Weighted-average shares used in computing unaudited pro forma net loss per share, basic and diluted(2)

       
   

 

 

     

 

 

 

 

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(1)

See Note 9 to our audited financial statements as of December 31, 2020 and for the year ended December 31, 2020 and Note 9 to our unaudited interim condensed financial statements as of June 30, 2021 and for the six months ended June 30, 2021 included elsewhere in this prospectus for an explanation of the method used to compute net loss per share.

(2)

Unaudited basic and diluted pro forma net loss per share were computed using the weighted-average number of shares of common stock outstanding after giving effect to the conversion of our redeemable convertible preferred stock using the as-if converted method into common shares as though the conversion had occurred as of the beginning of the period presented. The following table summarizes our unaudited pro forma net loss per share for the year ended December 31, 2020 and the six months ended June 30, 2021 (in thousands, except share and per share data):

 

     Year Ended
December 31,
2020
     Six
Months
Ended

June 30,
2021
 

Numerator

     

Net loss attributable to common stockholders

   $            $        
  

 

 

    

 

 

 

Denominator

     

Weighted-average shares of common stock outstanding, basic and diluted

     

Pro forma adjustments to reflect assumed conversion of redeemable convertible preferred stock

     
  

 

 

    

 

 

 

Weighted-average shares used in computing pro forma net loss per share, basic and diluted

     
  

 

 

    

 

 

 

Pro forma net loss per share, basic and diluted

   $            $        
  

 

 

    

 

 

 

The table below presents our balance sheet data as of June 30, 2021 on:

 

   

an actual basis;

 

   

a pro forma basis, to reflect: (i) the conversion of all of the outstanding shares of our redeemable convertible preferred stock as of June 30, 2021 into an aggregate of 731,820,423 shares of common stock immediately prior to the completion of this offering; (ii) the conversion of all of our outstanding warrants exercisable for redeemable convertible preferred stock as of June 30, 2021 into warrants exercisable for              shares of common stock immediately prior to the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and the related reclassification of the redeemable convertible warrant liability to common stock and additional paid-in capital; (iii) the conversion of all of our outstanding warrants issued in May 2021 into warrants exercisable for              shares of common stock immediately prior to the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus; (iv) the issuance of                     shares of our common stock upon the exercise of the outstanding Investor Warrants, to be exercised on a net basis contingent upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus; (v) the issuance of              shares of our common stock issuable to the holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock and New Series C-1 redeemable convertible preferred stock upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus; (vi) the issuance of              shares of our common stock issuable to the holders of our outstanding convertible promissory notes upon the


 

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completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus; and (vii) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering; and

 

   

a pro forma as adjusted basis, giving effect to the pro forma adjustments discussed above, and giving further effect to the sale of             shares of our common stock in this offering at the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the repayment of our $2.0 million PPP loan and the payment of a $2.5 million success fee to Oxford in accordance with the terms of the Oxford Agreement and the resulting settlement of the derivative liability of $2.5 million with a net impact of $2.5 million to accumulated deficit (see Note 3 to our financial statements).

 

     As of June 30, 2021  
     Actual     Pro
Forma
     Pro Forma
as Adjusted(1)
 
     (in thousands)  

Balance Sheet Data:

    

Cash and cash equivalents

   $ 43,168     $                    $                

Working capital(2)

     41,909       

Total assets

     88,399       

Notes payable, current and non-current

     33,603       

Derivative liabilities, current and noncurrent

     3,719       

Redeemable convertible preferred stock warrant liability

     3,125       

Redeemable convertible preferred stock

     87,020       

Accumulated deficit

     (283,999     

Total stockholders’ (deficit) equity

     (49,292     

 

(1)

The pro forma as adjusted information discussed above is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $        million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares of common stock offered by us would increase or decrease, as applicable, each of our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ deficit by approximately $        million, assuming the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(2)

We define working capital as current assets less current liabilities. See our financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.


 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could have a material adverse effect on our business, financial condition and results of operations. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Many of the following risks and uncertainties are, and will be, exacerbated by the coronavirus disease, or COVID-19, pandemic and any worsening of the global business and economic environment as a result. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

We have a history of net losses, and we may not achieve or maintain profitability in the future. In addition, we may be unable to continue as a going concern.

We have incurred net losses since inception. We incurred net losses of $33.2 million and $32.6 million for the years ended December 31, 2019 and 2020, respectively, and $15.8 million and $31.5 million for the six months ended June 30, 2020 and 2021, respectively. As a result of our ongoing losses, as of June 30, 2021, we had an accumulated deficit of $284.0 million. Since inception, we have spent significant funds on organizational and start-up activities, to recruit key managers and employees, to develop the POGO Automatic Blood Glucose Monitoring System, or POGO Automatic, and our Patterns app, to develop our manufacturing know-how, on capital expenditures associated with our manufacturing processes and prosecution of our patent and trademarks. The net losses we incur may fluctuate significantly from quarter to quarter and may increase as a result of the COVID-19 pandemic.

Our long-term success is dependent upon our ability to successfully develop, commercialize and market our products, earn revenue, obtain additional capital when needed and, ultimately, to achieve profitable operations. We only recently began our expanded commercial launch of POGO Automatic through our multi-channel commercial model and, to date, we have derived only limited revenue from the sale of POGO Automatic through our online POGO Store. We will need to generate significant additional revenue to achieve profitability. It is possible that we will not achieve profitability or that, even if we do achieve profitability, we may not maintain or increase profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

The report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2020 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements, public offerings and/or debt financing necessary to support our working capital requirements. In addition, no assurance can be given that additional financing will be available, or if available, will be offered to us on acceptable terms. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected, and, if we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

 

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We operate in a highly competitive industry, and competitive pressures could have a material adverse effect on our business.

The worldwide market for diabetes management and glucose monitoring devices is competitive in terms of pricing, product quality, product innovation and time-to-market. We face strong competitors, which have greater resources and stronger financial profiles that may enable them to better exploit changes in our industry on a cost-competitive basis and to be more effective and faster in capturing available market opportunities, which in turn may negatively impact our market share. We compete with traditional BGM manufacturers Ascensia Diabetes Care Holdings AG, Abbott Diabetes Care Inc., LifeScan, Inc., Roche Diabetes Care, Inc. and Trividia Health, Inc.; Continuous Glucose Monitoring, or CGM, manufacturers Medtronic MiniMed, a division of Medtronic public limited company, Dexcom, Inc., Senseonics, Incorporated and Abbott Diabetes Care Inc.; and disease management programs, particularly employer-provided diabetes management programs, including Canary Health, Dario Health, Fitbit, Lark Health, Onduo LLC, One Drop, Vida Health, Virgin Pulse, Virta Health Corp and Welldoc. These companies are at various stages of development and the number of such companies continuously changes as they enter or exit the market on an ongoing basis.

Most of our competitors are large, well-capitalized companies with more resources than we have. These companies may have competitive advantages over us, including:

 

   

significantly greater name recognition;

 

   

different and more complete reimbursement profiles;

 

   

established relations with healthcare professionals, customers and third-party payors;

 

   

larger and more established distribution networks;

 

   

greater experience in conducting research and development, clinical trials, manufacturing, marketing and obtaining regulatory approval;

 

   

established manufacturing, supply and distribution and sales channels; and

 

   

greater financial and human resources for product development, sales and marketing, and patent litigation.

We may be unable to compete with these or other competitors, and one or more of such competitors may render our technology obsolete or economically unattractive. To the extent we expand internationally, we will face additional competition in geographies outside the United States. If we are unable to compete effectively with existing products or respond effectively to any new products developed by competitors, our business could be materially harmed. Increased competition may result in price reductions, reduced gross margins and loss of market share. There can be no assurance that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, financial condition and results of operations.

There are a variety of BGM products and technologies, and consumer confusion about product features and technology could lead consumers to purchase competitive products instead of our products, or to conflate any adverse events or safety issues associated with BGMs or CGM products with our products, which could adversely affect our business, financial condition and results of operations.

We believe that many individuals do not have full information regarding the types of BGM products and blood glucose monitoring features and technologies available in the market, in part due to the lack of consumer education regarding traditional BGM. Consumers may not have sufficient information about BGMs generally or how BGM products and technologies compare to each other.

 

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This lack of information may result in consumers purchasing BGMs or CGM devices from our competitors instead of POGO Automatic, even if POGO Automatic would provide consumers with their desired product features. In addition, any adverse events or safety issues relating to competitive BGM or CGM products and related negative publicity, even if such events are not attributable to our products, could result in reduced purchases of BGMs by consumers generally. Any of these occurrences could lead to reduced sales of our products and adversely affect our business, financial condition and results of operations.

We currently rely on sales of our POGO Automatic to generate nearly all our revenue.

Our core product is POGO Automatic, from which we expect to continue to derive nearly all our revenue. Accordingly, our ability to continue to generate revenue is highly reliant on our ability to market and sell POGO Automatic and to retain consumers who currently use the product. To date, we have derived insignificant revenue from our limited commercial launch of the POGO Automatic Monitor, or the Monitor, and the POGO Automatic Cartridges, or the Cartridges, in a few targeted markets, comprised primarily of DTC, sales through our online POGO Store. We recently launched our HCP-Rx sales channel in 20 territories in August 2021, and our POGO Automatic Monitor and 10-test Cartridges became available upon request at Walgreens through our distribution agreement with AmerisourceBergen. We currently expect POGO Automatic Monitor and 10-test Cartridges to become available upon request at CVS during the fourth quarter 2021 through our distribution agreement with Cardinal Health, subject to the completion and timing, and our compliance with the requirements, of their new supplier and item setup protocols. We cannot control the completion or timing of our distribution partners’ protocols or other internal processes or procedures We have not yet established that our multi-channel commercial model will be successful nor that we can execute the transition from a limited DTC model to an expanded commercial launch. Failure to execute on our expanded commercial launch or an inability to establish our multi-channel commercial model will have a significant adverse effect on our business and ability to operate. Furthermore, future sales of POGO Automatic may be negatively impacted by many factors, including:

 

   

the failure of POGO Automatic to achieve and maintain wide acceptance among key opinion leaders, or KOLs, in the diabetes treatment community, prescribing HCPs, third-party payors and people with diabetes;

 

   

manufacturing problems or capacity constraints;

 

   

actual or perceived quality problems;

 

   

reductions in reimbursement rates or coverage policies relating to POGO Automatic by third-party payors;

 

   

claims that any portion of POGO Automatic or the Patterns app infringes on intellectual property rights of others;

 

   

adverse regulatory or legal actions relating to POGO Automatic or the Patterns app;

 

   

damage, destruction or loss of any of the facilities where our products or components of our products are manufactured or stored or of the equipment therein or failure to successfully open or expand new facilities;

 

   

reductions or cessations in payment by insurers;

 

   

attrition rates of consumers who cease using POGO Automatic or the Patterns app;

 

   

competitive pricing;

 

   

results of clinical studies relating to POGO Automatic or the Patterns app, or our competitors’ products; and

 

   

macroeconomic factors, including inflation and rising prices.

 

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If any of these events occurs, our ability to generate revenue could be significantly reduced, which would adversely affect our business, financial condition and results of operations.

Demand for POGO Automatic may not increase as rapidly as we anticipate due to a variety of factors, including competitive pressures.

We expect that revenue from sales of the Cartridges, and to a lesser extent the Monitors, will continue to account for substantially all of our revenue for the foreseeable future. Continued and widespread market acceptance of BGM products by consumers is critical to our future success. Consumer spending habits are affected by, among other things, prevailing economic conditions, levels of employment, inflation, salaries and wage rates, consumer confidence and consumer perception of economic conditions, which have been adversely affected by the COVID-19 pandemic and may continue to be materially adversely affected by the COVID-19 pandemic. If there is a reduction in consumer demand for BGM and/or CGM products generally, if consumers choose to use a competitive product instead of POGO Automatic, or if the average selling price of POGO Automatic and/or our refill Cartridges declines as a result of economic conditions, competitive pressures or any other reason, these factors could have a material adverse effect on our business, financial condition and results of operations. If we are not successful in adapting our production and cost structure to the market environment, we may experience further adverse effects that may be material to our business, financial condition and results of operations.

If we are unable to successfully develop and effectively manage the introduction of new products or inventory, our business may be adversely affected.

We must successfully manage introductions of new or advanced BGM products and associated management services. Introductions of new or advanced BGM products could also adversely impact the sales of POGO Automatic or other existing products to consumers. For instance, the introduction or announcement of new or advanced BGM or CGM products may shorten the life cycle of our existing products or reduce demand, thereby reducing any benefits of successful new product introductions and potentially lead to challenges in managing write-downs or write-offs of inventory of existing products. In addition, any new BGM products may have higher manufacturing costs than legacy products, which could negatively impact our gross margins and operating results. Accordingly, if we fail to effectively manage introductions of new or advanced products, our business may be adversely affected.

We may experience challenges managing the inventory of Monitors and Cartridges, which can lead to excess inventory and discounting of our products, or alternatively insufficient inventory levels. Inventory levels in excess of consumer demand may result in inventory write-downs or write-offs, product expiration and the sale of inventory at discounted prices, which would affect our gross margin and could impair the strength of our brand. Reserves and write-downs for rebates, promotions and excess inventory will be recorded based on our forecast of future demand. Actual future demand could be less than our forecast, which may result in additional reserves and write-downs in the future, or actual demand could be stronger than our forecast, which may result in a reduction to previously recorded reserves and write-downs in the future and increase the volatility of our operating results.

If we cannot innovate at the pace of our BGM and CGM competitors, we may not be able to develop or exploit new technologies in time to remain competitive.

A number of companies, medical researchers and pharmaceutical companies are pursuing new delivery devices, delivery technologies, sensing technologies (including non-invasive technologies), procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention of diabetes. For example, “closed-loop” or “hybrid closed-loop” systems that combine CGM and automatic subcutaneous insulin infusion in a manner that delivers appropriate amounts of insulin on a timely

 

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basis with reduced user direction could have a material adverse effect on our revenue and future profitability. In addition, the National Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent, cure or improve the treatment of diabetes. For us to remain competitive, it is essential to develop and bring to market new technologies or to find new applications for existing technologies at an increasing speed. If we are unable to meet customer demands for new technology, or if the technologies we introduce are viewed less favorably than our competitors’ products, our results of operations and future prospects may be negatively affected. To meet our customers’ needs in these areas, we must continuously design new products, update existing products and invest in and develop new technologies. Our operating results depend to a significant extent on our ability to anticipate and adapt to technological changes in the BGM market, maintain innovation, maintain a strong product pipeline and reduce the costs of producing high-quality new and existing BGM products. Any inability to do so could have a material adverse effect on our business, financial condition and results of operations.

We may not receive, or may be delayed in receiving, the necessary clearances, approvals or certifications for our future products or modifications to our current products, and failure to timely obtain necessary clearances, approvals or certifications for our future products or modifications to our current products would adversely affect our ability to grow our business.

Our POGO Automatic medical devices are subject to extensive regulation in the United States, including by the FDA and state agencies. The FDA regulates, among other things, the design, development, research, manufacture, testing, labeling, marketing, promotion, advertising, sale, import and export of devices, such as those we market. To the extent we intend to market and sell our product in the European Union, or EU, our product will also be subject to extensive regulation by EU institutions as well as EU member states’ regulatory authorities and notified bodies. Applicable medical device regulations are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry out or expand our operations.

The FDA classifies medical devices into one of three classes (Class I, II or III) based on the degree of risk associated with a device and the level of regulatory control deemed necessary to ensure its safety and effectiveness. Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical devices, which include compliance with the FDA’s good manufacturing practices for devices, as reflected in the Quality System Regulation, or QSR, establishment registration and device listing, reporting of adverse events and truthful, non-misleading labeling, advertising and promotional materials. Some Class I devices also require premarket clearance by the FDA through the premarket notification process set forth in Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or the FDCA.

The FDA has classified blood glucose monitors as Class II.

In the United States, before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the FDCA, or approval of a premarket approval application, or PMA, from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a 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 an approved 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. Clinical data are sometimes required to support substantial equivalence. In the process of obtaining PMA approval, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including,

 

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but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices.

Modifications to products that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to products cleared through a 510(k) may require a new 510(k) clearance. Both the PMA approval and the 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. 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 clearances or approvals could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device. Similar requirements may apply in foreign jurisdictions in which we intend to market our product or any future products.

We have obtained clearance through the 510(k) clearance process to commercialize POGO Automatic in the United States. Our Patterns app is subject to the FDA’s enforcement discretion, which means that the FDA does not enforce its requirements applicable to medical devices. Any modification to a 510(k)-cleared product that has not been previously cleared may require us to conduct a new clinical trial, submit a new 510(k) premarket notification and obtain clearance, or submit a PMA and obtain FDA approval prior to implementing the change. Specifically, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary, or whether our Patterns app is subject to enforcement discretion. We have made modifications to 510(k)-cleared products in the past and have determined based on our review of the applicable FDA regulations and guidance that in certain instances new 510(k) clearances or PMA approvals were not required. We may make modifications or add additional features in the future that we believe do not require a new 510(k) clearance or approval of a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications for modifications to our previously cleared products for which we have concluded that new clearances or approvals were unnecessary, or for our Patterns app, we may be required to cease marketing or to recall the associated product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products 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 or other applicable foreign regulatory body or notified body can delay, limit or deny clearance, approval or certification of a device for many reasons, including:

 

   

our inability to demonstrate to the satisfaction of the FDA, the applicable foreign regulatory body or notified body that our products are safe or effective for their intended uses;

 

   

the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials or the interpretation of data from preclinical studies or clinical trials;

 

   

serious and unexpected adverse device effects experienced by participants in our clinical trials;

 

   

the data from our preclinical studies and clinical trials may be insufficient to support clearance, approval or certification, where required;

 

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our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;

 

   

the manufacturing process or facilities we use may not meet applicable requirements; and

 

   

the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance, approval or certification.

The clinical trial process is lengthy and expensive with uncertain outcomes. Results of earlier studies may not be predictive of future clinical trial results, or the safety or efficacy profile for such products.

Clinical testing is difficult to design and implement, can take many years, can be expensive and carries uncertain outcomes. The long-term effects of using our products in a large number of patients have not been studied and the results of short-term clinical use of such products do not necessarily predict long-term clinical benefits or reveal long-term adverse effects.

The results of preclinical studies and clinical trials of our products conducted to date and ongoing or future studies and trials of our current, planned or future products may not be predictive of the results of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Regulatory authorities may disagree with our interpretation of data and results from our clinical trials, and favorable results do not ensure that we will achieve similar results in future clinical trials. Preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate results in later clinical trials. Failure can occur at any stage of clinical testing. Our clinical studies may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and nonclinical testing in addition to those we have planned. In addition, it is possible that FDA will impose, as a condition of marketing authorization for future products, requirements that we conduct post-market surveillance studies or clinical studies as a condition of clearance or approval, which may reduce or delay our ability to obtain profitability with such products.

The initiation and completion of any clinical studies may be prevented, delayed or halted for numerous reasons. We may experience delays in our ongoing clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following:

 

   

we may be required to submit an investigational device exemption application, or IDE, to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject our IDE and notify us that we may not begin clinical trials;

 

   

regulators may disagree as to the design or implementation of our clinical trials;

 

   

regulators and/or institutional review boards, or IRBs, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site;

 

   

we may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

   

the number of subjects required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical

 

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trials being conducted at any given time may be high and result in fewer available subjects for any given clinical trial, or subjects may drop out of these clinical trials at a higher rate than we anticipate;

 

   

our third-party contractors, including those manufacturing products or conducting clinical trials or preclinical studies on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

   

we might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;

 

   

we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB and/or regulatory authorities for re-examination;

 

   

regulators, IRBs or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements;

 

   

the cost of clinical trials may be greater than we anticipate;

 

   

clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial;

 

   

we may be unable to recruit a sufficient number of clinical trial sites or study participants;

 

   

regulators, IRBs or other reviewing bodies may find fault with our manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;

 

   

approval policies or regulations of FDA or applicable foreign regulatory agencies may change in a manner rendering our clinical data insufficient for approval; and

 

   

our current or future products may have undesirable side effects or other unexpected characteristics.

Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Patient enrollment in clinical trials and completion of patient follow up depend on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, patient compliance, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any new treatments that may be approved for the indications we are investigating. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post treatment procedures or follow up to assess the safety and efficacy of a product candidate, or they may be persuaded to participate in contemporaneous clinical trials of a competitor’s product candidate. In addition, patients participating in our clinical trials may drop out before completion of the trial or experience adverse medical events unrelated to our products. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may delay commencement or completion of the clinical trial, cause an increase in the costs of the clinical trial and delays, or result in the failure of the clinical trial.

Clinical trials must be conducted in accordance with the laws and regulations of the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to

 

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oversight by these governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our devices produced under applicable current good manufacturing practice, or cGMP, requirements and other regulations. Furthermore, we rely on CROs, investigators and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with good clinical practice, or GCP, requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both. Investigators may also be subject to disqualification, which may impact their ability to participate in clinical studies. In addition, clinical trials that are conducted in countries outside the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.

Even if our future products are cleared or approved in the United States, commercialization of our products in foreign countries would require clearance or approval by regulatory authorities in those countries. Clearance or approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. Any of these occurrences could have an adverse effect on our business, financial condition and results of operations.

The safety and efficacy of some of our products is not yet supported by long-term clinical data, which could limit sales, and our products might therefore prove to be less safe or effective than initially thought.

The products that we market in the United States are regulated as medical devices by the FDA and have received premarket clearance under Section 510(k) of the FDCA or are otherwise subject to enforcement discretion and do not require affirmative marketing authorization from the FDA. In the 510(k) clearance process, before a device may be marketed the FDA must determine that a 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 (preamendments device), a device that was originally on the U.S. market pursuant to an approved PMA application and later down-classified, or a 510(k)-exempt device. The 510(k) process is typically shorter and generally requires the submission of less supporting documentation than the FDA’s PMA process and does not always require long-term clinical studies.

Given the foregoing regulatory environment in which we operate, we lack the breadth of published long-term clinical data supporting the safety and efficacy of POGO Automatic and the benefits it offers that might have been generated in connection with other marketing authorization pathways. For these reasons, clinicians may be slow to adopt our products, we may not have comparative data that our competitors have or are generating, and we may be subject to greater regulatory and product liability risks. Further, future patient studies or clinical experience may indicate that treatment with our product does not improve patient outcomes. Such results would slow the adoption of our product by physicians, would significantly reduce our ability to achieve expected sales and could prevent us from achieving and maintaining profitability.

In addition, because POGO Automatic and Patterns have only been on the market since 2020, we have limited complaints or patient success rate data with respect to using these products. If future patient studies or clinical testing do not support our belief that our products offer a more advantageous

 

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blood glucose monitoring, market acceptance of our products could fail to increase or could decrease, and our business could be harmed. Moreover, if future results and experience indicate that our product has potentially recurring malfunctions or causes unexpected or serious complications or other unforeseen negative effects, we could be subject to mandatory or voluntary product recalls, suspension or withdrawal of FDA clearance, significant legal liability or harm to our business reputation and financial results.

If we choose to, or are required to, conduct additional clinical studies and the outcome of such studies are not positive, this could reduce the rate of coverage and reimbursement by both public and private third-party payors for POGO Automatic. This may slow the market adoption of our product by physicians, significantly reduce our ability to achieve expected revenues and prevent us from becoming profitable.

Failure to comply with post-marketing regulatory requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product from the market.

Even though we have obtained FDA clearance for POGO Automatic, we are subject to ongoing and pervasive regulatory requirements governing, among other things, the manufacture, marketing, advertising, medical device reporting, sale, promotion, import, export, registration and listing of devices. For example, we must submit periodic reports to the FDA as a condition of 510(k) clearance. These reports include information about failures and certain adverse events associated with the device after its clearance. Failure to submit such reports, or failure to submit the reports in a timely manner, could result in enforcement action by the FDA. Following its review of the periodic reports, the FDA might ask for additional information or initiate further investigation.

The regulations to which we are subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. Even after we have obtained the proper regulatory clearance to market a device, we have ongoing responsibilities under FDA regulations and applicable foreign laws and regulations. The FDA and state and foreign regulatory authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, state or foreign regulatory authorities, which may include any of the following sanctions:

 

   

untitled letters or warning letters;

 

   

fines, injunctions, consent decrees and civil penalties;

 

   

recalls, termination of distribution, administrative detention or seizure of our products;

 

   

customer notifications or repair, replacement or refunds;

 

   

operating restrictions or partial suspension or total shutdown of production;

 

   

delays in or refusal to grant our requests for future clearances or approvals or foreign marketing authorizations of new products, new intended uses or modifications to existing products;

 

   

withdrawals or suspensions of our current 510(k) clearances, resulting in prohibitions on sales of our products;

 

   

FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; and

 

   

criminal prosecution.

 

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Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition and results of operations.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, the FDA may change its clearance policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay clearance or approval of our future products under development or impact our ability to modify our currently cleared products on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new clearances or approvals, increase the costs of compliance or restrict our ability to maintain our clearances of our current products. For example, over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intended to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it plans to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA solicited public feedback on these proposals. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances, or otherwise create competition that may negatively affect our business.

More recently, in September 2019, the FDA finalized guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA has developed and maintains a list of device types appropriate for the “safety and performance based” pathway and will continue to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended in the guidance documents, where feasible. The FDA may establish performance criteria for classes of devices for which we or our competitors seek or currently have received clearance, and it is unclear the extent to which such performance standards, if established, could impact our ability to obtain new 510(k) clearances or otherwise create competition that may negatively affect our business.

In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. For example, FDA requirements related to digital health have evolved over time as the FDA has gained additional experience with these products and responded to changes in legislation. In 2016, the 21st Century Cures Act amended the FDCA and removed certain software functions from the definition of “device.” As a result, the FDA modified its approach to regulating these products. The FDA has also initiated a pilot project to evaluate and advance a potential “pre-certification” pathway for certain software functions. The FDA’s approach to digital health continues to evolve, and it is expected that the FDA will continue to issue new guidance in this area. Any new statutes, regulations or revisions or reinterpretations of existing regulations, including those in the digital health area, may impose additional costs or lengthen review times of any

 

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future products or make it more difficult to obtain clearance or approval for, manufacture, market or distribute our products. We cannot determine what effect changes in regulations, statutes, legal or regulatory interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: additional testing prior to obtaining clearance or approval; changes to manufacturing methods; compliance with additional requirements; recall, replacement or discontinuance of our products; or additional record keeping.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing clearances that we may have obtained and we may not achieve or sustain profitability.

Our products must be manufactured in accordance with federal and state regulations, and we could be forced to recall our devices or terminate production if we fail to comply with these regulations.

The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s QSR, which is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors. In some cases, FDA also recognizes audit results from certain third-party auditing organizations. Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing.

We or our third-party manufacturers may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things: warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals; seizures or recalls of our products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products; clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us, our suppliers or our employees.

Any of these actions could significantly and negatively affect supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and experience reduced sales and increased costs.

The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability or malpractice suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

Our currently marketed products have been cleared by the FDA for specific indications. For example, our POGO Automatic has been cleared for the quantitative measurement of glucose (sugar) in fresh capillary whole blood samples drawn from the fingertips in adults and adolescents (ages 13

 

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and up), and is intended to be used by a single person at home as an aid to monitor the effectiveness of diabetes control, and it is not to be shared nor used for the diagnosis of or screening of diabetes or for neonatal use. We train our marketing personnel and direct sales force to not promote our devices for uses outside of the FDA cleared indications for use, known as “off-label uses.” We cannot, however, prevent the use of our devices off-label. There may be increased risk of injury to patients if they attempt to, or their physicians recommend they, use our devices off-label. Furthermore, the use of our devices for indications other than those cleared by the FDA or any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients.

If the FDA determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

In addition, patients may misuse our products or use improper techniques, potentially leading to injury and an increased risk of product liability. If our devices are misused or used with improper technique, we may become subject to costly litigation. Product liability and malpractice claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, authorized or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA, foreign regulatory authorities and notified bodies to review and issue marketing authorizations or certifications to new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies and bodies may also slow the time necessary for new devices or modifications to existing devices to be reviewed and/or authorized or certified by necessary government agencies or notified bodies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. On July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given

 

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geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Additionally, on April 15, 2021, the FDA issued a guidance document in which the FDA described its plans to conduct voluntary remote interactive evaluations of certain drug manufacturing facilities and clinical research sites. According to the guidance, the FDA intends to request such remote interactive evaluations in situations where an in-person inspection would not be prioritized, deemed mission-critical, or where direct inspection is otherwise limited by travel restrictions, but where the FDA determines that remote evaluation would still be appropriate. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

For instance, in the EU, notified bodies must be officially designated to certify products and services in accordance with Regulation (EU) 2017/746 of the European Parliament and of the Council on in vitro diagnostic medical devices and repealing Directive 98/79/EC and Commission Decision 2010/227/EU, or the IVDR. Only a few notified bodies have been designated so far, and the COVID-19 pandemic has significantly slowed down their designation process. Without IVDR designation, notified bodies may not yet start certifying devices in accordance with the new Regulation. Because only a few notified bodies have been IVDR-designated, they are facing a heavy workload and their review times have lengthened. This situation could impact the way we intend to grow business in the EU.

Our business, financial condition, results of operations and growth may be impacted by the effects of the COVID-19 pandemic.

We are subject to risks related to public health crises such as the COVID-19 pandemic. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a national emergency with respect to the COVID-19 pandemic. The COVID-19 pandemic has negatively impacted our operations by disrupting our manufacturing processes and the operations of manufacturers, suppliers and other third parties with which we do business and may continue to negatively impact our revenues and overall financial condition by harming the ability or willingness of customers to pay for our products due to macro-economic conditions resulting from the pandemic. These challenges will likely continue for the duration of the pandemic, which is uncertain, and the macro-economic effects of the pandemic will likely continue far beyond the duration of the pandemic.

Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Starting in mid-March 2020, the governor of California, where our headquarters are located, issued “shelter-in-place” or “stay at home” orders restricting non-essential activities, travel and business operations, which orders and restrictions have varied over time and by county depending on the prevalence of COVID-19. Because we have been able to operate under exceptions for necessary activities, our headquarters have generally remained open, but at times such orders or restrictions and positive COVID-19 test results of our employees have resulted in manufacturing stoppages and slowdowns, delays in obtaining manufacturing equipment, travel restrictions and HCP office closures, among other events that have negatively impacted our operations and those of HCPs and our third-party suppliers. For example, during 2020, we experienced significant delays in the installation of our manufacturing equipment and additional expense due to restrictions that limited the ability of one of our automation suppliers to travel from outside of the United States to assist with the installation of manufacturing equipment at our Fremont, California facility. In-person access to HCPs by our sales team and patients has been limited due to HCP office closures during the COVID-19 pandemic. Additionally, we have not been able to travel to

 

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our monitor contract manufacturer site in Mexico, to our product component suppliers’ facilities, or to our automation suppliers’ facilities due to COVID-19. Other potential disruptions may include delays in processing registrations or approvals by applicable state or federal regulatory bodies; delays in product, research and clinical development efforts; global supply chain disruptions; and additional government requirements or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of POGO Automatic and the Patterns app. In addition, even as “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19 are lifted, we may continue to experience disruptions to our business.

We are also dependent upon our third-party suppliers for many of our product components, and the COVID-19 pandemic has impacted the operations of our suppliers, which has at times prevented them from delivering products to us and supporting our requirements on a timely basis. For example, the COVID-19 pandemic has resulted in ongoing worldwide supply chain disruptions in numerous circuit board components used in the manufacture of our Monitors. The lead times for some of these key components have been significantly extended, resulting in the payment of higher prices to secure supplies from alternate providers and, in some cases, redesign and revalidation of our products in order to use these alternate components, which requires additional testing to ensure that the alternate component is an acceptable substitute. We expect that these supply chain constraints will continue and could be exacerbated by the prolonged impact of COVID-19. In addition, a proprietary resin used in the manufacture of key components of our Cartridges has been subject to a U.S. government allocation program since October 2020 because this resin is used in the manufacture of COVID-19 related medical supplies, and continuation of this allocation program may limit the ability of our third-party manufacturer to produce Cartridge components in the quantities we require to meet product demand. See also the risk factor below titled “Our suppliers are subject to orders from federal or state governments, including pursuant to the Defense Production Act of 1950, for components of our products, which could adversely affect our business, financial condition and results of operations.” If we continue to experience these or similar supply challenges in the future, it could have a negative impact on product sales and harm our reputation.

While the potential economic impact brought by and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity, including our ability to repay our existing indebtedness. In addition, a recession or market correction could materially affect our business and the value of our common stock. The COVID-19 pandemic has also resulted in significant unemployment in the United States which may continue even after the pandemic subsides. These events may continue to lead to reduced disposable income and access to health insurance which could adversely affect the number of our products sold after the pandemic has subsided.

Our suppliers are subject to orders from federal or state governments, including pursuant to the Defense Production Act of 1950, for components of our products, which could adversely affect our business, financial condition and results of operations.

The Defense Production Act of 1950, as amended, or the DPA, is a federal statute that confers upon the President of the United States a broad set of authorities to influence domestic industry in the interest of national defense. “National defense” can include emergency and disaster response, and since the start of the current COVID-19 crisis, this authority has been used multiple times to address the public health crisis. Through the DPA, the executive branch has struck agreements with multiple companies to accelerate COVID-19 countermeasures, like N95 protective masks, testing swabs and vaccine development, and corresponding components, ingredients and supplies to support the response to the public health crisis. For example, a proprietary resin used in the manufacture of key

 

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components of our Cartridges has been subject to a U.S. government allocation program since October 2020 because this resin is used in the manufacture of COVID-19 related medical supplies. If the government continues to apply the DPA, or any other law or program, to acquire this resin or additional components of our products, our suppliers may continue to be required to prioritize distribution to certain government agencies or other recipients or allocate inventory, supplies or facilities for government or government-directed use. Our suppliers’ compliance with the DPA could potentially cause business disruption, interfere with our commercial sales and marketing efforts, and depending on the demand, could even prevent or delay our ability to sell our products commercially, or may have other implications that significantly affect our commercialization and development efforts and general ability to conduct our business operations as planned. In addition, the government’s requirements may adversely affect our regular operations and financial results, result in differential treatment of consumers and/or adversely affects our reputation and healthcare professional and patient relationships.

We currently rely on a single manufacturer for the assembly of POGO Automatic Monitors and multiple other third-party suppliers for our Cartridge manufacturing automation line, which suppliers own their respective automation line design drawings. If we encounter manufacturing problems or delays, we may be unable to promptly transition to an alternative manufacturer or third-party suppliers and our ability to generate revenue will be limited.

We currently rely on a single manufacturer located in Mexico, ECMMS Precision Singapore Pte. Ltd., or Foxconn, for the manufacturing of all of our Monitors and multiple other third-party suppliers for various parts of our manufacturing automation line. Our Cartridges are manufactured at our U.S. manufacturing facility located at our headquarters in Fremont, California. For us to be successful, our contract manufacturer and other suppliers must be able to provide us with products and components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. While our existing manufacturer and suppliers have generally met our demand requirements on a timely basis in the past, their ability and willingness to continue to do so going forward may be limited for several reasons, including our relative importance as a customer of the manufacturer or their ability to provide assembly services to manufacture our products, which may be affected by the COVID-19 pandemic. We have experienced delays in production of parts of our manufacturing automation line at times due to COVID-19 among other reasons. An interruption in our commercial operations could occur if we encounter delays or difficulties in securing these manufactured products and automation line components if we cannot obtain acceptable substitutes.

The third-party suppliers who provide components of our automation line own the associated design drawings. Any transition to a new contract manufacturer or supplier, or any transition of products or automation line components among existing manufacturers and suppliers, could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our products, would require additional time to develop new automation line designs, and/or could require that we modify the design of our products. If we are required to change our contract manufacturers or suppliers, we will be required to verify that the new manufacturer or supplier maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability to manufacture our products in a timely manner. We cannot assure you that we will be able to identify and engage alternative contract manufacturers or suppliers on similar terms or without delay. Furthermore, our contract manufacturers and suppliers could require us to move to a different contract manufacturer or supplier. For example, Foxconn may terminate the agreement if we materially breach the agreement and fail to cure such breach within certain period of time, are declared bankrupt or are subject to voluntary or involuntary bankruptcy procedures, are acquired by one of Foxconn’s direct competitors or are unable to remedy delays caused by force majeure conditions within a certain period of time. The

 

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occurrence of any of these events could harm our ability to meet the demand for our products in a timely and cost-effective manner, which could have a material adverse effect on our business, financial condition and results of operations.

The manufacture of our products is complex and requires the integration of a number of components from several sources of supply. We and our contract manufacturer must manufacture and assemble these complex products in commercial quantities in compliance with regulatory requirements and at an acceptable cost. We have also experienced manufacturing issues from time to time resulting in the production of Monitors, Cartridges and component parts that do not comply with our product specifications or quality requirements and therefore must be discarded or remade. Our Monitors and Cartridges require significant expertise to manufacture, and we and our contract manufacturer may encounter difficulties in scaling up production of the Monitors and Cartridges, including problems with qualification and validation, quality control and assurance, component supply shortages, increased costs, shortages of qualified personnel, the long lead time required to develop additional facilities for purposes of manufacturing and testing our products and/or difficulties associated with compliance with local, state, federal and foreign regulatory requirements. There can be no assurance that manufacturing or quality control problems will not arise in connection with the scale-up of the manufacture of our products. If we are unable to obtain a sufficient supply of product, maintain control over product quality and cost or otherwise adapt to anticipated growth, or if we underestimate growth, we may not have the capability to satisfy market demand, and our business and reputation in the marketplace will suffer. Conversely, if demand for our products decreases, we may have excess inventory and inventory that may expire, which could result in inventory write-offs that would have a material adverse effect on our business, financial condition and results of operations. We may also encounter defects in materials and/or workmanship, which could lead to a failure to adhere to regulatory requirements. Any defects could delay operations at our contract manufacturers’ facilities, lead to regulatory fines or halt or discontinue manufacturing indefinitely. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.

We rely on the timely supply of components and parts and could suffer if suppliers fail to meet their delivery obligations, raise prices or cease to supply us with components or parts.

We rely on numerous critical suppliers for most of the key components that are used in the manufacturing of our products. This reliance on third parties adds additional risks to the manufacturing process that are beyond our control. For example, the occurrence of epidemics or pandemics, such as the COVID-19 pandemic, may cause one or more of our suppliers to close or reduce the scope of their operations either temporarily or permanently. In addition, many of these suppliers also provide components and products to our competitors. The medical device industry’s reliance on a limited number of key components and product suppliers subjects us to the risk that in the event of an increase in demand, our suppliers may fail to provide supplies to us in a timely manner while they continue to supply our competitors, many of which have greater purchasing power than us, or seek to supply components to us at a higher cost. The failure of our suppliers to deliver components or products in a timely fashion could have disruptive effects on our ability to produce our products in a timely manner, or we may be required to find new suppliers at an increased cost. Furthermore, we do not have long-term commitment contracts with most of our suppliers, but rather enter into purchase orders. While we have entered into a supply agreement with Foxconn, the third-party manufacturer of our Monitors, we must place individual purchase orders under the agreement, and the initial term of the agreement expires in January 2023, subject to Foxconn’s ability to terminate the agreement earlier if we materially breach the agreement or for other reasons. We can make no assurance that we will be able to maintain such supply arrangements. If we are unable to maintain supply arrangements, our access to key components could be reduced, which could harm our business. Additionally, our reputation and the quality of our products are in part dependent on the quality of the components that we source from third-party suppliers. If we are unable to control the quality of the components supplied

 

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to us or to address known quality problems in a timely manner, our reputation in the market may be damaged and sales of our products may suffer. As a result, we may experience a material adverse effect on our business, financial condition and results of operations.

Many components needed to manufacture our Monitors and Cartridges are only available from a limited number of suppliers.

Because many of our components are highly customized, there is a risk that these components may not be readily substituted by similar products of other suppliers or that any substitution may take a lengthy period of time to implement. Even if we do identify new suppliers, we may experience increased costs and product shortages as we transition to alternative suppliers. If any of these limited suppliers cease to supply us with their products, or any of the foregoing events occurs, we could experience a material adverse effect on our business, financial condition and results of operations.

If the quality of our POGO Automatic and Patterns app does not meet consumer expectations, or if our products wear out more quickly than expected, then our brand and reputation or our business and regulatory clearances could be adversely affected.

Our products may not perform as well in day-to-day use as we or our customers expect. POGO Automatic is designed to work in combination with the Patterns app to provide comprehensive diabetes management services, and it may not meet consumer expectations or perform as expected in the event of disruptions in internet access or other information technology system disruptions. In addition, consumers may experience difficulties in using POGO Automatic and the Patterns app, whether as a result of user error or product performance issues.

Certain components of our Monitors may offer reduced performance over time. For example, although we designed the Monitor to last for up to three years with refill Cartridge purchases, some of the technology used in our Monitors has a limited lifespan, and it is possible that our products may wear out sooner than expected and that reliability and accuracy performance may degrade over time. If the performance, quality, longevity and durability of our products does not meet the expectations of customers, then our brand and reputation and our business, financial condition and results of operations and regulatory clearances could be adversely affected.

Our ability to grow our revenue will depend in part on our ability to attract and retain a high percentage of customers.

A key to driving our revenue growth is dependent on our ability to attract customers and retain a high percentage of those customers. Current uncertainty in global economic conditions, competition, higher levels of unemployment, changes in insurance reimbursement levels and negative financial news may negatively affect product demand. If demand for our products fluctuates as a result of economic conditions or otherwise, our ability to attract and retain customers could be harmed. While we have developed retention programs aimed at both healthcare professionals and consumers, including a sales force focused on developing physician relationships, our customer support system and the Patterns app, we cannot assure you that these programs will be effective drivers of customer retention. The failure to attract customers and retain a high percentage of those customers could negatively impact our revenue growth and may have a material adverse effect on our business, financial condition and results of operations.

Customer or third-party complaints or negative reviews or publicity about our company or POGO Automatic could harm our reputation and brand.

We expect to rely on customers who use POGO Automatic to provide good reviews and word-of-mouth recommendations to contribute to our future growth. Customers who are dissatisfied

 

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with their experiences with our products or services may post negative reviews. We may also be the subject of blog, forum or other media postings that include inaccurate statements and create negative publicity. In addition, traditional BGM supply chain participants may express and publish negative views regarding our online POGO Store and products. Any negative reviews or publicity, whether real or perceived, disseminated by word-of-mouth, by the general media, by electronic or social networking means or by other methods, could harm our reputation and brand and could severely diminish consumer confidence in our products.

If we do not effectively manage our future growth, our business resources may become strained and we may not be able to deliver POGO Automatic in a timely manner, which could harm our results of operations.

As we continue to expand our sales program, we expect to continue to increase our manufacturing capacity, our personnel and the scope of our sales and marketing efforts. This growth, as well as any other growth that we may experience in the future, will provide challenges to our organization and may strain our management and operations resources. In order to manage future growth, we will be required to improve existing, and implement new, sales and marketing efforts and distribution channels. The form and function of our enterprise information technology systems will need to change and be improved upon as our business needs change. We will need to manage our supply chain effectively, including the continued development of our manufacturing and our relationships with our contract manufacturers and other suppliers. We may also need to partner with additional third-party suppliers to manufacture certain components of our Monitors and Cartridges and install additional manufacturing lines. A transition to new suppliers may result in additional costs or delays. We may misjudge the amount of time or resources that will be required to effectively manage any anticipated or unanticipated growth in our business or we may not be able to manufacture sufficient inventory, or attract, hire and retain sufficient personnel to meet our needs. If we cannot scale our business appropriately, maintain control over expenses or otherwise adapt to anticipated and unanticipated growth, our business resources may become strained, we may not be able to deliver our Monitors and Cartridges in a timely manner and our results of operations may be adversely affected.

The size and expected growth of our addressable market has not been established with precision, and may be smaller than we estimate.

Our estimates of the addressable market for our current products and future products are based on a number of internal and third-party estimates and assumptions, including the prevalence of diabetes across income levels and demographic profiles. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct. In addition, the statements in this prospectus relating to, among other things, the expected growth in the market for BGM products, are based on a number of internal and third-party estimates and assumptions and may prove to be inaccurate. For example, although we expect that the prevalence of diabetes will increase in the general population, demographic trends could shift and the prevalence of diabetes could decrease. Furthermore, even if the prevalence of diabetes increases as we expect, technological or medical advances could provide alternatives to address diabetes and reduce demand for automatic blood glucose monitoring, or ABGM, such as POGO Automatic. As a result, our estimates of the addressable market for our current or future products may prove to be incorrect.

Another key element of our business strategy is utilizing market research to understand what people with diabetes are seeking to improve in their diabetes management. This strategy underlies our entire product design, marketing and customer support approach and is the basis on which we developed our current products and are pursuing the development of new products. However, our market research is based on interviews, focus groups and online surveys involving people with diabetes, their caregivers and healthcare providers, which represent only a small percentage of the

 

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overall diabetes market. As a result, the responses we receive may not be reflective of the broader market and may not provide us accurate insight into the desires of people with diabetes. In addition, understanding the meaning and significance of such market research responses necessarily requires that analysis be conducted and conclusions be drawn. We may not be able to perform an analysis that yields meaningful results, or the conclusions we draw from the analysis could be misleading or incorrect. Moreover, even if our market research has allowed us to better understand the features and functionality consumers are seeking in a glucose monitor to improve management of their diabetes, there can be no assurance that consumers will actually purchase our products or that our competitors will not develop products with similar features.

If the actual number of consumers who would benefit from our products, the price at which we can sell future products or the addressable market for our products is smaller than we estimate, it could have a material adverse effect on our business, financial condition and results of operations.

Our ability to achieve profitability will depend, in part, on our ability to reduce the per-unit cost of our products while also increasing production volume.

We believe our ability to reduce the per-unit cost of our Monitors and Cartridges will have a significant impact on our ability to achieve profitability. Our cost of revenue includes raw materials, labor costs, manufacturing expenses, write downs for anticipated scrap and inventory obsolescence as well as amounts paid for our products to the contract manufacturing organization, or CMO, and costs associated with our Patterns app. It also includes direct manufacturing labor costs and allocated overhead expenses. Overhead expenses subject to allocation include quality assurance, engineering, material procurement, chemistry, inventory control, facilities, equipment and operations supervision and management. Future versions of our Monitors and Cartridges may not incur warranty costs in a manner similar to previously released Monitors and Cartridges.

In response to the COVID-19 pandemic, we have taken steps to prioritize the health and safety of our employees. For example, we have implemented preventative safety measures for our employees involved in manufacturing operations as well as for any field-based employees. For employees in other functions, we have adopted measures designed to help employees remain effective in a work-from-home environment. Each of these measures has resulted in unanticipated expenses that will negatively impact our gross margin and may adversely impact our ability to achieve profitability. We may also incur additional incremental expenses to help us support our ongoing operations throughout the duration of the COVID-19 pandemic.

If we are unable to increase our production volumes while sustaining or reducing our overall cost of manufacturing and sales, it will be difficult to reduce our per-unit costs and our ability to achieve profitability will be constrained.

In addition, the per-unit cost of the Monitors and Cartridges are significantly impacted by our overall production volumes, and any factors that prevent our products from achieving market acceptance, cause our production volumes to decline, alter our product mix, result in our sales growing at a slower rate than we expect, or result in the closure of our manufacturing facilities, would significantly impact our expected per unit costs, which would adversely impact our gross margins. Further, we may not achieve anticipated improvements in manufacturing efficiency as we undertake actions to expand our manufacturing capacity. If we are unable to effectively manage our overall costs while increasing our production volumes and lowering our per-unit costs, we may not be able to achieve or sustain profitability, which would have an adverse impact on our business, financial condition and operating results.

 

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Failure to secure or retain adequate coverage or reimbursement for our products by third-party payors could adversely affect our business, financial condition and results of operations.

Our products are primarily purchased on a cash-pay basis, and we are currently in the process of establishing coverage and reimbursement for POGO Automatic with certain commercial third-party payors. While we anticipate entering into contracts with third-party payors, we cannot assure you that our efforts will be successful. Coverage decisions and rates of reimbursement increasingly require clinical evidence showing an improvement in user outcomes. Generating this clinical evidence requires substantial time and investment, and there is no guarantee of a desired outcome.

The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for establishing the reimbursement rate that such a payor will pay for the product. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide such coverage. Third-party coverage and reimbursement may never become available to us at sufficient levels, or at all.

While we believe POGO Automatic and our Patterns app provide a superior alternative to existing BGM technologies, there can be no assurance that third-party payors will decide to cover and reimburse our products at the levels necessary to encourage adoption. Furthermore, while the Centers for Medicare and Medicaid Services, or CMS, the federal agency responsible for administering the Medicare program, and a limited number of commercial payors have advanced policies to reimburse physicians and other healthcare providers for use of digital health technology to monitor patient data remotely and inform patient treatment, the applicable requirements and guidance around these reimbursement policies are novel and subject to interpretation and change. CMS updates the Medicare reimbursement rates for medical services on an annual basis, and CMS may decide to revise the methodologies used to determine the reimbursement amounts or coverage requirements associated with a given service or class of services, including telehealth and remote patient monitoring, based on trends in utilization or other policy decisions that can be difficult to predict with certainty. To the extent healthcare providers seek to use our technology to monitor patient data, we cannot ensure such services will qualify for coverage, that such providers will receive adequate reimbursement to cover the costs of using our products and services, or that availability of such coverage and reimbursement will lead to adoption of our products among patients and providers sufficient to enable us to generate significant revenue from our commercial relationships. With the potential for increased utilization of telehealth and remote patient monitoring as the result of the COVID-19 pandemic, federal and state regulators, including the Department of Justice, or DOJ, and Department of Health and Human Services Office of Inspector General, or HHS-OIG, have also indicated there will be greater scrutiny of billing compliance and related fraud and abuse considerations with respect to these services, and concerted enforcement action could affect market perception and demand for digital health technologies like ours. HHS-OIG has added to its annual workplan an audit of Medicare Part B services, specifically referencing remote patient monitoring as an area of focus. See “Risk Factors—We are subject to certain federal, state and foreign fraud and abuse and transparency laws that could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business.” Any failure of our products to satisfy demand or to achieve meaningful market acceptance and penetration will harm our future prospects and could have a material adverse effect on our business, financial condition and results of operations.

To the extent we sell our products internationally, market acceptance may depend, in part, upon the availability of coverage and reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country and include both government-sponsored healthcare and private insurance. We may not obtain international coverage and reimbursement approvals in a timely manner, if at all. Our failure to receive

 

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such approvals could negatively impact market acceptance of our products in the international markets in which those approvals are sought.

If our products do not gain market acceptance among patients, physicians and the medical community, we will be unable to generate significant revenue.

POGO Automatic and the Patterns app may not achieve market acceptance among patients, physician, third-party payors or others in the medical community. Patients and providers may not adopt our products unless they are able to determine, based on experience, clinical data, medical society recommendations and other factors, that our products are safe, effective and provide an attractive alternative to other BGM products. Even if we are able to raise awareness among patients and providers, they may be slow to change their practices and may be hesitant to select our products for a variety of reasons, including:

 

   

Lack of experience with our products and concerns that we are relatively new to market;

 

   

Lack, or perceived lack, of sufficient clinical evidence, including long-term data, supporting clinical benefits or the cost-effectiveness of our products over existing technologies;

 

   

The failure of key opinion leaders to provide recommendations regarding our products, or to assure patients, physicians and healthcare payors of the benefits of our products as an attractive alternative to other options;

 

   

Perceptions that our products are unproven;

 

   

Long-standing relationships with companies, distributors and salespeople that sell competing products;

 

   

Lack of availability of adequate third-party payor coverage or reimbursement;

 

   

Uncertainty as to which billing codes, if any, accurately describe or may be used with our products or services provided using our products; and

 

   

Competitive response and negative selling efforts from providers of competing products.

We spend significant amounts on advertising and other marketing campaigns to acquire new customers, which may not be successful or cost effective.

We market POGO Automatic through a mix of digital and traditional marketing channels. These include paid advertising, websites, promotional pieces, speaker bureaus with KOLs, engagement emails, webinars and local speaker programs, targeted digital media activities and influencer campaigns. We expect our marketing expenses to increase in the future as we continue to spend significant amounts to acquire new customers and increase awareness of our products among healthcare professionals and patients. While we seek to structure our marketing campaigns in the manner that we believe is most likely to encourage consumers to use our products, we may fail to identify marketing opportunities that satisfy our anticipated return on marketing spend as we scale our investments in marketing, accurately predict customer acquisition or fully understand or estimate the conditions and behaviors that drive consumer behavior. If any of our marketing campaigns prove less successful than anticipated in attracting new customers, we may not be able to recover our marketing spend, and our rate of customer acquisition may fail to meet market expectations, either of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, we believe that building a strong brand and developing and achieving broad awareness of our brand is critical to achieving market success. If any of our brand-building activities prove less successful than anticipated in attracting new customers, we may not be able to recover our

 

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brand-building spend, and our rate of customer acquisition may fail to meet market expectations, either of which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could require us to modify our products or marketing or advertising efforts.

In connection with the marketing or advertisement of our products, we could be the target of claims relating to false, misleading, deceptive or otherwise noncompliant advertising, marketing or labeling practices, including under the auspices of the Federal Trade Commission, state consumer protection statutes and the FDA. We use third parties to provide marketing and advertising of our products, and we could be liable for, or face reputational harm as a result of, their marketing practices if, for example, they fail to comply with applicable statutory and regulatory requirements.

If we are found to have breached any consumer protection, advertising, unfair competition or other laws or regulations, we may be subject to enforcement actions that require us to change our marketing and business practices in a manner which may negatively impact us. This could also result in litigation, fines, penalties and adverse publicity that could cause reputational harm and loss of customer trust, which could have a material adverse effect on our business, financial condition and results of operations.

Expanding into international markets is important for our long-term growth, and if we expand internationally, we will face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder such growth.

Expanding our business to attract clients and members in countries other than the United States is an element of our long-term business strategy. An important part of targeting international markets is increasing our brand awareness and establishing relationships with partners internationally. Doing business internationally involves a number of risks, including:

 

   

multiple, conflicting and changing laws and regulations such as tax laws, privacy and data protection laws and regulations, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;

 

   

obtaining regulatory approvals, clearances or certifications where required for the sale of our products and services in various countries, including obtaining additional clinical performance data where necessary;

 

   

requirements to maintain data and the processing of that data on servers located within the United States or in such countries;

 

   

protecting and enforcing our intellectual property rights;

 

   

complexities associated with managing multiple payor reimbursement regimes and government payors;

 

   

logistics and regulations associated with shipping POGO Automatic;

 

   

competition from companies with significant market share in our market and with a better understanding of user preferences;

 

   

financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the effect of local and regional financial pressures on demand and payment for our products and services and exposure to foreign currency exchange rate fluctuations;

 

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natural disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease, boycotts, curtailment of trade and other market restrictions; and

 

   

regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the U.S. Foreign Corrupt Practices Act, or the FCPA, and comparable laws and regulations in other countries.

Our ability to continue to expand our business and to attract talented employees, clients and members in various international markets will require considerable management attention and resources and is subject to the particular challenges of supporting a growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute resolution systems, regulatory systems and commercial infrastructures. Entering new international markets will be expensive, our ability to successfully gain market acceptance in any particular market is uncertain and the distraction of our senior management team could harm our business, financial condition and results of operations.

Any future international expansion will subject us to additional costs and risks that may have a material adverse effect on our business, financial condition and results of operations.

All of our sales have been to customers in the United States. To the extent we enter into international markets in the future, there are significant costs and risks inherent in conducting business in international markets. If we expand, or attempt to expand, into foreign markets, we will be subject to new business risks, in addition to regulatory risks. In addition, expansion into foreign markets imposes additional burdens on our executive and administrative personnel, finance and legal teams, research and marketing teams and general managerial resources.

We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in new markets. We may also encounter difficulty expanding into international markets because of limited brand recognition in certain parts of the world, leading to delayed acceptance of our products by consumers in these international markets. If we are unable to expand internationally and manage the complexity of international operations successfully, it could have a material adverse effect on our business, financial condition and results of operations. If our efforts to introduce our products into foreign markets are not successful, we may have expended significant resources without realizing the expected benefit. Ultimately, the investment required for expansion into foreign markets could exceed the results of operations generated from this expansion.

If we do not obtain and maintain international regulatory registrations, clearances, approvals or certifications for our products, we will be unable to market and sell our products outside of the United States.

Sales of our products outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates exports of medical devices from the United States. While the regulations of some countries may not impose barriers to marketing and selling our products or only require notification, others require that we obtain clearance, approval or certification by a specified regulatory body or notified body. Complying with foreign regulatory requirements, including obtaining registrations, clearances, approvals or certifications, can be expensive and time consuming, and we may not receive regulatory clearances, approvals or certifications in each country or region in which we plan to market our products or we may be unable to do so on a timely basis.

For instance, to the extent we intend to sell our product in member states of the EU, our product must comply with the essential requirements of the EU In Vitro Diagnostic Medical Devices Directive (Directive 98/79/EC, or the IVDD). Compliance with these requirements is a prerequisite to be able to

 

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affix the European Conformity, or CE, Mark to our products, without which they cannot be sold or marketed in the EU. All in vitro diagnostic medical devices placed on the market in the EU must meet the essential requirements laid down in Annex I to the IVDD including the requirement that an in vitro diagnostic medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. To demonstrate compliance with the essential requirements, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its risk classification. Except for general in vitro diagnostic medical devices, where the manufacturer can self-assess the conformity of its products with the essential requirements, a conformity assessment procedure requires the intervention of a notified body. The notified body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. If satisfied that the relevant product conforms to the essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EU. If we fail to comply with applicable laws and regulations, we would be unable to affix the CE Mark to our product, which would prevent us from selling it within the EU.

The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Non-compliance with the above requirements would also prevent us from selling our products in these three countries.

The time required to obtain registrations, clearances, approvals or certifications, if required by other countries, may be longer than that required for FDA clearance or approval, and requirements for such registrations, clearances, approvals or certifications may significantly differ from FDA requirements. If we modify our products, we may need to apply for additional regulatory clearances, approvals or certifications before we are permitted to sell the modified product. In addition, we may not continue to meet the quality and safety standards required to maintain the authorizations or certifications that we have received. If we are unable to maintain our authorizations or certifications in a particular country, we will no longer be able to sell the applicable product in that country.

Regulatory clearance or approval by the FDA does not ensure registration, clearance, approval or certification by regulatory authorities or notified bodies in other countries, and registration, clearance, approval or certification by one or more foreign regulatory authorities does not ensure registration, clearance or approval by regulatory authorities or notified bodies in other foreign countries or by the FDA. However, a failure or delay in obtaining registration or regulatory clearance, approval or certification in one country may have a negative effect on the regulatory process in others. If any of these risks were to materialize, they could limit our expected international growth and profitability, which could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on international manufacturers and suppliers, which exposes us to foreign operational and political risks that may harm our business.

We currently rely on a single manufacturer located in Mexico for manufacturing of the Monitors. In addition, we rely on other third-party international sole-source suppliers who supply, among other things, certain of the technology and raw materials used in the manufacturing of our products.

Our reliance on international operations exposes us to risks and uncertainties, including:

 

   

controlling quality of supplies;

 

   

trade protection measures, tariffs and other duties, especially in light of trade disputes between the United States and several foreign countries;

 

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political, social and economic instability;

 

   

the outbreak of contagious diseases, such as COVID-19;

 

   

laws and business practices that favor local companies;

 

   

interruptions and limitations in internet and telecommunication services;

 

   

product or material delays or disruption;

 

   

import and export license requirements and restrictions;

 

   

difficulties in the protection of intellectual property;

 

   

exchange controls, currency restrictions and fluctuations in currency values; and

 

   

potential adverse tax consequences.

If any of these risks were to materialize, it could have a material adverse effect on our business, financial condition and results of operations.

Changes to U.S. trade policies that restrict imports or increase import tariffs may have a material adverse effect on our business.

There have been significant changes and proposed changes in recent years to U.S. trade policies, tariffs and treaties affecting imports. For example, the United States has imposed supplemental tariffs of up to 25% on certain imports from China, as well as increased tariffs and import restrictions on products imported from various other countries. In response, China and other countries have imposed or proposed additional tariffs on certain exports from the United States. The United States has also recently renegotiated the multilateral trading relationship between the United States, Canada, and Mexico, resulting in the replacement of the North American Free Trade Agreement, or NAFTA, with a new U.S.-Mexico-Canada Agreement, or USMCA.

All of our Monitors and substantially all of our product components are manufactured outside the United States. Accordingly, such U.S. policy changes could make it difficult or more expensive for us to obtain products manufactured outside the United States, which could affect our gross margins. Further tariff increases could require us to increase our prices, which could decrease customer demand for our products. Retaliatory tariff and trade measures imposed by other countries could affect our ability to export products and therefore adversely affect our gross margins. Any of these factors could depress economic activity and restrict our access to suppliers or customers, and could have a material adverse effect on our business, financial condition and results of operations.

If manufacturers and suppliers are unable to procure raw materials, semi-finished products and finished products on terms or within timeframes acceptable to us, our business may suffer.

We are dependent on the availability of raw materials necessary to manufacture the products we sell. We rely on third-party manufacturers and suppliers to identify and purchase quality raw materials, semi-finished goods and finished goods while seeking to preserve our quality standards. If our suppliers or third-party manufacturers experience shortages, limited access or increased costs of certain raw materials and other semi-finished or finished goods, including as a result of the COVID-19 pandemic, it may result in production delays or delays in deliveries of our products to our customers. Production by one or more manufacturers or suppliers may be suspended or delayed, temporarily or permanently, due to economic or technical problems such as the insolvency of the manufacturer, the failure of the manufacturing facilities or disruption of the production process, all of which are beyond our control. Any shortage, delay or interruption in the availability of our products may negatively affect our ability to meet consumer demand. As a result, our business may be unable to offer a satisfactory experience to customers, which could have a material adverse effect on our business, financial condition and results of operations.

 

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We or the third parties upon whom we depend may be adversely affected by disasters, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. Any interruption in the operations of our or our suppliers’ manufacturing or other facilities may have a material adverse effect our business, financial condition and results of operations.

Our corporate headquarters are located in the San Francisco Bay Area, which has experienced both severe earthquakes and wildfires. We do not carry earthquake insurance. Severe weather, natural disasters and other calamities, such as pandemics (including the COVID-19 pandemic), earthquakes, tsunamis and hurricanes, fires and explosions, accidents, mechanical failures, unscheduled downtimes, civil unrest, strikes, transportation interruptions, unpermitted discharges or releases of toxic or hazardous substances, other environmental risks, sabotage or terrorist attacks, could severely disrupt our operations, or our third-party manufacturers’ and suppliers’ operations, and have a material adverse effect on our business, financial condition and results of operations.

If a natural disaster, power outage or other event occurs that prevents us from using all or a significant portion of our headquarters or other facilities, or those of our third-party manufacturers or suppliers, that damages critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupts operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. A mechanical failure or disruption affecting any major operating line may result in a disruption to our ability to supply customers, and standby capacity may not be available. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. The potential impact of any disruption would depend on the nature and extent of the damage caused by a disaster. There can be no assurance that alternative production capacity will be available in the future in the event of a major disruption or, if it is available, that it could be obtained on favorable terms. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, integral parties in our supply chain are similarly vulnerable to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business, financial condition and results of operations.

We may be deemed to manufacture or contract to manufacture products that contain “conflict minerals.”

We may be deemed to manufacture or contract to manufacture products that contain certain minerals that have been designated as “conflict minerals” under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Conflict minerals are defined as cassiterite, columbite-tantalite, gold, wolframite and their derivatives, which are limited to tin, tantalum, tungsten and gold (commonly referred to as “3TG”). If we know or have reason to believe that any conflict minerals necessary to the functionality or production of our products may have originated in the Democratic Republic of the Congo, or the DRC, and the adjoining countries, and may not be from recycled or scrap sources, we must perform due diligence on the source and chain of custody of any such conflict minerals. We will be required to comply with these reporting requirements for the first calendar year that begins no sooner than eight months after the effective date of the registration statement of which this prospectus forms a part. As a result, in future periods, we may be required to diligence the origin of such minerals and disclose and report whether or not such minerals originated in the Democratic Republic of the Congo or adjoining countries. If we determine that our products are “DRC conflict free”—i.e., the minerals may originate from the covered countries but did not finance or benefit armed groups—or are

 

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not found to be “DRC conflict free,” then we must undertake the following audit and certification requirements: (i) obtain an independent private sector audit of our conflict minerals report, (ii) certify that we obtained such an audit, (iii) include the audit report as part of our conflict minerals report and (iv) identify the auditor. In addition, if we cannot reasonably conclude after our inquiry that any gold used in our products is from recycled or scrap sources, then we will be required to undertake due diligence in accordance with the Organisation for Economic Co-operation and Development Due Diligence Guidance, and obtain an audit of our conflict minerals report.

The implementation of these requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of our products. In addition, we may incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products.

Our credit agreement contains restrictions that limit our flexibility in operating our business.

In May 2021, we entered into a credit agreement with Madryn Health Partners, LP, or Madryn. The credit agreement provides us with a term loan facility in an aggregate principal amount of up to $50 million. The credit agreement also includes certain customary events of default, including in connection with a material adverse event occurring, if the company defaults on other indebtedness, failure to pay the obligations under the credit agreement, the occurrence of a bankruptcy at the company, among others. As of June 30, 2021, $30.1 million in aggregate principal amount was outstanding under the term loan facility. The credit agreement contains various covenants that limit our ability to engage in specified types of transactions without Madryn’s prior consent. These covenants limit our ability to, among other things, and in each case subject to certain exceptions:

 

   

encumber or license our intellectual property;

 

   

sell, transfer, lease or dispose of our assets;

 

   

create, incur or assume additional indebtedness;

 

   

encumber or permit liens on any of our assets;

 

   

make restricted payments, including paying dividends on, repurchasing or making distributions with respect to any of our capital stock and certain of our indebtedness;

 

   

make specified investments (including loans and advances);

 

   

consolidate, merge with, or acquire any other entity, or sell or otherwise dispose of all or substantially all of our assets; and

 

   

enter into certain transactions with our affiliates.

The covenants in the credit agreement limit our ability to take certain actions and, in the event that we breach one or more covenants, an event of default may occur and Madryn may require that we immediately repay all amounts outstanding of the aggregate principal amount of $30.1 million as of June 30, 2021, plus exit fees, prepayment premiums, penalties and interest, and foreclose on the collateral granted to it to secure such indebtedness. Such repayment could have a material adverse effect on our business, financial condition and results of operations.

We are subject to a number of risks related to the credit card and debit card payments we accept.

We accept payments through credit and debit card transactions. For credit and debit card payments, we pay interchange and other fees, which may increase over time. An increase in those fees may require us to increase the prices we charge and would increase our operating expenses, either of which could have a material adverse effect on our business, financial condition and results of operations.

 

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If we or our processing suppliers fail to maintain adequate systems for the authorization and processing of credit and debit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products. In addition, if these systems fail to work properly and, as a result, we do not charge our customers’ credit or debit cards on a timely basis, or at all, it could have a material adverse effect on our business, financial condition and results of operations.

The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated in exploiting weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures and significantly higher card-related costs, each of which could have a material adverse effect on our business, financial condition and results of operations.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it more difficult for us to comply. We are required to comply with payment card industry security standards. Failing to comply with those standards may violate payment card association operating rules, federal and state laws and regulations and the terms of our contracts with payment processors. Any failure to comply fully also may subject us to fines, penalties, damages and civil liability, and may result in the loss of our ability to accept credit and debit card payments. Further, there is no guarantee that such compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, card holders and transactions.

Any increases in our credit and debit card fees could harm our results of operations, particularly if we elect not to raise our rates for our products to offset the increase. The termination of our ability to process payments on any major credit or debit card would significantly impair our ability to operate our business.

If we fail to attract and retain senior management and key product development personnel, our business may be materially and adversely affected.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management and product development personnel. We are highly dependent upon our senior management, particularly our President and Chief Executive Officer, as well as our senior product development personnel and other members of our senior management team. All of our executives are “at will” employees, which means we may terminate their employment at any time, with or without cause, and they may resign at any time, with or without cause. The unplanned loss of the services of any of our members of senior management could adversely affect our business until a suitable replacement can be found.

Competition for qualified personnel in the medical device field in general is intense due to the limited number of individuals who possess the training, skills and experience required by our industry. In addition, our future growth and success also depend on our ability to attract, recruit, develop and retain skilled managerial, sales, administration, operating and technical personnel. We will continue to review, and where necessary, strengthen our senior management as the needs of the business develop, including through internal promotion and external hires. However, there may be a limited

 

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number of persons with the requisite competencies to serve in these positions and we cannot assure you that we would be able to locate or employ such qualified personnel on terms acceptable to us, or at all. Therefore, the unplanned loss of one or more of our key personnel, or our failure to attract and retain additional key personnel, could have a material adverse effect on our business, financial condition and results of operations. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

We rely on third-party service providers for important functions of our services, including hosting our Patterns app and the engagement of our sales force, patient coaches and customer service personnel. If these third-party service providers do not fulfill their contractual obligations or if we are unable to maintain or expand our sales force, coaching program and customer service operations, either through development of internal functions in these areas or through continued use of third-party service providers, it could harm our business.

We depend upon third-party providers for important functions of our services, including the hosting of our Patterns app and for the engagement of our sales force to market and sell our products, patient coaches and customer service and support personnel. Our operating results are directly dependent upon the sales and marketing efforts of our sales, coaching program and customer support teams. If these personnel fail to adequately promote, market and sell our products or to provide strong coaching and customer support, we may not be able to generate or maintain sufficient demand for our products. Some of these third-party service providers, including our third-party coaching services provider, are private companies with limited operating histories, and it is possible that one or more of these third-party providers may cease operations or be acquired by other companies.

Failure of these service providers to perform satisfactorily could result in client dissatisfaction and harm to our reputation, and could disrupt our business operations, and adversely affect our operating results. Political and economic uncertainties and natural disasters in international locations where certain of our third-party service providers have facilities and operations also increases our risk. With respect to certain of our service providers, we have significantly less control over the systems and processes involved than if we maintained and operated them ourselves. In some cases, functions necessary to our business are performed on proprietary systems and software to which we have no access.

In addition, development of internal functions in these areas or any transition to a new third-party service provider for hosting our Patterns app and the engagement of our sales force, patient coaches or customer service personnel, or any transition of these services among existing service providers, could be time-consuming and expensive and may result in interruptions in our services as we train new personnel. Further, any new third-party service provider may charge us higher service fees, which would result in increases to our operating costs and negatively affect our gross margins and could have a material adverse effect on our business, financial condition and results of operations. Our third-party coaching services provider may terminate its agreement with us without cause with 60 days’ written notice, or if we fail to make an undisputed payment when due or if we materially breach the agreement.

We will need to increase the size of our organization, and we may experience difficulties in managing growth. A deterioration in our relationships with our employees could have an adverse impact on our business.

As of July 31, 2021, we had approximately 111 full-time employees. In the future, we expect to expand our managerial, operational, finance and other resources in order to manage our operations and continue our research and development activities. Our management and personnel, systems and

 

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facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

 

   

manage our commercial operations effectively;

 

   

identify, recruit, retain, incentivize and integrate additional employees;

 

   

manage our internal development and operational efforts effectively while carrying out our contractual obligations to third parties; and

 

   

continue to improve our operational, financial and management controls, reports systems and procedures.

Maintaining good relationships with our employees is crucial to our operations. As a result, any deterioration of the relationships with our employees could have a material adverse effect on our business, financial condition and results of operations. See “Business—Employees and Human Capital.”

Additionally, material disruption to our business as a result of strikes, work stoppages or other labor disputes, including at our third-party manufacturers and suppliers, could disrupt our operations, result in a loss of reputation, increased wages and benefits or otherwise have a material adverse effect on our business, financial condition and results of operations.

We rely on our relationship with a professional employer organization for our human relations function and as a co-employer of our personnel, and if that party fails to perform its responsibilities under that relationship, our relations with our employees could be damaged and we could incur liabilities that could have a material adverse effect on our business.

All of our personnel, including our executive officers, are co-employees of Intuity Medical and a professional employer organization, ADP TotalSource. Under the terms of our arrangement, ADP TotalSource is the formal employer of all of our personnel and is responsible for administering all payroll, including tax withholding, and providing health insurance and other benefits for these individuals, and our employees are governed by the work policies created by ADP TotalSource. We reimburse ADP TotalSource for these costs, and pay ADP TotalSource an administrative fee for its services. If ADP TotalSource fails to comply with applicable laws or its obligations under this arrangement, or creates work policies that are viewed unfavorably by employees, our relationship with our employees could be damaged. We could, under certain circumstances, be held liable for a failure by ADP TotalSource to appropriately pay, or withhold and remit required taxes from payments to, our employees. In such a case, our potential liability could be significant and could have a material adverse effect on our business.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards, or NOLs, of $180.1 million and $162.8 million, respectively, and U.S. federal and state research and development credit carryforwards of $5.0 million and $5.1 million, respectively. Unused NOLs will carry forward to offset a portion of future taxable income, if any, until such unused NOLs expire, if ever. Federal NOLs generated after December 31, 2017 are not subject to expiration, but the yearly utilization of such federal NOLs is limited to 80 percent of taxable income for taxable years beginning after December 31, 2020. In addition, in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs, and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes

 

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may be limited. We may have experienced one or more ownership changes in the past and we may experience additional ownership changes in the future as a result of this offering and/or subsequent shifts in our stock ownership. As a result, our ability to use our pre-change NOLs and tax credits to offset future taxable income, if any, could be subject to limitations. Similar provisions of state tax law may also apply. As a result, if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

Risks Relating to Intellectual Property Rights and Regulatory Matters

Our success will depend on our ability to obtain, maintain and protect our intellectual property rights.

Our success and ability to compete depend in part on our ability to obtain, maintain and enforce issued patents, trademarks and other intellectual property rights and proprietary technology in the United States and elsewhere. If we cannot adequately obtain, maintain and enforce our intellectual property rights and proprietary technology, competitors may be able to use our technologies or the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have and our ability to compete, which could harm our business and ability to achieve profitability and/or cause us to incur significant expenses.

We rely on a combination of contractual provisions, confidentiality procedures and patent, trademark, copyright trade secret and other intellectual property laws to protect the proprietary aspects of our products, services, brands, technologies, trade secrets, know-how and data. These legal measures afford only limited protection, and competitors or others may gain access to or use our intellectual property rights and proprietary information. Our success will depend, in part, on preserving our trade secrets, maintaining the security of our data and know-how and obtaining, maintaining and enforcing other intellectual property rights. We may not be able to obtain, maintain and/or enforce our intellectual property or other proprietary rights necessary to our business or in a form that provides us with a competitive advantage.

Failure to obtain, maintain and/or enforce intellectual property rights necessary to our business and failure to protect, monitor and control the use of our intellectual property rights could negatively impact our ability to compete and cause us to incur significant expenses. The intellectual property laws and other statutory and contractual arrangements in the United States and other jurisdictions we depend upon may not provide sufficient protection in the future to prevent the infringement, use, violation or misappropriation of our patents, trademarks, data, technology and other intellectual property rights, products and services by others, and may not provide an adequate remedy if our intellectual property rights are infringed, misappropriated or otherwise violated by others.

We rely in part on our portfolio of issued and pending patent applications in the United States and other countries to protect our intellectual property and competitive position. However, it is also possible that we may fail to identify patentable aspects of inventions made in the course of our development, manufacture and commercialization activities before it is too late to obtain patent protection on them. If we fail to timely file for a patent in any jurisdiction, we may be precluded from doing so at a later date. Although we generally enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions

 

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claimed in any of our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Moreover, should we become a licensee of a third party’s patents or patent applications, depending on the terms of any future in-licenses to which we may become a party, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the patents, covering technology in-licensed from third parties. Therefore, these patents and patent applications may not be prosecuted, maintained and/or enforced in a manner consistent with the best interests of our business. While we generally apply for patents in those countries where we intend to make, have made, use, import, offer to sell or sell patented products, we may not accurately predict all of the countries where patent protection will ultimately be desirable. Furthermore, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from manufacturing and/or commercializing our own products or services, or otherwise practicing our own technology. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

However, the patent positions of medical device companies, including our patent position, may involve complex legal and factual questions that have been the subject of much litigation in recent years, and, therefore, the scope of any patent claims that we have or may obtain cannot be predicted with certainty. Accordingly, we cannot provide any assurances about which of our patent applications will issue, the breadth of any resulting patent, whether any of the issued patents will be found to be infringed, invalid or unenforceable or will be threatened or challenged by third parties, that any of our issued patents have, or that any of our currently pending or future patent applications that mature into issued patents will include, claims with a scope sufficient to protect our products and services. Our pending and future patent applications may not result in the issuance of patents or, if issued, may not issue in a form that will be advantageous to us. The coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. We cannot offer any assurances that the breadth of our granted patents will be sufficient to stop a competitor from developing, manufacturing and commercializing a product or a service in a non-infringing manner that would be competitive with one or more of our products or services, or otherwise provide us with any competitive advantage. Any successful challenge to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for our commercial success. Further, there can be no assurance that we will have adequate resources to enforce our patents.

Patents have a limited lifespan. In the United States, the natural expiration of a utility patent is generally 20 years from the earliest effective non-provisional filing date. Further, if we encounter delays in any future regulatory approvals, the period of time during which we could market a product or a service under patent protection could be reduced, and, given the amount of time required for the development, testing and regulatory review of planned or future products or services, patents protecting such products or services might expire before or shortly after such products or services are commercialized. As a result, our patent rights may not provide us with sufficient rights to exclude others from manufacturing or commercializing products or services similar or identical to ours.

Though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products or services. Patents, if issued, may be challenged, deemed unenforceable, invalidated, narrowed or circumvented. Proceedings challenging our patents or patent applications could result in either loss of the patent, or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. Any successful challenge to our patents and patent applications could deprive us of exclusive rights necessary for our commercial success. In addition, defending such challenges in such proceedings may be costly. Thus, any patents that we may own may not provide the anticipated level of, or any, protection against competitors. Further, an adverse decision may result in a third party

 

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receiving a patent right sought by us, which in turn could affect our ability to manufacture and commercialize our products or services.

In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Decisions by courts and governmental patent agencies may introduce uncertainty in the enforceability or scope of patents owned by us. Such proceedings could also provoke third parties to assert infringement claims against us. Third parties may have products similar to or otherwise competitive with our products and patents which cover our products. We cannot be certain that we were the first to file any patent application related to our products, in part because patent applications are confidential for a period of time after filing. If any of our patents covering our products are invalidated, found unenforceable or interpreted narrowly, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights. In any of these types of proceedings, if a court or agency with jurisdiction finds our patents invalid, unenforceable or not infringed; competitors may then be able to market products and use manufacturing and analytical processes that are substantially similar to ours. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

Some of our patents and patent applications may in the future be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products, services and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

 

   

Any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products or services;

 

   

Any of our pending patent applications will issue as patents;

 

   

We will be able to successfully manufacture and commercialize our products or services on a substantial scale, if approved, before relevant patents we may have expire;

 

   

We were the first to make the inventions covered by each of our patents and pending patent applications;

 

   

We were the first to file patent applications for these inventions;

 

   

Others will not develop, manufacture and/or commercialize similar or alternative products, services or technologies that do not infringe our patents;

 

   

Any of our challenged patents will be found to ultimately be valid and enforceable;

 

   

Any patents issued to us will provide a basis for an exclusive market for our commercially viable products or services, will provide us with any competitive advantages or will not be challenged by third parties;

 

   

We will develop additional proprietary technologies, services or products that are separately patentable; or

 

   

Our commercial activities, services or products will not infringe upon the patents of others.

In addition, the U.S. federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The federal government retains a “nonexclusive,

 

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nontransferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the patent owner or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license to itself. We cannot be sure that if we acquire intellectual property rights in the future they will be free from government rights or regulations pursuant to the Bayh-Dole Act. If, in the future, we own, co-own or license in technology that is critical to our business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The U.S. Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees, renewal fees, annuity fees and various other government fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent and/or applications and any patent rights we may obtain in the future. While an unintentional lapse of a patent or patent application can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or services, we may not be able to stop a competitor from marketing products or services that are the same as or similar to our products or services, which would have a material adverse effect on our business, financial condition and results of operations.

If we cannot successfully enforce our intellectual property rights, the commercial value of our products and services will be adversely affected and our competitive position may be harmed.

Third parties, including our competitors, may currently, or in the future, infringe, misappropriate or otherwise violate our issued patents or other intellectual property rights, and we may file lawsuits or initiate other proceedings to protect or enforce our patents or other intellectual property rights, which could be expensive, time-consuming and unsuccessful. While we are not aware of any unauthorized use of our intellectual property rights, we do not regularly conduct monitoring for unauthorized use at this time. In the future, we may, from time to time, seek to analyze our competitors’ products and services, or seek to enforce our rights against potential infringement, misappropriation or violation of our intellectual property rights. The steps we have taken to protect our proprietary rights may not be adequate to enforce our rights as against such infringement, misappropriation or violation of our intellectual property rights. In certain circumstances it may not be practicable or cost-effective for us to enforce our intellectual property rights fully, particularly in certain developing countries or where the initiation of a claim might harm our business relationships. We may also be hindered or prevented from enforcing our rights with respect to a government entity or instrumentality because of the doctrine of sovereign immunity. Our ability to enforce our patent or other intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the

 

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components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. Thus, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our products and services.

We may in the future become, involved in lawsuits to protect or enforce our intellectual property rights. An adverse result in any litigation proceeding could harm our business. In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to stop the other party from using the technology at issue on grounds that our intellectual property rights do not cover the technology in question. If we initiate legal proceedings against a third party to enforce a patent covering a product or a service, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are common, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Any claims we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe, misappropriate or otherwise violate their intellectual property rights. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of patentable subject matter, novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from USPTO, or made a misleading statement, during prosecution. Mechanisms for such challenges include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). In a patent or other intellectual property infringement proceeding, a court may decide that a patent or other intellectual property right of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims or other intellectual property narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents or other intellectual property do not cover the technology in question. Furthermore, even if our patents or other intellectual property rights are found to be valid and infringed, a court may refuse to grant injunctive relief against the infringer and instead grant us monetary damages and/or ongoing royalties. Such monetary compensation may be insufficient to adequately offset the damage to our business caused by the infringer’s competition in the market. An adverse result in any litigation or administrative proceeding could put one or more of our patents or other intellectual property rights at risk of being invalidated or interpreted narrowly, which could adversely affect our competitive business position, financial condition and results of operations. Moreover, even if we are successful in any litigation, we may incur significant expense in connection with such proceedings, and the amount of any monetary damages may be inadequate to compensate us for damage as a result of the infringement and the proceedings.

We may be unsuccessful in licensing or acquiring intellectual property rights from third parties that may be necessary to develop, manufacture and/or commercialize our current and/or future products or services.

A third party may hold intellectual property rights, including patent rights, that are important or necessary to the development, manufacture and/or commercialization of our current and/or future products or services, in which case we would be need to acquire or obtain a license to such intellectual property rights from such third party. A third party that perceive us to be a competitor may be unwilling to assign or license its intellectual property rights to us. In addition, the licensing or acquisition of third party intellectual property rights is a competitive area, and other companies may also pursue similar strategies to license or acquire such third party’s intellectual property rights. Some of these companies may be established and may have a competitive advantage over us due to their size, capital resources and greater development, manufacture and commercialization capabilities. We also may be unable to license or acquire third party intellectual property rights on commercially reasonable terms that would

 

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allow us to make an appropriate return on our investment, or at all, or we may be unable to obtain any such license or acquisition at all. If we are unable to successfully obtain rights to necessary third party intellectual property rights, we may not be able to develop, manufacture or commercialize our current and/or future products or services, which could have a material adverse effect on our business, financial condition and results of operations.

Changes in patent law could diminish the value of our patents in general, thereby impairing our ability to protect our current and future products or services, and could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our current or future patents.

Our ability to obtain patents and the breadth of any patents obtained is uncertain in part because, to date, some legal principles remain unresolved, and there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States and other countries. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property rights or narrow the scope of our patent protection, which in turn could diminish the commercial value of our products and services.

Patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our patents and applications. Furthermore, the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we own or that we might obtain or license in the future. An inability to obtain, enforce and defend patents covering our proprietary technologies could have a material adverse effect on our business, financial condition and results of operations.

Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. Changes in patent laws and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them, or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we own or may obtain in the future. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. In addition, any protection afforded by foreign patents may be more limited than that provided under U.S. patent and intellectual property laws. We may encounter significant problems in enforcing and defending our intellectual property both in the United States and abroad. For example, if the issuance in a given country of a patent covering an invention is not followed by the issuance in other countries of patents covering the same invention, or if any judicial interpretation of the validity, enforceability or scope of the claims or the written description or enablement in a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in other countries, our ability to protect our intellectual property rights in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property rights or narrow the scope of our patent protection. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

 

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If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.

We rely on our trademarks, trade names and brand names to distinguish our products and services from the products and services of our competitors, and have registered or applied to register many of these trademarks in the United States and certain countries outside the United States. Our trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be violating or infringing on other marks. There can be no assurance that our trademark applications will be approved for registration. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO and comparable agencies in many foreign jurisdictions, third parties may also oppose our trademark applications and may seek to cancel trademark registrations or otherwise challenge our use of the trademarks. Opposition or cancellation proceedings may be filed against our trademark filings in these agencies, and such filings may not survive such proceedings. While we may be able to continue the use of our trademarks in the event registration is not available, particularly in the United States, where trademark rights are acquired based on use and not registration, third parties may be able to enjoin the continued use of our trademarks if such parties are able to successfully claim infringement in court.

Our trademarks could be challenged, invalidated, infringed and circumvented by third parties, and our trademarks could also be diluted, declared generic or found to be infringing on other marks. If any of the foregoing occurs, we could be forced to re-brand our products or services, resulting in loss of brand recognition and requiring us to devote resources to advertising and marketing new brands, and suffer other competitive harm. Third parties may also adopt trademarks similar to ours, which could harm our brand identity and lead to market confusion. Further, there can be no assurance that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. Certain of our current or future trademarks may become so well known by the public that their use becomes generic and they lose trademark protection. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We may become a party to intellectual property litigation or administrative proceedings that could be expensive, time-consuming and unsuccessful, and could interfere with our ability to sell and market our products or services.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our products and services and use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights and intellectual property of third parties. The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. While we take steps to ensure that we do not infringe upon, misappropriate or otherwise violate the intellectual property rights of others, there may be other more pertinent rights of which we are presently unaware.

Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. It is possible that U.S. and foreign patents and pending patent applications controlled by third parties may be alleged to cover our products and services, or that we may be accused of misappropriating third parties’ trade secrets or infringing third

 

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parties’ trademarks. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our products or services, including interference proceedings, post grant review and inter partes review before the USPTO or equivalent foreign regulatory authority. Furthermore, we may also become involved in other proceedings, such as reexamination, derivation or opposition proceedings before the USPTO or other jurisdictional body relating to our intellectual property rights or the intellectual property rights of others. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. Because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents, which our current or future products or services infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third party patents are valid and enforceable, and infringed by the use of our products and/or services, which could have a negative impact on the commercial success of our current and any future products or services. If we were to challenge the validity of any such third party U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. We will have similar burdens to overcome in foreign courts in order to successfully challenge a third party claim of patent infringement.

Our defense of any litigation or interference proceedings may fail and, even if successful, defending such claims brought against us would cause us to incur substantial expenses. If such claims are successfully asserted against us, they may result in substantial costs and distract our management and other employees and could cause us to pay substantial damages. Further, if a patent infringement or other intellectual property rights-related lawsuit were brought against us, we could be forced, including by court order, to cease developing, manufacturing and/or commercializing the infringing product or service. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Although patent, trademark, trade secret and other intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. We may not be able to obtain licenses on commercially reasonable terms, or at all, in which event our business would be materially and adversely affected. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors and other third parties gaining access to the same intellectual property. Ultimately, if we are unable to obtain such licenses or make any necessary changes to our products or services, we could be forced to cease some aspect of our business operations, which could harm our business significantly.

A finding of infringement, or an unfavorable interference or derivation proceedings outcome could prevent us from developing, manufacturing and/or commercializing our products or services, or force us to cease some or all of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition and results of operations. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources and more mature and developed intellectual property portfolios. We could encounter delays in product or service introductions while we attempt to develop alternative products or services.

 

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If third parties assert infringement, misappropriation or other claims against our customers, these claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims succeed or settle, we may be forced to pay damages or settlement payments on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products or services.

Additionally, our products include components that we purchase from suppliers and may include design components that are outside of our direct control. Our competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell and/or export our products, services or to use our technologies or product names. As the number of competitors in our market grows and the number of patents issued in this area increases, the possibility of patent infringement claims against us may increase. Moreover, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” purchase patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters, notices or “invitations to license,” or may be the subject of claims that our products, services and business operations infringe, misappropriate or otherwise violate the intellectual property rights of others. The defense of these matters can be time-consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses or make substantial payments. In addition, suppliers from whom we purchase hardware or software may not indemnify us in the event that such hardware or software is accused of infringing a third party’s patent or trademark or of misappropriating a third party’s trade secret.

Any lawsuits relating to intellectual property rights could subject us to significant liability for damages and invalidate our intellectual property. Any potential intellectual property litigation also could force us to do one or more of the following:

 

   

Stop developing, making, selling or using products, services or technologies that allegedly infringe, misappropriate or otherwise violate the asserted intellectual property right;

 

   

Lose the opportunity to license our intellectual property rights to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others;

 

   

Incur significant legal expenses;

 

   

Pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing, misappropriating or otherwise violating;

 

   

Pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing, misappropriating or otherwise violating;

 

   

Redesign those products, services or technologies that contain the allegedly infringing intellectual property, which could be costly, disruptive and infeasible; and

 

   

Attempt to obtain a license to the relevant intellectual property rights from third parties, which may not be available on commercially reasonable terms or at all, or from third parties who may attempt to license rights that they do not have.

Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter partes review and equivalent proceedings in foreign jurisdictions (for example, opposition

 

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proceedings). Such proceedings could result in revocation of or amendment to our patents in such a way that they no longer cover our products or services. Two of our applications filed in Europe are currently subject to opposition challenges. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity and/or unenforceability, we may lose at least part, and perhaps all, of the patent protection on our products or services. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations, and prospects.

Because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearing, motions or other interim developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Even if we ultimately prevail, a court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may not be an adequate remedy. Furthermore, the monetary cost of such litigation and the diversion of the attention of our management could outweigh any benefit we receive as a result of the proceedings. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business. Any of the foregoing may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.

We may enjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual property rights throughout the world.

A third party may attempt to manufacture and/or commercialize competing products or services utilizing our proprietary technology, design, trademarks or tradenames in foreign countries where we do not have any patents or patent applications, trademarks and/or other forms of intellectual property rights and where legal recourse may be limited. This may have a significant commercial impact on our foreign business operations.

Filing, prosecuting and defending patents or trademarks on our current and future products and services in all countries throughout the world would be prohibitively expensive. The requirements for patentability and trademark protection may differ in certain countries, particularly developing countries. The laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from utilizing our inventions and trademarks in all countries outside the United States. Competitors may use our technologies or trademarks in jurisdictions where we have not obtained patent or trademark protection to develop, manufacture and/or market their own products or services and further, may export otherwise infringing products or services to territories where we have patent and trademark protection, but enforcement on infringing activities is inadequate. These products, services or trademarks may compete with our products, services or trademarks, and our patents, trademarks or other intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, we may decide to abandon national and regional patent applications before they are granted. The examination of each national or regional patent application is an independent proceeding. As a result, patent applications in the same family may issue as patents in some jurisdictions, such as in the United States, but may issue as patents with claims of different scope or may even be refused in other jurisdictions. It is also quite common that depending on the country, the scope of patent protection may vary for the same product or technology. For example, certain jurisdictions do not allow for patent protection with respect to method of treatment.

 

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While we seek to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to manufacture or market our products or services. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully manufacture or commercialize our products or services in all of our expected significant foreign markets. If we encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished, and we may face additional competition from others in those jurisdictions.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and regulations in the United States and many companies have encountered significant problems in protecting, enforcing and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trademarks and other intellectual property rights, which could make it difficult for us to stop the infringement of our patents, trademarks and other intellectual property rights, or the manufacturing or marketing of competing products or services in violation of our proprietary rights generally. Proceedings to enforce our patents, trademarks or other intellectual property rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents, trademarks and other intellectual property rights in those jurisdictions, as well as elsewhere, at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing as patents, and could provoke third parties to assert claims against us.

We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities and our competitive position may be impaired. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In those countries, the patent owner may have limited remedies, which could materially diminish the value of such patents. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property rights that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.

We may be subject to claims that we or our employees have misappropriated the intellectual property rights of a third party, including trade secrets or know-how, or are in breach of non-competition or non-solicitation agreements with our competitors.

We may be subject to claims that our employees or consultants have wrongfully used for our benefit or disclosed to us confidential information of third parties. Many of our employees and consultants were previously employed at or engaged by other medical device companies, including our competitors or potential competitors. Some of these employees and consultants may have executed confidential information non-disclosure and inventions assignment agreements and non-competition agreements in connection with such previous employment or engagements. Although we try to ensure that our employees and consultants do not use the intellectual property rights, proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property rights or disclosed the alleged trade secrets or other proprietary information, of these former employers or customers. To the extent that our employees or consultants use intellectual property rights or

 

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proprietary information owned by others in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property rights.

We may also be subject to claims that our former employees, contractors or collaborators, or other third parties have an ownership interest in our current or future patents, patent applications or other intellectual property rights, including as an inventor or co-inventor. We may be subject to ownership or inventorship disputes in the future arising, for example, from conflicting obligations of employees, consultants or others who were or are involved in developing our products or services. Although it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property rights to execute agreements assigning such intellectual property rights to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property rights that we regard as our own, and we cannot be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an adequate remedy. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property rights, and other owners may be able to license their rights to other third parties, including our competitors. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Additionally, we may be subject to claims from third parties challenging ownership interest in or inventorship of intellectual property rights we regard as our own, based on claims that our agreements with employees or consultants obligating them to assign their intellectual property rights to us are ineffective or in conflict with prior or competing contractual obligations to assign inventions and intellectual property rights to another employer, to a former employer or to another person or entity. Litigation may be necessary to defend against such claims, and it may be necessary or we may desire to obtain a license to such third party’s intellectual property rights to settle any such claim; however, there can be no assurance that we would be able to obtain such license on commercially reasonable terms, if at all. If our defense to those claims fails, in addition to paying monetary damages or a settlement payment, a court could prohibit us from using technologies, features or other intellectual property rights that are essential to our products or services, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of another person or entity, including another or former employers. An inability to incorporate technologies, features or other intellectual property rights that are important or essential to our products or services could have a material adverse effect on our business, financial condition, results of operations and competitive position, and may prevent us from developing, manufacturing and/or selling our products or services. In addition, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management and our employees. Any litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to develop, manufacture and/or commercialize our products or services, which could have a material adverse effect on our business, financial condition and results of operations.

 

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If we fail to execute invention assignment agreements with our employees and contractors involved in the development of intellectual property rights or are unable to protect the confidentiality of our trade secrets, the value of our products and services and our business and competitive position could be harmed.

In addition to patent protection, we also rely on other intellectual property rights, including protection of copyright, trade secrets, know-how and/or other proprietary information that is not patentable or that we elect not to patent.

However, trade secrets can be difficult to protect, and some courts are less willing or unwilling to protect trade secrets. To maintain the confidentiality of our trade secrets and proprietary information, we rely heavily on confidentiality provisions that we have in contracts with our employees, consultants, collaborators and other third parties. We generally enter into confidentiality and invention assignment agreements with our employees, consultants and third parties upon their commencement of a relationship with us. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes and we may not enter into such agreements with all employees, consultants and third parties who have been involved in the development of our intellectual property rights. Although we generally require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed. In addition, despite the protections we do place on our intellectual property or other proprietary rights, monitoring unauthorized use and disclosure of our intellectual property rights by employees, consultants and other third parties who have access to such intellectual property or other proprietary rights is difficult, and we do not know whether the steps we have taken to protect our intellectual property or other proprietary rights will be adequate. Therefore, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by such employees, consultants, advisors or third parties, despite the existence generally of these confidentiality restrictions. These agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets, know-how or other proprietary information in the event the unwanted use is outside the scope of the provisions of the contracts or in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. There can be no assurances that such employees, consultants, advisors or third parties will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by third parties, including our competitors. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. The exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our business, financial condition and results of operations. In particular, a failure to protect our proprietary rights may allow competitors to copy our technology, which could adversely affect our pricing and market share.

Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. Further, it is possible that others will independently develop the same or similar technology, products or services or otherwise obtain access to our unpatented technology, and in such cases, we could not assert any trade secret rights against such parties. If we fail to obtain or maintain trade secret protection, or if our competitors obtain our trade secrets or independently develop technology, products or services similar to ours or competing technologies or products, our competitive market position could be materially and

 

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adversely affected. In addition, some courts are less willing or unwilling to protect trade secrets and agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be enforceable in certain cases.

In addition to contractual measures, we try to protect the confidential nature of our proprietary information by maintaining physical security of our premises and electronic security of our information technology systems. Such security measures may not, for example, in the case of misappropriation of a trade secret by an employee, consultant or other third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee, consultant or other third party from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products or services that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Further, we may not be able to obtain adequate remedies for any breach. While we use commonly accepted security measures, trade secret violations are often a matter of state law in the United States, and the criteria for protection of trade secrets can vary among different jurisdictions. If the steps we have taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our intellectual property rights or confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, it could have a material adverse effect on our competitive position, 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 maintain our competitive advantage. For example:

 

   

We, or future collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future;

 

   

We, or future collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

 

   

Others may independently develop, manufacture and commercialize technologies, products or services that are similar to, or are alternatives or duplicates of any of our technologies, products or services without infringing, misappropriating or otherwise violating our intellectual property rights;

 

   

It is possible that our pending patent applications or those that we may own in the future will not lead to issued patents;

 

   

Issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;

 

   

Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop, manufacture and commercialize competitive products or services for sale in our major commercial markets;

 

   

We may not develop additional proprietary technologies that are patentable;

 

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The patents of others may harm our business; and

 

   

We may choose not to seek patent protection for some of our proprietary technology to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such trade secrets or know-how.

Should any of these events occur, they could have a material adverse effect on our business, financial condition and results of operations.

We operate in a regulated industry and changes in regulation or the implementation of existing regulation could affect our operations.

While the FDA is the regulatory body affecting us most directly, there are numerous other regulatory schemes at the international, national and sub-national levels to which we are subject. These regulations can be burdensome and subject to change on short notice, exposing us to the risk of increased costs and business disruption, and regulatory premarket clearance or approval requirements may affect or delay our ability to market our new products. We cannot guarantee that we will be able to obtain marketing clearance or approval for our new products, or enhancements or modifications to existing products. If we do, such clearance or approval may take a significant amount of time and require the expenditure of substantial resources. Further, such clearance or approval may involve stringent testing procedures, modifications, repairs or replacements of our products and could result in limitations on the proposed uses of our products. Regulatory authorities and legislators have been recently increasing their scrutiny of the healthcare industry, and there are ongoing regulatory efforts to reduce healthcare costs that may intensify in the future. Our business is also sensitive to any changes in tort and product liability laws.

For instance, the EU regulatory landscape concerning medical devices is evolving. On April 5, 2017, the IVDR was adopted to establish a modernized and more robust EU legislative framework, with the aim of ensuring better protection of public health and patient safety.

The IVDR will become applicable five years after publication (on May 26, 2022). Once applicable, the IVDR will, among other things:

 

   

strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

 

   

establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

 

   

establish explicit provisions on importers’ and distributors’ obligations and responsibilities;

 

   

impose an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation;

 

   

improve the traceability of medical devices throughout the supply chain to the end user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk;

 

   

set up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and

 

   

strengthen rules for the assessment of certain high-risk devices that may have to undergo an additional check by experts before they are placed on the market.

 

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These modifications may have an effect on the way we may introduce products for sale in the EU and the EEA.

Regulations pertaining to our products have become increasingly stringent and more common, particularly in developing countries whose regulations approach standards previously attained only by some Organisation for Economic Co-operation and Development countries, and we may become subject to more rigorous regulation by governmental authorities in the future. Conversely, however, the regulation of BGMs as medical devices provides a barrier to entry for new competitors. For example, if certain of our products were made subject to less stringent regulation by the FDA in the United States, then products similar to ours may be marketed and sold more freely, and our products may become commoditized. If the markets in which we operate become less regulated, those barriers to entry may be eliminated or reduced, which could have a material adverse effect on our business, financial condition and results of operations.

Both before and after a product is commercially released, we have ongoing responsibilities under various laws and regulations. If a regulatory authority were to conclude that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable risk for the end-user, the authority may ban such devices, detain or seize adulterated or misbranded devices, order a recall, repair, replacement or refund of such instruments, and require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. A regulatory authority may also impose operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees or us. The regulatory authority may also recommend prosecution by law enforcement agencies. Any governmental law or regulation, existing or imposed in the future, or enforcement action taken may have a material adverse effect on our business, financial condition and results of operations.

Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system, could harm our business, financial condition and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for our products. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products.

By way of example, the Affordable Care Act, or ACA, 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, among other things, established a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research in an effort to coordinate and develop such research; 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. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a

 

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special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or replace the ACA will impact the ACA or our business. Any expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to us, and/or lower reimbursement by payors for our products, which may have a material adverse effect on our business, financial condition or results of operations.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. The Budget Control Act of 2011, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2021, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, enacted on April 16, 2015, repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a new system of incentive payments that are based on various performance measures and physicians’ participation in alternative payment models such as accountable care organizations. It is unclear what effect new quality and payment programs, such as MACRA, may have on our business, financial condition, results of operations or cash flows.

We expect additional state and federal healthcare policies and reform measures to be adopted in the future, any of which could limit reimbursement for healthcare products and services or otherwise result in reduced demand for our products or additional pricing pressure, and have a material adverse effect on our industry generally. We cannot predict what other healthcare programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation in the U.S. may negatively affect our business, financial condition and results of operations. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect our ability to set a price that we believe is fair for our products, our ability to generate revenue and achieve or maintain profitability, and/or the availability of capital.

Regulations in certain foreign countries may challenge the DTC channel of our sales model.

Our business may also be affected by actions of domestic and foreign governments to restrict the activities of DTC companies for various reasons, including a limitation on the ability of DTC companies to operate without the involvement of a traditional retail channel. To the extent that we begin to offer our products in international markets, foreign governments may also introduce other forms of protectionist legislation, such as limitations or requirements on where the products can or must be produced or requirements that non-domestic companies doing or seeking to do business place a certain percentage of ownership of legal entities in the hands of local nationals to protect the commercial interests of its citizens. Customs laws, tariffs, import duties, export and import quotas and restrictions on repatriation of foreign earnings and/or other methods of accessing cash generated internationally, may negatively affect our local or corporate operations. Additionally, the U.S. government may impose restrictions on our ability to engage in business in other countries in connection with the foreign policy of the United States. Any such restrictions on our DTC sales model in international jurisdictions could limit our ability to grow internationally, which could have a material adverse effect on our business, financial condition and results of operations.

 

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Our products and other components may cause or contribute to adverse medical events that we are required to report to the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on us.

We are subject to the FDA’s medical device reporting regulations, which require us to report to the FDA when we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the initial use of the device. If we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, seizure of our products or, if premarket review is required in the future, delay in clearance of future products.

The FDA and foreign regulatory bodies have the authority to require the recall of commercialized medical device products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. We cannot assure you that product defects or other errors will not occur in the future. Recalls involving our products could have a material adverse effect on to our business, financial condition and results of operations.

Medical device manufacturers are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary withdrawals or corrections for our devices in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability and malpractice claims against us and negatively affect our sales.

We must manufacture our products in accordance with federal and state regulations, and we could be forced to recall our products or terminate production if we fail to comply with these regulations.

The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s QSR, which is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, servicing and shipping of medical devices. Furthermore, we are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors, and such inspections can result in warning letters, untitled letters and other regulatory communications and adverse publicity. In some cases, certain third-party auditing

 

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organizations may also conduct audits whose results are recognized by the FDA. Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing.

We cannot guarantee that we or any subcontractors will take the necessary steps to comply with applicable regulations, which could cause delays in the manufacture and delivery of our products. In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things:

 

   

fines, injunctions or civil penalties;

 

   

suspension or withdrawal of future clearances or approvals;

 

   

refusal to clear or approve pending applications;

 

   

seizures or recalls of our products;

 

   

total or partial suspension of production or distribution;

 

   

administrative or judicially imposed sanctions;

 

   

refusal to permit the import or export of our products; and

 

   

criminal prosecution.

Any of these actions could significantly and negatively impact supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability and malpractice claims and we could lose customers and suffer reduced revenue and increased costs.

We are subject to certain federal, state and foreign fraud and abuse and transparency laws that could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business.

There are numerous U.S. federal and state, as well as foreign, laws pertaining to healthcare fraud and abuse, including anti-kickback, false claims and transparency laws with respect to payments and other transfers of value made to physicians and other healthcare professionals. These laws and regulations, among other things, constrain our business, marketing and other promotional and research activities by limiting the kinds of financial arrangements, including sales programs, we may have with healthcare providers or potential purchasers of our products. The healthcare laws and regulations that may affect our ability to operate include, but are not limited to:

 

   

The federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

 

   

The federal civil and criminal false claims laws and civil monetary penalties laws, including the federal civil False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal healthcare programs that are false or fraudulent. Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act;

 

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The federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;

 

   

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

 

   

The federal Physician Payments Sunshine Act which requires certain applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, or CHIP, to report annually to the CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made during the previous year to certain non-physician providers such as physician assistants and nurse practitioners;

 

   

Federal and state laws and regulations regarding billing and claims payment applicable to our products and services using our products and regulatory agencies enforcing those laws and regulations;

 

   

Federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm customers; and

 

   

Analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws related to insurance fraud in the case of claims involving private insurers.

Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws, including our arrangements with independent sales agents and certain physicians, some of whom are compensated in the form of stock or stock options for services provided to us, any future cost-sharing, co-pay assistance or other patient assistance programs or our DTC internet selling. Any action brought against us for violations of these laws or regulations, even if successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the federal, state and foreign laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to significant penalties, including significant criminal, civil, and administrative penalties, damages, fines, exclusion from participation in government programs, such as Medicare and Medicaid, imprisonment, contractual damages, reputation harm and disgorgement and we could be required to curtail, restructure or cease our operations as well as be subject to reporting obligations and compliance oversight if we are required to enter into a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with these laws. Any of the foregoing consequences could negatively affect our business, financial condition and results of operations.

 

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If our arrangements for the provision of one-on-one coaching by certified diabetes care education specialists or our proposed future arrangements with physicians for the provision of remote patient monitoring services are found to violate state laws prohibiting the corporate practice of medicine or fee splitting, our business, financial condition and our ability to operate in those states could be adversely impacted.

Many states have laws that prohibit us from practicing medicine, providing treatment or diagnosis or otherwise exercising control, interfering with or influencing a licensed healthcare professional’s clinical judgment and entering into certain financial arrangements, such as splitting professional fees with such professionals, including physicians. These laws and their interpretations vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. We currently partner with a telecare company to offer optional add-on coaching by Certified Diabetes Care and Education Specialists to POGO Automatic users. In addition, we are currently exploring models whereby we may provide to physicians certain remote patient monitoring services using our products. Regulatory authorities or other third parties may challenge these arrangements and if successful, could subject us to civil and criminal penalties, and/or require us to restructure our contractual arrangements, any of which could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to our Common Stock and this Offering

There may not be an active trading market for our common stock, which may cause shares of our common stock to trade at a discount from the initial public offering price and make it difficult to sell the shares of common stock you purchase.

Prior to this offering, there has been no public market for our common stock. It is possible that after this offering, an active trading market will not develop or, if developed, that any market will not be sustained, which would make it difficult for you to sell your shares of common stock at an attractive price or at all. The initial public offering price per share of common stock will be determined by agreement among us and the representatives of the underwriters, and may not be indicative of the price at which shares of our common stock will trade in the public market, if any, after this offering.

We are an “emerging growth company” and a “smaller reporting company,” and the reduced public company reporting requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We qualify as an “emerging growth company,” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to public companies that are not emerging growth companies. These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statements; and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public

 

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companies. We intend to take advantage of the exemptions discussed above. As a result, the information we provide will be different than the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the first fiscal year after our annual gross revenue exceed $1.07 billion, (iii) the date on which we have, during the immediately preceding three-year period, issued more than $1.00 billion in non-convertible debt securities, or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end of the second quarter of that fiscal year.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company, which may allow us to take advantage of many of the same exemptions available to emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation. We will be able to take advantage of these scaled disclosures as a smaller reporting company for so long as our common stock held by non-affiliates is less than $250.0 million as of the end of the second quarter of that fiscal year, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our common stock held by non-affiliates is less than $700.0 million as of the end of the most recently completed second quarter.

We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the market price of our common stock may be more volatile.

We have identified a material weakness in our internal control over financial reporting. If our remediation of the material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

Prior to the completion of this offering, we have been a private company with limited accounting personnel to adequately execute our accounting processes and other supervisory resources with which to address our internal control over financial reporting. In connection with the preparation of our financial statements, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weakness related to a lack of qualified supervisory accounting resources, including those necessary to account for and disclose certain complex transactions and for which we lacked the technical expertise to identify, analyze and appropriately record those transactions. We are implementing measures designed to improve our internal control over financial reporting to remediate this material weakness, including the hiring of qualified supervisory resources, the engagement of technical accounting consulting resources and plans to hire additional finance department employees.

We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weakness in a timely

 

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manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.

If we fail to remediate our existing material weakness or identify new material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to conclude that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting when we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition or divert financial and management resources from our regular business activities.

We have no current plans to pay cash dividends on our common stock; as a result, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We have never declared or paid cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination related to dividend policy will be made at the discretion of our board of directors, subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Also, unless waived, the terms of our credit agreement generally prohibit us from declaring or paying any cash dividends and other distributions. Additionally, our ability to pay cash dividends on our capital stock may be limited by the terms of any future debt or preferred securities we issue or any future credit facilities we enter into. As a result, you may not receive any return on an investment in our common stock unless you sell your common stock for a price greater than that which you paid for it.

If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price of our common stock may decline.

We may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of our common stock may decline. Even if we do issue public guidance, there can be no assurance that we will continue to do so in the future.

We have broad discretion to determine how to use the funds raised in this offering, and may use them in ways that may not enhance our operating results or the price of our common stock.

Our management will have broad discretion over the use of proceeds from this offering, and we could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return, if at all. We currently expect to use the net proceeds of this offering, together

 

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with our existing cash and cash equivalents, to invest in sales and marketing, launch new marketing channels and expand our brand efforts, and to fund research and development activities. However, our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the proceeds of this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline.

Investors in this offering will experience immediate and substantial dilution.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. Based on the initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $                 per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, purchasers of common stock in this offering will have contributed                 % of the aggregate price paid by all purchasers of our common stock but will own only approximately                 % of our total equity outstanding after this offering. Furthermore, if the underwriters exercise their option to purchase additional shares, or outstanding options and warrants are exercised or outstanding restricted stock units are settled, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

We may be unable to raise additional capital, which could harm our ability to compete.

As of June 30, 2021, we had cash and cash equivalents of $43.2 million. Our expected future capital requirements may depend on many factors including expansion our product portfolio and the timing and extent of spend on the development of our technology to increase our product offerings. Even if this offering is successful, we may need additional funding to fund our operations, but additional funds may not be available to us on acceptable terms on a timely basis, if at all. We may seek funds through borrowings or through additional rounds of financing, including private or public equity or debt offerings.

Our future capital requirements will depend on many factors, including:

 

   

the timing, receipt and amount of sales from our current and future products;

 

   

the cost of manufacturing, either ourselves or through third-party manufacturers, our products;

 

   

the cost and timing of expanding our sales, marketing and distribution capabilities;

 

   

the terms and timing of any other partnership, licensing and other arrangements that we may establish;

 

   

any product liability or other lawsuits related to our current or future products;

 

   

the expenses needed to attract, hire and retain skilled personnel;

 

   

the costs associated with being a public company;

 

   

the duration and severity of the COVID-19 pandemic and its impact on our business and financial markets generally;

 

   

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and

 

   

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

 

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If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, financial condition and results of operations could be materially adversely affected.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or products.

Since our inception, our operations have been financed primarily by net proceeds from the sale of our redeemable convertible preferred stock, indebtedness and, to a lesser extent, revenue from the sales of our products. We expect that we may be required to obtain additional funding in the future and may do so through partnerships, public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. Even if we are not required to obtain additional funding, we may do so due to favorable market conditions or to be able to pursue strategic or business expansion opportunities. If we raise additional funds by issuing equity securities, our stockholders may suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities receive any distribution of our corporate assets. We also could be required to seek funds through arrangements with partners or others that may require us to relinquish rights or jointly own some aspects of our technologies or products that we would otherwise pursue on our own.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Prior to this offering, as of August 1, 2021, our executive officers, directors, holders of 5.0% or more of our capital stock and their respective affiliates held approximately 92.7% of our outstanding voting stock and, upon the completion of this offering, that same group will hold approximately                 % of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares, no exercise of outstanding options or warrants other than the Investor Warrants described below, no settlement of outstanding restricted stock units and no purchases of any shares of common stock by such holders in this offering). Therefore, even after this offering these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based upon the number of shares outstanding as of June 30, 2021 and assuming (i) the conversion of our outstanding redeemable convertible preferred stock into common stock into an aggregate of 731,820,423 shares of

 

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our common stock immediately prior to the completion of this offering, (ii) the issuance of                 shares of common stock upon the exercise of outstanding warrants to be exercised on a net basis contingent upon the completion of this offering, or the Investor Warrants, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, (iii) the issuance                 of shares of our common stock issuable to the holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock, and New Series C-1 redeemable convertible preferred stock upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and (iv) the issuance of                  shares of our common stock issuable to the holders of our outstanding convertible promissory notes upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, we will have outstanding a total of                  shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares of common stock, no settlement of outstanding restricted stock units and no exercise of outstanding options or warrants other than the Investor Warrants. Of these shares, all of the shares of our common stock sold in this offering, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering.

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, as of June 30, 2021, up to approximately                 additional shares of common stock will be eligible for sale in the public market, approximately                 of which shares are held by directors, executive officers and other affiliates and will be subject to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Goldman Sachs & Co. LLC, Jefferies LLC and Piper Sandler & Co. may, however, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

In addition, as of June 30, 2021, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, approximately             shares of common stock that are either subject to outstanding options or restricted stock units, reserved for future issuance under our existing equity incentive plan, or subject to outstanding warrants will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

After this offering, based upon the number of shares outstanding as of June 30, 2021, the holders of approximately              shares of our common stock, or approximately    % of our total outstanding common stock, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules and to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the completion of this offering will contain provisions that could delay

 

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or prevent changes in control or changes in our management without the consent of our board of directors. These provisions will include the following:

 

   

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 

   

the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval;

 

   

the required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our amended and restated bylaws or to repeal certain provisions of our amended and restated certificate of incorporation;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

   

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, and the reservation of use of a white proxy card to our board of directors, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. For a description of our capital stock, see the section titled “Description of Capital Stock.”

As a California-domiciled public company, we are required to have a certain number of women and directors from underrepresented communities on our board of directors on certain timeframes, depending on the size of our board at the time.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified individuals to our board of directors. As a public company headquartered in California, we are required to have two or three women and at least one director from an underrepresented community on our board of directors by the end of 2021 and two or three directors from an underrepresented community on our board of directors by the end of 2022, depending on the size of our board of directors at the time. While we currently have three women on the board of directors, recruiting and retaining board members carries uncertainty, and failure to comply with these California requirements will result in financial penalties.

 

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Claims for indemnification by our directors, officers and other employees or agents may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws will provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws to be effective immediately prior to the completion of this offering and our indemnification agreements that we have entered into with our directors, officers and certain other employees will provide that:

 

   

We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

   

We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

   

We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

   

We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

 

   

The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

   

We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

Our current amended and restated certificate of incorporation provides, and our amended and restated certificate of incorporation and amended and restated bylaws, both of which will become effective immediately prior to the completion of this offering, will provide, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our current amended and restated certificate of incorporation provides, and our amended and restated certificate of incorporation and amended and restated bylaws, both of which will become effective immediately prior to the completion of this offering, will provide, that the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the

 

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internal affairs doctrine; provided that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Our current amended and restated certificate of incorporation also provides, and our amended and restated certificate of incorporation and amended and restated bylaws, both of which will become effective immediately prior to the completion of this offering, will also provide, that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause or causes of action against us or any of our directors, officers, employees or agents and arising under the Securities Act. The choice of forum provisions will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, this choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims and may result in increased costs for stockholders to bring a claim, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find the choice of forum provision that is contained in our current certificate of incorporation or will be contained in our amended and restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.

Participation in this offering by our directors, officers, existing stockholders and/or their affiliates would reduce the available public float of our shares.

If any of our directors, officers, existing stockholders and/or their affiliates purchase shares in this offering, such purchases would reduce the available public float of our common stock because such purchasers would be restricted from selling such shares during the 180-day period following this offering and thereafter may be subject to volume limitations pursuant to restrictions under applicable securities laws. As a result, any purchase of shares by our directors, officers, existing stockholders and/or affiliates in this offering will reduce the liquidity of our common stock relative to what it would have been had these shares been purchased by investors that were not directors, officers, existing stockholders and/or our affiliates.

 

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General Risk Factors

If we engage in future acquisitions or strategic partnerships, it may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.

We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

   

increased operating expenses and cash requirements;

 

   

the assumption of additional indebtedness or contingent liabilities;

 

   

assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

   

the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

 

   

loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

   

uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; and

 

   

our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

In addition, if we undertake acquisitions or strategic partnerships, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition or partnership opportunities, and even if we do locate such opportunities we may not be able to successfully bid for or obtain them due to competitive factors or lack of sufficient resources. This inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits or make it more difficult to run our business.

As a public company, we will incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act, and related rules implemented by the Securities and Exchange Commission, or SEC, and the exchange our securities are listed on. The expenses generally incurred by public companies for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions, other regulatory action and potentially civil litigation.

 

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If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with our second annual report on Form 10-K, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act. The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decline, and we could also become subject to investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

We may be unable to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.

We are subject to risks from legal and arbitration proceedings and that may prevent us from pursuing our business activities or require us to incur additional costs in defending against claims or paying damages.

We may become subject to legal disputes and regulatory proceedings in connection with our business activities involving, among other things, product liability, malpractice, product defects, intellectual property infringement and/or alleged violations of applicable laws in various jurisdictions. Although we maintain liability insurance in amounts we believe to be consistent with industry practice, we may not be fully insured against all potential damages that may arise out of any claims to which we may be party in the ordinary course of our business. A negative outcome of these proceedings may prevent us from pursuing certain activities and/or require us to incur additional costs in order to do so and pay damages.

The outcome of pending or potential future legal and arbitration proceedings is difficult to predict with certainty. In the event of a negative outcome of any material legal or arbitration proceeding,

 

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whether based on a judgment or a settlement agreement, we could be obligated to make substantial payments, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the costs related to litigation and arbitration proceedings may be significant, and any legal or arbitration proceedings could have a material adverse effect on our business, financial condition and results of operations.

Actual or perceived failures to comply with applicable data privacy and security laws, regulations, policies, standards, contractual obligations and other requirements related to data privacy and security and changes to such laws, regulations, standards, policies and contractual obligations could adversely affect our business, financial condition and results of operations.

The global data protection landscape is rapidly evolving, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. We are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, transmission, use, disclosure, storage, retention and security of personal and personally-identifying information, such as information that we may collect in connection with conducting our business in the United States and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards or perception of their requirements may have on our business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, fines, imprisonment of company officials and public censure, claims by third parties, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition and results of operations.

In the ordinary course of our business, we collect and store sensitive data, including protected health information, or PHI, personally identifiable information, or PII, intellectual property and proprietary business information owned or controlled by ourselves or our customers, third-party payors and other parties. We also collect and store sensitive data of our employees and contractors. We manage and maintain our applications and data utilizing cloud-based data centers for PII. We utilize external security and infrastructure suppliers to manage parts of our data centers.

As our operations and business grow, we are and may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the United States, HIPAA imposes, among other things, privacy and security standards that limit the use and disclosure of PHI, and require the implementation of administrative, physical and technological safeguards to protect the privacy of PHI and ensure the confidentiality, integrity and availability of electronic PHI. Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. Determining whether PHI has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. If we are unable to properly protect the privacy and security of PHI, we could be found to have breached our contracts. Further, if we fail to comply with applicable privacy laws, including applicable privacy and security standards, we could face civil and criminal penalties. The U.S. Department of Health and Human Services, or HHS,

 

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has the discretion to impose penalties without attempting to resolve violations through informal means. HHS enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources, each of which could have a material adverse effect on our business financial condition, results of operations or prospects.

In addition, the California Consumer Privacy Act, or CCPA, which went into effect on January 1, 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. In the event that we are subject to or affected by HIPAA, the CCPA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. Further, the California Privacy Rights Act, or CPRA, recently passed on November 3, 2020 in California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. In addition, California’s Confidentiality of Medical Information Act, or CMIA, places restrictions on the use and disclosure of health information and other personally identifying information, and can impose a significant compliance obligation. A new bill that would amend the CMIA also recently passed in California’s Senate Health Committee. If passed through California’s Senate, the bill would expand the definition of “provider of healthcare” to include certain software and hardware providers that maintain health information, including mobile applications. Violations of the CMIA can result in criminal, civil and administrative sanctions, and the CMIA also provides individuals a private right of action with respect to disclosures of their health information that violate CMIA. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA, the CMIA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. We cannot be sure how these regulations will be interpreted, enforced or applied to our operations. In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.

We may in the future become subject to the General Data Protection Regulation, or GDPR, which went into effect in May 2018 and which imposes obligations on companies that operate in our industry with respect to the processing of personal data and the cross-border transfer of such data. The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and policies. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Court of Justice of the European Union, or CJEU, invalidated the Privacy Shield in July 2020 and imposed further restrictions on use of the standard contractual clauses, or SCCs. These restrictions include a requirement for companies to carry out a transfer impact assessment which, among other things, assesses the laws governing access to

 

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personal data in the recipient country and considers whether supplementary measures that provide privacy protections additional to those provided under SCCs will need to be implemented to ensure an essentially equivalent level of data protection to that afforded in the EEA. The European Commission issued revised SCCs on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. If our or our partners’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.

Further, following the United Kingdom’s withdrawal from the EU and the EEA and the end of the transition period, from January 1, 2021, companies will have to comply with the United Kingdom GDPR and the GDPR, or UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of 20 million (£17.5 million) or 4% of global turnover. The relationship between the United Kingdom and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term. These changes will lead to additional costs and increase our overall risk exposure. The European Commission has adopted an adequacy decision in favor of the UK, enabling data transfers from EU member states to the UK without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/ extends that decision.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, negative publicity, loss of goodwill and materially adversely affect our business, financial condition and results of operations.

Failure to comply with the U.S. Foreign Corrupt Practices Act, economic and trade sanctions regulations and similar laws could subject us to penalties and other adverse consequences.

We are subject to the FCPA, and other laws in the United States and elsewhere that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. Certain suppliers of our product components are located in countries known to experience corruption. Business activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, contractors or agents that could be in violation of various laws, including the FCPA and anti-bribery laws in these countries, even though these parties are not always subject to our control. While we have implemented policies and procedures designed to discourage these practices by our employees, consultants and agents and to identify and address potentially impermissible transactions under such laws and regulations, we cannot assure you that all of our employees, consultants and agents will not take actions in violation of our policies, for which we may be ultimately responsible.

 

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We are also subject to certain economic and trade sanctions programs that are administered by the Department of Treasury’s Office of Foreign Assets Control which prohibit or restrict transactions to or from or dealings with specified countries, their governments and in certain circumstances, their nationals, and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers and terrorists or terrorist organizations.

Failure to comply with any of these laws and regulations or changes in this regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the government, may result in significant financial penalties or reputational harm, which could adversely affect our business, financial condition and results of operations.

Our information technology systems, internal computer systems, or those used by our third-party service providers, suppliers, strategic partners or other contractors or consultants, may fail or suffer security breaches and other disruptions, which could result in a material disruption of our products and services development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business, financial condition and results of operations.

We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business, including our mobile and web-based applications, our e-commerce platform, and our enterprise software, including the Patterns app. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information of customers and our employees and contractors. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party suppliers may or could have access to our confidential information. We do not conduct audits of all of our third-party suppliers’ information technology systems and cannot be sure that our third-party suppliers have sufficient measures in place to ensure the security and integrity of their information technology systems and our confidential and proprietary information. If our third-party suppliers fail to protect their information technology systems and our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential or proprietary information and we could incur liability and reputational damage.

Our internal information technology systems and those of our third-party service providers, suppliers, strategic partners and other contractors or consultants are vulnerable to damage or interruption from computer viruses, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, malicious code, employee theft or misuse, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization. We have experienced cybersecurity intrusions and spoofing emails, including a cyber intrusion occurrence associated with a third-party vendor’s systems. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. As a result of the COVID-19 pandemic, we and our third-party service providers and partners may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to

 

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anticipate these techniques or implement adequate preventative measures. We may experience security breaches that may remain undetected for an extended period. Our third-party service providers and partners are also subject to these heightened risks. The costs to us to investigate and mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems from system failure, accident and security breach, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, disruption of our development programs and our business operations, cessation of service, negative publicity and other harm to our business and our competitive position, whether due to a loss of our trade secrets or other proprietary information or other disruptions. If we were to experience a significant cybersecurity breach of our information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counter-parties and data subjects could be material. In addition, our remediation efforts may not be successful. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure, we could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary information. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss, corruption or unauthorized disclosure of our trade secrets, personal information or other proprietary or sensitive information or other similar disruptions.

If a security breach or other incident were to result in the unauthorized access to or unauthorized use, disclosure, release or other processing of personal information, it may necessary to notify individuals, governmental authorities, supervisory bodies, the media and other parties pursuant to privacy and security laws. Any security compromise affecting us, our service providers, suppliers, strategic partners, other contractors, consultants or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could incur liability, including litigation exposure, penalties and fines, we could become the subject of regulatory action or investigation, our competitive position could be harmed and the further development and commercialization of our products and services could be delayed. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our business. Furthermore, federal, state and international laws and regulations can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties, fines and significant legal liability, if our information technology security efforts fail. We would also be exposed to a risk of loss or litigation and potential liability, which could materially and adversely affect our business, financial condition and results of operations.

Disruptions in internet access could adversely affect our business, financial condition and results of operations.

Because access to the Patterns app and our patient coaching and customer support operations depend on our user community and patient coaches and customer support service providers having online access, we are dependent on the internet and maintaining connectivity between ourselves and our community. We are dependent on consumers’ access to the internet through mobile carriers and their systems and on our patient coaches’ and customer support service providers’ access to the internet through our third-party supplier’s systems. Disruptions in internet access, whether generally, in a specific market or otherwise, especially if widespread or prolonged, could adversely affect our business, financial condition and results of operations. It is possible that we could experience an interruption in our business, and we do not carry business interruption insurance sufficient to compensate us for all losses that may occur.

 

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Changes in the regulation of the internet could adversely affect our business.

Laws, rules and regulations governing internet communications, advertising and e-commerce are dynamic, and the extent of future government regulation is uncertain. Federal and state regulations govern various aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic communications, marketing and advertising, user privacy and data security, search engines and internet tracking technologies. Existing or future regulation or taxation could increase our operating expenses and expose us to significant liabilities. To the extent any such regulations require us to take actions that negatively impact us, they could have a material adverse effect on our business, financial condition and results of operations.

The market price of shares of our common stock may be volatile, which could cause the value of your investment to decline.

Even if an active trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations, which have been exacerbated by the COVID-19 pandemic. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors, adverse publicity about the medical device industry or individual scandals, and, in response, the market price of our common stock could decrease significantly. You may be unable to resell your shares of common stock at or above the initial public offering price.

In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

   

our ability to achieve profitability;

 

   

the market size for our products;

 

   

our reliance on POGO Automatic to generate all of our revenue;

 

   

our ability to attract and retain customers;

 

   

the ability of POGO Automatic to achieve and maintain market acceptance;

 

   

our ability to maintain or expand our sales and marketing infrastructure;

 

   

our expectations regarding the potential market size and size of the potential consumer populations for POGO Automatic and any future products;

 

   

our ability to operate in a highly competitive industry and to compete successfully against competitors with greater resources and new entrants in our industry;

 

   

our expectations regarding the ability to make certain claims related to the performance of POGO Automatic relative to competitive products;

 

   

our relationships with, and the capabilities of, our component manufacturers and suppliers;

 

   

our ability to secure or retain adequate coverage or reimbursement for POGO Automatic by third-party payors;

 

   

our ability to comply with the applicable governmental regulations to which our product and operations are subject;

 

   

the implementation of our business model and strategic plans for our business and products and technology;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our products, including the projected terms of patent protection;

 

   

our ability to effectively manage our growth;

 

   

our anticipated use of proceeds from this offering;

 

   

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

   

our expectations with regard to changes in the regulatory landscape for healthcare software;

 

   

our estimates regarding the COVID-19 pandemic, including but not limited to its duration and impact on our business and results of operations;

 

   

estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital; and

 

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our future financial performance.

We have based these forward-looking statements largely on our current expectations, estimates, forecasts and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

 

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MARKET AND INDUSTRY DATA

This prospectus contains estimates, projections and other information concerning our industry and our business, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

Unless otherwise indicated, the source of certain statistical data, estimates, and forecasts contained in this prospectus are the following industry publications or reports that have been prepared by independent third parties:

 

   

Fortune Business Insights, Blood Glucose Monitoring Systems Market Size, Share & Industry Analysis, by Device (Continuous Glucose Monitoring Systems, Self-monitoring of Blood Glucose Systems), by Type (Invasive, Non-Invasive), by Modality (Wearable, Non-wearable), by Distribution Channel (Institutional Sales, Retail Sales), and Regional Forecast 2019-2026

 

   

Other publicly available reports

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $                 million (or approximately $                 million if the underwriters exercise in full their option to purchase up to                 additional shares of common stock), based on the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds from this offering by approximately $                 million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares of common stock offered by us would increase or decrease, as applicable, the net proceeds to us by approximately $                 million, assuming the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

 

   

approximately $                 to $                 million to fund the manufacture of POGO Automatic, including the purchase and maintenance of Monitor manufacturing equipment and Cartridge high-volume manufacturing equipment and additional manufacturing, laboratory and office space;

 

   

approximately $                 to $                 million to fund the commercialization of POGO Automatic and our Patterns app, including sales and marketing activities such as the implementation of a customer relationship management system, hiring additional sales specialists, employer account managers and market access and retail channel management team members and investments in digital, social media and other online advertising programs;

 

   

approximately $                 to $                 million to fund continued research and product development activities, including activities related to product and software technology development, increased connectivity of our Patterns app to other wellness-focused apps and development of data connections to insulin delivery and other devices;

 

   

approximately $2.0 million to repay our PPP Loan;

 

   

approximately $2.5 million to pay a success fee to Oxford upon the completion of this offering in accordance with the terms of the Oxford Agreement; and

 

   

any remaining amounts for working capital, operating expenses and capital expenditures.

We may also use a portion of the remaining net proceeds, if any, to acquire complementary businesses, products, service providers or technologies. However, we do not have agreements or commitments for any acquisitions at this time.

This expected use of the net proceeds from this offering represents our intentions based on our current plans and business conditions, which could change in the future as our plans and business conditions evolve.

Our management will have broad discretion over the use of the net proceeds from this offering, and our investors will be relying on the judgment of our management regarding the application of the

 

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net proceeds of this offering. Due to the uncertainties inherent in the ongoing manufacturing, commercialization and development of our products, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for the above purposes. The amounts and timing of our expenditures will depend upon numerous factors, including the success of our manufacturing and commercialization efforts for our products and the amount of revenue we are able to receive from our product sales.

Pending the use of the net proceeds from this offering as described above, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination related to dividend policy will be made at the discretion of our board of directors, subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. In addition, our ability to pay cash dividends on our capital stock is limited by our credit agreement and may be further limited by the terms of any future debt or preferred securities we issue or any future credit facilities we enter into.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2021 on:

 

   

an actual basis;

 

   

a pro forma basis, to reflect: (i) the conversion of all of the outstanding shares of our redeemable convertible preferred stock as of June 30, 2021 into an aggregate of 731,820,423 shares of common stock immediately prior to the completion of this offering; (ii) the conversion of all of our outstanding warrants exercisable for redeemable convertible preferred stock as of June 30, 2021 into warrants exercisable for                  shares of common stock immediately prior to the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and the related reclassification of the redeemable convertible warrant liability to common stock and additional paid-in capital; (iii) the conversion of all of our outstanding warrants issued in May 2021 into warrants exercisable for                  shares of common stock immediately prior to the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus; (iv) the issuance of                      shares of common stock upon the exercise of outstanding warrants to be exercised on a net basis contingent upon the completion of this offering, or the Investor Warrants, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus; (v) the issuance of                  shares of our common stock issuable to the holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock and New Series C-1 redeemable convertible preferred stock upon the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus; (vi) the issuance of                 shares of our common stock issuable to the holders of our outstanding convertible promissory notes upon the completion of this offering, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus; and (vii) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering; and

 

   

a pro forma as adjusted basis, giving effect to the pro forma adjustments discussed above, and giving further effect to the sale of                  shares of our common stock in this offering at the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the repayment of our $2.0 million PPP loan and the payment of a $2.5 million success fee to Oxford in accordance with the terms of the Oxford Agreement and the resulting settlement of the derivative liability of $2.5 million with a net impact of $2.5 million to accumulated deficit (see Note 3 to our financial statements).

 

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You should read this table together with the sections titled “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. The pro forma and pro forma as adjusted information below is illustrative only and such information will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

     As of June 30, 2021  
     Actual     Pro
Forma
     Pro
Forma
as
Adjusted(1)
 
     (in thousands, except share and
per share amounts)
 

Cash and cash equivalents

   $ 43,168     $                $            
  

 

 

   

 

 

    

 

 

 

Notes payable, current and noncurrent

   $ 33,603     $        $    

Derivative liabilities, current and noncurrent

   $ 3,719     $        $    

Redeemable convertible preferred stock warrant liability

   $ 3,125     $        $    

Redeemable convertible preferred stock, par value $0.001 per share; 935,078,583 shares authorized, 731,820,423 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 87,020     $        $    

Stockholders’ (deficit) equity:

       

Preferred stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

     —         

Common stock, par value $0.001 per share; 1,300,000,000 shares authorized, 172,464,420 shares issued and outstanding, actual; 300,000,000 shares authorized and              shares issued and outstanding, pro forma; 300,000,000 shares authorized and              shares issued and outstanding, pro forma as adjusted

     172       

Additional paid-in capital

     234,535       

Accumulated deficit

     (283,999     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ (deficit) equity

     (49,292     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 78,175     $                    $                
  

 

 

   

 

 

    

 

 

 

 

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $                 million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares of common stock offered by us would increase or decrease, as applicable, each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $                 million, assuming that the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The foregoing discussion and table above are based on                  shares of common stock outstanding as of June 30, 2021, which gives effect to the pro forma transactions described above and excludes:

 

   

453,726 shares of our common stock issuable upon the exercise of warrants that will remain outstanding after the completion of this offering, excluding the 2020 Warrants and the 2021 Warrants (as such terms are defined below), with a weighted-average exercise price of $1.68 per share;

 

   

             shares of our common stock issuable upon the exercise of warrants issued in October 2020, or the 2020 Warrants, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, with a weighted-average exercise price of $         per share, that will remain outstanding after the completion of this offering;

 

   

             shares of our common stock issuable upon the exercise of outstanding warrants issued in May 2021, or the 2021 Warrants, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, that will remain outstanding after the completion of this offering;

 

   

2,263,096 shares of our common stock issuable upon the exercise of outstanding stock options as of June 30, 2021, with a weighted-average exercise price of $1.07 per share;

 

   

restricted stock unit awards with respect to approximately                 shares of our common stock and/or option awards exercisable for approximately                 shares of our common stock (in each case based on the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that we will grant under our Amended and Restated 2002 Stock Option Plan to our directors and employees (in the case of the restricted stock unit awards, such grants will be effective upon the filing of our registration statement on Form S-8 covering such awards, and in the case of the option awards, upon the pricing of this offering and with an option exercise price equal to the initial public offering price);

 

   

            shares of our common stock reserved for future issuance under our 2021 Incentive Award Plan, or the 2021 Plan, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of common stock reserved for issuance under the 2021 Plan;

 

   

             shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, or the ESPP, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of common stock reserved for issuance under the ESPP; and

 

   

any shares of our common stock that may become issuable upon the exercise of warrants that we may issue in the future pursuant to our credit agreement.

For a price sensitivity analysis of the number of shares of our common stock issuable upon exercise of the 2020 Warrants, the 2021 Warrants and the Investor Warrants and to holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock, New Series C-1 redeemable convertible preferred stock and our outstanding convertible promissory notes at various initial public offering prices, see the section titled “Description of Capital Stock.”

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our historical net tangible book value (deficit) as of June 30, 2021 was $(49.3) million, or $(0.29) per share of our common stock. Our historical net tangible book deficit represents our total tangible assets less total liabilities and redeemable convertible preferred stock. Historical net tangible book deficit per share is our historical net tangible book deficit divided by the number of shares of our common stock outstanding as of June 30, 2021.

Our pro forma net tangible book value as of June 30, 2021, before giving effect to this offering, was $                 million, or $                 per share. Pro forma net tangible book value, before the issuance and sale of shares in this offering, gives effect to:

 

   

the conversion of all of the outstanding shares of our redeemable convertible preferred stock as of June 30, 2021 into an aggregate of 731,820,423 shares of common stock immediately prior to the completion of this offering;

 

   

the conversion of all of our outstanding warrants exercisable for our redeemable convertible preferred stock as of June 30, 2021 into warrants exercisable for                  shares of common stock immediately prior to the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and the related reclassification of the redeemable convertible warrant liability to common stock and additional paid-in capital;

 

   

the conversion of all of our outstanding warrants issued in May 2021 into warrants exercisable for                  shares of common stock, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

   

the issuance of                  shares of common stock upon the exercise of outstanding warrants, or the Investor Warrants, to be exercised on a net basis contingent upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

   

the issuance of                  shares of our common stock issuable to the holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock and New Series C-1 redeemable convertible preferred stock upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

   

the issuance of                  shares of our common stock issuable to the holders of our outstanding convertible promissory notes upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

After giving effect to the sale of                  shares of common stock in this offering at the assumed initial public offering price of $                  per share, the midpoint of the price range set forth on the

 

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cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2021 would have been $                 million, or $                 per share. This represents an immediate increase in pro forma net tangible book value of $                 per share to our existing stockholders and an immediate dilution of $                 per share to new investors participating in this offering. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

      $                

Historical net tangible book value (deficit) per share as of June 30, 2021

   $                   

Pro forma increase in net tangible book value per share as of June 30, 2021 attributable to the pro forma transactions described above

     
  

 

 

    

Pro forma net tangible book value per share as of June 30, 2021

     

Increase in pro forma net tangible book value per share attributable to new investors participating in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors participating in this offering

      $    
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $                 per share and the dilution per share to new investors participating in this offering by $                 per share, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase of 1.0 million in the number of shares of common stock offered by us would increase the pro forma as adjusted net tangible book value after this offering by $                 per share and decrease the dilution per share to new investors participating in this offering by $                 per share, and a decrease of 1.0 million shares of common stock offered by us would decrease the pro forma as adjusted net tangible book value by $                 per share and increase the dilution per share to new investors in this offering by $                 per share, assuming that the assumed initial public offering price of $                 per share remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise in full their option to purchase additional shares of common stock from us, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $                 per share and dilution to new investors participating in this offering would be $                 per share.

The following table summarizes on the pro forma as adjusted basis described above, the differences between the number of shares purchased from us, the total consideration paid and the average price per share paid to us by existing stockholders and by investors purchasing shares in this offering at the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us (assuming no purchases of any shares of common stock in this offering by existing stockholders):

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

          $                        $                

Investors participating in this offering

                             
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100      $ 100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own                     % and investors participating in this offering would own                 % of the total number of shares of our common stock outstanding upon the completion of this offering.

The foregoing discussion and tables above (other than the historical net tangible book value calculation) are based on                  shares of common stock outstanding as of June 30, 2021, which gives effect to the pro forma transactions described above and excludes:

 

   

453,726 shares of our common stock issuable upon the exercise of warrants that will remain outstanding after the completion of this offering, excluding the 2020 Warrants and the 2021 Warrants (as such terms are defined below), with a weighted-average exercise price of $1.68 per share;

 

   

             shares of our common stock issuable upon the exercise of warrants issued in October 2020, or the 2020 Warrants, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, with a weighted-average exercise price of $         per share, that will remain outstanding after the completion of this offering;

 

   

             shares of our common stock issuable upon the exercise of outstanding warrants issued in May 2021, or the 2021 Warrants, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, that will remain outstanding after the completion of this offering;

 

   

2,263,096 shares of our common stock issuable upon the exercise of outstanding stock options as of June 30, 2021, with a weighted-average exercise price of $1.07 per share;

 

   

restricted stock unit awards with respect to approximately                 shares of our common stock and/or option awards exercisable for approximately                 shares of our common stock (in each case based on the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus) that we will grant under our Amended and Restated 2002 Stock Option Plan to our directors and employees (in the case of the restricted stock unit awards, such grants will be effective upon the filing of our registration statement on Form S-8 covering such awards, and in the case of the option awards, upon the pricing of this offering and with an option exercise price equal to the initial public offering price);

 

   

             shares of our common stock reserved for future issuance under our 2021 Incentive Award Plan, or the 2021 Plan, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of common stock reserved for issuance under the 2021 Plan; and

 

   

             shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, or the ESPP, which will become effective on the day prior to the first public trading date of our common stock, as well as any future increases in the number of shares of common stock reserved for issuance under the ESPP.

For a price sensitivity analysis of the number of shares of our common stock issuable upon exercise of the 2020 Warrants, the 2021 Warrants and the Investor Warrants and to holders of our New Series B redeemable convertible preferred stock, New Series B-1 redeemable convertible preferred stock, New Series C-1 redeemable convertible preferred stock and our outstanding convertible promissory notes at various initial public offering prices, see the section titled “Description of Capital Stock.”

To the extent that any outstanding warrants or options are exercised or outstanding restricted stock units are settled, new options or other equity awards are issued under our equity incentive plans, additional warrants are issued pursuant to our credit agreement, or we issue additional shares in the future, there will be further dilution to new investors participating in this offering.

 

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SELECTED FINANCIAL DATA

The following tables set forth our selected statements of operations and comprehensive loss data and balance sheet data. Our selected statements of operations and comprehensive loss data for the years ended December 31, 2019 and 2020 and our selected balance sheet data as of December 31, 2019 and 2020 are derived from our audited financial statements appearing elsewhere in this prospectus. Our selected statements of operations and comprehensive loss data for the six months ended June 30, 2020 and 2021 and our selected balance sheet data as of June 30, 2021 are derived from our unaudited interim condensed financial statements appearing elsewhere in this prospectus. The unaudited interim condensed financial statements were prepared on a basis consistent with our audited financial statements and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. You should read the following selected financial data together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. The selected financial data included in this section are not intended to replace the financial statements and are qualified in their entirety by the financial statements and the related notes included elsewhere in this prospectus.

 

     Year Ended December 31,     Six Months Ended
June 30,
 
     2019     2020     2020     2021  
     (in thousands, except share and per share amounts)  

Statements of Operations and Comprehensive Loss Data:

        

Revenue

   $ —       $ 34     $ 7     $ 43  

Cost of revenue

     —         5,640       2,971       4,409  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross loss

     —         (5,606     (2,964     (4,366

Operating expenses:

      

Research and development

     22,989       18,223       8,463       10,282  

Sales and marketing

     4,344       5,835       2,930       7,000  

General and administrative

     2,850       3,618       1,815       3,043  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     30,183       27,676       13,208       20,325  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (30,183     (33,282     (16,172     (24,691

Interest income

     114       4       3       8  

Interest expense

     (2,704     (6,266     (3,567     (856

Change in fair value of derivatives

     (349     7,153       3,920       (5,635

Loss on extinguishment of notes payable

     —         —         —         (121

Other expense, net

     (39     (180     (11     (195
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (2,978     711       345       (6,799
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (33,161   $ (32,571   $ (15,827   $ (31,490
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted(1)

   $ (22.05   $ (0.28   $ (0.33   $ (0.18
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share, basic and diluted(1)

     1,503,782       115,555,954       47,698,885       172,463,955  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited pro forma net loss per share, basic and diluted(2)

     $         $    
    

 

 

     

 

 

 

Weighted-average shares used in computing unaudited pro forma net loss per share, basic and diluted(2)

        
    

 

 

     

 

 

 

 

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(1)

See Note 9 to our audited financial statements as of December 31, 2020 and for the year ended December 31, 2020 and Note 9 to our unaudited interim condensed financial statements as of June 30, 2021 and for the six months ended June 30, 2021 included elsewhere in this prospectus for an explanation of the method used to compute net loss per share.

(2)

Unaudited basic and diluted pro forma net loss per share were computed using the weighted-average number of shares of common stock outstanding after giving effect to the conversion of our redeemable convertible preferred stock using the as-if converted method into common shares as though the conversion had occurred as of the beginning of the period presented. The following table summarizes our unaudited pro forma net loss per share for the year ended December 31, 2020 and the six months ended June 30, 2021 (in thousands, except share and per share data):

 

     Year Ended
December 31, 2020
     Six Months Ended
June 30, 2021
 

Numerator

     

Net loss attributable to common stockholders

   $            $        
  

 

 

    

 

 

 

Denominator

     

Weighted-average shares of common stock outstanding, basic and diluted

                       

Pro forma adjustments to reflect assumed conversion of redeemable convertible preferred stock

                       
  

 

 

    

 

 

 

Weighted-average shares used in computing pro forma net loss per share, basic and diluted

                       
  

 

 

    

 

 

 

Pro forma net loss per share, basic and diluted

   $            $        

 

     As of December 31,     As of
June 30,
 
     2019     2020     2021  
Balance Sheet Data:    (in thousands)  

Cash and cash equivalents

   $ 4,639     $ 43,314     $ 43,168  

Working capital(1)

     (25,389     28,213       41,909  

Total assets

     34,511       82,165       88,399  

Notes payable, current and noncurrent

     30,513       14,309       33,603  

Derivative liabilities, current and noncurrent

     5,245       4,464       3,719  

Redeemable convertible preferred stock warrant liability

     620       211       3,125  

Redeemable convertible preferred stock

     131,111       75,645       87,020  

Accumulated deficit

     (219,938     (252,509     (283,999

Total stockholders’ deficit

     (139,156     (20,272     (49,292

 

(1)

We define working capital as current assets less current liabilities. See our financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section of this prospectus titled “Selected Financial Data” and our financial statements and the related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by these forward-looking statements. You should carefully read the “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section of this prospectus titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a commercial-stage medical technology and digital health company focused on developing comprehensive solutions to improve the health and quality of life of people with diabetes. We developed our first commercial product, the POGO Automatic Blood Glucose Monitoring System, or POGO Automatic, to revolutionize the blood glucose testing process for individuals living with diabetes. POGO Automatic is an automated, self-contained handheld monitor that enables patients to accurately measure blood glucose levels within seconds. POGO Automatic, combined with our Patterns app, offers full connectivity through our secure cloud-based digital health ecosystem, the Patterns app, which centralizes each patient’s blood glucose testing data in a digital form that can be shared with healthcare providers and others who play a central role in assisting with a patient’s diabetes treatment and testing regimen.

We have a multi-channel commercial model that provides increased flexibility for our customers. In February 2020, we initiated a limited commercial launch of POGO Automatic through our online POGO Store. We recently launched our HCP-Rx sales channel in 20 territories in August 2021, and our POGO Automatic Monitor and 10-test Cartridges became available upon request at Walgreens through our distribution agreement with AmerisourceBergen. We currently expect POGO Automatic Monitor and 10-test Cartridges to become available upon request at CVS during the fourth quarter 2021 through our distribution agreement with Cardinal Health, subject to the completion and timing, and our compliance with the requirements, of their new supplier and item setup protocols. We intend to sell POGO Automatic and POGO Automatic Cartridges through our direct sales organization with an initial focus on the U.S. commercial insurance and cash pay markets. Our Rx channel targets high-prescribing HCPs to promote the exclusive features and benefits of POGO Automatic, and our DTC channel serves patients who cannot access a physical pharmacy to purchase POGO Automatic on the online POGO Store. Our OTC channel will allow patients without a script or outside the initial high prescribing target markets to purchase at a convenient location of their choice. Lastly, our Employer POGO 360 Diabetes Management Program, or POGO 360, connects testing supplies and diabetes management programs to the employer population. As of August 2021, we have hired and trained approximately 20 HCP Sales Specialists, three HCP Regional Sales Directors, and a Vice President of HCP sales, who we plan to deploy into 20 U.S. sales markets.

The primary components of POGO Automatic are the POGO Automatic Monitor, POGO Automatic Cartridges and POGO Automatic Control Solutions. We rely on a contract manufacturing organization, or CMO, to manufacture our POGO Automatic Monitors, and we currently manufacture our POGO Automatic Cartridges and POGO Automatic Control Solutions at our facility in Fremont, California. Components used in the manufacture of POGO Automatic are provided by various suppliers, and some of the parts and components of the POGO Automatic Monitor, POGO Automatic Cartridges and POGO Automatic Control Solutions are purchased from sole-source suppliers. We manage any single-source components and suppliers through our global supply chain operation.

 

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Since our inception, we have devoted substantially all of our resources to research and development activities related to POGO Automatic, including clinical and regulatory initiatives to obtain FDA approval, sales and marketing activities, as well as building our manufacturing capabilities for the POGO Automatic Cartridges and POGO Automatic Control Solutions. In 2020, we generated an insignificant amount of revenue related to our limited commercial launch. We have incurred net losses since our inception. Our net losses were $32.6 million and $33.2 million for the years ended December 31, 2020 and 2019, respectively, and $31.5 million and $15.8 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $284.0 million. We expect to continue to incur losses for the foreseeable future.

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock and debt financing agreements. As of June 30, 2021, we had cash and cash equivalents of $43.2 million. In May 2021 we raised $5.8 million in gross proceeds from the issuance of New Series C and New Series C-1 redeemable convertible preferred stock and entered into a credit agreement, or the 2021 Credit Agreement, which provides for borrowings of up to $50.0 million in three tranches: $30.0 million available immediately and two $10.0 million tranches available upon achieving certain revenue milestones. In connection with the 2021 Credit Agreement, we issued the lenders convertible promissory notes in an aggregate principal amount of $7.5 million.

We expect to continue to make substantial investments in building our U.S. commercial infrastructure and improving our existing products and developing new products. Moreover, we expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, and those of the Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services. As a result of these and other factors, we expect that we will require additional financing to fund our operations and planned growth. We may also seek additional financing opportunistically. We may seek to raise any additional capital through public or private equity offerings or debt financings, additional credit or loan facilities or a combination of one or more of these funding sources. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, financial condition and results of operations could be materially adversely affected.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, China. The World Health Organization declared COVID-19 to be a pandemic. COVID-19 has spread across the globe and impacted worldwide economic activity. In 2020, certain U.S. federal, state and local governmental authorities issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. We experienced delays in the completion of our high-volume cartridge automation and other equipment due to the COVID-19 pandemic. We initiated a limited commercial launch of our product in the first quarter of 2020. However, shortly after the limited commercial launch our direct sales activities were impacted by limitations on in-person access to PCPs by our sales personnel and patients.

Some of these governmental restrictions have since been lifted or scaled back, and we expect the easing of restrictions on doctors’ offices visits will continue with increased vaccination rates in the United States. However, recent and future surges of COVID-19 may result in restrictions being re-implemented.

We are continuing to closely monitor the global COVID-19 pandemic. In order to operate in a safe manner, we are following the health and safety guidelines of the U.S. Centers for Disease Control and

 

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Prevention, Occupational Safety and Health Administration, and local and state public health departments where we operate. The majority of our employees at our headquarters have been asked to work from home, with only limited access given to employees to work in the office when necessary. For roles that require employees to be on-site, such as our manufacturing staff, we are generally following California Division of Occupational Safety and Health, or CAL/OSHA, and CDC guidelines.

The ultimate impact of the global COVID-19 pandemic on our operations is unknown and will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 outbreak, the status of health and safety actions taken to contain its spread and any additional preventative and protective actions that governments, or we, may direct, any resurgence of COVID-19 that may occur and how quickly and to what extent economic and operating conditions normalize within the markets in which we operate. The global COVID-19 pandemic has disrupted and could continue to disrupt the operations of our third-party manufacturers and other suppliers. At times, the COVID-19 pandemic prevented our suppliers from delivering products to us and supporting our requirements on a timely basis. For example, in addition to the delays we experienced in the completion of our high-volume cartridge automation equipment due to the COVID-19 pandemic, the proprietary resin used in the manufacture of key components of our Cartridges has been subject to U.S. government allocation program since October 2020 because this resin is used in the manufacture of COVID-19 related medical supplies. We cannot predict how long the pandemic and measures intended to contain the spread of COVID-19 will continue and what effect COVID-19 and the associated containment measures will have on our suppliers, in particular for any of our suppliers that may not qualify as essential businesses and suffer more significant disruptions to their business operations. We are working closely with our manufacturing partners and suppliers to help ensure we are able to source key components and maintain appropriate inventory levels to meet customer demand. See “Risk Factors–Our business, financial condition, results of operations and growth may be impacted by the effects of the COVID-19 pandemic.”

Important Factors Affecting our Business and Results of Operations

We believe that our future performance will depend on many factors, including those described below and in the section titled “Risk Factors” included elsewhere in this prospectus.

Our Ability to Recruit, Train and Retain Our Sales Force and its Productivity

We continue to make substantial investments in building our U.S. commercial infrastructure and sales force and in recruiting and training our sales representatives, whom we engage through a third-party service provider. This process is lengthy and requires significant education and training for our sales representatives to achieve the level of competency with our products that is expected by physicians. Upon completion of the training, we expect our sales representatives to require lead time in the field to grow their network of accounts and achieve the productivity levels we expect them to reach. As we execute an expanded launch of our products and services through our multi-channel commercial model, we will need an effective sales force to help us penetrate and ultimately capture a significant share of the market. Successfully recruiting, training and retaining a sufficient number of productive sales representatives is required to conduct a successful commercial launch, penetrate the market and ultimately achieve growth at the rate we desire.

Physician and Patient Awareness and Acceptance of POGO Automatic

We continue to invest in programs to educate physicians and patients about the advantages of POGO Automatic. Building physician awareness of POGO Automatic requires significant commitment by our marketing and sales organization, and can vary depending upon the physician’s practice

 

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specialization, personal preferences and geographic location. We are competing with large, well-established and well-capitalized companies in our industry that have strong existing relationships with many of these physicians. In addition, building patient awareness through our direct-to-patient marketing initiatives, which include advertising, social media and online education, requires significant commitment and time. Educating physicians and patients about the advantages of POGO Automatic, and influencing physicians and patients to use POGO Automatic is required to meet our revenue growth expectations.

Our Ability to Produce Significant Commercial Quantities

We will need to rapidly scale up production of the POGO Automatic and its components, including the POGO Automatic Cartridges, in order to build sufficient inventory to support our commercial efforts and eventually meet our expected demand for the POGO Automatic. Manufacturers of medical devices often encounter difficulties in production, particularly when scaling up initial production, including difficulties with production costs and yields, quality control and assurance, issues with the supply chain and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Any of these difficulties could cause inventory shortages, increased costs and may result in our inability to effectively commercialize our products.

Leveraging Our Manufacturing Capacity is Critical to Improving Our Gross Margin

Improving our gross margin, which is dependent upon further increasing our manufacturing efficiency and growing our revenue, among other factors, is critical to our ability to reach profitability. We believe we have developed a manufacturing process that is cost effective and scalable to meet higher volumes. We intend to use our design, engineering and manufacturing capabilities to increase automation in the manufacturing process and plan to continue investing in manufacturing efficiencies in order to reduce our overall manufacturing costs. In addition, if we grow our revenue and sell more units, our fixed manufacturing costs will be spread over more units, which we believe will further reduce our manufacturing costs on a per-unit basis. However, other factors will impact our gross margins such as sales channel, pricing and customer discounts, rebates, incentives, support services and potential seasonality.

Components of our Results of Operations

Revenue

We generated an insignificant amount of revenue during 2020 from our limited commercial launch of POGO Automatic Monitors and POGO Automatic Cartridges in a few targeted markets, comprised primarily of DTC sales through our online POGO Store. We recently launched our HCP-Rx sales channel in 20 territories in August 2021, and our POGO Automatic Monitor and 10-test Cartridges became available upon request at Walgreens through our distribution agreement with AmerisourceBergen. We currently expect POGO Automatic Monitor and 10-test Cartridges to become available upon request at CVS during the fourth quarter 2021 through our distribution agreement with Cardinal Health, subject to the completion and timing, and our compliance with the requirements, of their new supplier and item setup protocols. We expect our sales to increase as we execute this expanded launch through our Rx, DTC, Retail Pharmacy and Employer Program sales channels.

We believe our revenue will be derived primarily from the sale of POGO Automatic Monitors and Cartridges through the Rx channel. Our Rx channel targets high-prescribing HCPs to promote the exclusive features and benefits of POGO Automatic. As a complement to our Rx channel, we believe our DTC channel will drive patients who cannot access a physical pharmacy to purchase POGO Automatic on the online POGO Store. In addition, our OTC channel will allow patients without a script or outside the initial high prescribing target markets to purchase at a convenient location of their choice. Under POGO 360, we plan to enter into contracts with employers to provide testing supplies

 

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and diabetes management programs to employer populations. We also expect to generate revenue from the coaching platform on Patterns, an optional service available for a monthly subscription fee.

Cost of Revenue and Gross Margin

Our POGO Automatic Monitors are manufactured by a CMO, and we currently manufacture our POGO Automatic Cartridges at our facility in Fremont, California.

Cost of revenues includes raw materials, labor costs, manufacturing expenses and write downs for anticipated scrap and inventory obsolescence as well as amounts paid for our products to the CMO and costs associated with our Patterns app. Due to the semi-automated manufacturing process we used to manufacture the cartridge during the first quarter of 2021 and the relatively low production volumes of our products, the majority of our per-unit costs are direct manufacturing labor costs and allocated overhead expenses. Overhead expenses subject to allocation include quality assurance, engineering, material procurement, chemistry, inventory control, facilities, equipment and operations supervision and management, and are allocated based on the time and effort expended during the period.

We calculate gross margin as gross profit divided by revenue. As we begin to utilize our high-volume manufacturing line for production of POGO Automatic Cartridges in the second quarter of 2021, we expect our overall gross margin to fluctuate in future periods as a result of increased manufacturing output as well as changes in and improvements to our manufacturing processes and expenses. We expect that our gross margin will continue to be affected by a variety of factors, including changes in average selling prices, sales mix, production and ordering volumes, manufacturing costs, product yields, headcount, changes in supply chain, and future purchases of automation equipment utilized in the manufacturing process. In general, we expect our per unit cost to decrease and our gross margins to increase over the long-term to the extent our production and ordering volumes increase and to the extent we spread manufacturing overhead costs over a larger number of units produced and sold. Our gross margins could fluctuate from quarter-to-quarter as we transition to new suppliers and adopt new manufacturing processes and technologies.

Research and Development Expenses

Research and development expenses consist of costs related to the development of our POGO Automatic Blood Glucose Monitoring System, personnel costs, including salaries, benefits and stock-based compensation, and prior to our limited commercial launch, certain costs related to our Patterns app and launch software updates. These expenses relate to engineering, product development, internal and external costs associated with our regulatory compliance and quality assurance functions, and other costs associated with products and technologies that are in development. These expenses also include laboratory supplies, costs of consulting, materials, and allocations of various overhead costs, including facility costs, utilities and equipment depreciation. Our research and development expenses as a percentage of revenue may vary over time depending on the level and timing of our new product development efforts, as well as our clinical development programs and other related activities. We expect our research and development expenses to increase in absolute dollar amounts as we continue to invest in improving our existing products and developing of new products.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation, direct HCP/physician marketing, digital marketing, advertising and promotional expenses, consulting fees and allocations of various overhead costs, including facility costs and utilities. We expect our sales and marketing expenses to increase in absolute dollars as we

 

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hire additional sales and marketing personnel, expand our sales support infrastructure and invest in our brand, product awareness and sampling programs to drive adoption and retention to increase market share.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation related for executive management, finance administration, and human resources, professional service fees and other general overhead costs, including allocated facility costs and utilities. We expect general and administrative expenses to continue to increase in absolute dollars as we expand our infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting, insurance and other expenses associated with being a public company.

Interest Income

Interest income consists of interest earned on cash and cash equivalents.

Interest Expense

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our 2019 and 2020 convertible notes, our loan facility that we entered into in 2017 with Hercules Capital, Inc., as administrative agent, and several banks and other financial institutions or entities from time to time parties thereto, as lenders, or, as amended to date, the 2017 Loan Facility, and our 2021 Credit Agreement and 2021 Convertible Notes that we entered into in May 2021 with Madryn Health Partners, Inc., as administrative agent.

Change in Fair Value of Derivatives

We have several financial instruments that are recorded as derivative liabilities. Our obligation to pay a $2.5 million success fee to a former lender upon a successful liquidation event, including the completion of this offering, represents a freestanding financial instrument. The instrument, which is classified as a liability in the balance sheets, was initially recorded at fair value and is subject to remeasurement to fair value at each balance sheet date, with any change in fair value reflected in the statements of operations and comprehensive loss. The completion of this offering will result in the liquidation of this instrument as we intend to use a portion of the proceeds from this offering to satisfy our obligations under the instrument.

We previously issued warrants that are exercisable for our redeemable convertible preferred stock. The warrants are classified as liabilities in the balance sheets, were initially recorded at fair value and are subject to remeasurement to fair value at each balance sheet date, with any change in fair value recognized in the statements of operations and comprehensive loss. The completion of this offering will result in the liquidation of certain of these warrants that provide for net exercise contingent upon the completion of this offering. The remaining warrants will convert into warrants exercisable for common stock immediately prior to the completion of this offering. Following completion of this offering and net exercise or conversion of our outstanding warrants, we will no longer remeasure to fair value.

Our 2019 and 2020 convertible notes contained embedded features that provided the lenders with multiple settlement alternatives. Certain settlement features embedded in the convertible notes met the requirements for separate accounting and were accounted for as a single, compound derivative instrument for each round of convertible note financing and classified as liabilities in the balance sheet. The compound derivative instruments were initially recorded at fair value and were subject to remeasurement to fair value at each balance sheet date, with the change in fair value reflected in the statements of operations and comprehensive loss. In October 2020, the 2019 and 2020

 

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convertible notes were converted into New Series B redeemable convertible preferred stock, and the derivative instruments were settled as part of the conversion.

Our New Series B and New Series B-1 redeemable convertible preferred stock contained tranche options that allowed the investors to participate in future rounds of redeemable convertible preferred stock issuance, or the preferred stock tranche option. The preferred stock tranche options represented freestanding financial instruments and are classified as liabilities in the balance sheets. The preferred stock tranche options were initially recorded at fair value and were subject to remeasurement to fair value at each balance sheet date, with the change in fair value reflected in the statements of operations and comprehensive loss. In May 2021, we issued shares of our New Series C and New Series C-1 redeemable convertible preferred stock in connection with the exercise of the preferred stock tranche option by the holders.

Results of Operations

Comparison of the Six Months Ended June 30, 2021 and 2020 (dollars in thousands)

 

     Six Months Ended
June 30,
    Change  
     2021     2020     $     %  

Revenue

   $ 43     $ 7     $ *       *  

Cost of revenue

     4,409       2,971       1,438       48
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross loss

     (4,366     (2,964     (1,402     47

Operating expenses:

        

Research and development

     10,282       8,463       1,819       21

Sales and marketing

     7,000       2,930       4,070       139

General and administrative

     3,043       1,815       1,228       68
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     20,325       13,208       7,117       54
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (24,691     (16,172     (8,519     53

Interest income

     8       3       *       *  

Interest expense

     (856     (3,567     2,711       (76 %) 

Change in fair value of derivatives

     (5,635     3,920       (9,555     (244 %) 

Loss on extinguishment of notes payable

     (121     —         *       *  

Other income (expense), net

     (195     (11     *       *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (6,799     345       (7,144     (2,071 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (31,490   $ (15,827   $ (15,663     99
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Not meaningful

Revenue. We generated an insignificant amount of revenue during 2020 from our limited commercial launch of POGO Automatic Monitors and POGO Automatic Cartridges in a few targeted markets, comprised primarily of DTC sales through our online POGO Store. Revenue increased in the six months ended June 30, 2021 as a result of increased sales through our online POGO Store.

Cost of Revenue and Gross Loss. Our cost of revenue increased by $1.4 million from $3.0 million in the six months ended June 30, 2020 to $4.4 million in the six months ended June 30, 2021. During 2020, we began our transition from a research and development stage company to a manufacturing and commercialization stage company during which we commenced the manufacturing of cartridges resulting in the production of commercial product in order to accommodate the limited commercial launch. As a result, we began allocating manufacturing expenses, including overhead expenses, as well as costs associated with our Patterns app, to cost of revenue. Prior to the commercialization stage such expenses were allocated primarily to research and development.

 

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During the six months ended June 30, 2021, we devoted significant research and development resources to support the design of our manufacturing processes for our high-volume cartridge automation equipment and, as a result of successful validation efforts in May 2021, significantly increased our manufacturing output of sellable inventory in preparation for our expanded commercial launch. As such, increased amounts of direct labor costs, as well as overhead expenses were allocated to cost of revenue.

Our total gross loss increased in the six months ended June 30, 2021 as a result of higher allocation of manufacturing overhead expenses to cost of revenue.

Research and Development Expenses. Our research and development expenses increased by $1.8 million from $8.5 million in the six months ended June 30, 2020 to $10.3 million in the six months ended June 30, 2021. The increase was largely due to overall increased research and development efforts in support of the design of our manufacturing process for our high-volume cartridge automation line, including payroll expenses, as well as a $1.1 million increase in materials for our meters and cartridges, which were utilized in the course of our process design efforts. This increase was partially offset by $0.1 million decrease in travel-related expenses.

Sales and Marketing Expenses. Our sales and marketing expenses increased by $4.1 million from $2.9 million in the six months ended June 30, 2020 to $7.0 million in the six months ended June 30, 2021. The increase was primarily driven by increased sales and marketing efforts as well as continued market research and expanding sales channel preparations for an expanded commercial launch. As a result, our market research and marketing strategy consulting expenses increased by $0.7 million and sales program development expenses, including recruitment and training of sales personnel, increased by $2.6 million.

General and Administrative Expenses. Our general and administrative expenses increased by $1.2 million from $1.8 million in the six months ended June 30, 2020 to $3.0 million in the six months ended June 30, 2021. The increase was primarily due to increased personnel expenses, legal, audit and consulting services as we prepare to operate as a public company.

Interest Expense. Our interest expense decreased by $2.7 million from $3.6 million in the six months ended June 30, 2020 to $0.9 million in the six months ended June 30, 2021. The decrease in interest expense was driven primarily by lower overall outstanding debt under our notes payable, due to conversion of our promissory notes into redeemable convertible preferred stock in October 2020.

Change in Fair Value of Derivatives. Our change in expenses related to fair value of derivatives increased by $9.6 million from $3.9 million of income in the six months ended June 30, 2020 to a $5.6 million expense in the six months ended June 30, 2021. The increase was driven primarily by the increase of $6.1 million in the fair value of the preferred stock tranche option, an increase in the notes payable success fee derivative of $1.8 million, an increase in the fair value of our preferred stock warrant liability of $1.1 million and an increase in the fair value of the compound derivative instruments related to the 2019 and 2020 convertible notes of $1.5 million, offset by a decrease in the fair value of our compound derivative instruments related to the 2021 Credit Agreement of $0.9 million.

 

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Comparison of the Years Ended December 31, 2020 and 2019 (dollars in thousands)

 

     Years Ended
December 31,
    Change  
     2020     2019     $     %  

Revenue

   $ 34     $ —         *       *  

Cost of revenue

     5,640       —         5,640       100
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross loss

     (5,606     —         (5,606     (100 %) 

Operating expenses:

        

Research and development

     18,223       22,989       (4,766     (21 %) 

Sales and marketing

     5,835       4,344       1,491       34

General and administrative

     3,618       2,850       768       27
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,676       30,183       (2,507     (8 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (33,282     (30,183     (3,099     10

Interest income

     4       114       *       *  

Interest expense

     (6,266     (2,704     (3,562     132

Change in fair value of derivatives

     7,153       (349     7,502       (2,150 %) 

Other expense, net

     (180     (39     *       *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     711       (2,978     3,689       (124 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (32,571   $ (33,161   $ 590       2
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Not meaningful

Revenue. We generated an insignificant amount of revenue during 2020 from our limited initial commercial launch of POGO Automatic Monitors and POGO Automatic Cartridges in a few targeted markets, comprised primarily of DTC sales through our online POGO Store.

Cost of Revenue and Gross Loss. Our cost of revenue increased by $5.6 million from $0 in 2019 to $5.6 million in 2020. During 2020, we began our transition from being a research and development stage company to a manufacturing and commercialization stage company and commenced the manufacturing of cartridges and produced commercial product in order to accommodate the limited launch. As a result, we began allocating manufacturing expenses, including overhead expenses, as well as costs associated with our Patterns app, to cost of revenue. We incurred $3.5 million of expenses, which includes cost of materials, equipment depreciation and other expenses that are not capitalizable due to the adjustment of inventory carrying values to the net realizable value, all of which were previously classified as research and development to cost of revenue in 2020. Additionally, due to the transition to a commercialized company, we realized an increase of $1.6 million due to the classification of certain costs related to the Patterns app.

Our total gross loss is a result of the transition from being a research and development stage company to a manufacturing and commercialization stage company.

Research and Development Expenses. Our research and development expenses decreased by $4.8 million from $23.0 million in 2019 to $18.2 million in 2020. In 2019, we were a development stage company with primary efforts devoted to developing our manufacturing processes. In 2020, we commenced our semi-automated manufacturing process and transitioned to a commercialization stage company. As a result, we incurred $3.5 million of expenses, including cost of materials, equipment depreciation and other expenses that are not capitalizable due to the adjustment of inventory carrying values to net realizable value that were previously classified as research and development to cost of revenue in 2020. Additionally, due to the transition to a commercialized company, we realized a

 

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decrease of $1.6 million in research and development due to the classification of certain costs related to the Patterns app. This decrease was partially offset by an increase of $0.5 million in depreciation expense.

Sales and Marketing Expenses. Our sales and marketing expenses increased by $1.5 million from $4.3 million in 2019 to $5.8 million in 2020. The increase was primarily driven by increased sales and marketing efforts as a result of the limited commercial launch, as well as continued market research, and expanding sales channel preparations in anticipation of an expanded 2021 commercial launch. As a result, our market research and marketing strategy consulting expenses increased by $0.9 million, our personnel expenses increased by $0.4 million and our expenses related to customer support increased by $0.2 million.

General and Administrative Expenses. Our general and administrative expenses increased by $0.7 million from $2.9 million in 2019 to $3.6 million in 2020. The increase was due primarily to increased personnel expenses, legal, audit and consulting services.

Interest Expense. Our interest expense increased by $3.6 million from $2.7 million in 2019 to $6.3 million in 2020. The increase in interest expense was driven primarily by higher overall outstanding debt under our promissory notes, due to issuance of our 2020 promissory notes issued in February, April and September of 2020, and amortization of related debt discounts.

Change in Fair Value of Derivatives. Our change in fair value of derivatives increased by $7.5 million from a $0.3 million expense in 2019 to $7.2 million in income in 2020. The increase was driven primarily by the decline of $7.2 million in the fair value of the compound derivative instruments related to the 2019 and 2020 convertible notes, and a net decline in the fair value of our preferred stock warrant liability of $0.4 million.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

 

     Years Ended
December 31,
    Six Months Ended
June 30,
 
     2020     2019     2021     2020  

Net cash provided by (used in)

        

Operating activities

   $ (31,512   $ (32,555   $ (23,672   $ (14,997

Investing activities

     (7,354     (7,460     (5,342     (1,659

Financing activities

     79,616       27,572       28,724       20,170  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash, cash equivalents, and restricted cash

   $ 40,750     $ (12,443   $ (290   $ 3,514  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash Used in Operating Activities—Net cash used in operating activities for the six months ended June 30, 2021 was $23.7 million, consisting primarily of a net loss of $31.5 million, partly offset by a decrease in operating assets and liabilities of $0.4 million and non-cash charges of $7.3 million. The decrease in operating assets and liabilities was due to a $0.3 million decrease in prepaid expenses and other current assets, an increase in inventories of $2.1 million, and a $1.1 million increase in other assets, partially offset by a $2.8 million decrease in accounts payable and accrued expenses and other current liabilities, and a $0.6 million decrease in other noncurrent liabilities. The non-cash charges primarily consisted of $1.2 million of depreciation and amortization expense and a net change in fair value of derivatives of $5.6 million.

Net cash used in operating activities for the six months ended June 30, 2020 was $15.0 million, consisting primarily of a net loss of $15.8 million, partly offset by a decrease in operating assets and

 

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liabilities of $0.3 million and non-cash charges of $0.6 million. The decrease in operating assets and liabilities was due to a $1.7 million decrease in accounts payable and accrued expenses and other current liabilities, partially offset by a $1.4 million increase in inventories. The non-cash charges primarily consisted of $1.1 million of depreciation and amortization expense and $3.4 million of non-cash interest expense, offset by a net change in fair value of derivatives of $3.9 million.

Net cash used in operating activities for the year ended December 31, 2020 was $31.5 million, consisting primarily of a net loss of $32.6 million, which included an increase in net operating assets of $0.1 million, partially offset by non-cash charges of $1.2 million. The $0.1 million increase in our operating assets was primarily due to a $1.9 million increase in inventory and a $0.6 million increase in prepaid expenses and other current assets, partially offset by a $2.4 million increase in accounts payable and accrued expenses and other current liabilities. The non-cash charges primarily consisted of a $6.1 million of non-cash interest expense and $2.2 million of depreciation and amortization expense, partially offset by a net change in fair value of derivatives of $7.2 million.

Net cash used in operating activities for the year ended December 31, 2019 was $32.6 million, consisting primarily of a net loss of $33.2 million and an increase in net operating assets of $3.0 million, offset by non-cash charges of $3.6 million. The increase in net operating assets was primarily due to increases in inventories of $2.9 million. The non-cash charges primarily consisted of depreciation and amortization of $1.6 million and $1.6 million of non-cash interest expense.

Net Cash Used in Investing Activities—Net cash used in investing activities in the six months ended June 30, 2021 and 2020 was $5.3 million and $1.7 million, respectively, consisting of purchases of property and equipment.

Net cash used in investing activities in the years ended December 31, 2020 and 2019 was $7.4 million and $7.5 million, respectively, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities—Net cash provided by financing activities in the six months ended June 30, 2021 and 2020 was $28.7 million and $20.2 million, respectively, and primarily relates to net proceeds of $35.9 million and $23.4 million from the issuance of notes payable and convertible notes, respectively, and $5.8 million from the issuance of New Series C and New Series C-1 redeemable convertible preferred stock in 2021, partly offset by the repayment of notes payable of $12.5 million and $3.0 million.

Net cash provided by financing activities in the year ended December 31, 2020 of $79.6 million primarily relates to net proceeds from issuance of New Series B and New Series B-1 redeemable convertible preferred stock of $52.5 million, net proceeds of $28.4 million from the issuance of convertible notes and $2 million from a loan obtained through the Paycheck Protection Program, or PPP, partially offset by the repayment of notes payable of $3.0 million and issuance costs related to New Series A and New Series A-1 redeemable convertible preferred stock of $0.3 million.

Net cash provided by financing activities in the year ended December 31, 2019 of $27.6 million primarily relates to net proceeds from issuance of convertible notes of $17.9 million and net proceeds of $13.0 million from the issuance of our Series 5 redeemable convertible preferred stock, partially offset by the repayment of notes payable of $3.3 million.

Liquidity and Capital Resources

Liquidity

We have incurred net losses and negative cash flows since inception. To date, our primary sources of capital have been private placements of redeemable convertible preferred stock and debt financing agreements. Since our inception, we have raised an aggregate of approximately $325.0 million in gross

 

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proceeds from the sale of our redeemable convertible preferred stock, borrowed and repaid $17.5 million of gross proceeds under the 2017 Loan Facility, and borrowed $37.5 million in gross proceeds under our 2021 Credit Agreement and 2021 Convertible Notes.

As of June 30, 2021, we had cash and cash equivalents of $43.2 million and an accumulated deficit of $284.0 million. In May 2021, we raised $5.8 million in gross proceeds from the issuance of New Series C and New Series C-1 redeemable convertible preferred stock and entered into the 2021 Credit Agreement, which provides for borrowings of up to $50.0 million in three tranches: $30.0 million available immediately and two $10.0 million tranches available upon achieving certain revenue milestones. In connection with the 2021 Credit Agreement, we issued the lenders convertible notes in an aggregate principal amount of $7.5 million. As of June 30, 2021, we had $30.1 million outstanding under our 2021 Credit Agreement (before debt discount) and $7.6 million outstanding under our 2021 Convertible Notes (before debt discount), as well as an additional $2.0 million outstanding under our PPP loan. Without giving effect to the net proceeds from this offering, we do not believe we have sufficient cash and cash equivalents on hand to fund our operations for at least 12 months after the date of issuance of our most recent financial statements appearing elsewhere in this prospectus. The report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2020 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.

Based on our planned operations, we expect that the net proceeds from this offering, together with our existing cash and cash equivalents will fund our operations through at least 12 months from the date of this prospectus. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depends on, many factors, including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, and the continued market adoption of our products. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements, public offerings and/or debt financing necessary to alleviate any substantial doubt about our ability to continue as a going concern or support our working capital requirements. In addition, no assurance can be given that additional financing will be available, or if available, will be offered to us on acceptable terms. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected, and, if we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

2014 Credit Agreement with Oxford Finance LLC

In July 2014, we entered into a credit agreement, or the 2014 Credit Agreement, with Oxford Finance LLC, or Oxford. The 2014 Credit Agreement provided us with a term loan facility in an aggregate principal amount of up to $19.7 million. The term loan facility was repaid in full and the obligations under the 2014 Credit Agreement were terminated (other than the success fee and other inchoate indemnity obligations) in connection with new term loans in December 2017.

In connection with the 2014 Credit Agreement, we entered into a success fee agreement with Oxford, which was modified by an amended and restated success fee agreement in May 2016. Pursuant to the amended and restated success fee agreement, we agreed to pay to Oxford a fee in the amount of $2.5 million upon the initial public offering of our common stock. Our obligations under the amended and restated success fee agreement survived termination of the 2014 Credit Agreement and our obligations thereunder. We intend to pay the $2.5 million fee on the completion of this offering in accordance with the terms of the amended and restated success fee agreement.

 

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2017 Loan Facility

In December 2017, we entered into a loan facility with Hercules Capital, Inc., as administrative agent, and several banks and other financial institutions or entities from time to time parties thereto, as lenders, for up to $30.0 million, available in three draw periods. We drew down the first tranche of $17.5 million and issued warrants exercisable for 1,819,078 shares of Series 4 redeemable preferred stock at $0.38 per share that expire in 10 years, which are currently exercisable for an aggregate of              shares of common stock, based on an initial public offering price of our common stock equal to the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

On December 27, 2018, we amended the agreement to extend the end of the interest-only period from December 31, 2018 to March 31, 2019 and amended the final additional interest payment from 4.95% to 5.95% of the amount borrowed. We did not qualify to draw down on the additional tranches, and the amendment eliminated the future tranches of $12.5 million and resulted in a cancellation of the contingent warrants.

On May 31, 2019, we entered into a second amendment to loan and security agreement to extend the end of interest-only period from May 31, 2019 to September 1, 2019, include a further interest-only extension period if certain conditions are met, amend the final additional interest payment from 5.95% to 6.95%, incorporate a minimum cash covenant of $1.0 million and amend the warrant agreement to reflect the conversion of the shares of redeemable convertible preferred stock underlying the warrants from Series 4 to Series 5 shares. On August 29, 2019, we met the conditions to further extend the interest-only period from September 1, 2019 to October 1, 2019. In 2020, we entered into additional amendments to the loan and security agreement to extend the end of the interest-only period to March 1, 2021. On February 26, 2021, we entered into the eighth amendment to the 2017 Loan Facility loan and security agreement to extend the end of interest-only period from March 1, 2021 to May 1, 2021. On April 27, 2021, we entered into the ninth amendment to the loan and security agreement to extend the interest-only payment period from May 1, 2021 to coincide with the loan maturity date of June 1, 2021.

The amounts due under the 2017 Loan Facility have a maturity date of 42 months from loan closing. The loan facility bears interest at the greater of 9.25% or 9.25% plus U.S. WSJ Prime minus 4.25%. The collateral for the loan facility includes all of our current and future assets and fixtures, including intellectual property.

For the years ended December 31, 2020 and 2019, we recorded $1.6 million and $2.5 million, respectively, of interest expense related to the 2017 Loan Facility. For the six months ended June 30, 2021 and 2020, we recorded $0.5 million and $0.9 million, respectively, of interest expense related to the 2017 Loan Facility. We also accrue for the final payments using effective interest rate method over the term of the loan facility. We recorded $0.3 million and $0.5 million during 2020 and 2019, respectively, resulting in a total final interest payment liability of $1.1 million and $0.9 million as of December 31, 2020 and 2019, respectively. We recorded $0.1 million during the six months ended June 30, 2021, resulting in a total final interest payment liability of $1.2 million.

Our weighted-average borrowing rate was 9.25%, 9.34% and 10.13% as of May 24, 2021, December 31, 2020 and December 31, 2019, respectively.

On May 24, 2021, we fully repaid all amounts outstanding under the 2017 Loan Facility prior to maturity with the proceeds from the 2021 Credit Agreement.

Paycheck Protection Program Loan

In July 2020, we entered into a note with Silicon Valley Bank pursuant to the PPP for the amount of $2.0 million, or the PPP Loan. The PPP, established as part of the Coronavirus Aid, Relief, and

 

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Economic Security Act, or the CARES Act, provides for loans to qualifying businesses and is administered by the U.S. Small Business Administration, or the SBA. The term of the PPP Loan is five years. The annual interest rate of the PPP Loan is 1%. There shall be no payments due by the Company from the date of the loan and continuing until the earlier of (1) such time as a forgiveness amount is remitted to SBA, (2) such time as the SBA determines the Loan is not eligible for forgiveness, in whole or in part and (3) if the Company fails to properly apply for forgiveness pursuant to Section 1106 of the CARES Act. We used the entire PPP Loan for payroll expenses. We may prepay the PPP Loan at any time prior to maturity with no prepayment penalties. We plan to prepay the PPP Loan from the proceeds of this offering.

2021 Debt Facility

In May 2021, we entered into a borrowing facility with a lender, or the 2021 Debt Facility, under which we received total gross cash proceeds of $37.5 million. The 2021 Debt Facility consisted of the 2021 Credit Agreement and the 2021 Convertible Notes. Further, in conjunction with the 2021 Debt Facility, we issued to the lender warrants to purchase shares of the Company’s capital stock, or the May 2021 warrants. The estimated fair value of the May 2021 warrants at issuance of $2.4 million was based on the Black-Scholes option-pricing model and probability of future draw downs. The May 2021 warrants were recorded at the fair value as a debt discount and as a warrant liability. In conjunction with the 2021 Debt Facility, we also incurred $0.5 million in lender fees and $1.1 million in debt issuance costs.

2021 Credit Agreement

The 2021 Credit Agreement matures on March 31, 2026, or the 2021 Credit Agreement maturity date, and, unless an event of default is continuing, has a stated floating interest rate which equates to three-month LIBOR (or 1%, whichever is higher, further referred to as the “base rate”) plus 11.00%. The loan principal is repayable in four quarterly installments commencing on June 30, 2025. So long as no event of default is continuing and unless we select to pay all interest in cash, any amount greater than 3 month LIBOR plus 7.00% shall be paid-in-kind by adding such excess amount to the outstanding principal amount of the loans then outstanding, up and until June 30, 2025. On and after June 30, 2025, all interest shall only be payable in cash. Final payment of the remaining principal at the termination of the loan is due on March 31, 2026 (or earlier, as set forth in the 2021 Credit Agreement). In addition, we must pay to the lender a 1.5% one time fee in connection with each Term B loan borrowing or Term C loan borrowing pursuant to the 2021 Credit Agreement.

The 2021 Credit Agreement is split into three tranches as follows: (i) the Term A loan provides for $30.0 million available to draw upon entering into the 2021 Credit Agreement, (ii) the Term B loan provides for $10.0 million upon our achievement of specified revenue level by June 30, 2022, and (iii) the Term Loan C provides for an additional $10.0 million upon our achievement of a specified revenue level by December 31, 2022. In May 2021, we borrowed $30.0 million under the Term Loan A, while the amounts under the Term B and Term C loans remain undrawn.

We may prepay the 2021 Credit Agreement prior to the 2021 Credit Agreement maturity date in the amount of at least $5.0 million and in further increments of $1.0 million. The 2021 Credit Agreement becomes immediately repayable in full upon an event of default that has occurred and is continuing, at the request of the lenders having total credit exposures representing more than 50% of the total credit exposures of all lenders (excluding defaulting lenders) under the 2021 Credit Agreement, or the Required Lenders, and change of control. In addition, the 2021 Credit Agreement becomes immediately repayable in part or in full upon certain voluntary or involuntary dispositions and certain receipts of cash proceeds, including issuance of new debt. Upon either voluntary or involuntary prepayment, we are required to pay to the lender a prepayment premium of (i) (a) in connection with a change of control occurring after May 24, 2021 in which any person or group becomes the beneficial owner of our equity interests, representing more than 50% of the aggregate ordinary voting power in

 

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the election of the our board of directors, or a Takeover Change of Control, 15.00% of the outstanding unpaid principal amounts prepaid prior to March 31, 2023, or (b) other than in connection with a Takeover Change of Control, the make-whole amount with respect to such payment, (ii) 7.50% of the outstanding unpaid principal amount prepaid or required to be paid after March 31, 2023 but before March 31, 2024, (iii) 5.00% of the outstanding unpaid principal amount with respect to any prepayment made after March 31, 2024 but before March 31, 2025, and (iv) 2.50% of the outstanding unpaid principal amount prepaid with respect to any prepayment after March 31, 2025.

We required to meet minimum consolidated revenues for any four consecutive fiscal quarters commencing June 30, 2022 in specified amounts. In addition, the 2021 Credit Agreement includes customary negative covenants. As of June 30, 2021, we were in compliance with all financial covenants attaching to the 2021 Credit Agreement.

The 2021 Credit Agreement is subject to full or partial prepayment in the event we default on our obligations under the 2021 Credit Agreement, undergo certain voluntary or involuntary dispositions of assets, or in the event of change of control.

2021 Convertible Notes

In conjunction with the 2021 Debt Facility, we issued to the same lender 2021 Convertible Notes for gross proceeds of $7.5 million. Simple interest on the unpaid principal balance of the 2021 Convertible Notes accrues from the issuance date at a rate of 8.0% per year and is payable at maturity. Unless converted or redeemed upon the occurrence of certain events, the 2021 Convertible Notes are to mature on March 31, 2024.

The 2021 Convertible Notes will automatically convert into             shares of our common stock upon the completion of this offering, based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus.

Funding Requirements

We expect to continue to make substantial investments in building our U.S. commercial infrastructure and improving our existing products and developing new products. Even if this offering is successful, we may need additional funding to fund our operations, but additional funds may not be available to us on acceptable terms on a timely basis, if at all. We may seek to raise any additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources.

Our future capital requirements will depend on many factors, including:

 

   

the timing, receipt and amount of sales from our current and future products;

 

   

the cost of manufacturing, either ourselves or through third-party manufacturers, our products;

 

   

the cost and timing of expanding our sales, marketing and distribution capabilities;

 

   

the terms and timing of any other partnership, licensing and other arrangements that we may establish;

 

   

any product liability or other lawsuits related to our current or future products;

 

   

the expenses needed to attract, hire and retain skilled personnel;

 

   

the costs associated with being a public company;

 

   

the duration and severity of the COVID-19 pandemic and its impact on our business and financial markets generally;

 

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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and

 

   

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, financial condition and results of operations could be materially adversely affected.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2 to our audited financial statements as of and for the years ended December 31, 2020 and 2019 included elsewhere in this prospectus, we believe the following discussion addresses our most critical accounting estimates, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Stock-Based Compensation and Fair Value of Common Stock

We maintain performance incentive plans under which incentive and nonqualified stock options are granted primarily to employees and may be granted to non-employee consultants.

Stock-based compensation expense related to awards to employees is measured at the grant date based on the fair value of the award. The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has been reduced by an estimated forfeiture rate.

We use the Black-Scholes option valuation model, which requires the use of estimates, such as stock price, volatility of our common stock, expected term, a risk-free interest rate and the expected dividend yield.

 

   

Expected volatility—Because our common stock has not been publicly traded, the expected volatility for our stock options was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to our business corresponding to the expected term of the awards.

 

   

Expected term—The expected term represents the weighted-average period these stock awards are expected to remain outstanding. We do not have sufficient historical exercise and

 

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post-vesting termination activity to provide accurate data for estimating the expected term of options and have opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

 

   

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards.

 

   

Expected dividend yield—The expected dividend rate is zero as we currently have no history or expectation of declaring dividends on our common stock.

Expected forfeitures are based on our historical experience. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from the prior estimates. Changes in estimated forfeitures will be recognized in the period of change and will impact the amount of stock compensation expense to be recognized in future periods.

Stock-based compensation expense related to awards to non-employees is recognized based on the then-current fair value at each measurement date over the associated service period of the award, which is generally the vesting term, using the straight-line amortization method. The fair value of non-employee stock options is estimated using the Black-Scholes valuation model with assumptions generally consistent with those used for employee stock options, with the exception of the expected term, which is the remaining contractual life at each measurement date.

Prior to our initial public offering, the fair value of our common stock was determined by the board of directors with assistance from management and based, in part, on input from an independent third-party valuation firm. The board of directors determines the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of redeemable convertible preferred stock, operating and financial performance, the lack of liquidity our common stock and the general and industry-specific economic outlook.

Our valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. The methodology to determine the fair value of our common stock included estimating the fair value of the enterprise using the “backsolve” method, which estimates the fair value of our company by reference to the value and preferences of our last round of financing, as well as our capitalization.

The assumptions used to determine the estimated fair value of our common stock are based on numerous objective and subjective factors, combined with management’s judgment, including external market conditions affecting the medical device industry and trends within the industry:

 

   

Our stage of development;

 

   

The rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

 

   

The prices at which we sold shares of our redeemable convertible preferred stock;

 

   

Our financial condition and operating results, including our levels of available capital resources;

 

   

The progress of our research and development efforts, our stage of development and business strategy;

 

   

Equity market conditions affecting comparable public companies; and

 

   

General U.S. market conditions and the lack of marketability of our common stock.

 

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The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:

 

   

Income approach. The income approach attempts to value an asset or security by estimating the present value of the future economic benefits it is expected to produce. These benefits can include earnings, cost savings, tax deductions and disposition proceeds from the asset. An indication of value may be developed in this approach by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation over the asset’s holding period and the risks associated with realizing the cash flows in the amounts and at the times projected. The discount rate selected is typically based on rates of return available from alternative investments of similar type and quality as of the valuation date. The most commonly employed income approach to valuation is the discounted cash flow analysis.

 

   

Market Approach. The market approach attempts to value an asset or security by examining observable market values for similar assets or securities. Sales and offering prices for comparable assets are adjusted to reflect differences between the asset being valued and the comparable assets, such as, location, time and terms of sale, utility and physical characteristics. When applied to the valuation of equity, the analysis may include consideration of the financial condition and operating performance of the company being valued relative to those of publicly traded companies or to those of companies acquired in a single transaction, which operate in the same or similar lines of business.

 

   

Cost Approach. The cost approach to valuation is based upon the concept of replacement cost as an indicator of value and the notion that an investor would pay no more for an asset than what it would cost to replace the asset with one of equal utility. The cost approach estimates value based upon the estimated cost of replacing or reproducing the asset, less adjustments for physical deterioration and functional obsolescence, if relevant. When applied to an enterprise, a type of cost approach referred to as the Net Asset Method is sometimes employed. This method measures the value of equity as the sum of the values of its assets reduced by the sum of the values of its liabilities. The resulting equity is reflective of a 100% ownership interest in the business. This approach is frequently used in valuing holding companies.

Based on our early stage of development and other relevant factors, we considered all three approaches and have chosen to apply both income and market approaches in our analyses. We determined these approaches were the most appropriate methods for allocating our enterprise value to determine the estimated fair value of our common stock for valuations performed for periods as of June 30, 2021 or earlier. In determining the estimated fair value of our common stock, we also considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

After the completion of this offering, the fair value of each share of underlying common stock will be determined based on the closing quoted market price of our common stock on the date of grant.

The intrinsic value of all outstanding options as of June 30, 2021 was $             million based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, of which approximately $             million is related to vested options and approximately $             million is related to unvested options.

 

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Derivative Liabilities

We have determined that our obligation to pay a success fee to a former lender upon a successful liquidation event represents a freestanding financial instrument. The instrument is classified as a liability in the balance sheets, is initially recorded at fair value and is subject to remeasurement to fair value at each balance sheet date, with any change in fair value recognized in other expense, net in the statements of operations and comprehensive loss.

We determined that convertible notes issued to certain shareholders in August 2019, November 2019, December 2019, February 2020, April 2020 and September 2020 contained embedded features that provided lenders with multiple settlement alternatives. Certain settlement features provided the lenders the right or obligation to receive cash or a variable number of shares upon the completion of a capital raising transactions, an initial public offering, change of control, the closing of the sale or other disposition of all or substantially all of our assets or our default, or the redemption features.

Certain redemption features embedded in the convertible notes met the requirements for separate accounting and were accounted for as a single compound derivative instrument for each round of the convertible notes and are classified as liabilities in the balance sheets. These compound derivative instruments were recorded at fair value at inception and were subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in other expense, net in the statements of operations and comprehensive loss. On October 15, 2020, all convertible notes were converted into New Series B redeemable convertible preferred stock and the respective derivative instruments were extinguished.

In May 2021, we entered into the 2021 Debt Facility, which consisted of the 2021 Credit Agreement and the 2021 Convertible Notes. We determined that the 2021 Credit Agreement contains embedded features, or the Prepayment Features, that allow the lender to demand full or partial prepayment of the 2021 Credit Agreement in the event we default on our obligations under the 2021 Credit Agreement, undergo certain voluntary or involuntary dispositions of assets, or in the event of a change of control.

The 2021 Convertible Notes contain embedded features that provide the lender with multiple settlement alternatives. The lender will receive cash or a variable number of shares upon the completion a capital raising transaction, a merger with a special purpose acquisition company, or a SPAC, an IPO, the closing of the sale or other disposition of all or substantially all of our assets or default, which we refer to as Redemption Features. The lender will receive a fixed number of shares upon maturity.

Certain Redemption Features and Prepayment Features embedded in the 2021 Debt Facility met the requirements for separate accounting and were accounted for as a single compound derivative instrument. This compound derivative instrument was recorded at fair value at inception and is subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in other expense, net in the statements of operations and comprehensive loss.

Preferred Stock Tranche Option

The New Series B and New Series B-1 redeemable convertible preferred stock contained tranche options that allowed the investors to participate in future rounds of redeemable convertible preferred stock issuance, or the preferred stock tranche option. We determined that the preferred stock tranche options represented freestanding financial instruments and classified as liabilities in the balance sheets. The preferred stock tranche options were initially recorded at fair value and were subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in

 

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other expense, net in the statement of operations and comprehensive loss. In May 2021, we issued shares of New Series C and New Series C-1 redeemable convertible preferred stock in connection with the partial exercise of the preferred stock tranche option by the holders, while the unexercised portion of the preferred stock tranche option expired.

Contractual Obligations and Commitments

As of June 30, 2021, we have certain non-cancelable purchase commitments with a supplier for raw materials used in the manufacture of our products and an operating lease commitment for approximately 62,000 square feet of our office space. For more information on our contractual obligations and commitments see Note 6 to our audited financial statements as of and for the years ended December 31, 2020 and 2019 included elsewhere in this prospectus.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The risk associated with fluctuating interest rates is primarily limited to our cash equivalents, which are carried at quoted market prices. Due to the short-term maturities and low risk profile of our cash equivalents, an immediate 1% change in interest rates would not have a material effect on the fair value of our cash equivalents. We do not currently use or plan to use financial derivatives in our investment portfolio. As of June 30, 2021, we had $30.1 million in variable rate debt outstanding. Our 2021 term loan bears interest per annum at 11% plus the greater of 1% or the three-month LIBOR rate. A hypothetical change in interest rates of 10% of the current rates would not have resulted in a significant change in our interest expense in the year ended December 31, 2020 and the six months ended June 30, 2021.

Foreign Currency Risk

Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

Recently Issued Accounting Pronouncements

See Note 2 to our annual and interim financial statements included elsewhere in this prospectus for new accounting pronouncements not yet adopted as of the date of this prospectus.

 

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BUSINESS

Overview

We are a commercial-stage medical technology and digital health company focused on developing comprehensive solutions to improve the health and quality of life of people with diabetes. We developed our first commercial product, the POGO Automatic Blood Glucose Monitoring System, or POGO Automatic, to revolutionize the blood glucose testing process for individuals living with diabetes. POGO Automatic is an FDA cleared, automated, self-contained handheld monitor that enables patients to accurately measure blood glucose levels within seconds. POGO Automatic, combined with our Patterns app, offers full connectivity through our secure cloud-based digital health ecosystem, the Patterns app, which centralizes each patient’s blood glucose testing data in a digital form that can be shared with healthcare providers and others who play a central role in assisting with a patient’s diabetes treatment and testing regimen. We believe the convenience and simplicity of POGO Automatic will help remove the barriers to traditional glucose testing for people diagnosed with diabetes, and help them achieve their glucose level goals.

Diabetes is a chronic and progressive, life-threatening disease that requires ongoing monitoring of blood glucose levels. Testing blood glucose levels is an integral part of one’s diabetes treatment regimen as it informs both lifestyle choices, such as diet and activity, and the treatment plans, such as oral anti-diabetics drugs and insulin injections, available to manage diabetes. While patients’ treatment plans vary, current American Diabetes Association, or ADA, guidelines recommend that patients with diabetes regularly self-monitor their blood glucose levels up to multiple times a day — with testing frequency increasing with more advanced treatment plans.

Diabetes is a prevalent disease and a large economic burden in the United States and abroad. The International Diabetes Foundation, or IDF, estimated the global diabetes prevalence at 463 million people in 2019, and expected it to rise to 700 million and result in $845 billion in annual diabetes-related healthcare expenditures by 2045. According to the Center for Disease Control and Prevention, or CDC, 2020 National Diabetes Statistics Report, in 2018, approximately 34.2 million people in the United States, or approximately 10.5% of the total U.S. population, suffered from diabetes and 26.8 million adults were formally diagnosed and were aware of their condition. The diagnosed U.S. diabetes population was estimated to have grown at a compound annual growth rate, or CAGR, of 1.8% for type 1 diabetes and 4.0% for type 2 diabetes from 2000 to 2019. We believe POGO Automatic’s simplified approach to blood glucose monitoring offers a better option for patients and has application across the diabetes population.

 

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LOGO

Traditional BGM or CGM systems measure glucose levels but have significant practical and lifestyle limitations. BGM testing is a cost-effective and accurate option for monitoring glucose levels because it directly tests a patient’s blood, typically through a finger prick. However, BGM testing involves a complicated, multi-step process that requires users to carry multiple testing supplies, including a meter, test strips, a lancing device and lancets, and also requires the user to dispose of sharp used lancets and other biohazardous waste after each use. The multi-step nature of traditional BGM testing makes it difficult to be performed discreetly or on-the-go. CGM systems address some of the practical limitations of BGM by utilizing implantable sensor technology to test interstitial glucose levels, yet CGM penetration of the glucose testing market has been limited to date, targeting primarily type 1 patients and intensive insulin users. In 2020, approximately only 1.7 million people in the United States, or approximately 6.3% of the U.S. diagnosed diabetes population used CGM devices as their primary method of glucose testing, despite having been commercially available to U.S. diabetes patients for over 20 years since its FDA approval in 1999. We believe limitations of CGM include the inconvenience associated with inserting and regularly replacing the CGM sensor under the skin, physical discomfort and embarrassment associated with wearing the CGM sensor, high out-of-pocket costs for patients, high costs for payors, less reliable testing accuracy associated with monitoring interstitial glucose levels as compared to blood glucose levels, and user fatigue due to the constant delivery of data to the user. Notwithstanding its limitations, traditional BGM continues to be the prevailing testing method for the approximately 25 million individuals in the United States diagnosed with diabetes who do not use CGM. We believe that market represents a significant opportunity, as POGO Automatic offers an attractive new category of blood glucose monitoring that addresses the many limitations of BGM and CGM.

POGO Automatic is the first and only FDA cleared, automatic blood glucose monitoring system, or ABGM, that lances and collects blood in just One-Step without the need to individually load lancets

 

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or test strips, delivering a greatly simplified and discreet blood glucose testing experience, that is less disruptive to the user’s everyday life. POGO Automatic’s hand-held monitor integrates 10 lancets and 10 test strips into a single, easily replaceable 10-test Cartridge. Additionally, after each test, the Cartridge automatically retracts the used lancet and test strip back into the Cartridge and automatically provides a fresh lancet and test strip for the next test. As a result, unlike BGM users who must locate a sharps container to dispose of used lancets after each test, a POGO Automatic user only needs to replace and dispose of the Cartridge after a 10-test cycle is complete.

 

LOGO

POGO Automatic automatically syncs with our Patterns app, which enables users to see their glucose testing results on their smartphone or computer and easily identify changes they can make in their lifestyle choices, such as diet and activity, and treatment plans, such as oral anti-diabetics drugs and insulin injections, to address their blood glucose levels. The Patterns app offers personalized, data-driven insights by analyzing each user’s test results and summarizing those results in a simple interactive platform, one which also enables easy sharing with a healthcare team. Additionally, for POGO Automatic users wanting extra assistance, our app provides access to optional one-on-one live third-party coaching services for a monthly fee to help participants achieve their personal health goals.

In February 2020, we initiated a limited commercial launch of POGO Automatic through our online POGO Store. We recently launched our HCP-Rx sales channel in 20 territories in August 2021, and our POGO Automatic Monitor and 10-test Cartridges became available upon request at Walgreens through our distribution agreement with AmerisourceBergen. We currently expect POGO Automatic Monitor and 10-test Cartridges to become available upon request at CVS during the fourth quarter 2021 through our distribution agreement with Cardinal Health, subject to the completion and timing, and our compliance with the requirements, of their new supplier and item setup protocols. Our multi-channel approach is designed to provide greater convenience and flexibility for our customers to acquire POGO Automatic Monitors and Cartridges. Our initial focus is on the U.S. commercial insurance and cash pay markets. Our direct sales force will target HCPs who are high prescribers of BGM supplies to promote the exclusive features and benefits of POGO Automatic with fulfillment of prescriptions at retail pharmacies. We also offer a DTC online channel, which enables patients who cannot access a retail pharmacy to purchase POGO Automatic at our online POGO Store. We also plan to launch a targeted retail cash pay OTC sales channel as well as an employer sales channel as part of our commercial strategy, which we refer to as our POGO 360 Diabetes Management Program employer sales channel. To execute our commercial plan, as of August 2021, we had hired and trained approximately 20 HCP Sales Specialists, three HCP Regional Sales Directors, and a Vice President of HCP Sales, who we plan to deploy across 20 U.S. sales markets, which we believe represents over 50% of the U.S. diabetes testing market. We plan to continue expanding in the United States beyond these markets as our business grows, eventually targeting a total of 30 U.S. markets, which we believe accounts for over 65% of the test strip business in the United States.

 

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Our Success Factors

We believe the following success factors will enable us to achieve our mission of simplifying diabetes management for patients.

 

   

Large and growing diabetes testing population. In its 2020 National Diabetes Statistics Report the CDC estimated that 34.2 million people were living with diabetes in the United States in 2018, of which 26.8 million adults had been diagnosed, and that 1.5 million U.S. adults were newly diagnosed with diabetes during the course of the year, representing an annual increase of 5.6% in diagnosed U.S. adults. The CDC further estimated that in 2018 between 90% and 95% of people with diabetes in the United States had the type 2 form of the disease and that an additional 88 million Americans had “prediabetes,” which means a higher than normal blood glucose level. According to the Permanente Journal, 37% of patients diagnosed with prediabetes who fail to make lifestyle changes could develop type 2 diabetes within four years.

 

   

Differentiated ABGM technology with significant advantages over existing glucose monitoring technologies. POGO Automatic was developed to revolutionize a testing process that has seen limited innovation over the last two decades. POGO Automatic integrates test strips, lancets and a lancing device into an automated, self-contained handheld device. By consolidating a traditional 10-15+ step BGM process into a simplified and easy to use, One-Step test, we believe POGO Automatic has significantly improved the user experience and enables patients to easily obtain test results in seconds. POGO Automatic’s innovative self-contained 10-test Cartridge and monitor alleviates issues with test strip and lancet handling and disposal and allow convenient, discreet testing. We believe the testing advantages of POGO Automatic over traditional BGM can encourage increased patient testing and engagement, leading to better self-care, fewer emergency room visits and in-patient admissions, and ultimately, a lower cost of care. POGO Automatic also has significant advantages over CGM systems, including greater testing accuracy, freedom from uncomfortable attachments that also interfere with lifestyle, and on-demand data with fewer disruptive alerts. We believe that POGO Automatic’s cost-effective, efficient and accurate testing solution will lead to significant penetration of the large and growing U.S. diabetes patient population.

 

   

Complete care circle connectivity through the Patterns app. As part of our comprehensive diabetes management solution, we offer the Patterns app to every POGO Automatic user, allowing full connectivity to the user’s broader support network including HCPs, caregivers, coaches and employers. The Patterns app offers a native mobile app for Apple iOS and Android and a web portal for HCPs. The POGO Automatic Monitor syncs with the Patterns app to transfer blood glucose testing information, including the blood glucose result, time and day of test result and meal marker information from the Monitor. This information is then synced with a cloud-based database. The Patterns app also syncs with the cloud-based database to automatically download health and activity data such as weight, exercise, sleep and other biometric information from third-party sources, while also including in-app nutrition data. The Patterns app centralizes each patient’s diabetes and other health data and uses a rules engine to provide health observations directly to patients, caregivers and providers, while also providing underlying health data to HCPs for further analysis. The app provides alerts, testing schedule reminders and emergency notifications to promote compliance and provide peace of mind for caregivers and individuals managing their diabetes journeys. The Patterns app offers optional, live, one-on-one professional diabetes coaching by a third-party service provider accessible directly through the app for a monthly fee. We believe The Patterns app enhances the user experience and increases patient engagement and testing utilization while also strengthening POGO Automatic account retention.

 

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Strong consumer and physician preference for POGO Automatic over other solutions. Our market research has shown that POGO Automatic continually elicits strong favorable responses, recommendations, and purchase intent from HCPs and patients, if available at a reasonable co-pay or out-of-pocket cost. In a March 2021 study that we commissioned with over 150 endocrinologists, primary care physicians, or PCPs, and Certified Diabetes Care and Education Specialists, or CDCESs, 78% responded that they found POGO Automatic extremely or very unique, while 79% responded that they found POGO Automatic extremely or very relevant to their practice, and 85% would definitely or probably recommend or prescribe POGO Automatic to their patients at a reasonable price or co-pay. A subsequent 2021 study that we commissioned of 200 people with diabetes reached a similar positive conclusion. 87% of those patients surveyed viewed POGO Automatic as much or somewhat better than their current meter while 83% would definitely or probably purchase POGO Automatic if available at a reasonable co-pay or out-of-pocket cost. 83% of people with diabetes surveyed also noted that they would definitely or probably ask their HCP to write a prescription for POGO Automatic while approximately 75% said that the Patterns app makes them more likely to purchase POGO Automatic. We believe these research results reinforce the need for better testing solutions, which POGO Automatic is poised to address in the market.

 

   

Commercial infrastructure with network of prescribing physicians and prescription channel partners. We have assembled a sales force of experienced representatives with in-depth knowledge of our target market in order to build awareness for POGO Automatic and open new commercial accounts across the physician community. We plan for our initial sales force to call on approximately 1,800 of the top endocrinologists and PCPs prescribing diabetes tests, which we believe represents over 50% of the U.S. diabetes testing market. We have entered into agreements with two major pharmaceutical wholesale distribution companies, and as part of our expanded launch, our POGO Automatic Monitor and 10-test Cartridges will be available upon request through over 3,600 CVS and Walgreens retail pharmacies, where our customers may fill their prescriptions. Outside of our initial target markets, there are approximately 15,400 CVS and Walgreens pharmacies through which we could sell these products. Through our HCP-Rx sales channel, we plan to make POGO Automatic available through prescription and pharmacy benefit plans, which will be familiar to patients who fill medication and BGM prescriptions. In addition to our HCP-Rx sales channel, patients can purchase a POGO Automatic Monitor and Cartridges directly though the online POGO Store. We have designed our initial physician and pharmacy network to maximize access and convenience for our customers.

 

   

Experienced, proven management team with deep industry experience. Our senior management team includes seasoned, proven individuals with management experience across a broad range of disciplines within the diabetes, medical device, pharmaceutical and consumer electronics spaces. They have a track record of successfully bringing products to market, with significant expertise in development, regulatory approval and commercialization activities, and many have held leadership positions in both public and private companies.

Our Growth Strategies

Our goal is to become the standard of care for the millions of patients who regularly test to determine their blood glucose levels. We are implementing the following strategies to achieve this goal:

 

   

Grow our commercial infrastructure through additional direct sales and marketing team hires and expand our retail pharmacy coverage

Our strategy is to target high-prescribing physicians. We are initially targeting 20 U.S. markets across 19 states and accounting for over 50% of U.S. diabetes test volume, and plan to focus on 90 HCPs in each market who are located within close driving distance of an HCP Sales Specialist to facilitate frequent access to these HCPs. We plan to continue expanding in the

 

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United States beyond these markets as our business grows, eventually targeting a total of 30 U.S. markets accounting for over 65% of the test strip business in the United States. As of August 2021, we have hired approximately 20 HCP Sales Specialists and we plan to grow our sales force over time and to continue to optimize our representatives’ coverage across territories. We also plan to expand our distribution to additional retail pharmacy locations, both to new locations of our existing retail pharmacy partners and to locations within new retail pharmacy chains through potential future agreements with other pharmaceutical distributors.

 

   

Continue to improve market access and secure third-party payor coverage and reimbursement for POGO Automatic

We estimate that there are currently over 258 million U.S. patient lives (which includes patients without diabetes) covered through prescription and pharmacy benefit plans. While we are unable to determine the portion of U.S. patient lives covered that includes patients with diabetes, we believe a number of the 26.8 million adults diagnosed with diabetes in the United States are covered by prescription and pharmacy benefit plans. As of June 2021, an estimated 51 million U.S. patient lives (which includes patients without diabetes) were covered temporarily or permanently by over 250 prescription and pharmacy benefit plans for POGO Automatic Cartridges. Of those 51 million lives, an estimated 87% are covered on the Tier 3 level of plan coverage. Drugs in Tier 3 typically have the highest co-payment and are often brand name drugs that have a generic version available. Tier 1 drugs generally offer the lowest co-payment and are often generic versions of brand name drugs. Tier 2 drugs generally offer a medium co-payment and are often brand name drugs. Tier 4+ drugs are often considered specialty drugs and are typically used to cover serious illness.

We estimate that co-pays for CGM products can range from $76 to $118 per month on a weighted average basis based on the estimated number of patients with plan coverage in the various tiers, while co-pays for traditional BGM products range from $43 to $56 for 100 tests. Based on the estimated number of patients with plan coverage in the various tiers, we estimate that the weighted average co-pay per prescription for Cartridges will be $58.

A 2017 co-pay pricing study that we commissioned surveyed 556 consumers online and presented them with a $50 POGO Automatic Cartridge monthly package option. 75% of consumers who responded that they were willing to purchase the POGO Automatic also responded that there was a good possibility or better that they would purchase POGO Automatic Cartridges at prices ranging from up to approximately $13 to $27 more than their current co-pay.

We plan to increase specific coverage for POGO Automatic through these benefit plans via active marketing of POGO Automatic and ongoing negotiations with individual commercial payors, supported by value communication presentations to ensure differentiation from other BGM devices. For example, we have signed contracts with a leading integrated health care system effective September 2021 and a leading Medicare Advantage plan effective August 2021, and we are pursuing contracts with commercial health plans, Pharmacy Benefit Managers (PBMs) and additional Medicare Advantage plans.

 

   

Drive consumer interest through targeted DTC marketing campaigns

Diabetes care technology already generates significant social and other digital media interest through caregivers’ and consumers’ discussions of personal use experiences and reviews of the latest diabetes technology. We plan to use targeted digital marketing and advertising to drive awareness and interest in POGO Automatic among consumers and their caregivers. In particular, we plan to employ search engine marketing, or SEM, advertisements and social media advertisements to efficiently reach our target audience and drive customers to obtain a prescription or to our online POGO Store for direct purchase. We have also built deep

 

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connections with medical experts who have extensive knowledge and influence in the diabetes space and can speak to the efficacy of the POGO Automatic, which we will combine with our DTC online and influencer campaigns to better reach our target customers.

 

   

Continue to develop and launch innovative, consumer-focused products and apps to become a prominent player in diabetes testing

We intend to attain market leadership in diabetes testing by offering a convenient, connected and easy-to-use testing solution for diabetes patients. We intend to maintain that position through continuous improvements in our product and software technology, through internal product development and potential external partnerships. We plan to pursue clearance of expanded indications in the United States as well as CE marking and Japanese approval, which would enable commercialization in the European Union and Japan.

 

   

Market POGO 360 to companies looking to manage the costs of their employees healthcare through enhanced diabetes management programs

Due to the high cost of care and significant impact on their employees’ health, there is increasing demand from employers for enhanced, employer-level diabetes management programs. We have successfully launched three pilot employer initiatives under POGO 360. This experience allowed us to validate our enterprise solution and begin our roll out of POGO 360 to employers to provide their employees access to our POGO Automatic Monitor, Cartridges and our enterprise coaching programs. POGO 360 is comprehensively designed to reduce testing barriers, provide evidence-based live coaching through a third-party service provider and support ongoing engagement with employees. We believe this program will be of significant value to the employer marketplace.

 

   

Access the U.S. Medicare patient population opportunity through our remote patient monitoring strategy

Our Remote Patient Monitoring, or RPM, solution enables physicians to monitor their diabetes patients’ testing frequency, blood glucose levels and other information through POGO Automatic and the Patterns app. The Centers for Medicare & Medicaid Services, or CMS, recently established separate payment for remote physiologic monitoring services, allowing physicians and other qualified healthcare professionals to bill Medicare for initial RPM setup and patient education, time spent on monitoring and analyzing patient data, live interaction with patients, and for the supply of necessary devices and testing supplies. One of our potential revenue expansion opportunities is to seek to enter into contracts directly with these physicians for the use of our remote patient monitoring Patterns, HCP web portal and for provision of POGO Automatic Monitor and Cartridges directly to their patients.

Market Opportunity

Diabetes Overview

Diabetes is a progressive, life-threatening chronic disease where the body does not produce sufficient levels of insulin or fails to utilize insulin effectively. This inability results in abnormally high levels of glucose in the blood and prevents the body from adequately regulating its blood glucose levels. Glucose is the primary source of energy for cells, and deviations from regular levels can prevent optimal cell function and lead to other significant adverse health consequences. Long-term complications from diabetes develop gradually, and the longer a patient has diabetes, the higher the risk of complications that may be life threatening.

There are two major types of chronic diabetes, neither of which has a known cure.

 

   

Type 1 diabetes is an autoimmune disorder that is characterized by the pancreas’s inability to produce insulin. This disease usually develops during childhood and results from the auto-destruction of insulin producing cells in the pancreas. To manage the disease, patients with

 

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type 1 diabetes must rely on frequent insulin injections to regulate and manage their blood glucose levels which requires frequent measurement of glucose levels.

 

   

Type 2 diabetes is a metabolic disorder that is characterized by the body’s inability to respond to or utilize insulin effectively. Management of type 2 diabetes varies based on severity, but management methods include diet and exercise, oral medications and insulin injections and requires frequent measurement of glucose levels.

Diabetes is accompanied by both short-term and long-term health consequences. Short-term complications include extreme hunger, unexplained weight loss, ketones in the urine, fatigue, irritability, blurred vision, slow-healing sores and frequent infections. Longer-term complications of diabetes include various skin conditions, hearing impairment, depression, eye damage, nerve damage (neuropathy), kidney damage (nephropathy), Alzheimer’s disease, limb amputation, cardiovascular diseases and, if left untreated, possible death. According to the National Institute of Diabetes and Digestive and Kidney Diseases, or NIDDK, diabetes is the leading cause of kidney failure, non-traumatic lower limb amputations and new cases of blindness in the United States, while according to the CDC, diabetes is the 7th leading cause of death in the United States, with diabetes contributing to over 270,000 American deaths in 2017. Additionally, statistics from the National Center for Biotechnology Information, or NCBI, found that there is a high correlation between cardiovascular diseases and diabetes—at least 68% of diabetes patients aged 65 or older die from some form of heart disease and 16% die of stroke. Furthermore, the NCBI found that adults with diabetes are two to four times more likely to die from heart disease than adults without diabetes.

Diabetes Prevalence and Economic Impact

Pervasive trends of an aging population, sedentary lifestyles and increasing obesity are contributing to the prevalence of people afflicted and diagnosed with diabetes. The International Diabetes Federation, or IDF, estimated that in 2019, approximately 463 million adults (age 20-79) around the world suffered from diabetes, resulting in annual diabetes-related healthcare expenditures of $760.3 billion. In addition, the IDF predicts that the global diabetic population will increase to 700.2 million people by 2045 with an estimated $845 billion in annual diabetes-related healthcare spend. According to the IDF, there were an estimated 4.2 million global deaths of adults aged 20-79 that are attributable to diabetes.

The CDC estimated in its 2020 National Diabetes Statistics Report that approximately 34.2 million people in the United States—approximately 10.5% of the total U.S. population—suffer from diabetes, with 26.8 million of those adults diagnosed and aware of their condition. Additionally, the CDC also estimated that in 2018, approximately 1.5 million new cases of diabetes were identified for adults aged 18 or older, with an average of approximately 4,110 patients diagnosed with diabetes every day in the United States. This increase in the number of diabetes patients has also led to an increase in healthcare spending on diabetes and its related complications. The ADA estimated that in 2017, the total cost of diagnosed diabetes in the United States was approximately $327 billion, with one in every seven dollars spent on healthcare going to the treatment of diabetes and diabetes-related complications. As the financial burden on healthcare increases, patients diagnosed with diabetes on average incur medical expenses approximately 2.3 times higher than those without diabetes. Additionally, diabetes patients in the United States incur average annual medical expenditures of $16,752, of which $9,601 (57%) were attributed to diabetes. Furthermore, with one in three American adults afflicted with prediabetes, the growth in diabetes-related healthcare spending is expected to rise in the near future.

The population-based U.S. National Health and Nutrition Examination Survey, or NHANES, suggests that 35% of U.S. adults over 20 years of age and 50% of those over 65 had prediabetes in 2005 to 2008 based on fasting glucose or A1c levels. According to the CDC, nearly one in three American adults—approximately 88 million people—have prediabetes with more than 84% unaware of

 

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their condition. The ADA estimates the economic burden of prediabetes to be $43.4 billion and undiagnosed diabetes to be $31.7 billion. In addition, a significant number of pre-diabetics will progress to type 2 diabetes over their lifetime. According to an ADA expert panel, up to 70% of individuals with prediabetes will eventually develop diabetes.

Managing Diabetes

Challenges of living with diabetes

Diabetes is a chronic and progressive, life-threatening disease that requires patient monitoring of blood glucose levels. Given the many dietary, activity and behavioral factors that affect blood glucose levels, hundreds of daily decisions may impact an individual’s blood glucose levels. For diabetes patients, maintaining glucose within a normal range is difficult, which results in frequent, unpredictable excursions above or below normal blood glucose levels. The burden of diabetes has a profound physical, emotional and financial impact on the daily lives of patients.

Overview of treatments available for diabetes patients

Unlike many diseases, no set treatment protocol exists for diabetes. However, all treatment protocols center around managing a patient’s blood glucose level. Diabetes is characterized by the body’s inability to properly metabolize glucose. Management of glucose is regulated by insulin, a hormone that allows cells in the body to absorb glucose from blood and convert it into energy. In people without diabetes, the body releases small amounts of insulin regularly over 24 hours and additional amounts of insulin when eating meals.

A hemoglobin A1c test, which measures a patient’s trailing three-month average blood glucose level, or A1c level, is a key indicator of how well a patient is controlling his or her diabetes. Specifically, the A1c test measures the percentage of a patient’s hemoglobin, a protein in red blood cells that carries oxygen, that is chemically modified with sugar. A higher A1c level correlates with poorer blood sugar control and an increased risk of diabetes complications. The ADA recommends an A1c goal of less than 7% for most patients. Approximately 50% of people with diabetes are not reaching lower levels of A1C that are typically associated with healthy glycemic control, per ADA guidelines.

Type 1 diabetes patients are commonly referred to as insulin-dependent because their pancreas produces little to no insulin. For type 1 patients, and select type 2 patients with similar insulin deficiencies, insulin therapy is a necessary treatment plan component. Once type 2 diabetes has been diagnosed, physicians and patients often initially seek to manage the disease through meal planning and physical activity before progressing to medications designed to help manage blood glucose levels. Patients often begin medical treatment with a single oral anti-diabetic drug, or OAD. An analysis from the United Kingdom Prospective Diabetes Study found that 50% of newly diagnosed type 2 patients, originally managed with a single drug, required the addition of a second drug after three years which could also include an injectable glucagon-like peptide-1 receptor agonist, or GLP-1, which, among other actions, stimulates the release of insulin by the body. Within 10 years of diagnosis, many patients add injectable insulin to their regimen.

Self-testing of blood glucose levels using a traditional BGM device or a CGM device is critically important to managing a patient’s blood glucose level on a daily basis and, in turn, lowering a patient’s A1c over time. Patients with insulin-dependent diabetes test their blood glucose levels regularly using a traditional BGM or CGM device to assess when additional insulin is needed, to assess the appropriate amount of insulin required at a given time, and to detect and manage hypoglycemia. For diabetes patients not on insulin-therapy, traditional BGM and CGM devices are also used regularly to better track therapy and treatment success, and to monitor the impact of changes in physician directives and lifestyle choices on their blood glucose levels.

 

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Glucose monitoring

The value of testing

Blood glucose testing is an important part of diabetes management, and serves as a valuable tool in monitoring blood glucose levels and tracking progress towards overall treatment goals for type 1 and type 2 patients. Frequent and consistent blood glucose testing helps identify glucose levels that are outside of a patient’s targeted range, and can help inform necessary changes to diet, physical exercise and other lifestyle choices. Further, adequate testing enables a patient to monitor the effects of blood glucose level changes with medications, hormones, stress, illness and other factors. While each patient’s treatment plan is different, current ADA guidelines recommend that patients with diabetes regularly self-monitor their blood glucose levels, often multiple times a day. For type 1 diabetes patients or those using insulin therapies as part of their treatment plan, more frequent testing is typically recommended.

Attempting to maintain blood glucose levels in a normal range is an ongoing effort requiring both physical and psychological commitments. If glucose levels deviate outside of a normal range, the patient can be at risk of hyperglycemia, when glucose is too high, or hypoglycemia, when glucose is too low, each of which poses numerous and significant health risks.

Sometimes after measuring their blood glucose levels, patients make therapeutic adjustments. As adjustments are made, additional blood glucose measurements may be necessary to gauge the individual’s response to the adjustments. More frequent testing of blood glucose levels provides patients with information that can be used to better understand and manage their diabetes.

Glucose monitoring market overview

The U.S. diabetes market was estimated to consist of approximately 27 million diagnosed patients as of 2020, approximately 1.8 million of whom had type 1 diabetes and approximately 24.5 million of whom had type 2 diabetes. The diabetes population grew at a CAGR of 1.8% for type 1 diabetes and 4.0% for type 2 diabetes from 2000 to 2019. The glucose monitoring market is comprised of two main monitoring systems: BGM and CGM systems.

While traditional BGM devices and CGM devices enable diabetes patients to self-test and monitor glucose levels, each of these device categories has distinct advantages and disadvantages.

Traditional BGM devices

Traditional home use BGM devices were developed in the 1970s and then first introduced to the public in 1980. Traditional BGM is the most prevalent glucose monitoring approach for diabetes patients, and requires the use of multiple testing components in order to generate a single blood glucose test result. These components are often referred to collectively as a testing kit. BGM provides a snapshot of a user’s current glucose levels at a specific time. In order to be an effective diabetes management tool, BGM must be performed in regular intervals as often as several times a day and before and/or after various activities such as exercising, driving, meals or medications.

The traditional BGM testing process typically includes a glucose meter, and various supplies such as test strips, control solutions, lancets, lancing devices and alcohol swabs. A patient removes all test supplies from the kit, then removes the lancing device cap to insert a new lancet into the lancing device. The test strip vial is then opened and the test strip is removed and inserted into the BGM meter. The patient then lances the testing site, typically a fingertip in order to obtain a small drop of blood. The blood drop is then applied to the test strip. The BGM device provides a readout of the patient’s blood glucose level. After the meter displays the result, the patient then removes and disposes the used testing strip and lancet, and all other supplies are returned to the kit.

 

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Traditional BGM devices are suitable for all therapy types and do not have a wearable component or body attachment. They are more broadly available than CGM devices, and for many, can fulfill their glucose self-monitoring needs.

CGM devices

CGM devices were first approved by the FDA in 1999 and address some of the issues patients and physicians face with BGM. CGM devices enable the constant monitoring of glucose levels via a catheter or sensor inserted subcutaneously in the back of the arm or abdomen and in some cases, a surgical implant that occurs every three to six months, usually in the upper arm. The sensor measures the glucose from the body’s interstitial fluid, a thin layer of fluid that surrounds the cells of tissue below the skin. The sensor tracks changes in glucose levels throughout the day and night, as often as every five to 20 minutes, and provides interstitial fluid glucose readings through wireless data transfer to a receiver. Standard continuous glucose monitoring displays readings at specific time intervals and flashes glucose monitoring display readings every time a handheld reader is scanned over the sensor.

In comparison to traditional BGM devices, CGM devices are sometimes considered to be less disruptive to a patient’s everyday life due to the reduction of finger pricks and the shorter time required to test. However, most CGM users also own BGM devices for situations where maximum accuracy is required. Continuous measurements from CGM devices can also provide patients with trend information on their interstitial fluid glucose levels and time spent in their target glucose range.

Even though CGM is not the dominant method of diabetes monitoring, the global CGM monitoring device market was estimated to be approximately $3.9 billion in 2019 and is projected to grow at a CAGR of 12.7%. In 2020, approximately 1.7 million diabetes patients in the United States used CGM devices.

Limitations and Challenges of Current Testing Solutions

We believe there are clear limitations to both BGM and CGM devices.

 

LOGO

Traditional BGM devices

Despite its widespread use, common barriers to blood glucose testing with BGM devices experienced by people with diabetes include:

 

   

Complicated multi-step process

As described above, the traditional BGM test process consists of 10 to 15 or more steps. According to a 2012 market research report that we commissioned, 74% of the 602 patients surveyed believed that POGO solves a problem for them. The inconvenience and complication

 

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