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As filed with the Securities and Exchange Commission on January 15, 2021

Registration No. 333-            

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

LUMIRADX LIMITED

(Exact name of Registrant as specified in its charter)

 

 

 

Cayman Islands   2834   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

LumiraDx Limited

c/o Ocorian Trust (Cayman) Limited

PO Box 1350, Windward 3, Regatta Office Park

Grand Cayman KY1-1108

Cayman Islands

(345) 640-0540

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

 

 

LumiraDx Inc.

221 Crescent Street. 5th Floor

Waltham, MA 02453

(209) 721-950

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

 

 

Copies to:

 

Edwin M. O’Connor

Laurie A. Burlingame

Paul R. Rosie

Goodwin Procter LLP

100 Northern Avenue

Boston, MA 02210

(617) 570-1000

 

Ian Lopez

Fried, Frank, Harris, Shriver & Jacobson (London) LLP

100 Bishopsgate

London EC2N 4AG

United Kingdom

+44 20 7972 9600

 

Anna-Lise Wisdom

Appleby (Cayman) Ltd

71 Fort Street, PO Box 190

Grand Cayman, KY1-1104

+1 345 949 4900

  

Donald J. Murray

Brian K. Rosenzweig

Matthew T. Gehl

Covington & Burling LLP

The New York Times Building

620 Eighth Avenue

New York, NY 10018

(212) 841-1000

 

 

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

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, 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 an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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)(2)
 

AMOUNT

OF

REGISTRATION FEE

Common Shares, par value $0.001 per common share

  $100,000,000.00   $10,910.00

 

 

(1)    Includes additional common shares that the underwriters have the option to purchase.

 

(2)    Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, 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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.

 

 


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The information contained in this preliminary 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 preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated January 15, 2021

 

PRELIMINARY PROSPECTUS

             Common Shares

 

 

LOGO

We are offering                  common shares, par value $0.001 per common share, of LumiraDx Limited. This is the initial public offering of our common shares and no public market currently exists for our common shares.

We expect the initial public offering price to be between $                 and $                 per common share. We have applied to list our common shares on The Nasdaq Global Market under the symbol “LMDX”.

Our share capital consists of common shares and A ordinary shares, which we refer to herein as ordinary shares. The rights of the holders of common shares and ordinary shares are identical, except as they relate to voting and conversion rights. Each common share entitles the holder to one vote on any proposed shareholder resolution. Each ordinary share entitles the holder to ten votes on any proposed shareholder resolution and is convertible at any time after the date that is 180 days from the effectiveness of this registration statement (or at such earlier time as approved by our board of directors due to exceptional circumstances, with the prior written consent of Jefferies LLC and SVB Leerink LLC) into one common share. Upon the completion of this offering, holders of our ordinary shares will control approximately     % of the voting power of our outstanding share capital, and Ron Zwanziger, our Chief Executive Officer and co-founder, Dave Scott, Ph.D., our Chief Technology Officer and co-founder, and Jerry McAleer, Ph.D., our Chief Scientist and co-founder, collectively referred to herein as our co-founders, and their respective affiliates, will control approximately     % of the shareholder voting power of our outstanding share capital, as further described under “Principal Shareholders” in this prospectus. As a result, individually or together, holders of our ordinary shares and our co-founders will be able to significantly influence any action requiring the approval of our shareholders, including the election of members of our board of directors, the adoption of amendments to our then-current memorandum and articles of association, and the approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction. In addition, each of our co-founders is a director of the company and cannot be removed from our board of directors absent the voting approval of the ordinary shares held by Ron Zwanziger, our Chief Executive Officer and co-founder, and his affiliates.

Investing in our common shares involves a high degree of risk. Before buying any common shares, you should carefully read the discussion of material risks of investing in our common shares in the section titled “Risk Factors” beginning on page 20 of this prospectus.

We are an “emerging growth company” as defined under the federal securities laws and, as such, we will be subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information.

Neither the U.S. Securities and Exchange Commission nor 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.

We are not licensed to conduct investment business in the Cayman Islands by the Cayman Islands Monetary Authority and this prospectus does not constitute an offer to members of the public of our common shares, whether by way of sale or subscription, in the Cayman Islands. Our common shares have not been offered or sold, will not be offered or sold and no invitation to subscribe for our common shares will be made, directly or indirectly, to members of the public in the Cayman Islands.

 

 

     PER
COMMON SHARE
     TOTAL  

Initial public offering price

   $                    $                

Underwriting discounts and commissions (1)

   $        $    

Proceeds to us (before expenses)

   $        $    

 

 

(1)    See “Underwriting” for additional information regarding underwriting compensation.

Delivery of the common shares is expected to be made on or about                 , 2021. We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase an additional                  common shares at the initial public offering price, less the underwriting discounts and commissions. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $                , and the total proceeds to us, before expenses, will be $                .

 

Jefferies   SVB Leerink   Evercore ISI   Raymond James

Prospectus dated                 , 2021.


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TABLE OF CONTENTS

 

 

 

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     20  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     73  

MARKET AND INDUSTRY DATA

     75  

USE OF PROCEEDS

     76  

DIVIDEND POLICY

     77  

CAPITALIZATION

     78  

DILUTION

     80  

SELECTED CONSOLIDATED FINANCIAL DATA

     83  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     85  

BUSINESS

     108  

MANAGEMENT

     148  

RELATED PARTY TRANSACTIONS

     159  

PRINCIPAL SHAREHOLDERS

     163  

DESCRIPTION OF SHARE CAPITAL

     165  

SHARES ELIGIBLE FOR FUTURE SALE

     181  

CERTAIN MATERIAL INCOME TAX CONSIDERATIONS

     183  

UNDERWRITING

     191  

EXPENSES OF THIS OFFERING

     199  

LEGAL MATTERS

     200  

EXPERTS

     200  

SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES

     201  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     202  

 

 

We and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may 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. Neither we nor the underwriters are making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only


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as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares. Our business, financial condition, results of operations and any such prospects may have changed since the date on the front cover of this prospectus.

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 in any jurisdiction, other than the United States, or U.S., where action for that purpose is required. Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our common shares and the distribution of this prospectus outside the U.S.

We are incorporated under the laws of the Cayman Islands and are a United Kingdom, or U.K., resident for tax purposes. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we are currently eligible for treatment as a “foreign private issuer”. As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Unless otherwise noted, all references in this prospectus to “$”, “US$”, “U.S. dollars”, “dollars” and “USD” mean U.S. dollars, all references to “£” and “GBP” mean pounds sterling, and all references to “” and “euros” mean euros.

PRESENTATION OF FINANCIAL INFORMATION

We report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB. None of the financial statements contained in this prospectus were prepared in accordance with generally accepted accounting principles in the U.S.

TRADEMARKS

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. It does not contain all of the information that may be important to you and your investment decision. Before investing in our common shares, you should carefully read this entire prospectus, including the matters set forth under the sections of this prospectus captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. This summary contains forward-looking statements that are based on estimates and assumptions and, as such, are subject to risks and uncertainties. Our actual results may differ significantly from what is stated in or suggested by such forward-looking statements due to a variety of factors, including those set forth in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, “LumiraDx”, “the company”, “we”, “us” and “our” refer to LumiraDx Limited and its consolidated subsidiaries.

Our Company

We are a next-generation point of care, or POC, diagnostic company addressing the current limitations of legacy POC systems by bringing lab-comparable performance to the POC in minutes, on a single instrument with a low cost of ownership. We are focused on transforming community-based healthcare by providing critical diagnostic information to healthcare providers at the point of need, thereby enabling more informed medical decisions to improve health outcomes while lowering costs. We have developed and launched our LumiraDx Platform, or Platform, which is an integrated system comprised of a small, versatile POC instrument, or Instrument, precise, low-cost microfluidic test strips, and seamless, secure digital connectivity. We currently have four tests available on our Platform and a broad menu of tests in development. Our proprietary Platform is designed to simplify, scale down, and integrate multiple testing methodologies onto a single instrument and offer a broad menu of tests with lab-comparable performance at a low cost and with results generally in 10 minutes or less from sample to result. With our Platform, our goal is to address the key challenges faced by healthcare providers in providing efficient and cost-effective patient care in a community setting.

We are initially focused on the development of tests for several of the most common conditions diagnosed or managed in community-based healthcare settings. For many of the tests we commercialize, or plan to commercialize, there are no existing high performance POC alternatives. Our initial authorized tests and those under development are designed to address unmet diagnostic needs in the fields of infectious disease, cardiovascular disease, diabetes, and coagulation disorders. To date, we have developed and launched four diagnostic tests for use with our Instrument: our SARS-CoV-2 antigen test commercially available under an Emergency Use Authorization in the United States, or EUA, which authorizes the emergency use of the test during the period in which an emergency declaration remains in effect, and a CE Mark in the European Economic Area, as well as our SARS-CoV-2 antibody test, our International Normalized Ratio, or INR, test, and our D-Dimer test, all of which are CE Marked.

In response to the COVID-19 pandemic and the resulting acute need for timely diagnostic information, we have developed our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests for use in community-based healthcare settings. Our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests have demonstrated highly accurate results within minutes on our Instrument. We have obtained an EUA and a CE Mark for our SARS-CoV-2 antigen test. We have commenced commercial sales of our SARS-CoV-2 antigen test in Europe and the United States to customers, including the U.K. National Health Service, or NHS, and CVS Pharmacy, Inc., or CVS, and have commenced shipment of Instruments to Africa as part of our collaboration with the Bill & Melinda Gates Foundation, or BMGF. As of December 31, 2020, we have placed more than 7,000 Instruments with over 500 customers across more than 25 countries and have more than 1,000 staff across the globe. Our SARS-CoV-2 antigen test has been authorized by FDA under an EUA only for the qualitative detection of SARS-CoV-2 nucleocapsid protein and has not been authorized for use to detect any other viruses or pathogens. In addition, the CE Mark process is a self-certification process where we self-declare as a manufacturer that we have



 

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checked the product meets European Economic Area safety, health and environmental requirements. Our SARS-CoV-2 antigen test has not been cleared or approved by FDA or any other regulatory body, and therefore we cannot market such test in the United States following the termination of an emergency declaration. We have submitted an EUA request to FDA and obtained a CE Mark for our SARS-CoV-2 antibody test.

In laboratory and clinical studies, our SARS-CoV-2 antigen test demonstrated a very low Limit of Detection, or LOD, of 32 TCID50 per mL and high sensitivity and specificity within a detection window of 12 days from onset of symptoms and delivered results within 12 minutes or less. Our SARS-CoV-2 antibody test demonstrated 100% sensitivity in fingerstick blood samples collected more than eight days post PCR and results delivered within 11 minutes. We believe that offering our SARS-CoV-2 antigen test and SARS-CoV-2 antibody test on a single Platform with superior performance over a wide detection time has the potential to greatly improve the diagnosis of COVID-19 infection and infectivity, enable large-scale population monitoring and facilitate management of the COVID-19 pandemic.

Our SARS-CoV-2 antigen test is currently being used and implemented in various testing programs across the U.S., U.K., and other European countries, including in accident and emergency departments, care homes, retail pharmacies and other primary care settings. Even with the start of the roll out of COVID-19 vaccines, we expect there to be continued need for diagnostic testing. In addition, in the professional POC settings where our Platform is placed, customers are looking to implement comprehensive POC testing within their institutions leveraging both (i) our broad menu as well as (ii) our quality, compliance and data management infrastructure.

We also see significant opportunity in the low complexity mass screening or home COVID-19 testing market. Therefore, based on the same chemistry and test strip design as our SARS-CoV-2 antigen test on our Platform, we have started development of our Amira System, which we are designing as a high-sensitivity mass screening and home testing system for COVID-19. We plan to manufacture and distribute our Amira System at a price and volume that enables mass testing required to support a safe, normal and open economy. Subject to completion of product development, regulatory approval, authorization or clearance for professional and home use, market demand and manufacturing scale-up of the Amira System, we currently expect a manufacturing capacity of 10 million tests per day by the end of June 2021 and expect multiples of 10 million tests per day by the end of 2021 for our Amira System. We anticipate the retail price of our Amira System and Amira COVID-19 test to be between $2.00-$4.00 per test, significantly lower than many existing COVID-19 tests currently on the market as well as the equivalent tests on our Instrument. For very high volume purchases and shipments to middle and low income countries, or LMICs, we expect the price to be lower. We currently have a prototype Amira System including strips, device and patient application. We expect to move to design freeze at system level shortly. We are simultaneously tooling up high volume manufacturing lines, for the strip and instrument, while we progress through design freeze and the verification and validation phase, or V&V phase.

We have also used our technology to develop two rapid COVID-19 reagent testing kits for use on open molecular systems, LumiraDx SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete. LumiraDx SARS-CoV-2 RNA STAR allows laboratories to utilize their existing molecular lab infrastructure in a high-throughput format by reducing amplification time from approximately one hour down to 12 minutes. LumiraDx SARS-CoV-2 RNA STAR Complete utilizes a direct amplification method that combines lysis and amplification in a single step, detecting SARS-CoV-2 nucleic acid in under 20 minutes, without needing to perform any specimen purification or extraction. We have obtained EUAs for LumiraDx SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete and commenced commercial sales.

Aside from our Amira System, we currently have a pipeline of more than 30 tests in various stages of development for community-based healthcare settings and plan to launch 10 tests in the next two years, subject to successful development and regulatory approval, authorization or clearance. Our key tests under development include: Flu A/B + SARS-CoV-2 antigen and Flu A/B + Respiratory Syncytial Virus, or RSV, for respiratory infectious disease; D-Dimer for cardiovascular disease or coagulation disorders; high sensitivity troponin I for cardiovascular disease; C-Reactive Protein, or CRP, for infectious disease; and glycated



 

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hemoglobin, or HbA1c, for diabetes. Our tests are subject to extensive regulatory requirements and we seek to obtain regulatory approval, authorization or clearance on a test-by-test basis. We are focused on commercializing our tests on pace with receipt of the requisite regulatory approval, authorization or clearance and any delays in commercialization of our tests or decreases in the expected market demand for our tests could adversely impact our operations and financial results. We have also entered into research and development, or R&D, collaborations with well-established diagnostic companies that have market-leading assays and capabilities in specific conditions to further accelerate the expansion of the test menu for our Platform. Additionally, our R&D team is focused on continuous enhancement of our disruptive technologies.

The diagnostics industry, including in vitro diagnostic, or IVD, and POC systems, is rapidly evolving, and we face competition from established diagnostics companies as well as new market entrants. We believe the principal competitive factors in our industry include flexibility and ease of use, time to result, accuracy, reputation, price, innovation and compatibility with existing processes. Our four tests available on the Instrument compare favorably against the current tests available in the market based on sensitivity, time to result and ease of use, and our tests in development are designed and are being validated against their respective lab standard. Many of our competitors have greater brand recognition, resources, sales forces, intellectual property portfolios, larger customer bases and more established and larger scale manufacturing capabilities. We are working toward the large scale manufacturing and deployment of our SARS-CoV-2 antigen and antibody tests, but we, like our competitors, do not currently have the manufacturing, marketing or sales capacity to meet all of the expected demand for such tests. As a result, we may lose market share to our competitors if we are unable to produce and bring to market enough SARS-CoV-2 antigen and antibody tests to meet demand.

Our proprietary microfluidic test strip is designed to accommodate all of our assays and sample types in a single-design architecture. We can manufacture our test strips at large scale and low cost on our proprietary manufacturing system. We believe our scalable manufacturing process provides us with a sustainable cost position that allows us to provide cost-efficient diagnostic solutions to the POC market. It also enables us to expand into attractive geographies and alternative healthcare settings where high quality POC testing has previously not been feasible.

We believe our Platform and its attractive value proposition will have broad appeal to healthcare providers globally that are seeking innovative POC solutions to improve outcomes and lower costs. As such, we currently have direct sales and marketing operations in 16 countries, including the U.S., most Western European countries, Japan, South Africa, Colombia and Brazil, and over time plan to further expand to the largest IVD markets, including China, India and Southeast Asia. We sell mainly to large healthcare systems, government organizations and national pharmacy chains that can deploy comprehensive POC testing across their extensive healthcare provider networks.

Our Market Opportunity

IVD tests are used to analyze patient samples to obtain information about a patient’s health status—to screen, diagnose or assess the risk of developing health issues as well as to select the appropriate therapy for a patient or to monitor chronic disease patients. IVD testing is one of the most important tools for a healthcare provider to determine the needs of his or her patients and is primarily conducted in one of two locations—either (i) in a central, or “reference,” laboratory, or central lab, or (ii) at the POC, where the healthcare provider first meets with the patient and assesses the patient’s condition. POC locations include hospital emergency departments as well as a range of other community-based healthcare settings, including physician offices, retail pharmacies, urgent care centers, community health clinics and non-traditional health care settings, which we refer to collectively as community-based healthcare settings.

POC tests have numerous advantages over central lab tests. Since central labs generally rely on samples being sent to them from remote collection locations, several hours to weeks may elapse between sample collection and results. Reporting delays have the potential to impact patient care, especially in acute situations. Remote



 

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sample collection also increases cost, introduces the risk of error, sample spoilage or loss and creates other logistical complications. By contrast, POC test results are delivered quickly since they are performed at or near the site of patient care. This allows for faster and more informed patient care decisions, patient counseling and triaging of patients.

We estimate that the global professional POC testing market, which excludes self-testing and which we refer to as the POC market, was $12 billion in 2019, growing to $17 billion over the next five years (excluding the market for COVID-19 testing). We believe that the growth rate in the POC market will be larger than the growth rate for the broader IVD testing market for the foreseeable future. Several key trends are contributing to the rapid growth of this market, each of which is driven by healthcare providers’ need for real-time diagnostic information that can be used to improve patient compliance and outcomes while lowering costs relative to hospital-based care. These trends include increasing pressure on healthcare budgets globally and the resulting shift towards lower-cost community-based care, greater attention by physicians for value-based, differentiated care, increasing focus on health outcomes by systems and self-insured employers and individuals, and in some areas improvements in POC testing technology.

POC testing is applicable across a wide range of medical conditions, and the number of tests available at the POC continues to expand. We estimate that the combined global POC market for our four initial fields of concentration—infectious disease, cardiovascular disease, diabetes, and coagulation disorders—was approximately $5.6 billion in 2019, growing to over $8 billion over the next five years (excluding the market for COVID-19 testing). The COVID-19 pandemic has significantly increased the market potential for infectious disease POC testing. We estimate that global COVID-19 testing volumes for existing technology platforms across molecular, antigen and antibody testing will be 3 billion tests in 2021, resulting in a global market for test suppliers that we estimate to be $25 billion, which estimates could be highly variable depending on vaccine distribution and the impact of the severity and length of the global pandemic. The market for COVID-19 testing will depend in large part on the severity and length of the global pandemic, which in turn could be greatly impacted by the availability and effectiveness of the recently authorized COVID-19 vaccines and any other vaccines subsequently approved or authorized. These market estimates are based on relatively low frequency and low penetration assumptions for screening and we believe there could be a further latent demand in the near term for 5 to 15 billion incremental tests, assuming broad community-based testing of employees, healthcare workers and students multiple times per week in the U.S., Europe and other large developed markets, at a low cost that enables more comprehensive screening across schools, workplaces and in the home to support a safe, normal and open economy. In addition, professional or home testing may be used for infectious disease applications beyond COVID-19 testing.

Limitations of Current POC Systems

Despite the trends towards community-based healthcare settings and related need for near patient testing, the promise of better outcomes and lower costs have not been fully realized. We believe that to achieve better health outcomes, healthcare providers require comprehensive diagnostic solutions that can provide fast, accurate test results at the POC, for a broad range of their testing needs all at reasonable cost. The traditional approach to POC test development—initially focusing on a specific medical condition and subsequently designing a test and instrument to deliver that specific application—has limited scalability and has resulted in a proliferation of instruments at the POC with the following major limitations:

 

   

Poor clinical performance in areas of high clinical need. Many of the most common medical conditions diagnosed or managed in community-based healthcare settings require tests that involve complex methodologies to generate the accurate and reliable diagnostic information required for medical decisions. The complexity can range considerably by test depending on the sample type and the concentration and dynamic range of the desired analyte, and thus require many steps in the assay to achieve the desired performance specifications. For example, troponin assays that are used to rule out a potential heart attack require fast and high sensitivity measurements of very low analyte concentrations seeing the importance of immediate treatment decisions. These complexities have



 

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historically been difficult to overcome in benchtop POC systems in a timely manner. Therefore, community-based healthcare providers have sent such assays to central labs.

 

   

Limited test menu. Most currently available POC systems have been designed for a specific application (e.g., molecular, blood-based immunoassay or respiratory immunoassay) and are not readily adapted to other areas. For many conditions, healthcare providers often require multiple parameters to make treatment decisions. For example, proper management of cardiovascular disease patients requires regular monitoring of natriuretic peptides, lipids, ALT/AST, creatinine, blood glucose, electrolytes and other markers. Currently a healthcare provider would require multiple instruments to obtain this information at the POC and instead they are choosing to wait for lab results.

 

   

High cost of total ownership. In order to meet their diagnostic needs, healthcare providers are required to purchase multiple instruments and support the required infrastructure (e.g., refrigeration) to conduct POC testing. In addition, currently available instrument-based POC tests generally have a higher cost per test than their central lab counterparts. The overall cost per reportable result becomes prohibitive to a healthcare provider at the POC in certain areas which we believe leads to suboptimal care.

These limitations have created a POC model for diagnostic testing that has been ineffective, inefficient, costly and inaccessible to a large segment of community-based healthcare settings.

Our Solution

We have developed and launched our Platform with the aim of transforming the delivery of healthcare in community-based healthcare settings. It is designed to deliver accurate results comparable to laboratory reference assays, in an easy-to-use POC solution in minutes. Our Platform comprises (i) a small, light-weight Instrument that is mainly battery operated and capable of going anywhere the patient is located, (ii) precise, low-cost, microfluidic test strips, which share common design features allowing various test strip assay types to be operated, controlled and measured by the Instrument and (iii) seamless, secure digital connectivity.

We have spent years developing our Platform and have designed and optimized our Instrument and test strip together to deliver the requisite lab-comparable quality results where lab references are available across the full range of assay and sample types, at a low cost and with results generally in 10 minutes or less. Our Instrument has been highly engineered with many innovations which enable precise fluidic control of samples in very low volumes and high sensitivity fluorescent detection of analytes in very low concentration. Our proprietary microfluidic test strip has been designed to be integrated with our Instrument to perform the specific and precise microfluidic sequence for the assays. Our test strip has been designed with multiple channels, enabling the Instrument to perform either multiple tests or a panel in parallel (e.g., Flu A/B + SARS-CoV-2 antigen), or utilize multiple channels on a single test strip for analytes with the most demanding performance requirements (e.g., SARS-CoV-2 antigen).

While our Instrument has been designed to perform multiple tests, as more tests are added to our Platform, we may encounter design challenges or require updates to our Instrument, which may impact the commercialization of certain diagnostic assays. We also have limited data on the performance of our Platform to date and limited experience in marketing and selling our Platform and we may not be successful in commercializing our Platform, including gaining market acceptance and competing with other diagnostic test providers. Our Amira System will be subject to similar uncertainties, although they are likely to be more pronounced, given the earlier stage of development of the test strip and instrument and the lack of any clinical testing of the system.

Our Platform is designed to offer the following benefits:

 

   

Lab-comparable performance at the POC in minutes. Our Platform has been designed to use the same testing methodologies as those used in central lab systems so as to deliver lab-comparable results where lab references are available at the POC in minutes, rather than days or weeks. Each test is developed and validated against its respective lab reference standard. We believe that with our Platform, healthcare providers have the benefit of both central lab performance and real-time results.



 

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Broad menu of tests on a single instrument. Our Platform has been designed to integrate the most commonly used assay technologies (e.g., enzyme, immunoassay, molecular and electrolytes) and sample types (e.g., swab, saliva, blood) into a small, single instrument. As a result, users can replace multiple systems with one instrument. We are building out our menu with further tests, which include tests currently run at the POC, tests not currently available at the POC, and innovative diagnostic test panels.

 

   

Low cost of ownership. Healthcare providers will be able to use a single Instrument with a variety of low-cost test strips as opposed to multiple instruments currently required for POC testing in community-based healthcare settings. We also believe our Platform will provide incremental cost savings, including reduced cost of training, maintenance and test supplies. All of this enables a lower cost per reportable result.

In addition to addressing the fundamental limitations of current POC systems, we have designed our Platform with features that we believe healthcare providers will greatly value:

 

   

Simple workflow and intuitive user interface

 

   

Seamless connectivity

 

   

Data reporting, analytics and decision support

 

   

System portability and flexibility

As planned, our Amira System will consist of (i) a small, battery operated, disposable device, (ii) the Amira COVID-19 test and (iii) a phone/tablet application for test management and reporting. Our Amira System is in the feasibility phase (see our “Phases of Development” chart below), with the COVID-19 test strip in design freeze, which is one of the last milestones before the development phase. We currently have a prototype Amira system including strips, device and patient application. We expect to move to design freeze at system level shortly and have begun submitting patent applications with plans to start clinical testing in the first quarter of 2021. We plan to submit an EUA request to FDA and obtain CE Mark for POC and over-the-counter applications in the first half of 2021.

Our Strategy

Our goal is to become the market leading provider in POC testing and to establish our Platform as the industry standard. To achieve this objective, we intend to:

 

   

offer a comprehensive menu of high-performance diagnostic tests for community-based healthcare settings;

 

   

grow our installed base by executing an institutional sales and channel partnership model;

 

   

expand into additional healthcare settings and underserved markets;

 

   

continue to innovate to expand into specialty areas, such as allergy, toxicology, fertility, veterinary and in-patient hospital;

 

   

continue to innovate across our Platform, with a focus on data-driven improvements; and

 

   

continue to expand use of our technology and apply it to even higher volume, lower cost mass population screening solutions, initially focused on COVID-19 mass screening / home-testing, through the development and potential launch of our Amira System.



 

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Our Diagnostic Tests

As of the date of this prospectus, we have four diagnostic tests available under EUA and/or CE Mark for use with our Instrument.

 

 

 

TEST

  

AREA

  

TAM*

  

CURRENT
COMMERCIAL
MARKETS

  

2021 REGULATORY
SUBMISSIONS OR
CERTIFICATIONS**

SARS-CoV-2 antigen    Infectious Disease    $16 Billion   

U.S. (pursuant to EUA), Europe (CE Mark)

 

   Japan
SARS-CoV-2 antibody    Infectious Disease    $3 Billion    Europe (CE Mark)   

U.S. (EUA submission pending FDA review), Japan

 

INR    Coagulation Disorders    $500 Million    Europe (CE Mark)    U.S. (510(k)), Latin America
D-Dimer   

Cardiovascular Disease and Coagulation Disorders

 

   $700 Million    Europe (CE Mark)    U.S. (510(k))
*   2021 Global Total Addressable Market: We estimated for each test based on our current assumptions, including the (1) existing market sizes, (2) central lab market that could move to the POC, and (3) expansion of diagnostic testing. The 2021 Global Total Addressable Market excludes the mass screening market referred to below which we intend to target with our Amira System, assuming completion of development and regulatory approval.
**   We expect to submit a request for regulatory approval, authorization or clearance or self-certify, as applicable, in 2021 in the markets listed for the test.

The LumiraDx Platform is currently the only Platform that can run both an INR and D-Dimer test on the same platform (each comprising a different technology) as well as the only high-sensitivity platform to run a SARS-CoV-2 antigen test and antibody test on the same instrument (each utilizing a different sample type – nasal swab vs blood sample).



 

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We have more than 30 tests in various phases of development. For all our tests in development, we intend to launch them globally over time, subject to successful development and obtaining regulatory approval, authorization or clearance, which we may never obtain. We will focus on the most attractive markets initially. While we have encouraging internal data for many of our diagnostic tests in development, we have not yet performed multi-site, external clinical analyses of most of these tests or otherwise compared our internal results against clinical results, unless stated otherwise in this prospectus. The chart below summarizes information regarding select tests in development that we believe are important to our strategy of developing a broad menu of tests on a single Platform and are the closest in proximity to regulatory submission or certification.

 

 

 

TEST

 

AREA

 

PHASE*

 

TAM***

 

2021 REGULATORY
SUBMISSIONS OR
CERTIFICATIONS ****

Flu A/B + SARS-CoV-2   Infectious Disease  

Development transitioning to Verification and Validation**

 

  *****   U.S. (pursuant to EUA), Europe (CE Mark), Africa (CE Mark)
CRP   Infectious Disease   Development   $300 Million   Europe (CE Mark)
HbA1c   Diabetes   Development   $1.3 Billion  

Europe (CE Mark), U.S. (510(k))

 

Flu A/B + RSV   Infectious Disease   Development   $600 Million  

Europe (CE Mark), U.S. (510(k))

 

High Sensitivity Troponin I   Cardiovascular Disease   Development   $900 Million  

Europe (CE Mark), U.S. (510(k))

 

HIV Molecular

 

  Infectious Disease   Development   $500 Million   ******
*   See the discussion below regarding the different phases of our product development.
**   Frozen samples are available for testing from previous clinical studies for our Flu A and Flu B test carried out last flu season.
***   2021 Global Total Addressable Market: We estimated for each test based on our assumptions, including the (1) existing market sizes, (2) central lab market that could move to the POC with the right solution, and (3) expansion of diagnostic testing. The 2021 Global Total Addressable Market excludes the mass screening market referred to below which we intend to target with our Amira System, assuming completion of development and regulatory approval.
****   We expect to submit a request for regulatory approval, authorization or clearance or self-certify, as applicable, in 2021 in the markets listed for the test.
*****   Total addressable market for our Flu A/B + SARS-CoV-2 test is difficult to estimate at present. We expect that the actionable market will span a proportion of the total addressable markets for SARS-CoV-2 antigen and Flu A/B testing products.
******   We plan to submit a prequalification submission to the World Health Organization in 2021.

In addition to the tests on our Platform, we have started development of our Amira System, which is being developed as a high volume, lower cost mass population screening solution. We are initially focused on COVID-19 testing and we are exploring other applications of our Amira System for mass screening solution testing.

 

 

 

TEST

  

AREA

  

PHASE

  

TAM*

  

2021 REGULATORY
SUBMISSIONS OR
CERTIFICATIONS**

SARS-CoV-2 antigen    Infectious Disease    Feasibility    $5-15 Billion    U.S. (pursuant to EUA), Europe (CE Mark)

 

*   2021 Global Total Addressable Market: We estimated for each test based on our current assumptions, including the existing market sizes and excluding those markets identified above for our SARS-CoV-2 antigen test.
**   We expect to submit a request for regulatory approval, authorization or clearance or self-certify, as applicable, in the first quarter of 2021 in the markets listed for the test.


 

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Although we are focused on commercializing our tests, prior to commercialization they must receive regulatory authorization or clearance. We may encounter delays in receiving the necessary regulatory authorization or clearance, which would delay commercialization of our tests and may decrease our expected market demand for our tests and adversely impact our strategy.

Phases of Development

We identify five phases in our product development process. Each phase of our product development process has well-defined design activities and milestones, timelines, and risk levels at each phase as further described below. In light of our strategy to provide a broad menu of lab-comparable performance diagnostic tests at the POC, with low cost of ownership, our near-term pipeline is comprised of established diagnostic markers with high, existing clinical value. The timelines for our clinical studies vary per assay or target disease diagnosis and depends on the accessibility to clinical samples.

Below is a table that summarizes our phases of product development.

 

 

 

PHASE

  

MILESTONES

  

ESTIMATED TIMELINES

Product concept   

•   Business case

•   Establishment of target product profile

•   Design control module and core team definition

   2 months
Feasibility   

•   Demonstrate test strip and assay processing

•   Define performance and design targets

•   Establish proof-of-concept and verify confidence to meet target product profile

•   Reagent and chemistry developments

  

12 months

(may decrease over time as Platform becomes more stable and uniform)

Development   

•   Risk mitigation plans

•   System integration (hardware, software, test strip, assay script, calibration)

•   Demonstrate performance and manufacturability

•   Pre-clinical studies

•   Establish design freeze and verify readiness for verification and validation

   2 - 6 months
Verification and Validation   

•   Establish process performance qualification (PPQ) – transfer to manufacturing

•   Commence and complete clinical studies

•   Risk Summary Reports / Residual Risk Assessment reports

   2 - 4 months
Regulatory file preparation and submission, followed by launch if regulatory approval, authorization, or clearance is obtained   

•   Launch product in self certified markets (CE Mark)

•   Regulatory file submission and response to regulatory authorities and premarket review by regulatory bodies

  

Varies



 

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Our History and Team

LumiraDx was founded in 2014 by a group of entrepreneurs, Ron Zwanziger, our Chairman and Chief Executive Officer, Dave Scott Ph.D., our Chief Technology Officer and Jerry McAleer, Ph.D., our Chief Scientist, who have a successful track record in building and scaling diagnostics and health IT businesses over three decades, including at companies such as Medisense, Inc., Inverness Medical Technology Inc. and Alere Inc. Most members of our management team worked together for more than a decade and with our founders bring significant expertise in:

 

   

developing innovative products for the POC;

 

   

rapidly scaling manufacturing and commercialization of POC diagnostic platforms; and

 

   

expanding a global commercial presence.

Corporate Information

LumiraDx Limited was incorporated under the laws of the Cayman Islands on August 24, 2016. The company is a U.K. tax resident for tax purposes. Our registered office is located at Ocorian Trust (Cayman) Limited, P.O. Box 1350, Windward 3, Regatta Office Park, Grand Cayman KY1-1108, Cayman Islands, and our telephone number is +1 (345) 640-0540. Our website address is www.lumiradx.com. We do not incorporate the information on or accessible through our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website as part of or incorporated by reference into this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

Risk Factor Summary

Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common shares. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth in the section titled “Risk Factors” before deciding whether to invest in our common shares. Among these important risks are, but not limited to, the following:

 

   

We are at a pivotal point in the commercialization of our Platform, and we may not succeed for a variety of reasons.

 

   

Our short-term revenue prospects will vary with the amount of demand for COVID-19 tests, which may be adversely impacted by wide-spread implementation of the recently authorized vaccines or other vaccines that are subsequently authorized.

 

   

Our Amira System may not obtain regulatory approval, authorization or clearance, and we may not be able to successfully develop and commercialize our Amira System, including scaling up manufacturing and sales capacity. We currently have a prototype Amira system including strips, device and patient application. We expect to move to design freeze at system level shortly. We are simultaneously tooling up high volume manufacturing lines, for the strip and instrument, while we progress through design freeze and the V&V phase.

 

   

Our strategy to globally launch a broad menu of tests may not be as successful as currently envisioned.

 

   

We may not be able to generate sufficient revenue from our Platform to achieve and maintain profitability.

 

   

We have limited data on the performance of our Platform to date and limited experience in marketing, manufacturing at scale and selling our Platform.

 

   

Business or economic disruptions or global health concerns, such as the COVID-19 pandemic, have harmed and may continue to seriously harm our business and increase our costs and expenses.

 

   

We rely on a limited number of suppliers for the components of our Platform and materials and may not be able to find replacements or immediately transition to alternative suppliers.

 

   

We may experience problems in scaling our manufacturing and commercial operations.



 

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Our business and reputation will suffer if our Platform does not perform as expected.

 

   

The loss of any member of our senior management team or our inability to attract and retain highly skilled scientists, engineers, clinicians and salespeople could adversely affect our business.

 

   

Our business and sale of our products are subject to extensive regulatory requirements.

 

   

If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or achieve and sustain profitability.

 

   

The dual class structure of our ordinary shares and common shares has the effect of concentrating voting control with those ordinary shareholders who held our capital stock prior to the listing of our common shares.

 

   

If we are unable to obtain and maintain patent and other intellectual property protection for products we develop and for our technology, our ability to successfully commercialize any products we may develop may be adversely affected.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

a requirement to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

   

to the extent that we no longer qualify as a foreign private issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation;

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and

 

   

an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Emerging Growth Company Status”.

We may take advantage of these exemptions for up to five years or until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; (iii) the date on which we are deemed to be a large accelerated filer under the rules of the SEC; or (iv) the last day of the fiscal year following the fifth anniversary of this offering. We may choose to take advantage of some but not all of these exemptions.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

We are also considered a “foreign private issuer”. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to United States, or U.S., domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act;



 

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the requirement to comply with Regulation FD, which requires selective disclosure of material information;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer. As a result, we do not know if some investors will find our common shares less attractive, which may result in a less active trading market for our common shares and/or more volatility in the price of our common shares.



 

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THE OFFERING

 

Common shares offered by us

                 common shares

 

Option to purchase additional common shares

We have granted the underwriters an option exercisable for a period of 30 days after the date of this prospectus to purchase up to an additional                  common shares from us

 

Common shares to be outstanding after this offering

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

 

Ordinary shares to be outstanding after this offering

                ordinary shares. Subject to certain limited exceptions, the ordinary shares must be converted into common shares before they can be sold or transferred. Subject to the following sentence and certain other exceptions, each ordinary share is convertible into one common share. Ordinary shares cannot be converted into common shares until after the date that is 180 days from the effectiveness of this registration statement. See the sections titled “Description of Share Capital,” “Shares Eligible for Future Sale” and “Underwriting” for a more complete description of these exceptions.

 

Total common shares and ordinary shares to be outstanding after this offering

                 common shares and                  ordinary shares

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $             million, assuming an initial public offering price of $             per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to expand our manufacturing capacity and our commercial operations, continue the development and commercialization of our Amira System and to scale up our manufacturing capacity of the Amira System pursue new lines of business, fund other growth initiatives, and the remainder to fund our other current and future research and business development activities, general and administrative expenses, working capital and other general corporate purposes. See the section titled “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

 

Voting rights

Common shares are entitled to one vote per share on a proposed shareholder resolution.

 

  Ordinary shares are entitled to ten votes per share on a proposed shareholder resolution.

 

 

Upon the completion of this offering, holders of our ordinary shares will control approximately     % of the voting power of our outstanding



 

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share capital, and Ron Zwanziger, our Chief Executive Officer and co-founder, Dave Scott, Ph.D., our Chief Technology Officer and co-founder, and Jerry McAleer, Ph.D., our Chief Scientist and co-founder, collectively referred to herein as our co-founders, and their respective affiliates, will control approximately     % of the voting power of our outstanding share capital, as further described under “Principal Shareholders” in this prospectus. As a result, individually or together, holders of our ordinary shares and our co-founders will be able to significantly influence any action requiring the approval of our shareholders, including the election of members of our board of directors, the adoption of amendments to our then-current memorandum and articles of association, and the approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction. In addition, each of our co-founders is a director of the company and cannot be removed from our board of directors absent the voting approval of the ordinary shares held by Ron Zwanziger, our Chief Executive Officer and co-founder, and his affiliates. See the sections titled “Principal Shareholders” and “Description of Share Capital” for additional information.

 

Risk factors

You should read the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.

 

Proposed Nasdaq Global Market symbol

“LMDX”

The number of common shares and ordinary shares to be outstanding after this offering is based on an aggregate of                  common shares outstanding and                  ordinary shares outstanding as of June 30, 2020 and:

 

  (i)

includes:

 

   

212,718 ordinary shares issuable at the closing of this offering upon the automatic conversion of an equivalent number of Series A 8% cumulative convertible preferred shares of $0.001 each in the capital of the company, or the series A preferred shares, pursuant to the terms of our current memorandum and articles of association;

 

   

                 common shares issuable at the closing of this offering upon the automatic conversion of 33,008 Series B 8% cumulative convertible preferred shares of $0.001 each in the capital of the company, or the series B preferred shares, pursuant to the terms of our current memorandum and articles of association;

 

   

41,797 common shares issuable upon the automatic conversion of our 5% unsecured subordinated convertible loan notes due 2024, or the 5% notes, at a price of $1,793.38 per common share for an aggregate principal amount of $75,155,586, such common shares to be allotted within 15 business days after the completion of this offering; and

 

   

31,098 common shares issuable upon the automatic conversion of our 10% convertible loan notes due 360 days from the date of issuance, or the 10% notes, at a price of $2,386.85 per common share for an aggregate principal amount of $74.3 million such common shares to be allotted within 15 business days after the completion of this offering; and



 

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  (ii)

excludes:

 

   

155,986 ordinary shares issuable upon the exercise of options outstanding as of June 30, 2020 with a weighted average exercise price of $623.90 per ordinary share;

 

   

13,067 ordinary shares issuable upon exercise of warrants issued on October 3, 2016 and outstanding as of June 30, 2020 at an exercise price of $611.63 per ordinary share, or the 2016 warrants;

 

   

2,284 ordinary shares issuable upon exercise of warrants issued on September 20, 2019 and outstanding as of June 30, 2020 at an exercise price of $1,459.89 per ordinary share, or the 2019 warrants;

 

   

16,528 common shares issuable upon exercise of warrants issued on November 9, 2020 pursuant to a warrant instrument dated July 1, 2020 at an exercise price of $1,793.38 per common share, or the 2020 warrants;

 

   

1,000 common shares issuable upon exercise of warrants, or the Jefferies warrants, issued pursuant to a warrant instrument dated November 6, 2020 at an exercise price equal to either (i) if completion of this offering occurs on or before January 31, 2021, a price equal to the price per common share issued pursuant to this offering (before deducting underwriting discounts, commissions and expenses) less a discount of 20% or (ii) if completion of this offering has not occurred on or before January 31, 2021, $4,644.969 per common share;

 

   

up to 3,000 common shares issuable upon exercise of up to 3,000 warrants, or the Term Loan Warrants (including 400 warrants, or the SVB warrants, to be issued to Silicon Valley Bank, or SVB, on substantially the same terms as the Jefferies warrants, in connection with the SVB Tranche), to be used in connection with any incremental term loans, in an aggregate amount of up to $150 million to be borrowed in accordance with the Senior Secured Loan. As of January 15, 2021, SVB has agreed to make available to our subsidiary, LumiraDx Group Limited, $40 million in incremental term loans, or the SVB Tranche, under and on substantially the same terms as the Senior Secured Loan;

 

   

68,310 ordinary shares in the aggregate issuable upon exercise of options granted to our founders at an exercise price equal to either (i) if the public filing of this registration statement in connection with this offering occurs on or before January 31, 2021, an exercise price per ordinary share equal to the greater of (A) the public offering price per common share and (B) an exercise price per ordinary share reflecting a Company valuation of $4 billion, or (ii) if the public filing of this registration statement has not occurred on or before January 31, 2021, an exercise price per ordinary share reflecting a Company valuation of $5.2 billion; and

 

   

                 common shares reserved for future issuance under our 2021 Stock Option and Incentive Plan, which will become effective upon the effectiveness of this registration statement.

Unless otherwise indicated or the context requires otherwise, all information in this prospectus, including the number of common shares and ordinary shares to be outstanding after this offering:

 

   

assumes an initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

   

assumes no exercise of the underwriters’ option to purchase up to                  additional common shares;

 

   

gives effect to the effectiveness of our amended and restated memorandum and articles of association, or our Amended and Restated Articles, which will occur immediately following the completion of this offering, and the conversion of the series A preferred shares and series B preferred shares (referred to below);

 

   

gives effect, upon completion of this offering, to the automatic conversion of each series A preferred share on a 1:1 basis into ordinary shares;



 

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gives effect, upon completion of this offering, to the automatic conversion of each series B preferred share into such number of common shares to be issued at a conversion rate, or series B preferred conversion rate, calculated by dividing: (x) the issue price plus all accrued but unpaid dividends for each series B preferred share by (y) the greater of: (A) a price per common share equal to $4 billion divided by the fully diluted share capital of the company immediately prior to the conversion of the series B preferred shares; and (B) the lower of: (i) an amount equal to 80% of the offering price per common share issued pursuant to this offering; and (ii) a price per common share equal to $6.4 billion divided by the fully diluted share capital of the company immediately prior to the conversion of the series B preferred shares;

 

   

gives effect to the automatic conversion of the 5% notes into an aggregate of 41,797 common shares, such common shares to be issued within 15 business days of the completion of this offering; and

 

   

gives effect to the automatic conversion of the 10% notes into an aggregate of 31,098 common shares, such common shares to be issued within 15 business days of the completion of this offering.

The information in this prospectus regarding the common shares to be issuable upon conversion of our series B preferred shares is based on an assumed initial public offering price per common share of $            , which is the midpoint of the estimated price range set forth on the cover of this prospectus. To the extent that the actual initial public offering price per common share for this offering is greater or less than $            , the actual number of common shares issued in connection with the conversion of our series B preferred shares will be adjusted accordingly.



 

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Recent Operating Results (preliminary and unaudited)

Set forth below are certain preliminary and unaudited estimates of selected financial information for the three months and year ended December 31, 2020 and actual unaudited financial information for the three months ended September 30, 2020. The following information reflects our preliminary estimates with respect to such results for the three months and year ended December 31, 2020 based on currently available information, is not a comprehensive statement of our financial results and is subject to completion of our financial closing procedures. Our financial closing procedures for the three months and year ended December 31, 2020 are not yet complete and, as a result, our actual results may differ materially from these estimates. These estimates should not be viewed as a substitute for our full interim or annual financial statements prepared in accordance with International Financial Reporting Standards, or IFRS. Further, our preliminary estimated results for the three months and year ended December 31, 2020 are not necessarily indicative of the results to be expected for any future period as a result of various factors, including, but not limited to, those discussed in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” This information should be read in conjunction with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for prior periods included elsewhere in this prospectus.

The preliminary estimates for the three months and year ended December 31, 2020 presented below have been prepared by, and are the responsibility of, management. KPMG LLP, our independent registered public accounting firm, has not audited, reviewed, compiled, or performed any procedures with respect to such preliminary financial information. Accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto.

 

     THREE MONTHS
ENDED
SEPTEMBER 30,
2020
     THREE
MONTHS
ENDED
DECEMBER 31,

2020
     YEAR ENDED
DECEMBER 31,
2020
 
            LOW      HIGH      LOW      HIGH  

Revenue

              

Operating loss

              

Net loss

              


 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables present our summary consolidated financial data as of the dates and for the periods indicated. We derived the summary consolidated statement of profit and loss and comprehensive income data for the years ended December 31, 2018 and 2019 and for the six months ended June 30, 2019 and 2020, and the summary consolidated statements of financial position data as of December 31, 2018 and 2019 and as of June 30, 2019 and 2020 from our audited consolidated financial statements and unaudited interim financial statements, as applicable, included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the information under the sections titled “Selected Consolidated Financial Data,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

 

 

    YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
    2018     2019     2019     2020  
    (in thousands)     (in thousands)  

Consolidated Statement of Profit and Loss and Comprehensive Income

 

     

Revenue:

       

Products

  $ 17,719     $ 19,802     $ 8,873     $ 10,630  

Services

    4,838       3,340       2,276       2,320  

Software

    2,829                    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    25,386       23,142       11,149       12,950  

Cost of sales:

       

Products

    (9,592     (12,469     (5,379     (6,518

Services

    (4,265     (1,853     (977     (943

Software

    (737                  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

    (14,594     (14,322     (6,356     (7,461
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    10,792       8,820       4,793       5,489  

Operating expenses:

       

Research and development expenses

    (66,708     (86,546     (40,796     (51,924

Selling, marketing and administrative expenses

    (33,365     (37,294     (16,736     (18,087
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

    (100,073     (123,840     (57,532     (70,011
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (89,281     (115,020     (52,379     (64,522
 

 

 

   

 

 

   

 

 

   

 

 

 

Finance income (expense):

       

Finance income

    875       11,705       504       510  

Finance expense

    (38,901     (39,335     (21,244     (47,626
 

 

 

   

 

 

   

 

 

   

 

 

 

Total finance expense, net

    (38,026     (27,630     (20,740     (47,116

Loss before provision for income taxes

    (127,307     (142,650     (73,479     (111,638

Tax credit for the period

    12,098       9,541       4,684       4,670  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (115,209   $ (133,109   $ (68,795     (106,968
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to non-controlling interest

    (55     (302     (72     (249
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to equity holders of parent—basic and diluted

  $ (115,154   $ (132,807   $ (68,723   $ (106,719
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to equity holders of parent—basic and diluted

  $ (305.80   $ (356.59   $ (184.78   $ (286.28
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of ordinary shares used in loss per share—basic and diluted

    376,563       372,431       371,908       373,652  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to ordinary shares—basic and diluted (1)

       
   

 

 

     

 

 

 

Pro forma weighted average ordinary shares outstanding—basic and diluted

       
   

 

 

     

 

 

 

 

 



 

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The following table summarizes our consolidated statement of financial position as of June 30, 2020 on an actual basis and on a pro forma as adjusted basis giving effect to this offering.

 

 

 

     AS OF JUNE 30, 2020  
     ACTUAL      PRO FORMA (1)      PRO FORMA
AS ADJUSTED (2)
 
     (in thousands)  

Consolidated Statement of Financial Position

        

Cash and cash equivalents

     47,013        

Working capital (3)

     50,930        

Total assets

     183,967        

Total liabilities (4)

     424,217        

Total equity

     240,250        

 

 

(1)   The unaudited pro forma information presented above gives effect to (i) the issuance of 212,718 ordinary shares upon the conversion of the series A preferred shares at a conversion price of $                 per series A preferred share for an aggregate principal amount of $                , (ii) the issuance of                 common shares upon the conversion of the series B preferred shares at a conversion price of $                 per series B preferred share for an aggregate principal amount of $                , (iii) the issuance of 41,797 common shares upon the conversion of the 5% notes at a price of $1,793.38 per common share for an aggregate principal amount of $75,155,586, (iv) the issuance of 31,098 common shares upon the conversion of the 10% notes at a price of $2,386.85 per common share for an aggregate principal amount of $73.4 million and (v) the borrowing of $100 million under the Senior Secured Loan, part of which was used to prepay the senior loans in the amount of $40.0 million with an interest rate of 11.5% per annum payable in quarterly installments, or the 11.5% notes. See notes 17 and 18 to our audited consolidated financial statements appearing elsewhere in this prospectus.
(2)    The unaudited pro forma as adjusted information data gives further effect to the issuance and sale of                common shares in this offering by us at an assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the application of the net proceeds of this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds.” The pro forma as adjusted information presented 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 (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total equity by                $                million, assuming that the number of common shares 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. An increase (decrease) of 1,000,000 in the number of common shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total equity by $                million, assuming the assumed initial public offering price per common share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)    We define working capital as current assets less current liabilities.
(4)    The 10% notes were issued in July 2020 and therefore are not reflected under actual total liabilities as of June 30, 2020.


 

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RISK FACTORS

Before you invest in our common shares, you should understand the high degree of risk involved. You should carefully consider the following risks and other information in this prospectus, including our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, before you decide to purchase our common shares. The following risks may adversely impact our business, financial condition, and operating results. As a result, the trading price of our common shares could decline and you could lose part or all of your investment.

Risks Relating to Our Business and Strategy

We are at a pivotal point in the commercialization of our Platform, and we may not succeed for a variety of reasons.

Since our inception in 2014 until June 30, 2020, we incurred $274.9 million in research and development costs to develop our Platform. As of the date of this prospectus, we had four POC diagnostic tests that we had developed and launched: our SARS-CoV-2 antigen test commercially available under an EUA and a CE Mark, which we recently introduced to the European and U.S. markets; our INR test commercially available under a CE Mark, which we recently introduced to the European market, our SARS-CoV-2 antibody test, and our D-Dimer test, both of which are CE Marked. We also received EUAs for our molecular lab reagent kits, LumiraDx SARS-CoV-2 RNA STAR and LumiraDx SARS-CoV-2 RNA STAR Complete, and we recently commenced sales.

We have engaged in a large, broad-scale launch of our SARS-CoV-2 antigen test and we are relying on such test to create brand awareness and a revenue base to support our cost infrastructure as well as to create an installed base of our Instrument.

We have limited commercial experience with our Platform, and our launch of additional tests, including our SARS-CoV-2 antigen test, which has been launched in Europe and the U.S., may be delayed, be less successful than we anticipate, or fail for any of the reasons that large commercial launches are ultimately unsuccessful. For example:

 

   

Our tests, produced at large scale, might not perform to standards that we have experienced to date. We therefore may not obtain or maintain regulatory approval, authorization or clearance for some of our diagnostic tests in research and development, which may have a significant impact on the commercialization of our Platform.

 

   

We have a number of diagnostic tests in our near-term pipeline. We may not receive relevant regulatory approval, authorization or clearance for some or all of these in a timely fashion, or at all, and this may impact significantly on the commercialization of the Platform.

 

   

Unexpected or inconsistent clinical data from existing and future clinical trials, or a regulator’s or the market’s perception of this clinical data when compared to our internal comparative data, may adversely impact our ability to obtain regulatory approval, authorization or clearance for, or market acceptance of, our diagnostic tests.

 

   

We make our Instrument and test strips on sophisticated manufacturing systems, and these may not operate at large scale as anticipated.

 

   

We may have difficulty sourcing raw materials and components to make our Instrument and test strips in a timely fashion in necessary quantities, or these materials and components might not comply with our specifications, which are exacting.

 

   

We may not be able to supply our Platform through sales channels that are effective and efficient.

 

   

Potential users of our Platform might not accept our Platform as being better than those POC systems already available, at the prices we charge or at all.

 

   

Governmental and third-party payors might decline to cover our products or reimburse our users for the cost of our Instrument and test strips at favorable rates or at all.

 

   

We may not be able to scale-up and sustain operations to a level that allows our investments in technology, equipment, personnel and other resources to achieve sustainable and profitable commercial activities.

 

   

Our management, manufacturing, sales and marketing, logistics, research and development, regulatory and other personnel might not be able to sustain the high level of operations that we anticipate and that we will require to produce our anticipated revenue and allow us to operate profitably.

 

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External factors, such as the ongoing COVID-19 pandemic, or political or social instability or unrest in our principal markets, might adversely affect us in ways that we have not planned for.

Operations of the type and scope that we plan are subject to many uncertainties, and many that are undertaken are unsuccessful. We cannot be certain that we will be able to achieve our business objectives as described in this prospectus, and potential investors should give serious consideration to that possibility prior to making an investment in this offering.

Our short-term revenue prospects will vary with the amount of demand for COVID-19 tests.

Our short-term revenue prospects will vary with the amount of demand for our SARS-CoV-2 antigen test and SARS CoV-2 antibody test. As effective COVID-19 vaccines or treatments are developed, approved and rolled out to protect against and treat the virus, demand for our SARS-CoV-2 antigen test and SARS CoV-2 antibody test may be impacted and the size of our market opportunity for such tests may be impacted. While we believe that our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests will remain in high demand as COVID-19 vaccines are rolled out and following such rollout to be used as a verification tool to test the efficacy of such vaccines in triggering an immune response, and to facilitate the reopening of the economy, the availability and efficacy of such vaccines or the mitigation of the COVID-19 pandemic earlier than expected for any other reason could negatively impact demand for our Platform and sales of our Instrument, test strips and other products. In addition, competitors may produce more accurate tests or tests which receive more favorable demand, both of which may impact on our revenue streams and profitability.

New product development involves a lengthy and complex process and we may be unable to commercialize additional tests on our Platform on a timely basis, or at all.

Our Platform will take time to commercialize, and its launch may be delayed or may not be successful. There can be no assurance that our Platform will accurately and rapidly identify biomarkers associated with conditions and diseases of importance to our customers, including COVID-19, for a variety of technical reasons or that our Platform will compete with market alternatives or gain market acceptance. Our diagnostic tests which are in development will take time to develop and commercialize, if we are able to commercialize them at all.

Many other POC testing systems are designed for one or few related tests, increasing the odds of creating a successful test but decreasing the odds of developing a system with broad testing abilities. Our strategy involves designing a platform that is diverse and powerful enough to produce high-quality testing abilities for a broad array of tests. While we believe this strategy will result in an industry-leading standard for POC tests, it also creates a very high hurdle for success, which we may not ultimately clear.

Further, there can be no assurance that any new diagnostic tests will have acceptable clinical performance. Before we can commercialize any new diagnostic tests, we will need to expend significant funds in order to:

 

   

conduct substantial research and development, including validation studies and potentially clinical trials;

 

   

further develop and scale our research and development efforts to accommodate different test strip designs or adjustments; and

 

   

further develop and scale our infrastructure to be able to analyze increasingly large amounts of data.

Our Platform development process involves a high degree of risk, and development efforts may fail for many reasons, including:

 

   

failure of the products to perform as expected at the research or development stage;

 

   

lack of validation data; or

 

   

failure to demonstrate the clinical utility of the products or pass clinical trials or obtain relevant regulatory approval, authorization or clearance.

As we develop our Platform and our diagnostic tests, we will have to make significant investments in product development, marketing and selling resources. In addition, competitors may develop and commercialize competing products faster than we are able to do so.

 

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Our Amira System may not obtain regulatory approval, authorization or clearance, and we may not be able to successfully develop and commercialize our Amira System, including scaling up manufacturing and sales capacity.

We have started adjusting our high performing SARS-CoV-2 antigen test for mass screening applications with our Amira System, which is based upon our Platform and our SARS-CoV-2 antigen test. Our Amira System is still under development, which we may not be able to complete successfully. We currently have a prototype Amira system including strips, device and patient application. We expect to move to design freeze at system level shortly. We are simultaneously tooling up high volume manufacturing lines, for the strip and instrument, while we progress through design freeze and the V&V phase. Even if successfully developed, it will require regulatory approval, authorization or clearance. In addition, we may need to seek regulatory approval, authorization or clearance for specific or limited use cases based on our commercialization plans and then seek separate approval, authorization or clearance over time for other settings, such as home-use settings. For example, we plan to submit an EUA request to FDA and obtain CE Mark for POC and over-the-counter applications in the first half of 2021. We plan to start clinical testing for our Amira System in the near future, but we may not receive positive clinical data or we may need to perform additional clinical testing to obtain regulatory approval, authorization or clearance for our Amira System.

We expect to devote significant operational and financial resources to the development and commercialization of our Amira System to meet expected demand for mass screening applications at schools, universities, for return-to-work screening and over time for testing in the home. Our ability to produce the planned volume of Amira COVID-19 tests will be dependent on our ability, and the ability of our contract manufacturers, to successfully and rapidly scale up manufacturing and sales capacities. These efforts may divert management’s attention and resources from other diagnostic tests, including our SARS-CoV-2 antigen test and our SARS-CoV-2 antibody test available on our Platform. We may encounter significant difficulties in our efforts to scale, manufacture and supply our Amira System and we cannot guarantee that any of these challenges will be met in a timely manner or at all.

We may not be able to generate sufficient revenue from our Platform to achieve and maintain profitability.

We believe our commercial success is dependent upon our ability to successfully market and sell our Platform to customers, including large healthcare systems, government organizations, national pharmacy chains and community-based healthcare settings, to launch and commercialize our Instrument and diagnostic tests, including those for COVID-19, to continue to expand our current relationships and develop new relationships with diagnostic companies, and to develop and commercialize new POC diagnostic tests. We are scaling our operations assuming a rapid uptake of our Instrument and our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests, but the demand for our Platform may not increase for a number of reasons, including due to the evolving nature of the COVID-19 pandemic, or unsuccessful execution of our strategy designed to meet the increased demand for COVID-19 tests, or otherwise. If we do not obtain an EUA for our SARS-CoV-2 antibody test, or if we are unsuccessful in the commercialization of our SARS-CoV-2 antigen and antibody tests, then we will need significant financial resources to maintain our operations. We have experienced early revenue growth from the sale of our Platform to healthcare professionals, principally for SARS-CoV-2 antigen tests, INR tests and from the sale of third-party distribution products and our anticoagulation management programs. We may not be able to continue revenue growth or maintain existing revenue levels.

Our existing customers and collaborators may decide to decrease or discontinue their use of our Platform due to changes in research and product development plans, changes in the occurrence of certain diseases, such as COVID-19, failures in clinical trials, financial constraints, or utilization of internal testing resources or tests performed by other parties, which are circumstances outside of our control. In addition to reducing our revenue, this may reduce our exposure to early stage research that facilitates the incorporation of newly-developed information about various tests into our Platform.

We are currently not profitable. Even if we succeed in increasing the adoption of our Platform by large healthcare systems, government organizations, national pharmacy chains and community-based healthcare settings, maintaining and creating relationships with our existing and new customers and collaborators and developing and commercializing additional POC diagnostic tests, we may not be able to generate sufficient revenue to achieve or maintain profitability.

Business or economic disruptions or global health concerns, such as the COVID-19 pandemic, have and may continue to seriously harm our business and increase our costs and expenses.

The global impact of the COVID-19 pandemic has been rapidly evolving in many countries, including the U.K. where our main research, development and manufacturing operations are located, as well as in other countries, and has led to the

 

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implementation of various responses, including government-imposed quarantines, travel restrictions, business and school closures and other public health safety measures. These responses to the COVID-19 pandemic have impacted and may continue to materially and adversely impact our business and results of operations due to, among other factors:

 

   

a potential for delays in launches of our non-COVID-19 diagnostic tests given reduced and limited access to clinical trial sites for our other tests and social distancing and other measures that restrict ability to work on such tests. For example, we were unable to complete a clinical trial of our Flu A/B + RSV test that we initiated in the U.S. during the 2019/2020 influenza season due to the impacts the COVID-19 pandemic had on clinical trial sites;

 

   

a delay in regulatory approval, authorization or clearance by FDA, and other applicable regulators to some of our diagnostic assays in development, if such regulators focus their resources on and give priority to COVID-19 testing and treatments or to a specific form of COVID-19 testing that is different than our SARS-CoV-2 antibody test;

 

   

a disproportionate impact on the healthcare groups and other healthcare professionals with whom we contract;

 

   

supply shortages for materials used to manufacture our COVID-19 products, including of swabs and extraction buffers necessary for use with our SARS-CoV-2 antigen test;

 

   

disruptions to our supply chains and sales and marketing efforts due to restrictions on courier delivery services and other transportation systems;

 

   

disruptions to operations at our current and future manufacturing systems and facilities and those of our third-party vendors, collaborators, and suppliers;

 

   

difficulty accessing the capital and credit markets on favorable terms, or at all, a severe disruption and instability in the global financial markets, and deteriorations in credit and financing conditions which could affect our access to capital necessary to fund our existing and scaled business operations or address maturing liabilities on a timely basis;

 

   

the potential negative impact on the health or productivity of employees, especially if a significant number of them are impacted;

 

   

a deterioration in our ability to ensure business continuity during a disruption; and

 

   

social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate.

This pandemic, as well as intensified measures undertaken to contain the spread of COVID-19, could decrease healthcare industry spending; adversely affect demand for our Platform; cause one or more of our customers to file for bankruptcy protection or go out of business; cause one or more of our customers to fail to renew, terminate, or renegotiate their contracts; affect the ability of our business development team to travel worldwide to potential customers and the ability of our professional services teams to conduct in-person services and trainings; impact expected spending from new customers; negatively impact collections of accounts receivable; lead to the closure of our existing or future manufacturing facilities or any of our other production, research and/or distribution facilities; and restrict the movement of people and goods, which could negatively impact employee availability (particularly, in respect of our R&D and sales and marketing teams), any of which would harm our business, results of operations, and financial condition. In addition, while we have taken remote work, group isolation and other measures to prevent an outbreak among our employees, further waves of the COVID-19 pandemic could further disrupt our operations as the success of the measures we have implemented is uncertain.

The loss of any member of our senior management team or our inability to attract and retain highly skilled scientists, engineers, clinicians and salespeople could adversely affect our business.

Our success depends on the skills, experience and performance of key members of our senior management team, including Ron Zwanziger, our Chairman and Chief Executive Officer, Dave Scott Ph.D., our Chief Technology Officer and Jerry McAleer, Ph.D., our Chief Scientist. The individual and collective efforts of these employees will be essential as we continue to develop our Platform and additional products, and as we expand our commercial activities. The loss or incapacity of existing members of our executive management team or key scientists and engineers could adversely affect our operations, particularly if we experience difficulties hiring qualified successors.

Our R&D programs and manufacturing operations depend on our ability to attract and retain highly skilled scientists, technicians and engineers. We may not be able to attract or retain a sufficient number of qualified scientists,

 

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engineers and technicians in the future due to the competition for qualified personnel in our industry. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. We may also have difficulties locating, recruiting or retaining a sufficient number of qualified sales people to successfully scale up our sales and marketing efforts to meet expected demands. Recruiting and retention difficulties can limit our ability to support our R&D and sales and marketing programs. All of our employees are at-will, which means that either we or the employee may terminate their employment at any time. In addition, we do not maintain “key person” insurance on any of our employees.

Our Platform may never achieve significant commercial market acceptance.

Our Platform may never gain significant acceptance in the marketplace and, therefore, may never generate substantial revenue or profits for us. Our ability to achieve commercial market acceptance for our Platform will depend on several factors, including:

 

   

our ability to demonstrate the clinical utility and cost effectiveness of our Platform and its potential advantages over existing POC systems, or for certain tests, over central lab counterparts, to the medical community;

 

   

our ability, and that of our collaborators, to secure and maintain FDA and other applicable regulatory clearance, authorization or approval for certain components of our Platform;

 

   

our ability to expand our test menu and provide a broad range of tests on our Platform while maintaining consistency and precision;

 

   

our ability to obtain relevant regulatory approval, authorization or clearance for our diagnostic assays in development, particularly those in our near-term pipeline;

 

   

the agreement by commercial third-party payors and government payors to reimburse our Instrument and test strips, the scope and extent of which will affect healthcare providers’ willingness or ability to pay for our Instrument and test strips and likely heavily influence their decisions to recommend our Platform;

 

   

the willingness of healthcare providers to use a POC system over central lab counterparts and the rate of adoption of our Platform by healthcare providers and other users; and

 

   

the impact of our investments in Platform innovation and commercial growth.

We believe that the successful completion of clinical trials, publication of scientific and medical results in peer-reviewed journals, and presentations at leading conferences will be important to facilitate the broad adoption of our Platform. Publication in leading medical journals is subject to a peer-review process, and peer reviewers may not consider the results of studies involving our Platform sufficiently novel or worthy of publication.

The failure of our Platform to be listed in physician guidelines or of our clinical trials to produce favorable results or to be published in peer-reviewed journals could limit the adoption of our Platform. We may not be successful in addressing these or other factors that might affect the market acceptance of our Platform and technologies. Failure to achieve widespread market acceptance of our Platform would materially harm our business, financial condition and results of operations.

We rely on a limited number of suppliers or, in some cases, sole source suppliers, for the components of our Platform and materials and may not be able to find, or immediately transition to, alternative suppliers.

We rely on several sole source suppliers for certain components or accessories and materials used in our Instrument and our test strips, such as reagents. In addition, we currently rely solely on Flextronics Ltd, or Flex, as the sole manufacturer of our Instrument, with components and assemblies supplied by Flex and by outside vendors, and our facilities as the sole suppliers of our test strips.

In the case of any alternative supplier for our Instrument, the components of our Instrument or our test strips, there can be no assurance that replacement components or, with regards to the test strips, reagents, swabs or other accessories will be available or will meet our quality control and performance requirements for our operations. For example, in November 2020, there was a shortage of a component for use in our Instrument which significantly constrained the production and delivery of our Instrument to customers until we added an additional supplier. An interruption in our ability to develop and produce our Instrument or test strips could occur if we encounter delays or difficulties in securing components of our Instrument or our test strips, and if we cannot then obtain an

 

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acceptable substitute. Any changes in such materials could lead to required changes in regulatory approval, authorization or clearance processes. If we encounter delays or difficulties in securing, reconfiguring or revalidating the equipment and reagents we require for our Platform, our business, financial condition, results of operations and reputation could be adversely affected.

Because of a long lead-time to delivery of certain components of our manufacturing system and Platform, we are required to place orders for a variety of items well in advance of scheduled production runs. We have increased our flexibility to purchase strategic components within shorter lead times by entering into scale up arrangements with the suppliers of these components. Although we attempt to match our inventory and production capabilities to estimates of marketplace demand, to the extent Instrument and test strip orders materially vary from our estimates, we may experience continued constraints in our Platform production and delivery capacity, which could adversely impact our financial condition and results of operations. Should our need for raw materials and components used in production continue to fluctuate, we could incur additional costs associated with either expediting or postponing delivery of those materials. In an effort to control costs, we have implemented a lean manufacturing system. Managing the change from discrete to continuous flow production requires time and management commitment. Lean initiatives and limitations in our supply chain capabilities may result in component shortages that delay shipments and cause fluctuations in revenue.

Further, we believe that there are a limited number of other equipment manufacturers that are currently capable of supplying and servicing the equipment necessary for the manufacturing of our Instrument and test strips. We have spent significant time and resources developing our manufacturing processes with our existing collaborators, and the use of equipment or materials furnished by these replacement suppliers would require us to significantly alter our operations. It could take a very long time to obtain a new manufacturing system for test strips if additional capacity were needed. Transitioning to a new supplier would therefore be time consuming and expensive, may result in interruptions or delays in our operations, could affect the performance specifications of our operations or could require that we revalidate our Platform and could require us to obtain additional clearance, authorization, approval, accreditation or licensure for the changes. There can be no assurance that we will be able to secure alternative equipment, reagents, and other materials, and bring such equipment, reagents, and materials on line and revalidate them without experiencing interruptions in our workflow.

We may experience manufacturing problems or delays that could limit the growth of our revenue or increase our losses.

Our current and planned manufacturing operations are critical to our commercialization plans, and these operations may not be sufficient to withstand the demands we intend to place on them. Any disruption in the operation of any of our facilities or the facilities of our suppliers could impact our supply chain and operation of our Platform and our ability to conduct our business and generate revenue. We may encounter unforeseen situations that would result in delays or shortfalls in our production as well as delays or shortfalls caused by our outsourced manufacturing suppliers and by other third-party suppliers who manufacture components for our Platform, including delays caused by or constraints on capacity as a result of the COVID-19 pandemic. If we are unable to keep up with demand for our Platform, our revenue could be impaired, market acceptance for our Platform could be adversely affected and our customers might instead purchase our competitors’ products. Our inability to successfully manufacture the components of our Platform would have a material adverse effect on our operating results.

If our or our suppliers’ or collaborators’ present or future facilities were to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, storms, tornadoes, earthquakes, other inclement weather events or natural disasters, employee malfeasance, terrorist acts, public health crises, power outages, or otherwise, it may render it difficult or impossible for us to increase our manufacturing and other operations sufficiently to meet increased demand, and our business could be severely disrupted. Our facilities and the equipment we use to manufacture our Platform would be costly to replace and could require substantial lead time to repair or replace.

As we continue to expand our business, we may experience problems in scaling our manufacturing and commercial operations, and if we are unable to support demand for our Platform and our future tests, including ensuring that we have adequate capacity to meet increased demand, or we are unable to successfully manage the evolution of our Platform, our business could suffer.

We currently do not have the workflow capacity to support the projected expansion of our business. In connection with the commercialization of our Platform, we have added, and expect to continue to add, personnel in the areas of

 

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sales, marketing, manufacturing, regulatory, quality assurance, customer and technical service and other support functions. We also continue to scale our manufacturing, sales and marketing capabilities. As our volume grows, we will need to continue to increase our workflow capacity for sales, customer service, billing and general process improvements, expand our internal quality assurance program and to scale up our manufacturing systems for our Platform quickly. We will need additional sales, scientific and technical personnel to market our Platform and follow up on any reported quality issues. We will also need to secure additional facilities, purchase additional equipment, some of which can take several months or more to procure, setup, and validate, and to significantly and rapidly increase our capacity to meet increased demand. There is no assurance that any of these increases in scale, expansion of personnel, equipment, software and computing capacities, or process enhancements will be successfully implemented on a timely basis, or at all, or that we will have adequate space in our facilities to accommodate such required expansion. Even if these and other measures are implemented successfully, we still expect to experience continued capacity constraints as we commercialize our products.

As additional diagnostic products are commercialized and new tests are developed, we may need to implement adjustments to our Platform and our processes, and hire new personnel with different qualifications. Failure to manage this growth or transition could result in delays in the development of new test strips, higher product costs, declining product quality, deteriorating customer service, and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our Platform and could damage our reputation and the prospects for our business.

If any of our facilities were damaged or destroyed, or if we experience a significant disruption in the expansion of our operations for any reason, our ability to continue to operate our business and meet increased demand could be materially harmed.

As we expand our workflow capacity, we believe it may be necessary to both expand our existing facilities and to add one or more new facilities to meet anticipated demand. We are also in the process of scaling our manufacturing facilities and adding warehouse and office space, which are expected to continue to be rolled out in the next few years, with necessary adjustments based on market needs. Failure to complete, or timely complete, these expansion projects on time or at all, may significantly delay our workflows and operations, which may adversely affect our business, financial condition and results of operation. In addition, our financial condition may be adversely affected if we are unable to complete these expansion projects on budget and otherwise on terms and conditions acceptable to us. Finally, our financial condition will be adversely affected if demand for our Platform does not materialize in line with our current expectations and if, as a result, we end up building excess capacity that does not yield a reasonable return on our investment.

We are devoting significant resources for the scale-up and development of our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits.

We are working toward the large scale technical development and manufacturing scale-up in several countries and larger scale deployment of our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits and currently do not have the manufacturing, marketing or sales capacity to meet the expected demand for such tests. The number of potential tests that we are able to produce and bring to market is dependent on our ability, and the ability of our contract manufacturers, to successfully and rapidly scale up manufacturing capacity and our ability to scale up our marketing and sales capacities. To support these scale-ups, we will need to expend significant resources and capital quickly, and we therefore expect to divert resources and capital from our other non-COVID-19 diagnostic tests. Our ability to produce and bring to market the SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits will also depend on our ability to further scale up on our manufacturing, sales and marketing capacities.

We have entered into, and may continue to enter into, contractual arrangements with customers, suppliers, distributors, manufacturers or other collaborators that contain restrictions or minimum commitments which limit our ability to develop, manufacture, supply, commercialize and distribute our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits. For example, we entered into a purchase agreement with CVS pursuant to which we committed to make available to CVS a minimum monthly quantity of our Instrument and SARS-CoV-2 antigen test strips, as well as ancillary equipment such as collection supplies necessary to administer the SARS-CoV-2 antigen and antibody tests. Our initial minimum

 

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monthly commitment to CVS was a significant portion of our supply through to the end of 2020. We are not obligated to, but we may, subject to availability, make additional quantities of our Instrument and SARS-CoV-2 antigen test strips available to CVS to purchase, but unless CVS places purchase orders in a timely fashion, we are not required to hold such additional quantities available for purchase by CVS. If we fail to meet contractual obligations under our agreements or if we enter into agreements that restrict our ability to develop, manufacture, supply, commercialize and distribute our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits, we may be required to pay damages to the counterparty or contest disagreements or disputes, which could have a material and adverse effect on our financial condition and operations.

Given the rapidity of both the onset of the COVID-19 pandemic and our development efforts with respect to our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits, as well as the complexity of the economics of a diagnostic test for a pandemic, we are only in the early stages of considering how to price a potential test and cannot provide assurance as to the ultimate impact of each SARS-CoV-2 test on our financial condition and results of operations. Focus on such SARS-CoV-2 tests and test kits could have the lasting impacts of significant diversions of resources and attention away from the development of other non-COVID-19 diagnostic tests; our ability to rapidly pivot research, development and commercialization back to other areas of focus; and lost time associated with addressing the demand for our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test and SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits.

We are continuously updating and improving our Platform based on the needs of various tests, and this may impact changes, such as upgrades or new versions of our Instrument.

Our Platform is continuously evolving and will continue to do so as more tests are added to our Platform. A specific test may require specific test strip or design changes which could also impact Instrument set up. In addition, we are continuously improving our Instrument and have a pipeline of upgrades to make the Instrument more robust and further lower the costs over time. This may require regular updates to our Instrument, including software upgrades and in certain cases the need to swap out the Instrument for an updated version. Despite our rigorous testing and quality assurance processes, it is possible that our Instrument may prove to operate less reliably than we anticipated or degrade in efficacy over time. If this occurs, this may likewise necessitate updates to our design or software or replacement of Instruments, which could adversely affect our financial condition, results of operations and/or reputation. The replacement of an Instrument may require sales and customer support and may lead to older versions of our Platform being obsolete and impact our financials. The need for an upgrade to an Instrument may impact the commercialization of certain diagnostic assays which require an upgraded Instrument.

Our current tests or any tests that we develop to cover additional menu or diagnostic testing may not be successfully developed or commercialized or gain the acceptance of the public or the medical community.

We plan to implement a broad range of tests on our Platform over time. Each test requires a significant amount of R&D and comes with its own technical challenges. In addition, we aim for all tests to provide lab-comparable results based on comparison against the lab standard reference for such test, where such lab reference is available. In light of the technical and complicated nature of some test strips, R&D timelines may be delayed and lab-comparable results or expected performance criteria may not be met. This may affect our ability to launch or commercialize our tests and could have an adverse impact on our financial results. While we have encouraging internal data for many diagnostic tests, we have not yet performed multi-site, external clinical analyses of most of these tests or otherwise compared these results against clinical results.

Sensitivity and specificity concerns with respect to COVID-19 tests generally could negatively affect demand for our Platform and therefore our business, revenues and profits. Similar concerns about our collaborators, though unrelated to us, could likewise create negative publicity, which could negatively impact demand for our Platform or harm our reputation. These concerns could be wrongly attributed to our tests and could negatively affect sales of our Instrument. Additionally, concerns about COVID-19 tests generally, even if none have been identified with our tests, could adversely affect our business as the general public may associate our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests with them. In addition, the medical community is continuously learning and publishing scientific literature about COVID-19 and the success of our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests will depend, in part, on the ability of the tests to detect the virus (or antibodies) and on acceptance of the test results by the public and medical community. If any of our tests or those of other parties developing similar products receive

 

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negative or unfavorable publicity, or the medical community publishes information criticizing the accuracy, effectiveness or utility of COVID-19 tests, whether or not ours, it could result in a decrease in demand for any product that we may develop. In addition, responses by the U.S. federal, state or foreign governments to negative public perception or ethical concerns related to COVID-19 tests may result in new legislation or regulations that could limit our ability to develop or commercialize any product, obtain or maintain regulatory approval, authorization or clearance, if applicable, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and prospects, and may delay or impair the development and commercialization of our products or demand for any products we may commercialize.

We have limited data on the performance of our Platform to date and limited experience in marketing and selling our Platform, and if we are unable to expand our direct sales and marketing force to adequately address our customers’ needs, our business may be adversely affected.

We have limited data on the performance of our Platform to date and limited experience in marketing and selling our Platform, which had its formal commercial launch in Europe in 2019 with our INR test. We do not currently have, and may not be successful in developing, the capacity to market, sell, or distribute our Platform or other products we may develop effectively or in volumes high enough to support our planned growth.

We will sell our Platform on a region or country specific basis across our footprint in Europe, the U.S., South America, Africa and Asia using a combination of direct sale or sales or through our distributors. Our future sales will depend in large part on our ability to develop and substantially expand our sales force and to significantly increase the scope of our marketing efforts. Our target market of identifying customers in healthcare systems, government organizations, national pharmacy chains and community-based healthcare settings is a large and diverse market. As a result, we believe it is necessary to develop a large sales force that includes sales representatives with a variety of specific technical backgrounds. We will also need to attract and develop a significant amount of marketing personnel with industry expertise. Competition for such employees is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which could negatively impact sales and market acceptance of our products and limit our revenue growth and potential profitability.

Our expected future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, and integrate additional employees. Our future financial performance and our ability to commercialize our products and to compete effectively will depend, in part, on our ability to manage this potential future growth effectively, without compromising quality.

We also enlist distributors, and we may potentially enlist local collaborators, to assist with sales, distribution, and customer support. Locating, qualifying, and engaging a significant number of distribution collaborators with local industry experience and knowledge will be necessary to effectively market and sell our products. We may not be successful in finding, attracting, and retaining a sufficient number of distributors or other collaborators or we may not be able to enter into such arrangements on favorable terms, or at all. Our sales in low and middle income countries also depend on support from our global health partners, such as BMGF and from national governments. Developing such relationships may require significant resources, time and management attention and could adversely affect our ability to make sales.

Sales practices utilized by our distributors that are locally acceptable may not comply with sales practices standards required under the laws of the U.K., U.S. or other jurisdictions that apply to us, which could create additional compliance costs and risk and demand additional resources, time and management attention. If our sales and marketing efforts are not successful, we may not achieve significant market acceptance for our products, which would materially and adversely impact our business and anticipated financial condition and results of operations.

If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or achieve and sustain profitability.

The diagnostics industry, including IVD and POC systems, is rapidly evolving, and we face competition from companies that offer products in our targeted application areas. Our principal competition comes from established diagnostic companies. Our competitors include laboratory or POC companies such as Abbott Laboratories, Becton, Dickinson and Company, Danaher Corporation, GenMark Diagnostics, Inc., Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, Quidel Corporation, Roche Diagnostics Corporation, Siemens Healthineers

 

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AG, Inc. and many others. In addition to diagnostic systems, we believe these companies may also develop their own approved or cleared diagnostic kits, which can be sold to the clients who have purchased their systems. In addition, new and existing companies could seek to develop tests that compete with ours.

For each of our four available tests, we face competition from other commercially available tests, including:

 

   

For our SARS-CoV-2 antigen test: Quidel Sofia, BD Veritor Plus System, Abbott BinaxNOW COVID-19 Ag Card and others.

 

   

For our SARS CoV-2 antibody test: Roche Elecsys Anti-SARS-CoV-2, Accelerate Diagnostics BioCheck SARS-CoV-2 Antibody Test Kits, SD Biosensor Q COVID-19 IgM/IgG Rapid Test and others.

 

   

For our INR test: Roche Coaguchek and others.

 

   

For our D-Dimer test: Roche Cobas h232 and others.

Our tests in development are designed and validated against their respective lab standard.

Many of our current and future competitors are either publicly traded, or are divisions of publicly-traded companies, and may enjoy a number of competitive technological, financial and market access advantages over us, including:

 

   

greater name and brand recognition;

 

   

substantially greater financial and human resources and expertise;

 

   

broader or superior product lines;

 

   

larger sales forces and more established distributor networks;

 

   

substantial intellectual property portfolios;

 

   

larger and more established customer bases, relationships with healthcare professionals and third-party payors; and

 

   

better established, larger scale, and lower cost manufacturing capabilities.

We believe that the principal competitive factors in all of our target markets include:

 

   

cost of instruments and consumables;

 

   

flexibility and ease of use;

 

   

time to result;

 

   

accuracy, including sensitivity and specificity, and reproducibility of results;

 

   

reputation among customers;

 

   

innovation in product offerings; and

 

   

compatibility with existing processes.

Furthermore, even if we do develop new marketable products or services, our current and future competitors may develop products and services that are more commercially attractive than ours, and they may bring those products and services to market earlier or more effectively than us. If we are unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of our Platform, which could prevent us from increasing or sustaining our revenues or achieving sustained profitability. Our competitors may also use their patent portfolios, developed in connection with developing their tests, to allege that our Platform infringes their patents, and we could face litigation with respect to such allegations and the validity of such patents.

The diagnostic industry is subject to rapidly changing technology which could make our Platform and other products we develop obsolete.

Our industry is characterized by rapid technological changes, frequent new product introductions and enhancements and evolving industry standards, all of which could make our Platform and the other products we are developing obsolete. Our future success will depend on our ability to anticipate and keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop as a result of technological and scientific advances. The attractiveness of our Platform partly depends on the ability to continue to add additional assays and tests in a timely manner. Failure to deliver such tests in the timelines suggested may affect our business plan and ability to obtain greater market penetration, or otherwise cause us to lose market share.

 

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In recent years, there have been advances in methods used to analyze very large amounts of information. We must continuously enhance our Platform and develop new products to keep pace with evolving standards of care. If we do not update our Platform, including successfully developing new tests for our Instrument, such as multiplex test strips with the ability to detect an increased number of markers in a single sample, it could become obsolete and sales of our Platform and any new products could decline, which would have a material adverse effect on our business, financial condition, and results of operations.

Our business and reputation will suffer if our Platform does not perform as expected, particularly as test strip volume increases, or we are unable to establish and comply with stringent quality standards to assure that the highest level of quality is observed in the performance of our Platform.

Inherent risks are involved in providing and marketing diagnostic tests and related services. Our success depends on the market’s confidence that we can provide reliable, high-quality diagnostic products and information that may be used to make critical healthcare decisions. There is no guarantee that the accuracy and reproducibility we have demonstrated to date will continue as our volume of test strips increases or as we commercialize additional tests. We believe that our customers are likely to be particularly sensitive to product defects and errors, including if our products fail to detect certain diseases with high accuracy from clinical specimens. As a result, the failure of our Platform to perform as expected would significantly impair our operating results and our reputation. We may be subject to legal claims arising from any defects or errors.

We must maintain top service standards and government-mandated and other quality controls. Past or future performance or accuracy defects, incomplete or improper process controls, or mishandling of samples or test strips due to inadequate training can lead to incorrect diagnostic results and potentially result in adverse outcomes for patients. These events could lead to voluntary or legally mandated safety alerts relating to our Platform or our facilities and could result in the removal of our Platform from the market. Insufficient quality controls and any resulting negative outcomes could result in significant costs and litigation, as well as negative publicity that could reduce demand for our Platform and payors’ willingness to cover our Platform. Even if we maintain adequate controls and procedures, damaging and costly errors may occur.

If we cannot maintain our current relationships, or enter into new relationships, with diagnostics or research and development companies, or if our collaborators do not perform as expected, our product development could be delayed.

We rely on research and development collaborators to research and develop certain tests for our Platform. We have existing research and development agreements with well-established companies in each of respiratory, infectious, and enteric disease areas. The inability of these companies to deliver on research and development projects or our inability to use or have sufficient access to required reagents derived from such projects could have an adverse effect on our ability to launch additional tests and thus on our financial condition and results of operations.

Our success in the future depends in part on our ability to maintain these relationships and to enter into new relationships. This can be difficult due to several factors, including internal and external constraints placed on these organizations that can limit the number and type of relationships with companies such as ours that can be considered and consummated. In addition, collaboration, manufacturing and supply agreements can be complex and contain certain provisions that may be susceptible to multiple interpretations. The resolution of any interpretation disagreement that may arise could be adverse to us, for example, by increasing our royalties payable to third parties, by narrowing what we believe to be the scope of our rights to certain intellectual property, or increasing what we believe to be our financial or other obligations under these agreements, and any such outcome could have a material adverse effect on our business, financial condition, results of operations, and prospects. In addition, we expect that we will have capacity constraints on demand for our SARS-CoV-2 antigen test and our SARS-CoV-2 antibody test, and we will need to make decisions regarding allocation of supply of such tests, which could have an adverse effect on new or existing relationships with third parties and governments.

We are currently engaged, and expect to continue to engage, in discussions with companies regarding commercial opportunities, particularly in light of our planned rapid scale-up in response to the demand for COVID-19 testing. There is no assurance that any of these discussions will result in commercial agreements, or if an agreement is reached, that the resulting engagement will be successful and that such companies will perform as expected or that clinical, sales and marketing activities conducted as part of the engagement will produce successful outcomes.

 

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Additionally, speculation in the industry about our existing or potential engagements with life science companies may be a catalyst for adverse speculation about us, our products, and our technology, which may result in harm to our reputation and our business.

We may acquire other businesses or form joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant expense.

We may pursue acquisitions of businesses and assets as well as strategic alliances and joint ventures that leverage our Platform and industry experience to expand our offerings or distribution. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial condition, results of operations, and cash flows. Integration of an acquired company also may disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our results of operations and financial condition. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance, or joint venture.

To finance any acquisitions or joint ventures, we may choose to issue our common shares as consideration, which would dilute the ownership of our shareholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common shares is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration.

International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks outside of Europe.

In addition to the various direct sales units that have already been established in Europe, Japan, the U.S. and Latin America, we are planning to both continue to grow direct sales operations as well as extend distribution agreements for our Instrument and test strips in various countries. In addition, in Africa, we plan to continue to collaborate with non-governmental organizations, such as BMGF, to build programs that utilize our Platform to improve patient outcomes across multiple countries on the African continent. We plan to maintain sales representatives and distributor relationships, to conduct healthcare provider and patient association outreach activities, to extend research and development capabilities and to expand payor relationships outside of Europe. Doing business internationally involves a number of risks, including:

 

   

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

 

   

potential competition from existing or future local and regional product offerings;

 

   

difficulties in complying with a multitude of product regulations in various jurisdictions, including evolving regulatory pathways in response to the COVID-19 pandemic;

 

   

failure by us or our distributors to obtain regulatory approvals, authorizations or clearance for the use of our products in various countries;

 

   

additional potentially relevant third-party patent rights;

 

   

complexities and difficulties in obtaining protection and enforcing our intellectual property;

 

   

difficulties in staffing and managing foreign operations;

 

   

complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems;

 

   

our dependence on cooperation and donor funding of local aid sources and private foundations, particularly in developing regions such as Africa, as well as cooperation from national healthcare programs and governments;

 

   

logistics and regulations associated with shipping samples, including infrastructure conditions and transportation delays;

 

   

limits in our ability to penetrate international markets if we are not able to conduct our tests locally;

 

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

 

   

the risk that regional or local distributors may not commit the necessary resources to market and sell our products to the level of our expectations or may choose to favor marketing the products of our regional or local competitors;

 

   

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

 

   

regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or FCPA, or its books and records or anti-bribery provisions, or similar anti-bribery or anti-corruption laws or regulations in other jurisdictions, such as the United Kingdom’s Bribery Act 2010.

Any of these factors could significantly harm our future international expansion and operations and, consequently, our business, financial condition and results of operations.

Our commercial success in Africa will be dependent on continued donor funding of healthcare initiatives in Africa from a wide variety of sources such as The Global Fund to Fight AIDS, Tuberculosis and Malaria, the World Health Organization, the United Nations Children Fund, Médecins Sans Frontières and private foundations such as BMGF, the Clinton Health Access Initiative and the Rockefeller Foundation. Our ability to work collaboratively with these funders and with national healthcare programs will be important to our success in utilizing our Platform to help transform primary care delivery in Africa and improve patient outcomes and delays in such efforts may impact the roll out of these programs, as a lot of parties are involved and we do not control operations of such complex entities.

If we were sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.

The marketing, sale and use of our products could lead to the filing of product liability claims were someone to allege that our Platform or other products identified inaccurate or incomplete information or otherwise failed to perform as designed. We may also be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend.

We maintain product and professional liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability or professional liability claims and such policies will be subject to limitations and exclusions. Any product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could damage our reputation, cause current customers to terminate existing agreements, or cause potential customers to seek other suppliers, any of which could adversely impact our business, financial condition and results of operations.

We are subject to, and may in the future become subject to, claims and litigation that could result in significant expenses and could ultimately result in unfavorable outcomes for us.

From time to time, we may be involved in litigation and other proceedings, including matters related to product liability claims, commercial disputes and intellectual property claims, as well as regulatory, employment, and other claims related to our business. For example, a former employee brought an age discrimination claim against us in Massachusetts, which we believe has no factual or legal merit, and we intend to vigorously defend ourselves in the claim. The case was dismissed and an appeal is pending. Litigation related to our company, our business, and our operations or financial performance may also involve customers, competitors, suppliers, patients, shareholders, governmental authorities or other third parties, including potential whistleblower claims and other employee-related claims. Litigation can be lengthy, expensive and disruptive to our operations, and results cannot be predicted with certainty. An adverse decision could result in significant settlement amounts, monetary damages, fines or injunctive relief that could affect our financial condition or results of operations. Even if lawsuits do not result in an unfavorable outcome, the costs of defending or prosecuting such lawsuits may be material to our business and our operations. Moreover, these lawsuits may divert management’s attention from the operation of our business, which could adversely affect our business and results of operations.

 

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Our employees, principal investigators, consultants, and collaborators may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants, and collaborators. Misconduct by these parties could include intentional failures to comply with the regulations of FDA and other applicable regulators, comply with healthcare fraud and abuse laws and regulations in the U.K., United States and abroad, report financial information or data inaccurately, or fail to disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and our code of conduct and anti-bribery policies and the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations, particularly as we seek to rapidly expand our business on a global scale. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, which could have a significant impact on our business. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations.

We depend on our information technology systems, and any failure of these systems could harm our business.

We depend on information technology and telecommunications systems for significant elements of our operations, including all connectivity solutions associated with our Platform, our research and development data and quality management system, our knowledge and inventory management system, our factory controls, our customer provisioning and analytics reporting and our patient care database management. We have installed, and expect to expand, a number of enterprise software systems that affect a broad range of business processes and functional areas, including for example, systems handling human resources, financial controls and reporting, contract management, regulatory compliance, and other infrastructure operations. In addition to the aforementioned business systems, we intend to extend the capabilities of both our preventative and detective security controls by augmenting the monitoring and alerting functions, the network design, and the automatic countermeasure operations of our technical systems. These information technology and telecommunications systems support a variety of functions, including operations, test validation, sample processing, quality control, customer service support, research and development activities, scientific and medical curation, and general administrative activities. In addition, our third-party billing and collections provider depends upon technology and telecommunications systems provided by outside vendors.

Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses, and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our information technology and telecommunications systems, failures or significant downtime of our information technology or telecommunications systems or those used by our third-party service providers could prevent our Platform from functioning properly and conducting analyses or prevent us from preparing and providing reports, conducting research and development activities, and managing the administrative aspects of our business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have an adverse effect on our business.

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we may collect and store sensitive data, including legally protected health information, personal information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, payors, and collaborators. We manage and maintain our applications and data utilizing a

 

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combination of on-site systems, managed data center systems, and cloud-based data center systems. We may communicate sensitive patient data to customers through our Platform. These applications and data encompass a wide variety of business-critical information and regulated information including research and development information, commercial information, and business and financial information. We face risks relative to protecting this critical information, including: loss of access risk; inappropriate disclosure risk; inappropriate modification risk; and the risk of our being unable to adequately monitor our controls over the first three risks.

The secure processing, storage, maintenance, and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure, and that of our third-party service providers, may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance, or other disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost, or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended, and its implementing regulations, and regulatory penalties. Although we have implemented commercially reasonable security measures and a formal, dedicated enterprise security program to prevent unauthorized access to patient data, our Platform gives broad access to physicians, where the physicians control any other access to the Platform, and there is no guarantee we can continue to protect our online portal and mobile application from breach. Further, as we develop products and features that may be used or accessed outside of the traditional healthcare setting, there will be additional challenges to protecting the security of information and systems. Unauthorized access, loss or dissemination could also disrupt our operations, including our Platform’s ability to conduct analyses and provide test results and our ability to provide customer assistance services, conduct research and development activities, collect, process, and prepare company financial information, provide information about our products and other patient and healthcare provider education and outreach efforts through our website or otherwise, manage the administrative aspects of our business, and damage our reputation, any of which could adversely affect our business.

The U.S. Department of Health and Human Services Office, or HHS, of Civil Rights may impose significant penalties on a covered entity or a business associate for a failure to comply with a requirement of HIPAA. Penalties will vary significantly depending on a variety of factors such as the date of the violation or whether the failure to comply was known or should have been known, or whether failure to comply was due to willful neglect. Additionally, a person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty and imprisonment. The U.S. Department of Justice is responsible for criminal prosecutions under HIPAA. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of protected health information. Furthermore, in the event of a breach as defined by HIPAA, we may be required to comply with specific reporting requirements under the HIPAA regulations, which may include notification to the general public, depending on the scale of the breach.

In addition, the interpretation and application of consumer, health-related, and data protection laws in the United States, Europe and elsewhere are often uncertain, contradictory, and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business or reputation. In addition, these privacy regulations may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business.

Economic or business instability may have a negative impact on our business.

Continuing concerns over the economic impact of the COVID-19 pandemic, health care reform legislation, geopolitical issues, the availability and cost of credit, and government stimulus programs in the United States and other countries have contributed to volatility for the global economy. If the economic climate does not improve, our

 

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business, including our access to patient samples and the addressable market for diagnostic tests that we may successfully develop, as well as the financial condition of our suppliers and our commercial third-party payors, could be adversely affected, resulting in a negative impact on our business, financial condition, and results of operations. Additionally, the instability has resulted in diminished liquidity and credit availability in the market, which could impair our ability to access capital if required or adversely affect our operations. In the event of further economic slowdown, investment in research and development may also experience a further corresponding slowdown.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

Our borrowing arrangements contain restrictions that limit our flexibility in operating our business.

In October 2020, LumiraDx Group Limited, one of our subsidiaries, entered into a senior secured term loan and security agreement (as amended from time to time), or the Senior Secured Loan, with Jefferies Finance LLC, or Jefferies, as lender and administrative and collateral agent. We have borrowed $100 million under the Senior Secured Loan, part of which was used to prepay the 11.5% notes (as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness”). The Senior Secured Loan is subject to an interest rate of 8.0% per annum payable in quarterly installments, which, under the terms of the Senior Secured Loan, was due to increase after January 31, 2021 if an “IPO” or “Qualifying Investment,” as such terms are defined in the Senior Secured Loan, was not completed before January 31, 2021. The issuance of $164.5 million series B preferred shares in November 2020 constitutes a “Qualifying Investment” for the purposes of the Senior Secured Loan, and therefore, the interest rate will remain at 8% per annum for the term of the Senior Secured Loan. In addition, the Senior Secured Loan provides for the ability to incur additional incremental term loans, or the incremental term loans, in an aggregate amount of up to $150 million during the initial 12 month period on an uncommitted basis. As of January 15, 2021, Silicon Valley Bank has agreed to make available to our subsidiary, LumiraDx Group Limited, $40 million in incremental term loans under and on substantially the same terms as the Senior Secured Loan. The Senior Secured Loan matures on October 5, 2022. The Senior Secured Loan has been guaranteed and secured by the company and certain of its subsidiaries. The Senior Secured Loan contains various covenants that limit our ability to engage in specified types of transaction without the prior consent of Jefferies, including:

 

   

making certain restricted payments, including paying dividends on, or repurchasing or making distributions with respect to, our shares subject to certain exceptions;

 

   

selling, transferring, leasing or disposing of certain assets;

 

   

encumbering or permitting liens on certain assets;

 

   

incurring certain indebtedness; and

 

   

entering into certain transactions with affiliates.

The Senior Secured Loan also includes certain financial covenants which require:

 

   

a minimum liquidity level to be maintained which is tested on a monthly basis; and

 

   

(subject to two cure rights using the proceeds of new equity or shareholder debt) a maximum senior secured net leverage ratio of 4.00:1.00 to be met which is tested quarterly beginning with fiscal quarter ending March 31, 2021 by calculating the ratio of indebtedness incurred under the Senior Secured Loan to the

 

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amount of consolidated EBITDA generated by the company and its subsidiaries during the immediately preceding four fiscal quarters provided that for the first test, consolidated EBITDA for the first fiscal quarter of 2021 will be multiplied by 4, for the second test, consolidated EBITDA for the first two quarters of 2021 will be multiplied by two and for the third test, consolidated EBITDA will be multiplied by 1.33. Thereafter the test will be take into account consolidated EBITDA for each of the immediately preceding four fiscal quarters.

In certain circumstances, the Senior Secured Loan also requires mandatory prepayment of amounts outstanding thereunder. Subject to certain de minimis thresholds, reinvestment rights and other exceptions, such mandatory prepayment events include receipt of asset sale proceeds or insurance claim proceeds, generation of excess cash flow, incurrence of debt, issuance of equity in circumstances where there is a breach of the financial covenants referred to above which is continuing, the making of dividends and incurrence of debt not otherwise permitted to be incurred.

A breach of any of the covenants under the Senior Secured Loan could result in a default. Upon the occurrence of an event of default under the Senior Secured Loan, Jefferies could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. Upon the occurrence of insolvency and insolvency proceedings events of default in respect of our U.S. subsidiaries all amounts outstanding will automatically be immediately due and payable. If we are unable to repay those amounts, Jefferies could proceed against the collateral granted to secure such indebtedness.

We have also borrowed $18.0 million from BMGF pursuant to a note, which is subordinated to the Senior Secured Loan. In the event of certain triggering events under such note, BMGF may exercise its rights under our other agreements with BMGF to require us to perform certain technology transfers to a third party to allow for the use of the related technology and to manufacture the relevant products under a license granted by us to BMGF. If we were required by BMGF to make a technology transfer, it could have a significant adverse effect on us and our business, as we would be transferring significant intellectual property for no consideration.

In addition, we may seek additional debt or restructure or refinance our existing indebtedness. We may not be able obtain additional debt or restructure or refinance our existing indebtedness on commercially reasonable terms or at all and, even if successful, those alternative actions may cause us to enter into borrowing arrangements with additional restrictions.

Risks Relating to Government Regulation

If commercial third-party payors or government payors fail to provide coverage or adequate reimbursement for our Platform or future products we develop, if any, our revenue and prospects for profitability would be harmed.

In both domestic and foreign markets, the commercial success of our Platform and any future products we may develop will depend on the extent to which we obtain and maintain coverage and adequate reimbursement from governments or third-party payors. These third-party payors include government healthcare programs (such as Medicare and Medicaid in the U.S. or national or regional health services or payors in other jurisdictions), managed care organizations, health maintenance organizations, private health insurers, and other organizations. Physicians may not use our Platform or diagnostic tests unless commercial third-party payors and government payors pay for all, or a substantial portion, of the list price, and certain commercial third-party payors may not agree to reimburse our Platform if the Centers for Medicare & Medicaid Services, or CMS, or pricing and reimbursement authorities in other jurisdictions do not issue a positive coverage decision.

In the U.S., CMS decides whether and to what extent a product will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Therefore, we believe that obtaining and maintaining a favorable reimbursement rate from CMS for our Platform will be a necessary element in achieving material commercial success. Healthcare providers and patients may not order our Platform unless third-party payors pay for all, or a substantial portion, of the list price, and certain commercial third-party payors may not agree to reimburse our Platform if CMS does not provide adequate coverage and reimbursement. Further, while due to the COVID-19 pandemic, millions of individuals have lost or will be losing employer-based insurance coverage, which may adversely affect our ability to commercialize our products, as part of the Families First Coronavirus Response Act, the Paycheck Protection Program and Health Care Enhancement Act, and the Coronavirus Aid, Relief, and Economic

 

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Security (CARES) Act, HHS provides claims reimbursement to health care providers generally at Medicare rates for testing uninsured individuals for COVID-19. It is unclear whether providers will use such avenue for reimbursement for our products.

If CMS denies reimbursement of our Platform, withdraws its coverage policies after reimbursement is obtained, reviews and adjusts the rate of reimbursement, or stops paying for our Platform altogether, our revenue and results of operations would be adversely effected. Additionally, we could experience negative consequences, including:

 

   

We could be forced to rely on private insurance coverage, which would greatly decrease our intended market opportunity for our Platform;

 

   

A negative coverage determination could adversely affect our ability to enter into partnerships with leading healthcare systems; and

 

   

We may need to conduct additional clinical validation, utility and other studies as part of an appeal of a negative Medicare coverage decision, and even if we expended the substantial time and resources to conduct such studies, they may not be successful and they may not result in a positive Medicare coverage determination.

Coverage and reimbursement of diagnostic tests by third-party payors may depend on a number of factors, including a payor’s determination that our Platform or other products are:

 

   

not experimental or investigational and are otherwise authorized for marketing in the jurisdiction;

 

   

medically necessary;

 

   

appropriate for the specific patient;

 

   

cost-effective;

 

   

supported by peer-reviewed publications;

 

   

included in clinical practice guidelines, and

 

   

supported by clinical utility studies.

In the U.S., no uniform policy for coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for our products can differ significantly from payor to payor. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. One payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product. Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. If coverage and adequate reimbursement is not maintained or made available, or is available only to limited levels, we may not be able to successfully commercialize our Platform. We cannot be sure that coverage and reimbursement will be maintained or made available for, or accurately estimate the potential revenue from, our Platform or assure that coverage and reimbursement will be available for any product that we have or may develop. If we cannot maintain or obtain coverage and adequate reimbursement from third party payors for our Platform or any future products, demand for such products may decline or may not grow as we expect, which could limit our ability to generate revenue and have a material adverse effect on our financial condition, results of operations and cash flow.

In both domestic and foreign jurisdictions, third-party payors, including government payors, are increasingly attempting to contain healthcare costs by demanding price discounts or rebates and limiting both coverage on which diagnostic products they will pay for and the amounts that they will pay for new diagnostic products. Because of the cost-containment trends, third-party payors that currently provide reimbursement for, or in the future cover, our Platform may reduce, suspend, revoke, or discontinue payments or coverage at any time.

As a result, there is significant uncertainty surrounding whether the use of products that incorporate new technology, such as our Platform, will be eligible for coverage by third-party payors or, if eligible for coverage, what the reimbursement rates will be for those products. The fact that a diagnostic product has been covered and reimbursed in the past, for any particular indication or in any particular jurisdiction, does not guarantee that such a diagnostic

 

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product will remain covered or reimbursed or that similar or additional diagnostic products will be covered or reimbursed in the future.

In addition, we may develop new assays that may require obtaining a Current Procedure Terminology, or CPT, procedure code. CMS prices the new clinical diagnostic laboratory test codes using a “crosswalking” or “gapfilling” process. “Crosswalking” occurs when a new test or substantially revised test is determined to be similar to an existing test, multiple existing test codes, or a portion of an existing test code, which can then be utilized to determine a payment. “Gapfilling” is a process by which CMS will refer the codes to the Medicare Administrative Contractors to allow them to determine an appropriate price, since there is no comparable code. After a year of payment at the local MAC rates, CMS calculates a national limitation amount based on the median of rates for the test code across all MACs. In addition, CMS may not provide coverage for certain of the new codes for Multi-analyte Assays with Algorithmic Analyses, or MAAAs, due to concerns that clinical efficacy and usefulness have not been widely established and documented. CMS has left the approval of new codes for MAAAs under the purview of the MACs. Our reimbursement could be adversely affected by CMS’ action in this area, including by a negative national coverage determination. If it limits coverage or reduces reimbursement for the new test codes or does not pay for our new MAAA codes, then our revenue will be adversely affected. There can be no guarantees that Medicare and other payors will establish positive or adequate coverage policies or reimbursement rates. We cannot predict whether future health care initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us. The expansion of government’s role in the U.S. health care industry, and changes to the reimbursement amounts paid by Medicare and other payors for our current tests and our planned future tests, may reduce our profits, if any, and have a materially adverse effect on our business, financial condition, results of operations and cash flows.

In some foreign countries, the proposed pricing for a product must be approved before it may be lawfully marketed. The requirements governing pricing vary widely from country to country. For example, in the European Union, or E.U., while most Member States apply some sort of pricing measures or controls, pricing and reimbursement of IVDs is not harmonized at a European level. Member States in the E.U. have exclusive competence to determine pricing and reimbursement of IVDs within their jurisdiction. In addition, many jurisdictions reimburse IVDs as part of the costs associated with certain treatments or procedures. In those cases, the pricing and reimbursement of our tests will be determined by the costs allocated to testing as part of the procedure and whether the relevant health service will select and procure our products. Therefore, the price we obtain for our products will vary depending on the different statutory health schemes within each Member State. There can be no assurance that any country that has price controls or reimbursement limitations for diagnostic products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the E.U. do not follow price structures of the U.S. and generally prices tend to be significantly lower.

The U.S. and foreign governments continue to propose and enact or promulgate legislation, regulations, guidance and other policies designed to reduce the cost of healthcare. For example, in some foreign markets, the government controls the pricing of many healthcare products. We expect that there will continue to be federal and state proposals to implement governmental controls or impose healthcare requirements. In addition, the Medicare program and increasing emphasis on managed care in the U.S. will continue to put pressure on product pricing. Cost control initiatives could decrease the price that we would receive for any products in the future, which would limit our revenue and profitability.

Payors from whom we may receive reimbursement are able to withdraw or decrease the amount of reimbursement provided for our products at any time in the future.

Our commercial success also depends on our ability to maintain coverage and adequate reimbursement from those payors that decide to cover and reimburse our Platform. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Payors could withdraw coverage and stop providing reimbursement for our products in the future or may reimburse our products only on a case-by-case basis.

Further, even if we obtain written agreements regarding coverage and reimbursement with certain payors, these agreements are not guarantees of indefinite coverage in an adequate amount. For example, these agreements are typically terminable without cause by either party and are typically renewable annually, and the applicable payor could

 

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opt against renewal upon expiration. In addition, the terms of certain of our written arrangements may require pre-approval from the payor or other controls and procedures prior to use by a healthcare provider. To the extent these requirements are not followed, our Platform may fail to receive some or all of the reimbursement payments to which it is otherwise entitled. These payors must also conclude that claims for our Platform satisfy the applicable contractual criteria. In addition, our written agreements regarding reimbursement with payors may not guarantee the receipt of reimbursement payments at what we believe to be the applicable reimbursement rate for such claims. If payors withdraw coverage for our products or reduce the reimbursement amounts for our products, our ability to generate revenue could be limited, which may have a material adverse effect on our financial condition, results of operations and cash flow.

Our business and sale of our products are subject to extensive regulatory requirements, including compliance with labeling, manufacturing and reporting controls. If we fail or are unable to timely obtain the necessary authorizations, approvals or clearances for new products, our ability to generate revenue could be materially harmed.

Our products are classified as medical devices and are subject to extensive regulation in the U.K., Europe and the U.S. by FDA and other federal, state and local authorities and by similar regulatory authorities in other jurisdictions. Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things:

 

   

design, development and manufacturing;

 

   

testing and labeling, including directions for use, processes, controls, quality assurance and packaging;

 

   

storage, distribution, installation and servicing;

 

   

preclinical studies and clinical trials;

 

   

establishment registration and listing;

 

   

product safety and effectiveness;

 

   

marketing, sales and distribution;

 

   

premarket approval, de novo classification, 510(k) clearance and EUA;

 

   

recordkeeping procedures;

 

   

advertising and promotion;

 

   

complaint handling, corrections and removals, and recalls;

 

   

post-market surveillance, including reporting of deaths or serious injuries, and malfunctions that, if they were to recur, would be likely to cause or contribute to a death or serious injury; and

 

   

product import and export.

In the U.S., before we can market a new medical device, or a new use of, or claim for, an existing product, we must first receive either 510(k) clearance, de novo classification, Premarket Approval, or PMA, or EUA from FDA, unless an exemption applies.

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 longer, from the time the application is submitted to FDA until an approval is obtained. The process of obtaining 510(k) clearances or PMA approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all.

An EUA may be granted for unapproved medical products, including IVDs, which authorizes the products to be marketed in the context of an actual or potential emergency that has been designated by the government. The COVID-19 pandemic has been designated such a national emergency. EUAs authorize the use of specific products based on criteria established by statute, including that the product at issue may be effective in diagnosing, treating, or preventing serious or life-threatening diseases when there are no adequate, approved, and available alternatives. An EUA is subject to additional conditions and restrictions and is product-specific. An EUA terminates when the emergency determination underlying the EUA terminates.

We cannot assure you that we will be able to obtain any 510(k) clearance, de novo classification, PMA approval or EUA. FDA can delay, limit or deny 510(k) clearance, de novo classification, PMA approval or EUA of a device for many reasons, including:

 

   

we may not be able to demonstrate to FDA’s satisfaction that our products are safe and effective for their intended uses;

 

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

 

   

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

FDA may refuse our requests for 510(k) clearance, de novo classification, premarket approval or EUA of new products, new intended uses or modifications to existing products. Additionally, even if obtained, 510(k) clearances, de novo classifications, premarket approvals or EUAs could be withdrawn or revoked at any time for a number of reasons, including the failure of our Platform to perform as expected. In particular, other companies have had their FDA approvals, or authorizations, including EUAs, revoked due to sensitivity and specificity concerns, and we cannot predict the circumstances under which the FDA would revoke an EUA for a COVID-19 test, including ours, as an understanding of the virus and the adequacy of tests and treatments is continuously evolving.

If we receive approval, authorization, classification or clearance for our tests, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as compliance with the Quality System Regulation, inspections by the FDA, continued adverse event and malfunction reporting, corrections and removals reporting, registration and listing, and promotional restrictions, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market our tests and/or may be subject to fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions; and criminal prosecution. In addition, we may be subject to similar regulatory compliance actions of foreign jurisdictions.

We may recall or replace our Instrument, test strips or other products which could negatively impact manufacturing, supply and customer relationships. For example, in early January 2021, based on quality testing from a small number of test strips some unexpected results were highlighted and based on this review, we made a pro-active decision to request a very limited number of three batches potentially affected to be replaced prior to use by customers. As per applicable regulations, this will be notified, as required, to FDA.

We will need to submit numerous applications for approval, authorization, classification or clearance for each test as it becomes available, which could put significant pressure on R&D and regulatory staff, resulting in delays. From time to time, legislation is drafted and introduced in the U.K, other European jurisdictions or the U.S. that could significantly change the statutory provisions governing any regulatory approval, authorization, classification or clearance that we receive in such jurisdictions. In addition, in the U.S., the FDA may change its authorization, clearance, classification and approval policies, adopt additional regulations or revise existing regulations, or take other actions that may prevent or delay authorization, approval, classification or clearance of our products under development or impact our ability to modify any marketed products on a timely basis.

Changes in the way the FDA and other comparable regulatory authorities regulate or notified bodies assess products developed, manufactured, validated and marketed by commercial manufacturers like us could result in delay or additional expense in offering our products and products that we may develop in the future.

In the U.S., we have marketed our SARS-CoV-2 antigen test, and plan to market our SARS-CoV-2 antibody test, if approved, authorized or cleared, pursuant to the “Policy for Diagnostic Tests for Coronavirus Disease-2019 during the Public Health Emergency” issued by FDA on March 16, 2020 and revised on May 11, 2020. This policy allows for the limited development and distribution of diagnostic test kits and antibody tests to detect viral particles and identify antibodies of the SARS-CoV-2 virus by commercial manufacturers, subject to certain notification requirements. Unless and until such an EUA is issued that authorizes additional testing environments for a specific test, under Clinical Laboratory Improvement Amendments of 1988, or CLIA, use of that test is limited to laboratories certified to perform high complexity testing, including testing at the POC when the site is covered by the laboratory’s CLIA certificate for high-complexity testing. We have obtained an EUA from the FDA for our SARS-CoV-2 antigen test and we have submitted an EUA request for our SARS-CoV-2 antibody test. An EUA allows a test to be used at POC facilities should the test be deemed to be CLIA waived through FDA authorization of the test for use at the POC under the EUA. Our SARS-CoV-2 antigen test is authorized for use at the POC under the EUA for our SARS-CoV-2 antigen test. There can be no assurance that the EUA request that we submitted for our SARS-CoV-2 antibody test will be granted on a timely basis or at all, or that our SARS-CoV-2 antibody test will be authorized for use at the POC. A wave of regulatory applications in the U.S., combined with COVID-19 operational challenges, including potential staff shortages at regulatory agencies and elsewhere, could result in delays in approvals, authorizations or clearances for our SARS-CoV-2 tests or otherwise. FDA or other comparable regulatory agencies may prioritize certain

 

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applications or submissions based on the testing methodologies or other factors. In addition, FDA has issued and may issue further guidance or change regulatory requirements at any time, which may delay our marketing and sales efforts and/or necessitate costly measures to maintain regulatory compliance with respect to these and any future products, which would have a detrimental effect on our business.

LumiraDx SARS-CoV-2 antigen, LumiraDx SARS-CoV-2 RNA STAR, and the LumiraDx SARS-CoV-2 RNA STAR Complete have not been cleared or approved by FDA. The LumiraDx SARS-CoV-2 antigen test has been authorized by FDA under an EUA only for the qualitative detection of SARS-CoV-2 nucleocapsid protein. LumiraDx SARS-CoV-2 RNA STAR and LumiraDx SARS-CoV-2 RNA STAR Complete have been authorized by FDA under an EUA only for the detection of nucleic acid from SARS-CoV-2. They have not been authorized for use to detect any other viruses or pathogens. The tests are authorized in the United States for the duration of the declaration that circumstances exist justifying the authorization of emergency use of IVD tests for detection and/or diagnosis of COVID-19 under Section 564(b)(1) of the Act, 21 U.S.C. § 360bbb-3(b)(1), unless the authorization is terminated or revoked sooner.

For our IVD devices for other indications, we may not market these devices for POC until we have received the requisite regulatory approvals, clearances or certifications for each product. Our product development program may be curtailed, redirected, eliminated or delayed at any time for many reasons, including if FDA, other regulators or notified bodies change how these devices are regulated or assessed, and we cannot predict whether we will successfully develop and commercialize these devices. FDA or a comparable regulatory authority may require more information, including additional clinical data, to support approval, clearance or certifications, which may delay or prevent approval and our commercialization plans, or we may decide to abandon the development program. Any of the foregoing scenarios could materially harm the commercial prospects of our products.

Healthcare policy changes, including legislation reforming the U.S. health care system, may have a material adverse effect on our financial condition, results of operations and cash flows.

In the U.S. and in some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative initiatives and regulatory changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, or ACA, was enacted, which made a number of substantial changes in the way health care is financed by both governmental and private insurers. Among other things, the ACA required each certain medical device manufacturer to pay an excise tax, or Medical Device Excise Tax, equal to 2.3% of the price for which such manufacturer sells its medical devices that are listed with FDA. However, this tax was permanently eliminated as part of the 2020 federal spending package, effective January 1, 2020.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and congressional challenges. Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, the Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision that decreased the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, commonly referred to as the “individual mandate,” to $0, effective January 1, 2019. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the Affordable Care Act are invalid as well. The Trump Administration and CMS both stated that the ruling will have no immediate effect, and on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and allotted one hour and twenty minutes for oral arguments, which occurred November 10, 2020. Itis unclear how this decision and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that

 

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would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $ 12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. This decision was appealed to the U.S. Supreme Court, which on April 27, 2020, reversed the U.S. Court of Appeals for the Federal Circuit’s decision and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are not yet known.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. The Protecting Access to Medicare Act of 2014, or PAMA, was signed to law on April 1, 2014, and, among other things, significantly altered the payment methodology under the Clinical Laboratory Fee Schedule, or CLFS. The CFLS applies to a wide variety of laboratories, including national chains, physician offices, and hospital laboratories. Regulations finalized in 2016 stipulated that for the reporting period beginning in 2017 and every three years thereafter (or annually in the case of advanced diagnostic laboratory tests), applicable clinical laboratories must report laboratory test payment data for each Medicare-covered clinical diagnostic laboratory test that it furnishes during the specified time period. The reported data must include the payment rate (reflecting all discounts, rebates, coupons and other price concessions) and the volume of each test that was paid by each private payor (including health insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations). Additionally, effective January 1, 2018, the Medicare payment rate for a test on the CLFS is equal to the weighted median of private payor rates determined for the test, based on the data of applicable laboratories that are collected during a specified data collection period and reported to CMS during a specified data reporting period. The payment amount for a test cannot drop more than 10 percent as compared to the previous year’s payment amount for the first three years after implementation of the new payment system, and not more than 15 percent per year for the subsequent three years. Under the Laboratory Access to Beneficiaries, or LAB Act, Congress delayed reporting for applicable clinical laboratory tests that are not advanced diagnostic laboratory tests by one year. Applicable clinical laboratory test data that was supposed to be reported between January 1, 2020 and March 31, 2020, must now be reported between January 1, 2021, and March 31, 2021. For 2020, the rates for clinical laboratory tests that are not advanced diagnostic laboratory tests or new clinical laboratory tests may not be reduced by more than 10% of the rates for 2019. There will be a 15% reduction cap for each of 2021, 2022, and 2023. Also, under PAMA, CMS is required to adopt temporary billing codes to identify new tests and new advanced diagnostic laboratory tests that have been cleared or approved by FDA. For an existing test that is cleared or approved by FDA and for which Medicare payment is made as of April 1, 2014, CMS is required to assign a unique billing code if one has not already been assigned by the agency. In addition to assigning the code, CMS is required to publicly report payment for the tests. Further, under PAMA, CMS is required to adopt temporary billing codes to identify new tests and new advanced diagnostic laboratory tests that have been cleared or approved by FDA. We cannot determine at this time the full impact of PAMA on our business, financial condition and results of operations.

Additionally, the Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers and suppliers of up to 2% per fiscal year, starting in 2013, and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional congressional action is taken. However, pursuant to the CARES Act these Medicare sequester reductions are suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend this suspension until the end of the pandemic. The full impact of the sequester law on our business is uncertain. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In addition, the Middle-Class Tax Relief and Job Creation Act of 2012 mandated an additional change in Medicare

 

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reimbursement for clinical laboratory tests. Additionally, the Bipartisan Budget Act of 2018, or BBA, among other things, amended the ACA, effective January 1, 2019, by increasing the point-of-sale discount (from 50% under the ACA to 70%) that is owed by pharmaceutical manufacturers who participate in Medicare Part D to eligible beneficiaries and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

Additionally, the Trump administration announced several executive orders since July 24, 2020 relating to implementing several of the administration’s healthcare proposals and in response the COVID-19 pandemic. For example, on August 6, 2020, the Trump administration issued an executive order that directed the U.S. Food and Drug Administration, or FDA, to identify a list of essential medicines, medical countermeasures and critical inputs that are medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms. In response, on October 30, 2020, the FDA published a list of 227 drug and biological product essential medicines and medical countermeasures, and a list of 96 device medical countermeasures. It is unclear what impact this order and list will have on our business.

Additionally, recent regulatory changes regarding health information may impact our products such as the Connect Manager, EHR Connect, the Connect Hub and the Engage app. On March 9, 2020, the HHS, Office of the National Coordinator for Health Information Technology, or ONC, and CMS promulgated final rules aimed at supporting seamless and secure access, exchange, and use of electronic health information, or EHI, by increasing innovation and competition by giving patients and their healthcare providers secure access to health information and new tools, allowing for more choice in care and treatment. The final rules are intended to clarify and operationalize provisions of the 21st Century Cures Act, or Cures Act, regarding interoperability and “information blocking,” and create significant new requirements for health care industry participants. Information blocking is defined as activity that is likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI, where a health information technology developer, health information network or health information exchange knows or should know that such practice is likely to interfere with access to, exchange or use of EHI. The new rules create significant new requirements for health care industry participants, and require certain electronic health record technology to incorporate standardized application programming interfaces, or APIs, to allow individuals to securely and easily access structured EHI using smartphone applications. The ONC will also implement provisions of the Cures Act requiring that patients can electronically access all of their EHI (structured and/or unstructured) at no cost. Finally, to further support access and exchange of EHI, the final ONC rule implements the information blocking provisions of the Cures Act and identified eight “reasonable and necessary activities” as exceptions to information blocking activities, as long as specific conditions are met. In light of the COVID-19 public health emergency, ONC stated that it intends to exercise enforcement discretion for three months at the end of certain ONC Health IT Certification Program compliance dates associated with the Cures Act final ONC rule. Pursuant to the final rule, health IT developers were initially to be subject to requirements such as prohibitions on participating in any action that constitutes information blocking, providing certification to the Secretary of HHS that they will not take actions that constitute information blocking, and other requirements regarding information blocking six months from May 1, 2020, when the final rule was published in the Federal Register. However on October 29, 2020, HHS released an Interim Final Rule, effective December 4, 2020, pushing compliance with such requirements to April 5, 2021. Certified API Developers must now comply with new administrative requirements by April 5, 2021 and must provide all certified API technology by December 31, 2022.

These rules seek to implement significant reforms regarding the access, use and exchange of patient data. These rules may benefit us in that they make it more difficult for EHR vendors to engage in data blocking activity, promote common standards for data exchange, and provide for easier patient access to their EHI. However, these rules may also make it easier for other similar companies to enter the market, creating increased competition and reducing our market share. It is unclear at this time what the costs of compliance with the final rules will be, and what additional risks there may be to our business.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, greater use of new technology assessment review boards for determination of cost and comparative effectiveness, lower

 

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reimbursement, and new payment methodologies. This could lower the price that we receive for any approved product. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient revenue, attain profitability or commercialize our product candidates, if approved. Congress has proposed on several occasions to impose a 20% coinsurance on patients for clinical laboratory tests reimbursed under the Medicare Clinical Laboratory Fee Schedule, which would require us to bill patients for these amounts. Because of the relatively low reimbursement for many clinical laboratory tests, in the event that Congress were to ever enact such legislation, the cost of billing and collecting for these tests would often exceed the amount actually received from the patient and effectively increase our costs of billing and collecting.

The regulatory pathway for our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests and healthcare professionals’ understanding of the novel coronavirus is continually evolving and may result in unexpected or unforeseen challenges.

We have obtained an EUA from the FDA for our SARS-CoV-2 antigen test and have submitted an EUA request for our SARS-CoV-2 antibody test. Additionally, in the E.U./European Economic Area we affixed a CE Mark to our SARS-CoV-2 antigen test (following self-certification against the relevant E.U. Directive) and SARS-CoV-2 antibody test and we may submit such tests for regulatory approval or clearance in other jurisdictions. Following the U.K.’s departure from the E.U., our E.U. CE Mark will continue to be recognized in G.B. until June 30, 2023 and then a U.K. Conformity Assessed Mark, or UKCA mark, will be required (whereas, in Northern Ireland a CE Mark or CE UKNI Mark will be required). The volume of tests being developed for COVID-19 and the speed at which parties are acting to create and test many diagnostic tests for COVID-19 is unusual, and evolving or changing plans or priorities within

regulatory authorities, including changes based on new knowledge of COVID-19 and how the disease affects the human body, may significantly affect the regulatory timeline for our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests. The circumstances surrounding the pandemic may adversely impact the regulatory approval timeline for the Platform and its components both in relation to the COVID-19 test, and our other tests generally if regulatory authorities prioritize tests for COVID-19 over other diseases. Results from clinical testing may raise new questions and require us to proceed with additional reviews or clinical trials, including revising proposed endpoints or adding new clinical trial sites or cohorts of subjects. Additionally, our understanding of COVID-19, its infectiveness and other effects on the human body, the ability of individuals to develop antibodies against the virus and the effectiveness of any immune response in preventing future infections are constantly evolving, with new research suggesting sometimes surprising results being published on a frequent basis. New discoveries or a changed understanding of how the virus affects the human body, particularly of its infectivity and individuals’ immune response to it, could render existing tests, including ours, technologically or commercially obsolete or inferior to new methods that we may or may not be able to develop on a timely basis without significant resources and funding.

Even though we have obtained an EUA for our SARS-CoV-2 antigen test and even if we obtain an EUA for our SARS-CoV-2 antibody test, an EUA terminates when the emergency determination underlying the EUA terminates. Moreover, FDA may revoke an EUA at any time if it determines that the underlying health emergency no longer exists or warrants such authorization or if our Platform or tests fail to perform as expected, and we therefore cannot predict how long, if ever, any EUA applicable to our Platform would remain in place. Any revocation or termination of an EUA applicable to our Platform could adversely impact our business in a variety of ways, including if we and our manufacturing collaborators have invested significantly in the supply chain to produce our SARS-CoV-2 tests.

In addition, since the regulatory path to authorization of any COVID-19 test is evolving in various jurisdictions and other third parties are simultaneously focused on bringing their COVID-19 tests to market, there may be a widely used product in circulation in a specific country prior to our receipt of regulatory approval, authorization or clearance or before we can CE Mark our Instrument in such country, which would limit our ability to market and gain traction on sale of our Platform. Unexpected issues, including any that we have not yet observed, could lead to significant reputational damage for us and our Platform going forward and other issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources.

If we fail to comply with the complex federal, state, local and foreign laws and regulations that apply to our business, we could suffer severe consequences that could materially and adversely affect our operating results and financial condition.

We are or expect to become subject to broadly applicable healthcare laws, including fraud and abuse, transparency, and privacy and security laws, which are regulated and enforced by both the federal government and the states in

 

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which we conduct our business. These health care laws and regulations include, for example:

 

   

the federal physician self-referral prohibitions, commonly known as the Stark Law, which prohibit billing a patient or governmental or private payor for certain designated health services when the physician ordering the service, or a member of such physician’s immediate family, has a financial relationship, such as an ownership or investment interest in or compensation arrangement with the entity performing tests, unless the relationship meets an applicable exception to the prohibition. Several Stark Law exceptions are relevant to many common financial relationships involving clinical laboratories and referring physicians, including: (1) fair market value compensation for the provision of items or services; (2) payments by physicians to a laboratory for clinical laboratory services; (3) space and equipment rental arrangements that satisfy certain requirements, and (4) personal services arrangements that satisfy certain requirements. A laboratory cannot submit claims to the Medicare Part B program for services furnished in violation of the Stark Law, and Medicaid reimbursements may be at risk as well. The Stark Law is a strict liability statute, meaning the prohibitions apply regardless of intent to induce or reward referrals or the motive for the financial relationship;

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement, or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. The term remuneration has been interpreted broadly to include anything of value. Further, courts have found that if “one purpose” of remuneration is to induce referrals, the federal Anti-Kickback Statute is violated. Violations are subject to significant civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, a claim submitted for payment to any federal healthcare program that includes items or services that were made as a result of a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between biopharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers, among others, on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

 

   

the federal civil and criminal false claims laws, including the FCA, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false, fictitious or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs; knowingly making, using, or causing to be made or used, a false record or statement material to a false, fictitious or fraudulent claim or an obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring qui tam actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery or settlement. When an entity is determined to have violated the FCA, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

 

   

HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false fictitious or fraudulent statement or entry in connection with the delivery of, or payment for, healthcare benefits,

 

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items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA fraud provisions without actual knowledge of the statute or specific intent to violate it;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or the HITECH Act, and their respective implementing regulations, which impose, among other things, certain requirements relating to the privacy, security and transmission of individually identifiable health information on certain covered healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their respective “business associates,” or third parties that create, receive, maintain, transmit or obtain protected health information in connection with providing a service on behalf of a covered entity. The HITECH Act also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;

 

   

the federal Physician Payments Sunshine Act, created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively, the ACA, and its implementing regulations, which require manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to direct or indirect payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made in the previous year to certain non-physician providers such as physician assistants and nurse practitioners;

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

 

   

analogous U.S. state, local and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers and may be broader in scope than their federal equivalents; state and foreign laws that require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources, state and foreign laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or product pricing; state and local laws that require the registration of medical device sales representatives; state laws that prohibit other specified practices, such as (i) billing physicians for testing that they order or waiving coinsurance, copayments, deductibles, and other amounts owed by patients, and (ii) billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; and state and foreign laws governing the privacy and security of health information, some of which may be more stringent than those in the U.S. (such as the E.U., which adopted the General Data Protection Regulation) in certain circumstances, and may differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert the company’s attention from the business.

It is possible that governmental and enforcement authorities will conclude that our business practices, including our arrangements with physicians and other healthcare providers, some of whom may receive stock options as

 

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compensation for services provided, may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to significant sanctions, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, reputational harm, exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to similar penalties. Any action for violation of these laws, even if successfully defended, could incur significant legal expenses and divert management’s attention from the operation of the business. In addition, the marketing authorization and commercialization of any product we develop outside the U.S. will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. All of these could harm our ability to operate our business and our financial results.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that we may run afoul of one or more of the requirements.

Sales of our products in other jurisdictions, including the E.U./European Economic Area and the U.K., will also be subject to equivalent or comparable laws and failure to comply with these laws could have serious financial, as well as reputational, consequences for the company. Key laws and regulations that apply to our products in the E.U. and U.K. include, amongst others:

 

   

the General Data Protection Regulation (Regulation (EU) 2016/679), which sets out the data protection laws across the E.U. and is particularly important for the collection, storage and use of patient data; and

 

   

the U.K. General Data Protection Regulation, read alongside the Data Protection Act 2018, or the U.K. DPA, set out data protection laws for the U.K.; and

 

   

relevant anti-bribery and corruption laws enacted by the Member States of the E.U./European Economic Area (the applicable regime in the U.K. is the Bribery Act 2010).

Additionally, our failure to comply could lead to civil and/or criminal penalties in individual Member States.

When we seek to commercially distribute our POC IVD devices in the U.S., if our devices are not considered CLIA waived or if we are delayed in or unable to obtain a CLIA waiver for such devices, our business may be harmed.

In the U.S., our IVD devices are subject to compliance with the Clinical Laboratory Improvements Act of 1988, or the CLIA and its implementing regulations. CLIA establishes quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test is performed. A laboratory is broadly defined to include any facility that performs laboratory testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health. Under CLIA, FDA categorizes IVD tests by their degree of complexity: (1) waived; (2) moderately complex; and (3) highly complex. When a test is categorized as waived, it may be performed by laboratories that have a Certificate of Waiver.

Tests that are waived by the CLIA regulations are automatically categorized as waived following 510(k) clearance or PMA approval. Otherwise, following clearance or approval, tests may be categorized either as moderate or high complexity according to the CLIA categorization criteria. A manufacturer of a test categorized as moderate complexity may request categorization of the test as waived through a CLIA Waiver by Application, or CW, submission to FDA. In a CW submission, the manufacturer provides evidence to FDA that a test meets the CLIA statutory criteria for waiver. Specifically, waived tests are simple laboratory examinations and procedures that have an insignificant risk of an erroneous result, including those that (A) employ methodologies that are so simple and accurate as to render the likelihood of erroneous results by the user negligible, or (B) FDA has determined pose no unreasonable risk of harm to the patient if performed incorrectly. Further, when FDA authorizes tests for use at the POC under an EUA, such tests are deemed to be CLIA waived tests. As such, such tests can be performed in a

 

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patient care setting that is qualified to have the test performed there as a result of operating under a CLIA Certificate of Waiver for the duration of the emergency declaration. A CLIA waiver is critical to the marketability of a product into the POC diagnostics market. With regard to future products for which we may seek a CLIA waiver from FDA, any failure or material delay to obtain such waiver could harm our business and could harm the marketability of our products to the POC diagnostics market.

We are subject to stringent and changing privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business.

We collect, store, process and transmit sensitive data, including legally protected health information, personal information, intellectual property and proprietary business information. As we seek to expand our business, we are, and will increasingly become, subject to numerous state, federal and foreign laws, regulations and standards, as well as contractual obligations, relating to the collection, use, retention, security, disclosure, transfer and other processing of sensitive and personal information in the jurisdictions in which we operate. In many cases, these laws, regulations and standards apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries and other parties with which we have commercial relationships and our subsidiaries’ own data collection and processing practices. These laws, regulations and standards may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that will materially and adversely affect our business, financial condition and results of operations. The regulatory framework for data privacy, data security and data transfers worldwide is rapidly evolving, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business, and as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. Failure to comply with any of these laws and regulations could result in enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business.

There are numerous E.U., U.K. and U.S. federal and state laws and regulations related to the privacy and security of health information. These laws and regulations include HIPAA, as amended by the HITECH Act, and their respective implementing regulations, which establish a set of national privacy and security standards for the protection of protected health information by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. HIPAA requires covered entities and business associates to develop and maintain policies and procedures with respect to protected health information that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information and ensure the confidentiality, integrity and availability of electronic protected health information. The U.S. Department of Health and Human Services Office of Civil Rights may impose penalties for a failure to comply with a requirement of HIPAA. Penalties will vary significantly depending on factors such as the date of the violation, whether the failure to comply was known or should have been known, or whether the failure was due to willful neglect. These penalties include significant civil monetary penalties, criminal penalties and, in certain instances, imprisonment. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of protected health information. Furthermore, in the event of a breach as defined by HIPAA, we may be required to comply with specific reporting requirements under HIPAA regulations. In the event of a significant breach, the reporting requirements could include notification to the general public. Enforcement activity can result in reputational harm, and responses to such enforcement activity can consume significant internal resources. Additionally, if we are unable to properly protect the privacy and security of protected health information we create, receive, maintain, or transmit on behalf of our covered entity customers, we could be found to have breached our contracts as well as HIPAA and other applicable data privacy and security laws. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and we cannot be sure how these regulations will be interpreted, enforced or applied to our operations.

 

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In addition, many states in which we operate have laws that protect the privacy and security of sensitive and personal information. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. For example, the California Consumer Privacy Act of 2018, or the CCPA, which increases privacy rights for California residents and imposes stringent data privacy and security obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. However, certain personal information, such as information that is subject to HIPAA or clinical trial regulations, is exempt from the CCPA. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. Further, there is uncertainty with respect to how various provisions of the CCPA will be interpreted and enforced. While the implementing regulations have not been finalized to date, the California State Attorney General’s authority to enforce the statutory provisions commenced as of July 1, 2020. While any information we maintain in our role as a business associate may be exempt from the CCPA, other records and information we maintain on our customers may be subject to the CCPA. New legislation and state constitutional amendments proposed or enacted in several U.S. states impose, or have the potential to impose, additional obligations on companies that collect, store, use, retain, disclose, transfer and otherwise process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we could become subject if it is enacted. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time, may require us to modify our data processing practices and policies, divert resources from other initiatives and projects, and could restrict the way products and services involving data are offered, all of which may have a material and adverse impact on our business, financial condition and results of operations.

Laws, regulations and standards in many foreign jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information, which impose significant compliance obligations. For example, in the E.U. and the U.K., the processing of personal data, including clinical trial data, is governed by the provisions of the General Data Protection Regulation (Regulation (EU) 2016/679), or the GDPR, in the E.U.; and the U.K. GDPR read alongside the U.K. DPA are the applicable laws in the U.K. Following the U.K.’s withdrawal from the E.U. on January 31, 2020, pursuant to the transitional arrangements agreed between the U.K. and E.U., the E.U. GDPR continued to have effect in U.K. law, until December 31, 2020. Following December 31, 2020, the GDPR does not have direct effect in the U.K. However, the U.K.’s E.U. (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain U.K. specific amendments) into U.K. law (referred to as the U.K. GDPR). The U.K. GDPR (as amended) and U.K. DPA set out the U.K.’s data protection regime, which is independent from but equivalent to the E.U.’s regime. The requirements for processing personal data under the U.K. GDPR and U.K. DPA largely align with those under the GDPR. The GDPR and the U.K. GDPR U.K. DPA impose stringent data privacy and security requirements on both processors and controllers of personal data, including health data and other personal data collected during clinical trials. In particular, the GDPR imposes requirements relating to ensuring there is a lawful basis for processing personal data, extends the rights of individuals to whom the personal data relates, materially expands the definition of what is expressly noted to constitute personal data, requires additional disclosures about how personal data is to be used, imposes limitations on retention of personal data, imposes strict rules on the transfer of personal data out of the EEA and/or U.K. to third countries (noting also that if the U.K. receives personal data from the E.U., the U.K. will be treated as a third country for the purposes of the GDPR; although under the E.U.-U.K. Trade and Cooperation Agreement it is lawful to transfer personal data between the U.K. and E.U for a six month bridging period), creates mandatory data breach notification requirements in certain circumstances, and establishes onerous new obligations on service providers who process personal data simply on behalf of others in connection with their E.U. or U.K. establishment. The GDPR and the U.K. GDPR and U.K. DPA authorize competent authorities to impose penalties and fines for certain violations of up to 4% of an undertaking’s total global annual revenue for the preceding financial year or 20 million (or £17.5 million under the

 

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U.K. DPA), whichever is greater. In addition to administrative fines, a wide variety of other potential enforcement powers are available to competent authorities in respect of potential and suspected violations of the GDPR and the U.K. GDPR and U.K. DPA, including extensive audit and inspection rights, and powers to order temporary or permanent bans on all or some processing of personal data carried out by noncompliant actors. European data protection authorities, and the U.K. Information Commissioner’s Office, may interpret the GDPR and the U.K. GDPR and U.K. DPA, and national laws differently and impose additional requirements, which contributes to the complexity of processing personal data in or from, or between, the EEA and/or U.K. Given the breadth and depth of changes in data protection obligations, complying with its requirements has caused us to expend significant resources and such expenditures are likely to continue into the near future as we respond to new interpretations, additional guidance, and potential enforcement actions and patterns. While we have taken steps to comply with the GDPR and the U.K. GDPR and U.K. DPA, and implementing legislation in the U.K. and applicable member states, including by seeking to establish appropriate lawful bases for the various processing activities we carry out as a controller, reviewing our security procedures, and entering into data processing agreements with relevant customers and business partners, we cannot assure you that our efforts to achieve and remain in compliance have been, and/or will continue to be, fully successful.

We make public statements about our use and disclosure of personal information through our privacy policy, information provided on our internet platform and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees, consultants, or vendors fail to comply with our published policies, certifications and documentation. The publication of our privacy policy and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any failure, real or perceived, by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us could cause our customers to reduce their use of our products and services and could materially and adversely affect our business, financial condition and results of operations. In many jurisdictions, enforcement actions and consequences for non-compliance can be significant and are rising. In addition, from time to time, concerns may be expressed about whether our products, services or processes compromise the privacy of customers and others. Concerns about our practices with regard to the collection, use, retention, security, disclosure, transfer and other processing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and materially and adversely affect our business, financial condition and results of operations.

Many statutory requirements, both in the U.S. and abroad, include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our third-party service providers. For example, laws in all 50 U.S. states and the District of Columbia require businesses to provide notice to consumers whose sensitive personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. We also may be contractually required to notify customers or other counterparties of a security breach. Although we may have contractual protections with our third-party service providers, contractors and consultants, any actual or perceived security breach could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual protections we may have from our third-party service providers, contractors or consultants may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections.

In addition to the possibility of fines, lawsuits, regulatory investigations, public censure, other claims and penalties, and significant costs for remediation and damage to our reputation, we could be materially and adversely affected if legislation or regulations are expanded in a manner that requires changes in our data processing practices and policies or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively impact our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business. Any inability to adequately address data privacy or security-related concerns, even if unfounded, or to comply with applicable laws,

 

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regulations, standards and other obligations relating to data privacy and security, could result in additional cost and liability to us, harm our reputation and brand, damage our relationships with customers and have a material and adverse impact on our business.

If the validity of an informed consent from a patient enrolled in a clinical trial was challenged, we could be forced to stop using some of our resources, which would hinder our product development efforts.

We have implemented measures to ensure that all clinical data and genetic and other biological samples that we receive from our collaborators have been collected from subjects who have provided appropriate informed consent for purposes which extend to our product development activities. We seek to ensure these data and samples are provided to us on a subject de-identified or pseudonymized manner. We also have measures in place to ensure that the subjects from whom the data and samples are collected do not retain or have conferred on them any proprietary or commercial rights to the data or any discoveries derived from them. Our clinical research organization, or CRO, collaborators conduct clinical trials in a number of different countries, and, to a large extent, we rely upon them to comply with the subject’s informed consent and with local law and international regulation. The collection of data and samples in many different countries results in complex legal questions regarding the adequacy of informed consent and the status of genetic material under a large number of different legal systems. The subject’s informed consent obtained in any particular country could be challenged and/or withdrawn in the future, and those informed consents could prove invalid, unlawful, or otherwise inadequate for our purposes. Any findings against us, or our collaborators, could deny us access to or force us to stop using some of our clinical samples, which would hinder our product development efforts. We could become involved in legal challenges, which could consume our management and financial resources.

The sales of our products in Europe and, for the time being, the U.K., are regulated through a process that either requires self-certification or certification by a European Notified Body in order to affix a CE Mark. Such processes are uncertain, particularly in light of changes to the regulatory framework. There may be a risk of delay in placing our products on the market and, once on the market, a risk of review and challenges to certain certified statuses.

Currently, until May 25, 2022, the majority of our products (including our Instrument for use with the INR test by users other than for self-testing, the INR test and control, INRstar and our SARS-CoV-2 antigen test, SARS CoV-2 antibody test and D-Dimer test) are regulated through a self-declaration process, whereby we declare that the product meets the essential requirements of the European Directive on In-Vitro Diagnostic Devices (98/79/EC). We also have a number of products that we expect to come to market in the European Economic Area that we will self-declare compliant against this directive. After the launch of any products, we may be subject to challenges by European Regulatory Authorities if there are issues that arise that question the safety and performance of these products. Such challenges may arise from a routine audit by a regulatory authority, due to device vigilance reports submitted by us, Field Safety Corrective Actions being initiated by us or the regulatory authority, or complaints made by competitors, whether those complaints are founded or not.

We also have a number of products (including our Instrument for use by patients for self-testing and certain test strips that would fall within Annex II of the European Directive on In-Vitro Diagnostic Devices (98/79/EC)), which will likely enter the market prior to May 26, 2022 and that cannot be regulated through a self-declaration process under the European Directive on In-Vitro Diagnostic Devices (98/79/EC). Such products will require their compliance with this directive reviewed and certified by a European Notified Body. We have engaged with a European Notified Body (TÜV SÜD); however, they have yet to start reviewing technical documentation for the products. Therefore, there is a risk of delay in getting these products to market if the Notified Body has capacity constraints and/or if the Notified Body has any issues with our technical documentation.

Prior to May 26, 2022, the ability to continue to sell products using the self-declaration process of the European Directive on In-Vitro Diagnostic Devices (98/79/EC) is unaffected by the European Regulation on In-Vitro Diagnostic Devices (Regulation (EU) 2017/746). However, before May 26, 2022 and in order to continue to sell products in the E.U. after that date, most of our products that are in-vitro diagnostic devices will need to be evaluated by a European Notified Body in order to comply with the new European Regulation on In-Vitro Diagnostic Devices (2017/746/EU), which replaces the aforementioned European Directive on In-Vitro Diagnostic Devices (98/79/EC). The Regulation provides for a transition period that allows products that have certificates issued by European Notified Bodies under the Directive prior to May 26, 2022 to continue to be placed on the market until May 26, 2024 and, where they have been placed on the market prior to that date, to be distributed and supplied until May 26, 2025. However,

 

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most of our products are self-certified so will not be eligible for this transition period and those that are would lose the benefit if any significant changes have to be made to the product after May 26, 2022. Therefore, we do not intend to rely on this transition period.

Nevertheless, it should be appreciated that there is a severe shortage of capacity of the European Notified Bodies to assess all IVD devices that will require Notified Body certification under the Regulation, and that it is widely recognised that not all applications for assessment by Notified Bodies will be approved before the deadline of May 25, 2022. While we have taken a proactive approach to mitigate this risk, including approaching a European Notified Body (TÜV SÜD) and restructuring its quality management systems, there can be no assurance that our ability to market IVD devices in the E.U. in the future will be unrestricted and this could, in turn, have a negative impact on our business and operating results.

We take our responsibilities as a manufacturer of medical devices seriously and where possible take all voluntary measures to have independent third parties assess our designs and processes. This includes certification to the international standard for quality management, ISO 13485:2016 by LRQA, an accredited management systems certification body, testing of our Instrument to the international standard for electrical safety, IEC 61010-1:2015 / IEC 61010-2-101:2015 by CSA International an independent and accredited safety certification body, and for the international standard for electromagnetic compatibility, IEC 61326-2-6:2012 by ETS Ltd, an independent and accredited EMC test laboratory.

We also offer a number of products (including Connect Manager, EHR Connect, and the Engage app) that we do not believe come within the scope of the European Directive on In-Vitro Diagnostic Devices (98/79/EC) or the European Regulation on In-Vitro Diagnostic Devices (Regulation (EU) 2017/746) nor come within the scope of the European Directive on Medical Devices (93/42/EEC) or the European Regulation on Medical Devices (Regulation (EU) 2017/745). There is a risk we may be subject to challenges by European Regulatory Authorities regarding the classification of these products, particularly if there was a question about safety or performance stemming from a user or a complaint from a competitor.

LumiraDx UK Ltd is the legal manufacturer and regulatory owner of our products and is based in the U.K. The U.K.’s departure from the E.U., or Brexit, and the future relationship of the U.K. with the E.U. remains uncertain and there may be delays and barriers in obtaining access to the European Economic Area.

Following the U.K.’s prior departure from the E.U., the U.K. continued to follow the same regulations as the E.U. until the end of 2020, or the Transition Period. Now that the Transition Period has ended, there will be some regulatory divergence in the U.K. from the E.U. and the new UKCA mark will replace the E.U. CE Mark in Great Britain, or G.B. (CE Marks or CE UKNI Marks will be required in Northern Ireland). E.U. CE Marks will continue to be recognized in G.B. for medical devices until June 30, 2023, however all medical devices and IVDs must be registered with the Medicines and Healthcare products Regulatory Agency, or MHRA, in order to be placed on the G.B. market (subject to certain grace periods depending on the risk class of the medical device/IVD). From July 1, 2023 a UKCA mark will be required in order to place a device on the G.B. market, however manufacturers can use the UKCA mark on a voluntary basis prior to July 1, 2023 if they wish to do so. The nature of any new regulation in the U.K. is uncertain, and as such, we may experience delays in obtaining future access to the U.K. and other European markets.

Under the European Directive on In-Vitro Diagnostic Devices (98/79/EC) and then under the In-Vitro Diagnostic Regulation (2017/746), legal manufacturers located outside of the E.U./European Economic Area are required to appoint an authorised representative that is domiciled in a Member State within the E.U./European Economic Area. Given the uncertainty at the end of the Transition Period, we have established our own dedicated authorized representative in the E.U. After considering a number of factors, including location, language capabilities, communication efficiencies and transparency considerations, we appointed LumiraDx AB, a LumiraDx affiliate domiciled in Sweden, as an authorized representative. Our regulatory experts are actively engaged through relevant industry bodies, such as the British In-Vitro Diagnostics Association, or BIVDA, to proactively communicate with the U.K. government on any new proposed regulatory regime applicable in the U.K.

We intend to export our products to numerous countries outside of the European Economic Area. Many other countries require certificates of free sales, or CFS, and/or certificates of foreign government, or CFG, as a condition

 

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of allowing the importation of medical devices from a relevant country of origin. One of the typical prerequisites to the issuance of CFS and CFG certificates is the requirement that the products being certified are legally marketed in their country of origin. Now that the Transition Period has ended and the U.K. has its own independent regulatory regime, we may face delays due to the new U.K. regulatory regime, which may in turn cause us to experience delays in obtaining requisite certificates and regulatory clearance in other countries. Additionally, as a result of Brexit, we, as a U.K. based manufacturer, will no longer be able to utilize a number of Mutual Recognition Agreements and Technical Cooperation Programs that the E.U. has agreed with other countries (subject to any agreement reached to the contrary), and therefore we may suffer delays in obtaining requisite regulatory clearances in other countries. The occurrence of any of the foregoing could have a material adverse effect on our financial condition and results of operations.

We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws, export and import controls, sanctions, embargoes, and anti-money laundering laws and regulations.

Various of our activities may be subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. Our reliance on independent distributors to sell our Platform internationally demands a high degree of vigilance in maintaining our policy against participation in corrupt activity, because these distributors could be deemed to be our agents, and we could be held responsible for their actions. Other U.S. companies in the medical device and pharmaceutical field have faced criminal penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with these individuals. We are also subject to similar anti-bribery laws in the other jurisdictions in which we operate, including the U.K.’s Bribery Act 2010, which also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. These laws are complex and far-reaching in nature, and, as a result, we cannot assure you that we would not be required in the future to alter one or more of our practices to be in compliance with these laws or any changes in these laws or the interpretation thereof. Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition, or results of operations or our reputation. We could also suffer severe penalties, including substantial criminal and civil penalties, imprisonment, disgorgement, reputational harm and other remedial measures.

Our activities in the United States subject us to various laws relating to foreign investment and the export of certain technologies, and our failure to comply with these laws or adequately monitor the compliance of our suppliers and others we do business with could subject us to substantial fines, penalties and even injunctions, the imposition of which on us could have a material adverse effect on the success of our business.

Because we have a U.S. subsidiary and substantial operations in the United States, we are subject to U.S. laws and regulations that regulate foreign investments in U.S. businesses and access by foreign persons to technology developed and produced in the U.S. These laws include Section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800, 801, and 802, as amended, administered by the Committee on Foreign Investment in the United States; and the Export Control Reform Act of 2018, which is being implemented in part through Commerce Department rulemakings to impose new export control restrictions on “emerging and foundational technologies” yet to be fully identified. Application of these laws, including as they are implemented through regulations being developed, may negatively impact our business in various ways, including by restricting our access to capital and markets; limiting the collaborations we may pursue; regulating the export, reexport, and transfer (in-country) of our products, services, and technology from the United States and abroad; increasing our costs and the time necessary to obtain required authorizations and to ensure compliance; and threatening monetary fines and other penalties if we do not.

 

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Intellectual Property Risks Related to Our Business

If we are unable to obtain and maintain patent and other intellectual property protection for products we develop and for our technology, or if the scope of intellectual property protection obtained is not sufficient, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize any products we may develop may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries for our Platform in its current or an updated form and other products. Patent law as applied to inventions in the fields in which we operate is complex and uncertain, so we cannot make any assurances that we will be able to obtain or maintain patent or other intellectual property rights, or that the patent and other intellectual property rights we may obtain will be valuable, provide an effective barrier to competitors or otherwise provide competitive advantages. If we are unable to obtain or maintain patent or other intellectual property protection with respect to our proprietary products, our business, financial condition, results of operations, and prospects could be materially harmed.

Changes in the patent laws or in the interpretation thereof in the United States and other countries may diminish our ability to protect our inventions and to obtain, maintain, and enforce our intellectual property rights; more generally, such changes could affect the value of our intellectual property, including by limiting the potential scope of patent coverage that we can obtain. We cannot predict whether any particular patent applications we are currently pursuing will be granted as a patent or whether the claims of any particular patents, if obtained, will provide sufficient exclusivity over our competitors.

The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications or patents at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patent-eligible aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with employees, consultants, and other parties who have access to confidential aspects of our research and development output, including aspects that may be patent-eligible, any of these parties may breach the agreements and disclose such output before we are able to file a patent application directed to the disclosed subject matter, thereby jeopardizing our ability to seek patent protection for that subject matter. In addition, 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 the priority date, or in some cases not at all prior to issuance. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

The patent position of companies in our industry generally is unsettled, involves complex legal and factual questions, and has been the subject of much litigation in recent years. Whether our pending and future patent applications will be granted and the scope, validity, enforceability, and commercial value of any patents we have obtained are highly uncertain. Our pending and future patent applications may not result in patents that protect any new products or our Platform in its current or an updated form. Our pending and future patent applications may not effectively prevent others from commercializing competitive products.

Moreover, the claim scope being pursued in a patent application may need to be significantly reduced or otherwise altered in order to achieve grant of a patent, and the scope of a patent can be reinterpreted after issuance. Even if a patent application is issued as a patent, the granted claims may not provide us with any meaningful protection, prevent others from competing with us, or otherwise provide us with any competitive advantage. Any patents that we hold may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any of our products will be protectable or remain protected by valid and enforceable patents. Our competitors and other third parties may be able to circumvent our patents by developing similar or alternative products and solutions in a non-infringing manner. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

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Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or impact our stock price.

Third parties may assert that we are using their patented or other proprietary technology without their authorization. As we continue to commercialize our Platform in its current or an updated form, launch new products, and enter new markets, we expect that, as part of business strategies designed to impede our successful commercialization and entry into new markets or otherwise, competitors will claim that our products or services infringe their intellectual property rights. Third parties, including, for example, one or more of our competitors listed in the Business section under the heading “Competition,” may have obtained, and may in the future obtain, patents under which such third parties may claim that the use of our technologies constitutes patent infringement. For example, we are aware of third-party patents in the United States and Europe expiring in 2021 that contain claims that may be relevant to our SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular test kits, which are commercially available in the United States (pursuant to an EUA) and in Europe. If a patent infringement action based on one or more of these patents were to be brought against us, we might have to argue that our kits or the manufacture or use thereof do not infringe any valid claim of the asserted patent(s); and there would be no assurance that a court would find in our favor on issues of infringement or validity of such patents. Furthermore, because a patent application generally is unavailable to the public until 18 months from the priority date (and, at least in the United States, can optionally be kept secret until the patent is granted), we have no way of knowing, at any given time, whether others have filed new patent applications directed to technologies that we or our collaborators will use.

Intellectual property litigation is costly, and even if we prevail, the substantial cost of such litigation could affect our business and financial condition. Intellectual property litigation may also be lengthy and time-consuming and may divert the attention of our management and technical personnel in defending ourselves against any of these claims. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our cash position, reputation and stock price. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize, and sell products. In the event of a successful claim against us of infringement or misappropriation, we may be required to pay substantial damages to and obtain one or more licenses from third parties, or we may be prohibited from selling certain products, all of which could have a material adverse impact on our cash position and business and financial condition. Moreover, any licenses that we are compelled to obtain may be nonexclusive, and therefore our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to sell some of our products, which could have a material adverse effect on our business and financial condition.

In addition, we may be unable to obtain any required licenses at a reasonable cost, if at all. We could therefore incur substantial costs relating to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. Moreover, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any required licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products would materially affect our ability to grow and maintain profitability and would have a material adverse impact on our business.

Developments in patent law could have a negative impact on our business.

Changes in either the patent laws or interpretation of patent laws could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of granted patents. From time to time, the United States Supreme Court, or the Supreme Court, other federal courts, the U.S. Congress, the U.S. Patent and Trademark Office, or the USPTO, or courts or patent offices or authorities in other jurisdictions may change the standards of patentability or patent eligibility, and any such changes could have a negative impact on our business. Generally, jurisdictions outside the United States have a “first to file” patent system. In the United States, prior to March 2013, the “first to invent” a claimed invention was entitled to the patent (assuming that all other requirements were met). Following the passage of the Leahy-Smith America Invents Act, or the America Invents Act, the United States transitioned to a “first inventor to file” system, under which the first inventor to file a patent application on an invention is entitled to the patent (assuming that all other requirements are met) even if another party was the first to invent the claimed invention. The America Invents Act also included a number of significant changes that affect the way patent applications are prosecuted and that also may affect patent litigation. These include the introduction of derivation proceedings; expansion of the permitted content of third-party submissions to

 

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the USPTO during patent prosecution; and additional procedures to challenge the validity of a patent after issuance, including post-grant review and inter partes review. The America Invents Act and its continued implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

In addition, the patent positions of companies in our industry are particularly uncertain. Recent Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. For example, diagnostic method claims and “gene patents” were considered in two landmark Supreme Court cases, Mayo Collaborative v. Prometheus Laboratories, or Prometheus, and Association for Molecular Pathology v. Myriad Genetics, or Myriad. In Prometheus, a case involving patent claims to a medical testing method directed to optimizing the amount of drug administered to a specific patient, patentee’s claims were deemed not to incorporate inventive content, above and beyond merely describing underlying natural correlations, sufficient to render the claimed processes patent-eligible. In Myriad, a case brought by multiple plaintiffs challenging the validity of patent claims relating to the breast cancer susceptibility genes BRCA1 and BRCA2, the court held that isolated genomic DNA that exists in nature, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent-eligible subject matter, but that cDNA, which is an artificial construct created from RNA transcripts of genes, may be patent eligible. The Federal Circuit has begun to apply the holdings in Prometheus and Myriad. For example, in 2015, the Federal Circuit in Ariosa v. Sequenom, or Ariosa, applying Prometheus, found claims to a prenatal diagnostic method that relied on a natural product to be patent ineligible. A number of appeals to the Federal Circuit in subsequent cases, such as Athena v. Mayo, or Athena, have been decided in a similar way.

We cannot fully predict what impact the Supreme Court’s decisions in Prometheus and Myriad and other decisions, such as the Federal Circuit’s decisions in Ariosa and Athena, may have on our ability or the ability of companies or other entities to obtain or enforce patents relating to diagnostic and therapeutic methods, DNA, genes, or genomic-related discoveries in the future. Despite the precedent set forth in these decisions, the contours of when claims reciting laws of nature, natural phenomena, or abstract ideas may meet the patent eligibility requirements are not clear and may take years to develop via application at the USPTO and interpretation in the courts. There are many patents claiming nucleic acids and diagnostic methods based on natural correlations that were issued before the recent Supreme Court decisions discussed above, and although many of these patents may be invalid under the standards set forth in the Supreme Court’s recent decisions, until successfully challenged, these patents are presumed valid and enforceable, and the patentees could allege that we infringe, or request that we obtain a license to, one or more of these patents. Whether the patents were issued prior to or after these Supreme Court decisions, we might have to defend ourselves against claims of infringement, or we might have to obtain licenses, if available. In any of the foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an injunction that would prevent us from using the patented subject matter in question if we are unable to obtain a license on reasonable terms or at all. Such outcomes could materially affect our ability to offer our products and services and could have a material adverse impact on our business. Even if we are able to obtain a license or to successfully defend against claims of patent infringement, the cost and distraction associated with the defense or settlement of these claims could have a material adverse impact on our business. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.

We may be unable to protect or enforce our intellectual property effectively, which could harm our competitive position.

Obtaining and maintaining a strong patent position is important to our business. No patent application is guaranteed to mature into a patent, and we cannot predict the total pendency of any application that does become a patent. Moreover, the granted patent rights may not be sufficiently broad to prevent others from marketing products similar to ours or from designing around our patents. Patent law relating to the scope and validity of claims in the technology fields in which we operate is complex and uncertain, so we cannot be certain that we will be able to obtain or maintain patent rights, or that the patent rights we may obtain will be valuable, provide an effective barrier to competitors, or otherwise provide competitive advantages. Others may have filed, and in the future may file, patent applications directed to subject matter similar or even identical to ours. To determine the priority of inventions or demonstrate that we did not derive our invention from another, we may have to participate in

 

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interference or derivation proceedings that could result in substantial costs in legal fees and could substantially affect the scope of our patent protection. We cannot be certain that our patent applications will prevail over those filed by others. Also, our intellectual property rights may be subject to other challenges by third parties. Patents we obtain could be challenged in litigation or in administrative proceedings such as ex parte reexamination, inter partes review, or post grant review in the United States or opposition proceedings in Europe or other jurisdictions and may be found to be invalid or unenforceable.

Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, and other governmental fees for patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the costs associated with complying with numerous procedural provisions during the patent application process. We may or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in irrevocable abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the respective jurisdiction. If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer.

Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or other proceedings against those who have infringed our patent rights, and we may or may not choose to monitor for infringing activity, taking into consideration the expense and time commitment associated with such enforcement and monitoring. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

We depend on trademarks to establish a market identity for our company and our Platform. To maintain the value of our trademarks, we may have to file lawsuits against third parties to prevent them from using trademarks confusingly similar to or dilutive of our registered or unregistered trademarks. We also may not obtain registrations for our pending or future trademark applications and might have to defend our registered trademarks and pending applications from challenges by third parties. Enforcing or defending our registered and unregistered trademarks might result in significant litigation costs and, if we are unsuccessful, might result in damages, including the inability to continue using certain trademarks.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to patent protection, we also rely upon trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information. For example, significant elements of our Platform, including, for example, the manufacture of our test strips, are protected by trade secrets and know-how that are not publicly disclosed. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and any recourse we may have against such misconduct may not result in a remedy that protects our interests fully. Enforcing a claim that a party has illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, information that is a trade secret may be independently developed by others, which would prevent legal recourse for us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information were to be independently developed by a competitor, our competitive position could be harmed.

Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation.

We may use open source software in connection with our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the use of open source

 

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software and/or compliance with open source licensing terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming noncompliance with open source licensing terms. Some open source software licenses require users who distribute software containing open source software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code, which could include valuable proprietary code of the user, on unfavorable terms or at no cost. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source licensing terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations and could help our competitors develop products and services that are similar to or better than ours.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some countries do not protect intellectual property rights to the same extent as do the laws of the U.K. or of the U.S. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain such countries. The legal systems of some countries, particularly low and middle income countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to medical diagnostics. This could make it difficult for us to prevent or stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against parties such as 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. Because patent and other intellectual property laws differ in each country, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the U.K. or the U.S. Accordingly, we may choose not to seek patent protection in certain countries, and if so, we will not have the benefit of patent protection in such countries. Moreover, we may not be able to predict all of the countries where patent protection ultimately will be desirable, for commercialization or marketing purposes or otherwise. If we fail to timely file a patent application for an invention in any country, we may be precluded from doing so at a later date, and we therefore would be unable to obtain patent protection for that invention in that country.

Additionally, the laws pertaining to patent ownership and assignment may differ from country to country. If we fail to obtain proper assignments for any inventions developed by us and/or our employees, or for any invention that we otherwise acquire rights to, we may lose rights to patent protection for those inventions, which may cause our competitive position to suffer.

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

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

Many of our employees, including members of our senior management, were previously employed at other diagnostic companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. 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.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be

 

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unsuccessful in obtaining such an agreement from each party who in fact develops intellectual property during the course of employment, consultancy, or contractual arrangement, respectively, which may result in claims by or against us relating to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.

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

Our pending and future trademark applications in the U.K., the U.S. and other jurisdictions may not be allowed or may be opposed. Once filed and registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic. Our use of our trademarks or trade names may be determined to infringe the trademarks or trade names of others. To enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. We may not ultimately be able to protect our trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. 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. 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, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to comply with our obligations under our licenses with third parties, we could lose license rights that are important to our business.

We are a party to license agreements pursuant to which we in-license certain patents and other intellectual property. Each of our existing licenses imposes various obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate the license, in which event we would not be able to use the licensed intellectual property.

We may have limited control over the maintenance and prosecution of these in-licensed rights, activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that is licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than had we conducted them ourselves.

Risks Relating to Our Financial Condition and Capital Requirements

We are an early, commercial-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

We are an early commercial-stage company and have a limited operating history. We began operations in 2014 under the original parent company of the group, LumiraDx Group Limited (incorporated in England and Wales) and the current parent company was incorporated in the Cayman Islands in 2016. Our limited operating history, particularly in light of our business model based upon sales of diagnostic tests enabled by our Platform, may make it difficult to evaluate our current business and predict our future performance. Any assessment of our profitability or prediction about our future success or viability is subject to significant uncertainty. We have encountered and will continue to encounter risks and difficulties frequently experienced by early, commercial-stage companies in rapidly evolving industries. If we do not address these risks successfully, our business will suffer.

We have a history of net losses. We may incur net losses in the future and we may never achieve sustained profitability.

We have historically incurred substantial net losses, including a net loss of $133.1 million in 2019. From our inception in 2014 through to December 31, 2019, we had an accumulated deficit of $369.9 million. Our losses

 

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may continue as a result of ongoing research and development expenses and increased sales and marketing costs. These losses have had, and may continue to have, an adverse effect on our working capital, total assets, and shareholders’ equity. Because of the numerous risks and uncertainties associated with our research, development, and commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations, and cash flows.

We may require additional capital to fund our existing operations, develop our Platform, commercialize new products and expand our operations as currently planned.

Based on our current business plan, we believe the net proceeds from this offering, together with our existing cash and cash equivalents and anticipated cash flow from operations, will be sufficient to meet our anticipated cash requirements for the foreseeable future. If our available cash balances, net proceeds from this offering, and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products as a result of lower than currently expected rates of reimbursement from commercial third-party payors and government payors or other risks described in this prospectus, we may seek to sell common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding, or seek other debt financing.

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:

 

   

increase our sales and marketing efforts to drive market adoption of our Platform and address competitive developments;

 

   

seek approvals, authorizations or clearances from regulatory authorities for our existing and new products;

 

   

fund development and marketing efforts of any future products;

 

   

rapidly expand our manufacturing, sales and marketing efforts, including for our SARS-CoV-2 tests;

 

   

expand our technologies to cover additional tests;

 

   

acquire, license or invest in technologies;

 

   

acquire or invest in complementary businesses or assets; and

 

   

finance capital expenditures and general and administrative expenses.

Our present and future funding requirements will depend on many factors, including:

 

   

our ability to achieve revenue growth;

 

   

the cost of rapidly expanding our operations and offerings, including our manufacturing, sales and marketing efforts;

 

   

our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of and reimbursement for our Platform;

 

   

our rate of progress in, and cost of research and development activities associated with, products in research and early development;

 

   

the effect of competing technological and market developments;

 

   

costs related to rapid international expansion;

 

   

our rate of progress in establishing reimbursement arrangements with domestic and international commercial third-party payors and government payors; and

 

   

the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.

The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our shareholders could result. Any equity securities issued also could provide for rights, preferences, or privileges senior to those of holders of our common shares. If we raise funds by issuing debt securities, those debt securities would have rights, preferences, and privileges senior to those of holders of our common shares. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our

 

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operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us.

The global financial markets have experienced a period of disruption and instability as a result of the COVID-19 pandemic, generally increasing the difficulty of accessing the capital and credit markets and resulting in intervention from national governments around the world. Accordingly, additional equity or debt financing might not be available on reasonable terms, if at all. If we cannot secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more research and development programs or sales and marketing initiatives. In addition, we may have to work with a third party on one or more of our development programs, which could lower the economic value of those programs to us.

Transformation into a public company may increase our costs and disrupt the regular operations of our business.

This offering will have a significant transformative effect on us. Our business historically has operated as a privately-owned company, and we expect to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded common shares. We will also incur costs which we have not incurred previously, including, but not limited to, costs and expenses for increased directors and officers insurance, investor relations, and various other costs of a public company.

We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to retain, recruit and bring on qualified board members. We expect that the additional costs we will incur as a public company, including costs associated with corporate governance requirements, will be considerable relative to our costs as a private company.

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.

Furthermore, after the date we are no longer an emerging growth company, our independent registered public accounting firm will only be required to attest to the effectiveness of our internal control over financial reporting depending on our market capitalization. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise capital, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price or cause it to be more volatile.

The ability of our U.S. subsidiaries to use net operating loss carryforwards and other tax attributes to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to annual limitations on its ability to use its pre-change net operating loss carryforwards or other tax attributes, or NOLs, to offset future taxable income or reduce taxes. We have not determined whether past changes in the ownership of our equity have resulted, or whether this offering could result, in an ownership change under Section 382 of the Code with respect to our U.S. subsidiaries. In addition, future

 

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changes in the ownership of our equity, some of which may be outside of our control, could result in ownership changes under Section 382 of the Code with respect to our U.S. subsidiaries. Furthermore, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to use a material portion of the NOLs, even if we attain profitability.

Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates.

Although a portion of our revenues is derived in U.S. dollars, most of our revenues are currently denominated in other currencies. In addition, we have raised funds in U.S. dollars but a large part of our costs is in Pound Sterling. Unfavorable fluctuations in foreign currency exchange rates could have a material adverse effect on our results of operations.

Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our net revenues, operating income and the value of balance-sheet items originally denominated in other currencies. These changes cause our growth in consolidated earnings stated in U.S. dollars to be higher or lower than our growth in local currency when compared against other periods.

As we continue to leverage our global delivery model, more of our expenses will be incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies against the U.S. dollar or U.K. pound sterling could increase costs for delivery of services at off-shore sites by increasing labor and other costs that are denominated in local currency. There can be no assurance that our contractual provisions will offset their impact, or that any future currency hedging activities, which are designed to partially offset this impact, will be successful. In addition, our future currency hedging activities could themselves be subject to risk. These could include risks related to counterparty performance under future hedging contracts and risks related to currency fluctuations. We also face risks that extreme economic conditions, political instability or hostilities or disasters of the type described below could impact our underlying exposures, perhaps eliminating them. Such an event could lead to losses being recognized on any future currency hedges then in place, not offset by anticipated changes in the underlying hedge exposure.

Risks Related to Our Common Shares

There is no existing market for our common shares, and we do not know whether one will develop to provide you with adequate liquidity. If our share price fluctuates after this offering, you could lose a significant part of the value of your investment.

Prior to this offering, there has not been a public market for our common shares. If an active trading market does not develop, you may have difficulty selling any of our common shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on The Nasdaq Global Market, or otherwise or how liquid that market might become. The initial public offering price for the common shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our common shares may be influenced by many factors, some of which are beyond our control, including:

 

   

the relative success of our commercial launch, supply chain issues or unexpected changes in the COVID-19 pandemic and resulting actions by governmental and non-governmental parties;

 

   

actual or anticipated variations in our operating results;

 

   

the failure of financial analysts to cover our common shares after this offering or changes in financial estimates by analysts;

 

   

changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors;

 

   

announcements by us or our competitors of significant contracts or acquisitions;

 

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future sales of our common shares; and

 

   

investor perceptions of us and the industries in which we operate.

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations.

The dual class structure of our ordinary shares and common shares has the effect of concentrating voting control with those shareholders who held our capital stock prior to the listing of our common shares on The Nasdaq Global Market, including our directors, executive officers and their respective affiliates, who will hold in the aggregate    % of the voting power of our capital stock as a result of this offering. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our then current memorandum and articles of association, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.

Our ordinary shares have ten votes per share on matters to be voted on by shareholders, and our common shares, which is the stock we are listing on the listing exchange and is being registered pursuant to the registration statement of which this prospectus forms a part, has one vote per share. Upon the effectiveness of the registration statement of which this prospectus forms a part, our directors, executive officers and their affiliates will hold in the aggregate    % of the voting power of our capital stock. Because of the ten-to-one voting ratio between our ordinary shares and common shares, the holders of our ordinary shares collectively could continue to control a significant percentage of the combined voting power of our common stock and therefore be able to control all matters submitted to our shareholders for their approval. This concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, the removal of the co-founder directors, amendments of our memorandum and articles of association, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval. This may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may believe are in your best interest as one of our shareholders. In addition, each of our co-founders (i.e., Ron Zwanziger, Dave Scott and Jerry McAleer) are directors and cannot be removed from the board absent the voting approval of the ordinary shares held by Ron Zwanziger, our Chief Executive Officer and co-founder, and his affiliates. Furthermore, the terms of our arrangements with BMGF, Morningside Venture Investments Limited, or Morningside, and CVS (which are described in further detail in the section titled “Related Party Transactions” below), grant each of BMGF, Morningside and CVS a right to appoint a director to our board of directors. Under the applicable agreements, the appointment rights shall terminate (i) in the case of BMGF or Morningside, once either party sells or no longer controls more than 25%; or (ii) in the case of CVS, once a sale or combination of sales results in it beneficially owning less than 75%, in each case of their respective initial holding of series A preferred shares (or ordinary shares following the conversion of such series A preferred shares into ordinary shares upon the completion of this offering).

Apart from in exceptional circumstances approved by our board of directors, with the prior written consent of Jefferies LLC and SVB Leerink LLC, or in the Limited Circumstances (summarized in the section titled “Description of Share Capital”), ordinary shares must be converted into common shares before they can be sold or transferred. The conversion of ordinary shares to common shares will have the effect, over time, of increasing the relative voting power of those holders of common shares who retain their shares in the long term. As a result, it is possible that one or more of the persons or entities holding our common shares could gain significant voting control as other holders of ordinary shares sell or otherwise convert their shares into common shares.

We do not expect to issue any additional ordinary shares following this offering except to meet commitments we agreed to prior to the date of this prospectus. Any future issuances of ordinary shares would be dilutive to holders of common shares.

 

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Sales of substantial amounts of our common shares in the public market, or the conversion of substantial amounts of ordinary shares into common shares for sale in the public market, or the perception that these sales and/or conversions may occur, could cause the market price of our common shares to decline.

Sales of substantial amounts of our common shares in the public market, or the conversion of substantial amounts of ordinary shares into common shares for sale in the public market, or the perception that these sales and/or conversions may occur, could cause the market price of our common shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our Amended and Restated Articles, we are authorized to issue up to                common shares, of which                common shares will be outstanding following this offering. Our directors and executive officers (holding, in the aggregate,         % of our outstanding equity share capital) have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any common shares or securities convertible into or exchangeable or exercisable for any common shares during the 180-day period following the date of the effectiveness of this registration statement. In addition, under our Amended and Restated Articles, subject to certain exceptions, our ordinary shares must be converted into common shares before being transferred and, apart from in exceptional circumstances that are approved by our board of directors, with the prior written consent of Jefferies LLC and SVB Leerink LLC or in the Limited Circumstances (summarized in the section titled “Description of Share Capital”), no conversion can occur for the 180-day period from the date of the effectiveness of this registration statement and holders of common shares which are issued (i) upon the conversion of the series B preferred shares upon the completion of this offering, (ii) upon the conversion of the 5% notes and the 10% notes, (iii) upon the exercise of any outstanding warrants (including the 2020 warrants, the Jefferies warrants and the Term Loan Warrants (including the SVB warrants)), or (iv) other than in connection with this offering will be subject to a 180-day lock-up period prohibiting such holders, subject to certain exceptions and apart from in exceptional circumstances that are approved by our board of directors, with the prior written consent of Jefferies LLC and SVB Leerink LLC or in the Limited Circumstances (summarized in the section titled “Description of Share Capital”), from selling, transferring, contracting to sell or otherwise disposing of (either directly or indirectly) any of these common shares for the 180-day period following the date of the effectiveness of this registration statement. See “Underwriting.” If, after the end of this 180-day period, shareholders who (i) own common shares sell substantial amounts of common shares in the public market or (ii) who own ordinary shares convert substantial amounts of the ordinary shares into common shares for sale in the public market, or the market perceives that such sales and/or conversions may occur, the market price of our common shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected. We have also entered into a registration rights agreement with certain of our shareholders pursuant to which we will agree under certain circumstances to file a registration statement to register the resale of the common shares held by certain of our existing shareholders, as well as to cooperate in certain public offerings of such common shares.

In addition, upon consummation of this offering, we intend to cease any new grants under our existing equity incentive plans and to adopt a new omnibus equity incentive plan under which we would have the discretion to grant a broad range of equity-based awards over common shares to eligible participants. We intend to register all common shares that we may issue under this equity incentive plan. Once we register these common shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates. If a large number of our common shares or securities convertible into our common shares are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common shares and impede our ability to raise future capital. We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our common shares.

We have broad discretion in the use of the net proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return on your investment.

Although we currently intend to use the net proceeds from this offering in the manner described in the section titled “Use of Proceeds” in this prospectus, our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common shares. We intend to use the net proceeds from this offering to expand our manufacturing capacity and our commercial operations, pursue new lines of business, fund other growth initiatives, and the remainder to fund our other current and future research and business development activities, general and administrative expenses, working capital and other general corporate purposes. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering. The failure by our management to apply

 

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these funds effectively could result in financial losses that could harm our business, cause the price of our common shares to decline and delay the further development and commercialization of our Platform. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

We cannot predict the effect our dual class structure may have on the market price of our common shares.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our common shares, in adverse publicity, or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices, including FTSE Russell and S&P Dow Jones which impacted indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under any such announced policies or future policies, the dual class structure of our shares could make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices would not invest in our common shares. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our common shares less attractive to other investors. As a result, the market price of our common shares could be adversely affected. It is unclear what additional effects such policies will have on the valuations of publicly-traded companies excluded from such indices, but it is possible that they may depress valuations, as compared to similar companies that are included or may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors or otherwise increase the volatility of the price of our common shares.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” For example, for as long as we are an “emerging growth company” under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to five years. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.” We cannot predict if investors will find our common shares less attractive because we will rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

We will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report

 

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on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses that we would not incur as a foreign private issuer.

We expect to qualify as a foreign private issuer upon the completion of this offering. As a foreign private issuer, we will be exempt from the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. If in the future we are not a foreign private issuer as of the last day of the second fiscal quarter in any fiscal year, we would be required to comply with all of the periodic disclosure, current reporting requirements and proxy solicitation rules of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our directors and executive officers may not be United States citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we were to lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. These rules and regulations could also make it more difficult for us to attract and retain qualified directors.

As a foreign private issuer and as permitted by the Nasdaq listing requirements, we follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.

The Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may, follow home country practice in lieu of the above requirements, or we may choose to comply with the Nasdaq listing exchange requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Since a majority of our board of directors may not consist of independent directors, fewer board members may be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, the Nasdaq listing rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements though we intend to have an audit committee comprising of three independent directors. The Nasdaq listing rules may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, as well as certain ordinary share issuances. We intend to comply with the requirements of Nasdaq listing rules for a foreign private issuer in determining whether shareholder approval is required on such matters. However, we may consider following home country practice in lieu of the requirements under the Nasdaq listing rules with respect to certain corporate governance standards which may afford less protection to investors.

We have identified material weaknesses in our internal control over financial reporting and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

In connection with the audits of our financial statements for the years ended December 31, 2018 and 2019, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses. A material weakness is a deficiency, or a 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.

 

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The material weaknesses specifically resulted from (i) insufficient segregation of duties related to the posting of manual journal entries and (ii) the lack of documented evidence for management review controls related to projected financial information used in non-recurring valuations and non-routine transactions.

We have insufficient segregation of duty related to the posting of manual journal entries. Additionally, where an independent review does occur, there is insufficient evidence to justify the operation of the control. These control failures are a result of resource constraints which result in inadequate staffing within the finance function to support sufficient segregation of duties and insufficient risk assessment procedures.

We lack documented evidence of review for management review controls related to projected financial information used in non-recurring valuations and non-routine transactions although reviews were performed by various levels of management. This lack of documented review is a result of controls that are not designed at a sufficient level of detail.

Although we have plans to add appropriate levels of staffing in the future, these material weaknesses have not been remediated as of the time of this prospectus.

Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of Sarbanes Oxley. In light of the material weaknesses that were identified in connection with the audits of our financial statements described above, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes Oxley, additional material weaknesses may have been identified.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Global Market.

We do not anticipate paying any cash dividends in the foreseeable future.

We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common shares. As a result, capital appreciation in the price of our common shares, if any, will be your only potential source of gain on an investment in our common shares.

The terms of the Senior Secured Loan between one of our subsidiaries, LumiraDx Group Limited, and Jefferies preclude us from paying cash dividends to our shareholders without the consent of Jefferies save that following an initial public offering, dividends can be made in an aggregate amount not to exceed 6% of the market capitalization of the company, provided that no event of default has occurred and is continuing and the Senior Secured Loan is prepaid in an equal amount.

New investors in our common shares will experience immediate and substantial book value dilution after this offering.

The initial public offering price of our common shares will be substantially higher than the pro forma net tangible book value per share of the outstanding common shares immediately after this offering. Based on an assumed initial public offering price of $            per common share (the midpoint of the price range set forth on the cover of this prospectus) and our net tangible book value as of June 30, 2020, if you purchase our common shares in this offering you will pay more for your shares than the amounts paid by our existing shareholders for their shares and you

 

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will suffer immediate dilution of $            per common share in pro forma net tangible book value. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation.

There are 16,528 common shares issuable upon exercise of the 2020 warrants and 1,000 common shares issuable upon exercise of the Jefferies warrants. In addition, as of June 30, 2020, there are 155,986 ordinary shares issuable upon the exercise of options with a weighted average exercise price of $623.90 per ordinary share and outstanding share purchase warrants for the purchase of up to 15,351 ordinary shares. These warrants are comprised of (i) warrants to purchase 13,067 ordinary shares at a fixed price of $611.63 per ordinary share pursuant to the 2016 warrants; and (ii) warrants to purchase 2,284 ordinary shares at a fixed price of $1,459.89 per ordinary share pursuant to the 2019 warrants. Our shareholders have also authorized us to issue up to 3,000 additional warrants to purchase up to 3,000 common shares (which includes the SVB warrants), at an exercise price to be determined by our board of directors, in connection with any incremental term loans to be entered into by us. To the extent these options and warrants are exercised this will increase the number of outstanding common shares or ordinary shares which are convertible to common shares and are therefore dilutive.

Shareholders will not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of common shares.

Our directors are authorized to issue common shares or grant rights to subscribe for common shares up to our authorized share capital from time to time. Our Amended and Restated Articles do not include any preemptive rights to entitle a shareholder to participate in any further issuances of common shares. This could cause existing shareholders to experience substantial dilution of their interest in us.

If equity or industry research analysts publish negative evaluations of our Company, including a downgrade of the price target of our common shares, the price of our common shares could decline. The trading market for our common shares relies in part on the research and reports that equity and industry research analysts publish about us or our business. We do not control these analysts. If one or more of the analysts covering our business downgrade their evaluations of our common shares, the price of our common shares could decline. If one or more of these analysts cease to cover our common shares, we could lose visibility in the market for our common shares, which in turn could cause our common shares price to decline.

If we were classified as a “passive foreign investment company” for U.S. federal income tax purposes, or a PFIC, U.S. holders of our common shares would be subject to adverse U.S. federal income tax consequences.

In general, we will be a PFIC for any taxable year in which either: (i) at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains, rents, and royalties, other than rents or royalties derived in the active conduct of a trade or business); or (ii) at least 50% of the quarterly average value of the gross assets held by us during such taxable year produce, or are held for the production of, passive income. For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any subsidiary corporation in which we own at least 25% of the value of the subsidiary’s stock.

Based on the current and expected composition of our income and assets and the value of our assets, we do not expect to be a PFIC for our current taxable year or in the foreseeable future. However, no assurances regarding our PFIC status can be provided for the current taxable year or any future taxable years. The determination of whether we are a PFIC for any taxable year is a fact-intensive determination that can only be made after the end of each year, and will depend on the composition of our income and assets and the value of our assets from time to time (including the value of our goodwill, which will generally be determined in part by reference to the market price of our common shares, which may fluctuate considerably). The composition of our income and assets will also be affected by the amount of cash that we raise in this offering and any future offerings or other financing transactions. Because the value of our goodwill will generally be determined by reference to our market capitalization, we could become a PFIC for any taxable year if the price of our common shares declines significantly while we hold a substantial amount of cash and financial investments. We also could become a PFIC if we do not generate sufficient income from our business in any taxable year (including our current taxable year) relative to the amount of passive income that we generate in such taxable year. In addition, the application of the PFIC rules is subject to some uncertainties and the proper characterization of certain items of our income and assets is not entirely clear.

 

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Accordingly, there can be no assurance that we will not be a PFIC for our current or any future taxable year. We express no belief regarding our PFIC status with respect to any U.S. holder that acquired equity interests (or options or other rights to acquire equity interests) in us prior to this offering.

If we were classified as a PFIC, a “U.S. holder” (as defined under “Certain U.S. Federal Income Tax Considerations for U.S. Holders” in this prospectus) of our common shares would be subject to adverse U.S. federal income tax consequences, including increased tax liability. In addition, for each year during which we were classified as a PFIC, a U.S. holder of our common shares would generally be required to file IRS Form 8621 with such U.S. holder’s U.S. federal income tax return to report certain information concerning its ownership of our common stock. Each U.S. holder of our common shares should consult its own tax advisor regarding the PFIC rules and should read the discussion under “Certain Material Income Tax Considerations—Certain U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment Company Rules” in this prospectus.

U.S. holders that own 10% or more of our equity interests may be subject to adverse U.S. federal income tax consequences under rules applicable to U.S. shareholders of controlled foreign corporations.

A non-U.S. corporation generally will be classified as a controlled foreign corporation for U.S. federal income tax purposes, or a CFC, if “10% U.S. equityholders” (as defined below) own, directly, indirectly or constructively, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. We do not believe that we would be classified as a CFC at the time of this offering, although CFC status is determined after taking into account complex constructive ownership rules and, accordingly, there can be no assurance in this regard. However, certain of our subsidiaries are classified as CFCs (as a result of the application of certain constructive ownership rules which treat our U.S. subsidiaries as owning the equity of those subsidiaries), and it is possible that we may be classified as a CFC in the future. The U.S. federal income tax consequences for U.S. holders who at all times are not 10% U.S. equityholders would not be affected by the CFC rules. However, a U.S. holder that owns (or is treated as owning, directly, indirectly or constructively, including by applying certain attribution rules) 10% or more of the combined voting power or value of all of classes of our equity interests (including equity interests attributable to deemed exercise of options and convertible debt instruments), or a 10% U.S. equityholder, would generally be subject to current U.S. federal income taxation on a portion of our applicable subsidiaries’ earnings and profits (as determined for U.S. federal income tax purposes) and our earnings and profits (if we were classified as a CFC), regardless of whether such 10% U.S. equityholder receives any actual distributions. In addition, if we were classified as a CFC, a portion of any gains realized on the sale of our common shares by a 10% U.S. equityholder may be treated as ordinary income. A 10% U.S. equityholder will also be subject to additional U.S. federal income tax information reporting requirements with respect to our subsidiaries that are classified as CFCs and with respect to us (if we were classified as a CFC) and substantial penalties may be imposed for noncompliance. Each U.S. holder should consult its own tax advisor regarding the CFC rules and whether such U.S. holder may be a 10% U.S. equityholder for purposes of these rules.

Changes in taxation legislation or practice may adversely affect the company and its group and the tax treatment for holders of common shares.

Any change in taxation legislation or practice in the U.K. or other jurisdictions to which the company and its group has exposure could adversely affect the value of the company and/or affect the post-tax returns to holders of common shares. Statements in this prospectus concerning the taxation of the company and taxation of holders of common shares are based upon current tax law and published practice any aspect of which is, in principle, subject to change that could adversely affect the company and its group and/or the taxation of holders of common shares, and which may have an adverse effect on the market value of the common shares.

There have been significant recent changes both made and proposed to international tax laws that increase the complexity, burden and cost of tax compliance for all multinational groups. The Organization for Economic Co-operation and Development, or OECD, is continuously considering recommendations for changes to existing tax laws. We expect to continue to monitor these and other developments in international tax law which may adversely affect the company and its group and after-tax returns to holders of common shares.

In particular, the tax risks to the company and its group and to holders of common shares may be affected by the OECD’s Action Plan on Base Erosion and Profit Shifting, or the BEPS Action Plan. The aim of the BEPS Action Plan is that jurisdictions should change their domestic tax laws and introduce additional or amended provisions in double taxation treaties. Examples of possible outcomes of the BEPS Action Plan could be that the ability of entities such

 

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as the company and members of its group to benefit from reliefs under double taxation treaties, or to obtain tax deductions for finance costs, could be adversely affected, potentially increasing the effective tax rate of the group. The development of the BEPS Action Plan is ongoing and may take different forms. Although final reports on all action points were published on October 5, 2015, in many areas work continues on aspects of the recommendations, so the full detail is not yet resolved, and it is unclear whether, when, how and to what extent certain jurisdictions will decide to adopt those recommendations and different jurisdictions may implement any such recommendations in different ways. On July 12, 2016, the European Council formally adopted a directive containing a package of measures to combat tax avoidance, or ATAD. The scope of ATAD was amended and widened by a further directive formally adopted by the European Council on May 29, 2017, or ATAD 2. The implementation of ATAD and/or ATAD 2, which (among other initiatives) requires implementation of certain recommendations of the BEPS Action Plan within the E.U., may adversely affect the company and its group.

In addition, further work is currently being undertaken by the OECD on potential future recommendations related to the challenges arising from the digitalization of the global economy, specifically relating to reform of the international allocation of taxing rights, or Pillar One, and a system ensuring a minimum level of tax for multinational enterprises, or Pillar Two, which may result in additional adverse tax consequences for the company and its group.

Recently introduced economic substance legislation of the Cayman Islands may adversely impact us or our operations.

The Cayman Islands, together with several other non-E.U. jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the E.U. as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Cooperation (Economic Substance) Act, (as revised), or the Substance Act, came into force in the Cayman Islands introducing certain economic substance requirements for in-scope Cayman Islands entities which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of financial years commencing July 1, 2019, onwards. As we are a Cayman Islands company, compliance obligations include filing annual notifications for the Company, which need to state whether we are carrying out any relevant activities and if so, whether we have satisfied economic substance tests to the extent required under the Cayman Economic Substance Act. As it is a new regime, it is anticipated that the Substance Act will evolve and be subject to further clarification and amendments. We may need to allocate additional resources to keep updated with these developments, and may have to make changes to our operations in order to comply with all requirements under the Substance Act. Failure to satisfy these requirements may subject us to penalties under the Substance Act.

We expect the company and LumiraDx Group Limited to operate so as to be treated solely as a resident of the U.K. for tax purposes, but changes to our management and organizational structure and/or to the tax residency laws of other jurisdictions where we operate may cause the relevant tax authorities to treat the company as also being a resident of another jurisdiction for tax purposes.

Under current U.K. tax law, if the location of a company’s central management and control is in the U.K., or if a company is incorporated in the U.K., it is regarded as resident for tax purposes in the U.K. unless (i) it is concurrently treated as resident for tax purposes in another jurisdiction (applying the rules of that other jurisdiction for determining tax residency) that has a double tax treaty with the U.K. and (ii) there is a residency tie-breaker provision in that tax treaty which allocates tax residence to that other jurisdiction.

Based upon our anticipated management and organizational structure, we believe that the company and LumiraDx Group Limited (and the other U.K. incorporated companies in the group) should be regarded as tax resident solely in the U.K. However, because this analysis is highly factual and may depend on future changes in our management and organizational structure, as well as future changes in the tax residency laws of other jurisdictions where we operate, there can be no assurance regarding the determination of the tax residence of such companies in the future.

Should any such company be treated as resident in a jurisdiction other than the U.K. it could be subject to taxation in that jurisdiction and may be required to comply with a number of material and formal tax obligations, including withholding tax and/or reporting obligations provided under the relevant tax law, which could result in additional costs and expenses.

 

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We are a Cayman Islands company. Because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, shareholders may have fewer shareholder rights than they would have under U.S. law.

Our corporate affairs are governed by our then current memorandum and articles of association (as may be amended from time to time), the Companies Act (as revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of directors are to a large extent governed by the common law of the Cayman Islands. This common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities law than the United States. In addition, some states in the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies with the exception that the shareholders may request a copy of our then current memorandum and articles of association. Under our Amended and Restated Articles, our directors have discretion to determine whether or not, and under what conditions, our corporate records may be inspected by shareholders, but are not obliged to make them available to shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion. As a result, you may be limited in your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in a United States federal court. As a result of all of the above, shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board or controlling shareholders than they would as shareholders of a U.S. company.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law.

We expect to conduct a significant portion of our operations outside the United States through our subsidiaries. The majority of our directors and executive officers reside outside the United States and a majority of the group’s assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

Anti-takeover provisions in our Amended and Restated Articles may discourage, delay or prevent a change in control.

Some provisions in our Amended and Restated Articles, may discourage, delay or prevent a change in control of our company or management that holders of our common shares may consider unfavorable, including, among other things, the following:

 

   

provisions that permit our board of directors by resolution to issue undesignated classes of shares with such preferred, deferred or other special rights or restrictions as the board of directors may determine in their discretion, without any further vote or action by our shareholders. If issued, the rights, preferences, designations and limitations of any class of undesignated shares could operate to the disadvantage of the outstanding ordinary or common shares the holders of which would not have any pre-emption rights in respect of such an issue of undesignated shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers;

 

   

our shareholders may not take action by written consent, but may only take action at annual or extraordinary meetings of our shareholders. As a result, a holder controlling a majority of our share capital would not be able to amend our Amended and Restated Articles or remove directors without holding a meeting of our

 

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shareholders called in accordance with our Amended and Restated Articles. Our Amended and Restated Articles will further provide that special meetings of our shareholders may be called only by shareholders holding not less than one-third of the voting rights who are entitled to vote at general meetings. However, shareholders may propose only ordinary resolutions to be put to a vote at such a meeting and shall have no right to propose resolutions with respect to the election, appointment or removal of any person as a director or to amend our Amended and Restated Articles. Our Amended and Restated Articles will provide no other right to put any proposals before an annual general meeting or an extraordinary general meeting. These provisions might delay the ability of our shareholders to force consideration of a proposal or for shareholders controlling a majority of our share capital to take any action, including the removal of directors;

 

   

our board of directors is classified into three classes of directors (being the Founder Directors, the Class I directors and the Class II directors). A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for shareholders to replace a majority of the directors on a classified board of directors. See the section titled “Management—Board of Directors”. Shareholders may only remove the Class I directors and Class II directors for cause by way of passing a special resolution; and

 

   

each of our co-founders are directors of the company and cannot be removed from the board absent the voting approval of the ordinary shares held by Ron Zwanziger, our Chief Executive Officer and co-founder, and his affiliates. This provision would prevent shareholders from removing any of the co-founders from their respective positions on the board.

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association and have been provided for in the Amended and Restated Articles, subject to the restrictions described therein. Advance notice of at least 21 clear days is required for the convening of our annual general shareholders’ meeting and at least 14 clear days’ notice of any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least two shareholders present or by proxy, representing not less than one-third in nominal value of the total issued voting shares in the company. To the extent that shareholders hold in aggregate less than one-third of the outstanding voting shares in the company, they cannot call general meetings or annual general meetings. To the extent that shareholders hold in the aggregate one third of the outstanding voting shares of the Company, as set out above, an extraordinary general meeting may be convened but shareholders cannot include matters for consideration at such a meeting requiring the approval of a special resolution or are matters relating to the election, appointment, removal of any person as a director or to amend our Amended and Restated Articles.

We may become subject to taxation in the Cayman Islands which would negatively affect our results.

We have received an undertaking from the Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Act (as revised) of the Cayman Islands, for a period of 20 years from the date of grant of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on or in respect of the shares, debentures or other obligations of our Company or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by our Company to its members or a payment of principal or interest or other sums due under a debenture or other obligation of our Company. If we otherwise were to become subject to taxation in the Cayman Islands, our financial condition and results of operations could be materially and adversely affected. See “Certain Material Income Tax Considerations—Cayman Islands Taxation.”

There may be a risk of us being subject to tax in jurisdictions in which we do not currently consider ourselves to have any tax resident subsidiaries or permanent establishments.

Our tax treatment is dependent, among other things, on the jurisdiction of our residence, including the residence of our subsidiaries, for tax purposes. We are a Cayman Islands exempted company with limited liability, resident in U.K. for tax purposes. We attempt to manage our business such that each of our subsidiaries is resident for tax purposes solely in its jurisdiction of incorporation, and does not unintentionally create a taxable permanent establishment or other taxable presence in any other jurisdiction.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains express or implied forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may”, “might”, “will”, “could”, “would”, “should”, “expect”, “intend”, “plan”, “objective”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” and “ongoing”, or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this prospectus are based upon information available to our management as of the date of this prospectus and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our estimates regarding our expenses, future revenue, capital requirements and needs for additional financing;

 

   

our strategy to globally launch a broad menu of tests, which is wholly dependent on our ability to obtain regulatory approvals, clearances and authorizations for each test, which involve difficult and lengthy processes, and which we may never obtain;

 

   

our expectations regarding the size of the POC market for our Platform, the size of the various addressable markets for certain of our tests and our ability to penetrate such markets by driving the conversion of healthcare providers’ testing needs onto our Platform;

 

   

our commercialization strategy, including our plans to initially focus our sales efforts on large healthcare systems, government organizations and national pharmacy chains that want to deploy comprehensive POC testing across their networks;

 

   

our belief that we will be able to drive commercialization of our Platform through the launch of our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests;

 

   

the willingness of healthcare providers to use a POC system over central lab systems and the rate of adoption of our Platform by healthcare providers and other users;

 

   

the scalability and commercial viability of our manufacturing methods and processes, especially in light of the anticipated demand for our Platform and our minimum commitments to supply our Platform to customers;

 

   

our ability to source suitable raw materials and components for the manufacture of our Instrument and test strips in a timely fashion;

 

   

our ability to maintain our current relationships, or enter into new relationships, with diagnostics or R&D companies, third party manufacturers and commercial distribution collaborators;

 

   

our ability to effectively manage our anticipated growth;

 

   

our ability to rapidly develop and commercialize diagnostics tests that are accurate and cost-effective;

 

   

the timing, progress and results of our diagnostics tests, including statements regarding launch plans, commercialization plans and prospectus for such tests, all which may be delayed by or halted due to a number of factors, including the impact of the COVID-19 pandemic;

 

   

the timing, scope or likelihood of regulatory submissions, filings, approvals, authorizations or clearances;

 

   

the pricing, coverage and reimbursement of our Instrument and tests, if approved;

 

   

our ability to repay or service our debt obligations and meet the financial covenants related to such debt obligations;

 

   

our ability to enforce our intellectual property rights and to operate our business without infringing, misappropriating, or otherwise violating the intellectual property rights and proprietary technology of third parties;

 

   

developments and projections relating to our competitors and our industry;

 

   

our expectations related to the use of proceeds from this offering;

 

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our ability to develop effective internal controls over financial reporting as we transition to become a publicly-traded company;

 

   

our ability to attract and retain qualified employees and key personnel;

 

   

the effects of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business or operations;

 

   

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and a foreign private issuer;

 

   

the future trading price of our common shares and impact of securities analysts’ reports on these prices; and

 

   

other risks and uncertainties, including those listed in the section titled “Risk Factors”.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. 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. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements contained in this prospectus speak only as of the date of this prospectus and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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 our forward-looking statements by these cautionary statements.

 

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MARKET AND INDUSTRY DATA

Certain information included in this prospectus concerning our industry, including our total addressable market, the volume of tests and the shift of tests from the central lab to the POC are based on our good faith estimates and assumptions derived from management’s knowledge of the industry and other information currently available to us. This prospectus also includes industry and market data that we have obtained from periodic industry publications, third-party studies and surveys and other filings of public companies in our industry. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. This industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein. We are responsible for all of the disclosure contained in this prospectus, and we believe the industry and market data that we obtained from third-party sources are reliable.

The industry in which we operate, as well as the projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate, are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus, that could cause results to differ materially from those expressed in these estimates. Due to the inherent uncertainties described above, potential investors are cautioned not to place undue emphasis on market and industry data in this prospectus.

 

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USE OF PROCEEDS

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

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $                million, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 in the number of common shares offered would increase (decrease) the net proceeds to us from this offering by $                million, assuming the assumed initial public offering price remains the same.

We expect to use the net proceeds from this offering in the following way:

 

   

approximately $                million to expand our manufacturing capacity with additional manufacturing systems and facilities;

 

   

approximately $                 million to continue the development and commercialization of our Amira System and to scale up our manufacturing capacity of the Amira System;

 

   

approximately $                million to expand our commercial operations, including hiring of personnel for direct sales, customer support and marketing capabilities;

 

   

approximately $                million to pursue new lines of business, including allergy, toxicology, fertility, veterinary and in-patient hospital testing;

 

   

approximately $                million to fund other growth initiatives, including our overall infrastructure and acquisitions of diagnostic distribution businesses for rapid geographical expansion; and

 

   

any remainder to fund our other current and future research and business development activities, general and administrative expenses, working capital and other general corporate purposes.

Our expected use of the net proceeds from this offering reflects our intentions based upon on our current plans and business conditions, which could change in the future as our plans and business conditions evolve. If the demand on our manufacturing capacity or expansion of our commercial operations exceeds our plans or requires more time or resources than we currently anticipate, we may allocate additional proceeds from this offering, together with cash flows from our operations and our existing cash and cash equivalents, to fund such expansion. We do not expect to use the net proceeds from this offering to develop any individual test. We may also use a portion of the net proceeds to in-license, acquire, or invest in additional businesses, technologies, products or assets. We cannot predict with certainty all of the particular uses for the net proceeds from this offering or the amounts that we will actually spend on the uses set forth above. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Based on our current plans, we believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents and cash flows from our operations, will be sufficient to enable us to fund our operations and capital expenditure requirements for at least the foreseeable future (being the next 24 months). We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

Pending our use of proceeds from this offering, we plan to invest these net proceeds in a variety of capital preservation instruments, including short-term, interest bearing obligations and investment-grade instruments. We cannot predict whether such investments will yield a favorable return.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividend on our ordinary shares, and we do not anticipate declaring or paying any cash dividends on our common shares or ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the commercialization of our products and expansion of our business. See the section titled “Risk Factors—We do not anticipate paying any cash dividends in the foreseeable future.”

We are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon cash dividends, distributions and other transfers from our subsidiaries to make dividend payments, and such subsidiaries may be restricted in their ability to pay dividends or distributions, or make other transfers to us. In addition, the terms of the Senior Secured Loan between one of our subsidiaries, LumiraDx Group Limited, and Jefferies preclude us from paying cash dividends to our shareholders without the consent of Jefferies save that following an initial public offering, dividends can be made in an aggregate amount not to exceed 6% of the market capitalization of the company; provided that no event of default has occurred and is continuing and the Senior Secured Loan is prepaid in an equal amount.

However, if we do pay a cash dividend on our common shares or ordinary shares in the future, we may only pay such dividend out of our profits available for distribution or (subject to applicable solvency requirements) share premium or contributed surplus under Cayman Islands law. Our board of directors has complete discretion regarding the declaration and payment of dividends, and our co-founders will be able to influence our dividend policy. The amount of any future dividend payments we may make will depend on, among other factors, our strategy, future earnings, financial condition, cash flow, working capital requirements, capital expenditures, contractual restrictions and applicable provisions of our Amended and Restated Articles.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2020 on:

 

   

an actual basis;

 

   

on a pro forma basis to give effect to:

 

   

the issuance of 212,718 ordinary shares upon the conversion of the series A preferred shares;

 

   

the issuance of                  common shares upon the conversion of the series B preferred shares;

 

   

the issuance of 41,797 common shares upon the conversion of the 5% notes;

 

   

the issuance of 31,098 common shares upon the conversion of the 10% notes; and

 

   

the borrowing of $100 million under the Senior Secured Loan, part of which was used to prepay the 11.5% notes; and

 

   

on a pro forma as adjusted basis to give further effect to the issuance and sale of                common shares in this offering.

The pro forma as adjusted calculations assume an initial public offering price of $                 per common share, which is 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 pro forma as adjusted information presented below is illustrative only and our capitalization following this offering will change based on the actual initial public offering price, other terms of this offering determined at pricing and any accrued dividends on our series A preferred shares and series B preferred shares as of the closing date of this offering. Cash and cash equivalents are not components of our total capitalization. You should read this information together with our audited consolidated financial statements and related notes appearing elsewhere in this prospectus and the information set forth in the sections titled “Selected Consolidated Financial Data,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

     AS OF JUNE 30, 2020  
     ACTUAL     PRO FORMA      PRO FORMA
AS ADJUSTED (1)
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 47,013                                         
  

 

 

   

 

 

    

 

 

 

Series A 8% cumulative convertible preferred shares, $0.001 par value; 250,000 shares authorized, 212,718 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

   $ 263,205       

Senior secured loans

     37,785       

Unsecured loan

     18,000       

Convertible debt (2)

     57,256       
  

 

 

   

 

 

    

 

 

 

Equity:

       

Ordinary shares, $0.001 par value; 5,000,000 shares authorized, 373,652 shares issued and outstanding, actual; 5,000,000 shares authorized,                 shares issued and outstanding, pro forma;                 shares authorized,                 issued and outstanding, pro forma as adjusted

     152,691       

Common shares, $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding, actual; 5,000,000 shares authorized,                 shares issued and outstanding, pro forma;                 shares authorized,                 issued and outstanding, pro forma as adjusted

           

Foreign currency translation reserve

     15,632       

Other reserves

     66,883       

Accumulated deficit

     (475,018     
  

 

 

   

 

 

    

 

 

 

Total equity attributable to equity holders of the parent

     (239,812     

Non-controlling interests

     (438     
  

 

 

      

Total equity

     (240,250     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 135,996       
  

 

 

   

 

 

    

 

 

 

 

 

 

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(1)    Each $1.00 increase (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total equity and total capitalization by                $                million, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 in the number of common shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total equity and total capitalization by $                million, assuming no change in the assumed initial public offering price per common share.
(2)   The 10% notes were issued in July 2020 and therefore are not reflected under actual convertible debt as of June 30, 2020.

The number of common shares and ordinary shares outstanding in the table above does not include:

 

   

155,986 ordinary shares issuable upon the exercise of options outstanding as of June 30, 2020 with a weighted average exercise price of $623.90 per ordinary share;

 

   

13,067 ordinary shares issuable upon exercise of the 2016 warrants outstanding as of June 30, 2020 at an exercise price of $611.63 per ordinary share;

 

   

2,284 ordinary shares issuable upon exercise of the 2019 warrants outstanding as of June 30, 2020 at an exercise price of $1,459.89 per ordinary share;

 

   

16,528 common shares issuable upon exercise of the 2020 warrants at an exercise price of $1,793.38 per common share;

 

   

1,000 common shares issuable upon exercise of the Jefferies warrants at an exercise price equal to either (i) if completion of this offering occurs on or before January 31, 2021, a price equal to the price per common share issued pursuant to this offering (before deducting underwriting discounts, commissions and expenses) less a discount of 20% or (ii) if completion of this offering has not occurred on or before January 31, 2021, $4,644.969 per common share;

 

   

up to 3,000 common shares issuable upon exercise of the Term Loan Warrants (including the SVB warrants) to be issued in connection with any incremental term loans, in an aggregate amount of up to $150 million to be borrowed in accordance with the Senior Secured Loan. As of January 15, 2021, SVB has agreed to make available to our subsidiary, LumiraDx Group Limited, $40 million in incremental term loans under and on substantially the same terms as the Senior Secured Loan;

 

   

68,310 ordinary shares in the aggregate issuable upon exercise of options granted to our founders at an exercise price equal to either (i) if the public filing of this registration statement in connection with this offering occurs on or before January 31, 2021, an exercise price per ordinary share equal to the greater of (A) the public offering price per common share and (B) an exercise price per ordinary share reflecting a Company valuation of $4 billion, or (ii) if the public filing of this registration statement has not occurred on or before January 31, 2021, an exercise price per ordinary share reflecting a Company valuation of $5.2 billion; and

 

   

                 common shares reserved for future issuance under our 2021 Stock Option and Incentive Plan, which will become effective upon the effectiveness of this registration statement.

 

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DILUTION

If you invest in our common shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per common share in this offering and the pro forma as adjusted net tangible book value per common share after this offering. As of June 30, 2020, we had a historical net tangible book value of $(282.2) million, or $(755.27) per ordinary share. Our net tangible book value per share represents total tangible assets less total liabilities, divided by the number of ordinary shares outstanding on June 30, 2020.

After giving effect to (i) the conversion of all outstanding series A preferred shares into an aggregate of 212,718 ordinary shares upon the completion of this offering, (ii) the conversion of all outstanding series B preferred shares into                 common shares upon the completion of this offering, (iii) the issuance of 41,797 common shares upon the conversion of the 5% notes, (iv) the issuance of 31,098 common shares upon the conversion of the 10% notes, (v) the borrowing of $100 million under the Senior Secured Loan, part of which was used to prepay the 11.5% notes, and (vi) the sale of                common shares in this offering at an assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the 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 at June 30, 2020 would have been $                per common share. This represents an immediate increase in pro forma as adjusted net tangible book value of $                per common share to new investors and immediate dilution of $                per common share to new investors. The following table illustrates this dilution to new investors purchasing common shares in this offering:

 

 

 

Assumed initial public offering price per common share

     $                    

Historical net tangible book deficit per common share as of June 30, 2020

   $ (755.27  

Increase per common share attributable to the pro forma adjustments described above

        
  

 

 

   

Pro forma net tangible book value per share as of June 30, 2020

     (755.27  

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common shares in this offering

    
  

 

 

   

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

    
    

 

 

 

Dilution per share to new investors purchasing common shares in this offering

     $    
    

 

 

 

 

 

The pro forma as adjusted information is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $                per common share, and would increase (decrease) dilution to new investors by $                per share, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 in the number of common shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $                per common share, and would increase (decrease) dilution to new investors by $                per common share, based on the assumed initial public offering price per common share.

If the underwriters exercise their option to purchase additional common shares in full, the pro forma as adjusted net tangible book value per common share would be $                , the increase in net tangible book value per common share to existing shareholders would be $                 and the immediate dilution in net tangible book value per common share to new investors in this offering would be $                , assuming an initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions ad estimated offering expenses payable by us.

The following table summarizes, on the pro forma as adjusted basis giving effect to (i) the conversion of all series A preferred shares into an aggregate of 212,718 ordinary shares upon the completion of this offering, (ii) the

 

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conversion of all series B preferred shares into                 common shares upon completion of this offering, (iii) the issuance of 41,797 common shares upon the conversion of the 5% notes, (iv) the issuance of up to                  common shares upon the conversion of the 10% notes, (v) the borrowing of $100 million under the Senior Secured Loan, part of which was used to prepay the 11.5% notes, and (vi) the sale of                common shares in this offering at an assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, the differences between the existing shareholders and the new investors in this offering with respect to the number of shares purchased from us, the total consideration paid to us and the average price per common share, based on an assumed initial public offering price of $                per common share, which is 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.

 

 

 

     SHARES
PURCHASED
    TOTAL
CONSIDERATION
    AVERAGE
PRICE
PER
SHARE
 
     NUMBER      PERCENT     AMOUNT      PERCENT  

Existing shareholders

                                $                             $                

New investors purchasing common shares in this offering

             $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $          100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $                million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by                percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by                percentage points, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 in the number of common shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $                million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by                  percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by                percentage points, assuming no change in the assumed initial public offering price per common share.

If the underwriters exercise their option to purchase additional common shares in full, the percentage of shares held by existing shareholders will decrease to                % of the total number of shares outstanding after this offering, and the number of shares held by new investors will be increased to                , or    % of the total number of shares outstanding after this offering.

The table and discussion above exclude:

 

   

155,986 ordinary shares issuable upon the exercise of options outstanding as of June 30, 2020 with a weighted average exercise price of $623.90 per ordinary share;

 

   

13,067 ordinary shares issuable upon exercise of the 2016 warrants at outstanding as of June 30, 2020 an exercise price of $611.63 per ordinary share;

 

   

2,284 ordinary shares issuable upon exercise of the 2019 warrants outstanding as of June 30, 2020 at an exercise price of $1,459.89 per ordinary share;

 

   

16,528 common shares issuable upon the exercise of the 2020 warrants at an exercise price of $1,793.38 per common share;

 

   

1,000 common shares issuable upon exercise of the Jefferies warrants at an exercise price equal to either (i) if completion of this offering occurs on or before January 31, 2021, a price equal to the price per common share issued pursuant to this offering (before deducting underwriting discounts, commissions and expenses) less a discount of 20% or (ii) if completion of this offering has not occurred on or before January 31, 2021, $4,644.969 per common share;

 

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up to 3,000 common shares issuable upon exercise of the Term Loan Warrants (including the SVB warrants) to be issued in connection with any incremental term loans, in an aggregate amount of up to $150 million to be borrowed in accordance with the Senior Secured Loan. As of January 15, 2021, SVB has agreed to make available to our subsidiary, LumiraDx Group Limited, $40 million in incremental term loans under and on substantially the same terms as the Senior Secured Loan;

 

   

68,310 ordinary shares in the aggregate issuable upon exercise of options granted to our founders at an exercise price equal to either (i) if the public filing of this registration statement in connection with this offering occurs on or before January 31, 2021, an exercise price per ordinary share equal to the greater of (A) the public offering price per common share and (B) an exercise price per ordinary share reflecting a Company valuation of $4 billion, or (ii) if the public filing of this registration statement has not occurred on or before January 31, 2021, an exercise price per ordinary share reflecting a Company valuation of $5.2 billion; and

 

   

                 common shares reserved for future issuance under our 2021 Stock Option and Incentive Plan, which will become effective upon the effectiveness of this registration statement.

To the extent that common shares are issued under our outstanding warrants or options are issued under our existing plans, or we issue additional ordinary shares or common shares in the future, there will be further dilution to our existing shareholders and investors participating in this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present our selected consolidated financial data as of the dates and for the periods indicated. We derived the selected consolidated statement of profit and loss and comprehensive income data for the years ended December 31, 2018 and 2019 and for the six months ended June 30, 2019 and 2020, and the selected consolidated statement of financial position data as of December 31, 2018 and 2019 and as of June 30, 2019 and 2020 from our audited consolidated financial statements and unaudited interim financial statements, as applicable, included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the information under the sections titled “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

 

    YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
    2018     2019     2019     2020  
    (in thousands)     (in thousands)  

Consolidated Statement of Profit and Loss and Comprehensive Income

 

     

Revenue:

       

Products

  $ 17,719     $ 19,802     $ 8,873     $ 10,630  

Services

    4,838       3,340       2,276       2,320  

Software

    2,829                    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    25,386       23,142       11,149       12,950  

Cost of sales:

       

Products

    (9,592     (12,469     (5,379     (6,518

Services

    (4,265     (1,853     (977     (943

Software

    (737                  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

    (14,594     (14,322     (6,356     (7,461
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    10,792       8,820       4,793       5,489  

Operating expenses:

       

Research and development expenses

    (66,708     (86,546     (40,796     (51,924

Selling, marketing and administrative expenses

    (33,365     (37,294     (16,736     (18,087
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

    (100,073     (123,840     (57,532     (70,011
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (89,281     (115,020     (52,379       (64,522
 

 

 

   

 

 

   

 

 

   

 

 

 

Finance income (expense):

       

Finance income

    875       11,705       504       510  

Finance expense

    (38,901     (39,335     (21,244     (47,626
 

 

 

   

 

 

   

 

 

   

 

 

 

Total finance expense, net

    (38,026     (27,630     (20,740     (47,116

Loss before provision for income taxes

    (127,307     (142,650     (73,479     (111,638

Tax credit for the period

    12,098       9,541       4,684       4,670  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (115,209   $ (133,109   $ (68,795     (106,968
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to non-controlling interest

    (55     (302     (72     (249
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to equity holders of parent—basic and diluted

  $ (115,154   $ (132,807   $ (68,723   $ (106,719
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to equity holders of parent—basic and diluted

  $ (305.80   $ (356.59   $ (184.78   $ (286.28
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of ordinary shares used in loss per share—basic and diluted

    376,563       372,431       371,908       373,652  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to ordinary shares—basic and diluted (1)

       
   

 

 

     

 

 

 

Pro forma weighted average ordinary shares outstanding—basic and diluted (1)

       
   

 

 

     

 

 

 

 

 

 

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(1)    The unaudited pro forma as adjusted information presented above is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. The unaudited pro forma as adjusted information data gives effect to the issuance and sale of                common shares in this offering by us at an assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the application of the net proceeds of this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds.” Each $1.00 increase (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total equity by                $                million, assuming that the number of common shares 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. An increase (decrease) of 1,000,000 in the number of common shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total equity by $                million, assuming the assumed initial public offering price per common share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes our consolidated statement of financial position as of June 30, 2020 on an actual basis and on a pro forma as adjusted basis giving effect to this offering.

 

 

 

     AS OF JUNE 30, 2020  
     ACTUAL      PRO FORMA (1)      PRO FORMA
AS ADJUSTED (2)
 
     (in thousands)  

Consolidated Statement of Financial Position

        

Cash and cash equivalents

   $ 47,013      $                        $                    

Working capital (3)

     50,930        

Total assets

     183,967        

Total liabilities (4)

     424,217        

Total equity

     240,250        

 

 

(1)   The unaudited pro forma information presented above gives effect to (i) the issuance of 212,718 ordinary shares upon the conversion of the series A preferred shares at a conversion price of $                 per series A preferred share for an aggregate principal amount of $                , (ii) the conversion of all outstanding series B preferred shares into                 common shares upon the completion of this offering, (iii) the issuance of 41,797 common shares upon the conversion of the 5% notes at a price of $1,793.38 per common share for an aggregate principal amount of $75,155,586, (iv) the borrowing of $100 million under the Senior Secured Loan, part of which was used to prepay the 11.5% notes and (v) the issuance of 31,098 common shares upon the conversion of the 10% notes at a price of $2,386.85 per common share for an aggregate principal amount of $74.3 million. See notes 17 and 18 to our audited consolidated financial statements appearing elsewhere in this prospectus.
(2)    The unaudited pro forma as adjusted information data gives further effect to the issuance and sale of                common shares in this offering by us at an assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the application of the net proceeds of this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds.” The pro forma as adjusted information presented 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 (decrease) in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total equity by                $                million, assuming that the number of common shares 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. An increase (decrease) of 1,000,000 in the number of common shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total equity by $                million, assuming the assumed initial public offering price per common share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

(3)    We define working capital as current assets less current liabilities.
(4)    The 10% notes were issued in July 2020 and therefore are not reflected under actual total liabilities as of June 30, 2020.

 

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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 titled “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion is based on our financial information prepared in accordance with the IFRS, as issued by the International Accounting Standards Board, or IASB, which may differ in material respects from generally accepted accounting principles in other jurisdictions, including U.S. generally accepted accounting principles, or GAAP. This discussion and other parts of this prospectus contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.”

Overview

We are a next-generation POC diagnostic company addressing the current limitations of legacy POC systems by bringing lab-comparable performance to the POC in minutes on a single instrument with a low cost of ownership. We are focused on transforming community-based healthcare by providing critical diagnostic information to healthcare providers at the point of need, thereby enabling more informed medical decisions to improve health outcomes while lowering costs. We have developed and launched our Platform, which is an integrated system comprised of a small, versatile Instrument, precise, low-cost microfluidic test strips, and seamless, secure digital connectivity. We currently have four tests available on our Platform and a broad menu of tests in development. Our proprietary Platform is designed to simplify, scale down, and integrate multiple testing methodologies onto a single instrument and offer a broad menu of tests with lab-comparable performance at a low cost and with results generally in 10 minutes or less from sample to result. With our Platform, our goal is to address the key challenges faced by healthcare providers in providing efficient and cost-effective patient care in a community setting.

We are initially focused on the development of tests for several of the most common conditions diagnosed or managed in community-based healthcare settings. For many of the tests we commercialize, or plan to commercialize, there are no existing high performance POC alternatives. Our initial authorized tests and those under development are designed to address unmet diagnostic needs in the fields of infectious disease, cardiovascular disease, diabetes, and coagulation disorders. To date, we have developed and launched four diagnostic tests for use with our Instrument: our SARS-CoV-2 antigen test commercially available under EUA in the United States which authorizes the emergency use of the test during the period in which an emergency declaration remains in effect, and CE Mark in the European Economic Area as well as our SARS-CoV-2 antibody test, our INR test, and our D-Dimer test, all of which are CE Marked.

In response to the COVID-19 pandemic and the resulting acute need for timely diagnostic information, we have developed our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests for use in community-based healthcare settings. Our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests have demonstrated highly accurate results within minutes on our Instrument. We have obtained an EUA and CE Mark for our SARS-CoV-2 antigen test. We have commenced commercial sales of our SARS-CoV-2 antigen test in Europe and the United States to customers, including NHS and CVS and have commenced shipment of Instruments to Africa as part of our collaboration with BMGF. and CVS.

As of December 31, 2020, we have placed more than 7,000 Instruments with over 500 customers across more than 25 countries and have more than 1,000 staff across the globe. Our SARS-CoV-2 antigen test has been authorized by FDA under an EUA only for the qualitative detection of SARS-CoV-2 nucleocapsid protein and has not been authorized for use to detect any other viruses or pathogens. In addition, the CE Mark process is a self-certification process where we self-declare as a manufacturer that we have checked the product meets European Economic Area safety, health and environmental requirements. Our SARS-CoV-2 antigen test has not been cleared or approved by FDA or any other regulatory body, and therefore we cannot market such test in the U.S. following the termination of an emergency declaration. We have submitted an EUA request to FDA and obtained CE Mark for our SARS-CoV-2 antibody test.

In laboratory and clinical studies, our SARS-CoV-2 antigen test demonstrated a very low Limit of Detection, or LOD, of 32 TCID50 per mL and high sensitivity and specificity within a detection window of 12 days from onset of symptoms

 

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and delivered results within 12 minutes or less. Our SARS-CoV-2 antibody test demonstrated 100% sensitivity in fingerstick blood samples collected more than eight days post PCR and results delivered within 11 minutes. We believe that offering our SARS-CoV-2 antigen test and SARS-CoV-2 antibody test on a single Platform with superior performance over a wide detection time has the potential to greatly improve the diagnosis of COVID-19 infection and infectivity, enable large-scale population monitoring and facilitate management of the COVID-19 pandemic.

Our SARS-CoV-2 antigen test is currently being used and implemented in various testing programs across the U.S., U.K., and other European countries, including in accident and emergency departments, care homes, retail pharmacies and other primary care settings. Even with the start of the roll out of COVID-19 vaccines, we expect there to be continued need for diagnostic testing. In addition, in the professional POC settings where our Platform is placed, customers are looking to implement comprehensive POC testing within their institutions leveraging both (i) our broad menu as well as (ii) our quality, compliance and data management infrastructure.

We also see significant opportunity in the low complexity mass screening or home COVID-19 testing market. Therefore, based on the same chemistry and test strip design as our SARS-CoV-2 antigen test on our Platform, we have started development of our Amira System, which we are designing as a high-sensitivity mass screening and home testing system for COVID-19. We plan to manufacture and distribute our Amira System at a price and volume that enables mass testing required to support a safe, normal and open economy, subject to successful completion of development and regulatory approval, authorization or clearance. As planned, our Amira System will consist of (i) a small, battery operated, disposable device, (ii) the Amira COVID-19 test and (iii) a phone/tablet application for test management and reporting. Subject to completion of product development, regulatory approval, authorization or clearance for professional and home use, market demand and manufacturing scale-up of the Amira System, we currently expect a manufacturing capacity of 10 million tests per day by the end of June 2021 and expect multiples of 10 million tests per day by the end of 2021 for our Amira System. We anticipate the retail price of our Amira System and Amira COVID-19 test to be between $2.00-$4.00 per test, significantly lower than many existing COVID-19 tests currently on the market as well as the equivalent tests on our Instrument. For very high volume purchases and shipments to middle and low income countries, or LMICs, we expect the price to be lower. We currently have a prototype Amira system including strips, device and patient application. We expect to move to design freeze at system level shortly. We are simultaneously tooling up high volume manufacturing lines, for the strip and instrument, while we progress through design freeze and the V&V phase.

We have also used our technology to develop two rapid COVID-19 reagent testing kits for use on open molecular systems, LumiraDx SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete. LumiraDx SARS-CoV-2 RNA STAR allows laboratories to utilize their existing molecular lab infrastructure in a high-throughput format by reducing amplification time from approximately one hour down to 12 minutes. LumiraDx SARS-CoV-2 RNA STAR Complete utilizes a direct amplification method that combines lysis and amplification in a single step, detecting SARS-CoV-2 nucleic acid in under 20 minutes, without needing to perform any specimen purification or extraction. We have obtained EUAs for LumiraDx SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete and commenced sales.

Aside from our Amira Systems, we currently have a pipeline of more than 30 tests in various stages of development for community-based healthcare settings and plan to launch 10 tests in the next two years, subject to successful development and regulatory approval, authorization or clearance. Our key tests under development include: Flu A/B + SARS-CoV-2 antigen or Flu A/B + RSV for respiratory infectious disease; D-Dimer for cardiovascular disease and coagulation disorders; high sensitivity troponin I for cardiovascular disease; CRP for infectious disease; and HbA1c for diabetes. Our tests are subject to extensive regulatory requirements and we seek to obtain regulatory approval, authorization or clearance on a test-by-test basis. We are focused on commercializing our tests on pace with receipt of the requisite regulatory approval, authorization or clearance and any delays in commercialization of our tests or decreases in the expected market demand for our tests could adversely impact our operations and financial results. We have also entered into R&D collaborations with well-established diagnostic companies that have market-leading assays and capabilities in specific conditions to further accelerate the expansion of the test menu for our Platform. See the section titled “Business-Research and Development” for additional details on our R&D collaboration agreements. Additionally, our R&D team is focused on continuous enhancement of our disruptive technologies.

Our proprietary microfluidic test strip is designed to accommodate all of our assays and sample types in a single-design architecture. We can manufacture our test strips at large scale and low cost on our proprietary manufacturing

 

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system. We believe our scalable manufacturing process provides us with a sustainable cost position that allows us to provide cost-efficient diagnostic solutions to the POC market. It also enables us to expand into attractive geographies and alternative healthcare settings where high quality POC testing has previously not been feasible.

We believe our Platform and its attractive value proposition will have broad appeal to healthcare providers globally that are seeking innovative POC solutions to improve outcomes and lower costs. As such, we currently have direct sales and marketing operations in 16 countries, including the U.S., most Western European countries, Japan, South Africa, Colombia and Brazil, and over time plan to further expand to the largest in vitro diagnostic, or IVD, markets, including China, India and Southeast Asia. We sell mainly to large healthcare systems, government organizations and national pharmacy chains that can deploy comprehensive POC testing across their extensive healthcare provider networks.

As of December 31, 2020, we have 109 employees focused on sales and marketing located in 16 countries and plan to open additional sales offices to further expand our presence globally. We have direct sales operations in the U.S., most major European countries, Japan, South Africa, Colombia and Brazil.

We manufacture our test strips on highly automated, manufacturing equipment designed specifically to meet high volume demand at a low cost. All of our test strips are manufactured on a common platform using a high volume, web-based manufacturing process that allows the production of multiple test strip sizes and designs. Utilizing a common platform allows us to leverage volume and have efficient manufacturing costs and provides flexibility to respond more rapidly to changing market demands across our product portfolio.

As of June 30, 2020, we have raised $597.8 million through the issuance of debt and equity securities and from our partners since inception. We have primarily deployed this capital to develop and commercialize our Platform and build manufacturing capabilities and a commercial organization that have the potential to deliver on our aspiration to be the global leader in POC diagnostics.

Factors Affecting Our Performance

We believe there are several important factors that have impacted and that we expect will impact or will continue to impact our financial performance and results of operations, including:

 

   

COVID-19 test commercialization. We believe that our ability to launch POC COVID-19 tests during the pandemic will allow us to achieve significant revenue growth, establish strong brand awareness and acceptance, and build an installed base of Instruments. The ability of healthcare providers and public health officials to have access to rapid and accurate COVID-19 tests is a key component to fighting the pandemic. Any delays in commercialization of our COVID-19 tests or decreases in the market demand for COVID-19 testing, including as it relates to the recently authorized COVID-19 vaccines and any future vaccines, could adversely impact our operations and financial results.

 

   

Increase the installed base of our Instruments. Our Instrument runs a variety of diagnostic testing technologies utilizing our disposable test strips. We initially intend to focus our sales efforts on large healthcare systems, government organizations and national pharmacy chains that want to deploy comprehensive POC testing across their networks. We believe the successful large-scale deployment of an installed base of Instruments will provide revenue growth in both the near term and the long term through consumption of our current and future assays. We expect our installed base of Instruments to continue to grow as we increase penetration in our existing markets, expand into new markets and add new assays.

 

   

Commercialization of our current and future assays. We believe that delivering a broad menu of diagnostic tests for community-based healthcare on a single Platform is critical to transforming the POC market. We plan to launch ten tests in the next two years, subject to regulatory authorization or clearance. We have a growing pipeline of tests and panels for cardiovascular disease, infectious disease, diabetes, and coagulation disorders, designed to deliver lab-comparable performance. We believe that successful execution of this global market-driven menu strategy will lead to wide adoption of our Platform and high utilization of our diagnostic tests. Any delays in commercialization of our assays or decreases in the expected market demand for our assays could adversely impact our operations and financial results.

 

   

Highly automated, cost efficient manufacturing process. Our proprietary microfluidic test strip is capable of accommodating all of our currently contemplated POC assays within a single design architecture. We

 

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manufacture our test strips on highly automated manufacturing equipment designed and manufactured specifically to meet high volume demand at a low cost. We believe the automated manufacturing process of our test strips provides an industry leading cost position. In order to meet the anticipated demand for our Platform, we will need to continue to add manufacturing capacity. This will require continued investments, including the purchase of manufacturing equipment, the lease or purchase of new facilities, leasehold and building improvements to our existing and future facilities, and hiring of new personnel.

 

   

Investment in regulatory approvals, authorizations and clinical trials. We will incur increased costs to conduct clinical trials and to obtain regulatory approvals, authorizations or clearances as we commercialize our products across global markets. Clinical trials demonstrating the acceptable performance of our products may be required in order to obtain regulatory approvals or clearances. Additional regulatory approvals, authorizations or clearances will impact our ability to sell both our Instruments and test strips in various geographies. Any delays in regulatory approvals, authorizations or clearances of our tests or a lack of strong clinical trial evidence for the performance of our tests could adversely impact our operations and financial results.

 

   

Investment in global expansion. We intend to continue to expand the availability of our Platform on a global basis. We intend to establish subsidiaries in additional countries, where appropriate, and hire additional resources in sales, marketing and administration in order to develop the market for our products, engage in sales activities and establish other commercial capabilities to serve the needs our customers. If our investment in our global expansion does not generate expected revenue growth, then our operations and financial results could be adversely impacted.

While each of these areas present significant opportunities for us, they also pose significant risks and challenges that we must address. See the section titled “Risk Factors” for more information.

Components of Results of Operations

Revenue

We expect to derive substantially all our revenue from sales of our Platform, which includes sales of our Instrument, test strips and other related products and services. Such sales may have multiple performance obligations under IFRS 15 Revenue from Contracts with Customers, or IFRS 15; therefore, we may recognize revenue associated with a single sale of our Platform both at a point in time and over time. We likely will recognize revenue from the initial sale of the Instrument, test strips and other related products separate from the sale of our connectivity solutions and other services under IFRS 15.

Our Platform will also be made available to customers under operating lease arrangements. Revenue from operating leases are recognized on a straight-line basis over the term or, when lease revenue is entirely variable and subject to subsequent reagent sales, as the performance obligation to deliver reagents is satisfied.

We allocate revenue between products and services based on the relative standalone selling price of each performance obligation.

Products. During 2018, 2019 and 2020 to date, our instrument and consumable revenue was primarily generated by the resale and distribution of third party medical diagnostic products not related to our Platform. These revenues relate to sales organizations whose operations were acquired by us in anticipation of distributing our proprietary products.

We expect to derive substantially all of our future product revenue from the sale of our Instrument, test strips and other related products. We sell or lease our products directly to users, including healthcare systems, government organizations, national pharmacy chains, diagnostic labs, hospitals and other healthcare providers. In addition, we sell the Instrument, test strips and other related products through wholesalers and distributors. We sell, place free of charge and rent Instruments to customers depending on the needs of the customer and market profile.

Services. We expect to derive substantially all our service revenue from revenue allocated from the sale of our Platform to our connectivity solutions, such as Connect Manager and EHR Connect. These services allow customers to manage their Instruments and to analyze diagnostic data, provide decision support tools and enforce quality control policies. During 2018 and 2019, we did not recognize any service revenue related to sales of our Platform,

 

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and in 2020 to date, less than 1% of our service revenue was derived from sales of our Platform. During 2018, 2019 and 2020 to date, the majority of our service revenue related to maintenance on software licenses, access to hosted cloud offerings, training, support and other services related to products.

Software. Software revenue recognized in 2018 was from a single contract related to a business acquired in 2015. The acquisition was made to obtain intellectual property and a skilled workforce to further develop our Platform. Since completing the acquisition, we fulfilled existing contractual obligations for customers of the acquired business but do not expect to generate software revenue in the future related to the acquired business.

We intend to seek, in the near term, regulatory approval, authorization or clearance for multiple diagnostic assays on our Platform. Assuming we receive regulatory approvals, authorization or clearances, we expect the revenue from sales of our Instrument, test strips and other related products and services to increase significantly.

Costs of Sales and Operating Expenses

Cost of sales. Cost of sales will generally consist of the cost of (i) materials and direct labor, including bonus and benefits, (ii) equipment and infrastructure expenses associated with manufacturing and packaging our Platform products, (iii) third party products, (iv) warehousing, handling and shipping costs and (v) the provision of software support and services. Equipment and infrastructure expenses include maintenance and depreciation of manufacturing equipment, facilities costs and amortization of leasehold improvements and of acquired technology.

We expect cost of sales to generally increase in line with the increase in the number of Platforms we sell.

Research and development expense. Research and development expense consists of costs incurred to develop our Platform, and includes salaries and benefits, equipment and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, clinical trials and other outside costs, and costs to develop our technology and add additional assays to our Platform. Research and development costs are expensed as incurred.

We expect that our research and development expenses will continue to increase as we continue to develop additional assays for our Platform and conduct our ongoing and new clinical trials. These expenses may fluctuate from period to period due to the timing and extent of these expenses incurred within a period.

Selling, marketing and administrative expense. Our selling, marketing and administrative expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing, executive, accounting and finance, legal and human resources functions. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel and stock-based compensation, as well as marketing and educational activities and allocated overhead expenses.

We expect our selling, marketing and administrative expenses to increase as we expand our sales force and increase our marketing activities to drive adoption of our Platform. We also expect that our administrative expenses will continue to increase as we increase our headcount and as we incur costs associated with operating as a public company after this offering, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations. While we expect these costs to increase in absolute dollars, we expect them to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage from period to period due to the timing and extent of these expenses.

Finance Income

Finance income consists of interest earned on our cash and cash equivalents and net foreign currency exchange gains. Our interest income has not been significant to date, but we expect it to increase as we invest surplus cash from this offering in short term, fixed income investments until those proceeds are fully deployed. Net foreign currency exchange gains relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar, primarily related to our U.K. operations denominated in British pound sterling. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Finance Expense

Finance expense consists primarily of cash and non-cash interest on debt obligations, dividends on our series A preferred shares and net foreign currency exchange losses. Interest expense includes cash interest expense on

 

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outstanding debt, as well as non-cash accretion of debt issuance costs and debt proceeds classified as equity under IFRS. Dividends on the preferred shares accrue cumulatively at an 8% annual rate. All our outstanding series A preferred shares will be automatically converted into ordinary shares upon completion of this offering and will not result in cash settlement of the accrued dividends. Net foreign currency exchange losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar, primarily related to our U.K. operations denominated in U.K. pound sterling. We expect our finance expense to continue to fluctuate as we manage our debt obligations, including the conversion of convertible debt as part of this offering, and due to changes in foreign currency exchange rates.

Benefit from Income Taxes

Benefit from income taxes is primarily related to a U.K. tax credit on qualifying research and development expenses. We expect the tax credit to increase in line with the increase in research and development expenses provided we continue to be eligible.

Results of Operations

The following table sets forth the significant components of our results of operations for the periods presented.

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
     2018     2019     2019     2020  
     (in thousands)     (in thousands)  

Consolidated Statement of Profit and Loss and Comprehensive Income

 

     

Revenue:

        

Products

   $ 17,719     $ 19,802     $ 8,873     $ 10,630  

Services

     4,838       3,340       2,276       2,320  

Software

     2,829                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     25,386       23,142       11,149       12,950  

Cost of sales:

        

Products

     (9,592     (12,469     (5,379     (6,518

Services

     (4,265     (1,853     (977     (943

Software

     (737                  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     (14,594     (14,322     (6,356     (7,461
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     10,792       8,820       4,793       5,489  

Operating expenses:

        

Research and development expenses

     (66,708     (86,546     (40,796     (51,924

Selling, marketing and administrative expenses

     (33,365     (37,294     (16,736     (18,087
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     (100,073     (123,840     (57,532     (70,011
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (89,281     (115,020     (52,739     (64,522
  

 

 

   

 

 

   

 

 

   

 

 

 

Finance income (expense):

        

Finance income

     875       11,705       504       510  

Finance expense

     (38,901     (39,335     (21,244     (47,626
  

 

 

   

 

 

   

 

 

   

 

 

 

Total finance expense, net

     (38,026     (27,630     (20,740     (47,116

Loss before provision for income taxes

     (127,307     (142,650     (73,479     (111,638

Benefit from income taxes

     12,098       9,541       4,684       4,670  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (115,209   $ (133,109   $ (68,795   $ (106,968
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

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Comparison of the years ended December 31, 2018 and 2019

Revenue

Products

 

 

 

     YEAR ENDED DECEMBER 31,      CHANGE  
            2018                    2019             $      %  
     (dollars in thousands)         

Products

   $ 17,719      $ 19,802      $ 2,083        11.8%  

 

 

Product revenue was $17.7 million for the year ended December 31, 2018 compared to $19.8 million for the year ended December 31, 2019, an increase of $2.1 million, or 11.8%. The increase in products revenue was due to the full year impact of our acquisition of Biomedical Services S.r.l., or BMS, a distributor of diagnostic instruments and consumables in Italy in March 2018 and increasing revenue in our other distribution businesses. During the years ended December 31, 2018 and 2019, revenue from Platform sales was $0 and $0.2 million, respectively. The remainder of product sales was from the resale and distribution of third party medical diagnostic products. During the years ended December 31, 2018 and 2019, revenue from lease arrangements was $0.9 and $1.0 million, respectively.

Services

 

 

 

     YEAR ENDED DECEMBER 31,      CHANGE  
            2018                    2019             $     %  
     (in thousands)        

Services

   $ 4,838      $ 3,340      $ (1,498     (31.0)%  

 

 

Service revenue was $4.8 million for the year ended December 31, 2018 compared to $3.3 million for the year ended December 31, 2019, a decrease of $1.5 million, or 31.0%. Service revenue was related to acquired businesses. The decrease was due to customer contracts that expired during 2018 and 2019 and were not renewed. During the years ended December 31, 2018 and 2019 we did not have any service revenue from Platform sales.

Software

 

 

 

     YEAR ENDED DECEMBER 31,      CHANGE  
            2018                    2019             $     %  
     (in thousands)        

Software

   $ 2,829      $      $ (2,829     (100)%  

 

 

Software revenue was $2.8 million for the year ended December 31, 2018 compared to $0 for the year ended December 31, 2019, a decrease of $2.8 million, or 100%. Revenue in software was related to acquired businesses. The decrease was due to revenue recognized upon the completion of development of a custom software development contract. No such contract terms existed in 2019.

Cost of sales

Products

 

 

 

     YEAR ENDED DECEMBER 31,     CHANGE  
            2018                   2019            $     %  
     (in thousands)        

Products

   $ (9,592   $ (12,469   $ (2,877     30.0%  

 

 

 

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Cost of sales for products was $9.6 million for the year ended December 31, 2018 compared to $12.5 million for the year ended December 31, 2019, an increase of $2.9 million, or 30.0%. The increase in cost of sales associated with our product sales was driven by increased revenue in our distribution businesses, including the full year impact of our acquisition of BMS in March 2018, and a $0.8 million write down of inventory to net realizable value.

Services

 

 

 

     YEAR ENDED DECEMBER 31,     CHANGE  
            2018                   2019            $      %  
     (in thousands)         

Services

   $ (4,265   $ (1,853   $ 2,412        (56.6)%  

 

 

Cost of sales for services was $4.3 million for the year ended December 31, 2018 compared to $1.9 million for the year ended December 31, 2019, a decrease of $2.4 million, or 56.6%. The decrease was due to customer contracts that expired during 2018 and 2019 and were not renewed.

Software

 

 

 

     YEAR ENDED DECEMBER 31,      CHANGE  
            2018                   2019             $      %  
     (in thousands)         

Software

   $ (737   $      $ 737        (100.0)%  

 

 

Cost of sales for software was $0.7 million for the year ended December 31, 2018 compared to $0 for the year ended December 31, 2019, a decrease of $0.7 million, or 100%. The decrease was due to completion of development of a custom software development contract. No such contract terms existed in 2019.

Operating Expenses

R&D Expenses

 

 

 

     YEAR ENDED DECEMBER 31,     CHANGE  
            2018                   2019            $     %  
     (in thousands)        

R&D expenses

   $ (66,708   $ (86,546   $ (19,838     29.7%  

 

 

R&D expenses were $66.7 million for the year ended December 31, 2018 compared to $86.5 million for the year ended December 31, 2019, an increase of $19.8 million, or 29.7%. The increase in research and development expenses was primarily due to an increase of $10.1 million in personnel-related costs due to increased hiring of R&D personnel, an increase of $2.3 million in facilities and depreciation expense as we expanded our research and development headcount, an increase of $1.7 million due to increased use of third-party research and development partners to support the development of additional assays for our Platform, an increase of $1.7 million in costs associated with the development and testing of our Instrument, an increase of $1.0 million in clinical trial costs on new assays and an increase of $3.0 million of supplies, laboratory equipment and other expenses.

Selling, Marketing and Administrative Expenses

 

 

 

     YEAR ENDED DECEMBER 31,     CHANGE  
            2018                   2019            $     %  
     (in thousands)        

Selling, marketing and administrative expenses

   $ (33,365   $ (37,294   $ (3,929     11.8%  

 

 

 

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Selling, marketing and administrative expenses were $33.4 million for the year ended December 31, 2018 compared to $37.3 million for the year ended December 31, 2019, an increase of $3.9 million, or 11.8%. The increase was primarily due to an increase of $0.4 million in personnel-related costs as we expanded our sales and marketing headcount to support our growth and a net $2.4 million gain associated with 2018 fair value adjustments related to an acquisition. In 2018, we determined that in a prior acquisition, no contingent consideration would be paid out resulting in a gain of $3.6 million and certain intangible assets acquired in that same acquisition were deemed impaired resulting in a charge of $1.2 million.

Finance Expense, Net

Finance Income

 

 

 

     YEAR ENDED DECEMBER 31,      CHANGE  
            2018                    2019             $      %  
     (in thousands)         

Finance income

   $ 875      $ 11,705      $ 10,830        1237.7%  

 

 

Finance income was $0.9 million for the year ended December 31, 2018 compared to $11.7 million for the year ended December 31, 2019, an increase of $10.8 million, or 1,237.7%. The increase was primarily due to an increase in interest income of $1.6 million in connection with interest earned on our cash equivalents and $9.7 million of foreign exchange gains arising from transactions and asset and liability balances denominated in currencies other than the U.S. dollar.

Finance Expense

 

 

 

     YEAR ENDED DECEMBER 31,     CHANGE  
            2018                   2019            $     %  
     (in thousands)        

Finance expense

   $ (38,901   $ (39,335   $ (434     1.1%  

 

 

Finance expense was $38.9 million for the year ended December 31, 2018 compared to $39.3 million for the year ended December 31, 2019, an increase of $0.4 million, or 1.1%. This increase was primarily due to an increase of $16.5 million in accrued dividends associated with our series A preferred shares issued in July 2018, partially offset by a decrease of $10.1 million in foreign exchange losses arising from transactions and asset and liability balances denominated in currencies other than the U.S. dollar, a net decrease of $5.4 million associated with the prepayments of our 12% unsecured subordinated loan notes, or our 12% notes, in 2018 and our 11.5% senior secured loan notes, or our 11.5% loan notes, in 2019. In 2018, we prepaid the 12% notes and agreed to pay the full interest due on the 12% notes through to the original maturity date of February 2019. The amount of interest from the repayment date to the original maturity date was recorded as loan modification costs totaling $1.5 million. In addition, during 2018 we recorded a loss on extinguishment of debt of $4.4 million. In September 2019, we agreed to settle our 11.5% loan notes prior to maturity and recorded a loss on extinguishment related to the unamortized debt discount balance of $0.5 million.

Credit from Income Taxes

 

 

 

     YEAR ENDED DECEMBER 31,      CHANGE  
             2018                      2019              $     %  
     (in thousands)        

Credit from income taxes

   $ 12,098      $ 9,541      $ (2,557     (21.1)%  

 

 

Credit from income taxes was $12.1 million for the year ended December 31, 2018 compared to $9.5 million for the year ended December 31, 2019, a decrease of $2.6 million, or 21.1%. Credit from income taxes is primarily related to a U.K. tax credit on qualifying research and development expenses. The decrease in tax credit for the year

 

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ended December 31, 2019 is primarily attributable to $2.6 million and $3.0 million recorded in 2018 related the finalization of our 2016 and 2017 tax filings, respectively, partially offset by a $2.4 million increase in the current year tax credit due to the increase in research and development expenses for the year.

Comparison of the six months ended June 30, 2019 and 2020

Revenue

Products

 

 

 

     SIX MONTHS ENDED JUNE 30,      CHANGE  
             2019                      2020              $      %  
     (in thousands)         

Products

   $ 8,873      $ 10,630      $ 1,757        19.8%  

 

 

Product revenue was $8.9 million for the six months ended June 30, 2019 compared to $10.6 million for the six months ended June 30, 2020, an increase of $1.8 million, or 19.8%. The increase was due to increasing revenue in our distribution business, primarily driven by a $1.1 million increase in our Brazilian distribution business mainly resulting from the distribution of third-party COVID test products. During the six months ended June 30, 2019 and 2020, revenue from Platform sales were $0 and $0.3 million, respectively. The remainder of product sales were from the resale and distribution of third party medical diagnostic products. During the six months ended June 30, 2019 and 2020, revenue from lease arrangements were $0.5 and $0.4 million, respectively.

Services

 

 

 

     SIX MONTHS ENDED JUNE 30,      CHANGE  
            2019             2020             $      %  
     (in thousands)         

Services

   $ 2,276      $ 2,320      $ 44        1.9%  

 

 

Service revenue was $2.3 million for the six months ended June 30, 2019 compared to $2.3 million for the six months ended June 30, 2020, an increase of $44 thousand, or 1.9%. Service revenue relates to historical acquired businesses. The increase was due to an increase in revenue related to hosted cloud offerings. During the six months ended June 30, 2019 and 2020 we had $0 and $10 thousand (less than 1% of total service revenue) from Platform sales, respectively.

Cost of sales

Products

 

 

 

     SIX MONTHS ENDED JUNE 30,     CHANGE  
            2019            2020            $     %  
     (in thousands)        

Products

   $ (5,379   $ (6,518   $ (1,139     21.2%  

 

 

Cost of sales for products was $5.4 million for the six months ended June 30, 2019 compared to $6.5 million for the six months ended June 30, 2020, an increase of $1.1 million, or 21.2%. The increase in cost of sales for products corresponds to the increased revenue in our distribution business discussed above.

Services

 

 

 

     SIX MONTHS ENDED JUNE 30,     CHANGE  
            2019                   2020            $      %  
     (in thousands)         

Services

   $ (977   $ (943   $ 34        3.5%  

 

 

 

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Cost of sales for services was $1.0 million for the six months ended June 30, 2019 compared to $0.9 million for the six months ended June 30, 2020, a decrease of $34 thousand, or 3.5%. The decrease was due to the timing of expenses to support our service offerings.

Operating Expenses

R&D Expenses

 

 

 

     SIX MONTHS ENDED JUNE 30,     CHANGE  
            2019                   2020            $     %  
     (in thousands)        

R&D expenses

   $ (40,796   $ (51,924   $ (11,128     27.3%  

 

 

R&D expenses were $40.8 million for the six months ended June 30, 2019 compared to $51.9 million for the six months ended June 30, 2020, an increase of $11.1 million, or 27.3%. The increase in R&D expenses was primarily due to an increase of $2.3 million in personnel-related costs due to increased hiring of R&D personnel, an increase of $2.7 million in costs associated with the development and testing of our Instrument, an increase of $1.7 million in clinical trial costs on new assays and an increase of $6.5 million of supplies, laboratory equipment and other expenses. The increase was partially offset by a decrease of $3.3 million due to decreased use of third-party research and development partners.

Selling, Marketing and Administrative Expenses

 

 

 

     SIX MONTHS ENDED JUNE 30,     CHANGE  
            2019                   2020            $     %  
     (in thousands)        

Selling, marketing and administrative expenses

   $ (16,736   $ (18,087   $ (1,351     8.1%  

 

 

Selling, marketing and administrative expenses were $16.7 million for the six months ended June 30, 2019 compared to $18.1 million for the six months ended June 30, 2020, an increase of $1.4 million, or 8.1%. The increase was primarily due to an increase of $1.1 million in personnel-related costs as we expanded our sales and marketing headcount, and $0.3 million related to professional fees to support our growth.

Finance Expense, Net

Finance Income

 

 

 

     SIX MONTHS ENDED JUNE 30,      CHANGE  
            2019                    2020             $      %  
     (in thousands)         

Finance income

   $ 504      $ 510      $ 6        1.2%  

 

 

Finance income was $0.5 million for the six months ended June 30, 2019 compared to $0.5 million for the six months ended June 30, 2020, an increase of $6 thousand, or 1.2%. The increase was primarily due to an increase in interest income in connection with interest earned on our cash equivalents.

Finance Expense

 

 

 

     SIX MONTHS ENDED JUNE 30,     CHANGE  
            2019                   2020            $     %  
     (in thousands)        

Finance expense

   $ (21,244   $ (47,626   $ (26,382     124.2%  

 

 

 

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Finance expense was $21.2 million for the six months ended June 30, 2019 compared to $47.6 million for the six months ended June 30, 2020, an increase of $26.4 million, or 124.2%. The increase was primarily due to an increase of $24.4 million in foreign exchange losses and $2.0 million in cash interest expense related to our 5% notes and Senior Secured Loans issued in the second half of 2019. Included in foreign exchange loss is $20,785 and $1,724 for the six months ended June 30, 2020 and 2019, respectively, related to intercompany loans between subsidiaries. The remainder of foreign exchange losses arise from transactions and asset and liability balances denominated in currencies other than the U.S. dollar.

Credit from Income Taxes

 

 

 

     SIX MONTHS ENDED JUNE 30,      CHANGE  
            2019                    2020             $     %  
     (in thousands)        

Credit from income taxes

   $ 4,684      $ 4,670      $ (14     (0)%  

 

 

Credit from income taxes was $4.7 million for the six months ended June 30, 2019 compared to $4.7 million for the six months ended June 30, 2020, a decrease of $14 thousand, or 0%. The Credit from income taxes is primarily related to the U.K. R&D tax credit on qualifying research and development expenses. The decrease in tax credit for the six months ended June 30, 2020 is primarily attributable to the increase in R&D expenses offset by $0.8 million of credits in the six months ended June 30, 2019 related to prior periods.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses and negative cash flows from operations. At December 31, 2019, we had an accumulated deficit of $369.9 million. We expect to incur additional operating losses in the near future and our operating expenses will increase as we continue to expand our sales organization, increase our marketing efforts to drive market adoption of our Platform, and invest in the development of new product offerings from our research and development activities. If demand for our Platform increases, we anticipate that our capital expenditure requirements will also increase in order to build additional capacity to meet this demand. Moreover, following the completion of this offering, we expect to incur additional costs associated with operating as a public company, including expenses related to legal, accounting and financial reporting and regulatory matters; maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations.

The timing and amount of our cost of sales and operating expenditures will depend largely on:

 

   

the cost of purchasing materials to manufacture our products and to maintain sufficient inventory to meet demand;

 

   

the cost of expanding our manufacturing capacity;

 

   

the cost of expanding sales, marketing and distribution capabilities in new and existing sales regions in which we may receive marketing approval, authorization or clearance;

 

   

the scope and results of our current and planned research and development activities;

 

   

the outcome, timing and cost of meeting regulatory requirements to commercialize our products in global markets;

 

   

the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates, including any such patent claims and intellectual property rights that we have licensed under our existing license agreements;

 

   

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our Platform and its components;

 

   

the terms of our existing research and development and commercialization arrangements with third parties, including any minimum commitments in our contractual arrangements with such parties;

 

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our ability to establish and maintain additional such arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration, partnership or similar arrangement;

 

   

our need and ability to hire additional management, scientific, medical, accounting and financial reporting and other personnel to scale our company;

 

   

the costs to operate as a public company, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;

 

   

market acceptance of our product; and

 

   

the effect of competing technological and market developments, including other products that may compete with our Platform.

Through June 30, 2020, we have funded our operations primarily from the issuance of equity securities, convertible preferred stock, convertible notes and debt securities, as well as from revenue from sales of our existing products and services. As of June 30, 2020, we have raised $597.8 million through the issuance of debt and equity securities and from our partners since inception.

In October 2020, LumiraDx Group Limited, one of our subsidiaries, entered into the Senior Secured Loan with Jefferies as lender and administrative and collateral agent. We have borrowed $100 million under the Senior Secured Loan, part of which was used to prepay the 11.5% notes (as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness”). The Senior Secured Loan is subject to an interest rate of 8.0% per annum payable in quarterly installments, which, under the terms of the Senior Secured Loan, was due to increase after January 31, 2021 if an “IPO” or “Qualifying Investment,” as such terms are defined in the Senior Secured Loan, was not completed before January 31, 2021. The issuance of $164.5 million series B preferred shares in November 2020 constitutes a “Qualifying Investment” for the purposes of the Senior Secured Loan, and therefore, the interest rate will remain at 8% per annum for the term of the Senior Secured Loan. In addition, the Senior Secured Loan allows us to request additional incremental term loans in an aggregate amount of up to $150 million during the initial 12 month period of the loan on an uncommitted basis. As of January 15, 2021, Silicon Valley Bank has agreed to make available to our subsidiary, LumiraDx Group Limited, $40 million in incremental term loans, or the SVB Tranche, under and on substantially the same terms as the Senior Secured Loan. The Senior Secured Loan provides for an exit fee of 1.5% in respect of any amounts repaid or prepaid under the Senior Secured Loan. The Senior Secured Loan matures October 5, 2022.

In 2020, we secured commitments from investors in our 10% notes totaling $148.9 million and in July 2020, we called and received $74.3 million from investors. The remaining $74.6 million of commitments was available for drawdown until October 31, 2020 but we elected not to call the outstanding amount.

In November 2020, we raised $164.5 million from investors by issuing 33,008 series B preferred shares at an issue price of $5,000, or the second 2020 funding round. The series B preferred shares are automatically convertible into common shares upon the completion of this offering.

We have partnered with BMGF to help them achieve certain key objectives and have received a total of $46 million in support from them through a combination of equity, grants and loans. Our $8.0 million grant agreement with BMGF requires us to return any funds not utilized on qualifying expenses by December 31, 2020. Due to the company’s dedication of resources to respond to the COVID-19 pandemic, the company and BMGF have discussed, but have not reached a signed agreement for, an extension of the grant period to October 31, 2021. As of June 30, 2020, we had available $7.1 million in grant funds that had not been utilized.

As of June 30, 2020, we had cash and cash equivalents of $47.0 million. Based on our current business plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to enable us to fund our operations and capital expenditure requirements for the foreseeable future. To the extent revenue from our Platform grows, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. The forecast of our capital

 

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requirements is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

If our available cash balances and anticipated cash flow from operations, combined with net proceeds of (i) $74.3 million from the issuance of our 10% notes; (ii) $164.5 million from the issuance of our series B preferred shares; and (iii) from this offering are insufficient to satisfy our liquidity requirements, we may seek additional capital.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through the proceeds of this offering and, as needed, additional equity and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common shareholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we would be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

The following table summarizes our cash flows for the periods presented:

 

 

 

     YEAR ENDED DECEMBER 31,     SIX MONTHS ENDED JUNE 30,  
  

 

 

   

 

 

   

 

 

   

 

 

 
            2018                   2019                   2019                   2020         
     (in thousands)  

Net cash used in operating activities

   $ (79,455   $ (91,755   $ (42,395   $ (57,895

Net cash used in investing activities

     (12,799     (11,308     (7,542     (26,557

Net cash provided by/(used in) financing activities

     250,823       70,701       (6,955     (5,163

Net increase (decrease) in cash and cash equivalents

   $ 158,569     $ (32,362   $ (56,892   $ (89,615

 

 

Operating Activities

During the year ended December 31, 2018, operating activities used $79.5 million of cash, primarily resulting from our net loss of $115.2 million, excluding $33.0 million in non-cash charges and offset by $2.8 million provided by changes in our operating assets and liabilities. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2018 consisted of a $1.2 million increase in trade payables and other liabilities and a $1.8 million decrease in trade and other receivables, partially offset by a $0.2 million increase in inventories. The increase in trade payable and other liabilities was primarily due to increases in our research and development expenses and selling, general and administrative expenses due to the growth in our business as well as the timing of vendor invoicing and payments. The decrease in trade receivables and other receivables is due to a decrease in revenue as well as timing of collections from customers. The increase in inventory is due to an increase in revenue as well as timing of sales and shipments to customers.

During the year ended December 31, 2019, operating activities used $91.8 million of cash, primarily resulting from our net loss of $133.1 million, excluding $30.0 million provided by non-cash charges and offset by $11.3 million provided by changes in our operating assets and liabilities. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2019 consisted of a $13.3 million increase in trade payables and other liabilities and a $6.4 million decrease in trade and other receivables, partially offset by a $8.4 million increase in inventories. The increase in trade payable and other liabilities was primarily due to increases in our research and development expenses and selling, general and administrative expenses due to the growth in our business as well as the timing of vendor invoicing and payments. The decrease in trade receivables and other receivables is due to a decrease in revenue as well as timing of collections from customers. The increase in inventory is a result of building inventory of our Platform products in anticipation of future sales.

 

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During the six months ended June 30, 2019, operating activities used $42.4 million of cash, primarily resulting from our net loss of $68.8 million and $4.6 million provided by changes in our operating assets and liabilities, excluding $21.8 million provided by non-cash charges. Net cash used in changes in our operating assets and liabilities for the six months ended June 30, 2019 consisted of $8.9 million provided by trade and other receivables, partially offset by $2 million used in inventories and $2.3 million used in trade payables and other liabilities. The cash used in inventory is a result of building inventory of our Platform products in anticipation of future sales. The cash used in trade payables and other liabilities was primarily due to the $2.3 million settlement of contingent consideration from an acquisition. The cash provided by trade and other receivables is primarily the result of the receipt of the research and development tax credit upon the filing of our tax return.

During the six months ended June 30, 2020, operating activities used $57.9 million of cash, primarily resulting from our net loss of $107.0 million and $0.8 million provided by changes in our operating assets and liabilities, excluding $48.3 million provided by non-cash charges. Net cash used in changes in our operating assets and liabilities for the six months ended June 30, 2020 consisted of $11.3 million used in inventories, offset by $5.9 million provided by trade and other receivables and a $6.1 million provided from trade payables and other liabilities. The cash used in inventory is a result of building inventory of our Platform products in anticipation of future sales. The cash provided by trade payables and other liabilities was primarily due to increases in our inventory noted above as well as increases in research and development expenses due to the growth in our business. The cash provided by trade and other receivables is primarily the result of the receipt of the research and development tax credit upon the filing of our refund.

Investing Activities

During the year ended December 31, 2018, net cash used in investing activities was $12.8 million, primarily consisting of $8.4 million in purchases of property, plant and equipment and $4.4 million in cash paid for business acquisitions, net of cash received. Purchases of property, plant and equipment were primarily related to facilities and equipment for the production of our Platform consumables. The cash paid for business acquisitions related to our BMS acquisition.

During the year ended December 31, 2019, net cash used in investing activities was $11.3 million, primarily consisting of $10.6 million in purchases of property, plant and equipment, $0.6 million in cash paid for business acquisitions, net of cash received and $0.1 million in purchases of intangible assets. Purchases of property, plant and equipment were primarily related to our continued investment in facilities and equipment to support the production of our Platform consumables. The cash paid for business acquisitions related to our purchase of SureSensors Ltd, a specialty industrial printer.

During the six months ended June 30, 2019, net cash used in investing activities was $7.5 million, primarily consisting of $7.4 million in purchases of property, plant and equipment. Purchases of property, plant and equipment were primarily related to our investment in facilities and equipment to support the production of our Platform consumables.

During the six months ended June 30, 2020, net cash used in investing activities was $26.6 million, primarily consisting of $26.5 million in purchases of property, plant and equipment. Purchases of property, plant and equipment were primarily related to our continued investment in facilities and equipment to support the production of our Platform consumables.

Financing Activities

During the year ended December 31, 2018, net cash provided by financing activities was $250.8 million, primarily consisting of net proceeds of $225.1 million from the issuance of our series A preferred shares and net proceeds of $37.9 million from the issuance of the 12% notes, partially offset by $9.0 million in net interest payments and $3.2 million in repayments on the 12% notes.

During the year ended December 31, 2019, net cash provided by financing activities was $70.7 million, primarily consisting of net proceeds of $71.9 million from our issuance of 5% notes, net proceeds of $37.8 million of our senior secured loan and $18.0 million from our unsecured loan, partially offset by debt payments of $32.0 million for our 2016 notes, $15.0 million for our senior secured notes and $2.0 million for a $4.0 million loan note, or the