Overview
We are a leading global
Digital Therapeutics, or DTx, company revolutionizing the way people manage their health across the chronic condition spectrum
to live a better and healthier life. By delivering personalized evidence-based interventions that are driven by data, high-quality
software, easy-to-use medical devices and coaching, we empower individuals to make healthy adjustments to their daily lifestyle
choices in a personalized way and improve their overall health. Our cross-functional team operates at the intersection of life
sciences, behavioral science and software technology to deliver highly engaging therapeutic interventions. The DarioTM
Blood Sugar Monitor is among the most downloaded healthcare apps, with 4.9/5.0 stars from 9,000+ reviews on the Apple App Store
as of March 2020. We are rapidly moving into new chronic conditions such as hypertension, using a performance-based approach to
improve the health of users managing chronic disease.
We attempt to drive
behavioral change by creating highly personalized, closed-loop interactions that support our customers, who become members of our
services, via connected FDA cleared monitoring devices, just-in-time health information and real-time coaching. This highly scalable
infrastructure results in members with significant improvement in their health conditions at a modest price-point. The Dario solution
is intended to stretch across various health conditions and ailments. We currently focus our efforts on diabetes and hypertension,
and we plan to expand our focus into additional chronic conditions during 2020, including hypertension.
Our solution goes beyond
being simply a device. We are a modular platform that allows for customized implementations by segment and within each segment.
Core components of our solution include:
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Dario Smart Tools – member-facing devices and integrated smartphone application.
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DarioEngage Platform – population management tool that enables scalable engagement and clinical support by coaches
and clinicians, remotely and in real-time.
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Dario Journey Engine – a software-based platform that enables cross-channel communication of highly personalized
and deeply customized/configurable journeys for each user starting from member enrollment process and continuing through on-going
engagement leading to successful maintenance of health gains.
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We make our services
available direct to consumers via online marketplaces including Amazon, Walmart, Best Buy and the Google and Apple app stores.
In 2020, we plan to focus on expanding our offering to include providers, payers and employers. We believe that these represent
significant growth opportunities for our business.
We
have designed our DTx platform with a ‘user-first’ strategy, focusing on user’s needs first and foremost, along
with user experience and satisfaction. User satisfaction drives all company processes, including our technology design. This approach,
which disrupts the traditional approach among healthcare companies, has taken us to a place where MyDarioTM is
loved by customers in the diabetes arena. In order to obtain firsthand data and feedback from our users, we decided to launch our
product directly to our customers, and initially commenced sales in the United States in March 2016. This user-focused approach
led us into a continuous process of product upgrades and improvements in an agile, interactive way to achieve finetuned user satisfaction.
Our success is reinforced by the fact that most of our users choose to purchase our solution out of pocket.
We have designed our
DTx platform as an open platform that allows us to enable our partners to offer their customers a customized, evidence-based digital
therapy solution, which takes advantage of the real-time connectivity of our platform with its users. We believe that our data-evidenced
proof of the medical outcomes resulting from the use of our DTx platform represents an attractive return on investment model to
healthcare providers in the United States and other geographic regions.
According to a Business
Insider Intelligence report published in October 2019, DTx are a new class of treatments disrupting the entire healthcare value
chain with their promise to tackle chronic diseases, and which, according to estimates by Business Insider, represents up to $3.3
trillion on chronic disease expenditure in 2018 in the United States alone. Digital therapeutics deliver evidence-based therapies
for an array of chronic conditions via software, like mobile health (mHealth) apps and can either replace or complement existing
drug treatments. According to a report released by the Rand Corporation, Sixty percent of the United States population suffers
from at least one chronic condition, and these diseases come with a hefty price tag, as exemplified by the Business Insider report.
DTx companies have shown early evidence of their treatments’ efficacy and ability to slash the costs associated with chronic
disease care, which is fueling the global DTx market to become a $9 billion opportunity by 2025 according to the Business Insider
Intelligence report.
Our principal operating
subsidiary, LabStyle Innovation Ltd., is an Israeli company with its headquarters in Caesarea, Israel. We were formed on August
11, 2011, as a Delaware corporation with the name LabStyle Innovations Corp. On July 28, 2016, we changed our name to DarioHealth
Corp.
Chronic Conditions Prevalence
According
to the Partnership to Fight Chronic Disease, chronic diseases are the leading cause of death and disability in the United States.
133 million Americans – 45% of the population – have at least one chronic disease. Chronic diseases are responsible
for seven out of every 10 deaths in the United States, killing more than 1.7 million Americans every year. Chronic diseases can
be disabling and reduce a person’s quality of life, especially if left undiagnosed or untreated. For example, every 30 seconds
a lower limb is amputated as a consequence of diabetes. People with chronic conditions are the most frequent users of health
care in the United States, as they account for 81% of hospital admissions, 91% of all prescriptions filled, and 76% of all physician
visits. Chronic diseases also account for the vast majority of health spending. In the United States, total spending on public
and private health care amounted to approximately $2 trillion during 2005 and, of that amount, more than 75% went towards the treatment
of chronic disease. Such amount is the equivalent to $5,000 worth of spending per person on treatment of chronic diseases and more
than double what the average American spends on gasoline in a year. In publicly funded health programs, spending on chronic disease
represents an even greater proportion of total spending: more than 99% in Medicare and 83% in Medicaid.
The Partnership to
Fight Chronic Disease, chronic diseases reports that U.S. employers and employees currently pay for the high costs of chronic disease
through increases in health costs associated with greater demand for, and use of, health care services. Health care premiums for
employer-sponsored family coverage have increased by 87% since 2000. Health care coverage costs for people with a chronic condition
average $6,032 annually – five times higher than for those without such a condition. The total cost of obesity to U.S. companies
is estimated at $13 billion annually. This includes the “extra” cost of health insurance ($8 billion), sick leave ($2.4
billion), life insurance ($1.8 billion), and disability insurance ($1 billion) associated with obesity. While today’s situation
is grave, the chronic disease crisis looms even larger tomorrow. By 2025, chronic diseases will affect an estimated 164 million
Americans – nearly half (49%) of the population. According to a CDC report published in October 2019, obesity affects almost
1 in 5 children and 1 in 3 adults, putting people at risk for chronic diseases such as diabetes, heart disease, and some cancers.
Over a quarter of all Americans, 17 to 24 years, are too heavy to join the military. Obesity costs the U.S. health care system
$147 billion a year.
The latest publication
by the Centers for Disease Control and Prevention (CDC) from October 2019 states that 90% of the annual care expenditures are for
people with chronic and mental health conditions.
Nothing kills more
Americans than heart disease and stroke. According to the CDC, more than 859,000 Americans die of heart disease or stroke every
year—representing one-third of all deaths. These diseases take an economic toll and cost the U.S. health care system $199
billion per year and cause $131 billion in lost productivity on the job.
More than 30 million
Americans have diabetes, and another 84 million adults in the United States have a condition called prediabetes, which puts them
at risk for type 2 diabetes. Diabetes can cause heart disease, kidney failure, and blindness, and costs the U.S. health care system
and employers $237 billion every year.
Diabetes
Diabetes is a disease
where insufficient levels, or a total absence, of the hormone insulin, or if the individual has insulin resistance, produces high
levels of glucose in the bloodstream, which can lead to long term adverse effects on a patient’s blood vessels, which in
turn can lead to heart attack, stroke, high blood pressure, blindness, kidney disease, and nerve damage. As part of controlling
blood sugar, many patients must self-monitor their blood glucose levels using home testing kits (called glucose meters) and treat
high and low blood sugar episodes accordingly to avoid complications from the disease. We believe that allowing patients to properly
monitor the disease, provide actionable insights in real-time and create an online link to healthcare providers will ultimately
improve patient outcomes and reduce healthcare costs - both critical advantages for the healthcare industry.
Importantly, one out
of three American adults with prediabetes can reverse the condition if they take action, and the health of people with diabetes
can be improved through measurement adherence and medication. Furthermore, studies have shown that a 1% reduction in the concentration
of glycated hemoglobin (also known as HbA1c or A1c) in human blood goes beyond better diabetes control. That reduction may translate
into a 15% to 20% decrease in heart attack and stroke risk and a 25% to 40% lower risk of diabetes-related eye or kidney disease.
Better diabetes management may result in substantial savings in the costs related to diabetes and healthcare in general, through
the avoidance of health complications and related expense savings. A 2013 NCBI study found that improved A1c levels are associated
with healthcare savings.
Based on data we have
extracted from our user database, using the Dario Smart Diabetes Management Solution leads to an improvement in the glucose level
of the users and lowers their A1c levels over time. This data also indicated that higher engagement of users with the Dario Smart
Diabetes Management Solution increased the level of A1c improvement. Specifically, we found A1c improvements during a period of
3 months, 6 months, and 9-months for people who began the study with A1c levels of more than 8%, 9%, and 10%. The key finding was
that, on average, every segment of the users showed an improvement compared to their A1c level when they started to use the Dario
Smart Diabetes Management Solution, while 75% of participants which started to use the Dario Smart Diabetes Management Solution
with A1c levels higher than 9% were able to lower their A1cC levels during that period with as little as 3 glucose level measurements
per day.
Although we are initially
targeting only the large and growing Blood Glucose Monitoring System, or BGMS, market, we believe our invention has the potential
to cover dozens of laboratory tests of bodily fluids (including blood, urine, and saliva) that could potentially be undertaken
using a smart mobile device, including blood coagulation, cholesterol, HIV and others. Our goal is to develop additional interfaces
for other chronic illnesses and health conditions, thereby empowering people around the globe to put themselves in control of managing
their medical conditions while leveraging our platform. By doing so, we believe that we will be positioned to make a dramatic impact
on the lives of millions of people that face daily lifestyle and medical challenges.
Our technology provides
a body-fluid testing apparatus for performing metered measurement of samples utilizing: (i) a lancing device to obtain a test sample
(blood in the case of the Dario Blood Glucose Monitoring System); and (ii) an adaptor specifically designed to connect a strip
devised to absorb the sample, which then produces an electric signal indicating the level of the substance tested for in the sample.
The adaptor is then connected to a smart mobile device, which allows the test signal to be transmitted to the smart mobile device,
which will then utilize our software application to obtain and display the test result on the device. This is coupled with a set
of software features available via a smart mobile device application as well as cloud-based services, in real-time. We are presently
pursuing patent applications in multiple jurisdictions covering the specific processes related to blood glucose level measurement
as well as more general methods of rapid tests of body fluids using mobile devices and cloud-based services. On August 5, 2014,
we were issued a U.S. patent (No. 8,797,180) relating to how the Dario Blood Glucose Monitoring System draws power from and transmits
data to a smartphone via the audio jack port, on September 8, 2015, we were issued a U.S. patent (No. 9,125,549) that broadens
our registered patent No. 8,797,180 to include testing of other bodily fluids through an audio jack connection, and on November
11, 2017, we were issued a U.S. patent (No. 9,832,301) that enhances the way the Dario Blood Glucose Monitoring System communicates
with users’ smartphone devices. We believe these represent critical intellectual property recognition and a significant initial
validation of our intellectual property efforts.
Hypertension
According to a 2014
publication of the American Heart Association, about 77.9 million adults have high blood pressure in the United States. A higher
percentage of men than women have high blood pressure until age 45. From ages 45–54 and 55–64, the percentage of men
and women is similar; after that, a much higher percentage of women than men have high blood pressure. About 69% of people who
have a first heart attack, 77% who have a first stroke, and 74% who have congestive heart failure have blood pressure higher than
140/90 mm Hg. High blood pressure was listed as a primary or contributing cause of death in about 348,102 of the more than 2.4
million U.S. deaths in 2009.
Blood pressure categories
The five blood pressure ranges as recognized
by the American Heart Association are:
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Normal - blood pressure numbers of less than 120/80 mm Hg are considered within the normal range.
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Elevated blood pressure - is when readings consistently range from 120-129 systolic and less than 80 mm Hg diastolic.
People with elevated blood pressure are likely to develop high blood pressure unless steps are taken to control the condition.
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Hypertension Stage 1 - is when blood pressure consistently ranges from 130-139 systolic or 80-89 mm Hg diastolic. At
this stage of high blood pressure, doctors are likely to prescribe lifestyle changes and may consider adding blood pressure medication
based on your risk of atherosclerotic cardiovascular disease (ASCVD), such as heart attack or stroke.
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Hypertension Stage 2 - is when blood pressure consistently ranges at 140/90 mm Hg or higher. At this stage of high blood
pressure, doctors are likely to prescribe a combination of blood pressure medications and lifestyle changes.
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Hypertensive Crisis - this stage of high blood pressure requires medical attention. If blood pressure readings suddenly
exceed 180/120 mm Hg, it may evidence that a person is experiencing a hypertensive crisis.
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According to the 2014
AHA publication, Hypertension is recognized as a tremendous threat to medical and financial health. National medical costs associated
with hypertension account for about $131 billion, or over 3% of the national healthcare expenditure. While the incremental cost
associated with hypertension for US adults has remained steady at around $2000 per year, it is promising that expenditures seem
to be shifting from inpatient to outpatient settings. This may reflect the expansion of preventative care services for millions
of Americans under the Affordable Care Act. As overall U.S. healthcare costs continue to rise, it is imperative to identify effective
strategies to improve control of chronic diseases that are associated with high annual expenditures. For hypertension, these efforts
may focus on expanded access to preventative care services and continued innovation for non-office based care delivery such as
telemonitoring of home measurements and 24-hour ambulatory blood pressure monitoring.
Our Strategy
Our business strategy
is to generate proven and repeatable clinical and financial outcomes across four market channels -- direct to consumer, providers,
payers, and employers. We plan to do this by offering a highly clinically and cost-effective solution with proven engagement and
outcomes. We have developed a flexible product that gives us the freedom to offer modular packages to the different needs across
our channels.
Key elements of our business strategy include:
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Educating about the dramatic shift that is occurring in terms of efficacy and feasibility of providing remote care for individuals
with chronic conditions.
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Demonstrating the potential for such care to generate revenue to providers and reduce expenses for payers and employers.
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Providing the elements of our Dario Solution in a modular offering with pricing models that go beyond Per Employee Per Month
(PEPM) / Per Member Per Month (PMPM).
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Educating payers about billable remote monitoring codes and working with payers to expand the reach of those codes.
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Generating outcomes data and cost per unit of improvement to demonstrate the cost-effectiveness of our solution relative to
other products.
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Maintaining best-in-class consumer satisfaction.
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Key elements of our growth strategy include:
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Providing in-house enrollment marketing and recruitment to facilitate uptake.
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Increasing conditions covered by our platform.
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Maintaining a price point that enables shared revenue generation for providers.
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Keeping our data-driven development process which has resulted in high satisfaction rates, so we believe that we can repeat
equally high satisfaction rates from corporate customers.
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DarioHealth’s Solutions
Our DTx products are
centered around our users and include the Dario Blood Glucose Monitoring System, the Dario Smart Diabetes Management Solution (provided
to our users in the form of a smartphone application that enables the delivery of valuable content and periodical evidence-based
reports that are intended to be utilized by our users to better control and improve their diabetes), the DarioEngage platform (which
provides support and two-way real-time connectivity between our users and their caregivers) and Dario Intelligence (which utilizes
user data and is intended to be an analytics tool that can assist healthcare providers in the treatments and predictability of
diseases).
Dario Smart Diabetes Management Solution
The Dario Blood Glucose
Monitoring System, our flagship product, is an all-in-one smart glucose meter. It syncs with the Dario Smart Diabetes Management
app to measure, record, and track blood glucose levels. In addition, the app records carbohydrate intake, insulin medication, and
physical activity. In addition, in 2019 we expanded our platform to provide for the ability to sync a blood pressure meter that
connects to our application via blue-tooth connection and allows recording blood pressure measurement in addition to glucose measurements.
The flagship brand
of DarioHealth, the Dario Smart Diabetes Management Solution, was initially launched in the United Kingdom in the first quarter
of 2015 and has since expanded to Canada, Australia, the United States, and Germany. We earn a majority of our revenues in the
United States. We manufacture our products using subcontractors and distribute our proprietary device ourselves. We believe this
control over the end to end production allows us to maintain high standards of quality control. To that end, we are the owner of
several patents relating to our technology and processes.
We use our patented
technology to enhance the way our Dario Blood Glucose Monitoring System communicates with users’ smartphone devices. In the
U.S. market, the Dario Blood Glucose Monitoring System connects to a smartphone via a sugar-cube dongle that does not require a
battery for operation; rather, it relies on the smartphone’s battery as its power source. In the effort to reduce battery-dependence
and ensure 100% real-time data capture, the application is able to monitor and adjust power levels on smartphones accordingly to
enable sufficient output with minimal reliance.
The benefits and features
of our product include:
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Form factor - Sleek, pocket-sized all-in-one
smart glucose meter simplifies diabetes management, Blood pressure cuff is comfortable to use and easy to pair to the app.
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Record - Automatically records every blood
glucose measurement without ever having to sync your meter.
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One app, multiple conditions - Our app integrates data from across devices to the same core experience allowing users
and clinicians to see the border picture.
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Share - Easily share results with loved ones
and your healthcare team takes diabetes management to a new level.
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Emergency Hypo Alerts - Built-in, emergency
hypo alert feature with GPS location adds an extra safety measure.
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Track - Tracking activity and counting carbs
are made easy with a scanner feature that syncs with a database of over 1 million verified items across more than 50 unique countries.
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Just in time learning - With less than 1 in 5 diabetes apps providing just-in-time education,
Dario’s personalized messaging driven by our Journey Engine stands out. Likewise, practical tips for getting to in-range
blood pressure will also be planned to be integrated in the future.
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Available worldwide
in the Apple App Store and Google Play Store, our user-friendly Dario Smart Diabetes Management mobile app is known for its accuracy
and ease-of-use. The Dario Smart Diabetes Management Solution is accessible with affordable pricing models, including subscription
plans. Our pricing is often in line with current co-payments, and sometimes it may even be less than current out of pocket costs.
In addition, many of our customers in the United States get coverage through their flexible spending accounts or FSA. or health
savings accounts, or HSA, or with our third-party healthcare integrations.
Our revenues are derived
from sales of Dario’s components, including the Dario Blood Glucose Monitoring
System itself, and principally from the recurring sale of our disposable cartridges of test strips and other consumables. Our
customers receive access to the Dario Smart Diabetes Management application, which incorporates tools to help people with diabetes
manage their condition. Importantly, our revenue model is driven by the fact that only our test strips, purchased through
our partners and us, can be utilized with the Dario Blood Glucose Monitoring System and software, so we expect that we
will be the sole source for Dario Blood Glucose Monitoring System compatible test strips.
During the second
half of 2018, we have begun to offer our U.S. users the opportunity to register for our membership programs by purchasing 3 month
and 1-year membership plans. In addition to our products, these plans include an unlimited supply of test strips, subject to the
user’s active measurement of his glucose level, and a weekly digital progress report about the user’s measurements,
in order to help users to understand the progress made in their diabetes management. Our members are also provided with personalized
diabetes programs – including lifestyle changes, healthy eating, and advanced tracking, and live coaching seminars. In addition,
in 2019 we expanded our platform to provide for the ability to sync a blood pressure meter that connects to our application via
blue-tooth connection and allows recording blood pressure measurement in addition to glucose measurements.
In addition, we anticipate
generating revenues in the future from our second revenue pillar that we call the DarioEngage platform, our software platform for
health coaches. We plan to offer this software platform to healthcare providers such as insurers, self-insured employers, diabetes
clinics, certified diabetes educators and other third-party providers of coaching and remote-monitoring services for people with
diabetes and hypertension, for a monthly service fee. Our third revenue pillar, which we are planning to introduce at a later stage,
is the Dario Intelligence platform. The Dario Intelligence platform will take advantage of a large amount of data that will be
collected through our servers through the use of our Dario Smart Diabetes Management Solution and the DarioEngage platform, in
order to develop predictive models and artificial intelligence algorithms as detailed below.
We believe the following
features of our Dario Smart Diabetes Management Solution and the manner in which we plan to market and distribute the product
will help position Dario to gain users and drive revenue growth:
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Look and Feel. While utilizing the same state
of the art electrochemical, blood-based measurement techniques as standard glucose monitors offer familiar usability, and the
Dario Blood Glucose Monitoring System is easily integrated with the patient’s own smart mobile device that offers a distinctive
look and feel. Furthermore, unlike the market standards, the Dario Blood
Glucose Monitoring System has an integrated lancing device and a disposable strip cartridge. This eliminates
the need for a separate glucose monitor, lancing device and strip vial and, we believe, makes the Dario Blood Glucose Monitoring
System among the smallest footprint in the market. Furthermore, Dario has novel applications incorporating
software tools to help diabetic patients manage their disease.
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Large Market of Potential Users. Our reliance
on diabetics within the massive smart mobile device market gives us an established potential user-base. According to a February
2019 published Mobile Fact Sheet by Pew Research Center, or PRC, 81% of Americans own a smartphone, up just 35% in PRC’s
first survey of smartphone ownership conducted in 2011. Between the ages of 18 to 34, 95% have a smartphone, and between the age
of 34 to 49, 92% own a smartphone. We believe that it is reasonable to assume that the percentage of smart mobile device users
with diabetes mirrors that of the general population.
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Marketing and Distribution. In the U.S. and Australia,
we have our own direct to consumer marketing channel to support our sales efforts. In the U.S. we also plan to contract with partners
to provide coaching services to employers and health care providers. In the United Kingdom and Canada, we use distribution partners
to market and sell the Dario Blood Glucose Monitoring System. This approach enables a direct communication channel with the market
and the diabetic community. This approach is also designed to effectively create brand awareness with a significantly reduced
use of our capital resources versus the amounts required via the traditional, offline retail channels.
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“Expanding the Pie.” Our goal is to
obtain significant market share using technological innovations and by expanding into additional chronic conditions such as hypertension,
pre-diabetes and obesity.
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Competitive Cost of Goods Sold. Based on our market
research and discussions with our test strip manufacturer, we believe that our anticipated outsourced manufacturing cost of the
test strips is similar to our estimate of our competitors’ cost for existing single-use disposable strips. In addition,
we believe the manufacturing costs of our Dario Blood Glucose Monitoring System are competitive with those of the leading glucose
meters.
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Opportunities for Commercialization Partnerships.
Healthcare and pharmaceutical company entrants into the DTx market are licensing and/or acquiring technologies, seeking differentiation,
thereby providing us with opportunities for more rapid commercialization through partnerships. We believe that our connected platform
can assist other companies in providing an effective data-evidenced and personalized solutions to their patients Therefore, we
plan to explore the possibility of entering into commercialization agreements, including upfront payment, a supply agreement,
and royalty payments, with strategic partners.
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DarioEngage
DarioEngage represents
our customer remote engagement and management software platform, which enables our team as well as external healthcare providers
in all aspects of user engagement, including enrollment, coaching and ongoing communications with the end-users based on user consent.
DarioEngage was developed in order to allow for a one-stop scalable management tool to improve the efficacy and outcomes of caregivers.
We believe that DarioEngage will assist healthcare providers and payers by offering them an open platform, which allows customers
to implement their own clinical and population health expertise in a digital, user-centric and efficient way. We believe this approach
can address two key issues: improving the quality of health for individuals, which in turn will lower healthcare costs across the
spectrum.
The DarioEngage platform empowers health
providers offering diabetes services with:
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Monitoring - 100% data capture, access to users’
real-time clinical and behavioral data.
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Engagement - Personalized coaching in response to
users’ habits and needs, response to user events, and enhanced communication and support.
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Management - Clinical program integration, automated
processes, scheduling tools, and reporting.
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The DarioEngage platform
provides caregivers with real-time access to data collected by a user such as glucose level, carb counting, physical activity,
weight tracking, blood pressure, and other parameters. Such access allows caregivers to prioritize user intervention based on real-time
data and alerts and allows for multi-channel digital interaction with the user (chat, in-app messages, email and text). DarioEngage
is a cloud-based SaaS solution that also includes open APIs for platform integration.
We believe that the
DarioEngage platform is a user-centric, data-driven health solution which allows people with diabetes to get the right care, at
the right time, and allows for the effective monitoring, coaching, and management of their chronic conditions, such as type 1 and
2 diabetes, gestational diabetes, and prediabetes.
Dario Intelligence
The last pillar in
our planned suite of product offerings is Dario Intelligence. We are planning to offer Dario Intelligence, which utilizes the large
amount of data that will be collected on our servers through the use of our Dario Smart Diabetes Management Solution and the DarioEngage
platform, to develop predictive models and artificial intelligence algorithms to meet the potential demand of intelligence-driven
analytics that healthcare providers will be looking to improve their services.
We believe the future
development of Dario Intelligence will present an opportunity in the chronic disease management field and will help us leverage
our data capturing platform, to be used for big data analytics, research, EMRs (Electronic Medical Record) / EHRs (Electronic Health
Records), and the development of real-time and predictive-based health management solutions.
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Data Collection - Real-time data collections and aggregation
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Analytics - Dario big data analytics solution
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Discovery - Data discovery and analysis
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Insights - Predictive models and AI-driven insights
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Through Dario Intelligence,
we believe we may be able to develop innovative artificial intelligence and machine learning approaches that will enable us to
transform big data into individual and specific predictive models to meet the demands of both consumers and the health care providers.
We believe that by coupling data and algorithmic development, Dario Intelligence may offer in the future the way to detect, predict
and intervene most effectively for each individual using our platform.
Our Vision for Dario Intelligence
We intend to offer
solutions built from a foundation of rich and robust data, ultimately transforming our revenue model from simple product volume
to the product value. We believe that the current ineffective care of diabetes and other chronic conditions reflects a need for
more intelligent and nuanced approaches relating to predictive behaviors and real-time care. We believe that financial incentives
tied to patient outcomes have the potential to generate sizeable revenue growth for us and position us as a leader in transforming
the management of diabetes. Achieving the strategic vision of Dario Intelligence requires multiple steps and evolutions in order
to harness the power from the data generated by a connected community, and subsequently impact individual behavior.
Phase 1 – Collect & Analyze
As the Dario Smart
Diabetes Management Solution user-base has grown, we have collected a significant amount of user data and information. Initial
efforts in Phase 1 are centered around an understanding of our user-base. Compiling basic demographic data such as age, gender,
country geography, etc., and establishing links to test strip usage and blood glucose control are critically important. Further,
examining variation amongst population cohorts in both utilization and blood glucose outcomes is fundamental to future targeting
and retention campaigns. We intend to generate analytical insights on individuals who achieve improvement in blood glucose levels
in order to develop an in-depth understanding of those who maintain such an improvement over time, which we believe will form the
backbone of interventional program development that we intend to generate with our potential partners.
Phase 2 – Expand Collection of Data Types, Experiment
with Outreach Campaigns
As continued growth
of users accelerates globally, concerted efforts will be undertaken at expanding the collection of highly relevant data types.
In addition, we intend to expand data collection on user data points such as carbohydrate intake, exercise, and physical activity,
medication and medication adherence, GPS location, time stamps, insurance coverage type/status. When more data elements are gathered,
the intention is for Dario Intelligence to apply its artificial intelligence and machine learning capabilities to enhance understanding
of individuals and detailed profiles that will be generated with comprehensive user information such as the type of advertising
that was used to recruit patients or how frequently an individual interacts with the Dario Smart Diabetes Management app. The result
is intended to be a cohort-specific predictive model that can be used to develop interventional programs on a wide basis.
Phase 3 – Monetize De-Identified Data, Learn, Expand
Intervention Programs
We believe that pharmaceutical
companies, device manufacturers, insurers, governments, researchers, advertisers, and start-up companies would be willing to pay
for the de-identified data that we will obtain through our Dario Intelligence platform. As such, we believe there is an opportunity
to develop a consistent revenue stream from this data.
In addition to data
that reports on the activity and performance of the population as a whole, we believe that we will be able to provide access to
a globally connected community of patients and consumers. We are planning to monetize access to specific patient cohorts, designing
programs to improve utilization, engagement, and outcomes. These future programs will be adapted, modified, and enhanced based
on continuous learning and additional data inputs from external third parties that we are planning to engage with in the future.
Pay for performance models will be developed and experimented with, as we will implement next-generation artificial intelligence
and machine learning programs designed to influence user’s behavior.
Background on Diabetes
Diabetes
is a chronic disease that arises when the pancreas does not produce enough (or ceases to produce) insulin, or when the body cannot
effectively use the insulin it produces (insulin resistance). Insulin is a hormone made by the pancreas that enables cells to take
in glucose from the blood and use it for energy. Failure to produce insulin, or insulin to act properly, or both, leads to raised
glucose (sugar) levels in the blood (hyperglycemia), which can be detected with a blood test. Excess glucose in the blood has been
shown to cause damage to blood vessels and is thus associated with long-term damage to the body and failure of various organs and
tissues, including the retina and the kidneys. There are three main types of diabetes:
Type
1 diabetes, sometimes called insulin-dependent, or juvenile, diabetes, is caused
by an auto-immune reaction where the body’s defense system attacks the insulin-producing cells located in a person’s
pancreas. The reason why this occurs is not fully understood. People with Type 1 diabetes produce very little
or no insulin. The disease can affect people of any age but usually occurs in children or young adults. People
with this form of diabetes need injections or infusions of insulin several times a day in order to control the levels of glucose
in their blood. The use of insulin may lead to excessively low levels of glucose in the blood, also known as hypoglycemia,
leading to other health problems. Type 1 diabetes patients constitute approximately 10% of the overall number of patients,
but are much more extensive users of BGMS, as these diabetics need to measure their glucose levels 4-10 times a day to avoid both
hyperglycemia and hypoglycemia (versus once or twice a day for most Type 2 non-insulin dependent diabetic patients). The vast majority
of Type 1 diabetes patients are insulin-dependent.
Type
2 diabetes is sometimes called adult-onset diabetes and accounts for at least
90% of all cases of diabetes. It is characterized by insulin resistance and relative insulin deficiency, either of which
may be present at the time that diabetes becomes clinically manifest. The diagnosis of Type 2 diabetes usually occurs after the
age of 40 but can occur earlier, especially in populations with high diabetes incidence. Type 2 diabetes can remain
undetected for many years, and the diagnosis is often made from associated complications or incidentally through abnormal blood
or urine glucose test. It is often, but not always, associated with obesity, which may contribute to insulin resistance
and lead to elevated blood glucose levels. A portion of the Type 2 diabetes patients are insulin-dependent or use insulin
as part of their treatment.
Gestational
diabetes (GDM) is a form of diabetes consisting of high blood glucose levels
during pregnancy. It develops in one in 25 pregnancies worldwide and is associated with complications in the time period
immediately before and after birth. GDM usually disappears after pregnancy, but women with GDM and their offspring are
at an increased risk of developing Type 2 diabetes later in life. Approximately half of women with a history of GDM
go on to develop Type 2 diabetes within five to ten years after delivery.
The Diabetes and BGMS Markets and the Dario Smart Diabetes
Management Solution
Diabetes is a growing
epidemic for which no cure exists, but for which treatments (including a regimen of frequent blood glucose testing) are available.
The medical journal Lancet has reported that the number of worldwide diabetics has doubled over the past thirty years. While
about 70% of the increase has been attributed in the Lancet report to population growth and aging, the balance was linked to changing
diets, rising obesity levels, and less physical activity.
According to the information
published in 2017 by the International Diabetes Foundation (IDF), in its 8th edition of the “IDF Diabetes Atlas,”
approximately 425 million people worldwide were estimated to have diabetes in 2017 or one in eleven adults worldwide. The greatest
numbers are between 40 and 59 years old. If these trends continue, by 2045, some 629 million people are forecasted by the IDF to
have diabetes. According to the IDF Diabetes Atlas, in Europe, there were 58 million adults over the age of 20 with diabetes
in 2017 and approximately 30.2 million adults over the age of 20 with diabetes in the U.S. in 2017. As of 2017, approximately
187 million adults with diabetes live in China and India, with approximately 12.4 million in Brazil and 8.5 million in Russia.
It is estimated that
the costs of diabetes complications account for between 5% and 10% of total healthcare spending in the world. In the United States,
the American Diabetes Association, or ADA, estimated that the total cost of diagnosed diabetes has risen from $174 billion in 2007
to $245 billion in 2012. Early diagnosis of warning signs and ongoing monitoring of diabetes are the keys to the prevention
and treatment of the disease, with blood glucose monitoring being the primary method of diagnosis and disease management, coupled
with matching blood glucose readings with food (i.e., carbohydrate) and insulin or another medication intake.
Since blood glucose
self-monitoring is a key part of managing diabetes, the market for BGMS products required to service these many patients is also
large. As reported in a press release published by Allied Market Research, the blood glucose self-monitoring market was estimated
to be $7.76 billion in 2017 and is expected to grow to an estimated $10.82 billion by 2025. The biggest drivers for
growth in the diabetes device market will be the increased prevalence and awareness of diabetes. The U.S. is the largest
market, contributing close to 40% of the global market for these devices.
Key factors driving
market growth include an increasing number of people with diabetes, growing patient awareness, technological advancements and the
increasing number of patients adopting blood glucose self-monitoring. In addition, the affordable cost of blood glucose
test strips, and an increase in daily monitoring, are also expected to contribute to market growth. As such, BGMS represents
a large market that has grown significantly over the past 30 years and is expected to continue to grow.
We
also believe we will be able to support patients with pre-diabetes, also called metabolic syndrome. Metabolic
syndrome is a combination of medical disorders that increase the risk of developing cardiovascular disease and diabetes. According
to the American Diabetes Association, in 2015, 84.1 million Americans age 18 and older had pre-diabetes. This population is typically
prescribed with periodic lab-based glucose level testing (which requires a doctor visit, significantly reducing the compliance
level) and typically does not involve the utilization of self-monitoring glucose devices.
It is important to
note that the diabetic market is the first point of entry for the Dario Smart Diabetes Management Solution and we believe that
our goal of providing mHealth health solutions for a variety of chronic and wellness related conditions based on mobile device
testing will grant us access to a much larger market. The Dario Smart Diabetes Management Solution is targeted at the digital health
market, which was estimated by Zion Market Research at around $122 billion globally in 2017 and is expected to reach $423 billion
by 2024.
Industry Background and the Dario Smart Diabetes Management
Solution Opportunity
From a competition
perspective, four companies currently dominate the BGMS business, controlling a majority of the market: Roche Diagnostics (part
of Hoffman-LaRoche), LifeScan (a Johnson & Johnson company), Ascensia (formerly Diabetes care), and Abbott Laboratories. These
“big four” offer a wide variety of BGMS products and have led the market since the late 1990s. Numerous second-tier
and third-tier competitors, including several in Asia, hold the remaining 10% of the market. We believe that the BGMS offerings
by all vendors are comparable, with mild differentiation of the main feature sets of the devices. This is akin to the
differentiation among personal computers (PCs) during the 1990s and 2000s, where most of them had the same key feature set of Microsoft
Windows and Intel Processors.
We believe that the
increasing global adoption of mobile phones has created an opportunity for disruption in the BGMS market. The Dario Smart
Diabetes Management Solution, which features our compact all-in-one Dario Blood Glucose Monitoring
System device coupled with iOS, Android and web-based apps, is intended to eliminate the need for separate glucose monitors,
carb-calculators and cumbersome dependency on wired, computer-based logging tools. Our intention is for Dario not
only to deliver the best blood glucose monitoring experience but also use the unique capabilities of mobile smart mobile devices
to deliver better health outcomes.
With respect to the
U.S. BGMS market, the principal barriers to entry (all of which we believe the features of the Dario Smart Diabetes Management
Solution can overcome) can be summarized as follows:
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Achieving significant product differentiation in the
eyes of diabetes patients or insurance payers. We believe that Dario offers a novel design that is compatible
with the usability of the current devices yet offers a modern look and feel when compared to products in the marketplace. Marketing
of the product directly to consumers will emphasize the product’s distinguishing attributes, without incurring the significant
product introduction expenses typically incurred for the marketing of a standard glucose meter via traditional retail channels.
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Costs. We anticipate that low manufacturing
costs for the dongle (the part of the Dario Blood Glucose Monitoring System that attaches to the phone jack or Lightning connector)
and the similarity to our competitors’ estimated cost of manufacturing the strips, when coupled with our direct-to-consumer
marketing, creates the potential for providing us with a meaningful cost advantage versus most vendors of traditional glucose
meters.
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Difficulty obtaining shelf space at the pharmacy. With
many products on the market, a new entrant has to battle for visibility on the shelf or in e-commerce stores. The Dario
Smart Diabetes Management Solution will limit this obstacle by emphasizing internet based direct-to-consumer marketing and sales.
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The challenge of influencing diabetes specialists
to recommend another BGMS product to patients. We make efforts to introduce and present the Dario Smart Diabetes
Management Solution to the medical community through our participation in academic and professional conferences. The
Dario Smart Diabetes Management Solution will continue to be marketed directly to our target users (“Business to Consumer,”
or B2C), who we believe are increasingly becoming the primary decision-makers in choosing their glucose monitoring equipment.
We have also started marketing our products in a “Business-to-Business,” or B2B, business model, selling to large
organizations that include distributors, retailers, pharmacies and hospitals.
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We believe that Dario’s
specific features and trends in the marketplace create a significant opportunity to penetrate the market and effectively compete
with and gain market share against the established players.
Utilization of Mobile Health Applications
Smart mobile device
applications combine easy-to-use interfaces with continuous internet access to create transformational mobile health solutions
(often called mHealth, eHealth or digital health). Although the potential benefits of mHealth solutions have been widely
discussed for over a decade, the market is now starting to emerge from the trial phase. The need to reduce long waiting periods
in order to access health care facilities from specialists is the primary driver responsible for the adoption of mHealth. We believe
that Dario is designed to play directly into this market trend.
In addition, the Grand
View Research report states that the availability of applications for consumers is continuing to grow rapidly, especially healthcare
apps. These applications assist users in self-management of wellness, disease and chronic abnormalities. This has led to the patient
playing an important and active role in staying informed and updated on their own healthcare decisions, contributing to the rise
in the adoption of mHealth apps globally.
Healthcare is gradually
transitioning towards a precision-based model, better known as a “personalized medicine” model. mHealth is becoming
a widespread trend due to the introduction of technologies such as EMRs, remote monitoring, and other communication platforms.
mHealth leverages the 4Ps of healthcare delivery: personalized, predictive, participatory, and preventive, to ensure delivery of
optimal care to its users. In addition, the growing penetration of smartphones, especially in low- & middle-income countries
and the growing focus on utilizing mobile technology to leverage healthcare delivery and ensure a population health plan is anticipated
to benefit the market.
The Dario Smart
Diabetes Management Solution includes the Dario Blood Glucose Monitoring System and software application for people with diabetes. Dario
currently allows users to easily record, analyze, transmit and store key data points such as glucose level, insulin, and carbohydrate
intake. Moreover, the Dario Smart Diabetes Management application provides knowledge and motivation with the aim of improving health
outcomes. In addition, we are developing software for health care providers and payers to help better support patients and intelligently
manage large patient populations.
Sales and Marketing
Our initial marketing
efforts in the United States were focused on the early adopter users who have diabetes and who are paying out of pocket for their
monitoring tools to manage their chronic condition, and we have concentrated our efforts in gaining market share and brand awareness
through direct to consumer marketing efforts.
In 2018, we began to
expand our marketing efforts to the insured population by offering our DarioEngage platform to a variety of healthcare providers
who are supporting and coaching individuals with diabetes. We believe this will help us to diversify our revenues, from only selling
our Dario Blood Glucose Monitoring System and its consumables to revenues generated from providing online real-time monitoring,
supervising and coaching capabilities to all relevant healthcare providers who support individuals with diabetes and hypertension,
and in the longer terms also other chronic conditions. As part of these efforts, during 2019 we announced our planned cooperation
with Attain Health, Giant Eagle, BestBuy, and Better Living Now (BLN).
In the U.K., the Dario
Blood Glucose Monitoring System is a fully reimbursed product distributed by a distributor since the second quarter of 2016.
The Dario Blood Glucose Monitoring System is now available via all main pharmacies in the U.K. Our sales and marketing efforts
have been focused on wholesalers, pharmacies, HCP’s (Health Care Professionals), diabetes educators and hospitals via the
distributor. This has created awareness and understanding of the value proposition we offer to people with diabetes. In addition,
we will be focusing on increasing our presence in the U.K. market via our direct to consumer strategy, utilizing the countrywide
availability of the strips in pharmacy and clinical awareness of the product via the healthcare providers.
In Canada, the Dario
Blood Glucose Monitoring System is available through major pharmacy chains across Canada that includes brands like London Drugs.
We also offer consumers the ability to buy direct via our online platform or to get their prescriptions serviced online via Bayshore.
Similar to the U.K., in Canada, we work on both promoting and marketing Dario to the medical establishment via our distributor
and expanding its awareness via our direct to consumer strategy which we have been ramping up.
On the marketing side,
we primarily utilize online marketing in order to create awareness of Dario. Rather than solely rely on an online advertisement,
we will also consider revenue sharing with affiliate networks and a variety of other pay-for-performance methods commonly used
in online commerce.
We also expect to collaborate
with the medical community to showcase what we expect will be the Dario Smart Diabetes Management Solution’s clinical equivalence
and usability superiority through DarioEngage and Dario Intelligence.
Manufacturing
As we do not directly
manufacture our products ourselves, we have supply agreements with manufacturers for the Dario Blood Glucose Monitoring System,
glucose test strips, lancing devices, and lancets. We have arrangements in place with commercial-scale manufacturers
for both the Dario Blood Glucose Monitoring System and for our test strips. As a result of investments, we have made over
the past several years, we own the specialized equipment used to manufacture Dario Blood Glucose Monitoring System.
During 2015, we commenced
the manufacturing of our Dario Blood Glucose Monitoring System with a Chinese manufacturer as part of our efforts to further reduce
manufacturing cost. At the beginning of 2016, we transitioned our manufacturing to a new Chinese manufacturer as part of our effort
to increase our manufacturing capacity and improve cost savings.
Insurance Reimbursement
In the United States
and in other jurisdictions such as England, we expect that Dario’s test strips should generally be available for full
or partial patient reimbursement by third-party payers. We expect to work with third-party payers in the countries into which
we expect to market Dario in order to establish coverage for test strips, although we cannot be sure of coverage being obtained.
In April 2014, we announced the receipt of reimbursement coverage for the use of the Dario Blood Glucose Monitoring System in Italy,
making 600,000 Italians eligible for reimbursement coverage. In June 2014, we were granted
(effective September 1, 2014) reimbursement status in England, Wales, Scotland and Northern Ireland for strips and lancets to be
utilized together with the Dario Blood Glucose Monitoring System. In May 2015, we launched Dario in Canada and the
majority of Canadian medical plans are now covering test strips for the Dario Blood Glucose Monitoring System with reimbursement.
We expect the balance of Canadian insurance plans to provide reimbursement coverage in the near future. We are planning to pursue
reimbursement coverage in other jurisdictions.
Clinical Studies and Outcomes
Our platform is planned
to target different chronic conditions. Our initial focus has been on diabetes because that is a condition in which we believe
there is the biggest opportunity to make a meaningful impact and improve healthcare outcomes and lower costs. It is also a condition
that is associated with multiple different comorbidities, each of which represents a significant health and economic burden. The
majority of our end-users are individuals with type 2 diabetes. Most people with type 2 diabetes are diagnosed after age 45 and
have at least two co-existing chronic conditions. The most common chronic condition in people living with type 2 diabetes include
hypertension (73.6%), overweight/obesity (87.5%), hyperlipidemia (75.2%), chronic kidney disease (36.5%), and cardiovascular disease
(32.2%). Typically, the health of people with type 2 diabetes is managed by a primary care physician, although few may also be
seen by an endocrinologist.
On average, people
with type 2 diabetes see a physician more than five times per year. While there are a number of metrics that physicians use to
track the health of these patients, the most common is hemoglobin A1c, or HbA1c, which measures the average 90-day glycemic (blood
glucose) level in red blood cells. Clinical guidelines published by the ADA suggest that a reasonable HbA1c target for many non-pregnant
adults is less than 7%, or 154 milligrams per deciliter. A higher HbA1c has been associated with increased health risk and associated
costs. The ADA estimates that annual healthcare costs for a person with diabetes cost an average of $16,750 compared to $7,151
for a healthy individual. Research published by Oxford University in the United Kingdom suggests that a 1% reduction in HbA1c levels
leads to a 21% reduction in death from diabetes, a 14% reduction in heart attacks and a 43% reduction in peripheral vascular disease.
Monitoring HbA1c levels is typically done through routine blood work in a clinical laboratory with a physician order. Treatment
can involve a range of therapies, the most common of which is lifestyle management such as nutrition, physical activity and medication.
Physicians will also employ various strategies to manage diabetes-associated comorbidities.
We believe that patients using a digital diabetes management
platform have the potential to promote behavioral modification and sustain adherence to diabetes management, demonstrating better
glycemic control.
Our sophisticated customer-focused solutions provide significant,
meaningful improvements in the measurable clinical outcomes of our members.
Clinical Studies
The system accuracy and user performance of our product has
been evaluated in several studies that we have performed, in over 1,300 diabetic patients from 2015 through 2017, and was found
compliant with the most stringent current requirements of FDA guidelines and international standards then in effect.
Clinical validation of our product was
performed with 350 diabetic patients for each product type, namely the meter with the audio jack and the meter with the lightning
connector, and the results that were achieved were as follows:
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Dario BGMS (Android): For all subject's samples 96.6% within ±15% and 100% within ±20% of the medical laboratory
values at the entire glucose concentrations range
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Dario LC BGMS (iPhone, Lightning connector): For all subject’s samples 96.3% within ±15% and 99.4% within ±20%
of the medical laboratory values at the entire glucose concentrations range.
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Published Clinical Data
Since 2017, we have conducted numerous real-world-data
studies through analyzing the clinical data of our user’s utilizing the rapidly increasing database that is stores on our
data cloud.
Several scientific
studies were published by us between 2017 and through 2019 in leading diabetes conferences such as the ADA, AADE and ATTD.
Main Highlights
In all of the below
studies, we believe that the results show a trend of continued improvement, demonstrating a direct correlation between using the
Dario Blood Glucose Monitoring System and app and improving clinical parameters. The combination of Dario’s Blood Glucose
Monitoring System and app may promote behavioral modification and enhanced adherence to diabetes management, demonstrating improvement
in glycemic outcomes and sustainment for a long period of time.
Dario reported
an Average Reduction in Estimated HbA1C of 1.4% for High-Risk type 2 Diabetes Users.
Dario presented at
the 77th ADA session a study that was titled “Reducing A1C Levels in Individuals with High-Risk Diabetes Using
the Mobile Glucose Meter Technology.” In the study Dario reported an average reduction in estimated HbA1C of 1.4% for high-risk
type 2 Diabetes users.
At the ADA 2018 session, Dario presented
three real-world-data analysis studies, as detailed below.
Type
2 Diabetes Users of Dario Digital Diabetes Management System Experience a Shift from Greater than 180 mg/dL to Normal Glucose Levels
with Sustainable Results
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Reduction of 19.3% in high glucose readings within
12 months
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Increase of 11.3% in In-range readings within 12 months
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Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of all active Type 2
Diabetic (T2D) users that took measurements with DarioTM BGMS on average of 20 measurements per month during 2017. The
study assessed the ratio of all high blood glucose readings (180-400 mg/dL) and the ratio of all normal blood glucose readings
(80-120 mg/dL) in their first month of use to their last month of use during 2017 as recorded in the database.
Results:
For 17,156 T2D users activated during 2017 the average ratio of high events (180-400 mg/dL) was reduced by 19.3% (from 28.4% to
22.9% of the entire measurements). While at the same time, the ratio of normal range readings (80-120 mg/dL) was increased by 11.3%
(from 25.6% to 28.5% of the entire measurements). The most significant shift occurred after one month of usage (14% decrease) and
maintained stability over the following months throughout the full year. |
Updated
Analysis combining 2017 and 2018 data totals 38,838 Type 2 Diabetes active users and 3,318,014 measurements show
14.3% decrease in high readings (180-400 mg/dL) and 9.2 % increase in In-range (80-120 mg/dL) readings
A
decrease in High Readings and Severe Hyperglycemic Events for People with T2D over the Full Year of 2017 in Users Monitoring with
Dario Digital Diabetes Management System
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Reduction of 20% of High events (180-400 mg/dL) in T2D sustained within 12 months
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Reduction of 58% of Hyper events (>400mg/dL) in T2D within 12 months
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Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active Type 2 Diabetic
(T2D) users that continuously measured their blood glucose using DarioTM BGMS during the full year of 2017 was evaluated.
The study assessed the ratio of high (180-400 mg/dL) and hyperglycemic (>400mg/dL) blood glucose readings during full year of
2017 as recorded in the database. The average of high and hyperglycemic glucose readings were calculated in periods of 30-60, 60-90,
90-120, 120-150, 150-180, 180-210, 210-240, 240-270, 270-300, 300-330, 330-360 days and compared to first 30 days as a starting
point of analysis.
Results:
For 225 T2D active users the ratio of high events (180-400 mg/dL) was reduced gradually in 19.6% (from 23.4% to 18.8% of the entire
measurements) from baseline compared to the 12th month of the year. Moreover, the ratio of severe hyperglycemia events
(>400 mg/dL) was decreased in 57.8% (from 0.90% to 0.38% of the entire measurements) at the same period.
Continuous
Reduction of Blood Glucose Average during One Year of Glucose Monitoring Using Dario Digital Monitoring System in a High-Risk Population
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Reduction of 14% Blood Glucose average was observed
in T2D within 12 months
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76% of the population showed 24% improvement in Blood
glucose average within 12 months
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Methods:
An exploratory data analysis study reviewed a population of high risk active type 2 Diabetic users with initial 30 days glucose
average above 180 mg/dL during a full calendar year. The study assessed the average blood glucose readings along a year of usage.
The average of glucose readings was calculated per user in periods of 30 days intervals from 30-60 to 330-360 days and compared
to the first 30 days as the starting point baseline of analysis.
Results:
Overall of 238 highly engaged T2D users (more than one daily measurement in average) whose average blood glucose
level was above 180mg/dL in the first 30 days of measurements (225±45 mg/dL) showed continuous reduction in glucose level
average vs. baseline. Reduction in blood glucose average level was demonstrated gradually, in the succeeding 3, 6 and 12 months
showing average decrease of 7%, 11% and 14% vs. baseline, respectively. Furthermore, 76% of the entire population (180 out of 238
users) improved their average blood glucose level over a year. Those 180 users (average blood glucose 228±46) showed an
average decrease of 10%, 16% and 24% in their glucose average following 3, 6 and 12 months, respectively.
At the American Association
of Diabetes Educators (AADE) 2018 Dario presented a study titled “Decrease in Estimated A1C for people in High-risk over
a full year of users monitoring with a digital Diabetes management system.”
A reduction of 1.4%
in estimated HbA1C in Type 2 Diabetes high risk users from baseline after one year of the Dario system use.
Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of high-risk (with baseline
A1C > 7.5 percent), active users that continuously measured their blood glucose using DarioTM BGMS during a full
year was evaluated. The study assessed estimated A1C values based on blood glucose readings during a full year as recorded in the
database. The estimated A1C values were calculated in periods of 3, 6, 9 and 12 months and compared to first 30 days as a starting
point of analysis.
Results:
A group of 363 high-risk Dario BGMS users (A1C>7.5) with greater than two blood glucose measurements taken per day in the first
30 days and in the 12th month of the year was selected. Estimated A1C was improved by -0.7, -0.8 and -1 percent from
baseline to 3, 6 and 9 months respectively, and remained -1 percent lower following 12 months of usage (8.65±0.96 vs.7.65±1.0).
Moreover, subgroup analyses by diabetes type revealed substantial estimated A1C improvement among people with T2D showing improvement
of -1 percent from baseline to 3, 6 months and 1.4 percent following 12 months (8.5 ± 0.91% vs. 7.14% ±
0.98%).
An additional study
evaluated on the potential improvement in glycemic variability in Type 2 diabetes over six months in patients monitoring with Dario
Diabetes management system. Dario presented the study results at the Advance Technologies and Treatment for Diabetes (ATTD) conference
in February 2019 in Berlin. We presented two additional studies outcomes at ADA 2019 conference.
Decrease in Glycemic Variability
for T2D over Six Months in Patients Monitoring with Dario Digital Diabetes Management System
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Reduction of 14%-18% in measurements variability was
observed in T2D within 6 months
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Hypo events (<70 mg/dL) remained <1 event on
average
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Method:
A retrospective data evaluation study was performed on the DarioTM database. A population of T2D high-risk
patients (blood glucose measurements average (GMavg) >180 mg/dL) measuring more than 20 times in the first 30 days
(analysis baseline) was evaluated on days 60-90 (3 months) and 150-180 days (6 months). Standard deviation (SD) and GMavg
were calculated and compared to the baseline.
Results:
A group of 698 T2D high-risk DarioTM users was selected. GV was reduced by 10% and 14% from baseline through 3 and 6 months, respectively (SD of 55.7, 58.4 vs.65.0). GMavg was reduced by 8% and 12% from
baseline through 3 and 6 months, respectively (201.1±25.57, 192.8±54.3 vs. 219.5±38.5) while patient’s
hypoglycemic event (<70mg/dL) was in average, less than one (<1) during this period. Subgroup analyses (355 patients) revealed
substantial GV improvement among non-Insulin T2D patients. The GV was reduced by 14% and 18% from baseline through 3 and 6 months,
respectively (SD of 52.8, 50.7 vs.61.7).
T2D Users of Dario Digital
Diabetes Management System Experience an Increase of in-range Glucose Levels Linked to App Engagement
Relative Increase
of 10 % In-range linked to App engagement
Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of active Type 2 Diabetic
(T2D) users (>15 measurements per month on average) was evaluated. The study assessed the ratio of in-range blood glucose readings
(70-140 mg/dL) as a function of App engagement level for 6 months as recorded in the database compared to first 30 days as a starting
point of analysis.
Results:
A population of 4917 T2D non-insulin users measuring more than 15 times per month on average during 6 months in a row was evaluated.
The ratio of in-range (70-140 mg/dL) readings was increased following 3 months in correlation to the level of tagging meal reference/carbs/physical
activity occurrences (4.0%, 9.1% and 11.9% for tagging 0-1, 1-2 and >2 times per day on average, respectively) and sustained
for 6 months (3.1%, 7.0% and 12.2%, respectively). In subgroup analysis focusing on users entering their meal reference, high correlation
was observed following 3 months with an increase of in-range measurements in 4.6%, 8.4% and 12.0% for 0-1, 1-2 and >2 meal reference
tagging per day on average, respectively, and maintained stability over 6 months period (3.2%, 7.4%, and 12.5%, respectively).
Reduction of Blood Glucose
Average Less than 140mg/dL in People with Type2 Diabetes Using Dario Digital Diabetes Management System
30-40% of T2D Dario
users experienced Reduction of Blood Glucose Average below 140 mg/dL
Method:
A retrospective data evaluation study was performed on the DarioTM cloud database. A population of
active T2D users that continuously measured for 6 months was evaluated. The study assessed their BG avg and estimated A1C (eA1C)
values based on blood glucose readings as recorded in the database. Values were calculated in periods of 3 and 6 months and compared
to their first 30 days as a starting point analysis.
Results:
A group of 1248 Dario BGMS T2D active users (1.98 measurements per day on average during 6 months in a row) with
BG avg >140mg/dL (eA1C>6.5) was evaluated.100% reduced their BG avg along 6 months on average.
A group of 31% (387)
achieved BG avg of <140 mg/dL (eA1C<6.5) following 3 months showing 19% reduction on average from baseline (132.38±13.36
vs.162.79±25.41 mg/dL and eA1C 6.24±0.46 vs 7.3±0.88) and sustained their glycemic control during a 6 months
period (131.57±13.86 mg/dL and eA1C 6.21±0.48).
Subgroup analyses
of 568 non-insulin users revealed that 40% (226) achieved a BG avg <140 mg/dL following 3 months (131.95±13.21 vs.161.67±24.18
mg/dL and eA1C 6.22±0.46 vs 7.26±0.84) and sustained for 6 months period (131.03±13.70 mg/dL and eA1C 6.19±0.47).
Along the 6 months period, hypo events (<50mg/dL) per user per month on average remained stable.
In August 2019 another
study was presented at the AADE 2019 in Atlanta. The study evaluated the “Impact of Digital Intervention on In-range Glucose
Levels in Users with Diabetes.” The study results showed 6% improvement in average blood glucose levels over 3 months intervention
program for a group of 162 users. A 39% increase in the in-range measurements was observed in a subgroup of 101 patients who started
with average blood glucose levels of over 140mg/dL.
In
February 2020, we presented an additional clinical study at the Advanced Technologies & Treatments for Diabetes (“ATTD”)
conference in Madrid, Spain. The presented data shows the Dario digital therapeutics platform successfully assists insulin dependent
patients with diabetes in reducing hypoglycemic events.
Decrease in Hypoglycemia Events Over Two Years
in Patients Monitoring with Dario’s Digital Diabetes Management System
Method:
A retrospective data analysis was performed on the Dario real-world database. Insulin dependent of users with type 1
or type 2 diabetes population was evaluated for two year of continuous system use. Average numbers of level 1 hypoglycemia (<70mg/dL)
and level 2 hypoglycemia (<54 mg/dL) events were calculated monthly and compared to baseline (first month).
Results:
For 1481 type 1 and type 2 insulin dependent users, average of level 1 hypoglycemia events and level 2 were reduced
by 24% and by 17% after 6 months and by 50% and 57% after 2 years vs. baseline respectively. Users with type 1 diabetes (N=363)
reduced level 1 hypoglycemia events by 50% and Level 2 by 55% after 2 years. Moreover, a 40% reduction in high blood glucose readings
was observed as well after 2 years.
Government Regulation
The principal markets
that we have initially targeted for Dario are the United States, Canada, the European Union, Australia, and New Zealand. The
following is an overview of the regulatory regimes in these jurisdictions.
United States Regulation
Generally
In the United States,
devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation
is conducted before a device receives clearance for commercial distribution. Under Section 201(h) of the Food, Drug,
and Cosmetic Act, a medical device is an article, which, among other things, is intended for use in the diagnosis of disease or
other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals. The Dario
Blood Glucose Monitoring System is classified as a medical device and subject to regulation by numerous agencies and legislative
bodies, including the FDA and its foreign counterparts. FDA regulations govern product design and development, pre-clinical
and clinical testing, manufacturing, labeling, storage, pre-market clearance or approval, advertising and promotion, and sales
and distribution. Specifically, the FDA classifies medical devices into one of three classes. Class I devices are
relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat more
complex and require greater scrutiny. Class III devices are new and frequently help sustain life.
Unless an exemption
applies, each medical device commercially distributed in the United States will require a 510(k) clearance, 510(k)+ “de-novo”
clearance, or pre-market approval (or PMA) from the FDA.
510(k)
Clearance Process. After a device receives 510(k) clearance, any modification that could significantly affect
its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could
even require a premarket application approval. The FDA requires each manufacturer to make this determination in the
first instance, but the FDA can review any such decision. If the FDA disagrees with the determination, the agency may
retroactively require the manufacturer to seek 510(k) clearance or premarket application approval. The FDA also can
require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket application approval
is obtained.
De
Novo Classification. If the FDA denies 510(k) clearance of a device because it is novel and an adequate
predicate device does not exist, the “de novo classification” procedure can be invoked based upon a reasonable assurance
that the device is safe and effective for its intended use. This procedure approximates the level of scrutiny in the
510(k) process but may add several months to the clearance process. If the FDA grants the request, the device is permitted to enter
commercial distribution in the same manner as if 510(k) clearance had been granted.
Premarket
Application Approval Process. After approval of a premarket application, a new premarket application or
premarket application supplement is required in the event of a modification to the device, its labeling or its manufacturing process. The
premarket application approval pathway is much more costly, lengthy and uncertain. It generally takes from one to three
years or longer.
European and Non-European
Regulation Generally
Sales of medical devices
outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws and
regulations range from simple product registration requirements in some countries to complex clearance and production controls
in others. As a result, the processes and time periods required to obtain foreign marketing clearance may be longer
or shorter than those necessary to obtain FDA clearance.
The commercialization
of medical devices in Europe is regulated by the European Union. The European Union presently requires that all medical products
bore the CE mark, an international symbol of adherence to quality assurance standards and demonstrated clinical effectiveness. Compliance
with the Medical Device Directive (MDD) or the Active Implantable Medical Device Directive (AIMD) or the In Vitro Diagnostic Medical
Device Directive (IVDD) as audited by a notified body and certified by a recognized European Competent Authority, permits the manufacturer
to affix the CE mark on its products.
In September 2013,
we obtained ISO 13485 certification for our quality management system and CE Mark certification to market Dario, and
in May 2015 Dario was cleared to fulfill the criteria according to EN ISO 15197:2013 The granting of the CE Mark allows Dario to
be marketed and sold in 32 countries across Europe as well as in certain other countries worldwide. On November 21, 2014, MDSS,
our European Authorized Representative, completed the registration of the Dario Blood Glucose Monitoring System with the German
Authority as required by Article 10 of Directive 98/79/EC on in vitro diagnostic medical devices. We commenced an initial soft
launch of the product in Europe in 2014, created initial demand for the product and established brand awareness and marketing techniques
to reach our target market with a goal to continue expansion to new markets and territories.
We achieved regulatory
clearance to market Dario in other countries that do not rely on the CE Mark. To date, the non-CE Mark jurisdictions which we have
begun to market Dario include the United States, New Zealand, Canada, and Australia.
In January 2014, we
completed the registration with Medsafe, the New Zealand Medicines and Medical Devices Safety Authority, through their WAND (Web-Assisted
Notification of Devices) system allowing us to sell the Dario in New Zealand. We also have completed the process of registering
the Dario with the Australian TGA, in the ARTG (Australian Register of Therapeutic Goods), which is required in order to bring
and sell the Dario in Australia and effective March 3, 2015, our product is approved for reimbursement in Australia. In February
2015, we also gained National Pharmaceutical Product Interface (known as NAPPI) approval and registered the Dario in South Africa.
In May 2015, we also received Health Canada approval to market the Dario blood glucose monitoring system and commenced marketing
the product. We have also received reimbursement status from the majority of insurance plans in Canada.
To the extent that
we seek to market our product in other non-CE Mark countries in the future, we will be required to comply with the applicable regulatory
requirements in each such country. Such regulatory requirements vary by country and may be tedious. As a
result, no assurance can be given that we will be able to satisfy the regulatory requirements to sell our products in any such
country.
Clinical Studies
Even when a clinical
study has an approved Investigational Device Exemption (IDE) from the FDA under significant risk (SR) determination, has been approved
by an Institutional Review Board (IRB) under non-significant risk (NSR) determination and/or has been approved by local or regional
Ethics Committee, the study is subject to factors beyond a manufacturer’s control, including, but not limited
to the fact that the institutional review board at a given clinical site might not approve the study, might decline to renew approval
which is required annually, or might suspend or terminate the study before the study has been completed. There is no assurance
that a clinical study at any given site will progress as anticipated; the interim results of a study may not be satisfactory leading
the sponsor or others to terminate the study, there may be an insufficient number of patients who qualify for the study or who
agree to participate in the study or the investigator at the site may have priorities other than the study. Also, there
can be no assurance that the clinical study will provide sufficient evidence to assure regulatory authorities that the product
is safe, effective and performs as intended as a prerequisite for granting market clearance. See “Clinical Trials”
above for clinical trials performed to date.
Post-Clearance Matters
Even if the FDA or
other non-US regulatory authorities approve or clear a device, they may limit its intended uses in such a way that manufacturing
and distributing the device may not be commercially feasible. After clearance or approval to market is given, the FDA and foreign
regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance
or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements
have been met.
A manufacturer of a
device approved through the premarket approval application process is not permitted to make changes to the device which
affects its safety or effectiveness without first submitting a supplement application to its premarket approval application
and obtaining FDA clearance for that supplement. In some instances, the FDA may require a clinical trial to support
a supplement application. A manufacturer of a device cleared through a 510(k) submission or a 510(k)+ “de-novo”
submission must submit another premarket notification if it intends to make a change or modification in the device that could significantly
affect the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition,
energy source or manufacturing process. Any change in the intended uses of a premarket approval application device
or a 510(k) device requires an approval supplement or cleared premarket notification. Exported devices are subject to
the regulatory requirements of each country to which the device is exported, as well as certain FDA export requirements.
Mobile Medical Applications Guidance
On September 23, 2013,
the FDA issued final guidance for developers of mobile medical applications, or apps, which are software programs that run on mobile
communication devices and perform the same functions as traditional medical devices. The guidance outlines the FDA’s
tailored approach to mobile apps. The FDA plans to exercise enforcement discretion (meaning it will not enforce requirements
under the Federal Food, Drug & Cosmetic Act) for the majority of mobile apps as they pose minimal risk to consumers. The
FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present a greater risk to patients if they
do not work as intended. The FDA is focusing its oversight on mobile medical apps that:
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are intended to be used as an accessory to a regulated medical device – for example, an application that allows a health care professional to make a specific diagnosis by viewing a medical image from a picture archiving and communication system (PACS) on a smart mobile device or a mobile tablet; or
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transform a mobile platform into a regulated medical device – for example, an application that turns a smart mobile device into an electrocardiography (ECG) machine to detect abnormal heart rhythms or determine if a patient is experiencing a heart attack.
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Ongoing Regulation by FDA
Even after a device
receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These include:
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establishment registration and device listing;
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quality system regulation, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all phases of the product life-cycle;
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labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses, and other requirements related to promotional activities;
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medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
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corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug and Cosmetic Act that may present a risk to health; and
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post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
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Failure to comply with
applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions, partial
suspension or total shutdown of production, refusing our request for 510(k) clearance or PMA approval of new products, rescinding
previously granted 510(k) clearances or withdrawing previously granted PMA approvals.
We may be subject to
announced and unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of our subcontractors.
If, as a result of these inspections, the FDA determines that our or our subcontractor’s equipment, facilities, laboratories
or processes do not comply with applicable FDA regulations and conditions of product clearance, the FDA may seek civil, criminal
or administrative sanctions and/or remedies against us, including the suspension of our manufacturing and selling operations.
Ongoing Regulation
by International Regulators
International sales
of medical devices are subject to foreign government regulations, which may vary substantially from country to country.
In order to maintain
the right to affix the CE Mark to sell medical devices in the European Union, an annual surveillance audit in the company premises
and, if needed, at major subcontractors’ premises needs to be carried out by the notified body. Additionally,
European Directives dictate the following requirements:
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Vigilance system, which requires the manufacturer to
immediately notify the relevant Competent Authority when a company product has been involved in an incident that led to a death;
led to a serious injury or serious deterioration in the state of health of a patient, user or another person; or might have led
to death, serious injury or serious deterioration in health; and
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Post-market surveillance including a documented procedure
to review experience gained from devices on the market and to implement any necessary corrective action, commensurate with nature
and risks involved with the product.
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Failure to comply with
applicable regulatory requirements can result in enforcement action by the regulatory agency, which may include any of the following
sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions,
partial suspension or total shutdown of production, refusing our request for renewing clearance and/or registration of our products
or granting clearance/registration for new products.
State Licensure
Requirements
Several states require
that Durable Medical Equipment (“DME”) providers be licensed in order to sell products to patients in that state. Certain
of these states require that DME providers maintain an in-state location. If these rules are determined to be applicable to us
and if we were found to be noncompliant, we could lose our licensure in that state, which could prohibit us from selling our current
or future products to patients in that state.
Federal Anti-Kickback
and Self-Referral Laws
The Federal Anti-Kickback
Statute prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or
to induce the:
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furnishing or arranging for the furnishing of items or
services reimbursable under Medicare, Medicaid or other governmental programs; or
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purchase, lease, or order of, or the arrangement or recommendation
of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental programs.
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To the extent we are
required to comply with these regulations, it is possible that regulatory authorities could allege that we have not complied, which
could subject us to sanction. Noncompliance with the federal anti-kickback legislation can result in exclusion from
Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as
civil and criminal penalties, any of which could have an adverse effect on our business and results of operations.
Federal law also includes
a provision commonly known as the “Stark Law,” which prohibits a physician from referring Medicare or Medicaid patients
to an entity providing “designated health services,” including a company that furnishes durable medical equipment,
in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement,
civil penalties, and exclusion from Medicare, Medicaid or other governmental programs.
Federal False Claims
Act
The Federal False Claims
Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented,
or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement
or used a false record to get a claim approved. In addition, amendments in 1986 to the Federal False Claims Act have
made it easier for private parties to bring “qui tam” whistleblower lawsuits against companies. Penalties
include fines ranging from $5,500 to $11,000 for each false claim, plus three times the number of damages that the federal government
sustained because of the act of that person.
Civil Monetary Penalties
Law
The Federal Civil Monetary
Penalties Law prohibits the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows
or should know likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items
or services. Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three times
the amount claimed for each item or service and exclusion from the Federal healthcare programs.
State Fraud and Abuse Provisions
Many states have also
adopted some form of anti-kickback and anti-referral laws and false claims acts. A determination of liability under such laws could
result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Administrative Simplification
of the Health Insurance Portability and Accountability Act of 1996
The Health Insurance
Portability and Accountability Act of 1996, or HIPAA, mandated the adoption of standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the
healthcare industry. Ensuring the privacy and security of patient information is one of the key factors driving the legislation.
Intellectual Property
Patent applications
On May 8, 2011, certain
of our founders filed a Patent Cooperation Treaty (PCT) Application No. PCT/IL2011/000369, titled “Fluids Testing Apparatus
and Methods of Use.” This PCT claimed priority from two preceding U.S. provisional applications filed by our founders,
with the earliest priority date being May 9, 2010. The PCT application was transferred to us by our founders on October 27, 2011.
This application covers
the novel blood glucose measurement device, comprising the glucose meter; and an adaptor that connects the glucose meter to a smart-phone
to receive power supply and data display, storage, and analysis. A PCT search report and written opinion on patentability
that we received from World Intellectual Property Organization (known as WIPO) that included only two “Y” citations
and one additional non-relevant reference. Corresponding national applications of our PCT were filed in the U.S., Europe,
Japan, China, Australia and Israel.
On May 1, 2014, we
announced the receipt of a U.S. Notice of Allowance for a key patent relating to how the Dario Blood Glucose Monitoring System
draws power from and transmits data to a smartphone via the audio jack port. This patent was issued as U.S. Patent No. 8,797,180
in August 2014, and in August2015, we received U.S. patent (No. 9,125,549) that broadened our registered patent No. 8,797,180 to
include testing of other bodily fluids through an audio jack connection. We believe these early patents represent critical intellectual
property recognition and a significant initial validation of our intellectual property efforts. Further, a corresponding European
patent was granted to us in May 2016, as European patent No. 2569622 for testing of fluids through an audio jack connection. An
additional corresponding patent was granted in Israel in April 2016. In February 2016 we were granted U.S. patent No. 9,257,038,
which is a further Continuation application connected to the U.S. patent No. 8,797,180, this new patent enhanced the way the Dario
Blood Glucose Monitoring System communicates with the end user’s smartphone devices.
In November 11, 2017,
U.S. patent No. 9,832,301 titled “Systems and methods for adjusting power levels on a monitoring device” was granted.
This patent enhances the way the Dario Blood Glucose Monitoring System communicates with users’ smartphone devices. This
family includes a corresponding pending application in China.
Additionally, we recently
received U.S. patent No. 10,445,072 that enables optical communication between the Dario Blood Glucose Monitoring System and the
end user’s smartphone devices.
Additional patent applications
are in the process of being discussed and developed, and we believe that we have a rich potential pipeline of future technologies
that we intend to develop.
For example, we are
further seeking to develop and protect new intellectual property around future generations of our hardware and software with the
goal of achieving enhanced functionality, user interface, data usability, cyber protection, and artificial intelligence enhancement.
Design patents and
patent applications on the Dario Blood Glucose Monitoring System
To further protect
our market distinction and branding for the Dario Blood Glucose Monitoring System, three U.S. Design Applications have been filed
and granted covering the glucose meter, the cartridge, and connection dongle. At least some of these applications were granted
and registered in the United States, as well as Brazil, Canada, China, Europe, and Hong Kong.
Trademark applications
We have also filed
several families of trademark applications covering the “Dario” name (wordmark), the Dario name and logo (logo), the
Dario logo alone (logo), the DARIO-LITE wordmark, the LABSTYLE INNOVATIONS wordmark, the DARIOHEALTH wordmark, and the DARIOHEALTH
logo. In particular, the “Dario” wordmark is registered as a trademark in the Australia, Canada, China,
Costa Rica, United States, Israel, China, Canada, Hong Kong, South Africa, Japan, Costa Rica, Europe, Israel, Japan, Korea, Mexico,
New Zealand, Panama, Russia, South Africa, and the USA. The “DARIOHEALTH” wordmark is registered as a trademark in
the United States, Canada, China and India.
Utility Models
We have been granted
Utility Models for our core invention in Japan and Germany.
Other intangible
assets
As the number of Dario
users grows, an ever-growing amount of data is being collected from diabetic patients, including their blood sugar levels, meal
compositions, routines, physical exercise (intensity and duration) as well as many other factors, and lately also blood pressure
data, which are all useful for creating meaningful correlations between these factors and insulin use. We expect that
this database will be highly valuable and may be capitalized in many ways. The accumulation of this type of know-how and related
algorithms are protected as trade secrets using specialized confidentiality protocols.
Competition
We face competition
in each segment of our offering (devices, applications, coaching and analytics) and more importantly from competitors integrating
these four components.
Blood
Glucose Monitors (BGM). Our device competes directly and primarily with other BGM suppliers including, but not limited
to, the global market leaders: Abbott Laboratories, Ascensia (formerly Bayer Diabetes Care), Johnson & Johnson LifeScan, Roche
Diabetes and a large number of low-price private label manufacturers. An increasing number of these BGM devices connect to smartphones
and tablets, such as, but not limited to, the Sanofi iBGStar, Medisana GlucoDock, Philosys Gmate Smart, One Drop, Intuity POGO
and iHealth Align, or have standalone connected devices like Livongo.
Continuous
blood Glucose Monitors (CGM). Continuous blood glucose monitors have made significant market progression
in the last few years, such as but not limited to, Dexcom, Medtronic or Agamatrix. More insulin-using patients are using CGM devices
on a continuing basis rather than an intermittent basis (such as every other month). “Intermittent CGM” such as Abbott
Libre (that requires the user to voluntarily scan the sensor with the meter) are also gaining popularity as an intermediate option
between BGM and CGM, both appealing to non-insulin users and insulin users.
While the market of
BGM and CGM is highly competitive, we believe that we have important comparative advantages.
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We offer an all-in-one glucose monitoring system, including
a small form factor glucose reader, lancing device and a strip cartridge connected to existing smart mobile devices
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We are targeting non-insulin using patients and therefore
do not compete with CGM. A large percentage of insulin-using patients continue to prefer testing with a BGM rather than a CGM
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Most importantly, in our opinion, is the fact that our
integrated solution separates us from BGM and CGM competitors, and especially (i) the functions that go beyond blood glucose management
such as, but not limited to, nutrition management and activity management (ii) the remote monitoring capabilities that our platform
provides, the real time alerts to caregivers, remote-coaching capabilities to us and to third party caregivers and educating capabilities
of our users.
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Diabetes
management applications. There are thousands of diabetes management applications available for download on a smart phone
(such as Glucose Buddy, mySugr (now part of Roche Diabetes), Carb Manager, Sugar Sense and Welldoc). We believe that the large
majority of existing diabetes management applications do not offer a good value which translates into users quickly stopping to
use these applications.
We believe that our
application is differentiated from our competitors by the high level of user engagement which comes from a unique know-how in terms
of user interface (UI), user experience (UX), design of user journeys, agile development technics that allow for frequent update
of the application, as well as the intrinsic nature of our integrated solution.
Coaching
services. Pure coaching services such as Cecilia Health, or services delivered by medical distributors or healthcare
providers are often relatively expensive and mostly offered on a limited time basis (e.g. one month after the discharge of a patient,
or three months for onboarding of a new diabetes drug). We believe that our coaching services is differentiated as compared to
our competitors in that our coaching services are an essential part of our solution and is maintained throughout a patient’s
use of our application.
Digital
health integrated competitors. Several digital health competitors integrate several, or all of, the four components
of our offering, including but not limited to: Livongo, Glooko, Omada, OneDrop. In practice, we believe that the closest competitor
in terms of an integrated offering may be Livongo.
Our differentiation
versus such integrated competitors includes
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Proven and significant results, placing us in the category
of “Digital Therapeutics” (DTx);
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Open platform (capable of integrating non-proprietary
devices and coaching services);
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Operating in the U.S., Canada, Europe and Australia;
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Small form factor glucose reader whereas most devices
from competitors have the size of another cell phone that the user needs to carry around;
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Instant connection of the reader with the phone, thus
maximizing opportunities to engage with the user; and
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Flexibility of our product to integrate with the workflows
of our business partners (e.g. messages integrated with the health communications generated by a retailer, interventions using
the coaches operating from a diabetes clinic).
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Employees
We currently have 62
full-time employees and 10 part-time employees. We have employment agreements with our three executive officers. See
“Management – Employment Agreements.”
Investing in our
securities is highly speculative and involves a high degree of risk. You should carefully consider the following factors and other
information in this Annual Report and our other SEC filings before making a decision to invest in our securities. Additional risks
and uncertainties that we are unaware of may become important factors that affect us. If any of the following events occur, our
business, financial conditions and operating results may be materially and adversely affected. In that event, the trading price
of our common stock and warrants may decline, and you could lose all or part of your investment.
Risks Related to Our Financial Position
and Capital Requirements
We were formed in August 2011 and are thus subject to
the risks associated with new businesses.
We were formed in August
2011 as a new business and, commencing from 2015, we entered the commercialization stage of our technology. As such, this limited
operating history may not be adequate to enable you to fully assess our ability to develop and commercialize the Dario Smart Diabetes
Management Solution, achieve market acceptance of the Dario Smart Diabetes Management Solution, develop other products and respond
to competition. We commenced a commercial launch of the free Dario Smart Diabetes Management application in the United Kingdom
in late 2013 and commenced an initial soft launch of the full Dario Smart Diabetes Management Solution (including the app and the
Dario Blood Glucose Monitoring System) in selected jurisdictions in March 2014 with the goal of collecting customer feedback to
refine our longer-term roll-out strategy and continued to scale up launch during 2014 in the United Kingdom, the Netherlands and
New Zealand, in 2015 in Australia, Israel and Canada and in 2016 in the United States. These efforts have not generated sufficient
revenues, and we will need to generate additional revenues over the next years. Therefore, we are, and expect for the foreseeable
future to be, subject to all the risks and uncertainties, inherent in a new business and the development and sale of new medical
devices and related software applications. As a result, we may be unable to fully develop, obtain regulatory approval for, commercialize,
manufacture, market, sell and derive material revenues in the timeframes we project, if at all, and our inability to do so would
materially and adversely impact our viability as a company. In addition, we still must establish many functions necessary to operate
a business, including finalizing our managerial and administrative structure, continuing product and technology development, assessing
and commencing our marketing activities, implementing financial systems and controls and personnel recruitment.
Accordingly, you should
consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their
initial revenue generating stages, particularly those in the medical device and mobile health fields. In particular, potential
investors should consider that there is a significant risk that we will not be able to:
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implement or execute our current business plan, or that
our business plan is sound;
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maintain our management team and Board of Directors;
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raise sufficient funds in the capital markets or otherwise
to effectuate our business plan;
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determine that our technologies that we have developed are
commercially viable; and/or
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attract, enter into or maintain contracts with, and retain
customers.
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In the event that we
do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially
and adversely affected.
Given our limited revenue and lack
of positive cash flow, we will need to raise additional capital, which may be unavailable to us or, even if consummated, may cause
dilution or place significant restrictions on our ability to operate.
According to our management’s
estimates, based on our current cash on hand and further based on our budget and the assumption that initial commercial sales will
commence during our anticipated timeframes, we believe that we will have sufficient resources to continue our activities only into
June 2021.
Since we might be unable
to generate sufficient revenue or cash flow to fund our operations for the foreseeable future, we will need to seek additional
equity or debt financing to provide the capital required to maintain or expand our operations. We may also need additional funding
for developing products and services, increasing our sales and marketing capabilities, and promoting brand identity, as well as
for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising
out of being a publicly registered company has dramatically increased our costs.
We do not currently
have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to
raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory terms, or
is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our
operations and financial condition may be materially adversely affected.
If we raise additional
capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these
stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and
privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising
for companies like ours, the risk of dilution is particularly significant for stockholders of our company.
Debt financing, if
obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, could increase our expenses and require that our assets be provided as a security for
such debt. Debt financing would also be required to be repaid regardless of our operating results.
If we raise additional
funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate
products, or to grant licenses on terms that are not favorable to us.
Funding from any source
may be unavailable to us on acceptable terms, or at all, If we do not have sufficient capital to fund our operations and expenses,
we may not be able to achieve or maintain competitiveness, which could lead to the failure of our business and the loss of your
investment.
We have incurred significant losses
since inception. As such, you cannot rely upon our historical operating performance to make an investment decision regarding our
company.
Since our inception,
we have engaged primarily in research and development activities and in 2015 entered the commercialization stage. We have financed
our operations primarily through private placements and public offerings of common stock and have incurred losses in each year
since inception including net losses of $17,736,000 and $17,803,000 in 2019 and 2018, respectively. Our accumulated deficit at
December 31, 2019 was approximately $110,145,000. We do not know whether or when we will become profitable. Our ability to generate
revenue and achieve profitability depends upon our ability, alone or with others, to launch Dario in additional European countries,
and elsewhere and manufacture, market and sell Dario where approved. We may be unable to achieve any or all of these goals.
Our
independent registered public accounting firm has expressed in its report to our 2019 audited consolidated financial statements
a substantial doubt about our ability to continue as a going concern.
During
2015 we entered the commercialization stage, and the development and commercialization of Dario is uncertain and expected
to require substantial expenditures. We have not yet generated sufficient revenues from our operations to fund our activities and
are therefore dependent upon external sources for financing our operations. There is a risk that we will be unable to obtain the
necessary financing to continue our operations on terms acceptable to us or at all. As a result, our independent registered public
accounting firm has expressed in its auditors’ report on the consolidated financial statements for December 31, 2019, a substantial
doubt regarding our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. This going concern
opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise.
Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going
concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock.
We may be subject to claims for rescission
or damages in connection with certain sales of shares of our securities.
In March 2016, the
Securities and Exchange Commission declared effective a registration statement that we filed to cover the sale of 66,667 shares
of common stock, 76,667 warrants to purchase common stock, 76,667 shares of common stock underlying such warrants, and underwriters’
warrants to purchase up to 7,172 shares of common stock. Sales of approximately 2,778 shares of common stock, approximately 12,778
shares of common stock underlying warrants and approximately 1,278 shares of common stock underlying underwriters’ warrants
may not have been made in accordance with Section 5 of the Securities Act of 1933, as amended. Accordingly, the purchasers of those
securities may have rescission rights or be entitled to damages. The amount of such liability, if any, is uncertain. In the event
that we are required to make payments to investors as a result of these unregistered sales of securities, our liquidity could be
negatively impacted.
Risks Related to Our Business
We only recently began commercializing
Dario, and our success will depend on the acceptance of Dario in the healthcare market.
Dario
has been CE marked since 2013, enabling us to commercialize in 32 countries across Europe as well as in certain other countries
worldwide. It was also approved by the regulatory authorities in Australia, New Zealand,
Canada, Israel and South Africa, and most recently in December 2015, we received FDA clearance. As a result, we have a limited
history of commercializing Dario and commenced selling Dario in the United States in 2016. We have limited experience engaging
in commercial activities and limited established relationships with physicians and hospitals as well as third-party suppliers on
whom we depend for the manufacture of our product. We are faced with the risk that the marketplace will not be receptive
to Dario over competing products and that we will be unable to compete effectively. Factors that could affect our ability to establish
Dario or any potential future product include:
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the development of products or devices which could result in a shift of customer preferences away from our device and services and significantly decrease revenue;
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the increased use of improved diabetes drugs that could encourage certain diabetics to test less often, resulting in less usage of a self-monitoring test device for certain types of diabetics;
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the challenges of developing (or acquiring externally-developed) technology solutions that are adequate and competitive in meeting the requirements of next-generation design challenges;
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the significant number of current competitors in the BGMS market who have significantly greater brand recognition and more recognizable trademarks and who have established relationships with healthcare providers and payors; and
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intense competition to attract acquisition targets, which may make it more difficult for us to acquire companies or technologies at an acceptable price or at all.
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We cannot assure you
that Dario or any future product will gain broad market acceptance. If the market for Dario or any future product fails to develop
or develops more slowly than expected, or if any of the technology and standards supported by us do not achieve or sustain market
acceptance, our business and operating results would be materially and adversely affected.
There is no assurance that our recently
launched DarioEngage software platform will succeed or be adopted by healthcare providers.
We have recently launched
a new product offering of our DarioEngage software platform, where we digitally engage with Dario users, assist them in monitoring
their chronic illnesses and provide them with coaching, support, digital communications, and real-time alerts, trends and pattern
analysis. We expect that the DarioEngage software platform may be leveraged by our potential partners, such as clinics, health
care service providers, employers, and payers for scalable monitoring of people with diabetes in a cost-effective manner, which
we expect will open for us additional revenue streams. However, the success of our DarioEngage software platform will depend entirely
on our potential partners’ adoption of the platform and we cannot assure you that our potential partners will do so, or,
if adopted, that they will continue to use the platform continually and for an extended period of time. If we cannot encourage
potential partners to utilize our DarioEngage software platform we may not succeed in marketing the product to our potential partners,
the failure of which may materially and adversely affect our business and operating results.
A pandemic, epidemic or outbreak
of an infectious disease in the United States, Israel or elsewhere may adversely affect our business.
If a pandemic, epidemic
or outbreak of an infectious disease occurs in the United States, Israel or elsewhere, our business may be adversely
affected. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues
to spread globally and, as of March 2020, has spread to over 100 countries, including the United States and Israel. The
spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19
as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed
quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. On March 10, 2020, the Government of
Israel announced that effective Thursday, March 12, 2020, at 20:00 (Israel time) foreign travelers arriving from any country will
be required to remain in home quarantine until 14 days have passed since the date of entry into Israel; non-Israeli residents will
be required to prove they have the means to self-quarantine before being allowed entry into Israel and, in addition, non-Israeli
residents or citizens traveling from certain countries may be denied entry into Israel. In addition, the Ministry of Health in
the State of Israel issued guidelines on March 11, 2020 recommending people avoid gatherings in one space and providing that no
gathering of more than 100 people should be held under any circumstances. Employers (including us) are also required to prepare
and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, on March 11, 2020, the
President of the United States issued a proclamation to restrict travel to the United States from foreign nationals who have recently
been in certain European countries. We are still assessing the effect on our business, from the spread of COVID-19 and the actions
implemented by the governments of the State of Israel, the United States and elsewhere across the globe.
The spread of an infectious disease, including COVID-19, may
also result in the inability of our manufacturers to deliver components or finished products on a timely basis. In addition, health
professionals may reduce staffing and reduce or postpone meetings with clients in response to the spread of an infectious disease.
Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially
affect our business, financial condition and results of operations. The extent to which COVID-19 impacts our business will depend
on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning
the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
We may not be successful in launching
Dario Intelligence and even if we are successful in doing so, there is no assurance that we will be successful in marketing and/or
selling our product in the marketplace.
We intend to launch
our Dario Intelligence program, which will utilize a large amount of data collected on our servers to develop predictive models
and artificial intelligence algorithms to meet the potential demand of intelligence-driven analytics that healthcare providers
may be looking for to improve their services. However, the launch of Dario Intelligence will require significant financial and
technical resources. There is no assurance that we will successfully develop or launch Dario Intelligence. Even if we are successful
in doing so, there is no assurance that the marketplace will accept or adopt the usage of Dario Intelligence. If we cannot successfully
develop Dario Intelligence, or encourage the use and adoption of Dario Intelligence by market participants, our business and operating
results may be materially and adversely affected.
We cannot accurately predict the
volume or timing of any future sales, making the timing of any revenues difficult to predict.
We may be faced with
lengthy customer evaluation and approval processes associated with Dario. Consequently, we may incur substantial expenses and devote
significant management effort and expense in developing customer adoption of Dario which may not result in revenue generation.
We must also obtain regulatory approvals of Dario in certain jurisdictions as well as approval for insurance reimbursement in order
to initiate sales of Dario, each of which is subject to risk and potential delays, and neither of which may actually occur. As
such, we cannot accurately predict the volume or timing of any future sales.
If Dario fails to satisfy current
or future customer requirements, we may be required to make significant expenditures to redesign the product, and we may have insufficient
resources to do so.
Dario is being designed
to address an evolving marketplace and must comply with current and evolving customer requirements in order to gain market acceptance.
There is a risk that Dario will not meet anticipated customer requirements or desires. If we are required to redesign our products
to address customer demands or otherwise modify our business model, we may incur significant unanticipated expenses and losses,
and we may be left with insufficient resources to engage in such activities. If we are unable to redesign our products, develop
new products or modify our business model to meet customer desires or any other customer requirements that may emerge, our operating
results would be materially adversely affected and our business might fail.
We expect to derive substantially
all of our revenues from our principal technology, which leaves us subject to the risk of reliance on such technology.
We expect to derive
substantially all of our revenues from sales of products derived from our principal technology. Our initial product utilizing this
technology is Dario. As such, any factor adversely affecting sales of Dario, including the product release cycles, regulatory issues,
market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions,
would likely harm our operating results. We may be unable to develop other products utilizing our technology, which would likely
lead to the failure of our business. Moreover, in spite of our efforts related to the registration of our technology, if patent
protection is not available for our principal technology, the viability of Dario and any other products that may be derived from
such technology would likely be adversely impacted to a significant degree, which would materially impair our prospects.
We
are dependent upon third-party manufacturers and suppliers making us vulnerable to supply shortages and problems and price fluctuations,
which could harm our business.
We
do not own or operate manufacturing facilities for clinical or commercial production of the Dario Blood Glucose Monitoring System
and we lack the resources and the capability to manufacture the Dario Blood Glucose Monitoring System on a commercial scale. Therefore,
we rely on a limited number of suppliers who manufacture and assemble certain components of the Dario Blood Glucose Monitoring
System. Our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to
follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction
and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual
property rights, any of which could delay or impede their ability to meet our requirements. Our reliance on these third-party suppliers
also subjects us to other risks that could harm our business, including:
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we are not a major customer of many of our suppliers, and these suppliers may therefore give other customers’ needs higher priority than ours;
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third parties may threaten or enforce their intellectual property rights against our suppliers, which may cause disruptions or delays in shipment, or may force our suppliers to cease conducting business with us;
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we may not be able to obtain an adequate supply in a timely manner or on commercially reasonable terms;
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our suppliers, especially new suppliers, may make errors in manufacturing that could negatively affect the efficacy or safety of the Dario Blood Glucose Monitoring System or cause delays in shipment;
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we may have difficulty locating and qualifying alternative suppliers;
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switching components or suppliers may require product redesign and possibly submission to FDA, European Economic Area Notified Bodies, or other foreign regulatory bodies, which could significantly impede or delay our commercial activities;
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one or more of our sole- or single-source suppliers may be unwilling or unable to supply components of the Dario Blood Glucose Monitoring System;
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other customers may use fair or unfair negotiation tactics and/or pressures to impede our use of the supplier;
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the occurrence of a fire, natural disaster or other catastrophe impacting one or more of our suppliers may affect their ability to deliver products to us in a timely manner; and
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our suppliers may encounter financial or other business hardships unrelated to our demand, which could inhibit their ability to fulfill our orders and meet our requirements.
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We
may not be able to quickly establish additional or alternative suppliers if necessary, in part because we may need to undertake
additional activities to establish such suppliers as required by the regulatory approval process. Any interruption or delay in
obtaining products from our third-party suppliers, or our inability to obtain products from qualified alternate sources at acceptable
prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to switch to competing products.
Given our reliance on certain single-source suppliers, we are especially susceptible to supply shortages because we do not have
alternate suppliers currently available.
We rely in part on a small group
of third-party distributors to effectively distribute our products.
We
depend in part on medical device distributors for the marketing and selling of our products in certain territories in which we
have launched product sales. We depend on these distributors’ efforts to market our products, yet we are unable to control
their efforts completely. These distributors typically sell a variety of other, non-competing products that may limit the resources
they dedicate to selling Dario. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding
the sale of our products. If our distributors fail to effectively market and sell Dario, in full compliance with applicable laws,
our operating results and business may suffer. Recruiting and retaining qualified third-party distributors and training them in
our technology and product offering requires significant time and resources. To develop and expand our distribution, we must continue
to scale and improve our processes and procedures that support our distributors. Further, if our relationship with a successful
distributor terminates, we may be unable to replace that distributor without disruption to our business. If we fail to maintain
positive relationships with our distributors, fail to develop new relationships with other distributors, including in new markets,
fail to manage, train or incentivize existing distributors effectively, or fail to provide distributors with competitive products
on attractive terms, or if these distributors are not successful in their sales efforts, our revenue may decrease and our operating
results, reputation and business may be harmed.
Failure in our online and digital
marketing efforts could significantly impact our ability to generate sales.
In several of our principal
target markets, we utilize online and digital marketing in order to create awareness to Dario. Our management believes that using
online advertisement through affiliate networks and a variety of other pay-for-performance methods will be superior for marketing
and generating sales of Dario rather than utilizing traditional, expensive retail channels. However, there is a risk that our marketing
strategy could fail. Because we plan to use non-traditional retail sales tools and to rely on healthcare providers to educate our
customers about Dario, we cannot predict the level of success, if any, that we may achieve by marketing Dario via the internet.
The failure of our online marketing efforts would significantly and negatively impact our ability to generate sales.
Our Dario Smart Diabetes Management
application, which is a key to our business model, is available via Apple’s App Store and via Google’s Android platforms
and maybe in the future via additional platforms. If we are unable to achieve or maintain a good relationship with each of Apple
and Google or similar platforms, or if the Apple App Store or the Google Play Store or any other applicable platform were unavailable
for any prolonged period of time, our business will suffer.
A key component of
the Dario Smart Diabetes Management Solution is an iPhone or Android application which includes tools to help diabetic patients
manage their disease. This application is compatible with Apple’s iOS and with Google’s Android platforms and may in
the future become compatible via additional platforms. If we are unable to make our Dario Smart Diabetes Management application
compatible with these platforms, or if there is any deterioration in our relationship with either Apple or Google or others after
our application is available, our business would be materially harmed.
We are subject to each
of Apple’s and Google’s standard terms and conditions for application developers, which govern the promotion, distribution,
and operation of games and other applications on their respective storefronts. Each of Apple and Google has broad discretion to
change its standard terms and conditions, including changes which could require us to pay to have our Dario Smart Diabetes Management
application available for downloading. In addition, these standard terms and conditions can be vague and subject to changing interpretations
by Apple or Google. We may not receive any advance warning of such changes. In addition, each of Apple and Google has the right
to prohibit a developer from distributing its applications on its storefront if the developer violates its standard terms and conditions.
In the event that either Apple or Google ever determines that we are in violation of its standard terms and conditions, including
by a new interpretation, and prohibits us from distributing our Dario Smart Diabetes Management application on its storefront,
it would materially harm our business.
Additionally, we will
rely on the continued function of the Apple App Store and the Google Play Store as digital storefronts where our Dario Smart Diabetes
Management application may be obtained. There have been occasions in the past when these digital storefronts were unavailable for
short periods of time or where there have been issues with the in-app purchasing functionality within the storefront. In the event
that either the Apple App Store or the Google Play Store is unavailable or if in-app purchasing functionality within the storefront
is non-operational for a prolonged period of time, it would have a material adverse effect on the ability of our customers to secure
the Dario Smart Diabetes Management application, which would materially harm our business.
Our products are subject to technological
changes which may impact their use.
Our Dario Blood Glucose
Monitoring System is currently designed to be plugged into the audio jack or the charging jack of a mobile device. In addition,
we have recently completed the development of a version of the Dario Blood Glucose Monitoring System that connects to an iPhone
7 and later models through the Lightning jack instead of the missing audio jack. As a result, our products are subject to future
technological changes to mobile devices that may occur in the future. If we are unable to modify our products to keep pace with
such technological changes, it would have a material adverse effect the ability of our customers to use our products, which would
materially harm our business.
As we conduct business internationally,
we are susceptible to risks associated with international relationships.
Outside of the United
States, we operate our business internationally, presently in Europe, Australia and Canada. The international operation of our
business requires significant management attention, which could negatively affect our business if it diverts their attention from
their other responsibilities. In the event that we are unable to manage the complications associated with international operations,
our business prospects could be materially and adversely affected. In addition, doing business with foreign customers subjects
us to additional risks that we do not generally face in the United States. These risks and uncertainties include:
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management, communication and integration problems resulting from cultural differences and geographic dispersion;
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localization of products and services, including translation of foreign languages;
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delivery, logistics and storage costs;
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longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
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difficulties supporting international operations;
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difficulties supporting customer services;
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changes in economic and political conditions;
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impact of trade protection measures;
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complying with import or export licensing requirements;
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exchange rate fluctuations;
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competition from companies with international operations, including large international competitors and entrenched local companies;
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potentially adverse tax consequences, including foreign tax systems and restrictions on the repatriation of earnings;
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maintaining and servicing computer hardware in distant locations;
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keeping current and complying with a wide variety of foreign laws and legal standards, including local labor laws;
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securing or maintaining protection for our intellectual property; and
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reduced or varied protection for intellectual property rights, including the ability to transfer such rights to third parties, in some countries.
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The occurrence of any
or all of these risks could adversely affect our international business and, consequently, our results of operations and financial
condition.
We expect to be exposed to fluctuations
in currency exchange rates, which could adversely affect our results of operations.
Because we expect to
conduct a material portion of our business outside of the United States but report our financial results in U.S. Dollars, we face
exposure to adverse movements in currency exchange rates. Our foreign operations will be exposed to foreign exchange rate fluctuations
as the financial results are translated from the local currency into U.S. Dollars upon consolidation. Specifically, the U.S. Dollar
cost of our operations in Israel is influenced by any movements in the currency exchange rate of the New Israeli Shekel (NIS).
Such movements in the currency exchange rate may have a negative effect on our financial results. If the U.S. Dollar weakens against
foreign currencies, the translation of these foreign currencies denominated transactions will result in increased revenue, operating
expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation of these foreign
currencies denominated transactions will result in decreased revenue, operating expenses and net income. As exchange rates vary,
sales and other operating results, when translated, may differ materially from our or the capital market’s expectations.
Non-U.S. governments often impose
strict price controls, which may adversely affect our future profitability.
We intend to seek approval
to market Dario and any future product in both the U.S. and in non-U.S. jurisdictions. If we obtain approval in one or more non-U.S.
jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our products. In some countries,
particularly countries of the European Union, each of which has developed its own rules and regulations, pricing may be subject
to governmental control under certain circumstances. In these countries, pricing negotiations with governmental authorities can
take considerable time after the receipt of marketing approval for a medical device candidate. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product
to other available products. If reimbursement of our product candidates is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
Our Dario Smart Diabetes Management
Solution and associated business processes may contain undetected errors, which could limit our ability to provide our services
and diminish the attractiveness of our service offerings.
The Dario Smart Diabetes
Management Solution may contain undetected errors, defects or bugs. As a result, our customers or end users may discover errors
or defects in our products, software or the systems we design, or the products or systems incorporating our designs and intellectual
property may not operate as expected. We may discover significant errors or defects in the future that we may not be able to fix.
Our inability to fix any of those errors could limit our ability to provide our products, impair the reputation of our brand and
diminish the attractiveness of our product offerings to our customers.
In addition, we may
utilize third-party technology or components in our products and we rely on those third parties to provide support services to
us. Failure of those third parties to provide necessary support services could materially adversely impact our business.
Our future performance will depend
on the continued engagement of key members of our management team.
Our future performance
depends to a large extent on the continued services of members of our current management including, in particular, Erez Raphael,
our Chief Executive Officer and a member of our Board of Directors and Zvi Ben David, our Chief Financial Officer, Treasurer and
Secretary. In the event that we lose the continued services of such key personnel for any reason, this could have a material adverse
effect on our business, operations, and prospects.
If we are not
able to attract and retain highly skilled managerial, scientific and technical personnel, we may not be able to implement our business
model successfully.
We believe that our
management team must be able to act decisively to apply and adapt our business model in the rapidly changing markets in which we
will compete. In addition, we will rely upon technical and scientific employees or third-party contractors to effectively establish,
manage and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract
and retain highly skilled managerial, sales, scientific and technical personnel. In order to do so, we may need to pay higher compensation
or fees to our employees or consultants than we currently expect and such higher compensation payments would have a negative effect
on our operating results. Competition for experienced, high-quality personnel is intense and we cannot assure that we will be able
to recruit and retain such personnel. We may not be able to hire or retain the necessary personnel to implement our business strategy.
Our failure to hire and retain such personnel could impair our ability to develop new products and manage our business effectively.
Risks Related to Product Development
and Regulatory Approval
The
regulatory clearance process which we must navigate is expensive, time-consuming, and uncertain and may prevent us from obtaining
clearance for the commercialization of Dario or our any future product.
We are not permitted
to market Dario until we receive regulatory clearance. To date, we have received regulatory clearance in Australia, Canada, Israel,
Italy, the Netherlands, New Zealand, the United Kingdom, and the United States.
The research, design,
testing, manufacturing, labeling, selling, marketing and distribution of medical devices are subject to extensive regulation by
the FDA and non-U.S. regulatory authorities, which regulations differ from country to country. There
can be no assurance that even after such time and expenditures, we will be able to obtain necessary regulatory approvals for clinical
testing or for the manufacturing or marketing of any products. In addition, during the regulatory process, other companies
may develop other technologies with the same intended use as our products.
We are also subject
to numerous post-marketing regulatory requirements, which include labeling regulations and medical device reporting regulations,
which may require us to report to different regulatory agencies if our device causes or contributes to a death or serious injury,
or malfunctions in a way that would likely cause or contribute to a death or serious injury. In addition, these regulatory requirements
may change in the future in a way that adversely affects us. If we fail to comply with present or future regulatory requirements
that are applicable to us, we may be subject to enforcement action by regulatory agencies, which may include, among others, any
of the following sanctions:
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untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties;
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customer notification, or orders for repair, replacement or refunds;
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voluntary or mandatory recall or seizure of our current or future products;
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imposing operating restrictions, suspension or shutdown of production;
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refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses or modifications to Dario or future products;
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rescinding 510(k) clearance or suspending or withdrawing pre-market approvals that have already been granted; and
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The occurrence of any
of these events may have a material adverse effect on our business, financial condition and results of operations.
In addition, on September
23, 2013, the FDA issued final guidance (which we refer to herein as the Guidance) for developers of mobile medical applications,
or apps, which are software programs that run on mobile communication devices and perform the same functions as traditional medical
devices. The Guidance outlines the FDA’s tailored approach to mobile apps. The FDA plans to exercise enforcement discretion
(meaning it will not enforce requirements under the Federal Food, Drug and Cosmetic Act) for the majority of mobile apps as they
pose minimal risk to consumers. The FDA plans to focus its regulatory oversight on a subset of mobile medical apps that present
a greater risk to patients if they do not work as intended. We anticipate that the Dario Smart Diabetes Management application
will be subject to FDA regulation as a “mobile medical app.”
We
have conducted limited clinical studies of Dario. Clinical and pre-clinical data is susceptible to varying interpretations, which
could delay, limit or prevent additional regulatory clearances.
To
date, we have conducted limited clinical studies on Dario. There can be no assurance that we will successfully complete
additional clinical studies necessary to receive additional regulatory approvals in certain jurisdictions. While studies conducted
by us have produced results we believe to be encouraging and indicative of the potential efficacy of Dario, data already obtained,
or in the future obtained, from pre-clinical studies and clinical studies do not necessarily predict the results that will be obtained
from later pre-clinical studies and clinical studies. Moreover, pre-clinical and clinical data are susceptible to varying interpretations,
which could delay, limit or prevent additional regulatory approvals. A number of companies in the medical device and pharmaceutical
industries have suffered significant setbacks in advanced clinical studies, even after promising results in earlier studies. The
failure to adequately demonstrate the safety and effectiveness of an intended product under development could delay or prevent
regulatory clearance of the device, resulting in delays to commercialization, and could materially harm our business. Even
though we have received CE mark and FDA clearance of Dario, there can be no assurance that we will be able to receive approval
for other potential applications of our principal technology, or that we will receive regulatory clearances from other targeted
regions or countries.
We may be unable to complete required
clinical trials, or we may experience significant delays in completing such clinical trials, which could significantly delay our
targeted product launch timeframe and impair our viability and business plan.
The completion of any
future clinical trials for Dario or other trials that we may be required to undertake in the future could be delayed, suspended
or terminated for several reasons, including:
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our failure or inability to conduct the clinical trial in accordance with regulatory requirements;
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sites participating in the trial may drop out of the trial, which may require us to engage new sites for an expansion of the number of sites that are permitted to be involved in the trial;
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patients may not enroll in, remain in or complete, the clinical trial at the rates we expect; and
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clinical investigators may not perform our clinical trial on our anticipated schedule or consistent with the clinical trial protocol and good clinical practices.
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If our clinical trial
is delayed it will take us longer to further commercialize Dario and generate additional revenues. Moreover, our development costs
will increase if we have material delays in our clinical trial or if we need to perform more or larger clinical trials than planned.
We may be faced with similar risks in connection with future trials we conduct. See “Business - Clinical Trials” for
a description of our clinical trials performed to date.
If we or our manufacturers fail to
comply with the FDA’s Quality System Regulation or any applicable state equivalent, our operations could be interrupted and
our operating results could suffer.
We, our manufacturers
and suppliers must, unless specifically exempt by regulation, follow the FDA’s Quality System Regulation (QSR) and are also
subject to the regulations of foreign jurisdictions regarding the manufacturing process. If our affiliates, our manufacturers or
suppliers are found to be in significant non-compliance or fail to take satisfactory corrective action in response to adverse QSR
inspectional findings, the FDA could take enforcement actions against us and our manufacturers which could impair our ability to
produce our products in a cost-effective and timely manner in order to meet our customers’ demands. Accordingly, our operating
results could suffer.
We are subject to the risk of reliance
on third parties to conduct our clinical trial work.
We depend on independent
clinical investigators to conduct our clinical trials. Contract research organizations may also assist us in the collection and
analysis of data. These investigators and contract research organizations will not be our employees and we will not be able to
control, other than by contract, the number of resources, including the time that they devote to products that we develop. If independent
investigators fail to devote sufficient resources to our clinical trials, or if their performance is substandard, it will delay
the approval or clearance and commercialization of any products that we develop. Further, the FDA and other regulatory bodies around
the world require that we comply with standards, commonly referred to as good clinical practice, for conducting, recording and
reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and
confidentiality of trial subjects are protected. If our independent clinical investigators and contract research organizations
fail to comply with good clinical practice, the results of our clinical trials could be called into question and the clinical development
of our product candidates could be delayed. Failure of clinical investigators or contract research organizations to meet their
obligations to us or comply with federal regulations could adversely affect the clinical development of our product candidates
and harm our business. Moreover, we intend to have several clinical trials in order to support our marketing efforts and business
development purposes. Such clinical trials will be conducted by third parties as well. Failure of such clinical trials to meet
their primary endpoints could adversely affect our marketing efforts.
Legislative
reforms to the United States healthcare system may adversely affect our revenues and business.
From
time to time, legislative reform measures are proposed or adopted that would impact healthcare expenditures for medical services,
including the medical devices used to provide those services. For example, in March 2010, U.S. President Barack Obama signed the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred
to as the Affordable Care Act. The Affordable Care Act made a number of substantial changes in the way health care is financed
by both governmental and private insurers and the way that Medicare providers are reimbursed. Among other things, the Affordable
Care Act requires certain medical device manufacturers and importers to pay an excise tax equal to 2.3% of the price for which
such medical devices are sold, beginning January 1, 2013.
In
addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2,
2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee
on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a 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 reductions to Medicare payments to providers of 2.0% per fiscal year. On January 2,
2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months
the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President
signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into effect.
The Bipartisan Budget Act of 2013, enacted on December 26, 2013, extends these cuts to 2023. The ATRA also, among other things,
reduced Medicare payments to several providers, including hospitals, imaging centers, 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 December
2014, Congress passed an omnibus funding bill (the Consolidated and Further Continuing Appropriations Act, 2015) and a tax extenders
bill, both of which may negatively impact coverage and reimbursement of healthcare items and services. We expect that additional
state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and
state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional
pricing pressure. For example, U.S. President Donald Trump has recently publicly indicated an intent to lower healthcare costs
through various potential initiatives. In addition, President Trump and other U.S. lawmakers have made statements about potentially
repealing and/or replacing the Affordable Care Act, although specific legislation for such repeal or replacement has not yet been
introduced. While we are unable to predict what changes may ultimately be enacted, to the extent that future changes affect how
our products are paid for and reimbursed by government and private payers our business could be adversely impacted.
Government
and private sector initiatives to limit the growth of health care costs, including price regulation, competitive pricing, coverage
and payment policies, comparative effectiveness reviews of therapies, technology assessments, and managed-care arrangements, are
continuing. Government programs, including Medicare and Medicaid, private health care insurance and managed-care plans have attempted
to control costs by limiting the amount of reimbursement they will pay for particular procedures or treatments, tying reimbursement
to outcomes, and other mechanisms designed to constrain utilization and contain costs, including delivery reforms such as expanded
bundling of services. Hospitals are also seeking to reduce costs through a variety of mechanisms, which may increase price sensitivity
among customers for our products, and adversely affect sales, pricing, and utilization of our products. Some third-party payors
must also approve coverage for new or innovative devices or therapies before they will reimburse health care providers who use
medical devices or therapies. We cannot predict the potential impact of cost-containment trends on future operating results.
We may be subject to federal, state
and foreign healthcare fraud and abuse laws and regulations.
Many federal, state
and foreign healthcare laws and regulations apply to the BGMS business and medical devices. We may be subject to certain federal
and state regulations, including the federal healthcare programs’ Anti-Kickback Law, the federal Health Insurance Portability
and Accountability Act of 1996, and other federal and state false claims laws. The medical device industry has been under heightened
scrutiny as the subject of government investigations and enforcement actions involving manufacturers who allegedly offered unlawful
inducements to potential or existing customers in an attempt to procure their business, including arrangements with physician consultants.
If our operations or arrangements are found to be in violation of such governmental regulations, we may be subject to civil and
criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment of our operations. All
of these penalties could adversely affect our ability to operate our business and our financial results.
Product liability suits, whether
or not meritorious, could be brought against us due to an alleged defective product or for the misuse of Dario or our potential
future products. These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase
in our insurance rates.
If Dario or any of
our future products are defectively designed or manufactured contain defective components or are misused, or if someone claims
any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing our device
or failing to adhere to the operating guidelines or the device producing inaccurate meter readings could cause significant harm
to patients, including death. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability.
Product liability claims could divert management’s attention from our core business, be expensive to defend and result in
sizable damage awards against us. While we maintain product liability insurance, we may not have sufficient insurance coverage
for all future claims. Any product liability claims brought against us, with or without merit, could increase our product liability
insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue.
Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition
and adversely affecting our results of operations.
If we are found to have violated
laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could
increase our liabilities and harm our reputation or our business.
Part of our business
plan includes the storage and potential monetization of medical data of users of Dario. There are a number of federal and state
laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use and
disclosure of that protected information. In particular, the U.S. Department of Health and Human Services promulgated patient
privacy rules under the Health Insurance Portability and Accountability Act of 1996 (which we refer to as HIPAA). These privacy
rules protect medical records and other personal health information by limiting their use and disclosure, giving individuals the
right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health information
to the minimum amount reasonably necessary to accomplish the intended purpose. We may face difficulties in holding such information
in compliance with applicable law. If we are found to be in violation of the privacy rules under HIPAA, we could be subject to
civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our
business, financial condition and results of operations.
Risks Related to Our Intellectual Property
The failure to obtain or maintain
patents, licensing agreements and other intellectual property could materially impact our ability to compete effectively.
In order for our business
to be viable and to compete effectively, we need to develop and maintain, and we will heavily rely on, our proprietary position
with respect to our technologies and intellectual property. We filed a Patent Cooperation Treaty (or PCT) application for a “Fluids
Testing Apparatus and Methods of Use” in May 2011 which incorporates two U.S. provisional applications submitted in the preceding
year. The PCT covers the specific processes related to blood glucose level measurement as well as more general methods of rapid
tests of body fluids and has subsequently been converted into several national phase patent applications. We have also filed patent
applications for other aspects of the Dario Blood Glucose Monitoring Solution. We have also obtained numerous Web domains.
However, to date, we
have only been issued four patents (three of which were issued in the United States) relating to how the Dario Blood Glucose Monitoring
System draws power from and transmits data to a smartphone via the audio jack port. None of our other patents have been granted
by a patent office. In addition, there are significant risks associated with our actual or proposed intellectual property. The
risks and uncertainties that we face with respect to our pending patent and other proprietary rights principally include the following:
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pending patent applications we have filed or will file may not result in issued patents or may take longer than we expect to result in issued patents;
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we may be subject to interference proceedings;
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we may be subject to opposition proceedings in foreign countries;
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any patents that are issued to us may not provide meaningful protection;
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we may not be able to develop additional proprietary technologies that are patentable;
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other companies may challenge patents licensed or issued to us;
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other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies;
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other companies may design their technologies around technologies we have licensed or developed; and
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enforcement of patents is complex, uncertain and very expensive.
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We cannot be certain
that patents will be issued as a result of any of our pending or future applications, or that any of our patents, once issued,
will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged,
declared invalid or unenforceable, or narrowed in scope. In addition, since the publication of discoveries in scientific or patent
literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file
patent applications covering those inventions.
It is also possible
that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain
licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents
that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement,
and we may be unable to do so.
Costly litigation may be necessary
to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property
rights of others.
We may face significant
expense and liability as a result of litigation or other proceedings relating to patents and intellectual property rights of others.
In the event that another party has also filed a patent application or been issued a patent relating to an invention or technology
claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the United States
Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us,
even if the eventual outcome was favorable to us. We, or our licensors, also could be required to participate in interference proceedings
involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require
us to cease using the technology, substantially modify it or to license rights from prevailing third parties.
The cost to us of any
patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor, could
be substantial, especially given our early stage of development. Our ability to enforce our patent protection could be limited
by our financial resources and may be subject to lengthy delays. A third party may claim that we are using inventions claimed by
their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development
and the sale of any future products. Such lawsuits are expensive and would consume significant time and other resources. There
is a risk that a court will decide that we are infringing the third party’s patents and will order us to stop the activities
claimed by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed
their patents.
Moreover, there is
no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed
by the patent, or that such a license if made available to us, could be acquired on commercially acceptable terms. In addition,
third parties may, in the future, assert other intellectual property infringement claims against us with respect to our services,
technologies or other matters.
We have limited foreign intellectual
property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual
property rights outside the United States. Filing, prosecuting and defending patents on devices in all countries throughout the
world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our
inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into
the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents
to develop their own products and further, may export otherwise infringing products to territories where we have patents, but enforcement
is not as strong as that in the United States.
Many companies have
encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems
of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical products, which could
make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary
rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings to enforce
our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate
and the damages or other remedies awarded, if any, may not be commercially meaningful. The requirements for patentability may differ
in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including China
and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those
countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant
a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue
opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license.
We rely on confidentiality agreements
that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to
compete against us.
Although we believe
that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure
of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us
of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the
agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors,
consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently develop
intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated
with our technology. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement
of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in
part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures
we employ, we still face the risk that:
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these agreements may be breached;
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these agreements may not provide adequate remedies for the applicable type of breach;
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our proprietary know-how will otherwise become known; or
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our competitors will independently develop similar technology or proprietary information.
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We may be subject to claims challenging
the inventorship of our patents and other intellectual property.
We may be subject to
claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property
as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other
claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome
could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled
in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek compensation
for such contributions from his or her employer, even if the employee’s contract of employment specifically states otherwise
and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact
that a contract revokes an employee’s right for royalties and compensation, does not rule out the right of the employee to
claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim
compensation with respect to our future revenue. We may receive less revenue from future products if any of our employees successfully
claim for compensation for their work in developing our intellectual property, which in turn could impact our future profitability.
Risks Related to Our Industry
We face intense competition in the
self-monitoring of blood glucose market, and as a result we may be unable to effectively compete in our industry.
With our first product,
Dario, we compete directly and primarily with large pharmaceutical and medical device companies such as Abbott Laboratories, Asensia
(formerly Bayer Diabetes Care), Johnson & Johnson LifeScan, Roche Diagnostics and Sanofi. The first four of these companies
has a combined majority market share of the BGMS business and strong research and development capacity for next-generation products.
Their dominant market position since the late 1990s, and significant control over the market could significantly limit our ability
to introduce Dario or effectively market and generate sales of the product. We will also compete with numerous second-tier and
third-tier competitors.
We only recently commenced
sales of our products, and most of our competitors have long histories and strong reputations within the industry. They have significantly
greater brand recognition, financial and human resources than we do. They also have more experience and capabilities in researching
and developing testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing
those products than we do. There is a significant risk that we may be unable to overcome the advantages held by our competition,
and our inability to do so could lead to the failure of our business and the loss of your investment.
Competition in the
BGMS markets is extremely intense, which can lead to, among other things, price reductions, longer selling cycles, lower product
margins, loss of market share and additional working capital requirements. To succeed, we must, among other critical matters, gain
consumer acceptance for Dario and potential future devices incorporating our principal technology and offer better strategic concepts,
technical solutions, prices and response time, or a combination of these factors, than those of other competitors. If our competitors
offer significant discounts on certain products, we may need to lower our prices or offer other favorable terms in order to compete
successfully. Moreover, any broad-based changes to our prices and pricing policies could make it difficult to generate revenues
or cause our revenues, if established, to decline. Some of our competitors may bundle certain software products offering competing
applications for diabetes management at low prices for promotional purposes or as a long-term pricing strategy. These practices
could significantly reduce demand for Dario or potential future products or constrain prices we can charge. Moreover, if our competitors
develop and commercialize products that are more effective or desirable than Dario or the other products that we may develop, we
may not convince our customers to use our products. Any such changes would likely reduce our commercial opportunity and revenue
potential and could materially adversely impact our operating results.
If we fail to respond quickly to
technological developments our products may become uncompetitive and obsolete.
The BGMS market and
other markets in which we plan to compete experience rapid technological developments, changes in industry standards, changes in
customer requirements and frequent new product introductions and improvements. If we are unable to respond quickly to these developments,
we may lose competitive position, and Dario or any other device or technology may become uncompetitive or obsolete, causing revenues
and operating results to suffer. In order to compete, we must develop or acquire new devices and improve our existing device on
a schedule that keeps pace with technological developments and the requirements for products addressing a broad spectrum and designers
and designer expertise in our industries. We must also be able to support a range of changing customer preferences. For instance,
as non-invasive technologies become more readily available in the market, we may be required to adopt our platform to accommodate
the use of non-invasive or continuous blood glucose sensors. We cannot guarantee that we will be successful in any manner in these
efforts.
If
third-party payors do not provide adequate coverage and reimbursement for the use of Dario, our revenue will be negatively impacted.
In
the United States and other jurisdictions such as Germany and England, we expect that Dario’s test strips should generally
be available for full or partial patient reimbursement by third-party payers. Our success in marketing Dario depends and
will depend in large part on whether U.S. and international government health administrative authorities, private health insurers
and other organizations adequately cover and reimburse customers for the cost of our products.
In
the United States, we expect to derive nearly all our sales from sales of Dario from direct to consumer cash sales as well as retail
pharmacy and DME distributors who typically bill various third-party payors, including Medicare, Medicaid, private commercial insurance
companies, health maintenance organizations and other healthcare-related organizations, to cover all or a portion of the costs
and fees associated with Dario and bill patients for any applicable deductibles or co-payments. Access to adequate coverage and
reimbursement for Center for Medicare and Medicaid Services (CMS) procedures using Dario (and our other products in development)
by third-party payors is essential to the acceptance of our products by our customers.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling
healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for medical device products
and services exists among third-party payors. Therefore, coverage and reimbursement for medical device products and services can
differ significantly from payor to payor. In addition, payors continually review new technologies for possible coverage and can,
without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often a
time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to
each payor separately, with no assurance that coverage and adequate reimbursement will be obtained, or maintained if obtained.
Reimbursement
systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals
must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before
it can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that
control reimbursement for new devices and procedures. For example, the government healthcare system in the Netherlands, New Zealand
and Israel have not yet approved reimbursement of Dario. In most markets, there are private insurance systems as well as government-managed
systems. If sufficient coverage and reimbursement are not available for our current or future products, in either the United States
or internationally, the demand for our products and our revenues will be adversely affected.
Risks Related to Our Operations in Israel
Potential political, economic and
military instability in the State of Israel, where our management team and our research and development facilities are located,
may adversely affect our results of operations.
Our operating subsidiary,
along with our management team and our research and development facilities, is located in Israel. Accordingly, political, economic
and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely
affect our operations and results of operations. The hostilities involved missile strikes against civilian targets in various parts
of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions
in Israel. Our offices, located in Caesarea, Israel, are within the range of the missiles and rockets that have been fired at Israeli
cities and towns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during
which there were a substantially larger number of rocket and missile attacks aimed at Israel. In addition, since February 2011,
Egypt has experienced political turbulence and an increase in terrorist activity in the Sinai Peninsula. Such political turbulence
and violence may damage peaceful and diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar
civil unrest and political turbulence has occurred in other countries in the region, including Syria which shares a common border
with Israel, and is affecting the political stability of those countries. This instability and any outside intervention may lead
to deterioration of the political and economic relationships that exist between the State of Israel and some of these countries,
and may have the potential for causing additional conflicts in the region. In addition, Iran has threatened to attack Israel and
is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in
the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, a violent jihadist
group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence.
Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated
purpose is to take control of the Middle East, including Israel. These situations may potentially escalate in the future to more
violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region
could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to
raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension,
forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the
political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming
that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still
restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse
impact on our operating results, financial condition or the expansion of our business.
Our commercial insurance
does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although
the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts
of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have
a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect
business conditions and could harm our results of operations.
Further, the State
of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the
State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results,
financial condition or the expansion of our business.
Our operations may be disrupted as
a result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens
are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age
of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict,
may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of
military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted
by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect
our business, financial condition and results of operations.
Investors may have difficulties enforcing
a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws, against us,
or our executive officers and directors or asserting U.S. securities laws claims in Israel.
Certain of our directors
and officers are not residents of the United States and whose assets may be located outside the United States. Service of process
upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or
our non-U.S. our directors and executive officers may be difficult to obtain within the United States. We have been informed by
our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted
in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse
to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not be
the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be
governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might
not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers
and directors.
Moreover, among other
reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at variance with
another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court
or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide
for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice
the sovereignty or security of the State of Israel.
Risks Related to the Ownership of Our
Common Stock and Warrants
Our officers, directors and founding
stockholders may exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.
As of the date of this
Annual Report, our officers, directors and affiliated stockholders collectively have a beneficial ownership interest of approximately
40% of our Company. As a result, such individuals will have the ability, acting together, to control the election of our directors
and the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of our company, (ii) a sale
of all or substantially all of our assets, and (iii) amendments to our certificate of incorporation and bylaws. This concentration
of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise
be beneficial to our other stockholders and be disadvantageous to our stockholders with interests different from those individuals.
Certain of these individuals also have significant control over our business, policies and affairs as officers or directors of
our company. Therefore, you should not invest in reliance on your ability to have any control over our company.
Our common stock has less liquidity
than many other stocks listed on the Nasdaq Capital Market.
Historically, the trading
volume of our common stock has been relatively low when compared to larger companies listed on the Nasdaq Capital Market or other
stock exchanges. While we have experienced increased liquidity in our stock during the year ended December 31, 2019, we cannot
say with certainty that a more active and liquid trading market for our common stock will continue to develop. Because of this,
it may be more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders could
sell a smaller number of shares.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock or warrants adversely, the price of our common stock or warrants and trading volume could decline.
The trading market
for our common stock or warrants may be influenced by the research and reports that securities or industry analysts may publish
about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding
our common stock or warrants adversely, or provide more favorable relative recommendations about our competitors, the price of
our common stock or warrants would likely decline. If any analyst who may cover us were to cease coverage of our company or fail
to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our
common stock or warrants or trading volume to decline.
The market price of our common stock and warrants may
be significantly volatile.
The market price for
our common stock and warrants may be significantly volatile and subject to wide fluctuations in response to factors including the
following:
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actual or anticipated fluctuations in our quarterly or annual operating results;
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changes in financial or operational estimates or projections;
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conditions in markets generally;
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changes in the economic performance or market valuations of companies similar to ours; and
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general economic or political conditions in the United States or elsewhere.
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In particular, the
market prices for securities of mHealth and medical device have historically been particularly volatile. Some of the factors that
may cause the market price of our common stock and warrants to fluctuate include:
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any delay in or the results of our clinical trials;
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any delay in manufacturing of our products;
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any delay with the approval for reimbursement for the patients from their insurance companies;
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our failure to comply with regulatory requirements;
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the announcements of clinical trial data, and the investment community’s perception of and reaction to those data;
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the results of clinical trials conducted by others on products that would compete with ours;
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any delay or failure to receive clearance or approval from regulatory agencies or bodies;
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our inability to commercially launch products or market and generate sales of our products, including Dario;
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failure of Dario or any other products, even if approved for marketing, to achieve any level of commercial success;
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our failure to obtain patent protection for any of our technologies and products (including those related to Dario) or the issuance of third-party patents that cover our proposed technologies or products;
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developments or disputes concerning our product’s intellectual property rights;
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our or our competitors’ technological innovations;
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general and industry-specific economic conditions that may affect our expenditures;
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changes in market valuations of similar companies;
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announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents;
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future sales of our common stock or other securities, including shares issuable upon the exercise of outstanding warrants or otherwise issued pursuant to certain contractual rights;
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period-to-period fluctuations in our financial results; and
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low or high trading volume of our common stock due to many factors, including the terms of our financing arrangements.
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In addition, if we
fail to reach important research, development or commercialization milestone or result by a publicly expected deadline, even if
by only a small margin, there could be a significant impact on the market price of our common stock and warrants. Additionally,
as we approach the announcement of anticipated significant information and as we announce such information, we expect the price
of our common stock and warrants to be particularly volatile, and negative results would have a substantial negative impact on
the price of our common stock and warrants.
In some cases, following
periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management
attention and resources, which could significantly harm our business operations and reputation.
Shares eligible for future sale may adversely affect the
market for our common stock and warrants.
From time to time,
certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. In
general, pursuant to Rule 144, after satisfying a six month holding period: (i) affiliated stockholder (or stockholders whose shares
are aggregated) may, under certain circumstances, sell within any three month period a number of securities which does not exceed
the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four
calendar weeks prior to such sale and (ii) non-affiliated stockholders may sell without such limitations, provided we are current
in our public reporting obligations. Rule 144 also permits the sale of securities by non-affiliates that have satisfied a one year
holding period without any limitation or restriction. Any substantial sale of our common stock pursuant to Rule 144 or pursuant
to any resale report may have a material adverse effect on the market price of our securities.
Our compliance with complicated U.S.
regulations concerning corporate governance and public disclosure is expensive. Moreover, our ability to comply with all applicable
laws, rules and regulations is uncertain given our management’s relative inexperience with operating U.S. public companies.
As a publicly reporting
company, we are faced with expensive and complicated and evolving disclosure, governance and compliance laws, regulations and standards
relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Act, and, to the extent
we complete our anticipated public offering, the rules of the Nasdaq Stock Market. New or changing laws, regulations and standards
are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result,
our efforts to comply with evolving laws, regulations and standards of a U.S. public company are likely to continue to result in
increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities
to compliance activities.
Moreover, our executive
officers have little experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules
and regulations uncertain. Our failure to company with all laws, rules and regulations applicable to U.S. public companies could
subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.
If we fail to maintain effective
internal control over financial reporting, the price of our common stock may be adversely affected.
Our internal control
over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which
may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal
control over financial reporting. Failure to establish those controls, or any failure of those controls once established,
could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.
In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions
that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors.
Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or
disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the
price of our common stock.
Anti-takeover provisions in our charter
documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price
of our common stock and warrants.
We are a Delaware corporation
and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by
prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person
becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our
certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders
may consider favorable. Our certificate of incorporation and bylaws:
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authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;
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provide that vacancies on our Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office;
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provide that special meetings of stockholders may only be called by our Chairman, Chief Executive Officer and/or President or other executive officer, our Board of Directors or a super-majority (66 2/3%) of our stockholders;
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place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders;
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do not provide stockholders with the ability to cumulate their votes; and
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provide that our Board of Directors or a super-majority of our stockholders (66 2/3%) may amend our bylaws.
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We do not currently intend to pay
dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment
will depend on appreciation in the price of our common stock.
We have never declared
or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the
foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never
occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock
will appreciate in value or even maintain the price at which our stockholders have purchased their shares.