S-1
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As filed with the U.S. Securities and Exchange Commission on January 15, 2021.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Lucira Health, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2835   27-2491037
(State or other jurisdiction of
incorporation or organization)
 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer
Identification Number)

1412 62nd Street

Emeryville, California 94608

(510) 350-8071

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

 

 

Erik T. Engelson

President and Chief Executive Officer

Lucira Health, Inc.

1412 62nd Street

Emeryville, California 94608

(510) 350-8071

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

 

 

Copies to:

 

Josh Seidenfeld

John T. McKenna

Mark B. Weeks

Alexa M. Ekman

Cooley LLP

3175 Hanover Street

Palo Alto, California 94304

(650) 843-5000

 

Ilir Mujalovic

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York 10022

(212) 848-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
 

Proposed

Maximum

Aggregate
Offering Price (1)(2)

 

Amount of

Registration Fee

Common Stock, $0.001 par value per share

  $115,000,000   $12,547

 

 

(1)

Includes the aggregate offering price of additional shares of common stock that the underwriters have the option to purchase.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

 

 

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

 

 

 


Table of Contents

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

 

Subject to Completion

Preliminary Prospectus dated January 15, 2021

P R O S P E C T U S

                 Shares

 

 

LOGO

Common Stock

 

 

This is Lucira Health, Inc.’s initial public offering. We are selling                shares of our common stock.

We expect the public offering price for our common stock to be between $                and $                per share. Currently, no public market exists for the shares of our common stock. After pricing of the offering, we expect that the shares will trade on the Nasdaq Global Market under the symbol “LHDX.”

We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and are subject to reduced public company disclosure standards. See the section titled “Prospectus Summary—Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 17 of this prospectus.

 

 

 

    

Per Share

  

    Total    

Public offering price

   $    $

Underwriting discount(1)

   $    $

Proceeds, before expenses, to us

   $    $

 

(1)   We refer you to “Underwriting” for additional information regarding underwriting compensation.

The underwriters may also exercise their option to purchase up to an additional                shares of common stock from us, at the initial public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                , 2021.

 

 

 

BofA Securities    William Blair
LifeSci Capital

 

 

The date of this prospectus is                 , 2021.


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LOGO

    

The LUCIRA COVID-19 All-In-One Test Kit, depicted here, is not FDA approved or cleared and is marketed pursuant to Emergency Use Authorization.

LUCIRATM HEALTH Reimagining infectious disease testing

Transforming molecular diagnostics in the palm of your hand

Lucira Health, Inc.


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     17  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     79  

MARKET, INDUSTRY AND OTHER DATA

     81  

USE OF PROCEEDS

     82  

DIVIDEND POLICY

     83  

CAPITALIZATION

     84  

DILUTION

     86  

SELECTED FINANCIAL DATA

     89  

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

     91  

BUSINESS

     108  

MANAGEMENT

     156  

EXECUTIVE COMPENSATION

     165  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     181  

PRINCIPAL STOCKHOLDERS

     185  

DESCRIPTION OF CAPITAL STOCK

     188  

SHARES ELIGIBLE FOR FUTURE SALE

     194  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

     197  

UNDERWRITING

     201  

LEGAL MATTERS

     209  

EXPERTS

     209  

WHERE YOU CAN FIND MORE INFORMATION

     209  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

 

We and the underwriters have not authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or in any applicable free writing prospectus is accurate only as of the date of this prospectus or any such free writing prospectus, as applicable, regardless of its time of delivery or of any sale of our common stock. Our business, financial condition, results of operations and future growth prospects may have changed since that date.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Special Note Regarding Forward-Looking Statements,” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “Lucira Health,” “we,” “us,” “our” and “our company” refer to Lucira Health, Inc.

Overview

We are a medical technology company focused on the development and commercialization of transformative and innovative infectious disease test kits. We have developed a testing platform that produces centralized-laboratory-accurate molecular testing in a single-use and consumer-friendly test kit that is powered by two AA batteries and fits in the palm of a hand. We designed our test kits to provide accurate, reliable and on-the-spot molecular test results anywhere and at any time. We believe the novel coronavirus, or COVID-19, pandemic has shown the infectious disease testing infrastructure in the United States was not designed to accommodate the immediate demands of infectious disease control on a mass-population scale. The testing options today are too expensive, inaccurate, or are inaccessible due to slow time to results or complexity. Mass-population infectious disease testing requires a testing platform that can provide accurate and clinically relevant results on-the-spot, be affordably mass produced, portable and easy-to-use anywhere. Our LUCIRA COVID-19 All-In-One Test Kit, or our COVID-19 test kit, is designed to provide a clinically relevant COVID-19 result within 30 minutes from sample collection. We believe, at scale, it will be an affordable, mass-population testing solution. Our initial focus is within respiratory diseases, starting with COVID-19 and influenza A and B virus indications.

We conducted a clinical trial that demonstrated that the molecular accuracy of our COVID-19 test kit is comparable to the Hologic, Inc. Panther Fusion SARS-CoV-2 Assay, or the Hologic Panther Fusion, which is considered to be one of the current market-leading molecular assays in a U.S. Food and Drug Administration, or FDA, published study because of its low Limit of Detection, or LoD. This clinical trial is called our Community Testing Study. In our Community Testing Study, we collected samples from 101 subjects, tested the samples head-to-head against the Hologic Panther Fusion and achieved 94.1% positive percent agreement (96.0% with discrepant testing) and 98.0% negative percent agreement. Our strong clinical performance was enabled by our LoD of 900 copies per mL of viral transfer media equivalent, or cps / mL VTM equivalent, which allows our COVID-19 test kit to detect viral genetic material in orders of magnitude better than antigen tests. In addition, our COVID-19 test kit is easy-to-use. For example, 100% of patients successfully performed self-testing at home using our COVID-19 test kit in less than two minutes in a human usability study we conducted with 398 users at research facilities in Sunnyvale and Fresno, California. The measure for successful performance was the ability to collect a nasal specimen and start the test running on the first try, either without having to look back at the directions or with only one look back. On November 17, 2020, we received an Emergency Use Authorization, or EUA, from the FDA for (1) prescription at-home use with self-collected nasal swab specimens in individuals aged 14 and older who are suspected of COVID-19 by their healthcare provider and (2) use at the point-of-care, or POC, with self-collected nasal swab specimens in individuals aged 14 and older, and in individuals aged 13 and under when the specimen is collected by a healthcare provider at the POC. People who are suspected of COVID-19 are those who are either symptomatic or are thought to have been exposed to COVID-19. We are working towards expanding this indication and intend to submit an amended or new EUA application, as determined by the FDA, to include asymptomatic people in 2021. Additionally, we plan to develop a combination COVID-19 and influenza A and B viruses test kit for prescription at-home use and later a separate COVID-19 test kit and an influenza A and B viruses test kit, or our influenza test kit, for over-the-counter, or OTC, use.



 

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Infectious diseases are caused by pathogenic microorganisms, like viruses and bacteria, that enter the body. These diseases can spread from either person-to-person through direct or indirect contact, such as airborne particles from coughing or sneezing, or through a vector such as an animal or insect. Outbreaks of highly contagious infectious diseases, that spread from person-to-person, require immediate, mass-population testing in order to mitigate the spread of the disease. COVID-19 is an infectious disease caused by SARS-CoV-2 that was first identified in December 2019 in Wuhan, Hubei, China, and has resulted in an ongoing global pandemic. As of January 7, 2021, more than 85 million cases have been reported worldwide with more than 1.8 million deaths. The world economy has been significantly impacted and the World Bank noted that the COVID-19 pandemic is expected to plunge most countries into recession in 2021 with per capita income contracting in the largest fraction of countries globally since 1870 with advanced economies projected to shrink approximately 7%. COVID-19 diagnostic volume in the United States is rapidly growing and, as of November 2020 exceeded 30 million tests per month with estimated monthly demand expected to increase up to 50 million to 100 million tests during 2021. As of the date hereof, the world continues to struggle with monitoring and containing the outbreak of COVID-19. COVID-19 molecular testing accounts for approximately one-third of all COVID-19 tests conducted, which translates into a current market spend of approximately $6.0 billion for molecular COVID-19 testing. In December 2020, the FDA issued EUAs for two COVID-19 vaccines; however, we believe the need for ongoing detection and monitoring will continue to be high given the ongoing COVID-19 pandemic. We also believe COVID-19, like influenza, will remain endemic for the foreseeable future and people suspected of influenza-like illness, or ILI, may want to purchase a combination COVID-19 and influenza test kit to confirm their diagnosis in order to receive timely and appropriate treatment and quarantine themselves if and as needed. We believe that to successfully combat infectious diseases such as COVID-19 and influenza, testing, vaccines and therapeutics all need to be deployed. We believe our testing platform is well suited to provide accurate, decentralized testing.

Influenza, commonly known as “the flu”, is an infectious respiratory disease caused by several influenza viruses. The U.S. Centers for Disease Control and Prevention, or CDC, estimates that influenza has been responsible for between approximately 12,000 and 61,000 deaths in the United States annually since 2010. In the United States, seasonal influenza is estimated to result in a total average annual economic cost of over $11.0 billion, with direct medical costs estimated to be over $3.0 billion annually. According to industry estimates, a future influenza pandemic could cause hundreds of billions of dollars in direct and indirect costs. Approximately 174 million influenza vaccine doses were distributed in the United States in the 2019-2020 influenza season, and for the 2020-2021 season, vaccine manufacturer projections range from approximately 194 million to 198 million doses. We believe this rising demand for influenza vaccines, coupled with the inability to definitively determine based on symptoms alone whether a person has COVID-19 or influenza or another viral infection, translates to greater interest in products to diagnose and treat ILI. We estimate that the total potential market spend for OTC influenza testing could be in excess of $800 million based on current testing volumes, and the total addressable market could be up to approximately $4.0 billion based on an estimate that approximately 200 million people per year purchase treatments for the symptoms of ILI, according to Nielsen Corporation figures from October 2019, and an OTC retail price of approximately $20 per test kit, assuming that all people who purchase treatments for the symptoms of ILI would purchase an OTC influenza test.

Current Testing Approaches and their Limitations

Traditional infectious disease testing options have been limited in their accessibility and effectiveness largely due to their complexity, slow time to results, limited clinical relevance, and/or expense. There are several different testing modalities or techniques that are employed to determine the presence of a target disease or a proxy of the target disease. Each modality provides different clinically useful information due to its inherent differences and testing limits. The large categories of infectious disease tests generally fall into one of three categories: molecular tests, antigen tests and antibody tests. Molecular tests have the lowest LoD of the testing modalities and therefore can identify contagious people earlier. Having a lower LoD is better because it allows



 

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the test to detect the presence of lower amounts of viral genetic material. We believe the current molecular testing infrastructure in the United States does not meet the immediate demands of infectious disease management on a mass-population scale as it relies on centralized testing that involves complex sample transportation, logistics, and throughput bottlenecks. These tests have traditionally required complex instrumentation to accomplish the chemical amplification and detection needed. The majority of these molecular tests occur within centralized laboratory settings where it can take from two to 14 days to return a result, which does not include the sample acquisition and delivery times. Further, many of these tests require highly trained and specialized technicians to operate the laboratory equipment. More recently, some benchtop instruments have been developed in the POC setting with the capability to perform these complex and sensitive molecular tests, but these tests still require a trained operator, an electrical outlet and a separate dedicated instrument which limits their portability. These POC instruments typically have limited throughput, capable of processing only a single sample at a time.

Antigen tests have emerged as a category of stopgap tests that address the needs for portability and affordability, but they do not generally provide a balanced level of accuracy across identifying both positives and negatives. They have a more limited ability to detect active infection across the full spectrum of illness, including at and before symptom onset. Therefore, they tend to be of limited use to people until several days after symptom onset and often require a follow-on confirmatory molecular test. Antigen tests often miss early positives due to this lack of sensitivity which is insufficient for reliable infectious disease monitoring. Antibody tests have limited clinical relevance because they do not test for active infection and therefore do not indicate whether a person is actively contagious. We designed our test kits to mitigate the shortcomings of both molecular lab-based and antigen testing.

Our Solution

We believe providing an easy-to-use COVID-19 test kit with molecular accuracy that allows potentially infectious people to test themselves anywhere, especially in the safety of their own homes, is one of the best ways to help mitigate the spread of infectious diseases like COVID-19. We designed our proprietary platform from the ground up to be able to provide accurate, consumer-friendly, affordable and convenient infectious disease test kits, and our COVID-19 test kit can provide a clinically relevant COVID-19 result within 30 minutes.

Our platform has four key attributes: (1) robust target identification, (2) colorimetric assay, (3) consumer-friendly test kit and (4) flexible assay architecture. We use our expertise in infectious disease, virology and bioinformatics in support of our target identification efforts. Once a target has been identified, we develop assays to amplify and detect the target through a combination of loop-mediated isothermal amplification, or LAMP, and proprietary colorimetric detection chemistry. These assays are then stabilized and packaged in the consumer-friendly design of our test kits. Our COVID-19 test kit was designed for high usability and high accuracy while also being purpose-built for low-cost manufacturing. Under the EUA we received, our COVID-19 test kit is eligible for reimbursement in POC settings as a molecular POC test, and we are working with the Centers for Medicare and Medicaid Services, or CMS, to determine the reimbursement pathway for prescription at-home use. Unlike other testing modalities currently in the market, our test kits are consumer-friendly, accurate and can be used anywhere.



 

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Our proprietary platform is embodied in our COVID-19 test kit, pictured below:

 

 

LOGO

We believe our platform provides the following competitive benefits:

 

   

Molecular accuracy. Accurate testing, which we measure using LoD, is paramount in mitigating the spread of infectious diseases. LoD is the defining measure of an assay’s ability to reliably detect the presence of a specific target, such as viral RNA or protein. Tests with a lower LoD are more sensitive because they can detect positive samples with low viral load. All the FDA EUA authorized high sensitivity molecular assays have an LoD of 1,000 cps / mL VTM equivalent or lower, which is significantly better than antigen tests. These molecular tests can be used reliably among symptomatic and asymptomatic individuals, unlike antigen tests which can be limited to use among symptomatic individuals in their first seven days of symptoms. Molecular tests are diagnostically definitive, whereas antigen tests are not. We perform routine surveillance of emerging SARS-CoV-2 strains by periodically evaluating in silico reactivity against sequence databases. While our evaluations of the variants in the United Kingdom, or the U.K., and South Africa have shown that these two variants are reactive to our COVID-19 test kit, we cannot currently definitively confirm that our COVID-19 test kit will be successful in detecting these strains. We anticipate performing testing to confirm detection with these strains once they become commercially available.

 

   

Simple, intuitive test kit. We designed our test kits to be used anywhere and at any time. Our test kits have a simple, intuitive, three-step “swab, stir, detect” sequence. In our usability studies, approximately 97% of users said our COVID-19 test kit met or exceeded their expectations with regard to ease of use, whereas many molecular tests require specialized equipment and trained personnel for operation.

 

   

Portable ‘swab-to-result’ within 30 minutes. Our COVID-19 test kit was designed to provide a clinically relevant COVID-19 result within 30 minutes, with the potential for a positive COVID-19 result in as few as 11 minutes. We believe this is highly beneficial when dealing with infectious diseases as it allows people to quickly determine if they are infected, and enables them to



 

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appropriately quarantine, mitigate the spread and reduce infection rates. Molecular tests completed in centralized laboratories can take days or weeks to report results, at which point the tests are less clinically relevant.

 

   

Affordable. Rapidly deploying millions of tests per month requires the tests to be relatively inexpensive. We have purpose-built and designed our test kits to be manufactured and affordable at scale.

 

   

Flexible with potential for broad applicability. We built our platform to be flexible and applicable to additional assays using the same core test kit. As an example of our platform’s agility and robustness, we leveraged over half a decade of research and development of our test kit and expertise in target identification and assay development for influenza into a test kit for COVID-19. These broad platform capabilities enable us to pursue a wide array of indications in the future. We believe this component of our strategy and business model will be a core value driver for us over the long term.

Our proprietary platform enables us to develop a pipeline of infectious disease test kits. Our current focus is on our COVID-19 test kit. The following chart outlines our test kit portfolio, categorized by the prescription or OTC commercialization channel and the anticipated year of FDA submission, based on our current estimates and belief. The footnotes in the chart below describe our anticipated regulatory approval pathway.

 

 

LOGO

Timeline represents anticipated FDA submission dates. The pathway to obtain an EUA for influenza or combination COVID-19 and influenza test kits remains uncertain. We may not pursue an amended or additional EUA, and we may need to seek 510(k) clearance or approval of a de-novo application from the FDA for our COVID-19, influenza, and combination COVID-19 and influenza test kits. Furthermore, the FDA may require us to initiate one or more additional clinical trials. The estimated timing or scope of any such future clinical trials is not definitively ascertainable.

 

(1)

Represents our COVID-19 test kit. We received an EUA from the FDA on November 17, 2020, for prescription at-home and POC use in people who are suspected of COVID-19 by their healthcare provider (people who are symptomatic or are thought to have been exposed to COVID-19).

(2)

Represents our COVID-19 test kit. We anticipate submitting an amended or new EUA application, as determined by the FDA. As of January 2021, we have not submitted an application to the FDA.

(3)

Represents our COVID-19 test kit. We anticipate submitting a new EUA application to the FDA for OTC use of our COVID-19 test kit. As of January 2021, we have not submitted an application to the FDA.

(4)

Represents our combination COVID-19 and influenza test kit, which we plan to develop. We anticipate submitting a new EUA application or seeking 510(k) clearance or approval of a de-novo application with the FDA for prescription at-home use of our combination COVID-19 and influenza test kit, once developed. As of January 2021, we have not submitted an application to the FDA.

(5)

Represents our influenza test kit. We anticipate seeking 510(k) clearance or approval of a de-novo application with the FDA for OTC use of our influenza test kit. As of January 2021, we have not submitted an application to the FDA pursuant to our anticipated regulatory approval pathway.



 

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We intend to commercialize our COVID-19 test kit within POC and prescription at-home settings through partnerships with customers, such as hospital networks, payors, corporate senior living facilities and large employers. We have begun conducting additional clinical trials to expand our indications from people who are suspected of COVID-19 to include asymptomatic people. We also plan to invest in clinical activities to develop a combination COVID-19 and influenza test kit for prescription at-home as well as an influenza test kit for OTC. We have begun manufacturing activities to support our commercial launch of our COVID-19 test kit in the spring of 2021, and our goal is to establish increased scale by the second half of 2021.

Market Opportunity

COVID-19 Market

We believe there is a significant opportunity for POC, prescription at-home and OTC testing of infectious diseases such as COVID-19.

COVID-19 diagnostic volume in the United States is rapidly growing and as of November 2020 exceeded 30 million tests per month with estimated monthly demand expected to increase up to 50 million to 100 million tests during 2021. Currently molecular testing accounts for approximately one-third of all COVID-19 tests conducted, and CMS POC reimbursement is approximately $50 per test. Testing volumes are based on the traditional testing infrastructure as there are currently no COVID-19 tests widely offered in the prescription at-home or OTC settings. This represents a current market spend of approximately $6.0 billion for molecular COVID-19 testing. The POC reimbursement rate is the amount that a provider receives and does not represent our actual revenue per test kit. We intend to evaluate our test kit pricing on a channel-specific basis, factoring in market dynamics and believe our revenue per test kit will vary over time. In the future we anticipate the percentage of molecular tests to grow due to the continued awareness of its clinical relevancy, increased performance, ease of use and expanded availability in both the POC and prescription at-home settings. According to some estimates, approximately 30% of all COVID-19 tests are conducted for symptomatic patients. We estimate our total available COVID-19 test kit market to be in excess of this as our existing EUA for our COVID-19 test kit is indicated for people who are suspected of COVID-19. If we receive an expanded indication to include asymptomatic people in 2021, we believe our total available COVID-19 test kit market would increase to include the remainder of the testing opportunity and potentially expand this opportunity as more routine applications for testing would become available. Ellume Limited, or Ellume, received an EUA from the FDA for OTC use of its COVID-19 test; however, it is an antigen test and as seen in Ellume’s FDA labeling, healthcare professionals are advised that negative results and positive results in asymptomatic people should be considered presumptive and additional testing with a highly sensitive molecular COVID-19 test may be necessary. We believe that our molecular COVID-19 test could provide diagnostically definitive follow-on testing. In December 2020, the FDA issued EUAs for two COVID-19 vaccines; however, we believe the need for ongoing detection and monitoring will continue to be high even after effective vaccines have been widely distributed and compliantly administered given the ongoing COVID-19 pandemic. We also believe COVID-19, like influenza, will remain endemic for the foreseeable future and people suspected of ILI may want to purchase a combination COVID-19 and influenza test kit to confirm their diagnosis in order to receive timely and appropriate treatment and quarantine themselves if and as needed. We believe that to successfully combat infectious diseases such as COVID-19 and influenza, testing, vaccines and therapeutics all need to be deployed. We believe our testing platform is well suited to provide accurate, decentralized testing.

We plan to develop a combination COVID-19 and influenza test kit for the POC and prescription at-home markets. We additionally believe there to be demand for an OTC COVID-19 test kit for which we plan to pursue approval in 2021. We currently believe that an OTC COVID-19 test kit would need to be at a consumer-appropriate retail price which, based upon our analysis of the consumer healthcare market, is approximately $20 per test kit.



 

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Influenza Market

The CDC estimates that approximately 35.5 million people in the United States were sick with influenza during the 2018-2019 influenza season; however, only an estimated 16.5 million patients visited a healthcare provider for the treatment of influenza, suggesting there is a large potential market for at-home influenza testing across the broader population. We believe there is an unmet medical opportunity and potentially greater demand for influenza testing given the hurdles to accessibility in the traditional influenza testing infrastructure at the POC and in centralized laboratories. According to Nielsen Corporation figures from October 2019, approximately 70% of U.S. households, representing approximately 230 million people, purchased cough or cold-related medicines throughout the year, which we believe highlights the willingness of consumers to purchase products to treat the symptoms of ILI. Of this population, we believe it is likely that only a small percentage of people actually have influenza, but a larger population suspects they have it and would be candidates for testing. If an influenza test was available in an OTC setting, we believe the total potential market spend could be in excess of $800 million based on current testing volumes and a retail price of approximately $20 per test kit. We also believe the total addressable market could be up to approximately $4.0 billion based on an estimate that approximately 200 million people per year purchase treatments for the symptoms of ILI, according to Nielsen Corporation figures from October 2019, and an OTC retail price of approximately $20 per test kit, assuming that all people who purchase treatments for the symptoms of ILI would purchase an OTC influenza test. While Ellume has announced that they are developing an influenza at-home test, there are no FDA-approved influenza testing products available in the prescription at-home or OTC settings. We believe there is significant demand for accurate, affordable, consumer-friendly and accessible testing options. Subsequent to our development work on a COVID-19 OTC test kit, we plan to pursue a line extension for an OTC influenza test kit. We believe the impact of the COVID-19 pandemic will result in an increased desire to test when ILI symptoms present, as many influenza symptoms are similar to COVID-19 symptoms.

While we are initially focused solely on the U.S. opportunity, we believe there is a substantial market opportunity internationally. Further, we plan to conduct additional research and development activities to explore the potential of our platform to be used in additional indications, including other infectious diseases such as sexually transmitted infections, or STIs, and respiratory syncytial virus.

What Sets Us Apart

We are reimagining infectious disease testing by enabling accurate, on-the-spot molecular testing with a consumer-friendly test kit that can be used anywhere and at any time. We believe the following competitive advantages set us apart:

 

   

First mover advantage for an innovative, single-use, consumer-friendly molecular testing platform designed to provide clinically relevant COVID-19 results within 30 minutes anywhere.

 

   

Molecular accuracy. In our head-to-head Community Testing Study, our COVID-19 test kit performed comparably to the Hologic Panther Fusion, one of the current market-leading reverse transcription polymerase chain reaction, or RT-PCR, high-sensitivity assays performed in centralized laboratories given its low LoD. This technical achievement was possible due to our platform which uses LAMP combined with our proprietary colorimetric detection technology to yield an LoD of 900 cps / mL VTM. Our COVID-19 test kit’s LoD is more sensitive than that of antigen tests and provides a diagnostically definitive result, thus significantly reducing the potential for false negatives and the need for confirmatory tests.



 

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Single-use, intuitive design. We designed our test kits to be single-use and intuitive with a simple, three-step “swab, stir, detect” sequence. Our test kit will come with simple instructions and all required components, including two AA batteries, and fits in the palm of a hand. The results are displayed clearly in a light-up display. The single-use design eliminates the need to purchase and maintain a separate instrument or reader, unlike other molecular tests.

 

   

‘Swab-to-result’ within 30 minutes. Along with molecular accuracy, we designed our COVID-19 test kit to provide a clinically relevant COVID-19 result within 30 minutes, with the potential for a positive COVID-19 result in as few as 11 minutes. Providing an on-the-spot test result is important in infectious disease testing because it allows for positive results to be delivered quickly and for a person to quarantine earlier, thereby mitigating the spread. We believe our ability to deliver on-the-spot test results sets us apart from centralized laboratory molecular tests that can take days or even weeks to deliver a result.

 

   

Affordable. If approved for OTC and if we achieve scaled production, we believe at OTC launch we will be able to offer a test kit that is affordably priced compared to centralized laboratory molecular tests. If and until we achieve OTC approval, we expect our POC pricing could be at a modest premium to other POC tests, and we believe the portability of our test kit will differentiate us from our competitors.

 

   

Robust platform with flexible hardware and multiplexed target identification capabilities designed to allow development of and testing for multiple assays. We designed our test kits with the capacity for multiplexing, meaning that multiple assays can be easily tested on a single test kit. Our flexible platform allows us to target a potentially wide range of infectious diseases through disease-specific assay-containing pellets contained within independent reaction chambers. As an example of our platform’s agility and robustness, we leveraged over half a decade of research and development in our test kit and expertise in target identification and assay development for influenza into a test kit for COVID-19.

 

   

Rigorous product development processes and scalable infrastructure. All of our core technology, such as the multiplexed biological assay device and the colorimetric detection method, were developed in-house by our experienced research and development team. We believe the design of our platform, and the supply chain we have built to capture low-cost economies of scale, are an advantage for us.

 

   

Comprehensive and broad intellectual property portfolio. As of December 31, 2020, we owned four issued U.S. patents, seven pending U.S. utility patent applications, two issued foreign patents and 35 pending foreign patent applications. Three currently issued filings and associated technology enable our highly accurate platform. Furthermore, we own trade secrets and research and development know-how supporting our ability to create the assays used in our platform.

 

   

Experienced senior management team and directors with deep industry experience. Our senior management team and directors consist of seasoned medical device professionals, with a wide array of experience including marketing healthcare consumer products, diagnostic chemistry, running clinical trials, navigating regulatory pathways, manufacturing, automation and supply chain management.

Growth Strategy

We intend to build a transformational infectious disease testing company delivering on a broad test menu for infectious diseases over time. To achieve our growth plan, we plan to employ several core strategies:

 

   

Commercialize our COVID-19 test kit through a staged regulatory approval approach first in POC and prescription at-home use and eventually expanding to OTC approval, if authorized.



 

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Expand and automate production capabilities to better address market demand while capturing economies of scale.

 

   

Develop and launch additional test kits in the prescription at-home channel, beginning with a combination COVID-19 and influenza test kit as well as OTC test kits for COVID-19 and influenza.

 

   

Continue to promote awareness among patients, healthcare providers, and key opinion leaders, or KOLs.

 

   

Expand internationally with our COVID-19 and influenza test kits.

Recent Private Financing

In December 2020, we issued and sold convertible promissory notes, or 2020B Notes, in the aggregate principal amount of $20.0 million in a private placement to existing investors. The 2020B Notes accrue interest at a rate of 0.15% per annum and will automatically convert into shares of our common stock upon the closing of this offering at a conversion price equal to 80% of the initial public offering price per share. In connection with this offering, assuming an initial public offering price of $              per share, the midpoint of the price range set forth on the cover page of this prospectus, we anticipate the 2020B Notes and accrued interest thereon will convert into an aggregate of              shares of our common stock.

Recent Financial Results (Preliminary and Unaudited)

The data presented below reflect our preliminary estimated unaudited financial results for the year ended December 31, 2020, based upon information available to us as of the date of this prospectus. We have provided ranges, rather than specific amounts, for the preliminary estimates of the financial results presented below primarily because our financial closing procedures for the year ended December 31, 2020 are not yet complete. The data are not a comprehensive statement of our results for this period, and our actual results may differ materially from these preliminary estimated data. Our actual results remain subject to the completion of management’s and our audit committee’s reviews and our other financial closing processes as well as the completion and preparation of our consolidated financial data for the year ended December 31, 2020, and will not be finalized until after the completion of this offering. During the course of the preparation of our financial statements and related notes and the completion of the audit for the year ended December 31, 2020, additional adjustments to the preliminary estimated financial information presented below may be identified, and our final results for these periods may vary from these preliminary estimates. This preliminary estimated data should not be considered a substitute for the financial statements to be prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and filed with the Securities and Exchange Commission, or the SEC, in our Annual Report on Form 10-K for the year ended December 31, 2020 once it becomes available following the completion of this offering. Accordingly, you should not place undue reliance on these preliminary data. See “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding factors that could result in differences between these preliminary estimates and the actual financial results and other data we will report for the year ended December 31, 2020.

The preliminary estimated unaudited financial and other data contained in this prospectus have been prepared in good faith by, and are the responsibility of, management based upon our internal reporting for the year ended December 31, 2020. BDO USA, LLP, our independent registered public accounting firm, has not audited, reviewed, compiled or performed any procedures with respect to such preliminary data for the year ended December 31, 2020. Accordingly, BDO USA, LLP does not express an opinion or any other form of assurance with respect thereto.

 



 

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     Year Ended December 31,  
     2020
Estimated
     2019
Actual
 
     Low      High         
     (in thousands)         

Cash

   $                    $                    $ 4,100  

Revenue

           —    

Loss from operations

           (13,858

During the second half of 2020, we began transitioning to a commercial stage company by expanding our operational, administrative and commercial infrastructure, including higher employee headcount, and as a result incurred higher operating expenses and loss from operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties that you should consider before investing in our company. These risks are described more fully in the section titled “Risk Factors.” These risks include, but are not limited to, the following:

 

   

We have incurred losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.

 

   

We have refocused our near-term business strategy on responding to the COVID-19 pandemic, for which the diagnostic testing market is new and rapidly developing, making it difficult to evaluate our business and future prospects. Our focus on a new and rapidly developing market could make it difficult to succeed and achieve our goals and could harm our future business prospects.

 

   

We recently received an EUA from the FDA for our COVID-19 test kit. If the FDA revokes or terminates our EUA application after issuance, such as when the federally-declared COVID-19 public health emergency ends, we will be required to stop commercial distribution of our COVID-19 test kit immediately unless we can obtain FDA clearance for our COVID-19 test kit under a traditional regulatory pathway, which is lengthy and expensive, which could harm our future business prospects.

 

   

Our existing EUA for our COVID-19 test kit is for an indication for POC and prescription at-home use. We also intend to seek FDA authorization for OTC use of our COVID-19 test kit in a future submission. The pathway to obtain such authorization remains uncertain. We may not be able to timely obtain OTC authorization, if at all, which would adversely impact our ability to market our COVID-19 test kit in the United States.

 

   

Our near-term success is highly dependent on the successful commercialization of our COVID-19 test kit, which will initially be dependent upon physicians and healthcare providers adopting our test kit, which will be informed, in part, by the convenience and accuracy of our COVID-19 test kit. The accuracy of our COVID-19 test kit could be impacted by novel strains of SARS-CoV-2 with genetic variations from viral mutation over time. Our COVID-19 test kit may not be successful in detecting future variant strains, which could significantly impact the accuracy and usefulness of our test kit and materially harm our business and prospects.

 

   

The production and widely administered use of an efficacious vaccine or other treatment for COVID-19 may reduce the demand for diagnostic tests and, as a result, the COVID-19 diagnostic testing market may not develop or substantially grow.

 

   

We are allocating substantially all of our resources to the development, manufacturing and commercialization of our COVID-19 test kit for the foreseeable future, and our long-term business success could be negatively impacted by our diversion of resources from our legacy business of diagnostic testing for influenza.

 



 

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Our near-term success is highly dependent on the successful commercialization of our COVID-19 test kit, and it may not attain market acceptance or be successfully commercialized in the United States, which could negatively impact our business.

 

   

We are an early-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance. If we do not successfully manage the development and launch of our COVID-19 test kit and any future test kits, our financial results could be adversely affected.

 

   

We rely substantially on Jabil, Inc., or Jabil, for the manufacturing, quality-testing, assembly and shipping of our COVID-19 test kit. Any termination or loss of significant rights under the Manufacturing Services Agreement, dated September 10, 2020, or the Jabil MSA, with Jabil would harm our commercialization of our COVID-19 test kit. In addition, Jabil may fail to obtain and maintain regulatory approval for its facilities, fail to provide us with sufficient quantities of our COVID-19 test kit or fail to do so at acceptable quality levels or prices.

 

   

The diagnostic testing market, particularly with respect to COVID-19 diagnostic tests, is highly competitive, and many of our competitors are larger, better established and have greater technical and marketing capabilities and financial and other resources than we have. In addition, we expect competition with respect to testing solutions for COVID-19 to continue to increase and our success will depend on widespread market acceptance of our COVID-19 test kit.

 

   

The results of our earlier research and development and clinical trials for our influenza test kit may not be replicable in an influenza test kit or in a combination COVID-19 and influenza test kit, and may not be sufficient to support FDA approval.

 

   

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

 

   

We may be unable to obtain and maintain adequate levels of coverage and reimbursement from third-party payors for our test kits.

 

   

Our history of recurring losses and anticipated expenditures raise substantial doubts about our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.

 

   

We depend on intellectual property licensed from Eiken Chemical Co., Ltd., or Eiken, and the termination of our license could result in the loss of significant rights, which would harm our business.

 

   

Intellectual property rights do not necessarily address all potential threats, and limitations in intellectual property rights could harm our business, financial condition and results of operations.

 

   

Concentration of ownership of our common stock among our executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Implications of Being an Emerging Growth Company and a Smaller Reporting Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.



 

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For as long as we are an emerging growth company, we will not be required to comply with certain requirements that are applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and may also take advantage of the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an emerging growth company, we may take advantage of certain reduced reporting obligations, including a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure in this prospectus. We may choose to take advantage of some but not all of these reduced reporting obligations. We have taken advantage of many of these reduced reporting obligations in this prospectus, and intend to do so in future filings. As a result, the information that we provide stockholders may be different than what you might get from other public companies in which you hold equity. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to avail ourselves of this exemption, and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies who have adopted the new or revised accounting standards.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

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

Corporate Information

We were incorporated under the laws of the state of Delaware in February 2013 under the name DiAssess Inc. In April 2019, we changed our name to Lucira Health, Inc. Our principal executive offices are located at 1412 62nd Street, Emeryville, California 94608. Our telephone number is (510) 350-8071. Our website is www.lucirahealth.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

“Lucira Health,” “Lucira,” the Lucira Health logo and our other registered or common law trade names, trademarks or service marks appearing in this prospectus are our property. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, the trademarks and tradenames referred to in this prospectus appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.



 

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The Offering

 

Common stock offered by us

                 shares.

 

Option to purchase additional shares

We have granted the underwriters an option exercisable for a period of 30 days to purchase up to                  additional shares of our common stock.

 

Common stock to be outstanding immediately after
this offering

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

 

Use of proceeds

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

 

  We intend to use the net proceeds from this offering to fund manufacturing activities, to establish our commercial activities, including the hiring and training of sales and marketing personnel, and to fund marketing initiatives, and the remainder for working capital and general corporate purposes, including test kit development and research and development activities. See the section titled “Use of Proceeds” for additional information.

 

Risk factors

See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of risks you should carefully consider before investing in our common stock.

 

Proposed Nasdaq Global Market trading symbol

“LHDX”

The number of shares of common stock to be outstanding after this offering is based on                 shares of common stock (including shares of our redeemable convertible preferred stock, or preferred stock, on an as-converted basis and shares of common stock to be issued upon the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes) outstanding as of September 30, 2020, and excludes:

 

   

19,974,201 shares of our common stock issuable upon the exercise of outstanding stock options as of September 30, 2020, with a weighted-average exercise price of $0.35 per share;

 

   

827,000 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to September 30, 2020, with a weighted-average exercise price of $0.51 per share;

 

   

1,548,682 shares of our common stock reserved for future issuance under our 2014 Equity Incentive Plan as of September 30, 2020, which shares will cease to be available for issuance at the time our 2021 Equity Incentive Plan becomes effective in connection with this offering;



 

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             shares of our common stock reserved for future issuance under our 2021 Equity Incentive Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan;

 

   

             shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan; and

 

   

                 shares of our common stock issuable upon the exercise of stock options to be granted to certain of our employees and executive officers under our 2021 Equity Incentive Plan, contingent and effective upon the effectiveness of the registration statement of which this prospectus forms a part, with an exercise price that is equal to the price per share at which our common stock is first sold to the public in this offering.

Unless we specifically state otherwise, all information in this prospectus assumes:

 

   

a                 -for-                stock split of our common stock to be effected prior to the closing of this offering;

 

   

the conversion of 103,355,827 shares of our preferred stock outstanding as of September 30, 2020 into an equal number of shares of our common stock upon the closing of this offering;

 

   

the issuance of             shares of our common stock upon the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes at the discounted conversion price, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, upon the closing of this offering;

 

   

no exercise of the options described above;

 

   

no exercise of the underwriters’ option to purchase up to                 additional shares of our common stock; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws upon the closing of this offering.



 

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Summary Financial Data

The following tables set forth our summary financial data for the periods and as of the dates indicated. The summary statements of operations data for the years ended December 31, 2018 and 2019 have been derived from our audited financial statements included elsewhere in this prospectus. The summary statements of operations data for the nine months ended September 30, 2019 and 2020 and the summary balance sheet data as of September 30, 2020 have been derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. Our unaudited interim condensed financial statements have been prepared on a basis consistent with our audited financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected for any other period in the future and our interim results are not necessarily indicative of our expected results for the year ending December 31, 2020. You should read the following summary financial data set forth below in conjunction with our financial statements and the related notes included elsewhere in this prospectus and the information in the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus.

 

    Year Ended December 31,     Nine Months Ended September 30,  
    2018     2019     2019     2020  
                (unaudited)  
    (in thousands, except share and per share amounts)  

Statements of Operations Data:

       

Operating expenses:

       

Research and development

  $ 8,021     $ 11,436     $ 8,701     $ 16,108  

Selling, general and administrative

    1,794       2,422       1,575       3,221  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    9,815       13,858       10,276       19,329  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (9,815     (13,858     (10,276     (19,329

Other income (expense), net:

       

Grant income

    3,652       6,155       4,611       2,007  

Interest expense

    (190     (90     (90     (44

Loss on extinguishment of debt

    —         (434     (434     —    

Remeasurement of derivative liabilities and convertible notes

    (183     (240     (240     (2,795
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    3,279       5,391       3,847       (832
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (6,536   $ (8,467   $ (6,429   $ (20,161
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

  $ (0.74   $ (0.94   $ (0.72   $ (1.99
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    8,834,841       9,042,682       8,889,525       10,117,831  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1)

    $ (0.25     $ (0.30
   

 

 

     

 

 

 

Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(1)

      34,107,197         66,412,175  
   

 

 

     

 

 

 

 

(1)

See Note 2 to our audited financial statements and Note 2 to our unaudited interim condensed financial statements, each included elsewhere in this prospectus, for further information on the calculation of net loss per share and the pro forma net loss per share and pro forma weighted-average number of shares outstanding.



 

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     As of September 30, 2020  
     Actual    

Pro Forma(1)

    

Pro Forma As

Adjusted(2)(3)

 
     (unaudited)  
     (in thousands)  

Balance Sheet Data:

       

Cash

   $ 68,293     $                    $                

Working capital(4)

     68,942       

Total assets

     82,439       

Total liabilities

     6,751       

Redeemable convertible preferred stock

     121,081       

Accumulated deficit

     (46,527     

Total stockholders’ equity (deficit)

     (45,393     

 

(1)

The pro forma balance sheet data gives effect to (i) the conversion of 103,355,827 shares of our preferred stock outstanding as of September 30, 2020 into an equal number of shares of our common stock and the related reclassification of the carrying value of our preferred stock to permanent equity upon the closing of this offering, (ii) the receipt of $20.0 million in gross proceeds from the sale and issuance of the 2020B Notes in December 2020 and the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes into             shares of our common stock and the estimated related charge to non-cash interest expense of $         million related to such conversion of the aggregate principal amount and accrued interest on the 2020B Notes, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, in each case, upon the closing of this offering; and (iii) the filing and effectiveness of our amended and restated certificate of incorporation that will be in effect upon the closing of this offering.

(2)

The pro forma as adjusted balance sheet data further reflects our receipt of net proceeds from the sale of                 shares of common stock at the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the amount of cash, working capital, total assets and total stockholders’ equity by $                 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase (decrease) the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the amount of cash, working capital, total assets and total stockholders’ equity by $                million, assuming the assumed initial public offering price per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

(4)

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



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as all of the other information contained in this prospectus, including our financial statements and related notes, before investing in our common stock. While we believe that the risks and uncertainties described below are the material risks currently facing us, additional risks that we do not yet know of or that we currently think are immaterial may also arise and materially affect our business. If any of the following risks materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Business and Strategy

We have incurred losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.

We have historically incurred substantial net losses, including net losses of $6.5 million and $8.5 million for the years ended December 31, 2018 and 2019, respectively, and $6.4 million and $20.2 million for the nine months ended September 30, 2019 and 2020, respectively. As of September 30, 2020, we had an accumulated deficit of $46.5 million. To date, we have financed our operations principally from grant revenue and the issuances and sales of convertible promissory notes and preferred stock. We have devoted our resources to the research, development, manufacturing and commercialization of our COVID-19 test kit and our influenza test kit, and to research and development activities related to these test kits, including clinical, regulatory and manufacturing initiatives to obtain marketing approval. These losses have, and will continue to have, an adverse effect on our working capital, total assets and stockholders’ equity. Because of the numerous risks and uncertainties associated with our research, development, manufacturing and commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would make it difficult to finance our business and accomplish our strategic objectives, which would negatively affect our business, financial condition, results of operations, and cash flows.

We have refocused our near-term business strategy on responding to the COVID-19 pandemic, for which the diagnostic testing market is new and rapidly developing, making it difficult to evaluate our business and future prospects. Our focus on a new and rapidly developing market could make it difficult to succeed and achieve our goals and could harm our future business prospects.

Prior to the COVID-19 pandemic, we focused our research and development efforts on developing our molecular nucleic acid amplification technology for use in our influenza test kit. However, based on our clinical trials of our influenza test kit to date, we believe our molecular nucleic acid amplification technology is adaptable to detecting whether a person is shedding the SARS-CoV-2 virus that causes COVID-19. Although we plan to continue our development efforts of our influenza test kit, we have refocused our near-term business strategy to respond to the COVID-19 pandemic. The market for COVID-19 diagnostic testing is new and rapidly developing, which makes it difficult to evaluate our future business prospects and, therefore, we may not be able to achieve our goals and strategy.

We have encountered, and will continue to encounter, risks and difficulties, some of which are outside of our control, frequently experienced in rapidly changing industries, including those related to:

 

   

our ability to compete with companies that are currently in, or may in the future enter, the COVID-19 diagnostic testing market, including companies with greater financial, technical and other resources than our company;

 

   

the possibility that the FDA revokes our existing EUA for our COVID-19 test kit;

 

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our ability to scale manufacturing to quantities sufficient to meet demand in a timely manner, in accordance with our specifications, and in compliance with applicable regulatory requirements;

 

   

our ability to control costs, including our operating expenses;

 

   

the amount and timing of operating expenses, particularly manufacturing expenses, related to the expansion of our business, operations and infrastructure;

 

   

unanticipated delays in test kit development or test kit launches;

 

   

positive or negative media coverage, or public, user, healthcare provider and/or physician perception, of our COVID-19 test kit or competing products;

 

   

lack or perceived lack of sufficient clinical evidence supporting the accuracy or cost-effectiveness of our COVID-19 test kit over existing products;

 

   

the failure of physicians to prescribe our COVID-19 test kit;

 

   

the failure of third-party payors to cover or adequately reimburse our COVID-19 test kit for prescription at-home and non-laboratory use;

 

   

our ability to meet customer and user demand for our COVID-19 test kit;

 

   

our ability to achieve or maintain a consumer-appropriate retail price which, based on our current analysis of the consumer healthcare market, is approximately $20 per test kit, if our COVID-19 test kit is approved for OTC use;

 

   

our ability to obtain, maintain and enforce our intellectual property rights; and

 

   

general economic and political conditions.

Given the unpredictable nature of the COVID-19 pandemic, the potential size of the COVID-19 diagnostic testing market and the timing of its development are highly uncertain. In addition, the production and widely administered use of an efficacious vaccine or treatment for COVID-19 may reduce the demand for diagnostic tests and, as a result, the COVID-19 diagnostic testing market may not develop or substantially grow. Currently there are companies developing vaccines and therapeutic treatments for COVID-19, and in December 2020, the FDA issued EUAs for two COVID-19 vaccines. Our future success is substantially dependent on the manner in which the market for COVID-19 diagnostic testing develops and grows. If the market develops in a manner that does not facilitate demand for our COVID-19 test kit, or fails to develop or grow in the manner in which we expect or at all, our business, financial condition, results of operations and cash flows may be negatively affected.

We recently received an EUA from the FDA for our COVID-19 test kit. If the FDA revokes or terminates our EUA application after issuance, such as when the federally-declared COVID-19 public health emergency ends, we will be required to stop commercial distribution of our COVID-19 test kit immediately unless we can obtain FDA clearance for our COVID-19 test kit under a traditional regulatory pathway, which is lengthy and expensive, which could harm our future business prospects.

Under the Federal Food, Drug, and Cosmetic Act, or the FDCA, the FDA has authority to allow certain unapproved medical products or unapproved uses of approved medical products to be used in an emergency to diagnose, treat or prevent serious or life-threatening diseases or conditions when there are no adequate, approved and available alternatives. In issuing an EUA, the FDA will consider the totality of scientific evidence available to the FDA regarding safety, efficacy and known and potential risks of such products and availability of alternatives to the emergency use products, among others. EUAs issued by the FDA specify the scope of authorization and conditions of authorization, including limitations on distribution and conditions related to product advertising and promotion. Once granted, an EUA is effective until the declaration that circumstances justifying the authorization of the emergency use is terminated or the EUA is revoked, after which the product must be approved by the FDA under a traditional pathway in order to remain on the market or to continue commercialization of the product.

 

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On November 17, 2020, we received an EUA from the FDA for POC and prescription at-home indications for the detection of nucleic acid from SARS-CoV-2, the virus that causes COVID-19, in nasal swab samples from people who are suspected of COVID-19. We are working towards expanding this indication and intend to submit an amended or new EUA application, as determined by the FDA, to include detection of nucleic acid from SARS-CoV-2 in asymptomatic people in 2021. The FDA may require additional data, including additional validation data and clinical performance data, and may not ultimately issue an authorization. Changes in FDA policies, guidance, and requirements for EUA application submission may delay FDA authorization of additional indications for our COVID-19 test kit. Further, given the high volume of EUA requests received by the FDA and other factors due to the COVID-19 pandemic, including any disruptions in the FDA’s normal operations, the FDA’s review of an amended or additional EUA application may be significantly delayed. The FDA may not grant an EUA for additional indications of our COVID-19 test kit on a timely basis or at all, which could harm our future business prospects.

The distribution and advertising conditions set forth in our existing EUA limits our market opportunities and restricts how we can commercialize our COVID-19 test kit. For example, according to our authorized EUA, our COVID-19 test kit must comply with certain labeling requirements, including the label that our COVID-19 test kit has not been FDA cleared or approved but has been authorized by the FDA under an EUA and that our COVID-19 test kit has been authorized only for the detection of nucleic acid from SARS-CoV-2, and not for any other viruses or pathogens. In addition, if any additional EUAs are granted for our COVID-19 test kit, the distribution and advertising conditions set forth in the EUA may limit our market opportunities or restrict how we can commercialize our COVID-19 test kit. If the FDA’s policies and guidance change unexpectedly and/or materially or if we misinterpret them, potential sales of our COVID-19 test kit could be adversely impacted. In addition, the FDA may revoke our existing or any future EUA where it is determined that the COVID-19 public health emergency no longer exists or warrants such authorization, or if new evidence becomes available that indicates that our test kit is not as safe, effective or reliable as the data provided in the applicable EUA application. We cannot predict how long an EUA will remain effective and we may not receive advance notice from the FDA regarding revocation of our EUA. In addition, according to our authorized EUA, we must develop a mobile phone application or website to further facilitate results reporting by both the healthcare provider and the individual using our test kit, and submit to the FDA such application or website within four months of November 17, 2020. If we fail to comply, our EUA may be revoked. The termination or revocation of our existing EUA for our COVID-19 test kit would cause us to cease our commercialization efforts until and if we have obtained marketing authorization from the FDA through another regulatory pathway. In addition, changing policies and regulatory requirements could require us to obtain a 510(k) or other marketing authorization from the FDA for our COVID-19 test kit, which could limit, delay or prevent commercialization of our COVID-19 test kit and could adversely impact our business, financial condition and results of operations.

Our existing EUA for our COVID-19 test kit is for an indication for POC and prescription at-home use. We also intend to seek FDA authorization for OTC use of our COVID-19 test kit in a future submission. The pathway to obtain such authorization remains uncertain. We may not be able to timely obtain OTC authorization, if at all, which would adversely impact our ability to market our COVID-19 test kit in the United States.

At this time, the testing and data requirements that would be needed to obtain an EUA for an OTC indication are uncertain. Although in July 2020, the FDA released a non-laboratory template for prescription at-home and OTC, to date, only Ellume has obtained an EUA for OTC use of its COVID-19 test, and the pathway to obtain authorization remains uncertain. We anticipate that in order to obtain an EUA for OTC use of our COVID-19 test kit, we would need to provide clinical data demonstrating safety, effectiveness, accuracy and usability of the test kit for people who are suspected of COVID-19 and symptomatic people, which we refer to as all-comers, human factors, or usability data supporting at-home use, and, because COVID-19 is a reportable infectious disease under federal and state reporting regulations, the identification and verification of a method by which users can report their results. We are currently conducting clinical trials that will support our OTC indication. Once the FDA identifies the requirements that would be necessary to support an OTC indication, we

 

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may need to modify our data and even may need to re-conduct certain aspects of our clinical trials. Depending on the requirements, we also may need to conduct a new clinical trial as well as additional bench tests and a human factors study. We may not receive OTC approval for our COVID-19 test kit. Due to the uncertainty of what will be required to obtain an OTC indication, the timeliness of obtaining authorization of an OTC indication may be significantly delayed. Any delays, or our inability to obtain an OTC indication will limit the sales of our COVID-19 test kit to POC and prescription at-home uses.

We are allocating substantially all of our resources to the development, manufacturing and commercialization of our COVID-19 test kit for the foreseeable future, and our long-term business success could be negatively impacted by our diversion of resources from our legacy business of diagnostic testing for influenza.

We are committing substantially all of our financial and personnel resources to the development, manufacturing and commercialization of our COVID-19 test kit. For example, on September 10, 2020, we entered into the Jabil MSA to support the commercial manufacturing of our COVID-19 test kit and on November 17, 2020, we received an EUA from the FDA for POC and prescription at-home indications for the detection of nucleic acid from SARS-CoV-2, the virus that causes COVID-19, in nasal swab samples from people who are suspected of COVID-19. In addition, we will continue to invest in additional clinical trials to expand our indications to include asymptomatic people, which, if successful, will allow us to move to an online-facilitated prescription model ahead of an OTC label. This resource allocation may negatively impact the development of our influenza test kit, as we expect to spend less time in the near-term on the research, development or commercialization of this test kit. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could dissipate or stabilize, which would limit or eliminate demand for our COVID-19 test kit. We may not be able to successfully commence or recommence the development, manufacturing and commercialization of our influenza test kit that remains under development.

Our near-term success is highly dependent on the successful commercialization of our COVID-19 test kit, and it may not attain market acceptance or be successfully commercialized in the United States, which could negatively impact our business.

Our near-term prospects, including our ability to finance our company and generate revenue, as well as our future growth, is highly dependent on the successful and timely regulatory approval from the FDA and commercialization of our COVID-19 test kit. The regulatory and commercial success of our COVID-19 test kit will depend on a number of factors, some of which are outside our control, including the following:

 

   

whether we are required by the FDA or other similar regulatory authorities to conduct additional clinical trials or to modify the design of our current trials to support the approval of our COVID-19 test kit;

 

   

achieving and maintaining compliance with all regulatory requirements applicable to our COVID-19 test kit;

 

   

the acceptance by the medical community and others of the convenience and accuracy of our COVID-19 test kit and the sufficiency of clinical evidence supporting our COVID-19 test kit;

 

   

the ability of our COVID-19 test kit to accurately detect different strains of SARS-CoV-2, created by genetic mutation or otherwise, such as the two notable SARS-CoV-2 variants in the U.K. and South Africa;

 

   

our ability to obtain coverage and adequate reimbursement from third-party payors for prescription at-home use of our COVID-19 test kit; and

 

   

the ability of Jabil and other third parties with whom we may contract to manufacture our COVID-19 test kit to remain in good standing with regulatory agencies and develop, validate and

 

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maintain commercially viable manufacturing processes that are compliant with applicable requirements and to manufacture sufficient quantities of our test kits to meet demand in a timely manner, in accordance with our specifications, and in compliance with applicable regulatory requirements.

Even though we have received an EUA for our COVID-19 test kit, it may not gain broad market acceptance among our customers, including physicians, healthcare payors, users and others in the medical community. The commercial success of our COVID-19 test kit will initially be dependent upon physicians and healthcare providers adopting our test kit, which will be informed, in part, by the convenience and accuracy of our COVID-19 test kit. The accuracy of our COVID-19 test kit could be impacted by novel strains of SARS-CoV-2 with genetic variations from viral mutation over time.

The CDC has highlighted the emergence of two notable SARS-CoV-2 variants in the U.K., and South Africa: B.1.1.7 variant (also known as 20B/501Y.V1 or Variant of Concern, 202012/01) first detected in the U.K. and B.1351 variant (also known as 20C/501Y.V2) first detected in South Africa. These variants have multiple mutations in the spike protein. We perform routine surveillance of emerging SARS-CoV-2 strains by periodically evaluating in silico reactivity against sequence databases. These evaluations have shown that these two emerging variants are reactive to our COVID-19 test kit. As these particular viral strains are not yet available for testing, we have not been able to perform testing to confirm detection with these strains. We anticipate performing testing to confirm detection with these strains once they become commercially available.

Moreover, our COVID-19 test kit is authorized under an EUA from the FDA for the detection of the novel coronavirus SARS-CoV-2 that causes COVID-19, regardless of the virus variant. The FDA may require us to conduct additional clinical trials or seek a new or amended EUA and our COVID-19 test kit may not be successful in detecting future variant strains, which could significantly impact the accuracy and usefulness of our test kit and materially harm our business and prospects. In addition, the risk of false negative results may increase when testing patients with genetic variants of SARS-CoV-2, including the two notable SARS-CoV-2 variants.

In addition, the COVID-19 diagnostic testing market is susceptible to rapid technological developments and we may not be able to match any new technological advances, which would render our COVID-19 test kit uncompetitive or obsolete. If we are unable to match technological improvements in competitive products or effectively respond to the needs of our customers and users, the demand for our COVID-19 test kit could be reduced.

Our commercial success, including acceptance and use of our COVID-19 test kit, will depend upon a number of factors, some of which are beyond our control, including:

 

   

the timely receipt of additional marketing authorizations and approvals from the FDA and other similar regulatory authorities;

 

   

perceptions by the public and members of the medical community, including physicians, as to its convenience, accuracy and the sufficiency of clinical evidence supporting its performance;

 

   

demand from the public and members of the medical community for our COVID-19 test kit and adoption of our test kit;

 

   

the availability, perceived advantages, relative cost, relative convenience and relative accuracy of our COVID-19 test kit compared to those of our competitors;

 

   

positive or negative media coverage of our COVID-19 test kit or competing products, as to its convenience, accuracy and the sufficiency of clinical evidence supporting its performance;

 

   

the effectiveness of our marketing and sales efforts, including our ability to have a sufficient number of talented sales representatives to sell our test kits;

 

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unanticipated delays in manufacturing, test kit development or test kit launch;

 

   

our ability to raise additional capital on acceptable terms, or at all, if needed to support the commercialization of our COVID-19 test kit;

 

   

our ability to achieve and maintain compliance with all regulatory requirements applicable to our COVID-19 test kit;

 

   

our ability to obtain, maintain and enforce our intellectual property rights;

 

   

our ability to maintain a continued supply of test kit materials that meets our quality control requirements;

 

   

the ability of Jabil and other third parties with whom we may contract to manufacture our COVID-19 test kit to manufacture and supply sufficient quantities of our COVID-19 test kit to meet demand in a timely manner, in accordance with our specifications, and in compliance with applicable regulatory requirements;

 

   

limitation on use or warnings required by the FDA in our COVID-19 test kit labeling; and

 

   

availability of, or changes in, coverage or reimbursement rates for our COVID-19 test kit from government or other commercial or healthcare payors.

Our future success also depends upon consumers having an experience with our COVID-19 test kit that meets their expectations in order to increase demand for our COVID-19 test kit as a result of positive feedback and word-of-mouth. Consumers may be dissatisfied if their expectations of the diagnostic test and results are not met. Consumers may also be dissatisfied if they experience adverse events, such as device malfunctions, inaccurate readouts or significantly delayed responses. If our COVID-19 test kit does not meet the expectations of consumers, or if consumers experience adverse events, it could discourage consumers from repurchasing our COVID-19 test kit or referring our COVID-19 test kit to others. Further, dissatisfied consumers may express negative opinions through social media. Any failure to meet consumer expectations and any resulting negative publicity could harm our reputation and future sales.

Our near-term revenue will be primarily generated from sales of our COVID-19 test kit, and we are highly dependent on it for our success.

We expect that sales of our COVID-19 test kit will account for the substantial majority of our revenue for the foreseeable future. Our ability to execute our growth strategy and become profitable will therefore depend upon the adoption of our COVID-19 test kit by consumers. Adoption and use of our COVID-19 test kit will depend on several factors, including, but not limited to the accuracy, affordability and ease of use of our test kit as compared to existing products, and coverage and reimbursement policies with respect to our COVID-19 test kit and products that compete with our COVID-19 test kit. Our COVID-19 test kit may not gain market acceptance, and any failure to do so would harm our business and results of operations.

Because we expect virtually all of our revenue for the foreseeable future to be generated from sales of our COVID-19 test kit, the failure of our COVID-19 test kit to garner market acceptance would substantially harm our business and would adversely affect our revenue. If our COVID-19 test kit is not as successfully commercialized as expected, we may not be able to generate sufficient revenue to become profitable. Any failure of our COVID-19 test kit to be successfully commercialized may have a material adverse effect on our business, operating results, financial condition and cash flows, and could result in a substantial decline in the price of our common stock.

 

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We are an early-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance. If we do not successfully manage the development and launch of our COVID-19 test kit and any future test kits, our financial results could be adversely affected.

We are an early-stage company and have a limited operating history. We began our operations in 2013 and we plan to commercially launch our COVID-19 test kit in the first quarter of 2021 in the United States in accordance with our POC and prescription at-home indications. Our limited commercial operating history may make it difficult to evaluate our current business and predict our future performance. Any assessment of our profitability or prediction about our future success or viability is subject to significant uncertainty. We have encountered and will continue to encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving industries. If we do not address these risks successfully, it could have a material adverse effect on our revenue, results of operations and business.

In addition, we face risks associated with launching new test kits, such as our COVID-19 test kit. Additionally, as an organization, we have not yet demonstrated an ability to successfully manufacture a commercial scale test kit or conduct sales and marketing activities necessary for successful commercialization. If we encounter development or manufacturing challenges or discover errors during our product development cycle, the product launch dates of our COVID-19 test kit and any future test kits may be delayed. The expenses or losses associated with unsuccessful product development or launch activities or lack of market acceptance of our new test kits could adversely affect our business or financial condition.

We rely substantially on Jabil for the manufacturing, quality-testing, assembly and shipping of our COVID-19 test kit. Any termination or loss of significant rights under the Jabil MSA would harm our commercialization of our COVID-19 test kit. In addition, Jabil may fail to obtain and maintain regulatory approval for its facilities, fail to provide us with sufficient quantities of our COVID-19 test kit or fail to do so at acceptable quality levels or prices.

We rely substantially, and intend to continue to rely substantially on Jabil for the manufacturing, quality-testing, assembly and shipping of our COVID-19 test kit. Pursuant to the Jabil MSA, Jabil has agreed to manufacture, test, pack and ship our COVID-19 test kit in accordance with our specifications and applicable forecasts and purchase orders. We are obligated to provide, on a monthly basis, a rolling 12-month forecast to Jabil of historical aggregate end customer demand at the finished product level, which will be used to constitute written purchase orders. After the initial term of three years, the Jabil MSA renews automatically for consecutive one-year terms, subject to written notice of the intention not to renew from either party, given at least 180 days prior to the expiration of the then-current yearly term. The parties may terminate the Jabil MSA at any time upon mutual written consent, and either party may terminate the Jabil MSA upon 180 days prior written notice. Either party may also terminate the Jabil MSA upon a material breach by the other party that is not cured within 30 days after receiving written notice of the breach, or upon a bankruptcy of the other party.

Any termination or loss of rights under the Jabil MSA would harm our ability to commercialize, sell and distribute our COVID-19 test kit, which in turn would have a material adverse effect on our business, operating results and prospects. If we were to lose our rights under the Jabil MSA, we believe it would be difficult for us to find an alternative manufacturer. In addition, to the extent Jabil or the alternative manufacturer has not secured applicable regulatory approvals, we would have to expend significant resources to obtain regulatory approvals that may never be obtained or require several years to obtain, which could significantly delay commercialization. We may be unable to raise additional capital to fund our operations during this extended time on terms acceptable to us or at all. In addition, if we were to commercialize our COVID-19 test kit and later experience manufacturing delays as a result of a dispute with Jabil or otherwise, the supply of our COVID-19 test kit could be harmed.

In addition, the manufacture of medical devices is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.

 

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Manufacturers of medical devices encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. We are currently working with Jabil to increase manufacturing production and capacity at its facilities located in Michigan and the Dominican Republic. In order to achieve our near-term and long-term operational and financial plans, we need to substantially increase the manufacturing capacity to which we have access, and there is no assurance that we would be able to do so in a timely manner, or at all. For example, Jabil is still required to assemble a controlled “dry room” environment for the facility in the Dominican Republic in order to commence validation work in 2021 and implement additional processes such as subassembly and semi-automation of production. If Jabil is unable to increase and achieve our required or target production capacities, we would be unable to fulfill our actual or anticipated customer demand which would negatively impact our business, financial condition and results of operations. In addition, our inability to meet the manufacturing and production requirements could cause us to lose our existing customers or lose our ability to acquire new customers which would also negatively impact our business, financial condition and results of operations. Any issues relating to the manufacture of our test kits, including with respect to scaling up and validating initial production, may occur in the future. These risks could be exacerbated by Jabil’s limited experience with our COVID-19 test kit and related manufacturing processes.

In addition, quarantines, shelter-in-place and similar government orders related to COVID-19 or other infectious diseases, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact personnel at Jabil’s facilities upon which we rely. Further, Jabil may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If Jabil were to encounter any of these difficulties, or otherwise fail to comply with its contractual obligations, our ability to commercialize our COVID-19 test kit would be jeopardized.

The diagnostic testing market, particularly with respect to COVID-19 diagnostic tests, is highly competitive, and many of our competitors are larger, better established and have greater technical and marketing capabilities and financial and other resources than we have. In addition, we expect competition with respect to testing solutions for COVID-19 to continue to increase and our success will depend on widespread market acceptance of our COVID-19 test kit.

The diagnostic testing market, particularly with respect to COVID-19 diagnostic tests, is highly competitive and we face substantial competition based on factors such as product quality, underlying technology, analytical performance, accuracy, speed of results, convenience and ease of use, price, product enhancements, customer and user service and reputation. Industry competition is also based the following additional factors, among others:

 

   

patent protection;

 

   

evidence of clinical performance and support of KOLs;

 

   

scientific expertise;

 

   

ability to develop and market products and processes and meet consumer demand;

 

   

ability to obtain and maintain required regulatory approvals;

 

   

ability to manufacture cost-effective products that meet applicable regulatory requirements;

 

   

pricing and reimbursement levels;

 

   

access to adequate capital; and

 

   

ability to attract and retain qualified personnel.

 

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In diagnostic testing, we anticipate facing competition from companies that have or are developing molecular tests (including centralized laboratory and POC tests) as well as antigen and antibody tests. Antigen tests in particular are a source of competition because they are rapid and are already in use across the United States for mass-population testing. We will also compete on the basis of test methods, such as tests that utilize nasopharyngeal and mid-turbinate swab collection methods, saliva collection methods as well as other methods that may be developed in the future.

We face potential competition from many sources, including academic institutions, public and private research institutions and governmental agencies. Competitors with COVID-19 diagnostic testing platforms currently include, but are not limited to, private and public companies, such as Abbott Laboratories, Inc., or Abbott, Danaher Corp., Bio-Rad Laboratories, F. Hoffman-La Roche Ltd., Becton, Dickinson and Company, or BD, Thermo Fisher Scientific, Inc., Siemens AG, BioMerieux SA, GenMark Diagnostics Inc., Qiagen, Sherlock Biosciences, Mammoth Biosciences, Everlywell, Inc., the CDC, Mesa Biotech, Inc., Quidel Corporation, Talis Biomedical Corporation, Visby Medical, Ginkgo Bioworks, Helix OpCo, LLC and Fluidigm Corporation. Large lab companies like Quest Diagnostics, Inc. and Laboratory Corporation of America have also expanded beyond centralized laboratory testing into home sample collection.

We could see a significant reduction or elimination of our commercial opportunity if our competitors develop and commercialize products that are faster, more convenient or are less expensive than our COVID-19 test kit or any other test kits that we may develop. Our competitors also may be quicker and/or more successful than us in obtaining FDA or other regulatory approvals for their products, which could result in our competitors establishing a strong market position before we are able to enter the market.

In addition, numerous companies in the United States and internationally have announced their intention to offer new products, services and technologies that could be used in substitution for our COVID-19 test kit. Many of those competitors are significantly larger, and have substantially greater financial, scientific, manufacturing and other resources, than us. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and enrolling subjects for our clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, our competitors may have or may develop products or technologies that currently or in the future will enable them to produce competitive products with greater functionality or at lower cost than ours. In July of 2020, BD announced FDA approval of its EUA application for the BD Veritor System for Rapid Detection of SARS-CoV-2. This test is a chromatographic immunoassay for the direct and qualitative detection of SARS-CoV-2 antigens in nasal swabs from patients with signs and symptoms who are suspected of COVID-19. In August 2020, Abbott announced FDA approval of its POC EUA application for BinaxNOW COVID-19 Ag Card, Abbott’s COVID-19 antigen test. In December 2020, the FDA updated the Abbott BinaxNOW COVID-19 Ag Card antigen test to include prescription at-home use among people suspected of COVID-19 by their healthcare provider within the first seven days of symptom onset; this test may only be performed when supervised by a telehealth proctor. The FDA also granted an EUA to the Ellume COVID-19 Home Test, an OTC antigen test.

If we are unable to compete effectively, we may fail to meet our strategic objectives, and our business, financial condition and operating results could be harmed. The success or failure, or perceived success or failure, of other companies may adversely impact our ability to obtain any future funding, or to ultimately commercialize our COVID-19 test kit.

We expect competition to continue to increase as other established and emerging companies enter the market, as customer requirements evolve, and as new products, services and technologies are introduced. For example, Abbott introduced a mobile phone application to allow people to display the results of their COVID-19 test obtained through a healthcare provider when entering facilities requiring proof of testing. Moreover, the entrance of new competitors is being encouraged by governmental authorities, which are offering significant funding to support development of testing solutions for COVID-19. Some of our existing or new competitors may have strong relationships with current and potential customers, including governmental authorities, and, as a result, may be able to respond more quickly to new or changing regulatory requirements, new or emerging

 

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technologies, and changes in customer and user requirements. Our COVID-19 test kit may not compete favorably, and we may not be successful in the face of increasing competition from new products and technologies introduced by our existing competitors or new companies entering our markets. Any failure to compete effectively could harm our business, financial condition and operating results.

The production and widely administered use of an efficacious vaccine or treatment for COVID-19 may reduce the demand for diagnostic tests and, as a result, the COVID-19 diagnostic testing market may not develop or substantially grow.

Currently, there are companies developing vaccines and therapeutic treatments for COVID-19. In December 2020, the FDA issued EUAs for two COVID-19 vaccines, which are currently being administered in the United States, the U.K. and other countries. If current or future vaccines are widely distributed and compliantly administered, or if new therapeutic treatments are identified and become widely used, then our testing opportunities and market interest may lessen or disappear. Our future success is substantially dependent on the manner in which the market for COVID-19 diagnostic testing develops and grows. If the market develops in a manner that does not facilitate demand for our COVID-19 test kit, or fails to develop or grow in the manner in which we expect or at all, our business, financial condition, results of operations and cash flows may be negatively affected.

We rely on a limited number of suppliers or, in many cases, a single supplier, for test kit materials and may not be able to find replacements or immediately transition to alternative suppliers, which could have a material adverse effect on our business, financial condition and results of operations.

We have sourced and will continue to source test kit components, molds, reagents and other test kit materials from a limited number of suppliers or, in many cases, a single supplier. For example, our molds and many of our reagents are sole-sourced. In addition, we rely solely on Promega Corporation and New England BioLabs, Inc. for the supply of our current enzymes and primers. We intend to put in place framework agreements with certain of our single-source suppliers, including Promega Corporation and New England BioLabs, Inc., under which these third-party contract suppliers will generally provide us with necessary quantities of such materials based on our development and commercial needs. However, we may be unsuccessful in putting in place such framework agreements on acceptable terms or at all, or in otherwise protecting against potential supply disruptions. Our failure to maintain a continued supply of these test kit materials would adversely impact our business, financial condition and results of operations.

Because we rely on third-party suppliers, we do not control the manufacture of the components of our test kits, including whether such components will meet our quality control requirements, nor the compliance of our suppliers with applicable legal and regulatory requirements. In many cases, our suppliers are not contractually required to supply these components to the quality or performance standards that we require. If the supply of components we receive does not meet our quality control or performance standards, we may not be able to use the components, or if we use them not knowing that they are of inadequate quality, which occasionally occurs with respect to certain reagents our tests may not work properly or at all, or they may provide erroneous results, and we may be subject to significant delays caused by interruption in production or manufacturing, to lost revenue from such interruption or from spoiled tests, or to the effects of negative perception related to defective test kits.

In the event that any adverse developments occur with our suppliers, in particular for those products that are sole-sourced, or if any of our suppliers modifies any of the components they supply to us, our ability to supply our test kits may be temporarily or permanently interrupted. Obtaining substitute components could be difficult, time and resource-consuming and costly or it could require us to re-design or re-validate our test kits. Our failure to maintain a continued supply of components that meets our quality control requirements for any reason, including changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other suppliers, particularly in the case of sole suppliers, could result in the loss of access to important materials of our test kits and impact our test performance or affect our ability to

 

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supply fully functional test kits in a timely manner or at all, which could impair, delay or suspend our commercialization activities.

Moreover, in the event that we transition to a new supplier from any of our sole suppliers, doing so could be time-consuming and expensive, may result in interruptions in our ability to supply our test kits to the market, could affect the performance of our test kits or could require that we re-validate our processes and our other test kits using replacement equipment and supplies, which could hinder the adoption of our test kits, resulting in increased costs and negative customer and/or user perception. Any of these occurrences could have a material adverse effect on our business, financial condition and results of operations.

In addition, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at our suppliers upon which we rely, or the availability or cost of materials, which could disrupt the supply chain for our test kits. Any delay or interruption in the supply of our test kit materials could delay or suspend the commercialization of our test kits and increase the costs of manufacturing our test kits, which could have a material adverse effect on our business, financial condition and results of operations.

The results of our earlier research and development and clinical trials for our influenza test kit may not be replicable in an influenza test kit or in a combination COVID-19 and influenza test kit and may not be sufficient to support the authorization of an influenza test kit or a combination COVID-19 and influenza test kit.

Since inception, we have primarily focused on the research and development of our influenza test kit. We conducted two clinical trials in 2018 and 2019 for our influenza test kit in Santiago, Chile, and the United States. The clinical trial conducted in the United States served as the basis for our dual 510(k) and Clinical Laboratory Improvements Amendment, or CLIA, waiver submission for our influenza test kit in the second half of 2019. This clinical trial was conducted across the 2018 and 2019 influenza season and included a comparator. This clinical trial showed similarly strong assay performance as the initial Chile clinical trial, but we failed to meet required endpoints as a result of two main issues. First, the comparator did not detect influenza A virus as well as our assay did, which negatively and artificially lowered our influenza A virus specificity to 92% in the clinical trial. When applying discrepant resolution, our influenza A virus specificity improved to 97%. The impact of running this clinical trial with a single comparator and the comparator not correctly identifying at least 35 specimens as true positives impeded us from being able to provide the necessary clinical data with the level of specificity required by the FDA without additional clinical testing. The second issue related to a higher than anticipated rate of invalids, at nearly 10%. Root cause analysis showed greater than half of invalids to be related to prototype manufacturing quality issues, and importantly, not related to fundamental assay performance. We believe these issues have since been resolved and the assay’s invalid rate is now less than 5%. In January 2020, we received an additional information letter from the FDA discussing this clinical trial and the resulting comparator issues, high rate of invalids and exclusion of samples. As a result, we withdrew our dual 510(k) and CLIA waiver submission for our influenza assay and shifted our focus to the COVID-19 pandemic.

Based on our clinical trials of our influenza test kit to date, we believe our molecular nucleic acid amplification technology is adaptable to detecting whether a person is shedding the influenza A or B viruses that cause influenza. However, the results of our earlier research and development and clinical trials for our influenza test kit may not be replicable in a combination COVID-19 and influenza test kit or sufficient to support the approval of a combination COVID-19 and influenza test kit. Additional clinical trials on the combination COVID-19 and influenza test kit will be required for FDA submission. In addition, the FDA may weigh the results of our prior clinical trials related to our influenza test kit and the issues raised in its January 2020 additional information letter more heavily than anticipated, potentially hindering our future FDA approval of our influenza test kit. We are uncertain as to whether the combined COVID-19 and influenza clinical trials will be successful, and the future trials may not replicate the results of prior clinical trials and pre-clinical studies.

 

 

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If our test kits fail to achieve the broad degree of adoption by the medical community necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.

Even if our test kits receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, customers and others in the medical community. The commercial success of our test kits will depend significantly on sufficient coverage and reimbursement by third-party payors, the broad adoption and use of our test kits by physicians and, if and when approved for OTC use, ultimate users, for approved indications. We are aware that other companies are seeking to develop alternative diagnostic products for COVID-19 and influenza, any of which could impact the demand for our COVID-19 test kit and our influenza test kit, respectively.

The degree and rate of physician, patient and customer adoption of any of our test kits, and initially our COVID-19 test kit, depend on a number of factors, some of which are beyond our control, including:

 

   

the accuracy, affordability and ease of use of our test kits as compared to existing diagnostic products;

 

   

physician adoption of our combination of LAMP and proprietary colorimetric detection chemistry;

 

   

lack or perceived lack of sufficient clinical evidence supporting the accuracy and performance of our test kits;

 

   

physician and patient willingness to adopt our test kits to treat COVID-19 and influenza over diagnostic products and brands with which patients and physicians may have more familiarity or recognition or additional approved uses;

 

   

any perceived burdens imposed on physicians or patients with respect to public health reporting obligations for certain infectious diseases such as COVID-19;

 

   

overcoming any biases physicians or patients may have toward the accuracy and ease of use of existing diagnostic test kits and successful marketing efforts;

 

   

the cost of our test kits in relation to alternative diagnostic products, and in the OTC setting, patient willingness to pay for our test kits, if approved;

 

   

proper training in the use of our test kits by physicians and healthcare providers;

 

   

patient satisfaction with the accuracy and ease of use of our test kits and overall user experience;

 

   

changes in pricing and promotional efforts by competitors;

 

   

coverage and reimbursement policies with respect to our test kits and products that compete with our test kits;

 

   

patient demand for POC and OTC diagnostic testing;

 

   

the revenue and profitability that our test kits may offer a physician as compared to alternative diagnostic tests;

 

   

the effectiveness of our sales, marketing and distribution efforts; and

 

   

adverse publicity about our test kits, competitive products, or the industry as a whole, or favorable publicity about competitive products.

 

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Further, outbreaks of highly contagious diseases, like COVID-19 and influenza, require immediate, mass population testing; however, we believe the traditional testing infrastructure within the United States is not designed to support mass population testing at high-complexity labs or at the POC. Accordingly, the ease of integration of our test kits into a physician’s practice may not be as evident as we anticipate.

In addition, our COVID-19 test kit utilizes our combination of LAMP and proprietary colorimetric detection chemistry. Physicians may prefer to use diagnostic tests with alternative technologies, such as polymerase chain reaction, or PCR, or even antigen or antibody diagnostic tests. If our test kits fail to achieve the broad degree of physician adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.

If we do not have the support of physicians or KOLs, it may be difficult to drive adoption of our test kits, which could limit our revenue growth and our ability to achieve profitability.

Building on our usability studies and EUA indications, we plan to leverage our clinical work to publish key research and articles as a way to increase awareness and drive adoption among users, healthcare providers, physicians and KOLs. If physicians and KOLs in particular determine that our test kits are not accurate or easy to use and bill for, or that alternative diagnostic tests are more accurate or easier to use and bill for, we may see lower demand for our test kits, and face difficulty establishing our test kits as an integral component of the applicable standard of testing, which would limit our revenue growth and our ability to achieve profitability. If our test kits do not receive sufficient favorable exposure in peer-reviewed publications, the rate of physician adoption of our test kits and positive reimbursement coverage determinations for our test kits could be negatively affected.

The initial use of our test kits requires users to follow instructions, and not adhering to instructions may lead to negative outcomes, which could harm our business.

The successful use of our test kits depends on a user following the test instructions. Any user, whether it be a healthcare provider or patient at home, could experience difficulty performing a test using our test kits if they fail to follow the instructions, or otherwise misuse the test. If physicians or other users utilize our test kits incorrectly, or without adhering to our instructions, their test result outcomes may not be consistent with the outcomes achieved in our clinical trials. This could harm our ability to achieve the broad degree of physician adoption necessary for commercial success, or cause negative publicity and word-of-mouth as a result of our test kits not meeting user expectations and accordingly, our operating results and financial condition could be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.

We may be unable to obtain and maintain adequate levels of coverage and reimbursement from third-party payors for our test kits.

Our market success is dependent upon government and commercial third-party payors providing coverage and adequate reimbursement for our test kits. Under the EUA we received, our COVID-19 test kit is eligible for reimbursement in POC settings as a molecular POC test. However, coverage criteria and reimbursement rates for clinical laboratory tests are subject to adjustment by payors, and current reimbursement rates could be reduced, or coverage criteria restricted in the future, which could adversely affect the market for our COVID-19 test kit. In addition, there is currently no approved coverage for at-home COVID-19 testing in the United States and the reimbursement rate for our at-home test is uncertain. Third-party payors may require additional clinical or other data in order to cover our test kit in certain settings.

 

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Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:

 

   

the level of demand for any approved test kits, which may vary significantly;

 

   

the timing and cost of, and level of investment in, research, development, manufacturing, regulatory approval and commercialization activities relating to our test kits, which may change from time to time;

 

   

the size, seasonality and customer mix of the COVID-19 and influenza diagnostic testing market;

 

   

sales and marketing efforts and expenses;

 

   

the rate at which we grow our sales force and the speed at which newly hired salespeople become effective;

 

   

changes in the productivity of our sales force;

 

   

positive or negative coverage in the media or clinical publications of our test kits or competitive products;

 

   

the cost of manufacturing our test kits, which may vary depending on the quantity of production and the terms of our arrangements with Jabil and our suppliers;

 

   

the introduction of new test kits or enhancements or technologies by us or others in the diagnostic testing industry;

 

   

pricing pressures;

 

   

coverage and reimbursement policies with respect to our test kits and products that compete with our test kits;

 

   

expenditures that we may incur to acquire, develop or commercialize test kits for additional indications, if any;

 

   

the degree of competition in our industry and any change in the competitive landscape of our industry;

 

   

changes in governmental regulations or in the status of our regulatory approvals or applications;

 

   

future accounting pronouncements or changes in our accounting policies; and

 

   

general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

The cumulative effects of factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial

 

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analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

We may not be able to achieve or maintain satisfactory pricing and margins for our test kits, which could harm our business and results of operations.

Manufacturers of diagnostic tests have a history of price competition, and we may not be able to achieve satisfactory prices for our test kits. If and until we achieve OTC approval, we expect our POC pricing would be at a modest premium to other POC tests. We may not be able to achieve or maintain a consumer-appropriate retail price which, based on our current analysis of the consumer healthcare market, is approximately $20 per test kit, if our COVID-19 test kit is approved for OTC use. The pricing of our test kits could be impacted by several factors, including pressure to improve margins as a result of competitive or customer pricing pressure or a limit or decline in the amount that third-party payors reimburse our customers, which could make it difficult for customers to adopt our test kits. If we are forced to lower the price we may charge for our test kits, our gross margins will decrease, which will harm our ability to invest in and grow our business. If we are unable to maintain our prices, or if our costs increase and we are unable to offset such increase with an increase in our prices, not purchase our tests in significant volumes or at all, especially in the OTC market, if approved, or otherwise in the absence of reimbursement, and our margins could erode. We may be subject to significant pricing pressure, which could harm our business and results of operations.

Our results of operations will be harmed if we are unable to accurately forecast customer and user demand for our test kits and manage our inventory.

To ensure adequate supply, we must forecast inventory needs and manufacture our test kits based on our estimates of future demand. For example, pursuant to the Jabil MSA, we are obligated to provide, on a monthly basis, a rolling 12-month forecast to Jabil of historical aggregate end customer demand at the finished product level, which will be used to constitute written purchase orders. Our ability to accurately forecast demand for our test kits could be negatively affected by many factors, including our failure to accurately manage our expansion strategy, product introductions by competitors, an increase or decrease in customer and user demand for our test kits or for products of our competitors, our failure to accurately forecast market acceptance of new products, unanticipated changes in general market conditions, including the production and distribution of an efficacious vaccine or treatment for COVID-19, seasonal demands, or regulatory matters and weakening of economic conditions or user confidence in future economic conditions. In addition, we anticipate that we will experience fluctuations in customer and user demand based on seasonality, which for COVID-19, remains unknown. However, for example, because influenza typically occurs in the fall and winter seasons, we expect our forecasts of inventory for these seasons to reflect a significant increase in inventory relative to our forecasts for the spring and summer seasons. If this expectation does not materialize, our inventory forecasts may be inaccurate, resulting in shortages or excesses of inventory. Inventory levels in excess of customer and user demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand.

Conversely, if we underestimate customer and user demand for our test kits, our manufacturing partner, Jabil, may not be able to deliver test kits that meet our requirements, and this could result in damage to our reputation and customer relationships. In addition, if we experience a significant increase in demand, additional supplies of raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers may not be able to allocate sufficient capacity in order to meet our increased requirements, which will negatively affect our business, financial condition and results of operations. We rely substantially on Jabil to manufacture our COVID-19 test kit initially at manufacturing facilities located in Michigan and in the Dominican Republic. While the facilities in Michigan are currently operational, we are working with Jabil to assemble a controlled “dry room” environment for the facilities in the Dominican Republic in order to commence our validation work in 2021 and implement additional processes such as subassembly and semi-automation of production. If Jabil is unable to increase and achieve our required or target production

 

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capacities, we would be unable fulfill our actual or anticipated customer demand which would negatively impact our business, financial condition and results of operations. In addition, our inability to meet the manufacturing and production requirements could cause us to lose our existing customers or lose our ability to acquire new customers which would also negatively impact our business, financial condition and results of operations.

We will seek to maintain sufficient levels of inventory in order to protect ourselves from supply interruptions. As a result, we are subject to the risk that a portion of our inventory will become obsolete or expire, which could have a material adverse effect on our earnings and cash flows due to the resulting costs associated with the inventory impairment charges and costs required to replace such inventory.

We depend on intellectual property licensed from Eiken and the termination of our license could result in the loss of significant rights, which would harm our business.

We are dependent on patents licensed from Eiken. In July 2020, we entered into a patent license agreement, or the Eiken Agreement, with Eiken. Pursuant to the terms of the Eiken Agreement, Eiken granted us a non-transferable, non-assignable, sublicensable (solely to our affiliates), non-exclusive license under certain patents, which we refer to collectively as the Eiken Licensed Patents, relating to LAMP and as listed in the Eiken Agreement, to develop and make any reagent, product, kit, device, equipment and/or system for nucleic acid-based in vitro diagnostic, or IVD, tests for detection of SARS-CoV-2, which causes COVID-19, which we collectively refer to as the Initial Licensed Products, in the United States. The Eiken Licensed Patents allow us to use LAMP to amplify genetic material. In addition, we own patents covering the necessary additional step of detection of target genetic material. Eiken may license patents to additional third parties for the use of LAMP, and if such third parties were able to independently develop or license the ability to detect amplified genetic material, then our business could be harmed. A termination of this license would result in the loss of significant rights and would restrict our ability to commercialize our COVID-19 test kit. The Eiken Agreement will terminate on the expiration date of the last to expire valid claim of the Eiken Licensed Patents in any country. Eiken may terminate the Eiken Agreement upon (1) not receiving any royalties on licensed products for a certain period of time after sale of such products commences, (2) an uncured breach by us or our affiliates, (3) our bankruptcy or insolvency or certain other bankruptcy or insolvency events, (4) the assignment or attempt to assign the Eiken Agreement in violation of the Eiken Agreement or (5) a challenge by us or our affiliates of the validity of any of the Eiken Licensed Patents.

We are generally also subject to all of the same risks with respect to protection of intellectual property that we license, as we are for intellectual property that we own, which are described below under “Risks Related to Our Intellectual Property—We are dependent on patents and other intellectual property licensed from others and may become dependent on other patents or other intellectual property licensed from others in the future. If we lose our licenses for intellectual property that is important to our business, we may not be able to continue developing or selling our test kits.” If we or Eiken fail to adequately protect this intellectual property, our ability to commercialize our test kits would suffer and our business would be harmed.

If we are not successful in leveraging our platform to discover, develop and commercialize additional test kits, our ability to expand our business and achieve our strategic objectives would be impaired.

While the global COVID-19 pandemic remains our current and primary focus, we believe our flexible platform enables us to launch different test kits for other infectious diseases. Capitalizing on the flexibility of our platform is a key pillar to our strategy, which we believe will enable us to focus on other test kits, including influenza. We plan to conduct additional research and development activities to explore the potential of our platform to be used in additional indications, including other infectious diseases such as STIs and respiratory syncytial virus, but we may not be successful in developing such additional indications in a timely manner or at all. Moreover, identifying new test kits requires substantial technical, financial and human resources, whether or not any test kits are ultimately developed or commercialized, which may divert management’s attention away from our core business. We may pursue what we believe is a promising opportunity to leverage our platform only to discover that certain of our risk or resource allocation decisions were incorrect or insufficient, or that certain test kits or our platform in general has risks that were previously unknown or underappreciated. Our strategy of

 

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pursuing the value of our platform over a long time horizon and across a broad array of respiratory viruses may not be effective. In the event material decisions with respect to our strategy turn out to be incorrect or sub-optimal, we may experience a material adverse impact on our business and ability to fund our operations and we may never realize what we believe is the potential of our platform. The success of any new test kits or enhancements to our platform will depend on several factors, some of which are outside of our control, including our ability to:

 

   

assemble sufficient resources to acquire or discover additional test kits or enhancements;

 

   

properly identify and anticipate physician and patient needs;

 

   

develop and introduce new test kits and enhancements in a timely manner;

 

   

demonstrate, if required, the accuracy and usability of new test kits and enhancements with data from pre-clinical studies and clinical trials;

 

   

obtain the necessary regulatory clearances or approvals for expanded indications, new test kits or enhancements;

 

   

be fully FDA-compliant with marketing of new devices or modified products;

 

   

produce new test kits in commercial quantities at an acceptable cost; and

 

   

provide adequate training to potential users of our test kits and provide adequate updated training to potential users of test kits that contain enhancements or alterations.

If we are unable to develop or improve test kits, applications or features due to constraints, such as insufficient cash resources, high employee turnover, inability to hire personnel with sufficient technical skills or a lack of other research and development resources, we may not be able to maintain our competitive position compared to other companies. Furthermore, many of our competitors devote a considerably greater amount of funds to their research and development programs than we do, and those that do not may be acquired by larger companies that would allocate greater resources to research and development programs. Our failure or inability to devote adequate research and development resources or compete effectively with the research and development programs of our competitors could harm our business.

In addition, we may choose to focus our efforts and resources on potential test kits or indications that ultimately prove to be unsuccessful, or to license or purchase a marketed product that does not meet our financial expectations. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other potential products or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such potential products through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights, which could adversely impact our business, financial condition and results of operations.

If our test kits do not perform as expected, our operating results, reputation and business will suffer.

Our success depends on our ability to provide reliable test kits that enable high quality diagnostic testing with high accuracy, ease of use, and short turnaround times. The accuracy and reproducibility we have demonstrated to date in our clinical trials, particularly with respect to our COVID-19 test kit, may not continue or be indicative of actual future performance.

Our test kits use a number of complex and sophisticated biochemical and bioinformatics processes, many of which are highly sensitive to external factors, including human error. An operational, technological, user or other failure in one of these complex processes or fluctuations in external variables may result in sensitivity or specificity rates that are lower than we anticipate or result in longer than expected turnaround times. If our test kits do not perform, or are perceived to not have performed, as expected or favorably in comparison to competitive products, our operating results, reputation, and business will suffer, and we may also be subject to legal claims arising from product limitations, errors, or inaccuracies. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

 

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Operational, technical, user and other difficulties may adversely affect test performance, harm our reputation, impact the commercial attractiveness of our test kits and increase our costs or divert our resources, including management’s time and attention, from other projects and priorities. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

If we cannot provide quality technical and customer and user support, we could lose customers and our business and prospects will suffer.

The introduction of our test kits into our customers’ existing workflows, and in the OTC context, if approved in the future, our users’ homes, and ongoing customer and user support can be complex. Accordingly, we need trained technical and customer and user support personnel. Hiring technical and customer and user support personnel is very competitive in our industry due to the limited number of people available with the necessary scientific and technical backgrounds and ability to understand our platform at a technical level. To effectively support potential new customers and ultimately users, we will need to substantially develop a technical and customer and user support staff. If we are unable to attract, train or retain the number of qualified technical and customer and user support personnel that our business needs, our business and prospects will suffer.

If we are unable to successfully expand our sales and marketing to match our growth, our business may be adversely affected.

Our future sales will depend in large part on our ability to develop, and substantially expand, our sales force and to increase the scope of our marketing efforts. We plan to take a measured approach to expand and optimize our sales infrastructure to grow our customer base and our business. Identifying and recruiting qualified personnel and training them in the use of our test kits, applicable federal and state laws and regulations and our internal policies and procedures, requires significant time, expense and attention. In addition, our EUA application with respect to our COVID-19 test kit specifies the scope and conditions of authorization, including limitations on distribution and conditions related to product advertising and promotion. It can take significant time before our sales representatives are fully trained and productive. Our business may be harmed if our efforts to expand do not generate a corresponding increase in revenue or result in a decrease in our operating margin. In particular, if we are unable to hire, develop and retain talented sales personnel or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenue.

We plan to dedicate significant financial and other resources to our marketing programs, which may require us to incur significant upfront costs. Our business and gross margins would be harmed if our marketing efforts and expenditures do not generate a corresponding increase in revenue.

In addition, we believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving broad acceptance of our test kits and attracting new customers. Brand promotion activities may not generate customer awareness or increase revenue and, even if they do, any increase in revenue may not offset the costs and expenses we incur in building our brand. If we fail to successfully promote, maintain and protect our brand, we may fail to attract or retain the customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our test kits.

We are highly dependent on our senior management team and key personnel and our business could be harmed if we are unable to attract and retain personnel necessary for our success.

We are highly dependent on our senior management team and key personnel. Our success will depend on our ability to retain senior management and to attract and retain qualified personnel in the future, including sales and marketing professionals and other highly skilled personnel and to integrate current and additional personnel in all departments. The loss of members of our senior management, sales and marketing professionals and scientists as well as contract employees could result in delays in product development and harm our business.

 

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If we are not successful in attracting and retaining highly qualified personnel, it would have a negative impact on our business, financial condition and results of operations.

Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms, or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have issued, and will in the future issue, stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management and development teams may terminate their employment with us on short notice. Our employment arrangements with our employees provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We also do not maintain “key man” insurance policies on the lives of these people or the lives of any of our other employees.

Many of the other medical device and diagnostic companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources and, potentially, damages. They may also provide more diverse opportunities and better chances for career advancement. Some of these characteristics are more appealing to high quality candidates than what we can offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can discover, develop and commercialize our test kits will be limited.

In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived benefits of our stock awards decline, either because we are a public company or for other reasons, it may harm our ability to recruit and retain highly skilled employees. Many of our employees have become or will soon become vested in a substantial amount of our common stock or a number of common stock options. Our employees may be more likely to leave us if the shares they own have significantly appreciated in value relative to the original purchase prices of the shares, or if the exercise prices of the options that they hold are significantly below the market price of our common stock, particularly after the expiration of the lock-up agreements described herein. Our future success also depends on our ability to continue to attract and retain additional executive officers and other key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, it will negatively affect our business, financial condition and results of operations.

We have increased the size of our organization and expect to further increase it in the future, and we may experience difficulties in managing this growth. If we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.

As of December 31, 2020, we had 57 full-time employees. As our sales and marketing strategies develop and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

 

   

identifying, recruiting, integrating, maintaining and motivating additional employees;

 

   

managing our internal development efforts effectively, while complying with our contractual obligations to contractors and other third parties; and

 

   

improving our operational, financial and management controls, reporting systems and procedures.

Since our inception, we have experienced growth and anticipate further growth in our business operations. This future growth could strain our organizational, administrative and operational infrastructure,

 

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including quality control, operational, finance, customer service and sales organization management. We expect to continue to increase our headcount and to hire more specialized personnel in the future as we grow our business. We will need to continue to hire, train and manage additional qualified scientists, laboratory personnel, customer service personnel, and sales and marketing staff and improve and maintain our platform to properly manage our growth. Rapid expansion in personnel could mean that less experienced people develop, market and sell our test kits, which could result in inefficiencies and unanticipated costs, reduced quality and disruptions to our operations. If our new hires perform poorly, if we are unsuccessful in hiring, training, managing and integrating these new employees or if we are not successful in retaining our existing employees, our business may be harmed. We may not be able to maintain the quality or expected turnaround times of our test kits, or satisfy customer demand as it grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. The time and resources required to implement these new systems and procedures is uncertain, and failure to complete this in a timely, efficient and effective manner could adversely affect our operations. In addition, as a result of being a public company, we are obligated to develop and maintain effective internal control over financial reporting and any failure to maintain the adequacy of these internal controls may negatively impact investor confidence in our company and, as a result, the value of our common stock.

We may need to raise additional capital beyond the proceeds of this offering to fund our existing operations, develop our platform, commercialize new products or expand our operations.

Based on our current planned operations, we expect that our existing cash and anticipated net proceeds from this offering will enable us to fund our operating expenses for at least 12 months from the date hereof. If our available cash balances, net proceeds from this offering and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of failure to secure additional regulatory approvals for our test kits, lower than anticipated or non-existent demand or reimbursement levels for our test kits, or otherwise, we may seek to issue equity or convertible debt securities, enter into a credit facility or another form of third-party funding, seek other debt financing or enter into collaborations or licensing arrangements.

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to further scale up the manufacturing of our test kits, and if user demand warrants such increase in scale, to increase our sales and marketing efforts to drive market adoption of our test kits and address competitive developments, and to finance capital expenditures and general and administrative expenses.

Our present and future funding requirements will depend on many factors, some of which are beyond our control, including:

 

   

the cost and timing of additional regulatory clearances or approvals for our test kits and any future test kits;

 

   

our ability to achieve and maintain revenue growth;

 

   

our rate of progress in establishing payor coverage and reimbursement arrangements in the prescription at-home channel with commercial third-party payors and government payors;

 

   

our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of and reimbursement for our COVID-19 test kit;

 

   

our rate of progress in, and cost of research and development activities associated with, our influenza test kit;

 

   

the effect of competing technological and market developments, including developments in COVID-19 vaccination and therapeutics;

 

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the potential cost of and delays in test kit development as a result of any regulatory oversight applicable to our test kits;

 

   

the scope, rate of progress and cost of our current and future clinical trials;

 

   

the costs associated with any product recall that may occur;

 

   

the costs of attaining, defending and enforcing our intellectual property rights; and

 

   

the terms and timing of any other collaborative, licensing and other arrangements that we may establish.

Additional funding may not be available on acceptable terms, or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaborations agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or test kits or grant licenses on terms that may not be favorable to us.

In addition, our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic and actions taken to slow its spread, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development, manufacturing or commercialization of our COVID-19 test kit, our influenza test kit, or other research and development initiatives. If this were to occur, our ability to grow and support our business and to respond to market challenges could be significantly limited, which could have a material adverse effect on our business, financial condition and results of operations.

The sizes of the markets for our test kits may be smaller than we estimate.

Our estimates of the annual addressable markets for our COVID-19 test kit and our influenza test kits are based on a number of internal and third-party estimates. For example, our estimates for the COVID-19 diagnostic testing market include, but are not limited to, estimates relating to the number of times per week healthcare workers would be tested, the time period for which tests may be required, administered or sought, as well as the assumed rate at which such test kit will be reimbursed, or the assumed prices at which we can sell our COVID-19 test kit for. In addition, our estimates for the influenza diagnostic testing market are based on the population of people who experienced ILI symptoms during the previous flu season, as estimated by the number of people who purchased OTC cold and flu medication. While we believe our assumptions and the data underlying our estimates are reasonable, we have not independently verified the accuracy of the third-party data on which we have based our assumptions and estimates, and these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, including as a result of factors outside our control, thereby reducing the predictive accuracy of these underlying factors. If the actual number of customers who would benefit from our test kits, the price at which we can sell test kits or the annual addressable market for our test kits is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business, financial condition and results of operations.

 

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Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.

On our path to pursue expansion of our existing EUA indication and FDA approval for OTC use of our COVID-19 test kit, we will continue to invest in, and design and conduct clinical trials to generate claims data satisfying the required regulatory framework for OTC approval and public health benefits, as well as highlight the clinical cost-benefit analyses in support of additional indications.

From time to time, we may publicly disclose interim, topline, or preliminary data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline, or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated, and thus are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim, topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, such data should be viewed with caution until the final data are available. Adverse differences between preliminary, interim or topline data and final data could significantly harm our business prospects.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability, or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular test kit or our business. If the interim, topline or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our test kits and any future test kits may be harmed, which could harm our business, operating results, prospects or financial condition.

In addition, even if our clinical trials are successfully completed, their results may not support our future product claims and the FDA may not agree with our conclusions regarding these results. The clinical trial process may fail to demonstrate that our test kits are safe and effective for the proposed indicated uses, which could cause us to abandon a test kit and may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our test kits and generate revenue.

Deficiencies in the components of our test kits could result in field actions, recalls, substantial costs and write-downs and could harm our reputation, business and financial results.

Our test kits are subject to various regulatory guidelines and involve complex technologies. The FDA and similar foreign regulatory authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture that could affect patient safety. Manufacturers may, under their own initiative, conduct a product notification or recall to inform physicians of changes to instructions for use or if a deficiency in a device is found or suspected.

 

 

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Identified quality problems, such as failure of critical components, including batteries and light-emitting diode, or LED, lights, or the failure of third parties to supply us with sufficient conforming quantities of these components, could impact the availability of our test kits in the marketplace or lead to adverse clinical events that could cause us to amend, repeat or terminate clinical trials. In addition, test kit improvements, redundancies or failure to sell a test kit before its expiration date could result in scrapping or expensive rework of test kits, and our business, financial condition or results of operations could suffer. Test kit complaints, quality issues and necessary corrective and preventative actions could result in communications to customers or patients, field actions, the scrapping, rework, recall or replacement of test kits, substantial costs and write-offs, and harm to our business reputation and financial results. Further, these activities could adversely affect our reputation with those in the medical community, as well as our distributor customers and end-users, which could materially adversely affect our earnings, results and financial viability.

As a result, any identified quality issue can both harm our business reputation and result in substantial costs and write-offs, which in either case could materially harm our business and financial results.

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

The marketing, sale and use of our test kits, if approved, could lead to the filing of product liability claims where someone may allege that our test kits identified inaccurate or incomplete information or otherwise failed to perform as designed. We may also be subject to liability for errors in, a misunderstanding of or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. In addition, we may be subject to product liability claims resulting from misuse or off-label use of our test kits. See the section titled “—The misuse or off-label use of our test kits may harm our reputation or the image of our test kits in the marketplace, or result in injuries that lead to product liability suits, which could be costly to our business. Moreover, we could be subject to FDA sanctions if we are deemed to have engaged in off-label promotion.” A product liability claim could result in substantial damages and be costly and time-consuming for us to defend. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

   

costs of litigation;

 

   

distraction of management’s attention from our primary business;

 

   

the inability to commercialize our test kits or new products;

 

   

decreased demand for our test kits;

 

   

damage to our business reputation;

 

   

product recalls or withdrawals from the market;

 

   

withdrawal of clinical trial participants;

 

   

substantial monetary awards to patients or other claimants;

 

   

loss of sales; or

 

   

termination of existing agreements by our partners and potential partners failing to partner with us.

We maintain product liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability claims. Any product liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future.

 

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While we may attempt to manage our product liability exposure by proactively recalling or withdrawing from the market any defective products, any recall or market withdrawal of our test kits may delay the supply of those test kits to our customers and users and may impact our reputation. We may not be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future and these efforts may not have the intended effect of preventing product malfunctions and the accompanying product liability that may result. Such recalls and withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by patients as a safety risk when considering the use of our test kits, either of which could negatively affect our business, financial condition and results of operations.

Litigation and other legal proceedings may harm our business.

We have been, and may become, involved in legal proceedings relating to patent and other intellectual property matters, product liability claims, employee claims, tort or contract claims, federal or state regulatory investigations, securities class actions and other legal proceedings or investigations, which could have a negative impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. Litigation is inherently unpredictable and can result in excessive or unanticipated verdicts and/or injunctive relief that affect how we operate our business. We could incur judgments or enter into settlements of claims for monetary damages or for agreements to change the way we operate our business, or both. There may be an increase in the scope of these matters or there may be additional lawsuits, claims, proceedings or investigations in the future, which could harm our business, financial condition and results of operations. Adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our test kits, even if the regulatory or legal action is unfounded or not material to our operations.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations (including our clinical trials) could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and pandemics, including the COVID-19 pandemic, and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. Our ability to obtain components for our test kits could be disrupted if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption. In addition, our corporate headquarters is located in Emeryville, California, near major earthquake faults and fire zones, and the ultimate impact on us for being located near earthquake faults and fire zones and being consolidated in a certain geographical area is unknown. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.

We rely substantially on Jabil to manufacture our COVID-19 test kit initially at manufacturing facilities located in Michigan and expect to begin manufacturing activities in the Dominican Republic in the second quarter of 2021. Over time and as automation efforts improve, we and Jabil may relocate manufacturing to one more additional facilities, which may include additional facilities located outside of the United States. Should Jabil’s current or future manufacturing facilities be significantly damaged or destroyed by natural or man-made disasters, such as earthquakes, fires or other events, or should events such as political unrest unfold, it could take months to relocate or rebuild, during which time our manufacturing would cease or be delayed and our COVID-19 test kit may be unavailable. Moreover, the use of a new facility or new manufacturing, quality control, or environmental control equipment or systems generally requires FDA review and approval. Because of the time required to authorize manufacturing in a new facility under FDA and non-U.S. regulatory requirements, we may not be able to resume production on a timely basis even if we are able to replace production capacity in the event we lose manufacturing capacity. The inability to perform our manufacturing activities, combined with our limited inventory of materials and components and manufactured products, may cause us to be unable to meet customer demand, physicians and other users to discontinue using our COVID-19 test kits, or harm our reputation, and we may be unable to reestablish relationships with such customers and users in the future.

 

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Consequently, a catastrophic event or business interruption at Jabil’s current or future manufacturing facilities could harm our business, financial condition and results of operations.

If we or our third-party collaborators, including Jabil, experience significant disruptions in performing their services for us, our business may be harmed.

We and our third-party collaborators, including Jabil, depend on information technology systems for the efficient functioning of our business, including the manufacture, distribution and maintenance of our test kits, as well as for accounting, data storage, compliance, purchasing and inventory management. Our and our third-party collaborator’s information technology systems may be subject to computer viruses, ransomware or other malware, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, damage or interruption from fires or other natural disasters, hardware failures, telecommunication failures and user errors, among other malfunctions and other cyber-attacks. We and our third-party collaborators could be subject to an unintentional event that involves a third-party gaining unauthorized access to our systems, which could disrupt our operations, corrupt our data or result in release of our confidential information. Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy. Although the aggregate impact on our operations and financial condition has not been material to date, we may have been the target of events of this nature and expect them to continue as cybersecurity threats have been rapidly evolving in sophistication and becoming more prevalent in the industry.

Technological interruptions could disrupt operations, including the ability to timely ship and track product orders, project inventory requirements, manage supply chain and otherwise adequately service our customers or disrupt our customers’ ability use our test kits. In addition, we will rely heavily on providers of transport services for reliable and secure point-to-point transport of test kits to our customers and users and for tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any systems, it would be costly to replace such systems in a timely manner and such occurrences may damage our reputation and lead to decreased demand for our test kits and increased cost and expense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability to process orders for test kits on a timely basis.

In the event we or our third-party collaborators experience significant disruptions, we may be unable to repair such systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and harm our business, financial condition and results of operations. Currently, we carry business interruption coverage to mitigate certain potential losses but this insurance is limited in amount, and we cannot be certain that such potential losses will not exceed our policy limits. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance our existing systems. Failure to maintain or protect our information systems and data integrity effectively could harm our business, financial condition and results of operations.

In addition, the COVID-19 pandemic has generally increased the risk of cybersecurity intrusions. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from “hackers” hoping to use the recent COVID-19 pandemic to their advantage. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate or unauthorized access to or disclosure or use of confidential, proprietary, or other sensitive information, we could incur liability and suffer reputational harm.

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

Although we currently have no agreements or commitments to complete any such transactions and are not involved in negotiations to do so, we may pursue acquisitions of businesses and assets in the future. We also

 

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may pursue strategic alliances and additional joint ventures that leverage our platform and industry experience to expand our offerings or distribution. We have no experience with acquiring other companies and limited experience with forming strategic partnerships. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, any pursuit of an acquisition and any potential integration of an acquired company also may disrupt ongoing operations and divert management attention and resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our results of operations and financial condition. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance or joint venture.

Our history of recurring losses and anticipated expenditures raise substantial doubts about our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.

We have incurred operating losses to-date and it is possible we will never generate profit. We have concluded that substantial doubt exists regarding our ability to continue as a going concern for 12 months following the issuance of our audited financial statements included elsewhere in this prospectus. Our audited financial statements included elsewhere in this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties related to our ability to operate on a going concern basis.

The report of our independent registered public accounting firm on our financial statements as of and for the years ended December 31, 2018 and 2019 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. If we are unable to raise sufficient capital when needed, our business, financial condition and results of operations will be materially and adversely affected, and we will need to significantly modify our operational plans to continue as a going concern. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. The inclusion of a going concern explanatory paragraph by our auditors, our lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations with third parties due to concerns about our ability to meet our contractual obligations.

Our ability to use our net operating losses, or NOLs, to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, we had federal and state NOL carryforwards of approximately $23.7 million and $23.6 million, respectively. The federal NOLs include $11.0 million that may be used to offset up to 100% of future taxable income and the federal and state NOLs will begin to expire in the calendar year 2031, unless previously utilized. The NOL carryforwards subject to expiration could expire unused and be unavailable to offset future income tax liabilities.

Under the Tax Cuts and Jobs Act, or the Tax Act, as modified by the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, federal NOLs incurred in taxable years beginning after December 31, 2017 and in future taxable years may be carried forward indefinitely, but the deductibility of such federal NOLs in taxable years beginning after December 31, 2020 is limited. There is variation in how states will respond to the

 

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Tax Act and CARES Act. In addition, for state income tax purposes, there may be periods during which the use of NOLs is suspended or otherwise limited, such as recent California legislation limiting the usability of NOLs for tax years beginning in 2020 and before 2023.

Separately, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We determined that an ownership change occurred on October 9, 2015, but that all federal NOL carryforwards can be utilized prior to the expiration. As of December 31, 2019, we had not experienced an ownership change subsequent to the ownership change on October 9, 2015. However, we determined that a subsequent ownership change occurred on August 7, 2020, which may result in limitations in our ability to utilize federal research and development credits of $0.8 million and state NOLs of $22.4 million.

In addition, we may in the future experience ownership changes, either as a result of this offering or other changes in our stock ownership (some of which are not in our control). For these reasons, our ability to utilize our NOL carryforwards and other tax attributes to reduce future tax liabilities may be limited.

Risks Related to Government Regulation and Our Industry

We received an EUA and intend to seek additional and/or amended EUAs for our COVID-19 test kit. The FDA may not timely grant any additional EUAs, if at all. For our existing EUA and any new EUA, the FDA may revoke any EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, which would adversely impact our ability to market our test in the United States.

The FDA has the authority to grant an EUA to allow unapproved medical products to be used in an emergency to diagnose, treat or prevent serious or life-threatening diseases or conditions when there are no adequate, approved and available alternatives. The speed at which companies and institutions are acting to create and test medical products for COVID-19 is unusually rapid, and evolving or changing plans or priorities within the FDA, including changes based on new knowledge of COVID-19 and how the disease affects the human body, may significantly affect the regulatory timelines for our COVID-19 test kit. Results from our continued development and planned clinical trials may raise new questions and require us to redesign proposed clinical trials with minimal lead time.

On November 17, 2020, we received an EUA from the FDA for our COVID-19 test kit for (1) prescription at-home use with self-collected nasal swab specimens in individuals aged 14 and older who are suspected of COVID-19 by their healthcare provider and (2) use at the POC with self-collected nasal swab specimens in individuals aged 14 and older, and in individuals aged 13 and under when the specimen is collected by a healthcare provider at the POC. All prescribing healthcare providers will be required to report test results to relevant public health authorities in accordance with local, state, and federal requirements, using appropriate LOINC and SNOMED codes, as defined by the Laboratory In Vitro Diagnostics (LIVD) Test Code Mapping for SARS-CoV-2 Tests provided by the CDC.

Because the FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, we cannot predict how long our EUA would remain in place. Such revocation could materially adversely impact our business in a variety of ways, including if our COVID-19 test kit is not yet approved by the FDA under a traditional approval pathway and if we and Jabil have invested in the supply chain to provide our COVID-19 test kit under an EUA, and would require us to obtain a 510(k) or other marketing authorization from the FDA. If the FDA revokes our existing EUA prior to us having received regulatory approval to commercialize our COVID-19 test kit through a traditional approval pathway, we would be required to cease our commercialization efforts, which would substantially and negatively impact our business.

 

 

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Our business and sale of our test kits are subject to extensive regulatory requirements, including compliance with labelling, manufacturing and reporting controls. If our existing EUA for our COVID-19 test kit is revoked or withdrawn, we will need to utilize other pathways to obtain marketing authorization. Our influenza test also will require marketing authorization from the FDA. If we fail or are unable to timely obtain the necessary EUA, 510(k) clearances, de-novo authorizations, or premarket approval, or PMA, approvals for new products or for the use of our test kits for additional indications, our ability to generate revenue could be materially harmed.

Our test kits are classified as medical devices and are subject to extensive regulation in the United States by the FDA and other federal, state and local authorities and by similar regulatory authorities in overseas jurisdictions. Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things:

 

   

design, development and manufacturing;

 

   

testing, labeling, including directions for use, processes, controls, quality assurance, packaging, storage, distribution, installation and servicing;

 

   

pre-clinical studies and clinical trials;

 

   

establishment registration and listing;

 

   

test kit safety and effectiveness;

 

   

marketing, sales and distribution;

 

   

recordkeeping procedures;

 

   

advertising and promotion;

 

   

premarket authorization (510(k), PMA, de-novo, EUA);

 

   

corrections and removals and recalls;

 

   

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

 

   

product import and export.

In the United States, before we can market a new medical device, or a new use of, or claim for, an existing product, we must first receive either 510(k) clearance, PMA approval or approval of a de-novo application from the FDA, unless an exemption applies. The FDA also has authority to issue EUAs in times of crises such as pandemics (declaration of emergencies).

In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device. Substantial equivalence means that with respect to the proposed device being compared to the predicate device, the proposed device has the same intended use as the predicate device and the proposed device has the same technological characteristics as the predicate device, or has different technological characteristics but that the proposed device is as safe and effective as the predicate device and does not raise different questions of safety and effectiveness. Clinical data are sometimes required to support substantial equivalence.

 

 

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In the PMA approval process, the FDA requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on extensive data, including, but not limited to, technical, pre-clinical study, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices and also novel devices that remain in Class III. Products that are approved from a PMA application generally need FDA approval of a PMA supplement before they can be modified. Similarly, some modifications made to products cleared through a 510(k) may require a new 510(k) clearance.

Another pathway, known as de-novo down-classification also can be used for lower risk devices for which there is no existing product code or predicate device. The Food and Drug Administration Modernization Act of 1997 established the de-novo down-classification procedure as a new route to market for low to moderate risk medical devices that automatically require a PMA due to the absence of a predicate device. This procedure allows a manufacturer whose novel device automatically requires a PMA to request down-classification of its medical device (to allow clearance through the 510(k) pathway) on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application. Manufacturers can request de-novo down-classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a “not substantially equivalent” determination. Under this pathway, the FDA is required to classify the device within 120 days following receipt of the de-novo application. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. In addition, the FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed.

The FDA has the authority to grant an EUA to allow unapproved medical products to be used in an emergency to diagnose, treat or prevent serious or life-threatening diseases or conditions when there are no adequate, approved and available alternatives.

Each of these processes can be expensive and lengthy, and with respect to a PMA, can entail significant user fees, unless exempt. The FDA’s 510(k) clearance process usually takes from three to six months, but may take significantly longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or longer, from the time the application is submitted to the FDA until an approval is obtained. The process of obtaining 510(k) clearances or PMA approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all.

In the United States, outside of the context of the EUA application process, our test kits will likely need to obtain clearance through the 510(k) premarket notification process. If the FDA requires us to go through a lengthier, more rigorous process for future products or modifications to existing products than expected, our product introductions or modifications could be delayed or cancelled, which could cause our sales to decline. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain PMA process. Although we do not currently market any devices under a PMA, the FDA may demand that we obtain a PMA prior to marketing certain of our future products. Further, even with respect to those future products where a PMA is not required, we may not be able to obtain the 510(k) clearances with respect to those products. The FDA can delay, limit or deny 510(k) clearance or PMA approval of a device for many reasons, including:

 

   

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

 

   

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

 

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

 

   

disruptions at the FDA caused by funding shortages or global health concerns, including the COVID-19 pandemic.

The FDA may refuse our requests for 510(k) clearance, de-novo or PMA of new products, new intended uses or modifications to existing products.

From time to time, legislation is drafted and introduced in the United States that could significantly change the statutory provisions governing any regulatory approval or clearance that we receive in the United States. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our test kits under development or impact our ability to modify our currently approved or cleared test kits on a timely basis.

Modifications to our test kits may require new regulatory clearances or approvals or may require us to recall or cease marketing our test kits until clearances or approvals are obtained.

Once our test kits are initially cleared or approved, modifications to our test kits may require new regulatory approvals or clearances, including additional EUAs, 510(k) clearances or PMA approvals, or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine that a modification could not significantly affect safety or efficacy and does not represent a major change in its intended use, so that no new 510(k) clearance is necessary. However, the FDA can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval is required. We may make modifications to our test kits in the future. For example, we may explore the development of a software component to our test kits, which may require new clearances or approvals from the FDA. If the FDA requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing our test kits, as approved and as modified, which could require us to redesign our test kits and harm our operating results. In these circumstances, we may be subject to significant enforcement actions.

If a manufacturer determines that a modification to an FDA 510(k)-cleared device could significantly affect its safety or efficacy, or would constitute a major change in its intended use, then the manufacturer must file for a new 510(k) clearance or possibly a PMA application. Where we determine that modifications to our test kits require a new 510(k) clearance or PMA, we may not be able to obtain those additional clearances or approvals for the modifications or additional indications in a timely manner, or at all. Obtaining clearances and approvals can be a time consuming process, and delays in obtaining required future clearances or approvals would adversely affect our ability to introduce new or enhanced test kits in a timely manner, which in turn would harm our future growth.

If we or our contract manufacturers fail to comply with the FDA’s Quality System Regulations, or QSR, our manufacturing operations could be interrupted and our test kit sales and operating results could suffer.

Although full compliance may not be required under an EUA, we will be required to comply with the FDA’s QSR, which covers the methods used in, and the facilities and controls used for, the design, testing, manufacture, quality assurance, labeling, packaging, sterilization, storage and shipping of our test kits. The FDA enforces the QSR through periodic announced and unannounced inspections of manufacturing facilities. The failure by us or one of our current or future manufacturers or suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory authorities, or the failure to timely and adequately respond to any adverse inspectional observations, could result in, among other things, any of the following enforcement actions:

 

   

untitled letters, warning letters, injunctions, civil penalties and criminal fines;

 

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customer notifications or repair, replacement, refunds, recall, detention or seizure of our test kits;

 

   

operating restrictions or partial suspension or total shutdown of production;

 

   

refusing or delaying our requests for approval of a PMA or 510(k) clearance of new products, modified products or new indications of cleared products;

 

   

withdrawing PMA approvals or reclassifying devices that have 510(k) clearances;

 

   

refusal to grant export certificates for our test kits; or

 

   

criminal prosecution.

Any of these actions could impair our ability to produce our test kits in a cost-effective and timely manner to meet our customers’ demands once approved for marketing. Furthermore, our key suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our test kits on a timely basis and in the required quantities, if at all.

Our test kits are and will continue to be, subject to extensive regulation and compliance obligations, which are costly and time-consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize our test kits.

The manufacture, labeling, advertising, promotion, record-keeping, post-market surveillance and marketing of medical devices are subject to extensive regulation and review by the FDA and numerous other governmental authorities in the United States as well as foreign countries where we may sell our test kits. Even after we have obtained EUA approval, 510(k) clearance or PMA approval to market a product, we have ongoing responsibilities under FDA and other regulations. The FDA and other national governmental authorities have broad enforcement powers. The regulations to which we are subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs or lower than anticipated sales. Our failure to comply with applicable regulatory requirements could result in enforcement actions such as:

 

   

civil penalties;

 

   

delays on or denials of pending requests for 510(k) clearance or PMA approval;

 

   

recalls or seizures;

 

   

withdrawals or suspensions of current PMA approvals or reclassification of 510(k) cleared devices, resulting in prohibitions on sales of our test kits, if approved;

 

   

warning letters or untitled letters;

 

   

operating restrictions, including a partial or total shutdown of production on our test kits for any indication;

 

   

refusal to issue export approvals or certifications;

 

   

obtaining injunctions preventing us from manufacturing or distributing our products;

 

   

commencing criminal prosecutions; and

 

   

total prohibitions on our sales.

 

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The incurrence or commencement of any such action would harm our reputation and cause sales of our test kits to suffer and may prevent us from generating revenue.

In order to facilitate the rapid and thorough public health response to the COVID-19 pandemic, the CARES Act requires every laboratory that performs or analyzes a test that is intended to detect SARS-CoV-2 or to diagnose a possible case of COVID-19 to report the results from each such test to the Secretary of the U.S. Department of Health and Human Services, or HHS. The CARES Act also authorized the HHS Secretary to identify the form and manner, as well as the timing and frequency, of such reporting. Based on subsequent guidance issued by the HHS on June 4, 2020, all laboratories, including testing locations operating as temporary overflow or remote locations for a laboratory, and other facilities or locations performing testing at POC or with at-home specimen collection related to SARS-CoV-2, will report data for all testing completed, for each individual tested, within 24 hours of results being known or determined, on a daily basis to the appropriate state or local public health department based on the individual’s residence.

Since we will offer prescription at-home, we expect to assist the prescribing providers in reporting test results. In a prescription at-home setting, the patients will be expected to report their respective results back to the prescribing health care providers who will be responsible for reporting the results to the appropriate public health authorities. We expect to provide two methods to facilitate such reporting, including through an on-package photo guide that would allow users to upload results to secure physician portals and through web-based test results registration reporting. We believe these processes would fulfill our reporting obligations. Additionally, we believe that these methods are secure and in compliance with applicable health information privacy laws, such as HIPAA. If governmental authorities conclude that our reporting processes do not comply with applicable law, we or the prescribing physician may be subject to penalties and other damages.

If our test kits cause or contribute to patient injuries or otherwise malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device may have caused or contributed to a patient death or serious injury or has or may have malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our test kits also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

Our test kits or any component thereof may be subject to product recalls in the future. A recall of our test kits, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our test kits, could have a significant adverse impact on us.

The FDA has the authority to require the recall of commercialized products that are subject to FDA regulation. Manufacturers may, under their own initiative, recall a product if any deficiency is found. For reportable corrections and removals, companies are required to make additional periodic submissions to the FDA after initiating the recall, and often engage with the FDA on their recall strategy prior to initiating the recall. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable health risk, component failures, failures in laboratory processes, malfunctions, manufacturing errors, design or labeling defects, or other deficiencies and issues. Recalls of any of our test kits would divert managerial and financial resources and adversely affect our business, results of operations, financial condition and reputation. We may also be subject to liability claims, be required to bear other costs or take other actions that may negatively impact our future sales and our ability to generate profits. Companies are also required to maintain certain records of corrections and removals, even if these do not require reporting to the FDA. We may

 

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initiate voluntary recalls involving our test kits. A recall announcement by us could harm our reputation with customers and negatively affect our business, financial condition, and results of operations. In addition, the FDA or other agency could take enforcement action for failing to report the recalls when they were conducted.

If we initiate a recall, including a correction or removal, for one of our test kits, issue a safety alert, or undertake a field action or recall to reduce a health risk, this could lead to increased scrutiny by the FDA, other governmental and regulatory enforcement bodies, and our customers regarding the quality and safety of our test kits, and to negative publicity, including FDA alerts, press releases, or administrative or judicial actions. Furthermore, the submission of these reports could be used against us by competitors and cause customers to delay purchase decisions or cancel orders, which would harm our reputation.

The misuse or off-label use of our test kits may harm our reputation or the image of our test kits in the marketplace, or result in injuries that lead to product liability suits, which could be costly to our business. Moreover, we could be subject to FDA sanctions if we are deemed to have engaged in off-label promotion.

Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition on the promotion of a medical device for an indication that has not been approved or cleared by the FDA, referred to as an off-label use. The FDA does not restrict or regulate a physician’s use of a medical device within the practice of medicine, and we cannot prevent a physician from using our test kits for an off-label use. If the FDA determines that our promotional materials constitute the unlawful promotion of an off-label use, it could subject us to regulatory or enforcement actions, including revocation of our existing EUA, additional civil money penalties, criminal fines and penalties, and exclusion from participation in federal health programs, among others. For example, in connection with our existing EUA, our COVID-19 test kit must comply with certain labeling requirements, including the label that our COVID-19 test kit has not been FDA cleared or approved but has been authorized by the FDA under an EUA and that our COVID-19 test kit has been authorized only for the detection of nucleic acid from SARS-CoV-2, and not for any other viruses or pathogens. Other federal, state or foreign governmental authorities might also take action if they consider our promotion or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities. In that event, our reputation could be damaged and the use of our test kits in the marketplace could be impaired.

Furthermore, the use of our test kits for indications other than those that have been approved or cleared by the FDA may lead to performance issues or produce erroneous results, which could harm our reputation in the marketplace among physicians and patients and increase the risk of product liability. Product liability claims are expensive to defend and could divert our management’s attention from our primary business and result in substantial damage awards against us. Any of these events could harm our business, results of operations and financial condition.

Clinical trials necessary to support a future test kit submission will be expensive and may require the enrollment of large numbers of subjects, and suitable subjects may be difficult to identify and recruit. Delays or failures in our clinical trials will prevent us from commercializing any modified or new test kits and will adversely affect our business, operating results and prospects.

Initiating and completing clinical trials necessary to support a future EUA, 510(k), PMA, or de novo submission, will be time consuming and expensive and the outcome uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any test kit we advance into clinical trials may not have favorable results in later clinical trials.

Conducting successful clinical trials will require the enrollment of large numbers of subjects, and suitable subjects may be difficult to identify and recruit. Subject enrollment in clinical trials and completion of subject participation depends on many factors, including the nature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the indication of the underlying test kit, the availability of appropriate clinical trial investigators, support staff, and proximity of subjects to clinical sites and able to comply with the

 

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eligibility and exclusion criteria for participation in the clinical trial and subject compliance. In addition, subjects may not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products.

In addition, our clinical trials may in the future be affected by the COVID-19 pandemic. For example, the COVID-19 pandemic may impact subject enrollment. In particular, some sites may pause enrollment to focus on, and direct resources to, COVID-19, while at other sites, subjects may choose not to enroll or continue participating in the clinical trial as a result of the pandemic. As a result, potential subjects in our clinical trials may choose to not enroll, not participate in follow-up clinical visits, or drop out of the trial as a precaution against contracting COVID-19. Further, some subjects may not be able or willing to comply with clinical trial protocols if quarantines impede subject movement or interrupt healthcare services. We are unable to predict with confidence the duration of any such potential subject enrollment delays and difficulties, whether related to COVID-19 or otherwise. Delays in subject enrollment or failure of subjects to continue to participate in a clinical trial may cause an increase in costs and delays in the approval and attempted commercialization of our test kits or result in the failure of the clinical trial.

Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such protocols to support clearance and approval. Further, the FDA may require us to submit data on a greater number of subjects than we originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical trials. In addition, despite considerable time and expense invested in our clinical trials, the FDA may not consider our data adequate for approval. Such increased costs and delays or failures could adversely affect our business, operating results and prospects.

If the third parties on which we rely to conduct our clinical trials and to assist us with pre-clinical development do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our test kits.

We do not have the ability to independently conduct our pre-clinical studies and clinical trials for our test kits and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct such trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our test kits on a timely basis, if at all, and our business, operating results and prospects may be adversely affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control.

Our collection, use, storage, disclosure, transfer and other processing of personal information, could give rise to significant costs, liabilities and other risks, including as a result of investigations, inquiries, litigation, fines, legislative and regulatory action and negative press about our privacy and data protection practices, which may harm our business, financial conditions, results of operations and prospects.

In the course of our operations, we collect, use, store, disclose, transfer and otherwise process an increasing volume of personal information, including from our employees and third parties with whom we conduct business. The collection, use, storage, disclosure, transfer and other processing of personal information is increasingly subject to a wide array of federal, state and foreign laws and regulations regarding data privacy and security, including comprehensive laws of broad application, such as the European Union General Data Protection Regulation, that are intended to protect the privacy of personal information that is collected, used, stored, disclosed, transferred and otherwise processed in or from the governing jurisdiction. As we seek to expand our business, we are, and may increasingly become, subject to various laws, regulations and standards, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate.

 

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When conducting clinical trials, we face risks associated with collecting trial participants’ data, especially health data, in a manner consistent with applicable laws and regulations, such as FDA human subject protection regulations.

In many cases, these laws and regulations apply not only to third-party transactions, but also to transfers of information between or among us, any affiliates and other parties with whom we conduct business. These laws, regulations and standards may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may harm our business, financial condition and results of operations. The regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.

We are subject to diverse laws and regulations relating to data privacy and security. In the United States, various federal and state regulators have adopted, or are considering adopting, laws and regulations concerning personal information and data security, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA. This patchwork of legislation and regulation may give rise to conflicts or differing views of personal privacy rights. For example, certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. Additionally, new privacy rules are being enacted in the United States and globally, and existing ones are being updated and strengthened. For example, the CCPA, which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. The CCPA has been amended several times, and it is possible that further amendments will be enacted, but even in its current form it remains unclear how various provisions of the CCPA will be interpreted and enforced. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject if it is enacted. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time, may require us to modify our data processing practices and policies, divert resources from other initiatives and projects, and could restrict the way products and services involving data are offered, all of which may harm our business, financial condition and results of operations.

In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. New laws, amendments to or re-interpretations of existing laws, regulations, standards and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of laws, regulations, standards and other obligations relating to data privacy and security are still uncertain, it is possible that these laws, regulations, standards and other obligations may be interpreted and applied in a manner that is inconsistent with our data processing practices and policies or the features of our test kits. If so, in addition to the possibility of fines, lawsuits, regulatory investigations, public censure, other claims and penalties, and significant costs for remediation and damage to our reputation, we could be materially and adversely affected if legislation or regulations are expanded to require changes in our data processing practices and policies or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively impact our business, financial condition and results of operations. We may be unable to make such changes and modifications in a commercially reasonable manner, or at all. Any inability to adequately address data privacy or security-related concerns, even if unfounded, or to comply with applicable laws, regulations, standards and other obligations

 

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relating to data privacy and security, could result in additional cost and liability to us, harm our reputation and brand, damage our relationships with users and harm our business, financial condition and results of operations.

We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our data privacy and security practices, even if unfounded, could damage the reputation of our business and harm our business, financial condition and results of operations.

Complying with these numerous, complex and often changing regulations is expensive and difficult. Any failure or perceived failure by us or our service providers to comply with our posted privacy policies or with any applicable federal, state or similar foreign laws, regulations, standards, certifications or orders relating to data privacy, security or consumer protection, or any compromise of security that results in the theft, unauthorized access, acquisition, use, disclosure, or misappropriation of personal information or other user data, could result in significant fines or penalties, negative publicity or proceedings or litigation by governmental agencies or consumers, including class action privacy litigation in certain jurisdictions, which would subject us to significant awards, penalties or judgments, one or all of which could require us to change our business practices or increase our costs and could materially and adversely affect our business, financial condition and results of operations. In addition, if our practices are not consistent, or viewed as not consistent, with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may also become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, criminal or civil sanctions, all of which may harm our business, financial condition and results of operations.

If we fail to comply with U.S. federal and state fraud and abuse and other healthcare laws and regulations, including those relating to kickbacks and false claims, we could face substantial penalties and our business operations and financial condition could be harmed.

Healthcare providers and third-party payors play a primary role in the distribution, recommendation, ordering and purchasing of any medical device for which we have or obtain marketing clearance or approval. Through our arrangements with healthcare professionals and customers, we are exposed to broadly applicable anti-fraud and abuse, anti-kickback, false claims and other healthcare laws and regulations that may constrain our business, our arrangements and relationships with customers, and how we market, sell and distribute our marketed medical devices. We have a compliance program, code of conduct and associated policies and procedures, but it is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent noncompliance may not be effective in protecting us from governmental investigations for failure to comply with applicable fraud and abuse or other healthcare laws and regulations.

In the United States, we are subject to various state and federal anti-fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and federal civil False Claims Act, or the FCA. There are similar laws in other countries. Our relationships with physicians, other health care professionals and hospitals are subject to scrutiny under these laws.

The laws that may affect our ability to operate include, among others:

 

   

the Anti-Kickback Statute, which prohibits, among other things, knowingly and willingly soliciting, offering, receiving or paying remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of a person, or the purchase, order or recommendation of, items or services for which payment may be made, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. The term “remuneration” has

 

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been broadly interpreted to include anything of value, and the government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a specific intent to violate. In addition, the government may assert that a claim, including items or services resulting from a violation of the Anti-Kickback Statute, constitutes a false or fraudulent claim for purposes of the FCA. There are a number of statutory exceptions and regulatory safe harbors protecting certain business arrangements from prosecution under the Anti-Kickback Statute; however, those exceptions and safe harbors are drawn narrowly, and there may be limited or no exception or safe harbor for many common business activities. Certain common business activities including, certain reimbursement support programs, educational and research grants or charitable donations, and practices that involve remuneration to those who prescribe, purchase or recommend medical devices, including discounts, providing items or services for free or engaging such people as consultants, advisors or speakers, may be subject to scrutiny if they do not fit squarely within any available exception or safe harbor and would be subject to a facts and circumstances analysis to determine compliance with the Anti-Kickback Statute. Our business may not in all cases meet all of the criteria for statutory exception or regulatory safe harbor protection from anti-kickback liability;

 

   

the FCA, which prohibits, among other things, persons or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds and knowingly making, using or causing to be made or used, a false record or statement to get a false claim paid or to avoid, decrease or conceal an obligation to pay money to the federal government. A claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. Actions under the FCA may be brought by the government or as a qui tam action by a private person in the name of the government. These people, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any monetary recovery. Many medical device manufacturers have been investigated and have reached substantial financial settlements with the federal government under the FCA for a variety of alleged improper activities, including causing false claims to be submitted as a result of the marketing of their products for unapproved and thus non-reimbursable uses and interactions with prescribers and other customers, including those that may have affected their billing or coding practices and submission of claims to the federal government. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory monetary penalties for each false or fraudulent claim or statement. Because of the potential for large monetary exposure, healthcare and medical device companies often resolve allegations without admissions of liability for significant and material amounts to avoid the uncertainty of treble damages and per claim penalties that may be awarded in litigation proceedings. Settlements may require companies to enter into corporate integrity agreements with the government, which may impose substantial costs on companies to ensure compliance. Medical device manufacturers and other healthcare companies also are subject to other federal false claims laws, including, among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs;

 

   

HIPAA, which imposes criminal and civil liability for, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making a materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and their implementing regulations, also impose obligations, including mandatory

 

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contractual terms, on covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services for them or on their behalf involving the use or disclosure of individually identifiable health information with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

   

various state laws govern the privacy and security of personal information, including the California Consumer Protection Act, or CCPA, which became effective January 1, 2020, and gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches;

 

   

the federal Physician Payments Sunshine Act, implemented as Open Payments, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually, with certain exceptions to CMS, information related to payments or other “transfers of value” made to physicians, as defined by such law, and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding payments and transfers of value provided, as well as ownership and investment interests held, during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists and certified nurse-midwives; and

 

   

analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require medical device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state beneficiary inducement laws, which are state laws that require medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

State and federal regulatory and enforcement agencies continue to actively investigate violations of healthcare laws and regulations, and the U.S. Congress continues to strengthen the arsenal of enforcement tools. Most recently, the Bipartisan Budget Act of 2018, or the BBA, increased the criminal and civil penalties that can be imposed for violating certain federal health care laws, including the Anti-Kickback Statute. Enforcement agencies also continue to pursue novel theories of liability under these laws. In particular, government agencies have increased regulatory scrutiny and enforcement activity with respect to manufacturer reimbursement support activities and patient support programs, including bringing criminal charges or civil enforcement actions under the Anti-Kickback Statute, FCA and HIPAA’s healthcare fraud and privacy provisions.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our business activities, including certain sales and marketing practices of our test kits, and financial arrangements with physicians, other healthcare providers, and other customers, could be subject to challenge under one or more such laws. If an arrangement were deemed to violate the Anti-Kickback Statute, it may also subject us to violations under other fraud and abuse laws such as

 

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the federal civil FCA and civil monetary penalties laws. Moreover, such arrangements could be found to violate comparable state fraud and abuse laws.

Achieving and sustaining compliance with applicable federal and state anti-fraud and abuse laws may prove costly. If we or our employees are found to have violated any of the above laws we may be subjected to substantial criminal, civil and administrative penalties, including imprisonment, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, and significant fines, monetary penalties, forfeiture, disgorgement and damages, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. Any action or investigation against us for the violation of these healthcare fraud and abuse laws, even if successfully defended, could result in significant legal expenses and could divert our management’s attention from the operation of our business. Companies settling FCA, Anti-Kickback Statute or civil monetary penalties law cases also may enter into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General, or the OIG, in order to avoid exclusion from participation (such as loss of coverage for their products) in federal healthcare programs such as Medicare and Medicaid. Corporate Integrity Agreements typically impose substantial costs on companies to ensure compliance. Defending against any such actions can be costly, time-consuming and may require significant personnel resources, and may harm our business, financial condition and results of operations.

In addition, the medical device industry’s relationship with physicians is under increasing scrutiny by the OIG, the U.S. Department of Justice, or the DOJ, the state attorney generals and other foreign and domestic government agencies. Our failure to comply with requirements governing the industry’s relationships with physicians or an investigation into our compliance by the OIG, the DOJ, state attorney generals and other government agencies, could harm our business, financial condition and results of operations.

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could harm our business, financial condition and results of operations.

We are exposed to the risk that our employees, independent contractors, consultants, commercial partners, distributors and vendors may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates: (1) the laws of the FDA and other similar regulatory bodies, including those laws requiring the reporting of true, complete and accurate information to such regulators, (2) manufacturing standards, (3) healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws, or (4) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commissions, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials.

We intend to adopt a code of business conduct and ethics that applies to our directors, officers and employees, but it is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, imprisonment, additional integrity reporting

 

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and oversight obligations, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations. Whether or not we are successful in defending against any such actions or investigations, we could incur substantial costs, including legal fees and reputational harm, and divert the attention of management in defending ourselves against any of these claims or investigations, which could harm our business, financial condition and results of operations.

Healthcare reform initiatives and other administrative and legislative proposals may harm our business, financial condition, results of operations and cash flows in our key markets.

There have been and continue to be proposals by the federal government, state governments, regulators and third-party payors to control or manage the increased costs of healthcare and, more generally, to reform the U.S. healthcare system. Certain of these proposals could limit the prices we are able to charge for our test kits or the coverage and reimbursement available for our test kits and could limit the acceptance and availability of our test kits. The adoption of proposals to control costs could harm our business, financial condition and results of operations.

Since the start of the COVID-19 pandemic, Congress has passed several bills addressing coverage and payment for COVID-19 diagnostic tests and related services, including mandates for coverage and payment of certain tests. Further federal legislative action to address the ongoing pandemic is expected. Future legislation may change current laws to adversely affect coverage and reimbursement of our test kits, which could harm our business.

For example, in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, together, the Affordable Care Act or the ACA, was a sweeping measure that expanded healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and people, the provision of subsidies to eligible people enrolled in plans offered on the health insurance exchanges and the expansion of the Medicaid program.

There have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the current U.S. presidential administration to repeal or replace certain aspects of the ACA. For example, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain people who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” In addition, the Further Consolidated Appropriations Act of 2020 permanently eliminates, effective January 1, 2020, the ACA-mandated medical device tax and the “Cadillac” tax on high-cost employer-sponsored health coverage and, effective January 1, 2021, also eliminates the annual fee imposed on certain health insurance providers based on market share. On December 14, 2018, a U.S. District Court in Texas ruled that the “individual mandate,” without the penalty that was repealed by Congress as part of the Tax Act, is unconstitutional and cannot be severed from the remainder of the ACA, rendering the entire ACA invalid. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well based on lack of severability. The Supreme Court of the United States granted certiorari on March 2, 2020, and heard oral arguments on the case on November 10, 2020, and the case is expected to be decided sometime in 2021. It is unclear how this decision, future decisions, subsequent appeals and other efforts to repeal and replace or amend the ACA will impact the ACA and our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, includes

 

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reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2030 unless additional Congressional action is taken, with the exception of a temporary suspension of the 2% cut in Medicare payments from May 1, 2020 through December 31, 2020. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

The ACA, as currently enacted or as amended in the future, may harm our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may harm:

 

   

our ability to set a price that we believe is fair for our test kits, once approved;

 

   

our ability to generate revenue and achieve or maintain profitability; and

 

   

the availability of capital.

Various new healthcare reform proposals are emerging at the federal and state level, and additional legislative measures to address the COVID-19 pandemic are expected. Any new federal and state healthcare initiatives that may be adopted could limit the amounts that federal and state governments will pay for healthcare products and services, and could harm our business, financial condition and results of operations.

Our operations involve hazardous materials and we and third parties with whom we contract must comply with environmental laws and regulations, which can be expensive and restrict how we do business, and could expose us to liability if our use of such hazardous materials causes injury.

Our manufacturing processes currently require the controlled use of potentially harmful chemicals. We cannot eliminate the risk of accidental contamination or injury to contracted employees from offshore or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject to, on an ongoing basis, laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations may become significant and could negatively impact our reputation, financial condition, results of operations and cash flows. In the event of an accident or if we otherwise fail to comply with applicable regulations, we could lose our permits or approvals or be held liable for damages or penalized with fines.

In addition, because our test kit contains electronic components and batteries which are purchased from third-party vendors, we may be required under rules promulgated by the SEC governing disclosure of the use of “conflict minerals” (tin, tungsten, tantalum and gold) to determine whether those minerals are necessary to the functionality or production of our test kits and, if so, conduct a country of origin inquiry with respect to all such minerals. If any such minerals may have originated in the Democratic Republic of the Congo, or DRC, or any of its adjoining countries, or covered countries, then we must conduct diligence on the source and chain of custody of those conflict minerals to determine if they originated in one of the covered countries and, if so, whether they financed or benefited armed groups in the covered countries. Disclosures relating to the products that may contain conflict minerals, the country of origin of those minerals and whether they are “DRC conflict free” must be provided in a Form SD (and accompanying conflict minerals report, if required, to disclose the diligence

 

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undertaken by us in sourcing the minerals and our conclusions relating to such diligence). If we are required to submit a conflict minerals report, that report must be audited by an independent auditor pursuant to existing government auditing standards. Compliance with this disclosure rule may be very time-consuming for our management and personnel (as well as time-consuming for our suppliers) and could involve the expenditure of significant amounts of money by us and them. Disclosures mandated by this rule, which can be perceived by the market to be “negative,” may cause customers to refuse to purchase our test kits. The cost of compliance with the rule could adversely affect our results of operations.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent or other intellectual property protection for any test kits we develop or for our platform, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize test kits and platform similar or identical to ours, and our ability to successfully commercialize any test kits we may develop, and our platform, may be harmed.

As with other medical device companies, our success depends in large part on our ability to obtain, maintain and solidify a proprietary position for our current and any future test kits, which will depend upon our success in obtaining effective patent protection in the United States and other countries that cover, and other intellectual property with respect to, such test kits, their manufacturing processes and their intended methods of use and enforcing those patent claims once granted as well as our other intellectual property. In some cases, we may not be able to obtain issued patent claims or other intellectual property covering our technologies which are sufficient to prevent third parties, such as our competitors, from utilizing our platform. Any failure to obtain or maintain patent and other intellectual property protection with respect to our current and any future test kits or other aspects of our business could harm our business, financial condition and results of operations.

Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our patents. Additionally, we cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek and obtain patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends in part on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, the publication of discoveries in scientific literature often lags behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to file for patent protection of such inventions.

Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties, including Eiken, and are therefore reliant on our licensors or licensees, and may be reliant on future licensors or licensees, to protect certain of our intellectual property used in our business. If our licensors or licensees fail to adequately protect this intellectual property or if we do not have exclusivity for the marketing of our test kits, whether because our licensors do not grant us exclusivity or they do not enforce the intellectual

 

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property against our competitors, our ability to commercialize products could suffer. For example, we rely on Eiken to maintain the patents and otherwise protect the intellectual property we license from Eiken pursuant to the Eiken License and Eiken may not successfully prosecute, maintain and protect such patents and intellectual property or may determine not to pursue litigation against third-parties that are infringing these rights, or may pursue litigation less aggressively than we would.

Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example, with respect to proper priority claims, inventorship and the like, although we are unaware of any such defects that we believe are of importance. If we or any current or future licensors or licensees fail to establish, maintain, protect or enforce such patents and other intellectual property rights, such rights may be reduced or eliminated. If any current or future licensors or licensees are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation or prosecution of our patents or patent applications, such patents or applications may be invalid and/or unenforceable. Any of these outcomes could impair our ability to prevent competition from third parties, which may materially harm our business.

The strength of patent rights generally, and particularly the patent position of medical device companies, involves complex legal and scientific questions and can be uncertain, and has been the subject of much litigation in recent years. This uncertainty includes changes to the patent laws through either legislative action to changes to statutory patent law or court action that may reinterpret existing law or rules in ways affecting the scope or validity of issued patents or the chances that patent applications will result in issued claims and the scope of any such claims. Our current or future patent applications may fail to result in issued patents in the United States or foreign countries with claims that cover our current and any future test kits. Even if patents do successfully issue from our patent applications, third parties may challenge the validity, enforceability or scope of such patents, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful challenge to our patents could deprive us of exclusive rights necessary for the successful commercialization of our current and any future test kits, which may harm our business. Furthermore, even if they are unchallenged, our patents may not adequately protect our current and any future test kits, provide exclusivity for such test kits or prevent others from designing around our claims. If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical technology and test kits would be adversely affected. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our current and any future test kits is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our current and any future test kits.

Patents have a limited lifespan. In the United States, the natural expiration of a utility patent is generally 20 years after its effective filing date and the natural expiration of a design patent is generally 14 years after its issue date, unless the filing date occurred on or after May 13, 2015, in which case the natural expiration of a design patent is generally 15 years after its issue date. However, the actual protection afforded by a patent varies from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our current and any future test kits and services, we may be open to competition, which may harm our business prospects. Further, if we encounter delays in our development efforts, the period of time during which we could market our current and any future test kits and services under patent protection would be reduced and, given the amount of time required for the development, testing and regulatory review of planned or future test kits, patents protecting our current and any future test kits might expire before or shortly after such test kits are commercialized. For information regarding the expiration dates of patents in our patent portfolio, see the section titled “Business—Intellectual Property.” As our patents expire, the scope of our patent protection will be reduced, which may reduce or eliminate any competitive

 

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advantage afforded by our patent portfolio. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing test kits similar or identical to ours.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own, currently or in the future, issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we own now or in the future may be challenged, narrowed, circumvented or invalidated by third parties. Consequently, we do not know whether our current and any future test kits or other technologies will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or test kits in a non-infringing manner which could harm our business, financial condition and results of operations.

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

Additionally, we may find it necessary or prudent to acquire or obtain licenses from third-party intellectual property holders. However, we may be unable to acquire or secure such licenses to any intellectual property rights from third parties that we identify as necessary for our current and any future test kits. The acquisition or licensing of third-party intellectual property rights is a competitive area, and our competitors may pursue strategies to acquire or license third-party intellectual property rights that we may consider attractive or necessary. Our competitors may have a competitive advantage over us due to their size, capital resources and greater development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to acquire or license third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant test kits, which could harm our business, financial condition and results of operations.

We are dependent on patents and other intellectual property licensed from others and may become dependent on other patents or other intellectual property licensed from others in the future. If we lose our licenses for intellectual property that is important to our business, we may not be able to continue developing or selling our test kits.

We have obtained licenses that give us rights to third-party intellectual property that is necessary or useful to our business. The license agreements covering our test kits impose various obligations on us. One or more of our licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license. If we materially breach the obligations in our license agreements, the licensor typically has the right to terminate the license and we may not be able to market products that were covered by the license, which could adversely affect our competitive business position and harm our business prospects. In addition, any claims brought against us by our licensors could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations.

 

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Patents covering our current, and any future test kits, or our technologies could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad, which could harm our business, financial condition and results of operations.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad and may not provide us with adequate proprietary protection or competitive advantage against competitors with similar products. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or IPR, or interference proceedings or other similar proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, such patent rights, allow third parties to commercialize our platform or our current and any future test kits and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize test kits without infringing third-party patent rights. Moreover, we may have to participate in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge features of patentability with respect to our patents and patent applications. Such challenges may result in loss of patent rights, in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and test kits, or limit the duration of the patent protection of our current and any future test kits or technologies. Such proceedings also may result in substantial cost and require significant time from our management, even if the eventual outcome is favorable to us.

In addition, if we initiate legal proceedings against a third-party to enforce a patent covering our current and any future test kits, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Defenses of these types of claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. Third parties may also raise claims challenging the validity or enforceability of our patents before administrative bodies in the United States or abroad, even outside the context of litigation, including through re-examination, post-grant review, IPR, derivation proceedings and equivalent proceedings in foreign jurisdictions (such as opposition proceedings). Such proceedings could result in the revocation of, cancellation of or amendment to our patents in such a way that they no longer cover our current and any future test kits or technologies. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant or other third-party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our current and any future test kits and technology. Such a loss of patent protection would harm our business, financial condition and results of operations.

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

We rely substantially upon trademarks to build and maintain the integrity of our brand. Our registered and unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be violating or infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we rely upon to build name recognition among potential partners and customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market

 

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confusion and asserting claims against such third parties may be prohibitively expensive. In addition, there could be potential trade name or trademark infringement or dilution claims brought by owners of other trademarks against us. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names or other intellectual property may be ineffective, could result in substantial costs and diversion of resources and could harm our business, financial condition and results of operations.

The medical device industry is characterized by intellectual property litigation and in the future could become subject to, litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages or prevent us from marketing our existing or future test kits.

Litigation regarding patents, trademarks, trade secrets, and other intellectual property rights is prevalent in the medical device and diagnostic sectors and companies in these sectors have used intellectual property litigation to gain a competitive advantage. Our commercial success depends in part upon our ability and that of our contract manufacturers and suppliers to manufacture, market, and sell our planned test kits, and to use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. Because we have not conducted a formal freedom to operate analysis for patents related to our test kits, we may not be aware of issued patents that a third-party might assert are infringed by our current or any future test kits, which could materially impair our ability to commercialize our current or any future test kits. Even if we diligently search third-party patents for potential infringement by our current or any future test kits, we may not successfully find patents that our current or any future test kits may infringe. If we are unable to secure and maintain freedom to operate, others could preclude us from commercializing our current or future test kits. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our current and any future test kits and technology, whether or not we are actually infringing, misappropriating or otherwise violating the rights of third parties. Additional third parties may assert infringement claims against us based on existing or future intellectual property rights, regardless of merit. If we are found to infringe a third-party’s intellectual property rights, we could be required to obtain a license from such third-party to continue developing and marketing our current and any future test kits and technology. We may also elect to enter into such a license to settle pending or threatened litigation. However, we may not be able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and could require us to pay significant royalties and other fees. We could be forced, including by court order, to cease commercializing the infringing technology or test kits. In addition, we could be found liable for monetary damages, which may be significant. If we are found to have willfully infringed a third-party patent, we could be required to pay treble damages and attorneys’ fees. A finding of infringement could prevent us from commercializing our planned test kits in commercially important territories, or force us to cease some of our business operations, which could harm our business. Many of our employees were previously employed at, and many of our current advisors and consultants are employed by, universities or other biotechnology, medical device or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, advisors and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we, or these employees, have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. These and other claims that we have misappropriated the confidential information or trade secrets of third parties can have a similar negative impact on our business to the infringement claims discussed above.

Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial negative impact on the price of our

 

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common shares. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation or other intellectual property related proceedings could harm our business, financial condition and results of operations.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition and results of operations may be harmed.

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

Obtaining and maintaining our intellectual property, including patent, protection depends on compliance with various procedural measures, document submissions, fee payments and other requirements imposed by government agencies, and our intellectual property, including patent, protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on intellectual property registrations and applications will be due to be paid to the applicable government agencies, including with respect to patents and patent applications the USPTO and similar agencies outside of the United States, over the lifetime of our intellectual property registrations and applications, including our patents and patent applications. The various applicable government agencies, including with respect to patents and patent applications the USPTO and similar agencies outside of the United States, require compliance with several procedural, documentary, fee payment and other similar provisions during the application process. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in the abandonment or lapse of the intellectual property registration or application, resulting in a partial or complete loss of intellectual property rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of an intellectual property registration or application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, potential competitors might be able to enter the market with similar or identical test kits or technology, which could harm our business, financial condition and results of operations.

We have limited foreign intellectual property rights and may not be able to protect our intellectual property and proprietary rights throughout the world, which could harm our business, financial condition and results of operations.

We have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents or trademarks on our current and any future test kits in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions or utilizing our trademarks in all countries outside the United States, or from selling or importing test kits 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 patent protection to develop their own test kits and, further, may export otherwise infringing test kits to territories where we have patent protection but enforcement

 

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is not as strong as that in the United States. These test kits may compete with our current and any future test kits, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing test kits in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary 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, could put 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. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our current and any future test kits.

Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third-party was the first to invent the claimed invention. A third-party that files a patent application in the USPTO after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third-party. This will require us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to file any patent application related to our current and any future test kits.

The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, IPR and derivation proceedings.

Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third-party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third-party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third-party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. In addition, future actions by the U.S. Congress, the federal courts and the USPTO could cause the laws and regulations governing patents to change in unpredictable ways. Any of the foregoing could harm our business, financial condition and results of operations.

 

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In addition, recent U.S. Supreme Court rulings have made and will likely continue to make changes in how the patent laws of the United States are interpreted. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. We cannot predict how this and future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patents. Any similar adverse changes in the patent laws of other jurisdictions could also harm our business, financial condition, results of operations and prospects.

We may be subject to claims challenging the ownership or inventorship of our patents and other intellectual property and, if unsuccessful in any of these proceedings, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms, or at all, or to cease the development, manufacture and commercialization of one or more of our current and any future test kits.

We may be subject to claims that current or former employees, collaborators or other third parties have an interest in our patents, trade secrets or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our current and any future test kits. Litigation may be necessary to defend against these and other claims challenging inventorship of our patents, trade secrets or other intellectual property. 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, intellectual property that is important to our current and any future test kits. If we were to lose exclusive ownership of such intellectual property, other owners may be able to license their rights to other third parties, including our competitors. We also may be required to obtain and maintain licenses from third parties, including parties involved in any such disputes. Such licenses may not be available on commercially reasonable terms, or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture and commercialization of one or more of our current and any future test kits. The loss of exclusivity or the narrowing of our patent claims could limit our ability to stop others from using or commercializing similar or identical technology and test kits. 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. Any of the foregoing could harm our business, financial condition and results of operations.

Third-party claims of intellectual property infringement, misappropriation or other violation against us or our collaborators may prevent or delay the sale and marketing of our current and any future test kits.

The medical device industry is highly competitive and dynamic. Due to the focused research and development that is taking place by several companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain in the future. As such, we could become subject to significant intellectual property-related litigation and proceedings relating to our or third-party intellectual property and proprietary rights.

Our commercial success depends in part on our and any potential future collaborators’ ability to develop, manufacture, market and sell any test kits that we may develop and use our proprietary technologies without infringing, misappropriating or otherwise violating the patents and other intellectual property or proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us or any potential collaborators to alter our development or commercial strategies, obtain licenses or cease certain activities. The medical device industry is characterized by extensive litigation regarding patents and other intellectual property rights, as well as administrative proceedings for challenging patents, including interference, inter partes or post-grant review, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions.

 

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Third parties, including our competitors, may currently have patents or obtain patents in the future and claim that the manufacture, use or sale of our current and any future test kits infringes upon these patents. We have not conducted an extensive search of patents issued or assigned to other parties, including our competitors, and no assurance can be given that patents containing claims covering our current and any future test kits, parts of our current and any future test kits, technology or methods do not exist, have not been filed or could not be filed or issued. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future test kits infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. As the number of competitors in our market grows and the number of patents issued in this area increases, the possibility of patent infringement claims against us escalates.

In the event that any third-party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability or priority. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed by our current and any future test kits, which could harm our ability to commercialize any test kit we may develop and any other technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are found to infringe third-party intellectual property rights, including patents, and we are unsuccessful in demonstrating that such patents or other intellectual property rights are invalid or unenforceable, such third parties may be able to block our ability to commercialize the applicable test kits or technology unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay significant license fees and/or royalties, and the rights granted to us might be non-exclusive, which could result in our competitors gaining access to the same technology. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, we may be unable to commercialize our current and any future test kits, or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business.

Defense of infringement claims, regardless of their merit or outcome, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing the infringing test kits and/or have to pay substantial damages for use of the asserted intellectual property, including treble damages and attorneys’ fees were we found to willfully infringe such intellectual property. Claims that we have misappropriated the confidential information or trade secrets of third parties could harm our business, financial condition and results of operations. We also might have to redesign our infringing test kits or technologies, which may be impossible or require substantial time and monetary expenditure.

Engaging in litigation to defend against third-party infringement claims is very expensive, particularly for a company of our size, and time-consuming. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial negative impact on our common stock price. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we

 

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can because of greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings against us could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business, financial condition and results of operations.

We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents, or the patents of any future licensing partners, or we may be required to defend against claims of infringement. In addition, our patents or the patents of any such licensing partners also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time-consuming. In an infringement proceeding, a court may decide that our patent is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover such technology. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our management and other personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial negative impact on our common stock price. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could harm our ability to compete in the marketplace. Any of the foregoing could harm our business, financial condition and results of operations.

We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. Such claims could harm our business, financial condition and results of operations.

As is common in the medical device industry, our employees, consultants and advisors may be currently or previously employed or engaged at universities or other medical device or healthcare companies, including our competitors and potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may in the future become subject to claims that we or these people have, inadvertently or otherwise, used or disclosed intellectual property, including trade secrets or other proprietary information, of their current or former employer. Also, we may in the future be subject to claims that these people are violating non-compete agreements with their former employers. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could harm our business, financial condition and results of operations. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against

 

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third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could harm our business, financial condition and results of operations.

Intellectual property rights do not necessarily address all potential threats, and limitations in intellectual property rights could harm our business, financial condition and results of operations.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make test kits that are similar to our current and any future test kits or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our current and any future test kits that is in the public domain;

 

   

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

 

   

we, or our current and future licensors or collaborators, may fail to meet our obligations to the U.S. government regarding any future patents and patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

   

it is possible that our current or future pending patent applications will not lead to issued patents;

 

   

it is possible that there are prior public disclosures that could invalidate our patents, or parts of our patents;

 

   

it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our current and any future test kits or technology similar to ours;

 

   

it is possible that our patents or patent applications omit people that should be listed as inventors or include people that should not be listed as inventors, which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable;

 

   

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

 

   

the claims of our patents or patent applications, if and when issued, may not cover our current and any future test kits or technologies;

 

   

the laws of foreign countries may not protect our proprietary rights or the rights of future licensors or collaborators to the same extent as the laws of the United States;

 

   

the inventors of our patents or patent applications may become involved with competitors, develop test kits or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors;

 

   

our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive test kits for sale in our major commercial markets;

 

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we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing test kits that are outside the scope of our patents;

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

the patents of others may harm our business; or

 

   

we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third-party may subsequently file a patent covering such intellectual property.

Any of the foregoing could harm our business, financial condition and results of operations.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patent protection for our current and any future test kits, we also rely upon unpatented trade secrets, know-how and continuing technological innovation to develop and maintain a competitive position, especially where we do not believe patent protection is appropriate or obtainable. Trade secrets and know-how can be difficult to protect. We seek to protect such proprietary information, in part, through non-disclosure and confidentiality agreements with our employees, collaborators, contractors, advisors, consultants and other third parties and invention assignment agreements with our employees. We also have agreements with our consultants that require them to assign to us any inventions created as a result of their working with us. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses containing invention assignment, to grant us ownership of technologies that are developed through a relationship with employees or third parties.

We cannot guarantee that we have entered into such agreements with each party that has or may have had access to our trade secrets or proprietary information. Additionally, despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor or other third-party, our competitive position would be materially and adversely harmed. Furthermore, we expect these trade secrets, know-how and proprietary information to over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology and the movement of personnel from academic to industry scientific positions.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these people, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known, or be independently discovered by, competitors. To the extent that our employees, consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions, which could harm our business, financial condition and results of operations.

 

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If our third-party manufacturing partner, Jabil, does not respect our intellectual property and trade secrets and produce competitive test kits using our designs or intellectual property, our business, financial condition and results of operations would be harmed.

We conduct most of our manufacturing activities through Jabil at its Michigan facilities and expect to begin manufacturing activities in the Dominican Republic in the second quarter of 2021. Although the Jabil MSA generally precludes Jabil from misusing our intellectual property and trade secrets, or using our designs to manufacture test kits for our competitors, we may be unsuccessful in monitoring and enforcing our intellectual property rights and may find counterfeit goods in the market being sold as our current and any future test kits or test kits similar to ours produced for our competitors using our intellectual property. Although we take steps to stop counterfeits, we may not be successful and network operators who purchase these counterfeit goods may experience product defects or failures, harming our reputation and brand and causing us to lose future sales. Any of the foregoing could harm our business, financial condition and results of operations.

Risks Related to This Offering and Ownership of Our Common Stock

Our stock price may be volatile, and the value of our common stock may decline.

The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors including:

 

   

the receipt of additional or amended EUAs from the FDA for our COVID-19 test kit and the timing thereof;

 

   

our ability to obtain and maintain regulatory approvals for our test kits;

 

   

changes in laws or regulations applicable to our test kits;

 

   

adverse developments concerning Jabil or any of our third-party collaborators and suppliers, including our sole-source suppliers;

 

   

our inability to obtain adequate product supply for any approved test kit or inability to do so at acceptable prices;

 

   

the degree and rate of physician and market adoption of any of our test kits, and initially our COVID-19 test kit;

 

   

announcements by us or our competitors of significant business developments, diagnostic technologies, acquisitions, or new offerings;

 

   

negative publicity associated with issues related to our test kits;

 

   

changes in the anticipated future size and growth rate of the COVID-19 and influenza diagnostic testing markets as a result of widely administered use of an efficacious vaccine or other treatment;

 

   

our inability to establish collaborations, if needed;

 

   

future sales of our common stock or other securities, by us or our stockholders, as well as the anticipation of lock-up releases;

 

   

changes in senior management or key personnel;

 

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the trading volume of our common stock;

 

   

performance or news releases by other companies in our industry including about adverse developments related to safety, effectiveness, accuracy and usability of their products, reputational concerns, reimbursement coverage, regulatory compliance, and product recalls;

 

   

general economic, regulatory and market conditions, including economic recessions or slowdowns;

 

   

actual or anticipated fluctuations in our financial condition and results of operations, including as a result of anticipated or unanticipated demand based on seasonal factors;

 

   

variance in our financial performance from expectations of securities analysts or investors;

 

   

changes in our projected operating and financial results;

 

   

developments or disputes concerning our intellectual property or other proprietary rights;

 

   

significant lawsuits, including patent or stockholder litigation;

 

   

general political and economic conditions, including the COVID-19 pandemic; and

 

   

other events or factors, many of which are beyond our control.

Broad market and industry fluctuations, as well as general economic, pandemic, political, regulatory, and market conditions, may negatively impact the market price of our common stock. In addition, given the relatively small expected public float of shares of our common stock on the Nasdaq Global Market, or Nasdaq, the trading market for our shares may be subject to increased volatility. In the past, securities class action litigation has often been brought against companies that have experienced volatility or following a decline in the market price of its securities. This risk is especially relevant for us, because medical device companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

There has been no prior market for our common stock. An active market may not develop or be sustainable and investors may not be able to resell their shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price, if at all. An active or liquid market in our common stock may not develop after this offering or, if it does develop, it may not be sustainable. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.

You will experience immediate and substantial dilution in the net tangible book value of the shares of common stock you purchase in this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock immediately after this offering. If you purchase shares of our common stock in this offering, you will suffer immediate dilution of $         per share, or $         per share if the underwriters exercise their option to purchase additional shares in full, representing the difference between our

 

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pro forma as adjusted net tangible book value per share after giving effect to the sale of common stock in this offering and the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus. To the extent outstanding options are exercised, there will be further dilution to new investors. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For a further description of the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

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

We will have broad discretion over the use of the net proceeds from this offering. Investors may not agree with our decisions, and our use of the net proceeds may not yield any return on your investment. We currently intend to use the net proceeds from this offering to fund manufacturing activities, to establish our commercial activities, including the hiring and training of sales and marketing personnel and to fund marketing initiatives, and the remainder for working capital and general corporate purposes, including test kit development and research and development activities. Our failure to apply the net proceeds from this offering effectively could impair our ability to pursue our growth strategy or could require us to raise additional capital. In addition, pending their use, the net proceeds of this offering may be placed in investments that do not produce income or that may lose value. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

Future sales and issuances of our common stock in the public market could cause the market price of our common stock to decline.

Sales and issuances of a substantial number of shares of our common stock in the public market following the closing of this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales and issuances may have on the prevailing market price of our common stock.

Based on shares of common stock outstanding as of September 30, 2020, upon the closing of this offering, we will have outstanding a total of                shares of common stock. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering.

In addition, all of our executive officers and directors and the holders of substantially all of our equity securities are subject to lock-up agreements that restrict their ability to transfer shares of our common stock, stock options and other securities convertible into, exchangeable for, or exercisable for our common stock during the period ending on, and including, the 180th day after the date of this prospectus, subject to specified exceptions. BofA Securities, Inc. and William Blair & Company, L.L.C. may, in their discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements. Upon the expiration of the lock-up period,                  of such shares will be eligible for sale as described in the section of this prospectus titled “Shares Eligible for Future Sale.”

As of September 30, 2020, there were 19,974,201 shares of common stock subject to outstanding stock options. We intend to register all of the shares of common stock issuable upon exercise of outstanding stock options, and upon exercise or settlement of any options or other equity incentives we may grant in the future, for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements

 

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described above. These shares of common will become eligible for sale in the public market to the extent such stock options are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.

After this offering, the holders of                shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See the section titled “Description of Capital Stock—Registration Rights.” Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Concentration of ownership of our common stock among our executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Based on the number of shares of common stock outstanding as of September 30, 2020 and including the shares to be sold in this offering, (1)                 shares of common stock issuable on conversion of the 2020B Notes and accrued interest thereon based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and (2) 103,355,827 shares of common stock issuable upon the automatic conversion of our preferred stock outstanding as of September 30, 2020 into an equal number of shares of our common stock upon the closing of this offering, upon the closing of this offering, our executive officers, directors and current beneficial owners of 5% or more of our common stock will, in the aggregate, beneficially own approximately     % of our common stock (assuming no exercise of the underwriters’ option to purchase an additional     shares of common stock). These stockholders, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other stockholders.

Some of these persons or entities may have interests different than those of investors purchasing shares in this offering. For example, because many of these stockholders purchased their shares at prices substantially below the price at which shares are being sold in this offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.

We do not intend to pay dividends for the foreseeable future and, as a result, 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 any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and may be restricted by the terms of any then-current debt instruments. Accordingly, 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.

We are an emerging growth company and a smaller reporting company and our compliance with the reduced reporting and disclosure requirements applicable to emerging growth companies and smaller reporting companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we expect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements of Section 404 reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved and extended adoption period for accounting pronouncements.

 

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

Investors may find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws, which will be in effect upon the closing of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

 

   

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

 

   

a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

 

   

a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the president, or by a majority of the total number of authorized directors;

 

   

advance notice requirements for stockholder proposals and nominations for election to our board of directors;

 

   

a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of our voting stock then entitled to vote in the election of directors;

 

   

a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and

 

   

the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business antitakeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender

 

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offer, or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation and amended and restated bylaws will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on our behalf, (2) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, or other employees to us or our stockholders, (3) any action or proceeding asserting a claim against us or any of our current or former directors, officers, or other employees, arising out of or pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, (4) any action or proceeding to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws, (5) any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware, and (6) any action asserting a claim against us or any of our directors, officers, or other employees governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.

These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation and our amended and restated bylaws will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation and our amended and restated bylaws. This may require significant additional costs associated with resolving such action in other jurisdictions and the provisions may not be enforced by a court in those other jurisdictions.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find either exclusive forum provision contained in our amended and restated certificate of incorporation or amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could seriously harm our business.

 

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General Risk Factors

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We expect such expenses to further increase after we are no longer an emerging growth company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on public companies. Furthermore, the senior members of our management team do not have significant experience with operating a public company. As a result, our management and other personnel will have to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs. Accordingly, we expect to continue to incur operating losses for the foreseeable future and we may not achieve profitability in the future and that, if we do become profitable, we may not sustain profitability. Our failure to achieve and sustain profitability in the future will make it more difficult to finance our business and accomplish our strategic objectives, which would have a material adverse effect on our business, financial condition and results of operations and cause the market price of our common stock to decline. In addition, failure of our test kits to significantly penetrate the target markets would negatively affect our business, financial condition and results of operations.

As a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We will be required, pursuant to Section 404 of the Sarbanes–Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the fiscal year ending December 31, 2022, which is the year covered by the second annual report following the completion of our initial public offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an emerging growth company if we are not a non-accelerated filer at such time.

If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness or significant deficiency in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not

 

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readily apparent from other sources. For example, in connection with the revenue accounting standard, Accounting Standards Codification, or ASC, Topic 606, management makes judgments and assumptions based on our interpretation of the new standard. The revenue standard is principle-based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice and guidance may evolve as we apply the standard. If our assumptions underlying our estimates and judgments relating to our critical accounting policies change or if actual circumstances differ from our assumptions, estimates or judgments, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

Changes in tax law and regulations may have a material adverse effect on our business, financial condition and results of operations.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by the Internal Revenue Service, the U.S. Treasury Department and other governmental bodies. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, financial condition, results of operations, and cash flow. We urge investors to consult with their legal and tax advisers regarding the implication of potential changes in tax laws on an investment in our common stock.

Our failure to meet Nasdaq’s continued listing requirements could result in a delisting of our common stock.

If, after listing, we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with the listing requirements of Nasdaq.

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations, which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, and anti-corruption and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act, or FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct or may in the future conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other third-party collaborators from authorizing, promising, offering, providing, soliciting or receiving, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties outside of the United States to sell our test kits internationally once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors and other third-party collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties,

 

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imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

We are subject to numerous laws and regulations related to anti-bribery and anti-corruption laws, such as the FCPA, in which violations of these laws could result in substantial penalties and prosecution.

For any operations outside the United States, we are similarly subject to various heavily-enforced anti-bribery and anti-corruption laws, such as the FCPA and similar laws around the world. These laws generally prohibit U.S. companies and their employees and intermediaries from offering, promising, authorizing or making improper payments to foreign government officials for the purpose of obtaining or retaining business or gaining any advantage. We face significant risks if we, which includes our third-party business partners and intermediaries, fail to comply with the FCPA or other anti-corruption and anti-bribery laws. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. To that end, our internal control policies and procedures and employee training and compliance programs designed to deter prohibited practices ultimately may not be effective in preventing our employees, contractors, business partners, intermediaries or agents from violating or circumventing our policies and/or the law.

Responding to any enforcement action or related investigation may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Any violation of the FCPA or other applicable anti-bribery, anti-corruption or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could harm our business, financial condition and results of operations.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against companies following a decline in the market price of its securities. This risk is especially relevant for us because medical device companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our common stock price and trading volume could decline.

Our stock price and trading volume will be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If securities or industry analysts do not publish research or reports about our business, delay publishing reports about our business or publish negative reports about our business, regardless of accuracy, our common stock price and trading volume could decline.

The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We expect that only a limited number of analysts will cover our company following our initial public offering. If the number of analysts that cover us declines, demand for our common stock could decrease and our common stock price and trading volume may decline. Even if our common stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results. Over-reliance by analysts or investors on any particular metric to forecast our future results may result in forecasts that differ significantly from our own.

Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above or otherwise, or one or more of the analysts who cover us downgrade our common stock or change their opinion of our common stock, our stock price would likely decline.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations, financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would,” or the negative of these words or other similar terms or expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, factors and assumptions described in the section titled “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

 

   

the extent and duration of the COVID-19 pandemic and our expectations regarding customer and user demand for our COVID-19 test kit;

 

   

our expected future growth;

 

   

our ability to obtain and maintain regulatory approval for our test kits, including our existing EUA for our COVID-19 test kit;

 

   

the size and growth potential of the markets for our test kits, including the COVID-19 diagnostic testing market, and our ability to serve those markets;

 

   

our ability to accurately forecast demand for our test kits;

 

   

the rate and degree of physician and market acceptance of our test kits;

 

   

the expected future growth of our sales and marketing organization;

 

   

coverage and reimbursement for our test kits;

 

   

the performance of, and our reliance on, third parties in connection with the commercialization of our test kits, including Jabil and our single-source suppliers;

 

   

our ability to accurately forecast, and Jabil’s ability to manufacture, appropriate quantities of our COVID-19 test kit to meet commercial demand;

 

   

regulatory developments in the United States and foreign countries;

 

   

our research and development for our influenza test kit and any future test kits;

 

   

the development, regulatory approval, and commercialization of competing products;

 

   

our ability to retain and hire senior management and key personnel;

 

   

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

 

   

our ability to develop and maintain our corporate infrastructure, including our internal controls;

 

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our financial performance and capital requirements;

 

   

our expectations regarding our ability to obtain and maintain intellectual property protection for our test kits, as well as our ability to operate our business without infringing the intellectual property rights of others; and

 

   

our use of the net proceeds from this offering.

These risks are not exhaustive. Other sections of this prospectus may include additional factors that could harm our business and financial performance. We operate in a very competitive and rapidly changing environment where new risk factors may emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. These forward-looking statements speak only as of the date of this prospectus. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

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

 

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MARKET, INDUSTRY AND OTHER DATA

This prospectus contains estimates and information concerning our industry and our business, including estimated market size, and projected growth rates of the markets in which we participate. Unless otherwise expressly stated, we obtained this industry, business, market, medical and other information from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. The content of these third-party sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.

This information involves a number of assumptions and limitations. Although we are responsible for all of the disclosure contained in this prospectus and we believe the market position, market opportunity and market size in this prospectus is reliable, we have not independently verified the accuracy or completeness of this third-party data. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports. Certain monetary amounts, percentages, and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

 

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USE OF PROCEEDS

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

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of 1,000,000 shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by $             million, assuming the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering, together with our existing cash as follows:

 

   

approximately $             million to $             million to fund manufacturing activities;

 

   

approximately $            million to $             million to establish our commercial activities, including the hiring and training of sales and marketing personnel and to fund marketing initiatives; and

 

   

the remaining proceeds for working capital and general corporate purposes, including test kit development and research and development activities.

We may use a portion of the net proceeds for acquisitions or strategic investments in complementary businesses, services, products or technologies. However, we do not have agreements or commitments to enter into any such acquisitions or investments at this time.

We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have broad discretion in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their application, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade investments, certificates of deposit or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our capital stock for the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements.

 

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CAPITALIZATION

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

 

   

an actual basis;

 

   

a pro forma basis to give effect to (1) the conversion of 103,355,827 shares of our preferred stock outstanding as of September 30, 2020 into an equal number of shares of our common stock upon the closing of this offering and the related reclassification of the carrying value of our preferred stock to permanent equity upon the closing of this offering, (2) the receipt of $20.0 million in gross proceeds from the sale and issuance of the 2020B Notes in December 2020 and the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes into                 shares of our common stock and the related estimated charge to non-cash interest expense of $         million related to such conversion of the aggregate principal amount and accrued interest of the 2020B Notes, assuming an initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, in each case, upon the closing of this offering, and (3) the filing and effectiveness of our amended and restated certificate of incorporation that will be in effect upon the closing of this offering; and

 

   

a pro forma as adjusted basis to give further effect to the issuance and sale of                 shares of common stock in this offering at the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information in conjunction with our financial statements and the related notes included elsewhere in this prospectus, the information set forth in the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained elsewhere in this prospectus.

 

          As of September 30, 2020  
          Actual     Pro
Forma
    

Pro Forma
As  Adjusted(1)

 
          (unaudited)  
          (in thousands, except share and per
share data)
 

Cash

      $ 68,293     $                    $                
     

 

 

   

 

 

    

 

 

 

Redeemable convertible preferred stock, $0.001 par value; 103,355,827 shares authorized, 103,355,827 shares issued and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted

      $ 121,081     $        $    

Stockholders’ equity (deficit):

          

Preferred stock, $0.001 par value; no shares authorized, issued, or outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

        —         

Common stock, $0.001 par value; 150,000,000 shares authorized, 10,832,176 shares issued and outstanding, actual; 200,000,000 shares authorized,                 shares issued and outstanding, pro forma; 200,000,000 shares authorized,                 shares issued and outstanding, pro forma as adjusted

        11       

Additional paid-in capital

        1,123       

Accumulated deficit

        (46,527     
     

 

 

   

 

 

    

 

 

 

Total stockholders’ equity (deficit)

        (45,393     
     

 

 

   

 

 

    

 

 

 

Total capitalization

      $ 75,688     $        $    
     

 

 

   

 

 

    

 

 

 

 

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(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $            million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase (decrease) the number of shares we are offering. Similarly, an increase (decrease) of 1,000,000 shares of common stock offered by us would increase (decrease) each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $            million, assuming the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and will depend on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.

The number of shares of our common stock to be outstanding after this offering pro forma and pro forma as adjusted reflected in the table above is based on                 shares of common stock (including shares of our preferred stock on an as-converted basis and shares of common stock to be issued upon the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes) outstanding as of September 30, 2020, and excludes:

 

   

19,974,201 shares of our common stock issuable upon the exercise of outstanding stock options as of September 30, 2020, with a weighted-average exercise price of $0.35 per share;

 

   

827,000 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to September 30, 2020, with a weighted-average exercise price of $0.51 per share;

 

   

1,548,682 shares of our common stock reserved for future issuance under our 2014 Equity Incentive Plan as of September 30, 2020, which shares will cease to be available for issuance at the time our 2021 Equity Incentive Plan becomes effective in connection with this offering;

 

   

             shares of our common stock reserved for future issuance under our 2021 Equity Incentive Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan;

 

   

             shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan; and

 

   

             shares of our common stock issuable upon the exercise of stock options to be granted to certain of our employees and executive officers under our 2021 Equity Incentive Plan, contingent and effective upon the effectiveness of the registration statement of which this prospectus forms a part, with an exercise price that is equal to the price per share at which our common stock is first sold to the public in this offering.

 

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DILUTION

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

As of September 30, 2020, we had a historical net tangible book value (deficit) of $(45.4) million, or $(4.19) per share of common stock based on 10,832,176 shares of common stock outstanding as of such date. Our historical net tangible book value (deficit) per share represents our total tangible assets less total liabilities and preferred stock, which is not included within permanent equity, divided by the number of shares of common stock outstanding as of September 30, 2020.

As of September 30, 2020, our pro forma net tangible book value was $         million, or $         per share of common stock. Pro forma net tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of September 30, 2020, after giving effect to (1) the conversion of 103,355,827 shares of our preferred stock outstanding as of September 30, 2020 into an equal number of shares of our common stock upon the closing of this offering and the related reclassification of the carrying value of our preferred stock to permanent equity upon the closing of this offering, (2) the receipt of $20.0 million in gross proceeds from the sale and issuance of the 2020B Notes in December 2020 and the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes into             shares of our common stock, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, upon the closing of this offering and (3) the filing and effectiveness of our amended and restated certificate of incorporation that will be in effect upon the closing of this offering.

After giving further effect to the receipt of the net proceeds from our sale of          shares of common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2020, would have been $            million, or $        per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $        per share to our existing stockholders and immediate dilution of $         per share to investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to investors in this offering:

 

Assumed initial public offering price per share

     $                

Historical net tangible book value (deficit) per share as of September 30, 2020

   $ (4.19  

Pro forma increase in historical net tangible book value per share as of September 30, 2020

    
  

 

 

   

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

   $      

Increase in pro forma net tangible book value per share attributed to investors purchasing shares in this offering

    
  

 

 

   

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

    
    

 

 

 

Dilution per share to investors in this offering

     $    
    

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by $        per share and dilution to investors in this offering by $        per share, in each case assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number

 

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of shares we are offering. Similarly, each increase or decrease of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value by $         per share and decrease (increase) the dilution to investors purchasing shares in this offering by $         per share, in each case assuming the assumed initial public offering price of $         per share remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value after the offering would be $        per share, the increase in pro forma net tangible book value per share to existing stockholders would be $        per share and the dilution per share to investors in this offering would be $        per share, in each case assuming an initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus.

The dilution information above is for illustration purposes only. Our pro forma as adjusted net tangible book value following the closing of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing.

The following table summarizes on the pro forma as adjusted basis described above, the differences between the number of shares purchased from us on an as-converted basis, the total consideration paid and the weighted-average price per share paid to us by existing stockholders and by investors purchasing shares in this offering at the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page on this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Weighted-
Average
Price

Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                                        $                                     $                

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $          100   $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase an additional                 shares in full, our existing stockholders would own        % and investors in this offering would own        % of the total number of shares of common stock outstanding upon the closing of this offering.

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease), respectively, the total consideration paid by investors in this offering by $                million and increase (decrease), respectively, the total consideration paid by investors in this offering by        %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The foregoing discussion and table above (other than the historical net tangible book value calculation) are based on                 shares of common stock (including shares of our preferred stock on an as-converted basis and shares of common stock to be issued upon the automatic conversion of the aggregate principal amount and accrued interest on the 2020B Notes) outstanding as of September 30, 2020, and excludes:

 

   

19,974,201 shares of our common stock issuable upon the exercise of outstanding stock options as of September 30, 2020, with a weighted-average exercise price of $0.35 per share;

 

   

827,000 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to September 30, 2020, with a weighted-average exercise price of $0.51 per share;

 

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1,548,682 shares of our common stock reserved for future issuance under our 2014 Equity Incentive Plan as of September 30, 2020, which shares will cease to be available for issuance at the time our 2021 Equity Incentive Plan becomes effective in connection with this offering;

 

   

             shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan;

 

   

             shares of common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan; and

 

   

             shares of our common stock issuable upon the exercise of stock options to be granted to certain of our employees and executive officers under our 2021 Equity Incentive Plan, contingent and effective upon the effectiveness of the registration statement of which this prospectus forms a part, with an exercise price that is equal to the price per share at which our common stock is first sold to the public in this offering.

To the extent that any outstanding options are exercised, new options or other equity awards are issued under our equity incentive plans, or we issue additional equity or convertible debt securities in the future, there will be further dilution to new investors participating in this offering.

 

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SELECTED FINANCIAL DATA

The following tables set forth our selected financial data for the periods and as of the dates indicated. The selected statements of operations data for the years ended December 31, 2018 and 2019 and the selected balance sheets data as of December 31, 2018 and 2019 have been derived from our audited financial statements included elsewhere in this prospectus. The following selected statements of operations data for the nine months ended September 30, 2019 and 2020 and the selected balance sheets data as of September 30, 2019 and 2020 have been derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. The unaudited interim condensed financial statements were prepared on a basis consistent with our audited financial statements and include, in management’s opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected for any other period in the future and our interim results are not necessarily indicative of our expected results for the year ending December 31, 2020. You should read the selected financial data set forth below in conjunction with our financial statements and the related notes included elsewhere in this prospectus and the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus. The selected financial data included in this section are not intended to replace the financial statements and the related notes included elsewhere in this prospectus.

 

     Year Ended December 31,     Nine Months Ended September 30,  
     2018     2019     2019      2020  
  

 

 

   

 

 

   

 

 

    

 

 

 
                 (unaudited)  
     (in thousands, except share and per share amounts)  

Statements of Operations Data:

         

Operating expenses:

         

Research and development

   $ 8,021     $ 11,436     $         8,701      $         16,108  

Selling, general and administrative

     1,794       2,422       1,575        3,221  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     9,815       13,858       10,276        19,329  
  

 

 

   

 

 

   

 

 

    

 

 

 

Loss from operations

     (9,815     (13,858     (10,276      (19,329
  

 

 

   

 

 

   

 

 

    

 

 

 

Other income (expense), net:

         

Grant income

     3,652       6,155       4,611        2,007  

Interest expense

     (190     (90     (90      (44

Loss on extinguishment of debt

     —         (434     (434      —    

Remeasurement of derivative liabilities and convertible notes

     (183     (240     (240      (2,795
  

 

 

   

 

 

   

 

 

    

 

 

 

Total other income (expense), net

     3,279       5,391       3,847        (832
  

 

 

   

 

 

   

 

 

    

 

 

 

Net loss

   $ (6,536   $ (8,467   $ (6,429    $ (20,161
  

 

 

   

 

 

   

 

 

    

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

   $ (0.74   $ (0.94   $ (0.72    $ (1.99
  

 

 

   

 

 

   

 

 

    

 

 

 

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

     8,834,841       9,042,682       8,889,525        10,117,831  
  

 

 

   

 

 

   

 

 

    

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1)

     $ (0.25      $ (0.30
    

 

 

      

 

 

 

Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(1)

       34,107,197          66,412,175  
    

 

 

      

 

 

 

 

(1)

See Note 2 to our audited financial statements and Note 2 to our unaudited interim condensed financial statements, each included elsewhere in this prospectus, for further information on the calculation of net loss per share and the pro forma net loss per share and pro forma weighted-average number of shares outstanding.

 

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     As of December 31,    

As of
September 30,

 
     2018     2019     2020  
                 (unaudited)  
     (in thousands)  

Balance Sheets Data:

      

Cash

   $ 97     $ 4,100     $ 68,293  

Working capital/(deficit)(1)

     (2,806     4,532       68,942  

Total assets

     4,272       7,607       82,439  

Total liabilities

     6,820       2,312       6,751  

Redeemable convertible preferred stock

     15,020       30,960       121,081  

Accumulated deficit

     (17,899     (26,366     (46,527

Total stockholders’ deficit

     (17,568     (25,665     (45,393

 

(1)

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

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Financial Data” and our financial statements and the related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.”

We are a medical technology company focused on the development and commercialization of transformative and innovative infectious disease test kits. We have developed a testing platform that produces centralized-laboratory-accurate molecular testing in a single-use and consumer-friendly test kit that is powered by two AA batteries and fits in the palm of a hand. We designed our test kits to provide accurate, reliable and on-the-spot molecular test results anywhere and at any time. We believe the COVID-19 pandemic has shown the infectious disease testing infrastructure in the United States was not designed to accommodate the immediate demands of infectious disease control on a mass-population scale. The testing options today are too expensive, inaccurate, or are inaccessible due to slow time to results or complexity. Mass-population infectious disease testing requires a testing platform that can provide accurate and clinically relevant results on-the-spot, be affordably mass produced, portable and easy-to-use anywhere. Our COVID-19 test kit is designed to provide a clinically relevant COVID-19 result within 30 minutes from sample collection. We believe, at scale, it will be an affordable, mass-population testing solution. Our initial focus is within respiratory diseases starting with COVID-19 and influenza A and B virus indications.

We conducted a clinical trial that demonstrated that the molecular accuracy of our COVID-19 test kit is comparable to the Hologic Panther Fusion, which is considered to be one of the current market-leading molecular assays in an FDA published study because of its low LoD. This clinical trial is called our Community Testing Study. In our Community Testing Study, we collected samples from 101 subjects, tested the samples head-to-head against the Hologic Panther Fusion and achieved 94.1% positive percent agreement (96.0% with discrepant testing) and 98.0% negative percent agreement. Our strong clinical performance was enabled by our LoD of 900 cps / mL VTM equivalent, which allows our COVID-19 test kit to detect viral genetic material in orders of magnitude better than antigen tests. In addition, our COVID-19 test kit is easy-to-use. For example, 100% of patients successfully performed self-testing at home using our COVID-19 test kit in less than two minutes in a human usability study we conducted with 398 users at research facilities in Sunnyvale and Fresno, California. The measure for successful performance was the ability to collect a nasal specimen and start the test running on the first try, either without having to look back at the directions or with only one look back. On November 17, 2020, we received an EUA from the FDA for (1) prescription at-home use with self-collected nasal swab specimens in individuals aged 14 and older who are suspected of COVID-19 by their healthcare provider and (2) use at the POC with self-collected nasal swab specimens in individuals aged 14 and older, and in individuals aged 13 and under when the specimen is collected by a healthcare provider at the POC. People who are suspected of COVID-19 are those who are either symptomatic or are thought to have been exposed to COVID-19. We are working towards expanding this indication and intend to submit an amended or new EUA application, as determined by the FDA, to include asymptomatic people in 2021. Additionally, we plan to develop a combination COVID-19 and influenza A and B viruses test kit for prescription at-home use and later a separate COVID-19 test kit and an influenza test kit for OTC use.

Since inception and prior to the COVID-19 pandemic, we focused our research and development efforts on developing our molecular nucleic acid amplification technology for use in our influenza test kit, for which we have received government grants from the Biomedical Advanced Research and Development Authority, or BARDA, to assist with development. As a result of the COVID-19 pandemic and based on clinical trials of our

 

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influenza test kit to date, we refocused our near-term business strategy to respond to the COVID-19 pandemic and focus on the development of our COVID-19 test kit.

To date, we have not derived any revenue from our test kits, and we have financed our operations principally from the sales and issuances of convertible notes, preferred stock, grant income, and to a lesser extent, option exercises. We have historically incurred substantial net losses, including net losses of $6.5 million and $8.5 million for the years ended December 31, 2018 and 2019, respectively, and $20.2 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $46.5 million.

Since the second quarter of 2020, we have primarily devoted our resources to the research, development, manufacturing and commercialization of our COVID-19 test kit. Research and development activities related to our test kits, including the COVID-19 test kit, include clinical, regulatory and manufacturing process initiatives to obtain marketing approval. Following this offering, we expect that our sales and marketing, research and development, regulatory and other expenses will continue to increase as we expand our marketing efforts to promote adoption of our COVID-19 test kit, build relationships with our customers, obtain regulatory clearances or approvals for current and any future test kits, and conduct clinical trials. In addition, we expect our general and administrative expenses to increase following this offering due to the additional costs associated with scaling our business operations as well as being a public company, including due to legal, accounting, insurance, Nasdaq and SEC compliance, investor relations and other expenses. As a result, we will require substantial additional funding for expenses related to our operating activities, including selling, general and administrative expenses, as well as research and development.

Based on our current planned operations, we expect that our existing cash and anticipated net proceeds from this offering will enable us to fund our operating expenses for at least 12 months from the date hereof. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See the section titled “—Liquidity and Capital Resources.”

In 2020, we entered into license and manufacturing and services agreements. For a more detailed description of our license and manufacturing and services agreements, see the sections titled “Business— License Agreement with Eiken Chemical Co., Ltd.” and “Business—Manufacturing and Supply,” and Note 11 to our unaudited interim condensed financial statements included elsewhere in this prospectus.

Factors Affecting Our Business

We believe the following significant factors affect our business:

 

   

Approval and Market Adoption of Our Test Kits. Our commercial success, including acceptance and use of our COVID-19 test kit, will depend upon a number of factors, some of which are beyond our control, including the receipt of regulatory approvals for additional indications of our COVID-19 test kit and timing thereof, size of the market opportunity, demand from the public and members of the medical community for our COVID-19 test kit and rate of adoption of our COVID-19 test kit. The commercial success of our COVID-19 test kit will initially be dependent upon physicians and healthcare providers accepting and adopting our test kit. Our ability to successfully execute on this strategy, and thereby increase our revenue, will in part drive our results of operations and impact on our business.

 

   

Cost of Revenue. The results of our business will depend in part on our ability to establish and increase our gross margins by effectively managing our costs to produce our test kits, including, initially, our COVID-19 test kit. We do not currently have costs of revenue and will not incur these costs until we start generating revenue from the commercialization of our COVID-19 test kit. To better meet the market demand for COVID-19 diagnostic testing, a key part of our growth strategy includes expanding our

 

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current manufacturing capacity and automating much of the manufacturing process. Our test kits have been designed for automated production. Eventually, we could expand manufacturing to additional locations around the world to further our manufacturing capacity and reach.

 

   

Status of COVID-19 Pandemic. Given the unpredictable nature of the COVID-19 pandemic, the potential size of the COVID-19 diagnostic testing market and the timing of its development are highly uncertain. In December 2020, the FDA issued EUAs for two COVID-19 vaccines. The widely administered use of an efficacious vaccine or new therapeutic treatment for COVID-19 may reduce the demand for COVID-19 diagnostic tests and, as a result, the COVID-19 diagnostic testing market may not develop or substantially grow. However, we believe COVID-19, like influenza, will remain endemic for the foreseeable future and there will be a continued need for COVID-19 testing even after an effective vaccine has been widely distributed and compliantly administered. We believe this is largely due to the COVID-19 pandemic resulting in hyper-sensitivity to symptoms and broader awareness of the disease. Our future success is substantially dependent on the manner in which the market for COVID-19 diagnostics develops and grows.

 

   

Seasonality. Our ability to accurately forecast demand for our test kits could be negatively affected by many factors, including seasonal demand. We anticipate that we will experience fluctuations in customer and user demand based on seasonality, which for COVID-19, remains unknown. However, for example, because influenza typically occurs in the fall and winter seasons, we expect our forecasts of inventory for these seasons to reflect a significant increase in inventory relative to our forecasts for the spring and summer seasons. Inventory levels in excess of customer and user demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected.

Components of Our Results of Operations

Revenue

To date, we have not derived any revenue from our test kits. On November 17, 2020 we received an EUA from the FDA for (1) prescription at-home use with self-collected nasal swab specimens in individuals aged 14 and older who are suspected of COVID-19 by their healthcare provider and (2) use at the POC, with self-collected nasal swab specimens in individuals aged 14 and older, and in individuals aged 13 and under when the specimen is collected by a healthcare provider at the POC. Additionally, we plan to develop a combination COVID-19 and influenza A and B viruses test kit for prescription at-home use and later separate COVID-19 test kit and influenza test kit for OTC use. Our ability to generate revenue will depend on our ability to obtain FDA approvals for additional indications of, and successfully commercialize our current and any future test kits.

Upon the anticipated launch of our COVID-19 test kit, we intend to commercialize our COVID-19 test kit within POC and prescription at-home settings through partnerships with customers, such as hospital networks, payors, corporate senior living facilities and large employers.

We will recognize revenue from the sales of our test kits in accordance with the provisions of ASC, Topic 606, Revenue from Contracts with Customers. We anticipate that we will experience fluctuations in customer and user demand based on seasonality, which for COVID-19 remains unknown. However, for example, because influenza typically occurs in the fall and winter seasons, we expect our forecasts of inventory for these seasons to reflect a significant increase in inventory relative to our forecasts for the spring and summer seasons. As a result, our revenue may fluctuate from quarter to quarter due to seasonality. Our revenue may also fluctuate from quarter-to-quarter due to a variety of factors, including the availability of reimbursement, the size and success of our sales force and the number of hospitals and physicians who are aware of and use our tests.

 

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Costs of Revenue

Until we commence sales of our COVID-19 test kits, we will not record costs of revenue. Costs of revenue will include cost of raw materials and supplies for our finished test kits, direct labor, contract manufacturing fees, in-bound and internal shipping and handling costs incurred in manufacturing our test kits, royalties, allocated overhead, and depreciation expense.

We expect that our costs of revenue will increase on an absolute basis as the number of COVID-19 test kits we sell increases. We expect that the cost per test kit will decrease over time due to anticipated volume discounts on outsourced manufacturing costs, materials and shipping costs, expiration of royalties and through other volume efficiencies we may gain as the number of test kits manufactured increases. We expect our costs of revenue to fluctuate from quarter to quarter.

Gross Profit and Gross Margin

Until we commence sales of our test kits, we will not record gross profit and gross margin. Gross margin will reflect our gross profit divided by revenue. We expect our gross profit to be affected by a variety of factors, including sales volume of our COVID-19 test kit, pricing pressures, the success of our cost-reduction strategies, the cost of test kit materials, manufacturing costs, and headcount. We expect our margin to increase over the long term to the extent we are successful in our ability to lower the costs associated with the production of our test kits, including by expanding our current production capacity and automating much of the production process, as our test kits have been designed for automated production. If these efforts are successful, we believe we will lower production costs and will be able to increase our gross margin. While our gross margin may increase over the long term, we also anticipate it will likely fluctuate from quarter to quarter.

Operating Expenses

Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.

Research and Development Expenses

We primarily perform our own research and development while obtaining supplemental resources from third parties to conduct our pre-clinical studies, clinical trials and manufacturing of test batches of test kits. The costs of these activities consist primarily of personnel related expenses, third-party consultants, costs associated with regulatory compliance and laboratory supplies and materials, along with other direct and allocated expenses such as facility costs, depreciation, and other shared expenses. We expense research and development costs in the periods in which they are incurred. At any one time, we may be working on the development of multiple test kits. We primarily track external costs by test kit. Our internal resources, employees and allocated expenses are not directly tied to any one test kit and are typically deployed across multiple test kits. As such, we do not track internal costs on a specific test kit basis. We expect that our research and development expenses will continue to increase in absolute dollars, but will vary as a percentage of revenue, as we continue to invest in development activities related to our current and future test kits and as our revenue increases as a result of sales of our COVID-19 test kits.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of personnel costs including stock-based compensation expense, accounting and legal expenses, consulting costs, insurance and allocated overhead including rent, depreciation and utilities.

We expect that our selling, general and administrative expenses will increase because of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq,

 

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additional insurance, investor relations activities and other administrative and professional services such as accounting, legal, regulatory and tax. In addition, we expect that our selling expenses will increase as we establish our sales and sales support functions in anticipation of commercialization of our COVID-19 test kit. We also expect our administrative expenses, including stock-based compensation expense, to increase as we increase our headcount and expand our facilities and information technology to support our operations as a public company. We also expect to see an increase in our stock-based compensation expense with the establishment of a new equity plan associated with this offering and related grants either in the form of restricted stock units or options. Our selling, general and administrative expenses may fluctuate from period to period due to the seasonality.

Other Income (Expense), Net

Other income (expense), net consists primarily of grant income, offset by interest expense, loss on extinguishment of debt and adjustment upon remeasurement of derivative liabilities and convertible notes.

We classify our derivatives and certain convertible notes as liabilities on our balance sheets and record changes in fair value at each balance sheet date with the corresponding change recorded as other income (expense).

Grant Income

Through September 30, 2020, we have derived nearly all of our income from government grants. The income from these grants is included in other income, net in our statements of operations.

We earn grant income for performing tasks under research and development agreements with governmental agencies, such as BARDA in respect of our influenza test kit. Income derived from reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with government contracts are recorded within grant income. Grant income is recorded at the gross amount of the reimbursement. The direct costs associated with these reimbursements are reflected as a component of research and development expense in our statements of operations.

We expect that our grant income will decrease as we refocused our near-term business strategy to respond to the COVID-19 pandemic and focus on the development of our COVID-19 test kit and we have not performed any research and development activities toward our influenza test kit since June 2020.

Interest Expense

Interest expense consists of contractual and effective interest incurred on our outstanding convertible notes during the relevant periods.

Loss on Extinguishment of Debt

From July 2018 to January 2019, we issued and sold convertible promissory notes, or the 2018 Notes, in the aggregate principal amount of approximately $4.0 million. The aggregate principal amount and accrued interest on the outstanding 2018 Notes were converted into shares of our Series B preferred stock in March 2019 in connection with our Series B preferred stock financing. The incremental value of our Series B preferred stock issued compared to the carrying value of 2018 Notes was recognized as a loss on the extinguishment of debt during 2019.

From June 2020 to July 2020, we issued and sold convertible promissory notes, or the 2020 Notes, in the aggregate principal amount of approximately $11.1 million. The aggregate principal amount and accrued interest on the outstanding 2020 Notes were converted into shares of our Series C preferred stock in August 2020 in connection with our Series C preferred stock financing. As the 2020 Notes were held at fair value there was no difference between the issuance price of our Series C preferred stock and the fair value of the 2020 Notes, and therefore no loss on extinguishment of debt was recognized during the nine months ended September 30, 2020.

 

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Remeasurement of Derivative Liabilities and Convertible Notes

The 2018 Notes contained embedded features that met the definition of derivatives. As a result, these embedded features were bifurcated from the 2018 Notes and are accounted for as liabilities and recorded at fair value. The derivative liabilities were remeasured at fair value until the 2018 Notes converted and changes in the fair value were recorded as a component of other income. Upon conversion of the 2018 Notes into shares of our Series B preferred stock, the derivative liabilities were remeasured and extinguished.

The 2020 Notes met the conditions to be classified as liabilities under ASC 480—Distinguishing Liabilities from Equity and were recorded at fair value at issuance and through conversion of the 2020 Notes into shares of our Series C preferred stock. The change in fair value from issuance through conversion into shares of our Series C preferred stock on August 7, 2020 were recognized in other income (expense), net on the statement of operations through the period then ended.

During the nine months ended September 30, 2020, all such convertible notes were extinguished and thus we will no longer record adjustments to the fair value of the derivatives and convertible notes unless we issue similar instruments in a future period.

Provision for Income Taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2019, we had federal NOL carryforwards of $23.7 million available to reduce taxable income and these NOLs can be carried forward indefinitely. We have state NOL carryforwards of $23.6 million as of December 31, 2019, available to reduce future state taxable income, which expire at various dates beginning in 2038. As of December 31, 2019, we also had federal and state research and development tax credit carryforwards of $0.9 million and $0.6 million, respectively. The federal development tax credit carryforwards begin to expire in 2029, while the state development tax credit carryforwards can be carried forward indefinitely.

We determined that an ownership change occurred on October 9, 2015, but that all federal NOL carryforwards can be utilized prior to the expiration. As of December 31, 2019, we had not experienced an ownership change subsequent to the ownership change on October 9, 2015.

However, we determined that a subsequent ownership change occurred on August 7, 2020, which may result in limitations in our ability to utilize federal research and development credits and state NOLs. The effect of this additional limitation is not reflected in the December 31, 2019 or December 31, 2018 deferred tax assets.

In addition, we may in the future experience ownership changes, either as a result of this offering or other changes in our stock ownership (some of which are not in our control). For these reasons, our ability to utilize our NOL carryforwards and other tax attributes to reduce future tax liabilities may be limited.

 

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Results of Operations

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

 

     Years Ended
December 31,
    Nine Months Ended
September 30,
 
     2018     2019     2019     2020  
                 (unaudited)  
     (in thousands)  

Statements of Operations Data:

        

Operating expenses:

        

Research and development

   $ 8,021     $ 11,436     $ 8,701     $ 16,108  

Selling, general and administrative

     1,794       2,422       1,575       3,221  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     9,815       13,858       10,276       19,329  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (9,815     (13,858     (10,276     (19,329

Other income (expense), net:

        

Grant income

     3,652       6,155       4,611       2,007  

Interest expense

     (190     (90     (90     (44

Loss on extinguishment of debt

     —         (434     (434     —    

Remeasurement of derivative liabilities and convertible notes

     (183     (240     (240     (2,795
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     3,279       5,391       3,847       (832
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (6,536   $ (8,467   $ (6,429   $ (20,161
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Nine Months Ended September 30, 2019 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2019 and 2020.

 

     Nine Months Ended
September 30,
    Change  
     2019     2020     $     %  
     (unaudited)
(in thousands, except percentages)
 

Operating expenses:

        

Research and development

   $ 8,701     $ 16,108     $ 7,407       85%  

Selling, general and administrative

     1,575       3,221       1,646       105%  
  

 

 

   

 

 

   

 

 

   

Total operating expenses

     10,276       19,329       9,053       88%  
  

 

 

   

 

 

   

 

 

   

Loss from operations

     (10,276     (19,329    

Other income (expense), net:

        

Grant income

     4,611       2,007       (2,604     (57)%  

Interest expense

     (90     (44     46       (51)%  

Loss on extinguishment of debt

     (434     —         434       100%  

Remeasurement of derivative liabilities and convertible notes

     (240     (2,795     (2,555     1,065%  
  

 

 

   

 

 

   

 

 

   

Total other income (expense), net

     3,847       (832     (4,679     (122)%  
  

 

 

   

 

 

   

 

 

   

Net loss

   $ (6,429   $ (20,161   $ (13,732     214%  
  

 

 

   

 

 

   

 

 

   

 

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Research and Development

Research and development expenses increased $7.4 million, or 85%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to increased expenses related to our clinical trials to support our initial EUA application with respect to our COVID-19 test kit . We supported research and development activities such as test kit development and testing, clinical trials and pre-commercial manufacturing related to our COVID-19 test kit through increased personnel-related expenses of $0.8 million, third-party consultants of $1.7 million, and $4.3 million in laboratory supplies and materials purchased, which was additionally supported by a $0.7 million in increased facilities costs allocation. During the same period ended September 30, 2019, we had limited working capital and incurred less expenditures related to research and development for our influenza test kit. While certain costs of our research and development activities related to our influenza test kit were previously reimbursed through grants provided by government agencies such as BARDA, we are not reliant on future grant income to fund our current COVID-19 test kit program. Therefore, we do not believe discontinuing our grant-related research and development activities will have a material impact on our planned operations.

Selling, General and Administrative

Selling, general and administrative expenses increased $1.6 million, or 105%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily due to an increase in headcount of key, executive-level employees to support our research and development efforts as well as professional expenses incurred as a result of preparing for this offering.

Grant Income

Grant income decreased $2.6 million, or 57%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This decrease was primarily due to decreased reimbursements from BARDA associated with the development of our influenza test kit as we ceased billing BARDA in June 2020 due to the refocus of our near-term business strategy to respond to the COVID-19 pandemic during the nine months ended September 30, 2020.

Interest Expense

Interest expense, net decreased by an immaterial amount in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to the conversion of our 2018 Notes for shares of our Series B preferred stock in the first quarter of 2019. As the 2020 Notes converted into shares of our Series C preferred stock in August 2020 shortly after their issuance, we did not incur a significant amount of interest expense during the same period.

Loss on Extinguishment of Debt

We did not record any losses on extinguishment during the nine months ended September 30, 2020. The loss on extinguishment of debt was $0.4 million in the nine months ended September 30, 2019 as the 2018 Notes were converted into shares of our Series B preferred stock in the first quarter of 2019 at a loss.

Remeasurement of Derivative Liabilities and Convertible Notes

The change in remeasurement of derivative liabilities and convertible notes increased $2.6 million from the nine months ended September 30, 2019 primarily due to significant losses incurred on remeasurement of $11.1 million in face value of the 2020 Notes to their fair value of $13.9 million upon conversion into shares of our Series C preferred stock.

 

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Comparison of the Year Ended December 31, 2018 and 2019

The following table summarizes our results of operations for the years ended December 31, 2018 and 2019.

 

                                                   
     Year Ended
December 31,
    Change  
         2018         2019             $                    %         
     (in thousands, except percentages)  

Operating expenses:

      

Research and development

   $ 8,021     $ 11,436     $ 3,415       43%  

Selling, general and administrative

     1,794       2,422       628       35%  
  

 

 

   

 

 

   

 

 

   

Total operating expenses

        9,815       13,858          4,043       41%  
  

 

 

   

 

 

   

 

 

   

Loss from operations

     (9,815     (13,858    

Other income (expense), net:

        

Grant income

     3,652       6,155       2,503       69%  

Interest expense

     (190     (90     100       (53)%  

Loss on extinguishment of debt

     —         (434     (434        (100)%  

Remeasurement of derivative liabilities

     (183     (240     (57     31%  
  

 

 

   

 

 

   

 

 

   

Total other income, net

     3,279       5,391       2,112       64%  
  

 

 

   

 

 

   

 

 

   

Net loss

   $ (6,536   $ (8,467   $ (1,931     30%  
  

 

 

   

 

 

   

 

 

   

Research and Development Expenses

Research and development expenses increased $3.4 million, or 43%, from 2018 compared to 2019. This increase was primarily due to increased personnel-related expenses and third-party consultant expenses of $1.7 million and $1.4 million, respectively, to support our increased research and development activities for our influenza test kit. The increase was partially offset by a decrease in our laboratory supplies and materials purchase of $0.3 million as a result of the completion of clinical activities towards the end of the year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.6 million, or 35%, from 2018 compared to 2019. This increase was primarily related to increased personnel-related costs of $0.5 million, which resulted from an increase in headcount of key executive-level employees to support the growth of our research and development activities.

Grant Income

Grant income increased $2.5 million, or 69%, from 2018 compared to 2019. This increase was primarily due to increased reimbursements from BARDA associated with the development of our influenza test kit compared to the prior year.

Interest Expense

Interest expense decreased by $0.1 million, or 53%, for 2019 compared to 2018 primarily due to our 2018 Notes being converted into shares of our Series B preferred stock in the first quarter of 2019.

Loss on Extinguishment of Debt

The loss on extinguishment of debt was $0.4 million in 2019. We did not incur similar losses during 2018 as the 2018 Notes were extinguished in the first quarter of 2019 with the issuance of shares of our Series B preferred stock.

 

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Remeasurement of Derivative Liabilities

The change in remeasurement of derivative liabilities increased $0.1 million, or 31%, in 2019 compared to 2018 primarily due to the issuance of 2018 Notes in 2019.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred net losses since our inception. For the years ended December 31, 2018 and 2019, we incurred a net loss of $6.5 million and $8.5 million, respectively, and for the nine months ended September 30, 2020 we incurred a net loss of $20.2 million. We expect to incur additional losses and increased operating expenses in future periods. As of September 30, 2020, we had an accumulated deficit of $46.5 million. To date, we have generated only limited grant income, and we may never achieve revenue sufficient to offset our expenses or at all.

To date, we have financed our operations principally from the sales and issuances of convertible notes, shares of preferred stock, grant income, and to a lesser extent, option exercises. As of December 31, 2019 and September 30, 2020, we had $4.1 million and $68.3 million in cash, respectively.

In December 2020, we issued and sold 2020B Notes in the aggregate principal amount of $20.0 million in a private placement, which will, in addition to the accrued interest thereon, automatically convert into shares of our common stock upon the closing of this offering. See Note 12 to our unaudited interim condensed financial statements included elsewhere in this prospectus for additional information.

Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for capital expenditures as we invest in our manufacturing infrastructure. We expect to continue to incur operating losses in the near term as our operating expenses will be increased to support the growth of our business. We expect that our selling, general and administrative expenses, and research and development expenses will continue to increase as we seek additional regulatory approvals, increase our test kit manufacturing volume, expand our marketing efforts and increase our internal sales force to drive increased adoption of and reimbursement for our test kits, prepare to commercialize new test kits, continue our research and development efforts and further develop test kits.

We expect that our near and longer-term liquidity requirements will continue to consist of working capital and general corporate expenses associated with the growth of our business. Based on our current planned operations, we expect that our existing cash and anticipated net proceeds from this offering will enable us to fund our operating expenses for at least 12 months from the date hereof. In the absence of the net proceeds from this offering, we will need additional financial support through private equity or debt financing offerings or we will have to significantly reduce our expenditures and delay clinical trials or enter into collaborations or licensing arrangements in order to sustain operations for the next twelve months, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern for at least one year from the date our financial statements were available for issuance. See Note 1 to our audited financial statements and Note 1 to our unaudited interim condensed financial statements, each included elsewhere in this prospectus, for additional information on our assessment. Similarly, our independent registered public accounting firm included an explanatory paragraph in its report on our audited financial statements as of and for the year ended December 31, 2019, describing the existence of substantial doubt about our ability to continue as a going concern.

We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than currently

 

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projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We may raise additional capital through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaborations agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or test kits or grant licenses on terms that may not be favorable to us.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic and actions taken to slow its spread, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are not able to secure adequate additional funding when needed through this offering, other equity and debt financings or otherwise, we will need to re-evaluate our operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, limit, suspend or curtail planned test kit development programs and commercialization efforts, cease operations entirely. Having insufficient funds may also require us to relinquish rights to technology that we would otherwise prefer to develop and market ourselves, or on less favorable terms than we would otherwise choose. The foregoing actions and circumstances could materially adversely impact our business, results of operations and future prospects.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

 

     Years Ended
December 31,
     Nine Months Ended
September 30,
 
     2018      2019      2019      2020  
                   (unaudited)  
     (in thousands)  

Net cash provided by (used in):

           

Operating activities

   $ (6,465    $ (7,062    $ (4,133    $ (15,463

Investing activities

     (146      (75      (27      (5,486

Financing activities

     3,779        11,140        11,047        87,480  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Decrease) increase in cash and restricted cash equivalents

   $ (2,832    $ 4,003      $ 6,887      $ 66,531  
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash Flows Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2019 was $4.1 million, consisting primarily of our net loss of $6.4 million, partially offset by non-cash charges of $1.4 million and cash provided by changes in our operating assets and liabilities of $0.9 million. Net cash provided by changes in our operating assets and liabilities of $0.9 million resulted from a decrease of $2.1 million in grant income receivable, partially offset by an increase of $1.0 million in accounts payable and accrued liabilities and payments made on operating lease liabilities of $0.2 million.

 

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Net cash used in operating activities for the nine months ended September 30, 2020 was $15.5 million, consisting primarily from our net loss of $20.2 million, partially offset by non-cash charges of $3.5 million and cash used by changes in our operating assets and liabilities of $1.3 million. The non-cash charges were primarily driven by the loss incurred of $2.8 million on the remeasurement to fair value of the 2020 Notes. Net cash used by changes in our operating assets and liabilities of $1.3 million was driven by $4.1 million in cash paid for prepaid supplies and materials. These operating uses of cash were partially offset by collections of $1.6 million in grant income receivable and increases of $4.6 million in accounts payable and accrued liabilities. The increases in accounts payable and accrued liabilities were largely due to increased expenditures on research and development and increased expenditures of general and administrative expenses to support our research and development efforts and to support us through this offering. Similarly, the decrease in our grant income receivable is largely due to collections and decreased reimbursements from BARDA associated with the development of our influenza test kit. We ceased billing BARDA in June 2020 due to the refocus of our near-term business strategy to respond to the COVID-19 pandemic during the nine months ended September 30, 2020.

Net cash used in operating activities for 2018 was $6.5 million, consisting primarily from our net loss of $6.5 million adjusted for non-cash charges of $0.9 million and changes in our net operating assets and liabilities of $0.8 million. The net cash used by changes in our operating assets and liabilities of $0.8 million was primarily related to $1.9 million of increase in grant income receivable partially offset by $1.4 million increases in accounts payable and accrued liabilities, and $0.2 million in operating lease decreases from payments on our building leases.

Net cash used in operating activities for 2019 was $7.1 million, consisting primarily from our net loss of $8.5 million adjusted for non-cash charges of $1.6 million and changes in our net operating assets of $0.2 million. Our non-cash charges add backs resulted from several non-cash expenses consisting of stock-based compensation, depreciation, remeasurement of derivative liabilities, reductions in our right-of-use assets and loss on extinguishment of debt. Net cash provided by changes in our operating assets and liabilities of $0.2 million resulted largely from a decrease of $0.7 million in grant income receivable partially offset by the increase of $0.5 million in accounts payable and accrued liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities in the nine months ended September 30, 2019 and 2020 was $27,000 and $5.5 million, respectively, consisting of net cash for the acquisition of property and equipment. The increase was primarily due to the preparation for the commercialization of our COVID-19 test kit.

Net cash used in investing activities for 2018 and 2019 was $146,000 and $75,000, respectively, consisting of purchases of property and equipment.

Cash Flows Provided by Financing Activities

Net cash providing by financing activities in the nine months ended September 30, 2019 was $11.0 million, consisting of $10.8 million in proceeds from the issuance and sale of shares of our preferred stock.

Net cash provided by financing activities in the nine months ended September 30, 2020 was $87.5 million, consisting of $76.1 million in proceeds from the issuance and sale of shares of our preferred stock and $11.1 million in proceeds from the issuance and sale of the 2020 Notes.

Net cash provided by financing activities during 2018 was $3.8 million, consisting of net proceeds from the issuance and sale of the 2018 Notes during such period.

Net cash provided by financing activities during 2019 was $11.1 million, consisting of $10.8 million in proceeds from the issuance and sale of shares of our preferred stock.

 

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Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations and other commitments as of December 31, 2019:

 

     Payments Due by Period  
    

Less Than
1 Year

    

1 to 3

    Years    

    

3 to 5

    Years    

    

    Total    

 
     (in thousands)  

Operating lease obligations(1)

   $ 111      $ 716      $ 226      $ 1,053  

Purchase commitments(2)

     276        —          —          276  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $       387      $       716      $       226      $   1,329  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

In January 2015, we entered into a lease for office, research and development space located in Emeryville, California that expires in March 2022. Pursuant to the same lease agreement, we leased additional square feet of office and development space in Emeryville, California that expires in January 2024.

(2)

We have obligations under non-cancellable purchase commitments primarily related to our contract manufacturers and suppliers.

Except as otherwise provided below, there have been no significant changes in our contractual obligations and other commitments as of September 30, 2020 compared to December 31, 2019.

Pursuant to the Eiken Agreement we entered into in July 2020, we are obligated to make milestone payments upon the achievement of specified regulatory milestones as well as royalty payments. We have not included future payments under this agreement in the table above since the payment obligations under this agreement are contingent upon future events, such as our achievement of specified milestones and product sales. We are currently unable to estimate the timing or likelihood of achieving these milestones or generating future test kit sales. See the section titled “Business—License Agreement with Eiken Chemical Co., Ltd.”

As of September 30, 2020, we had non-cancellable purchase commitments of $8.6 million, consisting primarily of $6.8 million of raw material purchase commitments and fixed assets related to expanding our manufacturing capacity, and $1.8 million pursuant to the Jabil MSA and Jabil TSA through January 31, 2021. Under the Jabil MSA, we are obligated to provide, on a monthly basis, a rolling 12-month forecast to Jabil as well as 12-months of historical aggregate end customer demand at the finished product level, which will be used to constitute written purchase orders from us, and we are obligated to purchase the quantity of products that is required by the first four months of each forecast.

We also enter into contracts in the normal course of business with various vendors that generally provide for contract termination following a certain notice period. These contracts do not contain any minimum purchase commitments, and as a result, are not included in the table of contractual obligations above. Payments due upon cancellation consist only of payments for services provided, expenses incurred up to the date of cancellation and de minimis termination penalties.

Off-Balance Sheet Arrangements

We did not have during the periods presented any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. However, as of September 30, 2020, we had cash and restricted cash equivalents of $70.6 million, which consist of $68.3 million of money held in checking accounts and $2.3 million of restricted cash in money market accounts. We therefore do not believe we are exposed to, nor do we anticipate being in the near future

 

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exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our audited financial statements or financial position and results of operations.

Critical Accounting Policies and Significant Management Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements included elsewhere in this prospectus, that have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported income generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. While our significant accounting policies are more fully described in Note 2 to our audited financial statements and in Note 2 to our unaudited interim condensed financial statements, each included elsewhere in this prospectus, we believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Grant Income

We earn grant income for performing tasks under research and development agreements with governmental agencies such as BARDA. Grant income derived from reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with government contracts are recorded within grant income. Grant income is recorded at the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in our statements of operations.

Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees, directors and other service providers based on their fair value on the date of grant and recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We recognize the impact of forfeitures on stock-based compensation expense as forfeitures occur. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective assumptions including:

 

   

Expected Term—We have opted to use the “simplified method” for estimating the expected term of plain-vanilla options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years).

 

   

Risk-Free Interest Rate—The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of our stock options.

 

   

Expected Dividend—We have not issued any dividends and do not anticipate to issue dividends on our common stock. As a result, we have estimated the dividend yield to be zero.

 

   

Expected Volatility—Due to our limited operating history and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical

 

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volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

Determination of Fair Value of Common Stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors, or compensation committee thereof, as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Historically, these independent third-party valuations of our equity instruments were performed contemporaneously with identified value inflection points, including recent preferred stock financings. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. The Practice Aid identifies various available methods for allocating the enterprise value across classes of capital stock in determining the fair value of our common stock at each valuation date. Based on our stage of development and other relevant factors, for valuations prior to July 2020, we determined that the option pricing method, or OPM, was the most appropriate method for estimating our enterprise value to determine the fair value of our common stock. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. Starting in July 2020, we determined that the hybrid method was the most appropriate method for determining the fair value of our common stock. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. In addition to considering the results of these independent third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

 

   

the prices at which we sold shares of our preferred stock and the superior rights, preferences and privileges of our preferred stock relative to our common stock at the time of each grant;

 

   

the conversion features of the 2018 Notes and the 2020 Notes, including valuation terms;

 

   

our stage of development and outlook for the commercialization of our test kits and our business strategy;

 

   

the progress of our research and development programs, including the status and results of pre-clinical studies and clinical trials for our test kits;

 

   

external market conditions affecting the diagnostics industry and trends within the molecular diagnostics industry, including a review of the performance and metrics of guideline public companies;

 

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our financial position, including cash on hand, and our historical and forecasted performance and operating results;

 

   

the lack of an active public market for our common stock and our preferred stock; and

 

   

the likelihood of achieving a liquidity event, such as an initial public offering, or sale of our company in light of prevailing market conditions.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Once a public trading market for our common stock has been established upon the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

As of September 30, 2020, the unrecognized stock-based compensation expense related to employee stock options was $2.7 million and is expected to be recognized as expense over a weighted-average period of approximately 1.7 years. The intrinsic value of all outstanding stock options as of September 30, 2020 was approximately $                million, based on the assumed public offering price of $                per share, the midpoint of the range set forth on the cover page of this prospectus, of which approximately $            million related to vested options and approximately $                million related to unvested options.

Accrued Research and Development Costs

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations. These expenses are a significant component of our research and development costs. We record accrued expenses for these costs based on factors such as estimates of the work completed and in accordance with agreements established with these third-party service providers. Any payments made in advance of services provided are recorded as prepaid assets, which are expensed as the contracted services are performed.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed could vary from actual results and result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. For the periods presented, we have experienced no material differences between our accrued expenses and actual expenses.

Research and Development Expenses

We expense research and development costs as incurred. Research and development expenses include costs incurred for internal and sponsored and collaborative research and development activities. Research and development expenses consist of salaries and benefits, including associated stock-based compensation, and

 

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laboratory supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities on our behalf. Nonrefundable advance payments are recognized as an expense as the related services are performed or the goods are received. We evaluate whether we expect the services to be rendered or the goods to be received at each quarter end and year end reporting date. If we do not expect the services to be rendered, the advance payment is charged to research and development expense. Nonrefundable advance payments for research and development services are included in prepaid expenses on the balance sheet.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Please see our financial statements and the related notes included elsewhere in this prospectus, which contain accounting policies and other disclosures required by U.S. GAAP.

Recently Issued and Adopted Accounting Standards

See Note 2 to our audited financial statements and Note 2 to our unaudited interim condensed financial statements included elsewhere in this prospectus for more information.

Emerging Growth Company Status

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies who have adopted new or revised accounting pronouncements.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

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BUSINESS

Overview

We are a medical technology company focused on the development and commercialization of transformative and innovative infectious disease test kits. We have developed a testing platform that produces centralized-laboratory-accurate molecular testing in a single-use and consumer-friendly test kit that is powered by two AA batteries and fits in the palm of a hand. We designed our test kits to provide accurate, reliable and on-the-spot molecular test results anywhere and at any time. We believe the novel coronavirus, or COVID-19, pandemic has shown the infectious disease testing infrastructure in the United States was not designed to accommodate the immediate demands of infectious disease control on a mass-population scale. The testing options today are too expensive, inaccurate, or are inaccessible due to slow time to results or complexity. Mass-population infectious disease testing requires a testing platform that can provide accurate and clinically relevant results on-the-spot, be affordably mass produced, portable and easy-to-use anywhere. Our LUCIRA COVID-19 All-In-One Test Kit, or our COVID-19 test kit, is designed to provide a clinically relevant COVID-19 result within 30 minutes from sample collection. We believe, at scale, it will be an affordable, mass-population testing solution. Our initial focus is within respiratory diseases, starting with COVID-19 and influenza A and B virus indications.

We conducted a clinical trial that demonstrated that the molecular accuracy of our COVID-19 test kit is comparable to the Hologic, Inc. Panther Fusion SARS-CoV-2 Assay, or the Hologic Panther Fusion, which is considered to be one of the current market-leading molecular assays in a U.S. Food and Drug Administration, or FDA, published study because of its low Limit of Detection, or LoD. This clinical trial is called our Community Testing Study. In our Community Testing Study, we collected samples from 101 subjects, tested the samples head-to-head against the Hologic Panther Fusion and achieved 94.1% positive percent agreement (96.0% with discrepant testing) and 98.0% negative percent agreement. Our strong clinical performance was enabled by our LoD of 900 copies per mL of viral transfer media equivalent, or cps / mL VTM equivalent, which allows our COVID-19 test kit to detect viral genetic material in orders of magnitude better than antigen tests. In addition, our COVID-19 test kit is easy-to-use. For example, 100% of patients successfully performed self-testing at home using our COVID-19 test kit in less than two minutes in a human usability study we conducted with 398 users at research facilities in Sunnyvale and Fresno, California. The measure for successful performance was the ability to collect a nasal specimen and start the test running on the first try, either without having to look back at the directions or with only one look back. On November 17, 2020, we received an Emergency Use Authorization, or EUA, from the FDA for (1) prescription at-home use with self-collected nasal swab specimens in individuals aged 14 and older who are suspected of COVID-19 by their healthcare provider and (2) use at the point-of-care, or POC, with self-collected nasal swab specimens in individuals aged 14 and older, and in individuals aged 13 and under when the specimen is collected by a healthcare provider at the POC. People who are suspected of COVID-19 are those who are either symptomatic or are thought to have been exposed to COVID-19. We are working towards expanding this indication and intend to submit an amended or new EUA application, as determined by the FDA, to include asymptomatic people in 2021. Additionally, we plan to develop a combination COVID-19 and influenza A and B viruses test kit for prescription at-home use and later a separate COVID-19 test kit and an influenza A and B viruses test kit, or our influenza test kit, for over-the-counter, or OTC, use.

Infectious diseases are caused by pathogenic microorganisms, like viruses and bacteria, that enter the body. These diseases can spread from either person-to-person through direct or indirect contact, such as airborne particles from coughing or sneezing, or through a vector such as an animal or insect. Outbreaks of highly contagious infectious diseases, that spread from person-to-person, require immediate, mass-population testing in order to mitigate the spread of the disease. COVID-19 is an infectious disease caused by SARS-CoV-2 that was first identified in December 2019 in Wuhan, Hubei, China, and has resulted in an ongoing global pandemic. As of January 7, 2021, more than 85 million cases have been reported worldwide with more than 1.8 million deaths. The world economy has been significantly impacted and the World Bank noted that the COVID-19 pandemic is expected to plunge most countries into recession in 2021 with per capita income contracting in the largest

 

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fraction of countries globally since 1870 with advanced economies projected to shrink approximately 7%. COVID-19 diagnostic volume in the United States is rapidly growing and as of November 2020 exceeded 30 million tests per month with estimated monthly demand expected to increase up to 50 million to 100 million tests during 2021. As of the date hereof, the world continues to struggle with monitoring and containing the outbreak of COVID-19. COVID-19 molecular testing accounts for approximately one-third of all COVID-19 tests conducted, which translates into a current market spend of approximately $6.0 billion for molecular COVID-19 testing. In December 2020, the FDA issued EUAs for two COVID-19 vaccines; however, we believe the need for ongoing detection and monitoring will continue to be high given the ongoing COVID-19 pandemic. We also believe COVID-19, like influenza, will remain endemic for the foreseeable future and people suspected of influenza-like illness, or ILI, may want to purchase a combination COVID-19 and influenza test kit to confirm their diagnosis in order to receive timely and appropriate treatment and quarantine themselves if and as needed. We believe that to successfully combat infectious diseases such as COVID-19 and influenza, testing, vaccines and therapeutics all need to be deployed. We believe our testing platform is well suited to provide accurate, decentralized testing.

Influenza, commonly known as “the flu”, is an infectious respiratory disease caused by several influenza viruses. The U.S. Centers for Disease Control and Prevention, or CDC, estimates that influenza has been responsible for between approximately 12,000 and 61,000 deaths in the United States annually since 2010. In the United States, seasonal influenza is estimated to result in a total average annual economic cost of over $11.0 billion, with direct medical costs estimated to be over $3.0 billion annually. According to industry estimates, a future influenza pandemic could cause hundreds of billions of dollars in direct and indirect costs. Approximately 174 million influenza vaccine doses were distributed in the United States in the 2019-2020 influenza season, and for the 2020-2021 season, vaccine manufacturer projections range from approximately 194 million to 198 million doses. We believe this rising demand for influenza vaccines, coupled with the inability to definitively determine based on symptoms alone whether a person has COVID-19 or influenza or another viral infection, translates to greater interest in products to diagnose and treat ILI. We estimate that the total potential market spend for OTC influenza testing could be in excess of $800 million based on current testing volumes, and the total addressable market could be up to approximately $4.0 billion based on an estimate that approximately 200 million people per year purchase treatments for the symptoms of ILI, according to Nielsen Corporation figures from October 2019, and an OTC retail price of approximately $20 per test kit, assuming that all people who purchase treatments for the symptoms of ILI would purchase an OTC influenza test.

Traditional infectious disease testing options have been limited in their accessibility and effectiveness largely due to their complexity, slow time to results, limited clinical relevance, and/or expense. There are several different testing modalities or techniques that are employed to determine the presence of a target disease or a proxy of the target disease. Each modality provides different clinically useful information due to its inherent differences and testing limits. The large categories of infectious disease tests generally fall into one of three categories: molecular tests, antigen tests and antibody tests. Molecular tests have the lowest LoD of the testing modalities and therefore can identify contagious people earlier. Having a lower LoD is better because it allows the test to detect the presence of lower amounts of viral genetic material. We believe the current molecular testing infrastructure in the United States does not meet the immediate demands of infectious disease management on a mass-population scale as it relies on centralized testing that involves complex sample transportation, logistics, and throughput bottlenecks. These tests have traditionally required complex instrumentation to accomplish the chemical amplification and detection needed. The majority of these molecular tests occur within centralized laboratory settings where it can take from two to 14 days to return a result, which does not include the sample acquisition and delivery times. Further, many of these tests require highly trained and specialized technicians to operate the laboratory equipment. More recently, some benchtop instruments have been developed in the POC setting with the capability to perform these complex and sensitive molecular tests, but these tests still require a trained operator, an electrical outlet and a separate dedicated instrument which limits their portability. These POC instruments typically have limited throughput, capable of processing only a single sample at a time.

 

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Antigen tests have emerged as a category of stopgap tests that address the needs for portability and affordability, but they do not generally provide a balanced level of accuracy across identifying both positives and negatives. They have a more limited ability to detect active infection across the full spectrum of illness, including at and before symptom onset. Therefore, they tend to be of limited use to people until several days after symptom onset and often require a follow-on confirmatory molecular test. Antigen tests often miss early positives due to this lack of sensitivity which is insufficient for reliable infectious disease monitoring. Antibody tests have limited clinical relevance because they do not test for active infection and therefore do not indicate whether a person is actively contagious. We designed our test kits to mitigate the shortcomings of both molecular lab-based and antigen testing.

We believe providing an easy-to-use COVID-19 test kit with molecular accuracy that allows potentially infectious people to test themselves anywhere, especially in the safety of their own homes, is one of the best ways to help mitigate the spread of infectious diseases like COVID-19. Decentralized use of these consumer-friendly test kits can transform the way society mitigates the spread by testing infectious people anywhere, especially at home, and avoiding exposure to others in the community. However, outbreaks of highly contagious diseases, like COVID-19, require immediate, mass-population testing which traditional testing infrastructure within the United States is not historically designed to support. With our platform, we are reimagining current infectious disease testing through innovative test kits that deliver on-the-spot testing with molecular accuracy in a portable, affordable and easy-to-use format. Our platform is designed to produce assays that combine the accuracy and reliability of molecular tests and the accessibility and ease of use of antigen tests to mitigate the spread of COVID-19. Our molecular test kits are designed to be diagnostically definitive and not require a follow-on confirmatory test, unlike the antigen tests on the market today.

We designed our proprietary platform from the ground up to be able to provide accurate, consumer-friendly, affordable and convenient infectious disease test kits, and our COVID-19 test kit can provide a clinically relevant COVID-19 result within 30 minutes. Our platform has four key attributes: (1) robust target identification, (2) colorimetric assay, (3) consumer-friendly test kit and (4) flexible assay architecture. We use our expertise in infectious disease, virology and bioinformatics in support of our target identification efforts. Our colorimetric assay design provides for accurate and cost-effective viral detection. Our consumer-friendly “swab, stir, detect” sequence eliminates complicated workflow steps such that 100% of patients successfully performed self-testing at home using our COVID-19 test kit in less than two minutes in a human usability study we conducted with 398 users at research facilities in Sunnyvale and Fresno, California. The measure for successful performance was the ability to collect a nasal specimen and start the test running on the first try, either without having to look back at the directions or with only one look back. Furthermore, our platform is designed with a flexible assay architecture in which we can largely leverage all these components to accelerate the development of new test kits for additional indications, including other infectious diseases such as sexually transmitted infections, or STIs, and respiratory syncytial virus, to market with minimal changes.

 

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Our proprietary platform enabled us to refocus our near-term business strategy to develop our COVID-19 test kit, pictured below with its box and instructions for use.

 

 

LOGO

Our COVID-19 test kit is designed to provide a clinically relevant COVID-19 result within 30 minutes from sample collection, and we believe, at scale, it will be an affordable, mass-population testing solution. We believe our platform provides the following competitive benefits:

 

   

Molecular accuracy. Accurate testing, which we measure using LoD, is paramount in mitigating the spread of infectious diseases. LoD is the defining measure of an assay’s ability to reliably detect the presence of a specific target, such as viral RNA or protein. Tests with a lower LoD are more sensitive because they can detect positive samples with low viral load. All the FDA EUA authorized high sensitivity molecular assays have an LoD of 1,000 cps / mL VTM equivalent or lower, which is significantly better than antigen tests. These molecular tests can be used reliably among symptomatic and asymptomatic individuals, unlike antigen tests which can be limited to use among symptomatic individuals in their first seven days of symptoms. Molecular tests are diagnostically definitive, whereas antigen tests are not. We perform routine surveillance of emerging SARS-CoV-2 strains by periodically evaluating in silico reactivity against sequence databases. While our evaluations of the variants in the United Kingdom and South Africa have shown that these two variants are reactive to our COVID-19 test kit, we cannot currently definitively confirm that our COVID-19 test kit will be successful in detecting these strains. We anticipate performing testing to confirm detection with these strains once they become commercially available.

 

   

Simple, intuitive test kit. We designed our test kits to be used anywhere and at any time. Our test kits have a simple, intuitive, three-step “swab, stir, detect” sequence. In our usability studies, approximately 97% of users said our COVID-19 test kit met or exceeded their expectations with regard to ease of use, whereas many molecular tests require specialized equipment and trained personnel for operation.

 

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Portable ‘swab-to-result’ within 30 minutes. Our COVID-19 test kit was designed to provide a clinically relevant COVID-19 result within 30 minutes, with the potential for a positive COVID-19 result in as few as 11 minutes. We believe this is highly beneficial when dealing with infectious diseases as it allows people to quickly determine if they are infected and enables them to appropriately quarantine, mitigate the spread and reduce infection rates. Molecular tests completed in centralized laboratories can take days or weeks to report results, at which point the tests are less clinically relevant.

 

   

Affordable. Rapidly deploying millions of tests per month requires the tests to be relatively inexpensive. We have purpose-built and designed our test kits to not have additional instrument costs and be a single, portable unit that can be manufactured and affordable at scale.

 

   

Flexible with potential for broad applicability. We built our platform to be flexible and applicable to additional assays using the same core test kit. As an example of our platform’s agility and robustness, we leveraged over half a decade of research and development of our test kit and expertise in target identification and assay development for influenza into a test kit for COVID-19. We intend to pursue additional indications in the future, including other infectious diseases such as STIs and respiratory syncytial virus, and believe this component of our strategy and business model will be a core value driver for us over the long term.

Our proprietary platform enables us to develop a pipeline of infectious disease test kits. Our current focus is on our COVID-19 test kit. The following chart outlines our test kit portfolio, categorized by the prescription or OTC commercialization channel and the anticipated year of FDA submission, based on our current estimates and belief. The footnotes in the chart below describe our anticipated regulatory approval pathway.

 

LOGO

Timeline represents anticipated FDA submission dates. The pathway to obtain an EUA for influenza or combination COVID-19 and influenza test kits remains uncertain. We may not pursue an amended or additional EUA, and we may need to seek 510(k) clearance or approval of a de-novo application from the FDA for our COVID-19, influenza, and combination COVID-19 and influenza test kits. Furthermore, the FDA may require us to initiate one or more additional clinical trials. The estimated timing or scope of any such future clinical trials is not definitively ascertainable.

 

(1)

Represents our COVID-19 test kit. We received an EUA from the FDA on November 17, 2020, for prescription at-home and POC use in people who are suspected of COVID-19 by their healthcare provider (people who are symptomatic or are thought to have been exposed to COVID-19).

(2)

Represents our COVID-19 test kit. We anticipate submitting an amended or new EUA application, as determined by the FDA. As of January 2021, we have not submitted an application to the FDA.

(3)

Represents our COVID-19 test kit. We anticipate submitting a new EUA application to the FDA for OTC use of our COVID-19 test kit. As of January 2021, we have not submitted an application to the FDA.

(4)

Represents our combination COVID-19 and influenza test kit, which we plan to develop. We anticipate submitting a new EUA application with the FDA or seeking 510(k) clearance or approval of a de-novo application for prescription at-home use of our combination COVID-19 and influenza test kit, once developed. As of January 2021, we have not submitted an application to the FDA.

(5)

Represents our influenza test kit. We anticipate seeking 510(k) clearance or approval of a de-novo application for OTC use of our influenza test kit. As of January 2021, we have not submitted an application to the FDA pursuant to our anticipated regulatory approval pathway.

 

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We intend to commercialize our COVID-19 test kit within POC and prescription at-home settings through partnerships with customers, such as hospital networks, payors, corporate senior living facilities and large employers. We have begun conducting additional clinical trials to expand our indications from people who are suspected of COVID-19 to include asymptomatic people. We also plan to invest in clinical activities to develop a combination COVID-19 and influenza test kit for prescription at-home as well as an influenza test kit for OTC. We have begun manufacturing activities to support our commercial launch of our COVID-19 test kit in the spring of 2021, and our goal is to establish increased scale by the second half of 2021.

What Sets Us Apart

Our goal is to reimagine infectious disease testing by enabling accurate, on-the-spot molecular testing with a consumer-friendly test kit that can be used anywhere and at any time. Our proprietary, single-use COVID-19 test kit has been designed to provide a clinically relevant COVID-19 test result within 30 minutes with a comparable LoD to highly accurate molecular reverse transcription polymerase chain reaction, or RT-PCR, assays run in centralized laboratories. Our simple and intuitive test kit is powered by two AA batteries and fits in the palm of a hand. We believe the following competitive advantages set us apart:

 

   

First mover advantage for an innovative, single-use, consumer-friendly molecular testing platform designed to provide clinically relevant COVID-19 results within 30 minutes anywhere.

 

   

Molecular accuracy. In our head-to-head Community Testing Study, our COVID-19 test kit performed comparably to the Hologic Panther Fusion, one of the current market-leading high-sensitivity RT-PCR assays performed in centralized laboratories given its low LoD. This technical achievement was possible due to our platform which uses loop-mediated isothermal amplification, or LAMP, combined with our proprietary colorimetric detection technology to yield an LoD of 900 cps /mL VTM. Importantly, our test’s ability to detect both active infection and rule out the absence of infection differentiates it compared to rapid antigen tests. Specifically, our COVID-19 test kit’s LoD is significantly more sensitive than the LoDs of antigen tests, thus significantly reducing the potential for false negatives and the need for confirmatory tests. In a December 2020 Journal of Clinical Microbiology publication evaluating the analytical sensitivity of an antigen test indicated for prescription at-home use, the positive percent agreement of the antigen test as compared to the Hologic Panther Fusion was 83%. We believe that, if used on the subjects tested in the aforementioned study, our COVID-19 test kit would have achieved a 98% positive percent agreement as compared to the Hologic Panther Fusion, which is 15 percentage points higher than the evaluated antigen test, assuming that our COVID-19 test kit would have performed consistently with the results of our Community Testing Study.

 

   

Single-use, intuitive design. We designed our test kits to be single-use and intuitive with a simple three-step “swab, stir, detect” sequence. Our test kit will come with simple instructions and all required components, including two AA batteries, and fits in the palm of a hand. The results are displayed clearly in a light-up display. The single-use design eliminates the need to purchase and maintain a separate instrument or reader, unlike other molecular tests, and eliminates the need for testing slowdown for reuse. 100% of patients successfully performed self-testing at home using our COVID-19 test kit in less than two minutes in a human usability study we conducted with 398 users at research facilities in Sunnyvale and Fresno, California. The measure for successful performance was the ability to collect a nasal specimen and start the test running on the first try, either without having to look back at the directions or with only one look back.

 

 

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‘Swab-to-result’ within 30 minutes. Along with molecular accuracy, we designed our COVID-19 test kit to provide a clinically relevant COVID-19 result within 30 minutes, with the potential for a positive COVID-19 result in as few as 11 minutes. Providing an on-the-spot test result is important in infectious disease testing because it allows for positive results to be delivered quickly and for a person to quarantine earlier, thereby mitigating the spread. We believe our ability to deliver on-the-spot test results sets us apart from centralized laboratory molecular tests that can take days or even weeks to deliver a result.

 

   

Affordable. If approved for OTC and if we achieve scaled production, we believe at OTC launch we will be able to offer a test kit that is affordably priced compared to centralized laboratory molecular tests. If and until we achieve OTC approval, we expect our POC pricing could be at a modest premium to other POC tests, and we believe the portability of our test kit will differentiate us from our competitors.

 

   

Robust platform with flexible hardware and multiplexed target identification capabilities designed to allow development of and testing for multiple assays. We designed our test kits with the capacity for multiplexing, meaning that multiple assays can be easily tested on a single test kit. Our flexible platform allows us to target a potentially wide range of infectious diseases through disease-specific assay-containing pellets contained within independent reaction chambers. As an example of our platform’s agility and robustness, we leveraged over half a decade of research and development in our test kit and expertise in target identification and assay development for influenza into a test kit for COVID-19. We believe our platform has the potential to be applied to additional infectious diseases in the future.

 

   

Rigorous product development processes and scalable infrastructure. We have developed significant internal capabilities notably around research and development, product design, and supply chain management. All of our core technology, such as the multiplexed biological assay device and the colorimetric detection method, were developed in-house by our experienced research and development team. We have also partnered with a U.S.-based, global manufacturing services company in order to have access to immediate and scalable manufacturing. We believe the design of our platform, and the supply chain we have built to capture low-cost economies of scale, are an advantage for us.

 

   

Comprehensive and broad intellectual property portfolio. As of December 31, 2020, we owned four issued U.S. patents, seven pending U.S. utility patent applications, two issued foreign patents and 35 pending foreign patent applications. Three currently issued filings and associated technology enable our highly accurate platform. We have protected our intellectual property rights through our patent portfolio and have maintained and executed on deliberate innovation areas to sustain the continued growth of our patent portfolio. Furthermore, we own trade secrets and research and development know-how supporting our ability to create the assays used in our platform.

 

   

Experienced senior management team and directors with deep industry experience. Our senior management team and directors consist of seasoned medical device professionals, with a wide array of experience including marketing healthcare consumer products, diagnostic chemistry, running clinical trials, navigating regulatory pathways, manufacturing, automation and supply chain management.

 

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Growth Strategy

We intend to build a transformational infectious disease testing company delivering on a broad test menu for infectious diseases over time. To achieve our growth plan, we plan to employ several core strategies:

 

   

Commercialize our COVID-19 test kit through a staged regulatory approval approach first in POC and prescription at-home use and eventually expanding to OTC approval, if authorized. Initially, we pursued POC and prescription at-home EUA authorizations for our COVID-19 test kit. We received an EUA from the FDA on November 17, 2020 for these indications for the detection of SARS-CoV-2 in nasal swab samples from people suspected of COVID-19. We intend to quickly conduct the clinical work necessary to expand our indication to include asymptomatic people in 2021. We believe focusing our initial clinical work on people who are suspected of COVID-19 enabled us to move more quickly through the EUA clinical requirements and regulatory process. If our COVID-19 test kit is approved for both people who are suspected of COVID-19 and asymptomatic people, or all-comers, for use in the prescription at-home setting, we intend to begin the clinical work to eventually switch to an OTC approval application.

 

   

Expand and automate production capabilities to better address market demand while capturing economies of scale. With the ongoing COVID-19 pandemic, the demand for COVID-19 testing has increased significantly across all stakeholder groups. COVID-19 diagnostic volume in the United States is rapidly growing and as of November 2020 exceeded 30 million tests per month with estimated monthly demand expected to increase up to 50 million to 100 million tests during 2021. Similar to influenza, we believe there will be a continued need for COVID-19 testing even after an effective vaccine has been widely distributed and compliantly administered. To better meet the significant market demand, a key part of our growth strategy includes expanding our current production capacity and automating our manufacturing process. Our test kits have been designed for automated production. Eventually, we could expand manufacturing to additional locations around the world to further our manufacturing capacity and reach.

 

   

Develop and launch additional test kits in the prescription at-home channel, beginning with a combination COVID-19 and influenza test kit as well as OTC test kits for COVID-19 and influenza. Our flexible platform enables us to quickly develop and deploy assays for other infectious diseases as well as multiplex for combination tests. Capitalizing on the flexibility of our platform is a key pillar to our strategy and will enable us to focus on other large markets, including influenza A and B viruses. The influenza assay has been clinically tested and showed sensitivity and specificity comparable to other FDA-authorized influenza assays, and we believe with additional work could be combined with our current COVID-19 assay into a multiplex assay. We plan to conduct new clinical trials in the 2021-2022 influenza season and anticipate the FDA submission of this combination COVID-19 and influenza test kit to be in 2022. We believe this combination test kit would be the preferred assay for prescription at-home use. We additionally will work with the FDA to obtain regulatory approval for our COVID-19 test kit and influenza test kit to be sold OTC subsequently.

 

   

Continue to promote awareness of our test kits among patients, healthcare providers, and key opinion leaders, or KOLs. Building on our usability studies and EUA indications, we plan to leverage our clinical work to publish key research and articles as a way to increase awareness and drive adoption among patients, healthcare providers and KOLs. On our path to achieving FDA approval for OTC use of our test kits, we will continue to conduct clinical trials. The goal of these clinical trials would include generating claims data satisfying the required regulatory framework for OTC approval and public health benefits, as well as highlighting the clinical cost-benefit analyses in support of additional indications. If and when we receive OTC approval, we plan to conduct a consumer marketing campaign entailing national, regional, and local television advertisements, capturing conference positions, and educating primary care physician associations.

 

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Expand internationally with our COVID-19 and influenza test kits. We believe our COVID-19 and influenza test kits, if authorized, will provide us initial opportunities to license our platform technology to international partners. Based on incoming interest from countries within Asia and Europe, we eventually plan to pursue direct sales in our international expansion.

Infectious Diseases Overview

Infectious diseases are caused by pathogenic microorganisms, like viruses and bacteria, and can be spread from person-to-person or through a vector such as an animal or insect. One method of person-to-person spread is direct contact, in which the virus or bacteria is directly transferred from one person to another through touch, coughing or sneezing. Indirect contact is another method of transmission and occurs when an infected person touches an inanimate object, leaves behind pathogens, and another person touches the object and picks up the pathogens that were left behind. Airborne transmission occurs when pathogens from an infected person are expelled into the air, remain suspended and then infect another person. COVID-19 and influenza are infectious respiratory diseases that are caused by viruses and are transmitted from person-to-person.

COVID-19

COVID-19 is an infectious disease caused by the SARS-CoV-2 virus. It was first identified in December 2019 in Wuhan, Hubei, China, and has resulted in an ongoing global pandemic. As of January 7, 2021, more than 85 million cases have been reported worldwide with more than 1.8 million deaths. The CDC’s current and non-exhaustive list of symptoms includes fever or chills, cough, shortness of breath or difficulty breathing, fatigue, muscle or body aches, headache, new loss of taste or smell, sore throat, congestion or runny nose, nausea or vomiting and diarrhea. While most people have mild symptoms, some people face more serious consequences, such as acute respiratory distress syndrome, or ARDS, possibly precipitated by cytokine storm, multi-organ failure, septic shock, blood clots and death. The typical incubation period can range from two to 14 days.

This virus is spread primarily via small droplets from coughing, sneezing and talking. It is believed that the point at which people are most contagious is early in the course of their illness, particularly when they are beginning to experience symptoms. According to the CDC, a patient is potentially contagious until 10 days following symptom onset, resolution of fever for at least 24 hours and improvement of other symptoms, although viral spread is possible before symptoms appear, and from people who are asymptomatic. In April 2020, the World Health Organization reported that according to preliminary data people might be more contagious within the first three days from the onset of symptoms. Longer-term damage to organs (in particular lungs and heart) has also been observed, and there is concern about a significant number of patients who have recovered from the acute phase of the disease but continue to experience a range of effects including severe fatigue, memory loss and other cognitive issues, low grade fever, muscle weakness, breathlessness and other symptoms for months afterwards.

The World Bank noted that the COVID-19 pandemic is expected to plunge most countries into recession in 2021 with per capita income contracting in the largest fraction of countries globally since 1870 with advanced economies projected to shrink approximately 7%. The recent string of events has highlighted the necessity for widespread accurate diagnostic testing to mitigate the health and economic turmoil resulting from the spread of the disease.

Influenza Virus A and B

Influenza, commonly known as “the flu”, is an infectious respiratory disease caused by an influenza virus. Symptoms can be mild to severe (including death) and commonly include high fever, runny nose, sore throat, muscle and joint pain, headache, coughing, and feeling tired. These symptoms typically begin two days after exposure to the virus and most last less than a week. The cough, however, may last for more than two weeks. Complications of influenza may include viral pneumonia, secondary bacterial pneumonia, sinus infections, and worsening of previous health problems such as asthma or heart failure. There are currently four

 

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known types of influenza viruses. Two of these are the most common among human infections; influenza A and B viruses. Seasonal influenza is caused by influenza A and B viruses, while pandemic influenza occurs when a novel influenza strain appears. Usually, the virus is spread through the air from coughing or sneezing. A person may be infectious to others both before and during the time they are showing symptoms.

Influenza-related costs include direct costs such as lost productivity and associated medical treatment, as well as indirect costs of preventive measures. The CDC estimates that influenza has been responsible for between 12,000 and 61,000 deaths in the United States annually since 2010. In the United States, seasonal influenza is estimated to result in a total average annual economic cost of over $11.0 billion, with direct medical costs estimated to be over $3.0 billion annually. According to industry estimates, a future influenza pandemic could cause hundreds of billions of dollars in direct and indirect costs. We believe current testing infrastructure is equally ill-equipped to support the testing needs of a future influenza pandemic.

Market Opportunity

COVID-19 Market

We believe there is a significant opportunity for POC, prescription at-home and OTC testing of infectious diseases such as COVID-19.

COVID-19 diagnostic volume in the United States is rapidly growing and as of November 2020 exceeded 30 million tests per month with estimated monthly demand expected to increase up to 50 million to 100 million tests during 2021. Currently, molecular testing accounts for approximately one-third of all COVID-19 tests conducted, and Centers for Medicare & Medicaid Services, or CMS, POC reimbursement is approximately $50 per test. Testing volumes are based on the traditional testing infrastructure as there are currently no COVID-19 tests widely offered in the prescription at-home or OTC settings. This represents a current market spend of approximately $6.0 billion for molecular COVID-19 testing. The POC reimbursement rate is the amount that a provider receives and does not represent our actual revenue per test kit. We intend to evaluate our test kit pricing on a channel-specific basis, factoring in market dynamics and believe our revenue per test kit will vary over time. In the future, we anticipate the percentage of molecular tests to grow due to the continued awareness of its clinical relevancy, increased performance, ease of use and expanded availability in both the POC and prescription at-home settings. According to some estimates, approximately 30% of all COVID-19 tests are conducted for symptomatic patients. We estimate our total available COVID-19 test kit market to be in excess of this as our existing EUA for our COVID-19 test kit is indicated for people who are suspected of COVID-19. If we receive an expanded indication to include asymptomatic people in 2021, we believe our total available COVID-19 test kit market would increase to include the remainder of the testing opportunity and potentially expand this opportunity as more routine applications for testing would become available. Ellume Limited, or Ellume, received an EUA from the FDA for OTC use of its COVID-19 test; however, it is an antigen test and as seen in Ellume’s FDA labeling, healthcare professionals are advised that negative results and positive results in asymptomatic people should be considered presumptive and additional testing with a highly sensitive molecular COVID-19 test may be necessary. We believe that our molecular COVID-19 test could provide diagnostically definitive follow-on testing. In December 2020, the FDA issued EUAs for two COVID-19 vaccines; however, we believe the need for ongoing detection and monitoring will continue to be high even after effective vaccines have been widely distributed and compliantly administered given the ongoing COVID-19 pandemic. We also believe COVID-19, like influenza, will remain endemic for the foreseeable future and people suspected of ILI may want to purchase a combination COVID-19 and influenza test kit to confirm their diagnosis in order to receive timely and appropriate treatment and quarantine themselves if and as needed. We believe that to successfully combat infectious diseases such as COVID-19 and influenza, testing, vaccines and therapeutics all need to be deployed. We believe our testing platform is well suited to provide accurate, decentralized testing.

We plan to develop a combination COVID-19 and influenza test kit for the POC and prescription at-home markets. We additionally believe there to be demand for an OTC COVID-19 test kit for which we plan

 

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to pursue approval in 2021. We currently believe that an OTC COVID-19 test kit would need to be at a consumer-appropriate retail price which, based upon our analysis of the consumer healthcare market, is approximately $20 per test kit.

Influenza Market

The CDC estimates that approximately 35.5 million people in the United States were sick with influenza during the 2018-2019 influenza season; however, only an estimated 16.5 million patients visited a healthcare provider for the treatment of influenza, suggesting there is a large potential market for at-home influenza testing across the broader population. We believe there is an unmet medical opportunity and potentially greater demand for influenza testing given the hurdles to accessibility in the traditional influenza testing infrastructure at the POC and in centralized laboratories. According to Nielsen Corporation figures from October 2019, approximately 70% of U.S. households, representing approximately 23