This is a confidential draft submission to the U.S. Securities and Exchange Commission on August 25, 2021 under the Securities Act of 1933, as amended. This draft registration statement has not been filed, publicly or otherwise, with the U.S. Securities and Exchange Commission and all information contained herein remains strictly confidential.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Kestra Medical Technologies, Ltd.

(Exact name of registrant as specified in its charter)

 

 

 

Bermuda		3841		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

3933 Lake Washington Blvd NE Suite 200,

Kirkland, Washington 98033

(425) 279-8002

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

 

 

Brian Webster

Chief Executive Officer

3933 Lake Washington Blvd NE Suite 200,

Kirkland, Washington 98033

(425) 279-8002

(Name, address, including zip code, and telephone number, including

area code, of agent for service)

 

 

Copies to:

 

Sophia Hudson, P.C. Lisa Zhang Kirkland & Ellis LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212) 446-4800		Traci S. Umberger General Counsel and Chief Administrative Officer 3933 Lake Washington Blvd NE Suite 200, Kirkland, Washington 98033 (425) 279-8002		Patrick O’Brien Thomas J. Danielski Ropes & Gray LLP 800 Boylston Street Boston, Massachusetts 02199 Telephone: (617) 917-7000

 

 

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, 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 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 SECURITIES BEING REGISTERED		PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(1)(2)		AMOUNT OF REGISTRATION FEE(3)
Common shares, $1.00 par value per common share		$		$

(1)	Includes                 common shares that may be sold upon exercise of the underwriters’ over-allotment option. See “Underwriting.”

 

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

 

(3)	To be paid in connection with the initial public filing of this Registration Statement.

 

 

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 that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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

 

SUBJECT TO COMPLETION, DATED                  , 2021

PRELIMINARY PROSPECTUS

                Shares

 

 

Common Shares

This is the initial public offering of our common shares. We are selling common shares. We expect the initial public offering price to be between $        and $        per common share. Currently, no public market exists for the shares. We intend to apply to list our common shares on                 under the symbol “KMTS.”

Upon the closing of this offering, an investment fund advised by affiliates of Bain Capital, L.P. will own approximately    % of our common shares (or    % of our outstanding common shares if the underwriters exercise in full their over-allotment option). As a result, we will be a “controlled company” within the meaning of the applicable listing rules of        . See “Management—Controlled Company Exception” and “Principal Shareholder.”

We are an “emerging growth company” and a “smaller reporting company” as defined under the federal securities laws and, under applicable Securities and Exchange Commission (“SEC”) rules, we have elected to comply with certain reduced public company reporting and disclosure requirements. See “Summary—Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

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

 

		PER SHARE				TOTAL
Public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Proceeds, before expenses, to us		$				$

 

(1)	We refer you to the section titled “Underwriting” for additional information regarding underwriter compensation.

We have granted the underwriters an over-allotment option for a period of 30 days from the date of this prospectus to purchase up to                  additional common shares. If the underwriters exercise in full their over-allotment option, the total underwriting discounts and commissions payable by us will be $         and the total proceeds to us, before expenses, will be $         .

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

The Bermuda Monetary Authority has given general permission under the Exchange Control Act 1972 (and its related regulations) for the issue and transfer of our common shares that are the subject of this offering to and between residents and non-residents of Bermuda, for exchange control purposes, provided our shares remain listed on an appointed stock exchange, which includes                . In granting such general permission the Bermuda Monetary Authority does not accept any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

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

BofA Securities

The date of this prospectus is                  , 2021

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY			1
RISK FACTORS			17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			76
INDUSTRY AND MARKET DATA			78
ORGANIZATIONAL TRANSACTIONS			79
USE OF PROCEEDS			82
DIVIDEND POLICY			83
CAPITALIZATION			84
DILUTION			86
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			88
BUSINESS			99
MANAGEMENT			133
EXECUTIVE COMPENSATION			139
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			144
PRINCIPAL SHAREHOLDER			146
DESCRIPTION OF CERTAIN INDEBTEDNESS			147
DESCRIPTION OF SHARE CAPITAL			149
SHARES ELIGIBLE FOR FUTURE SALE			158
BERMUDA COMPANY CONSIDERATIONS			160
MATERIAL BERMUDA AND U.S. FEDERAL INCOME TAX CONSIDERATIONS			167
UNDERWRITING			173
LEGAL MATTERS			182
EXPERTS			182
WHERE YOU CAN FIND ADDITIONAL INFORMATION			182
EXCHANGE CONTROLS			182
ENFORCEMENT OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS			184
INDEX TO FINANCIAL STATEMENTS			F-1

We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the cover of this prospectus.

Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.

 

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BASIS OF PRESENTATION

Kestra Medical Technologies, Ltd., the issuer in this offering, was incorporated on May 20, 2021 in connection with this offering to serve as a holding company for its subsidiaries, and it has not engaged in any business or other activities other than those incidental to its formation, the organizational transactions described herein and the preparation of this prospectus and the registration statement of which this prospectus forms a part. Following this offering and the consummation of the organizational transactions, Kestra Medical Technologies, Ltd. will remain a holding company, and it will operate and control all of the business and affairs and consolidate the financial results of West Affum Intermediate Holdings Corp., a Cayman Islands exempted company (“West Affum Intermediate Holdings”), and its subsidiaries. Unless stated otherwise or the context otherwise requires, all information in this prospectus reflects the consummation of the organizational transactions described herein, which we refer to collectively as the “Organizational Transactions.” See “Organizational Transactions” for a description of the Organizational Transactions and diagrams depicting both our existing structure prior to giving pro forma effect to the Organizational Transactions and our anticipated structure after giving pro forma effect to the Organizational Transactions and this offering. Following the completion of this offering, we intend to include the financial statements of Kestra Medical Technologies, Ltd. and its consolidated subsidiaries in our periodic reports and other filings as required by applicable law and the rules and regulations of the SEC.

West Affum Intermediate Holdings was incorporated on August 6, 2020 in order to carry on the business of West Affum Holdings Corp. (“West Affum Holdings”) and its consolidated subsidiaries. On August 25, 2020, West Affum Intermediate Holdings entered into a Contribution and Exchange Agreement with West Affum Holdings and West Affum Holdings, L.P. (“West Affum LP”), where West Affum LP exchanged all of its existing ownership interests in West Affum Holdings into an equivalent number of newly issued shares in West Affum Intermediate Holdings (the “Contribution and Exchange”). West Affum LP owned all outstanding interests in West Affum Holdings prior to the Contribution and Exchange.

The Contribution and Exchange resulted in West Affum Intermediate Holdings becoming the parent entity of West Affum Holdings and its subsidiaries. West Affum Intermediate Holdings operates and controls all of the business and affairs of West Affum Holdings and its subsidiaries and accordingly, consolidates the financial results. As the Contribution and Exchange is considered a transaction between entities under common control, the consolidated financial statements included elsewhere in this prospectus for the period prior to the Contribution and Exchange reflect the combination of the previously separate entities for financial presentation purposes. The consolidated financial statements as of and for the fiscal years ended April 30, 2021 and 2020 included elsewhere in this prospectus represent the consolidated assets and liabilities and operations of West Affum Intermediate Holdings and its subsidiaries. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unless stated otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “our business,” “our company” and similar references refer: (1) prior to the consummation of the Organizational Transactions, to West Affum Intermediate Holdings and its consolidated subsidiaries and (2) at or following the consummation of the Organizational Transactions, to Kestra Medical Technologies, Ltd. and its consolidated subsidiaries.

 

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RISK FACTORS

Investing in our common shares involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto, before making a decision to invest in our common shares. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. In addition, the scale and scope of the ongoing COVID-19 pandemic may heighten the potential adverse effects on our business, financial condition, results of operations and prospects described in the risk factors discussed below. If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the market price of our common shares could decline, and you could lose all or part of your investment. Please also see “Special Note Regarding Forward-Looking Statements” and “Industry and Market Data.”

Risks Related to Our Business

We have a limited operating history, which may make it difficult for you to evaluate our current business and its likelihood of success and viability.

We are a provider of WCD solutions with a limited operating history with which investors can evaluate our business and prospects. Operations to date include organizing and staffing our company, business planning, raising capital, conducting discovery, research and development activities, pursuing intellectual property protection, such as filing and prosecuting patent applications and trademark applications, undertaking clinical trials, seeking FDA approval, establishing arrangements with third parties for the manufacture of initial quantities of our products and making preparations to commercialize our ASSURE System. We completed clinical trials for our ASSURE System in March 2020 and received our PMA for our ASSURE System on July 27, 2021, and we are in the process of commercially launching our ASSURE System. In comparison, our primary competitor, ZOLL, has been providing the only other commercially available WCD for approximately 20 years and as a result, has a significantly longer commercial track record than our company. We are continuing to develop the capabilities and infrastructure to conduct sales, marketing and distribution activities at a level necessary for the successful large-scale commercialization of our products. However, there is no assurance as to when, or if, we will be able to achieve that scale. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. We may be unsuccessful for a number of reasons, including:

 

•

responses of our primary competitor, ZOLL, and other start-up or large companies that may emerge as competitors in the future, who have or develop more technologically advanced products, stronger relationships with healthcare providers, and greater capital, marketing and other resources than our company;

 

•

limitations on our ability to demonstrate differentiation and advantages of our ASSURE System or products we may develop in the future and their relative safety, efficacy and ease of use over other products in the market;

 

•

the limited size and geographic scope of our sales and marketing capabilities as compared to our competitors and the learning curve required for new sales and marketing personnel to become effective in selling and marketing our products;

 

•

our inability to provide products that are clinically effective, meet our desired product profile and are capable of being supplied at quantities and at a cost that addresses the clinical needs and commercial opportunities we target;

 

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•

our inability to obtain sufficient and timely supplies of components necessary to manufacture our products or secure second source suppliers if our primary suppliers are unable to fulfill our orders;

 

•

our inability to timely make improvements to our products in response to feedback from our end-users or from the medical community;

 

•

insufficient financial or other resources to support our commercialization efforts; and

 

•

the introduction and market acceptance of new, more effective or less expensive competing products and technologies.

In addition, as a company with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We are transitioning from a company with a research and development focus to a company capable of supporting commercial activities. We have not yet demonstrated an ability to successfully overcome such risks and difficulties, or to make such a transition. If we do not adequately address these risks and difficulties or successfully make such a transition, our business will suffer. We expect our financial condition and results of operations to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

We have a history of net losses and are in the process of launching our ASSURE System, and if we are not successful, we may not be able to achieve or sustain profitability in the future.

Investing in medical technologies product development is a highly speculative undertaking and entails substantial upfront capital expenditures and significant risk that any potential products or other solutions will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have incurred net losses since our inception in 2014. For the fiscal year ended April 30, 2021, we had a net loss of $34.1 million, and we expect to continue to incur additional losses for the foreseeable future. As of April 30, 2021, we had an accumulated deficit of $170.1 million. The losses and accumulated deficit were primarily due to the substantial investments we made to develop and improve our technology and products through research and development efforts and infrastructure improvements. Over the next several years, we expect to continue to devote substantial resources to facilitate the commercialization of our ASSURE System and to develop other apparel, hardware, software and services to protect and support at-risk patients in an ambulatory care environment. We may continue to incur significant losses for the foreseeable future, and the net losses we incur may fluctuate significantly from quarter to quarter. Furthermore, we expect these losses to increase substantially if and as we:

 

•

continue our clinical and other research and development activities for future solutions;

 

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seek marketing approvals for our products that successfully complete future clinical trials;

 

•

experience any delays or encounter any issues with any of the above, including, but not limited to, failed studies, complex results, safety issues or any failures to obtain regulatory approvals;

 

•

establish a sales, marketing and distribution infrastructure, develop relationships with commercial partners and scale-up manufacturing capabilities, whether independently or with third parties, to commercialize our products;

 

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obtain, expand, maintain, enforce and protect our intellectual properties;

 

•

hire additional clinical, regulatory and engineering personnel; and

 

•

incur legal, accounting and other expenses necessary to operate as a public company.

 

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Our efforts to develop and commercialize our product candidates may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses or at all. Even if we are able to commercialize our product candidates, we may not achieve profitability soon after generating product sales, if ever, and there is no assurance that we will be able to sustain profitability. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. Our failure to achieve and sustain profitability in the future could impact our ability to continue operations without continued funding and cause the market price of our common shares to decline.

Our recurring losses from operations and financial condition raise substantial doubt about our ability to continue as a going concern.

In Note 1 to our consolidated financial statements for the fiscal years ended April 30, 2021 and 2020 included elsewhere in this prospectus, we concluded that our history of continued operating losses and accumulated deficit raise substantial doubt about our ability to continue as a going concern. Similarly, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the fiscal years ended April 30, 2021 and 2020, describing the existence of substantial doubt about our ability to continue as a going concern.

Our future viability is dependent on our ability to generate cash from our operating activities or to raise additional capital to finance our operations. There is no assurance that we will succeed in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. The perception that we might be unable to continue as a going concern may also make it more difficult to obtain financing for the continuation of our operations on terms that are favorable to us, or at all, and could result in the loss of confidence by investors, suppliers and employees. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that our investors will lose all or a part of their investment.

We expect our revenue to be primarily generated from sales of our ASSURE System, including associated products, and we are therefore highly dependent on our ASSURE System for our success.

We completed clinical trials for our ASSURE System in March 2020, obtained our PMA for the system on July 27, 2021 and expect to continue to devote substantial resources to facilitate the commercialization of our ASSURE System. We expect that sales of our ASSURE System and associated products will continue to account for the majority of our revenue for the foreseeable future. Our ability to execute our growth strategy and become profitable will therefore depend upon the adoption by clinicians and customers (e.g., patients and third-party payors), among others, of our ASSURE System. Some clinicians may not adopt our systems because they have prior history with or a preference for other treatment options that are more established or may be reluctant to alter their practice patterns and undergo the training required to enable them to treat patients with our ASSURE System. Some patients may decide to not purchase, and some payors may decide not to provide reimbursement for, our ASSURE System if, among other potential reasons, they believe our pricing is too high or that alternative devices are either more clinically efficacious or cost effective than our product.

Our business is dependent upon patients, physicians and other healthcare providers adopting our solutions, and if we fail to obtain broad adoption, our business would be adversely affected.

Our ability to execute our growth strategy and become profitable will depend on our ability to educate patients, physicians and other healthcare providers on the benefits of our WCD solutions over the existing product and services in the market, and to convince them to adopt our solutions to improve the timeliness and efficiency of clinical interventions for at-risk patients. We do not know if our ASSURE System or other potential products we may develop in the future will be successful over the long term, and market acceptance may be hindered if patients, physicians, other healthcare providers and other relevant stakeholders are not presented with

 

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compelling data demonstrating the efficacy and safety of our solutions compared to alternative existing technologies. Some patients, physicians and other healthcare providers may not adopt or may be slower to adopt our solutions because they have prior history with or a preference for other treatment options that are more established or may be reluctant to alter their practice patterns. Physicians and other healthcare providers play a significant role in determining the course of a patient’s treatment and, as a result, the type of product that will be used to treat a patient. In order to increase sales of our ASSURE System, we must effectively educate physicians and other healthcare providers about our ASSURE System and successfully demonstrate to physicians and other healthcare providers the merits of our ASSURE System for use in preventing sudden cardiac death and promoting cardiac recovery in at-risk patients as well as its advantages over standard treatments. If we are not successful in convincing physicians and other healthcare providers of the merits of our ASSURE System, they may not use our ASSURE System or recommend it to other patients, physicians and other healthcare providers and we may be unable to increase our sales, sustain our growth or achieve profitability.

Furthermore, we believe physicians and other healthcare providers may not widely adopt our ASSURE System unless they determine, based on their personal experience, recommendations from other physicians and other healthcare providers, available clinical data and published peer-reviewed journal articles, that our ASSURE System is an attractive alternative to our competitors’ products. Physicians and other healthcare providers may be hesitant to select our ASSURE System for new installations or change to our ASSURE System for the following reasons, among others:

 

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long-standing relationships with competitors and distributors that sell other products and their competitive response and negative selling efforts;

 

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lack of experience with our products and concerns that we are relatively new to the WCD business, or concerns that our competitors have greater resources than our company;

 

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perceived liability risk generally associated with the use of new products and procedures;

 

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lack or perceived lack of sufficient clinical evidence supporting clinical benefits;

 

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reluctance to change to or use new products;

 

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perception that our products are unproven or experimental; and

 

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the time commitment that may be required to gain familiarity with a new system.

Any studies we, or third parties that we sponsor, may conduct comparing our solutions with alternative technologies will be expensive, time consuming and may not yield positive results. Additionally, adoption of our solutions may be directly influenced by a number of financial factors, including, to the extent professional services applying any of our products may be reimbursable, the ability of physicians and other healthcare professionals who may prescribe such products to obtain sufficient reimbursement from payors, including both third-party commercial payors and the Centers for Medicare & Medicaid Services (“CMS”). The efficacy, safety, performance and cost-effectiveness of our solutions, on a stand-alone basis and relative to competing products and/or services will determine the availability and level of reimbursement received by us and, with respect to any professional services applying our products that may be reimbursable, any physicians and other healthcare professionals providing such services. Any new products we may seek to introduce may not be accepted by our patients, physicians and other healthcare professionals and other stakeholders. If we have difficulty launching new products, our reputation may be harmed and our financial results could be adversely affected. In order to generate revenue, we will need to target potential prescribers of our products, such as hospitalists, cardiologists and other healthcare professionals, as well as potential end-users of our products with whom we have had little contact, which may require significant marketing and sales efforts. As we have just begun to commercialize our products, we do not currently have any pricing contracts with potential private payors. There is no assurance that we will be able to enter into pricing contracts with payors on terms and reimbursement rates acceptable to us. If

 

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we are unable to enter into adequate pricing contracts and other arrangements with relevant payors, physicians and other healthcare professionals may be reluctant to adopt our solutions for patients covered by such non-contracted insurance policies because of the uncertainty surrounding reimbursement rates. If patients, physicians and other healthcare providers do not adopt our products, we may not be able to generate revenue, and our financial condition will suffer as a result.

Further, demand for our products may not increase as quickly as we predict, and we may be unable to increase our revenue to the level that we currently expect. Even if we succeed in increasing adoption of our products by physicians, hospitals and other healthcare providers, maintaining and creating relationships with third-party payors and developing and commercializing new features or indications for these systems, we may be unable to generate sufficient revenue to achieve or sustain profitability.

Due to the significant resources required for the development of our products, we may expend our limited resources to pursue the development and commercialization of select products and fail to capitalize on other products that may be more profitable or for which there is a greater likelihood of success.

We are currently focused on developing WCD solutions designed to prevent sudden cardiac death and promote cardiac recovery in at-risk patients. As of the date of this prospectus, we have completed clinical trials for our ASSURE System and we are in various stages of research and development for other solutions and new indications for our technology. We seek to maintain a process of prioritization and resource allocation among our various research and development efforts to maintain a balance between advancing our ASSURE System and developing our other current and any future cardiovascular solutions. Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular products or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from other products and solutions tailored to other therapeutic areas that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. If we do not accurately evaluate the commercial potential or target market for a particular product, we may relinquish valuable rights to that product through future collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights. In addition, if we make incorrect determinations regarding the viability or market potential of any of our products and solutions or misread trends in cardiovascular care and the wearable healthcare technology industry, our business, financial condition and results of operations could be materially adversely affected.

While our clinical trials have shown positive results for our ASSURE System, subsequent clinical trials may not be consistent with our findings to date. If clinical studies of our products we may develop in the future do not produce results necessary to support regulatory clearance or approval in the United States or, with respect to our current or any future products, elsewhere, we will be unable to expand the indications for or commercialize these products and may incur additional costs or experience delays in completing, or ultimately be unable to complete, the commercialization of those products.

Clinical trials are difficult to design and implement, can take many years, can be expensive and carry uncertain outcomes. The clinical trials we have completed as of the date of this prospectus for our ASSURE System have shown positive results, including a significantly lower false alarm rate and greater wearability and usability as compared to ZOLL’s LifeVest WCD, as well as greater levels of first and second shock conversion efficacy as compared to pre-specified performance goals. See “Business.” However, the findings and results of our comparison of our ASSURE System to ZOLL’s LifeVest WCD are based on the limited pre-clinical and clinical trial data we have collected to date and are subject to change as we enroll patients into our ASSURE Registry and engage in post-market surveillance studies. Our competitors, academics, physicians, healthcare organizations or other third-parties may commission other clinical studies on our ASSURE System or any of our other products in the future. These studies could yield significantly different results than the clinical trials that we have completed or may complete in the future. If any studies conducted by third-parties on any of our products

 

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produce results that are not as favorable as the findings in the clinical trials we conduct, the adoption of our products could be impeded and our reputation in the medical community may be damaged, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Failure can occur at any stage of a clinical trial. Our clinical studies may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and non-clinical studies. Our failure to adequately demonstrate the safety and efficacy of our system or any product we may develop in the future would prevent receipt of regulatory clearance or approval and, ultimately, the commercialization of that product or indication for use. Even if our future products are cleared or approved in the United States, commercialization of our products in foreign countries would require approval by regulatory authorities in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional pre-clinical studies or clinical trials. Any of these occurrences could have an adverse effect on our business, financial condition and results of operations.

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

 

•

we may be required to submit an Investigational Device Exemption (“IDE”) application to FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and FDA may reject our IDE application and notify us that we may not begin clinical trials;

 

•

regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials or investigations;

 

•

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

 

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

 

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

 

•

the number of subjects or patients required for clinical trials or investigations may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials or investigations being conducted at any given time may be high and result in fewer available patients for any given clinical trial or investigation, or patients may drop out of these clinical trials at a higher rate than we anticipate;

 

•

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

 

•

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

 

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•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in any planned or future clinical trials and investigations. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials or investigations may also ultimately lead to the denial of regulatory approval of our product candidates.

Clinical trials and investigations must be conducted in accordance with the laws and regulations of the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and IRBs or other regulatory bodies at the medical institutions where the clinical trials or investigations are conducted. In addition, clinical trials and investigations must be conducted with supplies of our devices produced under current good manufacturing practice, or cGMP, requirements and other regulations. Furthermore, we may rely on CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we may have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with good clinical practice, or GCP, requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both.

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

 

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Even if we consummate this offering, we may need to raise substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, scale back or discontinue some of our product development programs or commercialization efforts.

The development of medical technologies is capital intensive. We are currently preparing to commence the commercialization of our ASSURE System. Our current cash resources may be insufficient to fund our planned operations or development plans, including our plans to develop and introduce other apparel, hardware, software and service solutions for patients who are at risk for a variety of life-threatening cardiac events. We may not have accurately anticipated how much we will accomplish with the funds from this offering. We may require additional funds to achieve even these more limited objectives which, if achieved, will still require additional funds to advance further. If we are capital constrained, we may not be able to meet our obligations. If we are unable to meet our obligations, or we experience a disruption in our cash flows, it could limit or halt our ability to continue to develop our products or to even continue operations, either of which would have a material adverse effect on us.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, advance the pre-clinical and clinical activities of, and seek marketing approval for, our current or future products. In addition, we have incurred, and expect to continue to incur, significant commercialization expenses related to sales, marketing, product manufacturing and distribution after obtaining marketing approval for our products. We may also need to raise additional funds sooner if we choose to pursue additional indications and/or distribution channels for our current or future products or otherwise expand more rapidly than we presently anticipate. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. If we are unable to raise capital when needed, we would be forced to delay, scale back or discontinue the development and commercialization of one or more of our products.

We have concluded that our history of continued operating losses and accumulated deficit raise substantial doubt about our ability to continue as a going concern. See Note 1 to our consolidated financial statements 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 consolidated financial statements as of and for the fiscal years ended April 30, 2021 and 2020, describing the existence of substantial doubt about our ability to continue as a going concern. See “—Our recurring losses from operations and financial condition raise substantial doubt about our ability to continue as a going concern.” However, based on our current planned operations, we expect that our cash and cash equivalents, together with the expected revenue generated from sales of our ASSURE System and the anticipated proceeds of this offering, will enable us to fund our operating expenses for at least                months following the date of this offering. Our future capital requirements will depend on and could increase significantly as a result of many factors, including:

 

•

the scope, progress, results and costs of pre-clinical development and clinical trials for our current or future products;

 

•

the potential additional expenses attributable to adjusting our development plans (including any supply-related matters) in response to the COVID-19 pandemic;

 

•

the scope, prioritization and number of our research and development initiatives;

 

•

the costs, timing and outcome of regulatory review of our current or future products;

 

•

our ability to establish and maintain collaborations with technology, commercial and clinical partners on favorable terms, if at all;

 

•

the extent to which we are obligated to reimburse, or are entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any;

 

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•

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

•

the costs of securing manufacturing arrangements for commercial production; and

 

•

the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our current or future products.

Identifying potential current or future products to develop and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that may require a significant amount of time to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve sales. In addition, our current or future products, if approved, may not achieve commercial success. Accordingly, we may need to continue to rely on additional funding to achieve our business objectives. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current or future products. Disruptions in the financial markets in general, and more recently due to the COVID-19 pandemic, have made equity and debt financing more difficult to obtain and may have a material adverse effect on our ability to meet our fundraising needs. We cannot guarantee that future financing will be available in sufficient amounts or on terms favorable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our shareholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborators or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or current or future products or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, financial condition, results of operations and prospects.

If we are unable to obtain funding on a timely basis, we may be required to significantly delay, scale back or discontinue one or more of our research or development initiatives or the commercialization of any of our products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition, results of operations and prospects.

We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

As of April 30, 2021, we had an aggregate principal amount of $20.2 million outstanding under the Loan and Security Agreement (the “KLIM Facility”), dated as of September 24, 2020, among Kennedy Lewis Management LP, as collateral agent, the lenders party thereto, West Affum Holdings and Kestra Medical Technologies, as borrowers, and the guarantors party thereto. We must make significant annual debt payments under the loan agreement, which will divert resources from other activities. Our outstanding debt under the KLIM Facility is collateralized by substantially all of our assets and contains customary financial and operating covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, enter into certain transactions with affiliates, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions. The covenants in the KLIM Facility, as well as in any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies. Our ability to comply with these covenants may be affected by events beyond our control and future breaches of any of these covenants could result in a default under the loan agreement. If not waived, future defaults could cause all of the outstanding indebtedness under the loan agreement to become immediately due and payable and

 

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terminate commitments to extend further credit. If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern. See the section titled “Description of Certain Indebtedness” for more information on the KLIM Facility.

Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

We may be able to incur significant additional indebtedness in the future. Although the KLIM Facility limits our ability and the ability of our present and future subsidiaries to incur additional indebtedness, the terms of the KLIM Facility permit us to incur significant additional indebtedness. In addition, the KLIM Facility does not prohibit us from incurring obligations that do not constitute indebtedness as defined therein. To the extent that we incur additional indebtedness or such other obligations, the risk associated with our substantial indebtedness described above, including our potential inability to service our debt, will increase.

We will require a significant amount of cash to service our debt, and our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could materially adversely affect our business, results of operations and financial condition.

Our ability to make payments on and to refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on our business, results of operations and financial condition. In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the credit agreements governing our credit facilities, may limit or prevent us from taking any of these actions. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, results of operations and financial condition, as well as on our ability to satisfy our obligations in respect of the credit facilities and our other indebtedness.

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially adversely affect our business, results of operations and financial condition.

If there were an event of default under the KLIM Facility relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot guarantee that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default.

 

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Further, if we are unable to repay, refinance or restructure our indebtedness under our secured debt, the holders of such debt could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments.

As a result, any default by us on our indebtedness could have a material adverse effect on our business, results of operations and financial condition.

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not increase at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts in this prospectus relating to, among other things, the expected growth in the WCD market may prove to be inaccurate. Even if this market experiences the forecasted growth described in this prospectus, we may not increase our business at a similar rate, or at all. Our growth is subject to many factors, including whether the market for WCDs continues to improve, the rate of market acceptance of our ASSURE System and our other products as compared to our competitors’ products and our success in implementing our business strategies, each of which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

Our quarterly and annual results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly and annual results of operations, including our revenue, profitability and cash flow, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter or period should not be relied upon as an indication of future performance. Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly and annual results may decrease the value of our common shares. Factors that may cause fluctuations in our quarterly and annual results include, without limitation:

 

•

the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation amongst our competitors or partners;

 

•

market acceptance of our products and solutions, including our ASSURE System;

 

•

our ability to successfully recruit and retain subjects for clinical trials, and any delays caused by difficulties in such efforts;

 

•

our ability to obtain marketing approval for our product candidates, and the timing and scope of any such approvals we may receive;

 

•

the availability of reimbursement for our product candidates at acceptable reimbursement rates;

 

•

the availability of reimbursement for our products and solutions through government healthcare programs at acceptable reimbursement rates;

 

•

the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers and other vendors;

 

•

our ability to attract, hire, train and retain qualified personnel;

 

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•

the amount and timing of costs and expenses related to the maintenance and expansion of our business and operations;

 

•

changes in our future pricing policies or those of our competitors;

 

•

the level of demand for our product candidates should they receive approval, which may vary significantly;

 

•

general economic, industry and market conditions or extraordinary external events, such as a recession or the ongoing COVID-19 pandemic;

 

•

changes in our regulatory environment;

 

•

expenses associated with unforeseen product quality issues;

 

•

litigation or other claims against us for intellectual property infringement or otherwise;

 

•

expenses associated with indemnification obligations to third parties that are subject to litigation or claims, including in relation to intellectual property infringement, or incur other losses as a result of their use of our products;

 

•

our ability to obtain additional financing as necessary; and

 

•

advances and trends in new technologies and industry standards.

The cumulative effects of these factors 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. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common shares could decline substantially. Such a share price decline could occur even if we meet any previously publicly-stated guidance we may have provided.

Coverage and reimbursement may be limited or unavailable in certain market segments for our product, if approved, which could make it difficult for us to sell our product profitably.

In the United States and in other countries, patients who are prescribed treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. In the United States, sales of any products for which we may receive regulatory marketing approval will depend, in part, on the availability of coverage and reimbursement from third-party payors. Third-party payors include government healthcare programs such as Medicare, Medicaid, TRICARE and the Veterans Administration, managed care providers, private health insurers and other organizations. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare, and commercial payors is critical to new product acceptance. Patients are unlikely to use our product unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost.

Government healthcare programs and other third-party payors may change their coverage and reimbursement policies, as well as payment amounts, in a way that would prevent or limit reimbursement for our products, which would significantly harm our business. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

•

a covered benefit under its health plan;

 

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•

safe, effective and medically necessary;

 

•

cost-effective;

 

•

supported by peer-reviewed publications and key opinion leaders;

 

•

appropriate for the specific patient; and

 

•

neither experimental nor investigational.

Our ability to commercialize any products successfully depends in part on the extent to which coverage and adequate reimbursement for these products and related treatments are available from third-party payors, including government healthcare programs and private health insurers. We have been issued a Medicare Provider Number by the CMS, which enables us to bill Medicare for reimbursement for our ASSURE System as an accredited DME supplier to the extent the claim meets medical necessity and coverage requirements set forth by Medicare. However, there can be no assurance that we will be able to obtain adequate coverage and reimbursement from other third-party payors in the United States or in other jurisdictions for our ASSURE System or any products that we may develop in the future.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for our products can differ significantly from payor to payor. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of product candidates, once approved. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates, if approved.

Changes in reimbursement coding may also impair our ability to receive reimbursement for our products. Our ASSURE System may be reimbursed under the Healthcare Common Procedure Coding System (“HCPCS”) code K0606. HCPCS is a standardized system used by all U.S. insurance payers to provide descriptions of healthcare equipment, supplies and services. HCPCS codes are used by payors to identify what services are being billed and to assign payment rates to those specific services. HCPCS codes for durable medical equipment are assigned and managed by CMS and a Medicare contractor responsible for Pricing, Data Analysis and Coding (“PDAC”). New products and product revisions must go through a coding verification process to confirm the products meet the requested HCPCS definitions. CMS or its contractor can review and revise coding assignments if they believe a product no longer meets the assigned HCPCS definition. If the PDAC contractor determines one of our products does not meet the current HCPCS definition, it could remove all coding or assign a different HCPCS code with a lesser payment rate. This could have an adverse impact on our reimbursement rates, results of operations and cash flows.

Determinations of which products or services will be reimbursed under Medicare can be developed at the national level through a national coverage determination (“NCD”), by CMS, or at the local level through a local coverage determination (“LCD”), by one or more of the regional Medicare Administrative Contractors (“MACs”), which are private contractors that process and pay claims on behalf of CMS for different regions. In the absence of an NCD, the MAC with jurisdiction over a specific geographic region will have the discretion to make an LCD and determine the fee schedule and reimbursement rate within the region, and regional LCDs may not always be consistent in their determinations. Currently, no NCD has been issued with respect to products reimbursed pursuant to HCPCS Code K0606, so reimbursement for our ASSURE System will depend on the

 

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medical necessity and coverage requirements set forth with respect to K0606 in the relevant LCD. Reductions in reimbursement rates, if enacted, could have a material adverse effect on our business. Further, a reduction in coverage by Medicare could cause some commercial third-party payors to implement similar reductions in their coverage or level of reimbursement of our products. Given the evolving nature of the healthcare industry and on-going healthcare cost reforms, we may be subject to changes in the level of coverage for our products by government healthcare programs, once approved for commercial sales, and unfavorable coverage determinations at the national or local level could adversely affect our business and results of operations.

Additionally, healthcare reform legislation or regulation may be proposed or enacted in the future that may adversely affect such policies and amounts. Changes in the healthcare industry directed at controlling healthcare costs or perceived over-utilization of cardiac monitoring products and services in ambulatory care environments could reduce the volume of demand for our products. If more healthcare cost controls are broadly instituted throughout the healthcare industry, the volume of cardiac monitoring solutions prescribed could decrease, resulting in pricing pressure and declining demand for our products.

If we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.

Any growth that we experience in the future could provide challenges to our organization, requiring us to expand our sales personnel and general and administrative infrastructure. In addition to the need to establish effective sales, marketing, patient support and clinical operations capabilities, our future growth will impose significant added responsibilities on our management, including the need to identify, recruit, train and integrate additional employees. Rapid expansion in personnel could mean that less experienced people market and offer our products, which could result in inefficiencies, unanticipated costs and cause disruptions to our operations. Additionally, rapid and significant growth may strain our administrative and operational infrastructure. Our ability to manage our business and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. The time and resources required to optimize these systems and procedures are uncertain, and failure to complete optimization in a timely and efficient manner could adversely affect our operations. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our business could be harmed.

Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation and ability to provide our services on a timely basis.

Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for reliable and secure point-to-point transport of our products to our customers and for tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any ASSURE Systems or components thereof, it would be costly to replace such systems or components in a timely manner and such occurrences may damage our reputation and lead to decreased demand for our products 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 our products on a timely basis.

If we are unable to support demand for our ASSURE System or any of our future products or services, our business could suffer.

As we commercialize our products and demand for our ASSURE System or any of our future products or services increases, we will need to continue to expand our customer service, billing and systems processes and enhance our internal quality assurance program.

We cannot assure you that any increases in scale, related improvements and quality assurance will be successfully implemented or that appropriate personnel will be available to facilitate growth of our business.

 

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Failure to implement necessary procedures, transition to new processes or hire the necessary personnel could result in higher costs of processing data or inability to meet increased demand. There can be no assurance that we will be able to perform our data analysis on a timely basis at a level consistent with demand, quality standards and physician expectations. If we encounter difficulty meeting market demand, quality standards or physician expectations, our reputation could be harmed and our prospects and business could suffer.

We have limited experience supplying our ASSURE System in quantities and providing services on a broad scale that is both commercially successful and meets clinical needs, which could harm our business.

We have limited experience in supplying our ASSURE System and other products we are developing in commercial quantities and providing services on a broad scale that is both commercially successful and meets clinical needs. As a result, we may encounter production or service delays or shortfalls. Such production or service delays or shortfalls may be caused by many factors, including the following:

 

•

we intend to expand our operations to offer products in commercial quantities, and our operational processes may have to change to accommodate this growth;

 

•

key components of our ASSURE System are provided by a limited number of suppliers, and we do not currently maintain large inventory levels of these components; if we experience a shortage or quality issues in any of these components, we would need to identify and qualify new supply sources, which could increase our expenses and result in manufacturing delays;

 

•

we are subject to state and federal regulations, including the FDA’s Quality System Regulation (the “QSR”), for both the manufacture of our products and provision of our services, non-compliance with which could cause an interruption in our ability to manufacture and deliver our products and services; and

 

•

to increase our sales significantly and scale our services, we will be required to attract, hire, train and retain qualified personnel.

If we are unable to keep up with demand for our products, including our ASSURE System, our revenue could be impaired, market acceptance for our products could be harmed and we may not be able to compete against our competitor. Our inability to supply our ASSURE System and other products we are developing or may develop in the future in sufficient quantities or in a timely manner to meet clinical needs may adversely affect our profitability, and we may not be able to execute our growth plans.

The manufacturing facilities and processes of our third-party suppliers are subject to unannounced FDA and state regulatory inspections for compliance with the QSR. Developing and maintaining a compliant quality system is time consuming and expensive. Failure to maintain compliance with, or not fully complying with the requirements of the FDA and state regulators could result in enforcement actions against us or our third-party suppliers, which could include the issuance of warning letters, seizures, prohibitions on product sales, recalls and civil and criminal penalties. Additionally, our third-party suppliers have in the past and may in the future receive 483 letters or warning letters from the FDA for violations of the FDA’s requirements. If our third-party suppliers fail to adequately rectify any such violations, they may be subject to fines or penalties, which could significantly impact our manufacturing supply and provision of services and impair our reputation and financial results.

We depend on third-party suppliers and contract manufacturers to manufacture our ASSURE System and its components, which could make us vulnerable to supply shortages and price fluctuations that could harm our business.

We outsource the manufacturing of our ASSURE System and all of its components to third-party suppliers, including contract manufacturers that manufacture garments, chargers, monitors, batteries, cables and

 

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various accessories for our ASSURE System. We depend on our third-party suppliers and contract manufacturers to provide us with materials in a timely manner that meet our quality, quantity and cost requirements. These suppliers and contract manufacturers may encounter problems during manufacturing for a variety of reasons, including as a result of the ongoing COVID-19 pandemic, any of which could delay or impede their ability to meet our demand. Our reliance on third-party suppliers subjects us to a number of risks, including, but not limited to:

 

•

inability to obtain sufficient quantities of components used in our products in a timely manner or on commercially acceptable terms, including shortages of off-the shelf commercial components;

 

•

supply interruptions resulting from disruptions or changes to, or discontinuations of, a supplier’s operations, including as a result of unforeseen events such as the ongoing COVID-19 pandemic;

 

•

production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications;

 

•

the inability of the manufacturer or supplier to comply with the QSR and other relevant state or federal regulations;

 

•

delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to consistently produce quality components;

 

•

third party litigation or other claims for intellectual property infringement based on key components provided by suppliers;

 

•

price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components;

 

•

inability to control the quality of components manufactured by our third-party suppliers; and

 

•

delays in delivery by our suppliers due to changes in demand from us or their other customers and consequently, our inability to fulfill our contractual obligations to deliver our products to our end-users.

In addition, our suppliers and contract manufacturers may cease producing the components we purchase from them or otherwise decide to cease doing business with us. Further, we maintain limited volumes of inventory from most of our suppliers and contract manufacturers. If we inaccurately forecast demand for finished goods, we may be unable to meet customer demand, which could harm our competitive position and reputation.

In addition, if we fail to effectively manage our relationships with our suppliers and contract manufacturers, we may be required to change suppliers or contract manufacturers. While we believe replacement suppliers exist for all materials, components and services necessary to manufacture our ASSURE System, establishing additional or replacement suppliers for any of these materials, components or services, if required, could be time-consuming and expensive, and may result in interruptions in our operations and product delivery. Even if we are able to find replacement suppliers, we will be required to verify that the new supplier maintains facilities, procedures and operations that comply with our quality expectations and applicable regulatory requirements. Any of these events could require that we obtain regulatory authority approval before we implement the change, which could result in further delay and which may not be obtained at all. If our third-party suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continued commercialization of our ASSURE System, the supply of our products to customers and the development of any future products will be delayed, limited or prevented, which could have material adverse effect on our business,

 

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financial condition and results of operations. For example, the COVID-19 pandemic has disrupted the operations of certain of our third-party suppliers. We have worked closely with our manufacturing partners and suppliers to enable us to source key components and maintain appropriate inventory levels, and have not experienced significant disruptions in our supply chain to date. However, there is no assurance that we will not experience more significant disruptions in our supply chain in the future, particularly if the operations of our contract manufacturing partners are more severely impacted by the pandemic in the future. Any significant delays or interruption in the supply of components and materials necessary for our products, or our inability to obtain substitute components or materials from alternate sources at acceptable terms and in a timely manner could impair our ability to meet demand for our products, fulfill our contractual obligations to deliver our products and harm our business.

If our suppliers’ manufacturing facilities become damaged or inoperable, or if they are required to vacate a facility, they may be unable to manufacture our products or we may experience delays in production or an increase in costs, which could adversely affect our results of operations.

Facilities and equipment of our suppliers could be harmed or rendered inoperable by natural or man-made disasters, including fire, earthquake, terrorism, flooding and power outages. Any of these may render it difficult or impossible for us to manufacture products for some period of time. If our or our suppliers’ manufacturing facilities are inoperable for even a short period of time, our inability to manufacture our ASSURE System and interruptions to our research and development efforts for other products we are developing may result in harm to our reputation and our ability to achieve profitability. Additionally, it may be costly and time-consuming to repair or replace our facilities and the equipment we use to conduct our research and development activities and manufacture our products.

We have limited experience in directly marketing and offering our products commercially, and if we are unable to successfully expand our sales infrastructure and adequately address our customers’ needs, it could negatively impact market acceptance of our products and we may never generate sufficient revenue to achieve or sustain profitability.

As of July 31, 2021, our sales and marketing department consisted of 30 team members. Our sales and marketing team covers nine sales territories in the United States. As we commercialize our products, we will need to grow and optimize the size and geographic scope of our sales and marketing capabilities in order to develop broad brand awareness. There is significant competition for qualified and experienced sales and marketing personnel. Identifying and recruiting qualified personnel and training them in the application of our solutions, on relevant federal and state laws and regulations and on our internal policies and procedures require significant time, expense and attention. Upon completion of the training, our sales and marketing personnel will require lead time in the markets in which they operate to grow their network of accounts and achieve the productivity levels we expect them to attain. Our business may be harmed if our efforts to expand and train our sales force do not generate a corresponding increase in revenue. In particular, if we are unable to attract, 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. Moreover, to the extent we would consider hiring sales or marketing personnel from our competitors, we may be required to wait until applicable non-competition provisions have expired before deploying such personnel in restricted territories or incur costs to relocate personnel outside of such territories. We also may partner with technology, commercial and clinical partners to market and distribute our products and grow our brand. Kestra Medical Technology Services, Inc. has executed one distribution agreement with a DME supplier in order to facilitate billing and collections related to the distribution of our ASSURE System. We may consider entering into arrangements with third parties to perform certain sales, marketing, patient support and distribution services. There is no assurance of whether we will be successful in entering into arrangements with third parties to sell and market our current or future product candidates on terms that are favorable to us, if at all. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our current or future product candidates effectively. If we do not establish sales

 

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and marketing capabilities successfully, either on our own or in collaboration with third parties, in a cost-effective manner, we will not be successful in commercializing our current or future product candidates and our revenue may be materially adversely affected.

In addition, our future sales will largely depend on our ability to increase our sales and marketing efforts to adequately address our customers’ needs. Competition for sales personnel and marketing employees is intense and we may be unable to attract and retain sufficient personnel to maintain an effective sales and marketing force. If we are unable to adequately address our customers’ needs, it could negatively impact sales and market acceptance of our products, and we may not generate sufficient revenue to achieve or sustain profitability.

Once we launch any future new products and increase our marketing efforts with respect to our ASSURE System, we will need to expand the reach of our marketing and sales networks. Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled sales personnel. New hires require training and take time to achieve full productivity. If we fail to train new hires adequately, or if we experience high turnover in our sales force in the future, new hires may not become as productive as may be necessary to maintain or increase our sales. In addition, since we have a limited history as a direct sales organization, we may not be as effective or efficient in utilizing our sales personnel as other companies with longer histories utilizing a direct sales organization. As a result, we may be required to restructure our sales organization to more effectively and efficiently utilize our sales personnel, which would be costly, may divert attention from management, and lead to both planned and unplanned turnover. If we are unable to expand our sales and marketing capabilities and our product-related educational initiatives domestically and internationally, we may be unable to effectively commercialize our products.

If the quality of our products does not meet the expectations of our customers or their patients or if we or our affiliates receive negative publicity, then our brand and reputation could suffer and our business could be adversely impacted.

In the course of conducting our business, we must adequately address quality issues that may arise with our products, as well as defects in third-party components included in our products. Although we have established internal procedures to minimize risks that may arise from quality issues, we may be unable to eliminate or mitigate occurrences of these issues and associated liabilities. Lasting harm to our brand may be caused by actual or perceived quality issues even if we are able to subsequently address such issues.

Additionally, if our products are involved in an instance of patient harm, even if it is through misuse of our products, it could result in an interruption of business and damage to our reputation. If we or our affiliates, such as our third-party suppliers or contract manufacturers, distributors, employees, directors or agents, are involved in events that generate negative publicity, including, without limitation, being subject to negative regulatory actions or litigation relating to product liability, allegations of unfair pricing practices or improper disclosure or use of proprietary or personal information, our reputation may be harmed, which may adversely affect our business and results of operations. This adverse impact may occur whether or not we are directly related to, or otherwise control, such events and even the mere perception of our involvement could dilute or tarnish or otherwise adversely affect our reputation and brand.

The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination and given users the ability to organize collective actions more effectively, such as boycotts and other brand-damaging events. Many, if not all, social media platforms immediately publish their participants’ posts, often without filters or checks on the accuracy of the content posted. Any failure to respond quickly and effectively to negative or potentially damaging social media content about our products or our affiliates, regardless of the content’s accuracy, could damage our reputation, which in turn could harm our business, prospects, financial condition and results of operations. The harm may be immediate without affording us an opportunity for redress or correction.

 

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Billing for our products will be complex, and we must dedicate substantial time and resources to the billing process.

Billing for medical devices and durable medical equipment is complex, time consuming and expensive. Once we begin commercial sales of our products, including our ASSURE System, we expect that we will bill several types of payors, including Medicare, Medicaid, third-party commercial payors and patients, each of whom may have different billing requirements, procedures or expectations. We will also need to bill patient co-payments, co-insurance payments and deductibles. As part of our future collection efforts, we may face potential write-offs of doubtful accounts and long collection cycles, which could in turn adversely affect our profitability and financial condition. Factors that may render our billing and collection processes more uncertain or costly include:

 

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differences between the submitted price for our products and the reimbursement rates of payors;

 

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compliance with applicable federal and state regulations related to billing government healthcare programs;

 

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differences in coverage among payors and the effect of patient co-payments, co-insurance and deductibles; and

 

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incorrect or missing patient history, indications or billing information.

Additionally, our billing activities will require us to implement compliance procedures and oversee, train and monitor our employees and undertake internal review procedures to evaluate compliance with applicable laws, regulations and internal policies. Kestra Medical Technology Services, Inc. has partnered with a third-party DME supplier to perform billing and collection services. These billing complexities, and the potential uncertainties in obtaining payments for our products, could negatively affect our revenue and cash flow, our ability to achieve profitability, and the consistency and comparability of our results of operations.

Federal and state governments have contracted with private entities to audit and recover revenue resulting from payments made in excess of those permitted by government healthcare program rules. These entities include, but are not limited to, Recovery Audit Contractors that are responsible for auditing Medicare claims, Unified Program Integrity Contractors that are responsible for the identification of suspected fraud through medical record review and Medicaid Integrity Contractors, that are responsible for auditing Medicaid claims. We believe audits, inquiries, and investigations from these contractors and others will occur from time to time in the ordinary course of our business. We also may be subject to increased audits from commercial payors. Our efforts to be responsive to these audits, inquiries, and investigations may result in substantial costs and divert management’s time and attention away from the operation of our business. Moreover, an adverse outcome with respect to any audit, inquiry or investigation may result in damage to our reputation, or in fines, penalties or other sanctions imposed on us. Such pending or future audits, inquiries, or investigations, or the public disclosure of such matters, could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

In many instances, there are only limited publicly-available guidelines and methodologies for determining errors with certain payor audits. As a result, there can be a significant lack of clarity regarding required documentation and audit methodology. The clarity and completeness of each patient medical file, some of which is the work product of physicians or healthcare professionals not employed by us, is essential to successfully challenging any payment denials. For example, certain provisions under CMS guidance manuals, local coverage determinations, and the Durable Medical Equipment Medicare Administrative Contractor (“DME MAC”) Supplier Manuals provide that clinical information from the “patient’s medical record” is required to justify the initial and ongoing medical necessity for the provision of DMEPOS. Some DME MACs, CMS staff and other government contractors have taken the position, that the “patient’s medical record” refers not to

 

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documentation maintained by the DMEPOS supplier but instead to documentation maintained by the patient’s physician, healthcare facility or other clinician, and that clinical information created by the DMEPOS supplier’s personnel and confirmed by the patient’s physician is not sufficient to establish medical necessity. If treating physicians or clinicians do not adequately document, among other things, their diagnoses and plans of care, the risks that the Company will be subject to audits and payment denials are likely to increase. Moreover, auditors’ interpretations of these policies are inconsistent and subject to individual interpretation, leading to significant increases in individual supplier and industry-wide perceived error rates. High error rates could lead to further audit activity and regulatory burdens, and could result in our making significant refunds and other payments to Medicare and other government programs. Accordingly, our future revenue and cash flows from government healthcare programs may be reduced.

Commercial payors also may conduct audits and may take legal action to recover alleged overpayments. We could be adversely affected in some of the markets in which we operate if the auditing payor alleges substantial overpayments were made to us due to coding errors or lack of documentation to support medical necessity determinations. We cannot currently predict the adverse impact these measures might have on our financial condition and results of operations, but such impact could be material.

If our competitors are able to develop or market products and services that are more effective, or gain greater acceptance in the marketplace, than any products and services we develop, our commercial opportunities will be reduced or eliminated.

Medical innovation is accelerating and the market for WCD products and services is evolving rapidly and becoming increasingly competitive. Our planned innovation pipeline includes apparel, hardware, software and service solutions to remotely and securely monitor and manage patients in an ambulatory care environment. Once we begin commercial sales of our products, including our ASSURE System, we may compete with a variety of companies offering alternative products and services for ambulatory cardiac solutions. Our ability to compete effectively depends on our ability to distinguish our company and our products from our competitors and their products, and includes such factors as:

 

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safety and efficacy;

 

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acute and long-term outcomes;

 

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ease of use;

 

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price;

 

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patient, physician, clinic and hospital acceptance; and

 

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eligibility for reimbursement by government and third-party commercial payors.

Our primary competitor in the WCD industry is ZOLL. Larger medical device companies may also acquire, invest in or form alliances with smaller companies to diversify their product offerings and enhance their competitive position in the WCD industry. Other potential competitors are publicly traded, or are divisions of publicly-traded, major medical device or technology companies that enjoy significant competitive advantages. We may face challenges in overcoming the long-standing preferences of healthcare providers for using the products of our larger, more established competitors. Healthcare providers who are accustomed to using the products of our competitors may be reluctant to try new products from a source with which they are less familiar. Our competitors may enjoy other competitive advantages such as:

 

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greater financial and other resources than us which enable them to market and discount their products more effectively than us;

 

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large and established sales, marketing and worldwide distribution channels that have greater reach in both domestic and international markets;

 

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greater brand recognition;

 

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established business and financial relationships with a more expansive network of physicians and other healthcare providers, hospitals and medical schools;

 

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greater market share in the cardiac monitoring products market;

 

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greater resources devoted to research and development of competing products and greater capacity to allocate additional resources;

 

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greater experience in obtaining and maintaining regulatory clearances and approvals for new products and product enhancements; and

 

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larger patent portfolios and other intellectual property rights.

If our competitors and potential competitors are better able to develop WCD solutions than us or introduce more effective or less expensive WCD solutions before we are able to introduce and commence commercial sales of our products, the products and services we offer may be rendered obsolete or non-competitive. Our competitors may also be able to deploy larger or more effective sales and marketing resources than we currently have. Competition with these companies could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations.

Our marketing and sales practices, as well as our interactions with physicians and other healthcare professionals, may contain risks that could result in significant liability, require us to change our business practices and restrict our operations in the future.

We are subject to numerous domestic (federal, state and local) and foreign laws addressing fraud and abuse in the healthcare industry, including the federal False Claims Act, the Federal Anti-Kickback Statute, self-referral laws, the Foreign Corrupt Practices Act, the U.K. Bribery Act, FDA promotional restrictions, the federal Physician Payment Sunshine Act and state marketing and disclosure laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment of responsible corporate officers, and exclusion from participation in government healthcare programs such as Medicare and Medicaid as well as health programs outside the U.S., and even alleged violations can result in the imposition of corporate integrity agreements or deferred prosecution agreements that could severely restrict or limit our business practices. These laws and regulations are complex and subject to changing interpretation and application, which could restrict our sales or marketing practices. Even minor and inadvertent irregularities could potentially give rise to a charge that the law has been violated. Although we believe we have implemented and will maintain an appropriate healthcare compliance program we cannot be certain that the program will adequately detect or prevent violations and/or the relevant regulatory authorities may disagree with our interpretation. Additionally, if there is a change in law, regulation or administrative or judicial interpretations, we may have to change one or more of our business practices to be in compliance with these laws. Required changes could be costly and time consuming.

If our business practices or operations are found to be in violation of these laws or any other government regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, imprisonment of responsible corporate officers, the curtailment or restructuring of our operations, or exclusion from government healthcare programs including Medicare and Medicaid, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

 

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Our ability to compete depends on our ability to innovate successfully.

The market for medical devices, including the WCD solutions market, is marked by technological development and product innovation. Demand for our ASSURE System and other products and services that we are developing or may develop in the future could be diminished by equivalent or superior products and technologies offered by our competitors. If we are unable to innovate successfully, our products and services could become obsolete, and as a result, we may not be able to achieve profitability as customers purchase our competitors’ products and services.

In order to remain competitive, we must continue to enhance our existing products and services and develop new product offerings. We can provide no assurance that we will be successful in monetizing our medical technologies, including our ASSURE System, developing new products or commercializing them in ways that achieve market acceptance. In addition, if we develop new products, sales of those products may reduce revenue generated from our existing products. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop new products, applications or features or improve our algorithms 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, our competitors may 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.

The clinical acceptance of our products depends upon establishing and maintaining strong working relationships with physicians and other healthcare professionals.

The development, marketing and future sale of our products depends upon our ability to establish and maintain strong working relationships with physicians and other key opinion leaders. Once we begin commercializing our products, we will rely on these professionals’ knowledge and experience for the development, marketing and sale of our products. Among other things, we expect to engage with physicians and other healthcare professionals to partner with us in product development and collecting clinical evidence on the effectiveness of our product. If we cannot establish or maintain strong working relationships with these healthcare professionals, the development of and our ability to commercialize our products may be adversely affected, which could harm our business, financial condition, results of operations and prospects.

The medical device industry’s relationship with physicians and other healthcare providers is under increasing scrutiny by federal, state and other foreign and domestic government agencies. In recent years, Congress, the Department of Justice (the “DOJ”), the Office of the Inspector General (the “OIG”) of the Department of Health and Human Services (the “HHS”) and the state attorneys general have issued subpoenas and other requests for information to, as well as initiated enforcement actions against and entered into settlements with, medical device manufacturers, primarily related to financial arrangements with healthcare providers, regulatory compliance and marketing and product promotional practices. Furthermore, the federal government and certain state governments have enacted legislation to limit and/or increase the transparency of interactions between medical device manufacturers and healthcare providers, pursuant to which we are or may be required by law to disclose certain payments and other transfers of value to healthcare providers or marketing expenditures both nationally and those licensed by certain states. Our failure to comply with laws, rules and regulations governing our relationships with healthcare providers, or an investigation into our compliance by the DOJ, the HHS OIG, state attorneys general or other government agencies, could significantly harm our business.

 

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We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could harm our business.

Our success depends largely on the continued services of key members of our executive management team and others in key management positions, as well as our ability to attract, motivate, develop and retain a sufficient number of other highly skilled personnel. Our senior management team has extensive experience in the medical device industry, and we believe that the depth of their experience is instrumental to our continued success. For example, the services and expertise provided by Brian Webster, our President and Chief Executive Officer, are critical to our overall management, as well as the continued development of our solutions, our culture, our strategic direction, our innovation and our operations. Our employees may terminate their employment with us at any time. If we lose one or more key employees, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategy. We do not currently maintain key person life insurance policies on these or any of our employees.

In addition, our research and development programs depend on our ability to attract and retain highly skilled engineers. We may not be able to attract or retain qualified engineers in the future due to the competition for qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than us. 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. In addition, job candidates and existing employees often consider the value of the share awards they receive in connection with their employment. If the perceived value of our share awards declines, either because we are a public company or otherwise, it may harm our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business, financial condition, results of operations and prospects could be materially adversely affected.

Security breaches, loss of data, unauthorized uses or disclosures, and other disruptions involving our systems, products or data could compromise sensitive information related to our business or patients, result in operational disruption, or prevent us from accessing critical information, exposing us to liability, and adversely affecting our business, financial condition, operations and reputation.

In the ordinary course of our business, we and certain of our vendors, such as ClinCapture, Inc., collect and store sensitive data, including legally-protected personally identifiable health information about patients. We also process and store, and use additional third parties to process and store, sensitive intellectual property and other proprietary business information, including that of our customers, payors and collaborative partners. We employ certain administrative, technical and physical controls to secure personally identifiable health information, and we maintain our applications and data utilizing a combination of public cloud platforms such as those provided by Azure and Amazon Web Services and software-as-a-service providers such as Arena and Salesforce. These applications and data encompass a wide variety of business critical information, including research and development information, commercial information and business and financial information.

We are highly dependent on information technology networks and systems, including the internet, to securely process, transmit and store this critical information. Our third-party information technology systems may not remain available on terms acceptable to us and may require replacement, which could result in substantial operational expense, diversion of our resources, and reduced efficiency, any of which could result in any a material adverse effect on our business, financial condition or results of operations. Security breaches of our information technology infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure, access, use or modifications of confidential information, including patient information and trade secrets. The secure processing, storage, maintenance and transmission of this critical information are vital to our operations and business strategy, and we devote significant resources to protecting such information. Data security-related

 

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incidents and fraudulent activity are increasing in frequency, sophistication, and variety, and can originate from many sources, including third-party suppliers and nation-state actors. Our information technology and infrastructure, and those of our vendors, may be vulnerable to attacks by hackers or viruses or breaches due to employee error, malfeasance or other disruptions. While we have taken steps to protect our infrastructure and sensitive information from unauthorized access, disclosure, or other activity, and while we have implemented compliance measures along those lines, we continue to develop our policies and procedures for protecting such information, and there can be no assurance that these will prevent, detect, or mitigate such issues given the unpredictability of the timing, nature, and scope of data security-related incidents and fraudulent activity. Furthermore, some confidential and protected health information is transmitted to us by third parties, who may not implement adequate security and privacy measures.

A security breach or privacy violation that results in a business interruption or leads to disclosure or modification of, or prevents or interferes with access to, patient information, including protected health information, could harm our reputation, compel us to comply with disparate U.S. state and other international breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive patient data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm. We do not currently maintain cyber insurance, which could help to mitigate certain losses related to security events that may occur, and we have no assurance that we will be able to obtain such coverage in the future. Therefore, any breach or cyber incident may expose us to certain potential losses, damages or penalization with fines in an amount exceeding our resources.

Any such breach or interruption of our systems, or those of any of our third-party information technology partners, could compromise our networks or data security processes and sensitive information could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of patient information, such as the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform our services, bill payors or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare company financial information, provide information about our current and future solutions and engage in other patient and clinician education and outreach efforts. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our business and competitive position.

In addition, the individually identifiable health information we collect, receive, store, access and use from patients and covered entity healthcare providers may be subject to limitations on use and disclosure, and may require us to obtain HIPAA-compliant authorizations or other consents from patients for such uses and disclosures, including use of patient information in connection with the ASSURE Patient Registry. To the extent we fail to collect necessary authorizations or consents to use or disclose such information, or to the extent our uses or disclosures of such information violate applicable laws that protect the privacy of patient information, including HIPAA, we may be subject to liability, legal claims or proceedings, fines, or penalties pursuant to such laws.

We are subject to complex and rapidly evolving laws, regulations, rules, and standards relating to data privacy and security, and our failure to comply with such laws, regulations, rules and standards could adversely affect our business, financial condition, operations and reputation.

Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use and

 

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disclosure of personal information. For example, the California Consumer Privacy Act of 2018, as amended (“CCPA”), went into operation on January 1, 2020 and broadly defines personal information, affords California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action related to certain data security breaches. These protections will be expanded by the California Privacy Rights Act (“CPRA”), which was approved by California voters in November 2020 and will be operational in most key respects on January 1, 2023. There are similar legislative proposals being advanced in other states, as well as in Congress. International laws, such as the General Data Protection Regulation (the “GDPR”) could also apply to our operations. Failure to provide adequate privacy protections and maintain compliance with applicable privacy laws could result in significant penalties

The interpretation and application of data protection laws, rules and regulations in the United States and elsewhere are often uncertain, contradictory and in flux, with new laws passing or entering into force on a regular basis. It is possible that these laws, rules and regulations may be interpreted and applied in a manner that is inconsistent with our practices or those of our distributors and partners. If we or these third parties are found to have violated such laws, rules or regulations, it could result in government-imposed fines, orders requiring that we or these third parties change our or their practices, or criminal charges, which could adversely affect our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices, systems and compliance procedures in a manner adverse to our business. In addition, certain of these laws, such as the CCPA, may provide for a private right of action with respect to certain data breaches. This private right of action may increase the likelihood of, or the risks arising from, data breach litigation.

We may be subject to fines, penalties, or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and our business. Further, the use, misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

Our business exposes us to potential product liability claims that are inherent in the sale of medical devices for cardiovascular support. Furthermore, if our customers are not sufficiently trained in the use of our products, they may misuse or ineffectively use our products, which may result in unsatisfactory patient outcomes or patient injury. Our ASSURE System has been approved by FDA for use in adult patients who are at risk for SCA and are not candidates for, or refuse, an ICD. The use, misuse or off-label use of our products, including our ASSURE System, may in the future result in outcomes and complications potentially leading to product liability claims. If our products are defectively designed, manufactured or labeled, contains defective components or is misused, we may become subject to costly litigation initiated by physicians, the hospitals and clinics where physicians prescribing our products work or their patients.

Product liability claims are especially prevalent in the medical device industry, and regardless of the merit or eventual outcome, may result in:

 

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decreased demand for our products;

 

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injury to our reputation;

 

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significant litigation costs;

 

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substantial monetary awards to or costly settlements with patients;

 

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product recalls;

 

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material defense costs;

 

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loss of revenue;

 

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•

the inability to commercialize new products; and

 

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diversion of management attention from pursuing our business strategy.

Although we maintain product liability insurance, we may not have sufficient insurance coverage for future product liability claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation, significantly increase our expenses and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and operating results.

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

We bear the risk of warranty claims on our products.

We bear the risk of warranty claims on our products. We may not be successful in claiming recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a successful warranty claim against us by a customer or any recovery from such vendor or supplier may not be sufficient to cover our losses. In addition, warranty claims brought by our customers related to third-party components may arise after our ability to bring corresponding warranty claims against such suppliers expires, which could result in our inability to recover any costs incurred by us.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our shareholders and otherwise disrupt our operations and harm our operating results. The failure to effectively manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business, could have a material adverse effect on our operating results, increase our debt or cause us to incur significant expense.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures, technologies and market pressures. Accordingly, from time to time we may consider opportunities to acquire, make investments in or license other technologies, products and businesses that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. Potential and completed acquisitions, strategic investments, licenses and other alliances involve numerous risks, including:

 

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difficulty assimilating or integrating acquired or licensed technologies, products or business operations;

 

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issues maintaining uniform standards, procedures, controls and policies;

 

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unanticipated costs associated with acquisitions or strategic alliances, including the assumption of unknown or contingent liabilities and the incurrence of debt or future write-offs of intangible assets or goodwill;

 

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unanticipated problems or liabilities with the businesses or products acquired;

 

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diversion of management’s attention from our core business and disruption of ongoing operations;

 

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adverse effects on existing business relationships with suppliers and customers;

 

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risks associated with entering new markets in which we have limited or no experience;

 

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potential losses related to investments in other companies;

 

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potential loss of key employees of acquired businesses; and

 

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increased legal and accounting compliance costs.

The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any particular target or obtain the expected benefits of any acquisition or investment. To date, the growth of our operations has been largely organic, and we have limited experience in acquiring other businesses or technologies. We may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

Consolidation among commercial payors could result in payors eliminating coverage or demanding price concessions, which may affect our ability to offer our products at prices necessary to support our current business strategies.

The commercial payor industry is undergoing significant consolidation. In recent years, a number of health insurers have merged or increased efforts to consolidate with other commercial payors. Insurers are also increasingly pursuing alignment initiatives with healthcare providers. Consolidation within the health insurance industry may result in insurers having increased negotiating leverage and competitive advantages, such as greater access to performance and pricing data. Our ability to negotiate prices and favorable terms with health insurers in certain markets could be affected negatively as a result of this consolidation. When payors combine their operations, the combined company may elect to reimburse our products at the lowest rate paid by any of the participants in the consolidation or use its increased size to negotiate reduced rates. If one of the payors participating in the consolidation does not provide reimbursement for our products, or provides reimbursement at reduced rates, the combined company may elect not to provide reimbursement for our products, or provide such reimbursement at reduced rates, which would adversely affect our operating results. In addition, the shift toward value-based payment models could be accelerated if larger insurers, including those engaging in consolidation activities, find these models to be financially beneficial. There can be no assurance that we will be able to negotiate favorable terms with payors and otherwise respond effectively to the impact of increased consolidation in the payor industry or vertical integration efforts.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require

 

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significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations, financial condition and prospects.

We have identified material weaknesses in our internal control over financial reporting, and may identify additional material weaknesses. If our remediation of the material weaknesses is not effective, or we fail to develop and maintain effective internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired, which could harm our business and negatively impact the value of our common shares.

In connection with the preparation of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting as of April 30, 2021, as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of resources in the accounting, finance and IT functions to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness contributed to the following additional material weaknesses:

 

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We did not design and maintain effective controls to ensure the financial statements were properly presented and classified, for certain non-routine or complex transactions. Specifically, we did not design and maintain controls to appropriately account for the classification of selling, general and administrative expenses, paid-in-kind interest, restricted cash, right of use lease assets and cash flow presentation of leases. This material weakness resulted in immaterial audit adjustments to the aforementioned accounts which were recorded prior to the issuance of the consolidated financial statements as of and for the fiscal years ended April 30, 2021 and 2020.

 

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We did not design and maintain effective controls to verify personnel would not have the ability to prepare and post manual journal entries or review account reconciliations without an independent review by someone without the ability to prepare and post manual journal entries. This material weakness did not result in adjustments to the consolidated financial statements.

Additionally, these material weaknesses could result in a misstatement of substantially all of the financial statement accounts and disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected.

 

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We did not design and maintain effective controls over IT general controls for information systems that are relevant to the preparation of our consolidated financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (iii) computer operations controls to ensure that data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

These IT deficiencies did not result in adjustments to our consolidated financial statements; however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement

 

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to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, we have determined these deficiencies in the aggregate constitute a material weakness.

We have begun implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing as of the date of this prospectus and include: hiring additional personnel, such as finance and accounting, compliance, IT, human resources and other professionals with appropriate levels of knowledge and experience; engaging a third party to assist in designing and implementing controls related to period-end financial reporting, segregation of duties and IT general controls; designing and implementing controls to properly present and classify non-routine or complex transactions; implementing additional procedures and controls consistent with the Committee of Sponsoring Organizations of the Treadway Commission framework to address the risk of material misstatement; and enhancing IT governance processes.

We intend to evaluate current and projected resource needs on a regular basis and hire additional qualified resources as needed. Our ability to maintain qualified and adequate resources to support the Company and our projected growth will be a critical component of our internal control environment.

We are working to remediate the material weaknesses as efficiently and effectively as possible and expect full remediation could potentially go beyond the fiscal year ended April 30, 2022. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming, incur significant costs, and place significant demands on our financial and operational resources.

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses, the accuracy and timing of our financial reporting may be negatively impacted, we may be unable to maintain compliance with securities law requirements in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our common share price may decline as a result.

A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the ongoing COVID-19 pandemic, could adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or worldwide, our business may be adversely affected. The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing. As of the date of this prospectus, the extent to which the ongoing COVID-19 pandemic may impact our business, financial condition, results of operations and prospects remains uncertain. The full impact of the ongoing COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods.

Adverse market conditions resulting from the spread of COVID-19 could materially adversely affect our business and the value of our common shares. Numerous state and local jurisdictions, including all markets where we operate, have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions resulted in a period of largely remote operations at our headquarters when the pandemic initially began, as well as slowdowns and delays among some vendors and suppliers, among other effects, thereby negatively impacting our operations. We were able to continue our operations as a designated essential business and re-opened our office in May 2020. However, if the COVID-19 pandemic escalates, additional “shelter-in-place” orders and other restrictions may be issued and our ability to operate as an essential

 

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business could be altered. Other disruptions or potential disruptions include restrictions on the ability of our personnel to travel; delays or interruptions to our ongoing clinical trials; inability of our suppliers to manufacture goods and to deliver them to us on a timely basis, or at all; delays in actions of regulatory bodies; diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with groups of people; and business adjustments or disruptions of certain third parties. We anticipate that an increase in the unemployment rate due to the impact of COVID-19 may decrease the number of potential patients with access to health insurance, which may result in fewer diagnostic and therapeutic procedures that our products could otherwise be used for. Patients, clinicians, hospitals and other potential end-users of our solutions may apply heightened pricing pressure or defer spending on diagnostic procedures and related technologies to seek cost savings, thereby affecting our ability to commercialize our products, commence sales and generate revenue.

In response to the ongoing COVID-19 pandemic, we may take further actions that alter our business operations as may be required by local, state or federal authorities or that we determine are in the best interests of our business and our employees. Such measures could negatively affect employee productivity and our progress in achieving the commercialization of our products.

The extent to which the ongoing COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and spread of COVID-19 and the actions taken to contain COVID-19 or address its impact, among others. The extent and continued impact of the ongoing COVID-19 pandemic on our business will depend on certain developments, including: the duration and spread of the outbreak; government responses to the pandemic; the impact on our potential customers; and the effect on our partners and supply chains, all of which are uncertain and cannot be predicted. To the extent the ongoing COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. It is also not possible to predict whether any vaccine will mitigate any adverse results of the pandemic or accelerate a restoration of normal operations.

Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.

The tax regimes we are subject to or operate under, including income and non-income taxes, may be subject to significant change. Changes in tax laws, regulations, or rulings, or changes in interpretations of existing laws and regulations, could materially affect our financial position and results of operations. For example, the Tax Cuts and JOBS Act of 2017 (“Tax Act”), made broad and complex changes to the U.S. tax code, including changes to U.S. federal tax rates, additional limitations on the deductibility of interest, both positive and negative changes to the utilization of future net operating loss (“NOL”) carryforwards, allowing for the expensing of certain capital expenditures and putting into effect the migration from a “worldwide” system of taxation to a territorial system. The Tax Act and issuance of additional regulatory or accounting guidance related to the Tax Act could materially affect our tax obligations, deferred tax assets, and effective tax rate in the period issued and in the future.

During the course of his campaign and after his election, President Biden proposed to increase the tax rate for corporations and high-income individuals, double the tax rate on global intangible low-taxed income, and impose a new 15% minimum tax on global book income and other tax measures. If such proposals are passed, they may have a material impact on our financial statements.

Our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and non-U.S. earnings and other factors, including changes in tax laws and changes made by regulatory authorities.

Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not recognized on a global basis but rather on a

 

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jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate. Changes in the mix of earnings (or losses) between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate.

We are subject to taxation in multiple jurisdictions. As a result, any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, consolidated financial condition or results of operations.

We are subject to tax treatment and to the tax laws and regulations of, multiple jurisdictions as a result of the international scope of our operations and our corporate and financing structure. We are also subject to transfer pricing laws with respect to our intercompany transactions, including those relating to the flow of funds among our companies. Adverse developments in these laws or regulations, or any change in position regarding the application, administration or interpretation thereof, in any applicable jurisdiction, could have a material adverse effect on our business, consolidated financial condition or results of our operations. In addition, the tax authorities in any applicable jurisdiction may disagree with the positions we have taken or intend to take regarding the tax treatment or characterization of any of our transactions. If any applicable tax authorities were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, consolidated financial condition or results of operations.

Risks Related to Our Intellectual Property

Third parties may assert that we are employing their intellectual property and other proprietary technology without authorization, and we may become a party to litigation or administrative proceedings related to intellectual property that could be costly, time-consuming, or unsuccessful and could hinder our ability to commercialize our existing or future products.

The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible that U.S. and foreign patents and pending patent applications, trademarks or other intellectual property controlled by third parties may be alleged to cover our products or services, or components of our products or services, or that we may be accused of misappropriating third parties’ trade secrets. Additionally, our products include hardware and software components and other elements that we purchase or license from vendors and other third parties, and may include design components (including open-source components) or other elements that are outside of our direct control and could become unavailable on terms acceptable to us or be found or alleged to infringe, misappropriate or otherwise violate the intellectual property rights of third parties. Our direct or indirect competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks, and other intellectual property rights and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, have made, use, sell and/or export our products and services or to use product names. Moreover, patent applications in the United States and many international jurisdictions are typically not published until 18 months after the filing of certain priority documents (or, in some cases, are not published until they issue as patents) and publications in the scientific literature often lag behind actual discoveries. Thus, we cannot be certain that others have not filed patent applications directed to our products or technology similar to ours. Any such patent application may have priority over our patent applications or patents, which could further require us to obtain rights, if available, to any resulting third-party patents directed to such technologies. Given the number of patents directed toward the medical device industry or otherwise applicable to technologies utilized in the medical device industry, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. If a patent holder believes our product or product candidates infringe its patent, the patent holder may sue us even if we have received patent protection for our technology. Our technology and any future products that we commercialize could be alleged to infringe patent

 

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rights and other proprietary rights of third parties. Any lawsuits resulting from such allegations, if we are not successful, could subject us to significant liability for damages. Any potential intellectual property litigation also could force us to do one or more of the following:

 

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stop making, having made, selling, importing or using products or technologies that allegedly infringe the asserted intellectual property;

 

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incur significant legal expenses;

 

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pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;

 

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pay the attorneys’ fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing;

 

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

 

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

Any litigation or claim against us, even those without merit or that we are able to successfully defend, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. The defense and prosecution of these matters are both costly and time-consuming. Vendors and other parties from which we purchase or license hardware, software or other intellectual property may not indemnify us in the event that such hardware or software is accused of infringing a third party’s patent or trademark or of misappropriating a third party’s trade secret or otherwise violating a third party’s intellectual property rights. There can be no assurance with respect to the outcome of any litigation brought against us, and the outcome of any such litigation could have a material adverse impact on our business, operating results and financial condition. Litigation is inherently unpredictable and outcomes are uncertain. Further, as the costs and outcome of these types of claims and proceedings can vary significantly, it is difficult to estimate potential losses that may occur. Accordingly, we are unable at this time to estimate the effects of these potential future lawsuits on our financial condition, operations or cash flows.

In the event of a successful claim against us for infringement, misappropriation or other violation of third-party intellectual property rights, we may have to pay substantial damages.

If patents, trademarks or trade secrets or other intellectual property rights are successfully asserted against us, this may harm our business and result in injunctions preventing us from selling our products, license fees, damages and the payment of attorney fees and court costs. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some or all of our business operations, which could materially harm our business. In addition, if we are found to have willfully infringed third party patents or trademarks, or to have misappropriated trade secrets or otherwise violated other intellectual property rights of others, we could be required to pay enhanced damages in addition to other penalties, including attorneys’ fees.

In addition, we may have to obtain one or more licenses from third parties to continue developing and marketing our products and technology, pay royalties and/or redesign our products or technologies, which may be impossible or require substantial time and monetary expenditure. Although patent, trademark, trade secret and other intellectual property disputes in the medical device area sometimes may be settled through licensing or similar arrangements, we may not be able to obtain such arrangements at all and if we do, costs associated with such arrangements may be substantial and could include ongoing royalties that materially adversely impact our

 

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revenue. We may be unable to obtain necessary licenses on satisfactory terms and one or more third parties may refuse to grant necessary licenses. Some licenses from third parties may include access to technologies for use by us on defined terms. Other licenses from third parties may not provide access to any additional technologies and may be limited to granting permission for us to utilize existing or future technology in exchange for additional fees. If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement, which could result in a material adverse effect on our business. Even if we were able to obtain such licenses, then it could be granted on non-exclusive terms, thereby providing our competitors and other third parties access to any technologies licensed to us.

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

We may be subject to claims that former employees, partners or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being invalid. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our pipeline assets or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such 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, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Similarly, interference or derivation proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office (“USPTO”) or other jurisdictional bodies may be necessary to determine priority or originality with respect to our patents or patent applications. We may also become involved in other proceedings, such as reexamination, inter partes review, post-grant reviews, cancellations, derivation or opposition proceedings before the USPTO or other jurisdictional bodies relating to our intellectual property rights or the intellectual property rights of others. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products or using product names, which would have a significant adverse impact on our business.

We may become involved in litigation or administrative proceedings related to intellectual property, including litigation to protect, enforce or defend the validity of our intellectual property.

We may need to commence proceedings against others to enforce our patents, trademarks or other intellectual property, to protect our trade secrets or know-how or to determine the enforceability, scope and validity of the proprietary rights of others when we determine that a successful outcome may lead to an increase in the value of the intellectual property. If we choose to enforce our patent rights against a party, then that individual or company has the right to ask the court to rule that such patents are invalid or should not be enforced. Additionally, the validity of our patents and the patents we have licensed may be challenged if a petition for post-grant proceedings, such as inter partes review and post-grant review, is filed within the statutorily applicable time with the USPTO. Proceedings to challenge patents are also available internationally, including for example, opposition proceedings and nullity actions. In patent litigation in the United States, counterclaims alleging invalidity and/or unenforceability and PTAB challenges 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 intentionally withheld material information from the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before the PTAB, even outside the context of litigation. These proceedings would result in substantial expense to us and

 

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significant diversion of effort by our technical and management personnel. There is also the risk that, even if the validity or enforceability of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our intellectual property rights. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. We may not be able to stop a competitor from marketing and selling products that are the same or similar to our products and services or from using product or service names that are the same or similar to ours, and our business may be materially harmed as a result.

Our ability to enforce our patent rights depends on our ability to detect infringement by third parties. It may be difficult to detect infringers that do not advertise the components or methodologies that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. Adverse proceedings can be expensive, time-consuming and may divert the efforts of our technical and managerial personnel, which could in turn harm our business, whether or not we receive a determination favorable to us. In addition, a court or other judicial body may decide that the patent we seek to enforce is not patentable, invalid or unenforceable. Additionally, a court or other judicial body may refuse to stop the other party from using the technology at issue on the grounds that the patent in question does not cover the allegedly infringing technology in question or otherwise refuse to enjoin a party found to have infringed a patent. An adverse result in any proceeding could put one or more of our patents at risk of being found not patentable, invalidated or interpreted narrowly. Some of our competitors may be able to devote significantly more resources to intellectual property proceedings, and may have significantly larger intellectual property portfolios to assert against us if we assert our rights against them. Further, because of the substantial discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be disclosed or otherwise compromised.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual property or issues, which proceedings and claims may also include claims related indirectly to our intellectual property such as breach of contract, antitrust, or unfair competition. In addition, we generally indemnify our customers and distributors with respect to infringement by our products of the proprietary rights of third parties. Third parties may assert infringement claims against our customers, distributors or suppliers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, distributors or suppliers, regardless of the merits of these claims. If any of these claims succeeds or settles, we may be forced to pay damages or settlement payments on behalf of our customers, distributors or suppliers or may be required to obtain licenses for the products they use or produce for us. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop purchasing and using our products, which could expose us to substantial losses or liability and otherwise have an adverse effect on our business.

Our ability to protect our patents, trademarks and other intellectual property may be adversely affected by the COVID-19 pandemic. As a result of the COVID-19 pandemic, certain domestic and foreign intellectual property offices have amended their filing requirements and other procedures, including, but not limited to, extending deadlines and waiving fees. These accommodations have not been applied uniformly across all intellectual property offices globally, and the effectiveness and duration of existing action is unclear. Further, the ongoing COVID-19 pandemic has created uncertainty with respect to the uninterrupted operation of domestic and foreign intellectual property offices, which, amongst other things, may cause delayed processing of renewal and application filings. Our inability to establish and maintain current and future patents, trademarks or other intellectual property rights may have a material adverse effect on our business. Further, the constantly evolving nature of the COVID-19 pandemic may change its effect on our intellectual property rights over time in ways that cannot be reasonably anticipated or mitigated. This could have an adverse effect on our business, results of operations, and financial condition.

 

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Our efforts to obtain intellectual property protection and the intellectual property rights we obtain may be inadequate, and our business may be adversely affected as a result.

As part of our competitive strategy, we have and will continue to develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements with employees and third parties to protect our intellectual property rights. As of July 31, 2021, we owned, or retained exclusive license to, 85 issued U.S. patents, the earliest of which will expire in 2022. We rely, in part, on our ability to obtain and maintain patent protection for our proprietary products and processes. The process of applying for and obtaining a patent 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, in a timely manner, or in all jurisdictions where protection may be commercially advantageous, or we may not be able to protect our proprietary rights at all. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. In addition, the issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties.

Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our products or technology. Furthermore, the issuance of a patent does not give us the right to make, use, or sell the patented invention. Other parties may have developed technologies that may be related or competitive to our products, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patents or patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position. The patent positions of medical device companies, including our patent position, may involve complex legal and factual questions, and, therefore, the scope, validity and enforceability of any patent claims that we or others have or may obtain cannot be predicted with certainty. Third parties may have blocking patents that could prevent us from manufacturing, marketing or distributing our own products and making, using, or selling our own technology. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents and other intellectual property rights, including by filing lawsuits alleging patent infringement, misappropriation and other violations of intellectual property. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid or unenforceable; competitors may then be able to market products and use manufacturing and analytical processes that are substantially similar to ours. In addition, such proceedings may be costly. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from making, using, or selling our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

We may not be able to correctly estimate or control our future operating expenses in relation to obtaining intellectual property, enforcing intellectual property and/or defending intellectual property, which could affect operating expenses. Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, including the costs of preparing, filing, prosecuting, defending, and enforcing patent and trademark claims and other intellectual property-related costs, including adverse proceedings (such as litigation) costs.

 

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To the extent our intellectual property protection is incomplete, we are exposed to a greater risk of direct competition. A third party could, without authorization, copy or otherwise obtain and use our products or technology, or develop similar technology. Our competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts or design around our protected technology. Our failure to secure, protect and enforce our intellectual property rights could substantially harm the value of our products, brand and business. The theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our products and harm our business, the value of our investment in development or business acquisitions could be reduced and third parties might make claims against us related to losses of their confidential or proprietary information. Any of the foregoing could materially and adversely affect our business.

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

We rely heavily on trade secrets and confidentiality agreements to protect our unpatented know-how, technology, proprietary information, including parts of our ASSURE System, and to maintain our competitive position. However, trade secrets and know-how can be difficult to protect. In particular, we anticipate that with respect to our technologies, these trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology and movement of personnel, including from academic to industry scientific positions. In addition to pursuing patents on our products and technology, we take steps to protect our intellectual property and proprietary technology by entering into agreements, including confidentiality agreements, non-disclosure agreements and intellectual property assignment agreements, with parties who have access to them, such as our employees, consultants and other third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors or former or current employees, despite the existence generally of these confidentiality agreements and other restrictions. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. There can be no assurance that employees, consultants, vendors, clients and others with access to the confidential and proprietary information have executed such agreements or have not breached or will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors. Despite the protections we do place on our intellectual property, monitoring unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be adequate. In addition, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United States and there can be no assurance that we have sufficiently protected our intellectual property in every foreign country in which our products may be sold. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect our technology.

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. Our assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. We may be subject to claims challenging the inventorship or ownership of our intellectual property. We also may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Such an outcome could have a material adverse effect on our

 

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business. Even if we are successful in defending against such claims, litigation could result in substantial costs and distraction to management and other employees.

Further, it is possible that others independently will develop the same or similar technology or otherwise obtain access to our unpatented technology, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. If we fail to obtain or maintain trade secret protection, or if our competitors obtain our trade secrets or independently develop technology similar to ours or competing technologies, our competitive market position could be materially adversely affected. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets and agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be enforceable in certain cases.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information or alleged trade secrets of third parties or competitors or are in breach of non-competition or non-solicitation agreements with our competitors or their former employers.

We also may employ or otherwise engage personnel who were previously or are concurrently employed or engaged at research institutions or other medical device companies, including our competitors or potential competitors. We may be subject to claims that these personnel, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former or concurrent employers, or that patents and applications we have filed to protect inventions of these personnel, even those related to one or more of our products, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets and our business may be adversely affected.

We rely on trademarks, service marks, trade names and brand names, such as our registered trademarks ASSURE, KESTRA and KESTRA CARESTATION, to distinguish our products from the products of our competitors, and have registered or applied to register these trademarks. We cannot assure you that we have applied for all the marks in the jurisdictions and classes of goods and services that are or will be material to our business or, where we have applied, that our trademark applications will be approved. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO or equivalent institutions in other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources towards advertising and marketing new brands. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

Further, we cannot assure you that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. We also face risks in connection with our international expansion, including in countries that may have less protection for our trademarks than the United States. There is a risk that our trademarks may not be adequate to protect our brand or may conflict with the trademarks of other companies,

 

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both domestically and abroad, which may require us to rebrand our products, obtain costly licenses, defend against third-party claims, or substantially change our product or service offerings. Should such risks manifest, we may be required to expend considerable resources and divert the attention of our management, which could have an adverse effect on our business and results of operations.

If we do not adequately protect our trademarks and trade names, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. Our registered or unregistered trademarks may be challenged, infringed, circumvented, declared to be descriptive, declared generic or conflict with third-party rights. We may not be able to protect our rights to these trademarks, which we need to build name recognition by potential partners or customers in our markets of interest. In addition, third parties may file first for our trademarks in certain countries. If they succeed in registering such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to market our products in those countries. In such cases, over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then our marketing abilities may be impacted.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our existing and future products.

As is the case with other medical device and medical technology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the medical device and medical technology industries involve both technological and legal complexity and is therefore costly, time-consuming and inherently uncertain, due in part to ongoing changes in patent laws. Depending on decisions by Congress, the federal courts and the USPTO and equivalent institutions in other jurisdictions, the laws and regulations governing patents, and interpretation thereof, could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce existing or future patents. For example, in recent years the U.S. Supreme Court has ruled on several patent cases that have been interpreted to have either narrowed the scope of patent protection or weakened the rights of patent owners in certain situations. Therefore, there is increased uncertainty with regard to our ability to obtain patents in the future, as well as uncertainty with respect to the value of patents once obtained.

Patent reform legislation 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 enacted in September 2011 (the “Leahy-Smith Act”), 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. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications are prosecuted and may also 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, inter partes review and derivation proceedings. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, particularly the first inventor-to-file provisions. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith 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, all of which could harm our business, financial condition, results of operations and prospects. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future.

 

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Even if our patents are determined by a court to be valid and enforceable, courts may not interpret them sufficiently broadly to prevent others from marketing products similar to ours or designing around our patents. For example, third parties may be able to make product that are similar to ours but that are not covered by the claims of our patents. Third parties may assert that were not the first to make the inventions covered by our issued patents. The claims of our issued patents or patent applications when issued may not cover our proposed commercial technologies or the future products that we develop. We may not have freedom to commercialize our products unimpeded by the patent rights of others. Third parties may have dominating, blocking, or other patents relevant to our technology of which we are not aware. There may be prior public disclosures or art that could be deemed to invalidate one or more of our patent claims. Further, we may not develop additional proprietary technologies in the future, and, if we do, they may not be patentable.

Patent law can be highly uncertain and involve complex legal and factual questions for which important principles remain unresolved. In the United States and in many international jurisdictions, policy regarding the breadth of claims allowed in patents can be inconsistent. The U.S. Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how they interpret the patent laws of the United States. Similarly, international courts have made, and will likely continue to make, changes in how they interpret the patent laws in their respective jurisdictions. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and international legislative bodies. Those changes may materially affect our patent rights and our ability to obtain issued patents.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we fail to comply with these requirements.

The patent prosecution process is also expensive and time-consuming, and we may not be able to file, prosecute, maintain, protect, defend, enforce or license all necessary or desirable patents or patent applications, as applicable, at a reasonable cost, in a timely manner, in all potentially relevant jurisdictions, or at all. It is possible that defects as to 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, claim scope, or requests for patent term adjustments. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. If we delay filing a patent application, and a competitor files a patent application on the same or similar invention before we do, our ability to secure patent rights may be limited and we may not be able to patent the invention at all. Even if we can patent the invention, we may be able to patent only a limited scope of the invention, and the limited scope may be inadequate to protect our assets and technologies, or to block competitor’s products and technologies that are similar or adjacent to ours. Our earliest patents and patent filings are public. A competitor may review our published patent filings and arrive at the same or similar technology advances for our assets as we developed. If the competitor files a patent application on such an advance before we do, then we may no longer be able to protect that aspect of our assets and technologies and we may require a license from the competitor, which may not be available on commercially viable terms or at all. Moreover, we may not develop additional proprietary products, methods and technologies that are patentable. We also rely to a certain extent on trade secrets, know-how, and technology, that are not protected by patents, to maintain our competitive position. If any trade secret, know-how or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially and adversely affected.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on any issued patents and certain pending patent applications are required to be paid to the USPTO or foreign patent agencies in several stages over the lifetime of a patent. The USPTO and various foreign patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar requirements during the patent application and prosecution process. Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official communications within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. While an inadvertent

 

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lapse in many cases can be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in irrevocable abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we fail to maintain the patents and patent applications directed to our product candidates, our competitors might be able to enter the market with similar or identical products or technology, which would harm our business, financial condition, results of operations and prospects.

In addition, patent expiration dates may be affected by a number of factors. For example, patent terms may be shortened or lengthened by terminal disclaimers, patent term adjustments, supplemental protection certificates, and patent term extensions. Patent term extensions and supplemental protection certificates, and the like, may be impacted by the regulatory process and may not significantly lengthen patent term. Non-payment or delay in payment of patent fees or annuities, delay in patent filings or delay in extension filing (including any patent term extension or adjustment filing), whether intentional or unintentional, may also result in the loss of patent rights important to our business.

Intellectual property rights do not necessarily address all potential threats.

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:

 

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others may be able to make products that are similar to any product candidates we may develop or utilize similar technology but that are not covered by the claims of the patents that we own or license now or in the future;

 

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we might not have been the first to make the inventions covered by the issued patent or pending patent application that we own now or in the future;

 

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we might not have been the first to file patent applications directed to certain of our or their inventions;

 

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

 

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it is possible that our pending held or licensed patent applications or those that we may file or license in the future will not lead to issued patents;

 

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issued patents to which we hold rights may be held invalid or unenforceable, including as a result of legal challenges by other persons;

 

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our competitors might conduct research and development activities in the United States under FDA-related safe harbor patent infringement exemptions and/or in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

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we may not develop additional proprietary technologies or products that are patentable;

 

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the patents or pending patent applications of others may harm our business;

 

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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;

 

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•

we cannot assure that any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products;

 

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we may not be able to successfully commercialize our products on a substantial scale, if approved, before our relevant patents expire;

 

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we cannot assure that our commercial activities or products will not infringe the intellectual property rights of others; and

 

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

Should any of these events occur, they could harm our business, financial condition, results of operations and prospects.

We include technology in our products that is licensed to us by third parties. Any loss of our rights to this technology could prevent us from selling our products.

We hold a number of IP and technology licenses under which we license IP and technology from third parties that we use in our products or other parts of our business. We do not own the IP that underlies these licenses. Our rights to use the licensed IP is subject to the continuation of and compliance with the terms of the licenses, including terms that may restrict our ability to expand our use of such IP into other fields. We expect that we may need to enter into additional license agreements in the future. Our business could suffer, for example, if any current or future licenses terminates, if the licensors fail to abide by the terms of the license, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms.

As we have done previously, we may need or may choose to obtain patent or other licenses from third parties to advance our research or allow commercialization of our current or future products. We cannot provide any assurances that third-party patents do not exist that might be enforced against our current or future products in the absence of such a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may not be exclusive. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected products, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.

Licensing of intellectual property is important to our business and involves complex legal, business and scientific issues. Disputes have arisen in the past and may arise in the future between us and our licensors regarding intellectual property subject to a license agreement, including:

 

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the scope of rights granted under the license agreement and other interpretation-related issues;

 

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whether and the extent to which our technology and processes infringe intellectual property of the licensor that is not subject to the licensing agreement;

 

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our right to enlist third party vendors or contractors to manufacture or assemble components under the scope of the license agreement;

 

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our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

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royalty calculations, including our obligation to disclose proprietary manufacturing information, determining products included or excluded from royalty obligations, and compliance with audit rights;

 

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disclosure of terms of existing license agreements to third parties based on confidentiality obligations included in the license agreements;

 

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mergers, acquisition, dissolutions, or other business entity transactions that can affect the ownership of property subject to the license agreement or obligations under the license agreement;

 

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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our products, and what activities satisfy those diligence obligations; and

 

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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product, or the dispute may have an adverse effect on our business.

In addition to agreements pursuant to which we in-license intellectual property, we have granted in the past and will continue to grant in the future licenses under our intellectual property. Like our in-bound licenses, our out-bound licenses are complex and disputes may arise between us and our licensees, such as the types of disputes described above. Moreover, our licensees may breach their obligations, or we may be exposed to liability due to our failure or alleged failure to satisfy our obligations. Any such an occurrence could have an adverse effect on our business.

Risks Related to Government Regulation

Changes in the regulatory environment may make it more difficult and costly for us to obtain regulatory clearances or approvals for our products or to manufacture, market or distribute our products after clearance or approval is obtained.

Healthcare laws and regulations change frequently and may change significantly in the future. We may not be able to adapt our operations to address every new regulation, and new regulations may adversely affect our business. We cannot assure you that a review of our business by courts or regulatory authorities would not result in a determination that adversely affects our revenue and operating results, or that the healthcare regulatory environment will not change in a way that restricts our operations. In addition, there is risk that the U.S. Congress may implement changes in laws and regulations governing providers of healthcare services and products, including measures to control costs, or reductions in reimbursement levels, which may adversely affect our business and results of operations.

Government payors, such as Medicare, as well as private health insurers, have increased their efforts to control the cost, utilization and delivery of healthcare services and products. From time to time, the U.S. Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation. For example, The Budget Control Act, as amended, resulted in the imposition of 2% reductions in Medicare (but not Medicaid) payments to providers in 2013 and will remain in effect through 2030. As part of the recent COVID-19 relief package, Congress extended the payment reduction suspension through December 31, 2021. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us could have an adverse impact on our results of operations.

 

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Further reductions of reimbursement by Medicare for services or changes in policy regarding coverage of tests or other requirements for payment, such as prior authorization or a physician or qualified practitioner’s signature on test requisitions, may be implemented from time to time. Reductions in the reimbursement rates and changes in payment policies of other third party payors may occur as well. Similar changes in the past have resulted in reduced payments as well as added costs and have added more complex regulatory and administrative requirements.

If we fail to comply with healthcare and other governmental regulations, we could face substantial penalties and our business, results of operations and financial condition could be adversely affected.

The products and services we offer are highly regulated, and there can be no assurance that the regulatory environment in which we operate will not change significantly and adversely in the future. Our business practices, distribution and billing arrangements with third-party DME providers, and other arrangements with physicians and other healthcare providers, hospitals, clinics, third-party payors, and patients and patient organizations may expose us to scrutiny under broadly applicable fraud and abuse and other laws and regulations that may restrict the financial arrangements and relationships through which we market, sell and distribute our products and services. U.S. federal and state healthcare laws and regulations that may affect our ability to conduct business, include, without limitation:

 

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

 

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the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the furnishing, purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs, such as the Medicare and Medicaid programs. In addition, 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;

 

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the federal civil and criminal false claims laws and civil monetary penalties laws, including the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the government, healthcare programs. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act; the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;

 

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the federal Physician Payment Sunshine Act (“Open Payments”), created under the Affordable Care Act (as defined below), and its implementing regulations, which requires manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to CMS information related to payments or other transfers of value made to licensed physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Additionally, beginning in 2022, applicable manufacturers will also be required to report certain payments and other transfers of value made during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists, anesthesiology assistants and certified nurse midwives;

 

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information upon “covered entities” (health plans, healthcare clearinghouses and certain healthcare providers), and their respective business associates, individuals or entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HIPAA mandates the reporting of certain breaches of health information to the HHS Office of Civil Rights, affected individuals, and, if the breach is large enough, the media. Entities that are covered by HIPAA (e.g., covered entities and business associates) found to be in violation of HIPAA as the result of a breach of unsecured protected health information, a complaint about privacy practices or an audit by HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. HIPAA also created criminal liability for executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

 

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the federal Food, Drug and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

 

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U.S. federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm customers;

 

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the federal physician self-referral prohibition, commonly known as the Stark Law; and

 

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state 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-mandated disclosures of payments or other transfers of value to healthcare providers or marketing expenditures, state laws related to insurance fraud in the case of claims involving private insurers, 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 often are not preempted by HIPAA, thus complicating compliance efforts.

These laws and regulations, among other things, constrain our business, marketing, sales, distribution and other promotional and research activities by limiting the kinds of financial arrangements that we may have with hospitals, physicians or other potential referral sources for our products, as well as our arrangements with other third parties for the purchase, sale, billing, and distribution of our products. In particular, these laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements, as well as interactions with healthcare professionals through consultant arrangements, product training, sponsorships, or other activities. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare and other laws and regulations will involve substantial costs.

Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, governmental authorities may possibly conclude that our business practices may not comply with healthcare laws and regulations. To enforce compliance with the healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Any action brought against us for violations of these laws or regulations, even successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. We may be subject to private “qui tam” actions brought by individual whistleblowers

 

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on behalf of the federal or state governments, with potential liability under the federal False Claims Act including mandatory treble damages and significant per-claim penalties. Additionally, as a result of these investigations and qui tam actions, we may have to agree to additional compliance and reporting requirements as part of a consent decree, deferred prosecution or corporate integrity agreement.

We have implemented a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies, training, auditing and monitoring. We expect to devote substantial resources to implement, maintain, administer and expand the compliance program as necessary. Our company is a member of AdvaMed and complies with the AdvaMed Code. We cannot be certain, however, that our compliance program will ensure compliance with the various complex laws and regulations to which we are subject now or in the future. The risk of our being found in violation of these or other laws and regulations is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the federal and state laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to penalties, including significant criminal, civil, and administrative penalties, damages, fines, imprisonment, for individuals, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, or oversight if we become subject to a consent decree, deferred prosecution or corporate integrity agreement, and we could be required to curtail or cease our operations. Any of the foregoing consequences could materially adversely affect our business, financial condition, results of operations and prospects.

Our team members, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

Our products and operations are subject to extensive government regulation and oversight. If we fail to obtain and maintain necessary regulatory clearances or approvals for our products, or if clearances or approvals for future products and indications are delayed or not issued, or if we fail to comply with post-marketing regulatory requirements, our commercial operations would be harmed.

Our products are subject to extensive regulation by the FDA. Government regulations specific to medical devices are wide ranging and govern, among other things:

 

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product design, development and manufacture;

 

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laboratory, pre-clinical and clinical testing, labeling, packaging, storage and distribution;

 

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premarketing clearance and approval;

 

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record keeping;

 

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establishment registration and device listing;

 

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product marketing, promotion, advertising, sales and distribution; and

 

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post-marketing surveillance, including reporting of deaths or serious injuries, recalls, corrections and removals.

Before a new medical device or service, or a new intended use for an existing product or service, can be marketed in the United States, a company must first submit and receive either 510(k) clearance or premarketing approval from the FDA, unless an exemption applies. Either process can be expensive, lengthy and

 

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unpredictable. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. We may not be able to obtain the necessary clearances or approvals or may be unduly delayed in doing so, which could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the product, which may limit the market for the product.

The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:

 

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

 

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

 

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Serious and unexpected adverse device effects experienced by participants in clinical trials of our products;

 

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

 

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

 

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

 

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

Although we have obtained FDA approval to market our ASSURE System, we will be subject to ongoing and pervasive post-marketing regulatory requirements governing, among other things, the manufacture, marketing, advertising, medical device reporting, sale, promotion, registration, and listing of devices. For example, we are required to file various reports with the FDA, including reports required by the medical device reporting regulations (“MDRs”) that require that we report to the regulatory authorities if our products may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not filed in a timely manner, regulators may impose sanctions and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business. In addition, our PMA for our ASSURE System was subject to several conditions of approval, including labeling, useful life restrictions, the commencement of a post-approval registry and post-market study requirements. Though we believe we have complied with these conditions to date, any failure to comply with the conditions of approval could result in the withdrawal of our PMA and the inability to continue to market our ASSURE System.

If we initiate a correction or removal for any of our products to reduce a risk to health posed by any such products, we would be required to submit a publicly available Correction and Removal report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to increased scrutiny by the FDA and our customers regarding the quality and safety of our products. Furthermore, the submission of these reports could be used by competitors against us and cause physicians to delay or cancel prescriptions, which could harm our reputation.

 

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The FDA and the Federal Trade Commission (“FTC”) also regulate the advertising and promotion of our products and services to ensure that the claims we make are consistent with our regulatory approvals and clearances, that there is adequate and reasonable data to substantiate the claims and that our promotional labeling and advertising is neither false nor misleading. If the FDA or FTC determines that any of our advertising or promotional claims are misleading, not substantiated or not permissible, we may be subject to enforcement actions, including warning letters, and we may be required to revise our promotional claims and make other corrections or restitutions.

The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:

 

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adverse publicity, untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

 

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repair, replacement, refunds, recall or seizure of our products;

 

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operating restrictions, partial suspension or total shutdown of production;

 

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delays or denial of our requests for 510(k) clearance or premarket approval of new products or services, new intended uses or modifications to existing products or services;

 

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withdrawal of 510(k) clearance or premarket approvals that have already been granted; and

 

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criminal prosecution.

If any of these events were to occur, our business, financial condition, results of operations and prospects could be materially adverse affected.

Material modifications to our ASSURE System or any future products may require new PMAs, 510(k) clearances, CE Marks or other premarket approvals or may require us to recall or cease marketing our products and services until clearances are obtained.

Material modifications to the intended use or technological characteristics of our products will require new PMA or 510(k) clearances or CE Mark grants, or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained. Based on FDA published guidelines, 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; however, the FDA can review a manufacturer’s decision. Any modification to an FDA cleared device or service that would significantly affect its safety or efficacy or that would constitute a major change in its intended use would require a new PMA or 510(k) clearance. We may not be able to obtain additional PMA or 510(k) clearances for new products or for modifications to, or additional indications for, our products in a timely fashion, or at all. Delays in obtaining required future approvals or clearances would harm our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. If the FDA disagrees and requires new clearances or approvals for any modifications we may make to our products in the future, we may be required to recall and to stop selling or marketing such products as modified, which could harm our operating results and require us to redesign our products or services. In these circumstances, we may also be subject to significant enforcement actions.

If we or our suppliers fail to comply with the federal, state and international regulations, our operations could be delayed or shut down and our revenue could suffer.

The manufacturing processes of our third-party suppliers are required to comply with the FDA’s QSR, which covers procedures and documentation of the design, testing, production, control, quality assurance,

 

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labeling, packaging, storage and shipping of our products. We are also subject to similar state requirements and licenses, and to ongoing ISO 13485 and ISO 14971 compliance in all operations, including design and service. In addition, we must engage in extensive recordkeeping and reporting and must make available our facilities and records for periodic unannounced inspections by governmental agencies, including the FDA and state authorities. If we or our third-party suppliers fail a regulatory inspection, our operations could be disrupted and manufacturing interrupted. Failure to take adequate corrective action in response to an adverse regulatory inspection could result in, among other things, a shutdown of our third-party suppliers’ manufacturing operations, our product distribution operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our device, operating restrictions and criminal prosecutions, any of which would cause our business to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays for our products and cause our revenue to decline.

The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine our compliance with the QSR and other regulations at both our design and manufacturing facilities, and these inspections may include the manufacturing facilities of our suppliers. We can provide no assurance that we will continue to remain in compliance with the QSR. If the FDA inspect any of our facilities or our third-party suppliers’ facilities and discover compliance problems, we may have to cease manufacturing and product distribution until we can take the appropriate remedial steps to correct the audit findings. Taking corrective action may be expensive, time consuming and a distraction for management, which may have an adverse impact on our ability to continue with our research and development projects and implement our business growth plans.

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

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

The FDA has the authority to require the recall of commercialized products in the event of material regulatory deficiencies or defects in design or manufacture. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design or labeling defects. Recalls of our products would divert managerial attention, be expensive, harm our reputation with customers and harm our financial condition and results of operations. A recall announcement would also negatively affect our share price.

Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new clearances or approvals for the device before we may market or distribute the corrected device. Seeking such clearances or approvals may delay our ability to replace

 

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the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties or civil or criminal fines.

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

Any future sales of our products outside of the United States are subject to foreign regulatory requirements that vary widely from country to country. In addition, the FDA regulates exports of medical devices from the United States. While the regulations of some countries may not impose barriers to marketing and selling our products or only require notification, others require that we obtain the clearance, certification or approval of a specified regulatory body. Complying with foreign regulatory requirements, including obtaining registrations, clearances, certifications or approvals, can be expensive and time-consuming, and we may not receive regulatory clearances, certifications or approvals in each country in which we plan to market our products or we may be unable to do so on a timely basis. The time required to obtain registrations, clearances, certifications or approvals, if required by other countries, may be longer than that required for FDA clearance or approval, and requirements for such registrations, clearances, certifications or approvals may significantly differ from FDA requirements. If we modify our products, we may need to apply for regulatory clearances or approvals before we are permitted to sell the modified product.

Regulatory clearance or approval by the FDA does not ensure registration, clearance, certification or approval by regulatory authorities in other countries, and registration, clearance, certification or approval by one or more foreign regulatory authorities does not ensure registration, clearance, certification or approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining registration or regulatory clearance, certification or approval in one country may have a negative effect on the regulatory process in others.

Healthcare reform measures could hinder or prevent the commercialization of our products and our ability to achieve profitability.

There have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could harm our future revenue and profitability. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, the Affordable Care Act contains a number of provisions, including those governing enrollment in government healthcare programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the development of new programs.

Under the Trump administration, there were ongoing efforts to modify or repeal all or certain provisions of the Affordable Care Act. For example, tax reform legislation was enacted at the end of 2017 that eliminated the tax penalty established under Affordable Care Act for individuals who do not maintain mandated health insurance coverage beginning in 2019. The Affordable Care Act has also been subject to judicial challenge. The case Texas v. Azar, which challenges the constitutionality of the Affordable Care Act, including provisions that are unrelated to healthcare reform but were enacted as part of the Affordable Care Act, was argued before the Supreme Court in November 2020. Pending resolution of the litigation, all of the Affordable Care Act but the individual mandate to buy health insurance remains in effect. The nature and scope of healthcare reform in the wake of the transition from the Trump administration to the Biden administration remains uncertain. The Department of Justice under the Biden administration informed the Supreme Court that the government no longer takes the position that the individual mandate is unconstitutional and cannot be severed from the rest of the Affordable Care Act. President Biden has temporarily halted implementation of new rules issued immediately prior to the transition that had not yet taken effect (which include a number of healthcare reforms) to allow for review by the new administration.

 

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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:

 

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our ability to set a price that we believe is fair for our products;

 

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

 

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the availability of capital.

If we fail to maintain required licenses, certifications, or accreditation, or if we do not fully comply with requirements to provide notice to or obtain approval from regulatory authorities due to changes in our ownership structure or operation, it could adversely impact our operations.

We are required to maintain state and/or federal licenses and certifications for our operations and facilities. From time to time, we may become subject to new or different licensing requirements due to legislative or regulatory requirements or the development of or changes to our business. We are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and certifications, some of which are complex and may be unclear or subject to varying interpretation.

Accurate licensure is also a critical threshold issue for Medicare enrollment as a DMEPOS Supplier, which is required in order to bill Medicare for products provided to Medicare beneficiaries. In addition, many private health insurers and Medicaid agencies require DMEPOS suppliers to maintain Medicare enrollment, and we are required to comply with the Medicare DMEPOS Supplier Standard in order to maintain such Medicare enrollment. Although we believe we have the right systems in place to monitor licensure and certification, our failure to obtain and maintain appropriate licensure or certification for our operations, facilities, and clinicians could result in interruptions in our operations and our ability to service patients, refunds to state and/or federal payors, and the imposition of sanctions or fines, which could have an adverse and material impact on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

Accreditation is required by most commercial payors and is a mandatory requirement for all Medicare DMEPOS suppliers. Our company has received DME accreditation via a virtual inspection and a confirmatory onsite visit. CMS recently conducted an additional onsite inspection prior to issuance of a Medicare P-TAN number to our company as a Medicare DMEPOS supplier. If we fail to maintain our accreditation or Medicare P-TAN number, or lose our accreditation or Medicare P-TAN number, it could have a material adverse effect on our business, financial condition, results of operations, cash flow, capital resources and liquidity.

The requirements for licensure and certification may include notification or approval in the event of a transfer or change of ownership or certain other changes. Government healthcare programs or commercial payors with which we intend to enter into contracts may have similar requirements and some of those processes may be complex. Failure to provide required notifications or obtain the requisite approvals could result in the delay or inability to complete an acquisition or transfer, loss of licensure, lapses in reimbursement or other penalties. While we make reasonable efforts to substantially comply with these requirements, if we are found to have failed to comply in some material respect, it could have an adverse or material impact on our business and our financial conditions.

Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.

Our research and development operations involve the use of hazardous substances and are subject to a variety of federal, state, local and foreign environmental laws and regulations relating to the storage, use,

 

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discharge, disposal, remediation of, and human exposure to, hazardous substances and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances. Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with environmental laws and regulations may be expensive and noncompliance could result in substantial liabilities, fines and penalties, personal injury and third-party property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We cannot assure you that violations of these laws and regulations will not occur in the future as a result of human error, accidents, equipment failure or other causes. The expense associated with environmental regulation and remediation could materially adversely affect our business, financial condition, results of operations and prospects.

Risks Related to This Offering

Our Principal Shareholder controls us, and its interests may conflict with ours or yours.

Immediately following this offering, our Principal Shareholder will beneficially own approximately    % of our common shares, or     % if the underwriters exercise in full their over-allotment option, which means that, based on its percentage voting power held after this offering, the Principal Shareholder will control the vote of all matters submitted to a vote of our shareholders, which will enable it to control the election of the members of our Board of Directors and other corporate decisions. Even when the Principal Shareholder ceases to own a portion of our shares representing a majority of the total voting power, for so long as the Principal Shareholder continues to own a significant percentage of our shares, the Principal Shareholder will still be able to significantly influence the composition of our Board of Directors issuance of equity, including to our employees under equity incentive plans, amendments of our organizational documents, or approval of any merger, amalgamation, sale of assets or other major corporate transaction. Accordingly, for such period of time, the Principal Shareholder will have substantial influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our memorandum of association and amended and restated bye-laws to be in effect upon the closing of this offering, which govern the rights attached to our common shares. In particular, for so long as the Principal Shareholder continues to own a significant percentage of our shares, the Principal Shareholder will be able to cause or prevent a change of control of us or a change in the composition of our Board of Directors and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your common shares as part of a sale of us and ultimately might affect the market price of our common shares.

The Principal Shareholder and its affiliates engage in a broad spectrum of activities, including investments in the healthcare industry generally. In the ordinary course of its business activities, the Principal Shareholder and its affiliates may engage in activities where their respective interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. The Principal Shareholder also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, the Principal Shareholder may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you.

Upon listing of our shares on                    , we will be a “controlled company” within the meaning of the                rules of and, as a result, we will qualify for exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to shareholders of companies that are subject to such governance requirements.

After the completion of this offering, the Principal Shareholder will continue to control a majority of the voting power of our outstanding common shares. As a result, we will be a “controlled company” within the

 

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meaning of the corporate governance standards of                . Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

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the requirement that a majority of our Board of Directors consist of independent directors;

 

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the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

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the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

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the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we may elect to utilize one or more of these exemptions. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of                    .

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 shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company for up to five years. 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, and may also take advantage of the reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and obtaining shareholder approval of any golden parachute payments not previously approved. As a result, the information we provide shareholders will be different than the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company and we have provided 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.”

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of the provision of the JOBS Act that permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. As a result of these elections, our financial statements may not be comparable to those of public companies that comply with such new or revised accounting standards.

We are also a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company for so long as either (1) the market value of our common shares held by non-affiliates is less than $250 million as of the last business day of our most recently completed second fiscal quarter or (2) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our common shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second quarter. Any loss of our status as a smaller

 

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reporting company takes effect in the first quarter after the fiscal year in which we cease to qualify as a smaller reporting company. To the extent that we continue to qualify as a smaller reporting company at the time we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC.

An active, liquid trading market for our common shares may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our common shares. Although we intend to apply to list our common shares on                under the symbol “KMTS”, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations among us and the representatives of the underwriters and may not be indicative of market prices of our common shares that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common shares. The market price of our common shares may decline below the initial public offering price, and you may not be able to sell your shares at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other technologies related to our business by using our shares as consideration.

Our share price may be volatile, and you may be unable to resell your shares at or above the initial public offering price.

The market price of our common shares may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. We and the underwriters have negotiated the initial public offering price. You may not be able to resell your shares at or above the initial public offering price or at all. The public trading price for our common shares after this offering will be affected by a number of factors, including:

 

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changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ estimates;

 

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quarterly variations in our or our competitors’ results of operations;

 

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periodic fluctuations in our revenue;

 

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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

 

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general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors;

 

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changes in reimbursement by potential payors;

 

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changes in operating performance and stock market valuations of other technology companies generally, or those in the medical device industry in particular;

 

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actual or anticipated changes in regulatory oversight of our products;

 

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•

the results of our clinical trials;

 

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the loss of key personnel, including changes in our Board of Directors and management;

 

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legislation or regulation of our market;

 

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lawsuits threatened or filed against us;

 

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the announcement of new products or product enhancements by us or our competitors;

 

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announced or completed acquisitions of businesses or technologies by us or our competitors;

 

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announcements related to patents issued to us or our competitors and related litigation;

 

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general economic conditions and trends;

 

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effects of public health crises, such as the COVID-19 pandemic; and

 

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developments in our industry.

These and other factors, many of which are beyond our control, may cause our results of operations and the market price and demand for our shares to fluctuate substantially. In addition, the share prices of many companies in the medical device industry have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. While we believe that results of operations for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly results of operations could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

We may be a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to United States Holders.

Under the United States Internal Revenue Code of 1986, as amended (the “Code”), a non-U.S. corporation (such as ourselves) will be classified as a passive foreign investment company (a “PFIC”) for any taxable year if, for such year after the application of certain look-through rules with respect to subsidiaries, either:

 

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at least 75% of our gross income for the year is “passive income” (as described below); or

 

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the average percentage of our assets (determined at the end of each quarter) during the taxable year which produces “passive income” or which are held for the production of “passive income” is at least 50%.

“Passive income” generally includes dividends, interest, rents, royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

Based on the nature of our business, our financial statements, our expectations about the nature and amount of our income, assets and activities and the expected price of our common shares in this offering, we do not expect to be a PFIC for our current taxable year. If it is determined that we are a PFIC for any taxable year

 

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(or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our common shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Whether we will be a PFIC in 2021 or any future year is a factual determination that must be made annually at the close of each taxable year, and, thus, is subject to significant uncertainty, because, among other things, a determination of whether a company is a PFIC must be made annually after the end of each taxable year and will depend on the composition of our income and assets and the market value of our assets from time to time. Accordingly, there can be no assurance that we will not be a PFIC in 2021 or any future taxable year.

If we are a PFIC for any taxable year during which a United States Holder (as defined in “Material Bermuda and U.S. Federal Income Tax Considerations—U.S. Federal Income Tax consequences for U.S. Holders”) holds our common shares, we generally would continue to be treated as a PFIC with respect to that United States Holder for all succeeding years during which the United States Holder holds our common shares even if we ceased to meet the threshold requirements for PFIC status, unless certain exceptions apply. Such a United States Holder may be subject to adverse U.S. federal income tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements. There is no assurance that we will provide information that will enable investors to make a qualified electing fund election, as known as a “QEF Election,” that could mitigate the adverse U.S. federal income tax consequences should we be classified as a PFIC.

For a more detailed discussion of the application of the PFIC rules to us and the consequences to United States Holders if we were determined to be a PFIC, see “Material Bermuda and U.S. Federal Income Taxation—U.S. Federal Income Tax Consequences for U.S. Holders—Passive Foreign Investment Company.”

A sale of a substantial number of shares of our common shares may cause the price of our common shares to decline.

If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our common shares in the public market after the lapse of lock-up and other legal restrictions on resale discussed in this prospectus, the trading price of our common shares could decline. Based on shares outstanding as of April 30, 2021, upon completion of this offering, we will have outstanding a total of                common shares. Of these shares, all of the common shares sold in this offering will be freely tradable, without restriction, in the public market immediately after the offering, other than the shares purchased by certain of our existing investors, which will be subject to lock-up agreements, as described below. Each of our directors and officers and substantially all of our other shareholders have entered into a lock-up agreement with the underwriters that restricts their ability to sell or transfer their shares. The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. The underwriters, however, may, in their sole discretion, waive the contractual lock-up prior to the expiration of the lock-up agreements. After the lock-up agreements expire, based on shares outstanding as of April 30, 2021,                common shares, plus any shares purchased in this offering by our existing investors, will be eligible for sale in the public market, of which                shares, plus any shares purchased in this offering by certain of our existing investors, will be held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act, and various vesting agreements. After this offering, the holders of an aggregate of                shares of our outstanding common shares as of April 30, 2021, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our shareholders. In addition,                common shares that are subject to outstanding options as of April 30, 2021, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. We intend to file a registration statement on Form S-8 under the Securities Act covering all of the common shares subject to options outstanding and reserved for issuance under our share plans.

 

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This registration statement will become effective immediately upon filing, and shares covered by this registration statement will be eligible for sale in the public markets, subject to Rule 144 limitations applicable to affiliates and any lock-up agreements described above. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common shares could decline.

We will have broad discretion in the use of net proceeds from this offering.

We intend to use the net proceeds from this offering to finance the commercialization and continued development of our ASSURE System, the build out of our sales and marketing infrastructure and our continued product development and research and development activities, as well as for working capital and general corporate purposes. Within those categories, our management will have broad discretion over the use and investment of the net proceeds of this offering, and accordingly, investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds with only limited information concerning management’s specific intentions. See “Use of Proceeds” for additional information.

We are a Bermuda company, and it may be difficult for you to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company. As a result, the rights of our shareholders are governed by Bermuda law and our memorandum of association and amended and restated bye-laws to be in effect upon the closing of this offering. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in another jurisdiction. It may be difficult for investors to effect service of process on concerned persons not resident in the United States or to enforce in the U.S. judgments obtained in U.S. courts against us based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions. See “Enforcement of Civil Liabilities under U.S. Federal Securities Laws” for additional information.

Bermuda law differs from the laws in effect in the United States and may afford less protection to our shareholders.

We are incorporated under the laws of Bermuda. As a result, our corporate affairs are governed by the Bermuda Companies Act 1981, as amended (the “Companies Act”), which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Shareholder class actions are not available under Bermuda law. The circumstances in which shareholder derivative actions may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be ultra vires or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than those who actually approved it.

When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.

 

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Additionally, under our amended and restated bye-laws to be in effect upon the closing of this offering and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of our shareholders and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware. Therefore, our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction within the United States.

There are regulatory limitations on the ownership and transfer of our common shares.

Common shares may be offered or sold in Bermuda only in compliance with the provisions of the Companies Act and the Bermuda Investment Business Act 2003 as amended, which regulates the sale of securities in Bermuda. In addition, the Bermuda Monetary Authority must approve all issues and transfers of shares of a Bermuda exempted company. However, the Bermuda Monetary Authority has, pursuant to its notice to the public of June 1, 2005, given its general permission under the Exchange Control Act 1972 and related regulations for the issue and free transfer of our common shares that are the subject of this offering to and among persons who are non-residents of Bermuda for exchange control purposes as long as the shares are listed on an appointed stock exchange, which includes    . Additionally, we have sought and have obtained a specific permission from the Bermuda Monetary Authority for the issue and transfer of our common shares up to the amount of our authorized capital from time to time, and options, warrants, depository receipts, rights, loan notes, debt instruments and our other securities to persons resident and non-resident for exchange control purposes with the need for prior approval of such issue or transfer. The general permission or the specific permission would cease to apply if we were to cease to be listed on                or another appointed stock exchange.

We have anti-takeover provisions in our amended and restated bye-laws that may discourage a change of control, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

Our amended and restated bye-laws to be in effect upon the closing of this offering contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions provide for:

 

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a classified Board of Directors with staggered three-year terms;

 

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directors only to be removed for cause;

 

•

amendments to certain sections of our amended and restated bye-laws containing anti-takeover provisions will require an affirmative vote of at least 66 2/3% of the directors and at least 66 2/3% of all issued and outstanding shares carrying the right to vote at general meetings at the relevant time;

 

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restrictions on the time period in which directors may be nominated;

 

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limitations on our shareholders’ ability to call special general meetings; and

 

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the ability of our Board of Directors to determine the powers, preferences and rights of preference shares and to cause us to issue the preference shares without shareholder approval.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change of control of our company and may prevent our shareholders from receiving the benefit from any premium to the market price of our common shares offered by a bidder in a takeover context. Even in the absence of a takeover

 

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attempt, the existence of these provisions may adversely affect the prevailing market price of our common shares if the provisions are viewed as discouraging takeover attempts in the future. These provisions could also discourage proxy contests, make it more difficult for our shareholders to elect directors of their choosing and cause us to take corporate actions other than those our shareholders desire. See “Description of Share Capital.”

We have historically not paid cash dividends and do not expect to pay cash dividends in the foreseeable future, and, as a result, any return on investment may be limited to the value of our shares.

We have historically not paid cash dividends and do not anticipate paying cash dividends in the foreseeable future. The payment of cash dividends will depend on our earnings, capital requirements, financial condition, prospects and other factors our Board of Directors may deem relevant. Our KLIM Facility limits our ability to, among other things, pay dividends or make other distributions or payments on account of our common shares, in each case, subject to certain exceptions. In addition, pursuant to Bermuda law, we cannot declare or pay dividends, or make distributions out of our contributed surplus, if there are reasonable grounds for believing that (1) our Company is, or would after the payment be, unable to pay our liabilities as they become due or (2) the realizable value of our assets would thereby be less than our liabilities. Additionally, because we are a holding company with no material direct operations, we are financially dependent on loans, dividends and other payments from our operating subsidiaries. To the extent that we decide to pay dividends on our common shares in the future, we will be dependent on our operating subsidiaries to make funds available to us for the payment of any such dividends. See “Dividend Policy” for more information. If we do not pay dividends, our shares may be less valuable because a return on your investment will only occur if you sell our common shares after our share price appreciates.

New investors purchasing our common shares will experience immediate and substantial dilution.

The initial public offering price of our common shares is expected to be substantially higher than the pro forma net tangible book value per share of our common shares. Therefore, if you purchase shares of our common shares in this offering, you will pay a price per share that substantially exceeds our pro forma as adjusted net tangible book value per share after this offering. You will experience immediate dilution of $                per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving pro forma effect to this offering and the assumed initial public offering price. In addition, purchasers of common shares in this offering will have contributed        % of the aggregate price paid by all purchasers of our shares but will own only approximately         % of our common shares outstanding after this offering. See “Dilution.” In connection with this offering, we expect to cancel or exchange the warrants underlying our Existing Warrant Agreement (as defined below) for warrants to purchase          common shares pursuant to the Warrant Agreement. Any exercise of such warrants, or additional warrants we are required to issue upon the draw of each additional available tranche under the KLIM Facility, could result in further dilution to our shareholders. See the sections titled “Description of Share Capital—Warrant Agreement” and “Description of Certain Indebtedness.”

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, and particularly after we are no longer an “emerging growth company” or “smaller reporting company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of                , and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a

 

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public company, and our management and other personnel will need to devote a substantial amount of time toward maintaining compliance with these requirements. Our management and other personnel will also need to devote a substantial amount of time toward compliance with the additional reporting requirements of the Exchange Act. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain director and officer liability insurance. We are currently evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our reported financial information, and the market price of our common shares may be negatively affected.

As a public company, we will be required to evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our second annual report after the completion of this offering, provide a management report on the effectiveness of our internal control over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are implementing the process and documentation necessary to perform the evaluation needed to comply with our requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, our management will be unable to conclude that our internal control over financial reporting is effective. Moreover, when we are no longer an emerging growth company, our independent registered public accounting firm will be required to issue an audit report on the effectiveness of our internal control over financial reporting. If we are unable to conclude that our internal control over financial reporting is effective, or when we are no longer an emerging growth company, if our auditors were to express an adverse opinion on the effectiveness of our internal control over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our common shares to decline.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our shares will be influenced, in part, by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price of our shares would likely be negatively impacted. In the event securities or industry analysts initiated coverage, and one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our shares, or if our results of operations do not meet their expectations, our share price could decline.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

 

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our ability to successfully commercialize any of our product candidates and begin generating revenue;

 

•

our ability to obtain the regulatory approvals necessary to distribute our products;

 

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the rate and degree of market acceptance of any of our product candidates, if approved;

 

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the availability of reimbursement for our products;

 

•

estimates of our total addressable market for our products;

 

•

our expectations regarding the use of proceeds from this offering;

 

•

our growth plans, including our plans to enter into new markets;

 

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our ability to establish and maintain intellectual property protection for our products or defend ourselves against claims of infringement;

 

•

the progress, timing, costs and results of our clinical trials;

 

•

changes and developments relating to our regulatory landscape;

 

•

our financial performance; and

 

•

developments and projections relating to our competitors and our industry.

You should refer to the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus,

 

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and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon 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, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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INDUSTRY AND MARKET DATA

Certain industry data and market data included in this prospectus were obtained from independent third-party surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. All of management’s estimates presented herein are based upon management’s review of independent third-party surveys and industry publications prepared by a number of sources and other publicly available information. All of the market data used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications and surveys included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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ORGANIZATIONAL TRANSACTIONS

We intend to consummate the following Organizational Transactions prior to or concurrently with this offering such that, after the consummation of such transactions:

 

•

Existing holders of partnership interests in West Affum LP, including our Principal Shareholder and certain members of our management, will receive common shares (including common shares issued as restricted shares subject to certain vesting conditions described below) of Kestra Medical Technologies, Ltd., the issuer in this offering, in exchange for such holders’ partnership interests in West Affum LP;

 

•

Following the completion of the exchange discussed above, West Affum LP will be dissolved; and

 

•

The intellectual property portfolio of West Affum Holdings and the equity interests in Kestra Medical Technologies, will be transferred by West Affum Holdings to West Affum Holdings Designated Activity Company, an Irish limited company and a newly formed subsidiary of West Affum Limited, an Irish limited company and a newly formed subsidiary of Kestra Medical Technologies, Ltd.

As described above, prior to this offering, the holders of partnership interests in West Affum LP will exchange their partnership interests in West Affum LP for common shares (including common shares issued as restricted shares subject to certain vesting conditions described below) of Kestra Medical Technologies, Ltd. Because the number of common shares (including common shares issued as restricted shares subject to certain vesting conditions described below) that each such holder of partnership interests in West Affum LP will receive will be determined based on the value that such holder would have received under the distribution provisions contained in the Amended and Restated Limited Partnership Agreement, dated as of October 21, 2014 (the “Partnership Agreement”), of West Affum LP with our common shares valued by reference to the initial public offering price of our shares in this offering, the number of common shares (including common shares issued as restricted shares subject to certain vesting conditions described below) will increase or decrease depending on the initial public offering price determined at pricing.

A total of                common shares (including                common shares issued as restricted shares subject to certain vesting conditions described below) will be issued to holders of partnership interests in West Affum LP as described above. A $1.00 increase 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 result in an increase to the total number of common shares issued of                shares (including                common shares issued as restricted shares subject to certain vesting conditions described below). A $1.00 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 result in a decrease to the total number of common shares issued of                shares (including                common shares issued as restricted shares subject to certain vesting conditions described below).

The common shares issued to holders of partnership interests that are “incentive units” subject to certain vesting conditions as specified in holders’ individual award agreements will be issued as restricted shares that will vest on the same terms applicable to the incentive units being exchanged. The vesting conditions specified in such award agreements include (i) a time-based vesting component, (ii) a performance-based vesting component or (iii) both time-based and performance-based vesting components. If the vesting terms of the restricted shares are not satisfied, such restricted shares will be forfeited and cancelled. For information regarding the beneficial ownership of our common shares before and after this offering, and after giving pro forma effect to the Organizational Transactions, see “Principal Shareholder.”

In addition, in connection with the transfer of the intellectual property portfolio of West Affum Holdings to West Affum Holdings Designated Activity Company, we expect that West Affum Holdings

 

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Designated Activity Company will enter into a loan note instrument constituting up to an aggregate principal amount of €        loan notes due     in favor of West Affum Holdings (the “Loan Note”). See the section titled “Certain Relationships and Related Party Transactions” included elsewhere in this prospectus.

Kestra Medical Technologies, Ltd. has not engaged in any business or other activities other than those incidental to its formation, the Organizational Transactions and the preparation of this prospectus and the registration statement of which this prospectus forms a part. Following this offering, Kestra Medical Technologies, Ltd. will remain a holding company, and it will operate and control all of the business and affairs and consolidate the financial results of its subsidiaries.

The following chart shows our simplified organizational structure prior to the consummation of the Organizational Transactions and this offering:

 

 

 

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The following chart shows our simplified organizational structure immediately following the consummation of the Organizational Transactions and this offering, after giving effect to the sale of                common shares in 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) and assuming no exercise of the underwriters’ over-allotment option:

 

 

 

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USE OF PROCEEDS

We estimate that the net proceeds from our issuance and sale of common shares in this offering will be approximately $                  million, or approximately $                 million if the underwriters exercise in full their over-allotment option, based upon an assumed initial public offering price of $                 per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us, would increase or decrease the net proceeds to us from this offering by approximately $                million, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of common shares we are offering. Each increase or decrease of one million in the number of common shares we are offering at the assumed initial public offering price of $                per                 common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions would increase or decrease the net proceeds to us from this offering by approximately $                 million, assuming the assumed initial public offering price stays the same.

The principal purposes of this offering are to increase our capitalization and liquidity, create a public market for our common shares and facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the actual amounts that we will spend on such uses. However, we currently intend to use the net proceeds we receive from this offering to finance the commercialization and continued development of our ASSURE System, build out our sales and marketing infrastructure, invest in our continued product development and research and development activities and to finance other working capital and general corporate purposes.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the timing and scale of the commercialization of our ASSURE System and other products we may develop in the future. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceeds.

Based on our current planned operations, we expect that our cash and cash equivalents, together with the expected revenue generated from sales of our ASSURE System and the anticipated proceeds of this offering, will enable us to fund our operating expenses for at least                months following the date of this offering. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

We plan to invest the net proceeds from this offering that are not used as described above to invest in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have not historically declared or paid any dividends on our common shares. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the sole discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant. Our KLIM Facility limits our ability to, among other things, pay dividends or make other distributions or payments on account of our common shares, in each case, subject to certain exceptions. In addition, pursuant to Bermuda law, a company may not declare or pay dividends, or make distributions out of contributed surplus, if there are reasonable grounds for believing that (1) the company is, or would after the payment be, unable to pay its liabilities as they become due or (2) the realizable value of its assets would thereby be less than its liabilities. “Contributed surplus” is defined for purposes of Section 54 of the Companies Act to include the proceeds arising from donated shares, credits resulting from the redemption or conversion of shares at less than the amount set up as nominal capital and donations of cash and other assets to the company. Additionally, as a holding company with no material direct operations, our ability to pay dividends on our common shares is dependent on the earnings and distributions of funds from our operating subsidiaries. We are not obligated to pay dividends on our common shares.

For additional information on the restrictions on our ability to pay dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Risk Factors—Risks Related to This Offering—We have historically not paid cash dividends and do not expect to pay cash dividends in the foreseeable future, and, as a result, any return on investment may be limited to the value of our shares.”

 

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CAPITALIZATION

The following table sets forth the cash and cash equivalents and capitalization as of April 30, 2021 for:

 

•

West Affum Intermediate Holdings and its consolidated subsidiaries on an actual basis;

 

•

Kestra Medical Technologies, Ltd. and its consolidated subsidiaries on a pro forma basis to give effect to (1) the Organizational Transactions described in the section titled “Organizational Transactions” included elsewhere in this prospectus and (2) the effectiveness of our amended and restated bye-laws upon the closing of this offering; and

 

•

Kestra Medical Technologies, Ltd. and its consolidated subsidiaries on a pro forma as adjusted basis to give effect to the issuance and sale of common shares in this offering at an assumed initial public offering price of $ per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us, and the application of the net proceeds therefrom as described in the section titled “Use of Proceeds” included elsewhere in this prospectus.

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

 

		As of April 30, 2021
		West Affum Intermediate Holdings				Kestra Medical Technologies, Ltd.				Kestra Medical Technologies, Ltd.
(in thousands, except share and per share amounts)		Actual				Pro Forma				Pro Forma As Adjusted
Cash and cash equivalents		$	24,342			$				$
Long-term debt, net			20,238
Shareholders’ equity:
Common stock, $0.01 par value; 5,000,000 shares authorized; 105,808 shares issued and outstanding, actual			1
Common shares, $1.00 par value;                 shares authorized and                 shares issued and outstanding, pro forma;                 shares authorized and                 shares issued and outstanding, pro forma as adjusted			—
Additional paid-in capital			171,845
Accumulated deficit			(170,080	)
Total shareholders’ equity			1,766
Total capitalization		$	22,004			$				$

The number of common shares to be outstanding after this offering is based on                common shares outstanding as of April 30, 2021, after giving pro forma effect to the Organizational Transactions, and

 

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excludes                common shares reserved for future issuance under our equity incentive plans and                common shares underlying the Warrant Agreement.

In addition, the information presented above assumes:

 

•

the completion of the Organizational Transactions, as described under the section titled “Organizational Transactions” included elsewhere in this prospectus;

 

•

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;

 

•

the effectiveness of our amended and restated bye-laws upon the closing of this offering; and

 

•

no exercise by the underwriters of their over-allotment option.

Each $1.00 increase or decrease in the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us, would increase or decrease each of cash, additional paid-in capital, total shareholder’s equity and total capitalization on a pro forma as adjusted basis by approximately $                million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Each increase or decrease of one million in the number of common shares we are offering at the assumed initial public offering price of $                per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us, would increase or decrease each of cash, additional paid-in capital, total shareholder’s equity and total capitalization on a pro forma as adjusted basis by approximately $                million. The pro forma as adjusted information is illustrative only of our capitalization following the closing of this offering and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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DILUTION

If you invest in our common shares in this offering, your investment will be immediately diluted to the extent of the difference between the initial public offering price per common share and the pro forma as adjusted net tangible book value per common share after this offering. Dilution results from the fact that the per share offering price of the common shares is substantially in excess of the pro forma as adjusted net tangible book value per share attributable to our existing shareholders.

Our historical net tangible book deficit as of April 30, 2021 was approximately $         million, or $         per common share. Historical net tangible book value represents the amount of total tangible assets less total liabilities. Historical net tangible book value per common share represents historical net tangible book value divided by the number of common shares outstanding as of April 30, 2021.

Our pro forma net tangible book value as of April 30, 2021 was approximately $         million, or $         per common share. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, and pro forma net tangible book value per common share represents net tangible book value divided by the number of common shares outstanding upon consummation of the Organizational Transactions described in the section titled “Organizational Transactions” included elsewhere in this prospectus.

After giving pro forma effect to (1) the issuance and sale of             common shares by us 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 estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us, and (2) the application of the net proceeds from this offering as described in the section titled “Use of Proceeds” included elsewhere in this prospectus, our pro forma as adjusted net tangible book value as of April 30, 2021 would have been $         million, or $         per common share. This represents an immediate increase in pro forma as adjusted net tangible book value (or a decrease in net tangible book deficit) of $         per common share to our existing shareholders and an immediate dilution in pro forma as adjusted net tangible book value of $         per common share to investors in this offering.

The following table illustrates this dilution on a per common share basis:

 

Assumed initial offering price per common share		$
Pro forma net tangible book value (deficit) per common share as of April 30, 2021 after giving effect to the Organizational Transactions		$
Increase in net tangible book value per common share attributable to investors participating in this offering		$
Pro forma as adjusted net tangible book value (deficit) per common share after giving effect to the offering		$
Dilution in pro forma as adjusted net tangible book value per common share to investors in this offering		$

If the underwriters exercise their over-allotment option in full, our pro forma as adjusted net tangible book value per share after giving pro forma effect to this offering would be $        per common share. This represents an increase in pro forma as adjusted net tangible book value of $        per common share to existing shareholders and dilution in pro forma as adjusted net tangible book value of $        per common share to new investors.

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per common share would increase (decrease) our pro forma as adjusted net tangible book value as of April 30, 2021 by $        per common share, and would increase (decrease) dilution to investors in this offering by $        per common share, assuming that the number of common shares offered by us, as set forth on the cover page of this prospectus,

 

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remains the same, and after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us. Similarly, each increase of one million in the number of common shares offered by us would increase our pro forma as adjusted net tangible book value per common share after this offering by $        per common share and decrease the dilution to new investors by $        per common share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us. A decrease of one million in the number of common shares offered by us would decrease our pro forma as adjusted net tangible book value per common share after this offering by $        per common share and increase the dilution to new investors by $        per common share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions but before deducting estimated offering expenses incurred by us.

The following table summarizes, on the same pro forma as adjusted basis described above, as of April 30, 2021, the total number of common shares purchased from us, the total cash consideration paid to us and the average price per common share paid by our existing shareholders and by new investors purchasing common shares in this offering.

 

		Shares Purchased								Total Consideration								Average Price Per Share
		Number				Percent				Amount				Percent
Existing shareholders								%		$						%		$
Investors in this offering								%		$						%		$
Total							100.0	%		$					100.0	%		$

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per common share would increase (decrease) the total consideration paid by new investors by $        million and increase (decrease) the percentage of total consideration paid by new investors by    %, assuming no change to the number of common shares offered by us, as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commission but before deducting estimated offering expenses incurred by us.

The number of common shares to be outstanding after this offering is based on                common shares outstanding as of April 30, 2021, after giving pro forma effect to the Organizational Transactions, and excludes                common shares reserved for future issuance under our equity incentive plans and                common shares underlying the Warrant Agreement. Any exercise of warrants issued under the Warrant Agreement could result in further dilution to our shareholders. See “Description of Share Capital—Warrant Agreement.”

The dilution information above is for illustrative purposes only. Our pro forma as adjusted net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our common shares and other terms of this offering determined at pricing.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the section of this prospectus captioned “Business” and our consolidated financial statements and the related notes to those consolidated financial statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this prospectus captioned “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

We are a commercial-stage medical technology and digital health company focused on the development and commercialization of innovative, intuitive solutions to protect patients who are at risk of suffering life-threatening cardiac events. Our initial product, our ASSURE System, which received its PMA from the FDA on July 27, 2021, protects patients who are at risk for Sudden Cardiac Arrest (“SCA”). Our ASSURE System includes a WCD that monitors and manages at-risk patients, and if needed, delivers a shock to return the patient’s heart to a normal rhythm and is combined with a proprietary digital healthcare platform. We believe our ASSURE System offers significant clinical and functional advantages to the only other commercially available WCD, including the promise of improved patient compliance and user experience driven by a reduction in false alarms, enhanced comfort and improved wearability. Our ASSURE System, which offers integrated sensing and autonomous diagnosis and therapy, is accompanied by an integrated digital healthcare platform, with remote patient monitoring and mobile connectivity specifically designed to improve physician oversight of at-risk cardiac patients. Although the global WCD market has been served by a single participant for approximately 20 years, we believe our ASSURE System has the potential to disrupt and grow the market, which we expect to be approximately $1 billion in 2022.

To date, our operations have included organizing and staffing our company, business planning, raising capital, conducting discovery, research and development activities, filing patent applications, undertaking clinical trials, seeking FDA approval, establishing arrangements with third parties for the manufacture of initial quantities of our products and making preparations to commercialize our ASSURE System. We completed clinical trials for our ASSURE System in March 2020 and received our PMA for our ASSURE System on July 27, 2021, and we are in the process of commercially launching our ASSURE System.

We have been issued a Medicare Provider Number by the CMS, which enables us to bill Medicare for reimbursement for our ASSURE System as an accredited DME Supplier to the extent the claim meets Medicare medical necessity and coverage requirements. We expect to derive nearly all of our revenue from the DME rental of our ASSURE System to patients and through our direct billing of various third-party payors, including Medicare, Medicaid, private insurance companies, health maintenance organizations and other healthcare-related organizations. As WCD therapy has existed for approximately 20 years in the United States, reimbursement codes and payments are well-established, and WCDs are covered by Medicare, Medicaid and many private payors.

We wholly outsource the manufacturing of our ASSURE System and all of its components to third-party suppliers, including contract manufacturers that manufacture garments, chargers, monitors, batteries, cables and various accessories for our ASSURE System. We believe that our contract manufacturers are recognized in their field for their competency to manufacture the respective portions of our ASSURE System and have established quality systems that meet FDA requirements. We believe the manufacturers we currently utilize have sufficient capacity to meet our launch requirements and are able to scale up their capacity to meet anticipated demand for our products for the foreseeable future.

 

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Since our inception, we have devoted substantially all of our efforts to research and development, undertaking clinical trials, enabling manufacturing activities in support of our product development efforts, hiring personnel, organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such activities. We expect to spend an increasing amount of our existing resources on sales and marketing activities as we begin to commercialize and market our ASSURE System in the United States. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We incurred net losses of $34.1 million and $29.5 million for the years ended April 30, 2021 and 2020, respectively. As of April 30, 2021 and 2020, we had cash, cash equivalents and restricted cash balances of $24.9 million and $6.3 million and an accumulated deficit of $170.1 million and $136.0 million, respectively.

From our inception through April 30, 2021, our operations have primarily been funded by proceeds from our capital contributions made by West Affum LP, our direct parent prior to the Organizational Transactions, and borrowings under our KLIM Facility. We have invested heavily in developing and preparing for the commercialization of our ASSURE System. We have also made significant investments in clinical studies to demonstrate the safety and effectiveness of our ASSURE System and to support applications for regulatory approvals. We intend to make significant investments in the near-term to build our sales and marketing organization by increasing the number of sales personnel to market our product in markets in the United States. Because of these and other factors, we expect to continue to incur net losses for the foreseeable future and we expect to require additional funding, which may include future equity and debt financings. Adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material and adverse effect on our business, financial condition, and results of operations.

COVID-19 Business Update

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic and the related adverse public health developments, including orders to shelter-in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations, consumers, economies and financial markets globally, leading to an economic downturn and increased market volatility. If the COVID-19 pandemic escalates, additional shelter-in-place orders and other restrictions may be issued and our ability to operate as an essential business could be altered. The ongoing COVID-19 pandemic poses risks that our company or our employees, contractors, suppliers and other partners may be prevented from conducting business activities at the level or the manner in which they were conducted prior to the pandemic for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.

We continue to proactively monitor and evaluate the impact of the ongoing COVID-19 pandemic on our business. However, the extent to which the ongoing COVID-19 pandemic will impact our business and our growth plans will depend on future developments that are highly uncertain and cannot be predicted with confidence.

Key Components of Our Results of Operations

The following discussion describes certain key components of our consolidated statement of operations.

Revenue

We received FDA approval for the commercialization of our ASSURE System on July 27, 2021, and we expect to begin generating revenue from our ASSURE System during our 2022 fiscal year.

 

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Research and Development Costs

We expense research and development costs as they are incurred. Research and development expenses consist of salaries and related benefits of product development personnel, contractor and engineering services, project and prototype materials, clinical studies expense, professional services and other expenses related to the development of new products, including an allocation of facility overhead costs. Advanced payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. These amounts are expensed as the related goods are delivered or the services are performed.

We expect our research and development costs to remain consistent with research and development expenses incurred during the fiscal year ended April 30, 2021 for the foreseeable future. We will continue to invest in research and development activities related to developing new products and services, further refining our products and services as they advance into later stages of development, conducting clinical trials as necessary and preparing our products and services for commercialization. The process of developing, conducting clinical trials on and obtaining regulatory approvals for our products and services is costly and inherently time-consuming. There is no assurance of when, or if, we will be able to successfully develop and commercialize any of our products or services. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our research and development activities and when, or to what extent, we will generate revenue from the commercialization and sale of any our product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of payroll and personnel-related costs, patent related costs, professional services, software license fees and allocated facility overhead costs. Patent costs consist of legal costs we incur when filing and pursuing patent applications and maintaining issued patents. Such costs are expensed as incurred, as recoverability of such expenditures is uncertain. Professional services and software license fees primarily relate to the consulting services to prepare us for commercialization of our products and services. We expect our selling, general and administrative expenses to increase for the foreseeable future due to increases in our headcount as we advance toward the commercialization of our ASSURE System and as a result of becoming a public company and being subject to various expenses related to compliance with the rules and regulations of the SEC, additional insurance expenses, investor relations activities and other administrative and professional services.

Interest Expense

Interest expense consists of cash and non-cash components. The cash component of interest expense is attributable to borrowings under our KLIM Facility. The non-cash component consists of interest expense recognized from the amortization of debt discounts and debt issuance costs.

Other Expense, Net

On December 28, 2020, warrants to purchase 49,044 common units of West Affum LP were issued to Kennedy Lewis Capital Partners Master Fund II LP, an affiliate of Kennedy Lewis Management LP in connection with the KLIM Facility pursuant to that certain Warrant to Purchase Units (the “Existing Warrant Agreement”). We classify these warrants as a liability on our consolidated balance sheets that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the warrant liability as a component of other expense, net in our consolidated statements of operations. We will continue to recognize changes in the fair value of the warrant liability until the warrants are exercised, expire or qualify for equity

 

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classification. In connection with this offering, we expect to cancel or exchange the warrants underlying the Existing Warrant Agreement for warrants to purchase                common shares pursuant to a new warrant agreement with Kennedy Lewis Management LP or an affiliate thereof (the “Warrant Agreement”). See “Description of Share Capital—Warrant Agreement.”

Results of Operations

The following table sets forth our consolidated statements of operations and comprehensive loss for the fiscal years ended April 30, 2021 and 2020. We have derived this data from our consolidated financial statements included elsewhere in this prospectus and this information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for any future period.

West Affum Intermediate Holdings was incorporated on August 6, 2020 in order to carry on the business of West Affum Holdings and its consolidated subsidiaries. On August 25, 2020, West Affum Intermediate Holdings entered into a Contribution and Exchange Agreement with West Affum Holdings and West Affum LP, where West Affum LP exchanged all of its existing ownership interests in West Affum Holdings into an equivalent number of newly issued shares in West Affum Intermediate Holdings. West Affum LP owned all outstanding interests in West Affum Holdings prior to the Contribution and Exchange.

The Contribution and Exchange resulted in West Affum Intermediate Holdings becoming the parent entity of West Affum Holdings and its subsidiaries. West Affum Intermediate Holdings operates and controls all of the business and affairs of West Affum Holdings and its subsidiaries and accordingly, consolidates the financial results. As the Contribution and Exchange is considered a transaction between entities under common control, the consolidated financial statements included elsewhere in this prospectus for the period prior to the Contribution and Exchange reflect the combination of the previously separate entities for financial presentation purposes. The consolidated financial statements as of and for the fiscal years ended April 30, 2021 and 2020 included elsewhere in this prospectus represent the consolidated assets and liabilities and operations of West Affum Intermediate Holdings and its subsidiaries. See “Basis of Presentation” and our consolidated financial statements included elsewhere in this prospectus for more information.

 

(in thousands)		Fiscal Year Ended April 30, 2021				Fiscal Year Ended April 30, 2020				$ Change				% Change
Operating expenses:
Research and development costs		$	18,806			$	22,802			$	(3,996	)			(18	)%
Selling, general and administrative			13,902				6,517				7,385				113
Total operating expenses			32,708				29,319				3,389				12
Loss from operations			(32,708	)			(29,319	)			(3,389	)			12
Other expense:
Interest expense			1,168				—				1,168				100
Other expense, net			38				—				38				100
Net loss before provision for income taxes			(33,914	)			(29,319	)			(4,595	)			16
Provision for income taxes			187				148				39				26
Net loss and comprehensive Loss		$	(34,101	)		$	(29,467	)		$	(4,634	)			16	%

Research and Development Costs

Research and development costs decreased by $4.0 million, or 18%, to $18.8 million in the fiscal year ended April 30, 2021, from $22.8 million in the fiscal year ended April 30, 2020. The change was primarily

 

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attributable to decreases in the following: $1.8 million in professional services due to completion of most clinical trials in 2020, $1.6 million in contractor and engineering services due to a decrease in need for engineering support following the premarket approval application submission with the FDA, $1.1 million in clinical studies due to completion of most clinical trials in 2020, $0.5 million in project and prototype materials and $0.9 million in other research and development costs. The decreases were offset by a $1.9 million increase in salaries and related benefits driven by additional headcount and incentive unit compensation expense.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $7.4 million, or 113%, to $13.9 million in the fiscal year ended April 30, 2021, from $6.5 million in the fiscal year ended April 30, 2020. The increase was mainly attributable to a $3.0 million increase in payroll and personnel-related costs driven by additional headcount and stock-based compensation relating to vesting of incentive units, a $2.2 million increase in professional services, a $0.5 million increase in patent costs, a $0.3 million increase in software licenses and a $1.4 million increase in other selling, general and administrative expenses.

Interest Expense

The increase of $1.2 million, or 100%, of interest expense in the fiscal year ended April 30, 2021 was attributable to interest expense and amortization of debt discounts and debt issuance costs related to borrowings under our KLIM Facility.

Other Expense, Net

The increase of $0.4 million, or 100%, of other expense in the fiscal year ended April 30, 2021 was attributable to the change in fair value of the warrant liability related to borrowings under our KLIM Facility.

Income Tax Provision

For the fiscal years ended April 30, 2021 and 2020, the tax provision was $0.1 million and $0.2 million, respectively. We generate a small amount of taxable income in the United States due to a transfer pricing arrangement between Kestra Medical Technologies and West Affum Holdings.

Going Concern

Since inception, we have devoted substantially all of our efforts to research and development, undertaking clinical trials, enabling manufacturing activities in support of our product development efforts, hiring personnel, organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such activities. We have incurred net losses in each year since inception and expect to continue to incur net losses in the foreseeable future. Our net loss and comprehensive loss were $34.1 million and $29.5 million for the fiscal years ended April 30, 2021 and 2020, respectively. As of April 30, 2021 and 2020, we had an accumulated deficit of $170.1 million and $136.0 million, respectively. For the fiscal years ended April 30, 2021 and 2020, we generated negative operating cash flows of $29.9 million and $30.3 million, respectively.

We have concluded that our history of continued operating losses and accumulated deficit raise substantial doubt about our ability to continue as a going concern. See Note 1 to our consolidated financial statements 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 consolidated financial statements as of and for the fiscal years ended April 30, 2021 and 2020 included elsewhere in this prospectus, describing the existence of substantial doubt about our ability to continue as a going concern.

 

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However, based on our current planned operations, we expect that our cash and cash equivalents, together with the expected revenue generated from sales of our ASSURE System and the anticipated proceeds of this offering, will enable us to fund our operating expenses for at least                months following the date of this offering. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses and negative cash flows driven by substantial research and development costs and the fact that we have yet to commence commercialization of our ASSURE System. Our operations have focused on developing our product, establishing our intellectual property portfolio, initiating steps to bring our product candidates to market and staffing our company. Our primary use of cash has been to fund operating expenses, which is comprised of research and development costs incurred in relation to our product candidates and, to a lesser extent, selling, general and administrative expenses. Cash used to fund our operating expenses is impacted by the timing of when we pay for such expenses.

We obtained the PMA from the FDA on July 27, 2021 and are currently working to begin commercialization of our ASSURE System and begin generating revenue. We will continue to scale and fund the business and therefore expect operating losses to continue.

From our inception through April 30, 2021, our operations have primarily been funded by proceeds from our capital contributions made by West Affum LP, our direct parent prior to the Organizational Transactions, and borrowings under our KLIM Facility as described under “Description of Certain Indebtedness” and our consolidated financial statements included elsewhere in this prospectus.

In the fiscal year ended April 30, 2021, we drew on the first tranche of the KLIM Facility in the amount of $20.0 million. Additionally, in the fiscal year ended April 30, 2021, we received $30.3 million in capital contributions from West Affum LP, $0.3 million of which were capital contributions to West Affum LP from certain team members and other minority investors of our company. In the fiscal year ended April 30, 2020, we received $30.4 million in capital contributions from West Affum LP, $0.4 million of which were capital contributions to West Affum LP from certain team members and other minority investors of our company. Capital contributions were recognized as additional paid-in capital. Other than the capital contributions from West Affum LP, we did not sell any common stock in the fiscal years ended April 30, 2021 and 2020. As of April 30, 2021 and 2020, we had cash and cash equivalents and restricted cash balances of $24.9 million and $6.3 million and an accumulated deficit of $170.1 million and $136.0 million, respectively.

We will be required to raise additional capital in order to be able to continue as a going concern. See “—Going Concern.” If sufficient funds on acceptable terms are not available when needed, we could be required to significantly reduce our operating expenses and delay, reduce the scope of or eliminate one or more of our development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact our ability to achieve our intended business objectives.

Long-Term Debt

On September 24, 2020, we entered into the KLIM Facility providing for aggregate borrowings of up to $50.0 million. Available commitments under our KLIM Facility may be drawn in up to three tranches, which are subject to the Company achieving certain funding, regulatory or revenue milestones as defined in the KLIM Facility, with $20.0 million available in the first tranche and $15.0 million available in each of the second and third tranches.

Upon the draw of each tranche under the KLIM Facility, the Company will issue warrants to Kennedy Lewis Management LP to purchase common units of West Affum LP equal to 1.0% of the fully diluted common

 

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equity ownership of West Affum LP, measured at the date of the initial draw under the loan, with a strike price equal to the most recent equity offering by West Affum LP prior to the issuance of the warrants. See “Description of Share Capital—Warrant Agreement.” The KLIM Facility itself does not result in an obligation for us to issue warrants.

All outstanding tranches under the KLIM Facility will mature on September 24, 2025 and have interest-only payments through maturity. The principal amount is due upon maturity and may be prepaid in whole or in part subject to certain prepayment penalties as defined in the KLIM Facility.

We may use the borrowings under the KLIM Facility solely for working capital and to fund our general business requirements. Our obligations under the KLIM Facility are secured by a first priority security interest in substantially all of our current and future assets. While any amounts are outstanding under the KLIM Facility, we are subject to a number of affirmative and negative covenants, including covenants regarding dispositions of property, business combinations or acquisitions, among other customary covenants. Upon achievement of certain regulatory milestones and receipt of FDA premarket approval of our ASSURE System, we must meet a quarterly revenue target beginning with the fiscal quarter ending on July 31, 2022. We are also required to maintain a minimum unrestricted cash balance of $1.5 million throughout the life of the KLIM Facility. As of July 31, 2021, we are compliant with all covenants under the KLIM Facility.

On December 28, 2020, we drew the first tranche of the KLIM Facility in the amount of $20.0 million. For further information, see “Description of Certain Indebtedness.”

Cash Flows

The following table shows our cash flows from operating activities, investing activities and financing activities for the periods indicated:

 

(in thousands)		Fiscal Year Ended April 30, 2021				Fiscal Year Ended April 30, 2020
Net cash used in operating activities		$	(29,895	)		$	(30,293	)
Net cash used in investing activities			(334	)			(232	)
Net cash provided by financing activities			48,815				30,239
Increase (decrease) in cash and restricted cash		$	18,586			$	(286	)

Cash Flows from Operating Activities

For the fiscal year ended April 30, 2021, cash used in operating activities was $29.9 million, which primarily consisted of a net loss of $34.1 million, offset by a net increase of $4.2 million in non-cash charges. The non-cash charges primarily consisted of stock-based compensation expense of $1.9 million, conversion of accrued interest related to our KLIM Facility to long-term liabilities of $1.0 million, right-of-use asset amortization of $0.7 million, depreciation expense of $0.4 million and amortization of debt issuance costs of $0.2 million. The net change in our operating assets and liabilities was offset by the net change in our operating liabilities, which consisted of increases in prepaid expenses of $1.4 million related to prepayments for commercial materials and software licenses and fees, increases in accrued liabilities of $1.9 million driven by increases in accrued compensation due to a higher number of team members, lease repayments of $0.6 million attributable to our office lease and decreases in other long-term assets of $0.1 million.

For the fiscal year ended April 30, 2020, cash used in operating activities was $30.3 million, which primarily consisted of a net loss of $29.5 million and a net decrease of $2.0 million in operating assets and

 

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liabilities, offset by a net increase of $1.2 million in non-cash charges. The net decrease in our operating assets and liabilities was primarily due to decreases in accounts payable of $1.0 million and accrued liabilities of $0.5 million, lease repayments of $0.7 million attributable to our office leases and decreases in prepaid expenses and other current assets of $0.2 million. The non-cash charges primarily consisted of $0.5 million of depreciation expense and $0.7 million amortization of the right-of-use assets related to two office leases.

Cash Flows from Investing Activities

For the fiscal year ended April 30, 2021, cash used in investing activities was $0.3 million, which consisted of cash used for purchases of property and equipment such as computer hardware, test equipment for our clinical trials and other research and development activities and leasehold improvements.     

For the fiscal year ended April 30, 2020, cash used in investing activities was $0.2 million, which consisted of cash used for purchases of property and equipment such as computer hardware, test equipment for our clinical trials and other research and development activities and leasehold improvements.

Cash Flows from Financing Activities

For the fiscal year ended April 30, 2021, cash provided by financing activities was $48.8 million, which primarily consisted of $30.3 million in proceeds from capital contributions from West Affum LP and $20.0 million received from the initial drawdown under our KLIM Facility. The increase in cash provided by financing activities was offset by payment of debt issuance costs of $1.3 million and payment on behalf of West Affum LP and its general partner, West Affum Holdings GP, of $0.2 million.    

For the fiscal year ended April 30, 2020, cash provided by financing activities was $30.2 million, which primarily consisted of proceeds from capital contributions from West Affum LP of $30.4 million, which were partially offset by payments on behalf of West Affum LP of $0.2 million. We categorize administrative costs paid on behalf of West Affum LP as deemed dividend payments.

Off-Balance Sheet Arrangements

As of April 30, 2021, we had an irrevocable standby letter of credit issued by Silicon Valley Bank in the amount of $0.5 million related to our office lease. We did not have any other obligations, assets or liabilities that would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial agreements involving assets.

Critical Accounting Policies and Significant Management Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We base our estimates on historical experience, known trends and events and 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 and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements and 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.

 

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Impairment of Long-Lived Assets

The Company’s long-lived assets consist of property and equipment, which includes leasehold improvements and right-of-use assets. Long-lived assets are reviewed for potential impairment at such time that events or changes in circumstances indicate that the carrying amount of an asset might not be recovered. When evaluating long-lived assets for potential impairment, the Company will first compare the carrying amount of the assets to future undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. If the estimated future cash flows are less than the carrying amounts of the assets, an impairment loss is recognized and measured based upon the excess of the carrying value of the asset over its estimated fair value. There were no impairments of long-lived assets during the fiscal years ended April 30, 2021 or April 30, 2020.

Stock-Based Compensation

Stock-based compensation expense related to equity incentive units of West Affum LP is measured at the grant date based on the fair value of the award. Stock-based compensation expense related to awards with performance conditions is recognized when the occurrence of those performance conditions are probable of being met. The Company uses the Black-Scholes option pricing model to determine the fair value of incentive units. Forfeitures are recognized as they occur.

The Black Scholes option pricing model requires the use of subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

 

•

Fair value of common units. The fair value of common units is determined by our Board of Directors as of the date of award grant, with input from management, considering contemporaneous independent third-party valuations of common shares, 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.

 

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Expected term. Expected term represents the period that stock-based awards are expected to be outstanding. The expected term for incentive units is the expected time to liquidity.

 

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Expected volatility. Since we have been a privately held company and do not have any trading history for our common shares, the expected volatility is estimated based on the average volatility for comparable publicly traded medtech companies over a period equal to the expected term. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own share price becomes available.

 

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Expected dividend. We have never paid dividends on our common shares and have no plans to pay dividends on our common shares. Therefore, we used an expected dividend yield of zero.

 

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Discount for lack of marketability We applied a discount rate for lack of marketability, which is the average rate based on the expected term and expected volatility.

Warrant Liability

Our warrant liability relates to the fair value of warrants issued to Kennedy Lewis Management LP in connection with the draw of the first tranche under the KLIM Facility to purchase common units of West Affum LP and is included in other long-term liabilities on the consolidated balance sheet. The warrant liability is based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. We determined fair value of the warrant liability utilizing the Black Scholes option pricing model,

 

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which incorporates the same assumptions and estimates used in determining the fair value of stock-based compensation awards discussed above and in our consolidated financial statements included elsewhere in this prospectus.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon an audit. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being recognized. Changes in recognition or measurement are reflected in the period in which the change in judgement occurs.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Interest Rate Risk

We had cash, cash equivalents and restricted cash balances of $24.9 million and $6.3 million as of April 30, 2021 and 2020, respectively. Cash consists of deposits with financial institutions. Interest income is sensitive to changes in the general level of interest rates; however, our exposure to interest rate risk is not significant, and a hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements included elsewhere in this prospectus. We do not enter into investments for trading or speculative purposes.

We are subject to interest rate risk under our KLIM Facility All amounts outstanding under the KLIM Facility accrue interest at the applicable rate, which is defined by the KLIM Facility as a per annum rate of interest equal to (a) 14.5% at all times prior to obtaining a PMA for our ASSURE System and (b) 12.5% at all times on and after obtaining a PMA for our ASSURE System; provided that, in each case, if any violation of defined revenue targets has occurred and is continuing, the applicable interest rate shall increase by 1.0%. As of April 30, 2021, our borrowings under the KLIM Facility incurred interest at a rate of 14.5%, and we were in compliance with all covenants under our KLIM Facility. Our exposure to interest rate risk is not significant, and a hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements included elsewhere in this prospectus.

Concentrations of Credit Risk

We are subject to credit risk from cash balances we maintain that are in excess of federal depository insurance limits of $250,000 and certain cash balances in accounts located in the Cayman Islands which are not insured. As of April 30, 2021, we maintained cash, cash equivalents and restricted cash balances of $24.9 million, $21.6 million of which was in accounts located in the Cayman Islands. As of April 30, 2020, we maintained cash, cash equivalents and restricted cash balances of $6.3 million, with $0.4 million in accounts

 

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located in the Cayman Islands. Cash, cash equivalents and restricted cash balances as of April 30, 2021 and 2020 were in excess of federal depository insurance limits. We have not experienced any losses in such accounts as of the date of this prospectus, and we believe that we are not exposed to significant credit risk on our cash balances.

Inflation Risk

Our consolidated results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act. Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the Financial Accounting Standards Board or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have elected to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies.

We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and reduced disclosure obligations regarding executive compensation.

We are also a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company for so long as either (1) the market value of our common shares held by non-affiliates is less than $250 million as of the last business day of our most recently completed second fiscal quarter or (2) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our common shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second quarter. Any loss of our status as a smaller reporting company takes effect in the first quarter after the fiscal year in which we cease to qualify as a smaller reporting company. To the extent that we continue to qualify as a smaller reporting company at the time we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recent Accounting Pronouncements

A discussion of recently-adopted and recently-issued accounting pronouncements applicable to our company is provided in our consolidated financial statements for the fiscal year ended April 30, 2021 included elsewhere in this prospectus and under “—Critical Accounting Policies and Significant Management Estimates.”

 

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BUSINESS

Overview

We are a commercial-stage medical technology and digital health company focused on the development and commercialization of innovative, intuitive solutions to protect patients who are at risk of suffering life-threatening cardiac events. Our initial product, our ASSURE System, which received its PMA from the FDA on July 27, 2021, protects patients who are at risk for SCA. Our ASSURE SYSTEM includes a WCD that monitors and manages at-risk patients, and if needed, delivers a shock to return the patient’s heart to a normal rhythm and is combined with a proprietary digital healthcare platform. We believe our ASSURE System offers significant clinical and functional advantages to the only other commercially available WCD, including the promise of improved patient compliance and user experience driven by a reduction in false alarms, enhanced comfort and improved wearability. Our ASSURE System, which offers integrated sensing and autonomous diagnosis and therapy, is accompanied by an integrated digital healthcare platform, with remote patient monitoring and mobile connectivity specifically designed to improve physician oversight of at-risk cardiac patients. Although the global WCD market has been served by a single participant for approximately 20 years, we believe our ASSURE System has the potential to disrupt and grow the market, which we expect to be approximately $1 billion in 2022.

The CDC estimates that SCAs cause more than 460,000 deaths per year, making them the third leading cause of death in the United States. SCA is an abrupt cessation of the normal heartbeat that is triggered by an electrical malfunction in the heart, typically caused by ventricular arrhythmias, leading to a loss of consciousness and potentially death within minutes if not treated. According to the American Heart Association (the “AHA”), in many cases of SCA early defibrillation is the only way to restore a victim’s heart rhythm to normal. Each minute of delay in returning the heart to its normal rhythm decreases the patient’s chance of survival by 7% to 10%. As even high performing EMS average a time to shock from 911 emergency dispatch of 8 to 12 minutes, this leads to very low survivability. The most common location of an SCA in adults is at a home or residence, representing approximately 70% of SCAs. Of those SCAs that occur at home, approximately 50% are unwitnessed.

We believe our total addressable U.S. market consists of approximately 740,000 patients in the United States who are at risk of suffering a SCA. We believe this represents a $6 billion addressable market in the United States, based on current Medicare reimbursement rates and an average patient wear-time of 2.8 months.

According to the AHA, in the United States every year there are approximately 1.8 million new cardiac patients with a recent MI or NICM diagnosis or who have recently undergone a PCI procedure. A subset of approximately 740,000 of these cardiac patients also suffer from a low LVEF. The AHA Guideline for Management of Patients with Ventricular Arrhythmias and the Prevention of Sudden Cardiac Death recommends use of WCDs for this subset of cardiac patients who are not immediately eligible for an ICD. We estimate, by using peak ICD adoption as a reasonable market proxy, that the near-term achievable market is approximately 50% of the total addressable market opportunity. We believe the global WCD market will continue to expand for the foreseeable future, primarily driven by increased awareness of WCDs and the introduction of our ASSURE System, which represents a compelling opportunity for our ASSURE System to capture market share and further penetrate and grow the existing market. Additionally, according to the European Cardiovascular Disease Statistics, there are approximately 3 million new cardiac patients every year in select international markets with a recent MI or NICM diagnosis or who have recently undergone a PCI procedure. We believe that approximately 1.2 million of these new cardiac patients also suffer from low LVEF and would benefit from a WCD.

WCDs are a recommended treatment for monitoring and protecting patients with low LVEF who are at an elevated risk of suffering an SCA until their LVEF improves, an ICD is implanted or they receive a heart transplant or Left Ventricular Assist Device (“LVAD”) implant. A WCD is a wearable, non-invasive, monitor and external defibrillator that is used to protect and treat these patients. WCDs continuously monitor a patient’s

 

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heart rhythm. If a potentially life-threatening arrhythmia is detected, the WCD first alarms the patient and then administers a shock in order to return the patient’s heart rhythm to normal. ZOLL’s LifeVest WCD, the only other commercially available WCD, was approved by the FDA in 2001. Registry studies have shown improved survival rates for SCA patients wearing a WCD. However, despite the effective treatment WCDs offer, they face limitations, primarily due to low patient compliance. Commonly cited reasons for patients failing to use the only other commercially available WCD on a regular basis include: false alarm frequency, low comfort and unisex-only-garments. Patients who choose not to wear a WCD due to these limitations may instead choose to purchase an AED to keep at home, carry in their car or keep on their person, or continue without protection. These non-WCD alternatives face significant limitations given they cannot protect against the high percentage of unwitnessed SCA events and require an AED to be accessible within minutes and the assistance of a trained operator.

Our ASSURE System includes several wearable components and patient accessories. The wearable components include the SensorFit Garment, monitor and therapy cable. The SensorFit Garment is a breathable, lightweight fabric garment with embedded sensors used to capture high-fidelity ECG signals from the patient. The monitor includes a rechargeable battery and the electronic components used to control the overall system and provide defibrillation therapy. The therapy cable connects the garment to the monitor and also includes defibrillation pads and the HeartPoint Alert Button, which allows patients to check the device’s status and divert shocks via a convenient location on the body. Patient accessories include the battery charger and carry pack. Another part of the Kestra solution is the ASSURE Patient App. The ASSURE Patient App is a convenient smartphone application, which transmits data to care teams automatically at certain time intervals or when a patient chooses to transmit and allows patients to track their physical activity and wear time, watch educational videos and, access the ASSURE user manual which includes troubleshooting assistance.

Additional tools are supplied to providers and patient care specialists to assist with patient fitting and assessing patient status, including the KESTRA CARESTATION remote patient data platform and tablet. The KESTRA CARESTATION remote patient data platform is a cloud-based remote monitoring platform which summarizes relevant data for physicians, allowing them to conveniently track patient progress and receive custom configured notifications. The tablet is a tool used by patient care specialists which wirelessly connects to our ASSURE System in order to program the device and assist with patient training.

We believe that our ASSURE System provides an improved, safe and effective solution for patients at risk for SCA. Our ASSURE System was designed to maximize patient comfort and compliance and to address barriers to patient acceptance of the only other commercially available WCD. Our ASSURE System is indicated and FDA-approved for adult patients who are at risk for SCA and are not candidates for, or refuse, an ICD. We believe our ASSURE System provides the following benefits:

 

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Safety and effectiveness. Data from pre-clinical and clinical studies to date have demonstrated that our ASSURE System provides accurate ventricular tachyarrhythmia detection and high conversion effectiveness of induced ventricular tachyarrhythmias.

 

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Significantly fewer false alarms. The ACE-DETECT clinical trial calculated one false alarm every 1,333 days. In contrast, the false alarm rate of ZOLL’s LifeVest WCD is one every 3.4 days, as reported in the 2016 ZOLL LifeVest WCD 4000 operating manual.

 

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Integrated digital solution provides connectivity for patients and clarity for prescribers. The ASSURE Patient App transmits data, automatically at certain time intervals or when a patient chooses to transmit data, from the monitor to the KESTRA

 

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CARESTATION remote patient data platform, where providers can review recorded arrhythmias and trends in physiologic data. The ASSURE Patient App also communicates important compliance and activity data directly to the patient.

 

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Modern design to improve comfort and compliance. The design of our ASSURE System incorporates advancements in electronics, mobile technology, signal processing techniques and textiles. Refinements were based on feedback from more than 200 subjects over a series of clinical trials and human factors studies that tested the usability of our ASSURE System. Out of the 130 patients who participated in our ACE-DETECT clinical trial, 21 patients had previously worn ZOLL’s LifeVest WCD and 76% of that subset of patients reported that our ASSURE System was easier to use and more comfortable.

We have completed two pivotal clinical studies, ACE-DETECT and ACE-CONVERT, which have established the safety and effectiveness of our ASSURE System for the treatment of patients at risk for SCA and served as the basis for approval of our PMA application by the FDA on July 27, 2021. We are committed to continuing to develop clinical evidence to further demonstrate the safety and effectiveness of our product and plan to enroll patients into our ASSURE Registry, which will also serve as the basis for our post-market surveillance study. We believe this effort will generate a robust cadence of publications, continue to increase awareness of WCDs as a proven therapy for at-risk cardiac patients and further demonstrate the clinical differentiation of our ASSURE System.

We have been issued a Medicare Provider Number by the CMS, which enables us to bill Medicare for reimbursement for our ASSURE System as an accredited DME Supplier. We expect to derive nearly all of our revenue from the rental of our ASSURE System to patients and the direct billing of various third-party payors, including Medicare, Medicaid, private insurance companies, health maintenance organizations and other healthcare-related organizations. As WCD therapy has existed for approximately 20 years in the United States, reimbursement codes and payments are well-established, and WCDs are covered by Medicare, Medicaid and many private payors.

We developed our commercial strategy and built our direct sales force to primarily target general cardiologists, interventional cardiologists and cardiac electrophysiologists across the United States, who represent the primary specialists managing the care of patients at risk of suffering from SCA. We estimate that approximately 82% of U.S. WCD prescription volume is generated by less than 31% of prescribers. In the United States, as of July 31, 2021, our direct sales organization consisted of five regional sales leaders, nine sales territory managers, a director of market access and five field clinical specialists. Our regional sales leaders and sales territory managers are responsible for developing sales territory business plans, targeting and opening new accounts, and driving adoption of our ASSURE System. They also support the training and proper use of our ASSURE System and provide consultative support for patient selection. As we continue to grow the size of our U.S. sales organization, we expect to add a strategic mix of regional sales leaders and sales territory managers with strong sales backgrounds and experience in cardiac rhythm management and DME medical equipment sales and who possess extensive knowledge of cardiology and electrophysiology practices. We also plan to partner, hire or contract with a separate network of patient care specialists to assist with fitting and training patients.

Our Success Factors

We believe that the continued growth of our company will be driven by the following success factors:

 

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Large and growing WCD market with established, stable reimbursement coverage and a single competitor. Over the past 20 years, the use of WCDs to protect patients at risk of suffering from SCA has become a well-established clinical option among cardiology professionals. Prior to our ASSURE System’s PMA from the FDA on July 27, 2021, ZOLL’s LifeVest WCD had been the only FDA approved WCD and had been used to treat more than 800,000 patients globally over the

 

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last 20 years. Between 2015 and 2019, the global market for WCDs grew at a compound annual growth rate (“CAGR”) of approximately 7% and we believe that approximately 130,000 patients will be prescribed a WCD in 2022, corresponding to an approximate $1 billion global annual market. We estimate that the near-term achievable market for WCDs in the United States as of 2021 is approximately $3 billion, representing approximately one-half of the total addressable market opportunity, and is approximately 23% penetrated. Since the therapy has existed for approximately 20 years, reimbursement codes are well-established, payment rates have been very stable and coverage is generally provided by most major U.S. insurers. We believe the introduction of our new and highly differentiated WCD solution will drive further penetration of the market and also accelerate market growth.

 

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Significant competitive differentiation and functional benefits for patients, providers and payors. We believe that our ASSURE System’s innovative and proprietary design offers significant clinical and functional advantages. Our ASSURE System was designed to support high patient wear-time compliance, driven by a reduction in false alarms, greater comfort and ease of use, and interactive patient engagement. We believe that our gender tailored garments, flexible therapy pads and cushioned, integrated sensors offer users higher levels of comfort than the alternative product. The HeartPoint Alert Button allows patients to hear, feel and respond to alarm signals and check the device’s status from an intuitive, easy to access location. In addition, based on our clinical trials, our ASSURE System has a low rate of false alarms, which we believe will lower patient anxiety, improve patient satisfaction and reduce unnecessary calls to prescribing clinicians. Our cloud-based remote monitoring platform, KESTRA CARESTATION, summarizes relevant data for physicians, allowing them to conveniently track patient progress and receive custom configured notifications. Furthermore, our mobile application automatically tracks patient data, allowing for pre-emptive physician intervention and increased patient engagement to drive higher patient compliance.

 

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Strong body of clinical data demonstrating the safety and efficacy of our ASSURE System. The benefits of our ASSURE System have been supported by over 140 patients enrolled across our multi-center clinical trials that demonstrated the system’s safety and effectiveness. Our ACE-DETECT pivotal study evaluated 130 patients wearing our ASSURE System, who were at risk for SCA and had an ICD implanted, for ambulatory detection performance and safety. Over a 30 to 35 day period, patients experienced significantly lower false alarm rates (calculated to be one every 1,333 days versus one every 3.4 days for ZOLL’s LifeVest WCD as reported in the 2016 ZOLL LifeVest WCD 4000 operating manual) and our ASSURE System detected 100% of the ventricular tachycardia and ventricular fibrillation events experienced by the patients other than those that were below the programmable ventricular tachycardia threshold or occurred when our ASSURE System was not worn. We believe our ASSURE System’s low false alarm rate will lead to improved patient compliance. Our second study, ACE-CONVERT, evaluated ventricular tachycardia and ventricular fibrillation conversion efficacy in 13 adult human subjects using our ASSURE System. The cumulative first and second shock conversion efficacy was 100%, which was above the pre-specified performance goal of 94%. A subset of 21 patients out of the 130 patients who participated in our ACE-DETECT clinical trial had previous experiences wearing ZOLL’s LifeVest WCD. We surveyed these patients and 76% of them reported that our ASSURE System was easier to use and more comfortable than ZOLL’s LifeVest WCD. Additionally, most patients (94.6%) who participated in our ACE-DETECT trial had a median daily wear time of at least 22.0 hours. We believe this favorable data indicates that our ASSURE System has a significant competitive advantage in terms of wearability and usability and provides support for its increased adoption.

 

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Connected digital healthcare platform driving patient engagement and optimizing physician workflow. The Kestra solution includes a digital healthcare platform and mobile connectivity

 

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specifically designed to address a wide array of physician and patient needs. The ASSURE Patient App’s data transfer function allows patients to push a button to initiate data transfer at any time, for example, to a healthcare provider, and also automatically transmits data to care teams at certain time intervals. For the patient, the ASSURE Patient App provides troubleshooting assistance and enables patients to participate in their own recovery via tracking of physical activity and system wear time compliance versus physician set targets. The KESTRA CARESTATION fits into existing device clinic workflows, providing the ability to review detected episodes, usage or steps trends and can generate patient reports that provide insight into the patient’s condition throughout the prescription period. The KESTRA CARESTATION also allows clinicians to set up pre-determined alerts for when a patient has not been wearing their device for a certain period of time or has a cardiac arrhythmia. We believe these features will drive increased patient engagement and provide better data sets for physicians to proactively address problems and improve outcomes.

 

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A deeper understanding of our target market and prescribing physicians. We formed our company by assembling an experienced team with significant, in-depth knowledge of our target market. From the outset, we spent significant time understanding the unmet needs of patients and physicians through field studies and early engagement of physicians and key opinion leaders. By utilizing this market knowledge, we have been able to navigate the development and regulatory requirements for our ASSURE System in an efficient manner. Separately, our market knowledge and access to data have provided insights enabling us to identify high-volume prescribers and potential “next adopters.” We believe that our approach to engagement across multiple constituents positions us to continue to drive increased awareness of and demand for our ASSURE System.

 

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Infrastructure established to support adjacent follow-on products in the cardiac patient continuum of care. Development of our ASSURE System has facilitated the build-out of the commercial, customer service, supply-chain and information technology infrastructure required to support scalable growth and adjacent follow-on offerings. Our company has built a commercial and service organization with deep experience in cardiology and DME product categories. We have also constructed a highly efficient and scalable supply chain that has been outsourced to experienced, top-tier medical technology suppliers. Our cloud-based IT infrastructure, which is fully integrated into our KESTRA CARESTATION remote monitoring platform and ASSURE Patient App, provides a differentiated digital cardiology platform, and can be used to support additional products and services in the cardiac continuum of care.

 

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Accredited Durable Medical Equipment (DME) Supplier and Medicare Provider. We have been issued a Medicare Provider Number by the CMS, allowing us to bill Medicare for reimbursement for our ASSURE System as an accredited DME supplier. This provides us immediate access to approximately 45% of the WCD market, which is covered by Medicare. As an accredited DME supplier, we can directly bill Medicare as well as contracted private payors and patients for the use of our ASSURE System rather than relying on third-party intermediaries to distribute our products. This enables us to capture an incremental portion of the value chain and better control the full patient experience.

 

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Strong clinical and research and development capabilities and intellectual property portfolio. Innovation is at the core of our culture and our team of research and development professionals is committed to continually improving and evolving our ASSURE System. Our product and technology development pipeline contains several actively funded projects designed to bring new WCD features and capabilities to market over the next several years, as well as expand our offerings beyond the WCD space. We have a strong patent portfolio to protect and assert our intellectual property and technology, with rights to 101 issued U.S. and foreign patents and 162 pending published and unpublished U.S. and foreign patent applications, as of July 31, 2021. In addition, we believe that our trade secrets and PMA provide additional protections against competitors.

 

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Highly experienced management team with a track record of success. Our senior management team has over 300 years of combined experience in the external and internal cardiac medical device markets. We have a track record of successfully bringing products to market and significant expertise in development, regulatory approval and global commercialization activities. Members of our team have worked at well-regarded medical technology companies such as Medtronic, Physio-Control Inc., Boston Scientific Corporation and Stryker Corporation.

Our Growth Strategies

Our mission is to become a global leader in providing innovative, intuitive solutions to protect and support at-risk patients. Key elements of our strategy to achieve this goal are:

 

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Expand our commercial infrastructure in the United States by scaling our direct sales and marketing teams. Our initial and primary focus is to continue to develop our commercial organization in the United States. As of July 31, 2021, our sales force consisted of five regional sales leaders, nine sales territory managers, a director of market access and five field clinical specialists. We plan to significantly increase the size of our sales force and enter new sales territories to pursue new account adoption, increase utilization of our ASSURE System and drive revenue growth. We believe that our expansion efforts will be bolstered by our significant reimbursement coverage.

 

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Promote awareness of our ASSURE System among healthcare providers to drive adoption by current non-prescribers. We intend to continue to promote awareness of our system through training and educating cardiologists, cardiac electrophysiologists, key opinion leaders from these disciplines and various medical societies on the benefits of our ASSURE System. In addition, we plan to continue building our clinical credibility by pursuing additional clinical studies (including the post-market clinical study we are required to undertake as a condition to our PMA), building our patient registry, publishing clinical data in various industry and scientific journals, presenting at various industry conferences and through clinical testimonials. We are creating a number of clinician advisory boards to solicit ongoing feedback from physicians and plan to form a speakers’ bureau to promote peer-to-peer education. As part of our awareness-building strategy, we are developing significant digital marketing capabilities, developing tools to reach clinicians and conducting virtual product demonstrations.

 

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Expand market access through increased coverage contracts and in-network arrangements with commercial payors. Our Medicare Provider Number allows us to bill Medicare for our ASSURE System as an accredited DME supplier and have immediate access to approximately 45% of the WCD market. Separately, because WCD therapy has been widely used in patients for approximately 20 years in the United States, reimbursement rates are well-established and the product category is broadly covered by commercial payors in the United States. Since the WCD market has been controlled by one competitor for approximately 20 years, we believe that payors will work with us as we look to broaden coverage given our ability to offer their members meaningful benefits. Our market access team is actively engaging national and state level commercial payors to put contracts in place designed to increase and simplify access to our ASSURE System.

 

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Continue to introduce product and service offerings and pursue expanded indications across the patient care continuum. We are committed to ongoing research and development and intend to invest in our business to further improve our products, increase patient comfort and acceptance and enhance clinical outcomes. Additionally, we plan to leverage the ASSURE digital healthcare platform and the input of our key opinion leaders, providers and clinicians to address a broader range of patient needs and indications. We believe that over time, we will be able to successfully

 

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develop, integrate and cross-sell products and services, including: expanded WCD and monitoring offerings, a new suite of emergency medical therapeutic and notification offerings and advanced diagnostic monitoring products for adjacent markets.

 

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Continue to invest in our digital healthcare platform, AI capabilities, deep learning algorithms and data management. The Kestra solution includes the ASSURE Patient App, KESTRA CARESTATION remote monitoring platform, Kestra’s customer-facing business systems, Kestra’s artificial intelligence-enabled data platform and the ASSURE Patient Registry. For the purpose of our PMA, our digital health platform is separate from our ASSURE System and is treated as a FDA Class I 510(k)—exempt device. Our solutions enhance physicians’ abilities to provide patient care by offering data transparency, reporting accuracy, diagnostic flexibility and workflow efficiencies. Our modern digital platform allows physicians to custom configure notification settings and to review reports either on-demand or as scheduled. Continuous improvement is imperative to the ongoing scalability and accuracy of our remote monitoring processes, reporting and overall physician and patient experience. We plan to collect and use data on high-risk cardiac patients with their consent in accordance with the HIPAA privacy rule, to create the ASSURE Patient Registry, which we will use to build out our clinical evidence. Over time, we believe we can leverage the aggregated and de-identified ASSURE Patient Registry data through our digital healthcare platform to enhance the value of our ASSURE System to payors, further develop the functionality of our ASSURE System, inform potential new market opportunities and continue to improve our patient and physician experiences.

 

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Expand the addressable market through pursuit of additional indications for use and improvements in wearability leading to longer WCD wear times. Through our robust data collection capability and patient registry, we intend to expand the market by pursuing additional indications for the use of our ASSURE System. We also aim to increase patient compliance through design and other feature improvements leading to longer WCD wear times. Patients on average wear WCDs for 2.8 months. This average includes noncompliant patients, eventual ICD recipients and those undergoing cardiac rehabilitation. Patients undergoing cardiac rehabilitation wear the device for a much longer time than others. We believe that pursuing a higher proportion of these rehabilitation patients and increasing compliance will allow us to raise the average wear time. Extending WCD wear times by even one month for non-ICD implant patients is expected to have a significant impact on the overall market size.

 

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Pursue expansion in international markets. SCA is a prevalent, devastating and costly condition worldwide, and we believe that there is an existing and growing opportunity for our ASSURE System outside the United States. After our initial focus on the market in the United States, our next priority is to pursue a CE mark for commercialization in Europe, obtain regulatory clearance for our product in Japan and subsequently build a presence in other international markets. Our quality management system has recently received ISO 13485 certification through our notified body, British Standards Institute.

Market Overview

Our Market

We believe our total addressable U.S. market consists of approximately 740,000 patients in the United States who are at risk of suffering a SCA. We believe this represents a $6 billion addressable market in the United States, based on current Medicare reimbursement rates and an average patient wear-time of 2.8 months.

According to the AHA, in the United States every year there are approximately 1.8 million new cardiac patients with a recent MI or NICM diagnosis or who have recently undergone a PCI procedure. A subset of approximately 740,000 of these cardiac patients also suffer from a low LVEF. The AHA Guideline for Management of Patients with Ventricular Arrhythmias and the Prevention of Sudden Cardiac Death recommends

 

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use of WCDs for this subset of cardiac patients who are not immediately eligible for an ICD. We estimate, by using peak ICD adoption as a reasonable market proxy, that the near-term achievable market is approximately 50% of the total addressable market opportunity. We believe the global WCD market will continue to expand for the foreseeable future, primarily driven by increased awareness of WCDs and the introduction of our ASSURE System, which represents a compelling opportunity for our ASSURE System to capture market share and further penetrate and grow the existing market. Additionally, according to the European Cardiovascular Disease Statistics, there are approximately 3 million new cardiac patients every year in select international markets with a recent MI or NICM diagnosis or who have recently undergone a PCI procedure. We believe that approximately 1.2 million of these new cardiac patients also suffer from low LVEF and would benefit from a WCD.

Between 2015 and 2019, the global market for WCDs grew at a CAGR of 7% and we believe that it will be an approximately $1 billion annual market in 2022. We believe the estimated global WCD market for 2022 represents approximately 130,000 patients, with approximately 87% in the United States. Further, we estimate that the U.S. total addressable and near-term achievable WCD markets are approximately 12% and 23% penetrated, respectively. We believe the global WCD market will continue to expand for the foreseeable future, primarily driven by increased awareness of WCDs and the introduction of our ASSURE System as a new more wearable solution. In addition, market growth could accelerate due to increased awareness from publications of our clinical trials, more than one medical device company being focused on this market, new innovation for WCD therapy and other potential products being introduced to physicians and patients. We believe that this represents a compelling opportunity for our ASSURE System to capture market share and further penetrate and grow the existing market. While we anticipate expanding into other geographic regions over time, we will initially focus on the United States due to the existing market size and our recent PMA.

Overview of Sudden Cardiac Arrest

SCA is an abrupt cessation of the normal heartbeat that is triggered by an electrical malfunction in the heart, typically caused by ventricular arrhythmias. When the heart’s ability to pump becomes impaired, blood flow to vital organs in the body is disrupted, leading to a loss of consciousness and potentially death within minutes if not treated. The Center for Disease Control estimates deaths from SCA at more than 460,000 per year, making them the third leading cause of death in the United States. SCA is a major public health problem, and accounts for approximately 50% of all cardiovascular deaths in the United States, and SCA is also a leading cause of death globally.

According to the AHA, in many cases of SCA early defibrillation is the only way to restore a victim’s heart rhythm to normal. Defibrillation works by applying an electrical shock to the heart and can be delivered by a transvenous ICD, a subcutaneous ICD, a WCD, an AED or Manual External Defibrillator. Each minute of delay in returning the heart to its normal rhythm decreases the patient’s chance of survival by 7% to 10%. As even high performing EMS average a time to shock from 911 emergency dispatch of 8 to 12 minutes, this leads to very low survivability. The most common location of an SCA event in adults is at a home or residence, representing approximately 70% of cases. Of those cases that occur at home, approximately 50% are events that are unwitnessed.

Several research studies have shown that low LVEF, a measurement of how much blood the left ventricle pumps out with each contraction, is one of the greatest risk factors for SCA. In one study, patients with an LVEF of 30% or less were two to three times more likely to suffer from SCA as patients with an LVEF of more than 40%. In this same study, each decrease of 5% in LVEF was associated with a 21% increase in the risk of SCA during the first 30 days after an MI.

Arrhythmias

The normal human heart has four chambers, consisting of two atria and two ventricles, which on average expand and contract over 100,000 times each day. The walls of the atria and the ventricles are made up

 

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of cardiac muscle, which contracts rhythmically when stimulated by an electrical current. Normally, the heartbeat starts in the right atrium when a specialized group of cells that serve as the heart’s natural pacemaker sends an electrical signal. This signal spreads through the atria and then moves to the ventricles, causing the atria to contract a fraction of a second before the ventricles. This pattern allows the heart to pump blood to the lungs and the rest of the body.

Arrhythmias are abnormal rhythms of the heart that can disrupt normal blood flow. The two main types of arrhythmias causing SCA are ventricular fibrillation and ventricular tachycardia.

Ventricular Fibrillation

Ventricular fibrillation is a condition in which disorganized electrical activity causes the ventricles to contract in a rapid and uncoordinated fashion, resulting in an insufficient amount of blood being pumped from the heart. Ventricular fibrillation is the most common type of arrhythmia thought to cause SCA and often occurs without warning. The only accepted treatment for ventricular fibrillation is defibrillation, in which electrical current is delivered to the heart to stop the fibrillation and permit the return of coordinated cardiac contractions.

Ventricular Tachycardia

Ventricular tachycardia is a fast heart rate that starts in the heart’s lower chambers. This type of arrhythmia may be life-threatening, requiring immediate diagnosis and treatment. In cases of ventricular tachycardia, electrical signals in the heart’s lower chambers fire abnormally, resulting in a faster than normal heart rate. This rapid heartbeat keeps the heart’s chambers from filling completely between contractions, which compromises blood flow to the rest of the body. In extreme cases, this is known to cause SCA and is treatable by immediate defibrillation.

Path to Treatment

As evidenced in the Valsartan in Acute Myocardial Infarction (VALIANT) and the Efficacy of Vasopressin Antagonism in Heart Failure Outcome Study with Tolvaptan (EVEREST) trials, patients with low LVEF have an elevated risk for SCA. These studies have shown that the absolute risk for SCA is greatest in the early period after an MI, particularly in the first 30 days, and declines over time, reaching a steady state at approximately one year. This risk is greatest among patients with the lowest LVEF (30% or less), but even patients with a higher LVEF (more than 40%) are at substantially increased risk in the early post-infarction period, as compared with the subsequent risk, and the discriminatory effect of the LVEF declines over time.

 

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Cumulative Incidence of Sudden Cardiac Death in Low Ejection Fraction Patients

 

 

Kaplan-Meier Estimates of the Rates of Sudden Death or Cardiac Arrest with Resuscitation, According to the LVEF. Source: Sudden Death in Patients with Myocardial Infarction and Left Ventricular Dysfunction, Heart Failure, or Both, (2005), New England Journal of Medicine, 333(7), 744.

 

 

Estimates of SCD and non-sudden death at 1-year after hospitalization for heart failure. Kaplan-Meier and cumulative incidence function estimates of SCD are shown. Source: Sudden Death After Hospitalization for Heart Failure With Reduced Ejection Fraction (from the EVEREST Trial), The American Journal of Cardiology, 122(2), 255–260.

WCDs are generally worn for a period of 1 to 4 months and are generally followed by either continued post-WCD cardiac rehabilitation or an ICD, depending on the underlying indication. Cardiac rehabilitation is a medically supervised program involving counseling, training, heart healthy living and reduced stress designed to improve cardiovascular health for people that have experienced MI or NICM or undergone a PCI procedure or heart surgery. An ICD is a battery-powered device placed under the skin that keeps track of a patient’s heart rate. Thin wires connect the ICD to the patient’s heart. If a life-threatening heart rhythm is detected the device will deliver an electric shock to restore a normal heartbeat.

 

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Based on a review of the Durable Medical Equipment Standard Analytical File, the WCD population can be split into three main groups:

 

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Newly Diagnosed NICM with Low LVEF. These patients represent approximately 49% of the addressable market at risk for an SCA. They are generally undergoing Guidelines Directed Medical Treatment with the underlying cause potentially being treatable and may not need a permanent ICD. Their typical WCD usage time is three to nine months.

 

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Recent MI / PCI / Coronary Artery Bypass Grafting with Low LVEF. These patients represent approximately 44% of the addressable market and have generally been indicated for an ICD. WCDs are prescribed to protect them from SCA during their ICD waiting period. Their typical WCD usage time is 40 days to 3 months.

 

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ICD Indicated / Bridge to Transplant. These patients represent approximately 7% of the addressable market and have been indicated for an ICD but have a contraindication to immediate placement, such as an infection, extraction or are awaiting a transplant or an LVAD implant. Their typical WCD usage time is variable.

Current Treatments for Patients with Low LVEF and their Limitations

WCDs are a recommended treatment for monitoring and protecting patients with low LVEF who are at an elevated risk of suffering an SCA until their LVEF improves, an ICD is implanted or they receive a heart transplant or LVAD. However, some patients choose not to wear a WCD due to the limitations of the only other currently available WCDs and instead choose to purchase an AED or continue without protection. Those that purchase an AED may keep it in their home, car or carry it on their person. Patients that elect to purchase an AED or continue without protection remain vulnerable to unwitnessed SCAs, and in the case of a witnessed SCA, will need to be treated by an AED within minutes of their arrest for resuscitation to be successful.

Wearable Cardioverter Defibrillator (WCD)

A WCD is a non-invasive, monitor and external defibrillator used to protect and treat patients who are known to be at high risk for SCA. The WCD is composed of a garment that is worn underneath regular clothing and a portable monitor that includes an AED. Wires connect electrodes inside the garment to the monitor, which is normally carried in a fanny pack or shoulder bag. The electrodes continuously monitor a patient’s heart rate and rhythm, if the monitor detects a potentially life-threatening arrhythmia, the WCD first alarms the patient and then administers a shock in order to return the patient’s heart rhythm to normal. ZOLL’s LifeVest WCD, the only other commercially available WCD system, was approved to treat patients at risk of suffering an SCA by the FDA in 2001.

Registry studies have shown improved survival rates for SCA patients wearing a WCD. However, despite the effective treatment the WCD offers, they face limitations, primarily due to low patient compliance. Commonly cited reasons for patients failing to use the only other commercially available WCD on a regular basis include:

 

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False alarm frequency. The VEST Study, a randomized clinical trial with 2,348 test subjects and spanning 10 years, reported a false alarm rate of nearly once every 1.3 days for the LifeVest WCD—resulting in inappropriate shocks, sleep disturbance and restriction of daily routines.

 

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Low comfort and only unisex garments. The LifeVest WCD only comes in one style, designed to fit both genders, which has been reported to cause significant discomfort, especially for women given many have to wear a bra over the garment. Additionally, poorly fitting garments combined with ECG sensors attached by Velcro fasteners can lead to the electrodes digging into the patient’s skin or flipping over, resulting in poor ECG contact and discomfort.

 

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ECG noise and low utility data. Noisy ECG data has contributed to false alarms and unnecessary calls to prescribing physicians and has limited the utility of the LifeVest WCD’s remote monitoring functionality.

 

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Low usability. The LifeVest WCD has a user interface which requires the user to locate the monitor and press multiple buttons simultaneously to divert a shock during a false alarm event.

 

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Limited connectivity with patient. Patient connectivity is important because it allows for ongoing engagement with the patient to help improve compliance and allows for data to be transferred to physicians in a consistent and easy manner. The LifeVest WCD does not have a smartphone application to connect with patients. Further, according to the LifeVest WCD operating manual, patient data is only uploaded when the monitor is placed on the charging station and connected to WiFi, eliminating the potential for real-time remote monitoring.

Automated External Defibrillator (AED)

An AED is a medical device operated by a third-party, designed to analyze the heart’s rhythm and deliver an electric shock to victims of ventricular fibrillation or ventricular tachycardia to restore the heart’s rhythm to normal. Individuals are usually able to purchase a new AED for approximately $1,200. A federal mandate from 2000 requires AEDs to be located in large public spaces such as office buildings, transportation hubs and shopping malls.

While AEDs have been demonstrated to effectively deliver defibrillation to persons experiencing out-of-hospital SCA, we believe they have a number of limitations as a therapeutic option, the most significant limitation being that AEDs are unable to protect against unwitnessed SCA. Approximately 70% of SCA events occur at home, and 50% of those are unwitnessed. Additionally, for defibrillation to be successful, treatment must be administered rapidly and in many cases, even if a patient possesses an AED, treatment is not administered in time. Effective use of an AED to treat witnessed SCA requires the patient to have an AED close by and a witness who immediately recognizes the event, knows where the AED is and is trained in using the device.

Continue Without Protection

Certain patients elect to continue without protection against SCA. These patients are generally reliant upon first responders or EMS in the case of an SCA event. They remain at a significantly elevated level of risk given only 30% of events occur in public and in the case that an AED is unavailable, even high performing EMS average a time to shock from 911 emergency dispatch of 8 to 12 minutes, with chances of survival decreasing 7% to 10% per minute from onset.

Our Solution

We believe that our ASSURE System provides an improved, safe and effective solution for patients at risk for SCA. Our ASSURE System was designed to maximize patient comfort and compliance and aims to address common barriers to patient acceptance of the only other commercially available WCD. Our ASSURE System is indicated and FDA-approved for adult patients who are at risk for SCA and are not candidates for, or refuse, an ICD.

 

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Our ASSURE System includes wearable components and several accessories. Additional tools are provided to assist with patient fitting and assessing patient status.

Wearable Components

 

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SensorFit Garment. A breathable, lightweight fabric garment with embedded, cushioned ECG sensors that are designed to move with the patient and capture high fidelity ECG signals.

 

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Monitor. The primary electronic component that controls overall system operation and provides 170J biphasic defibrillation therapy. Includes a rechargeable lithium-ion battery pack with a minimum runtime of 24 hours.

 

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Therapy Cable. A reusable cable that connects the garment to the monitor and contains three defibrillation pads and the HeartPoint Alert Button. The defibrillation pads snap into conductive mesh pockets in the garment and release a defibrillation gel onto the patient’s skin to prepare for the transmission of a defibrillation shock. The HeartPoint Alert Button snaps onto the left or right shoulder strap of the garment and can be pressed at any time to hear the device status, respond to alarm signals and divert shocks, providing a user interface that enables the patient to hear, feel and respond to our ASSURE System from an intuitive, easy to access location.

Accessories for the Patient

 

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Charger. Table-top charging station for the lithium-ion battery in the monitor. Also includes a USB port and a stand for charging mobile devices.

 

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Carry Pack. Wearable case designed to carry the monitor that can be worn over the shoulder or around the waist to adapt to the patient’s lifestyle.

 

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ASSURE Patient App. Transmits data to care teams automatically at certain time intervals or when a patient chooses to transmit, allows patients to track their physical activity and wear time, provides educational videos and generally empowers patient self-management of his or her recovery.

Provider and Patient Care Specialist Tools

 

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Tablet. Used by the Kestra patient care specialist to program our ASSURE System for patient use. Wirelessly connects to the monitor to configure our ASSURE System according to the patient’s prescription and receive patient physiological data collected by the ECG electrodes to assess real-time electrode contact.

 

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KESTRA CARESTATION Remote Patient Data Platform. Available to healthcare professionals who follow patients wearing our ASSURE System. Provides configurable alerts for clinical events and tracks and reports trends in physiologic data through a familiar clinic workflow user interface.

 

 

Our ASSURE System is intended to be worn at all times except when bathing or showering. Our ASSURE System is designed to continuously monitor for and detect certain life-threating rapid heart rhythms, specifically ventricular fibrillation and ventricular tachycardia, above a heart rate threshold programmable by the clinician. After detecting ventricular fibrillation or ventricular tachycardia, the system issues an alert notifying the patient they are about to receive a shock. If the patient does not respond by pressing the HeartPoint Alert Button, gel is released from the defibrillation pads and a shock is delivered to restore a normal heart rhythm without further interaction from the patient or any bystander.

After a shock is delivered, we offer an additional layer of support for the patient through our ASSURE Assist service, which enables us to connect with the patient, a designated caregiver or 911 emergency services. Our ASSURE System also analyzes the patient’s heart rate for very slow rhythms. When bradycardia or asystole is detected, the rhythm is recorded, and an alert sequence is initiated to attract bystander attention, instructing them to call 911 and perform cardiopulmonary resuscitation (“CPR”).

Benefits of our ASSURE System

We believe our ASSURE System offers notable therapeutic benefits and significant competitive advantages over the only other commercially available WCD, including:

 

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Safety and effectiveness. Early defibrillation is the only therapy that can restore a patient’s heart rhythm to normal in many cases of SCA. Data from pre-clinical and clinical studies to date have demonstrated that our ASSURE System provides accurate detection of arrhythmias for which a defibrillation shock is clinically indicated—99.0% ventricular fibrillation sensitivity and 98.4% ventricular tachycardia sensitivity—as well as high conversion effectiveness of induced ventricular arrhythmias (100% cumulative first and second shock ventricular fibrillation/ventricular tachycardia conversion rate, calculated based on the ratio of the number of subjects for whom an induced ventricular rhythm is successfully terminated by the first or second shock from our ASSURE System to the number of total inductions attempted with shocks delivered by our ASSURE System).

 

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Significantly fewer false alarms. We designed our ASSURE System to minimize false alarms. The overall level of noise is reduced through use of resistive ECG electrodes that are cushioned and securely bonded to the fabric, custom shielded cables, and isolation circuitry. Adaptive Patient Intelligence is a part of the ASSURE detection algorithm designed to improve performance in a noisy environment. It is a proprietary technology that adapts to the patient’s heart rhythm to filter out artifacts caused by patient motion. This is one of the advancements that led to a reduction in false alarm rates with our ASSURE System. As a result of these features, the ACE-DETECT clinical trial calculated only one every 1,333 days compared to the false alarm rate of ZOLL’s LifeVest WCD, which is one every 3.4 days, as reported in the 2016 ZOLL LifeVest WCD 4000 operating manual.

 

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Integrated digital solution provides connectivity for patients and clarity for prescribers. We designed our ASSURE System to be an integrated digital healthcare solution. The ASSURE Patient App transmits data, automatically at certain time intervals or when a patient chooses to transmit data, from the monitor to the KESTRA CARESTATION remote patient data platform, where providers can review recorded arrhythmias and trends in physiologic data. Additionally, providers have the ability to set configurable alerts to notify them when metrics fall below specified thresholds. We expect these features to improve the connection between patients and their providers, allowing them to proactively address patient concerns and improve patient outcomes.

 

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Modern design to improve comfort and compliance. The design of our ASSURE System incorporates advancements in electronics and mobile technology, signal processing techniques and textiles. Refinements were based on feedback from more than 200 subjects over a series of clinical trials and human factors studies that tested the usability of our ASSURE System. In particular, the SensorFit Garment was developed in two distinct styles tailored for men and women and incorporates cushioned ECG electrodes that are embedded in the fabric to improve electrode contact and comfort. The HeartPoint Alert Button provides an intuitive user interface through with patients can hear the device’s status, respond to alarm signals and divert shocks, allowing patients to hear, feel and respond to our ASSURE System from an intuitive, easy to access location on the body. Out of the 130 patients who participated in our ACE-DETECT clinical trial, 21 patients had previously worn ZOLL’s LifeVest WCD and 76% of that subset of patients reported that our ASSURE System was easier to use and more comfortable.

Treatment with our ASSURE System

Patient Selection

The WCD provides automatic defibrillation therapy for patients who are at increased risk of SCD but are not immediately eligible for an ICD. These patients include those who have been newly diagnosed with MI or NICM, or recently undergone a PCI procedure, or those who have experienced recent coronary revascularization within the past 90 days, and have low LVEF, to allow for optimization of medical therapy and re-evaluation of cardiac function. Additional indications include ICD explant due to infection, postponed ICD implant and pending heart transplant or LVAD implant.

Fitting and Training

WCDs are prescribed by a general cardiologist, nurse practitioner, interventional cardiologist or cardiac electrophysiologist in a majority of cases. The patient will be fitted with an ASSURE System and trained by a certified patient care specialist, normally within 24 hours of being discharged from the hospital.

 

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Our Clinical Results and Studies

We have completed two pivotal clinical studies, ACE-DETECT and ACE-CONVERT, which have established the safety and effectiveness of our ASSURE System for the treatment of patients at risk for SCA and served as the basis for approval of our PMA application by the FDA on July 27, 2021. We are committed to continuing to develop clinical evidence to further demonstrate the safety and effectiveness of our product and plan to enroll patients into our ASSURE Registry, which will also serve as the basis for our post-market surveillance study. We believe this effort will generate a robust cadence of publications, continue to increase awareness of WCDs as a proven therapy for at-risk cardiac patients and further demonstrate the clinical differentiation of our ASSURE System.

ACE-DETECT Pivotal Trial

Overview

We sponsored the ASSURE WCD Clinical Evaluation—DETECTion and Safety Study (ACE-DETECT), a multi-center, prospective, nonrandomized study at 10 sites across the United States. The primary purpose of the study was to evaluate the false positive shock alarm rate in patients at risk for SCA. Eligible patients included those with a low LVEF and an active ICD. Patients were excluded if they had a cardiac resynchronization therapy defibrillator (“CRT-D”), any other external medical device that might interfere with proper fit of the WCD or if they had skin disorders on the upper body that could be exacerbated by wearing the WCD.

A total of 130 patients were enrolled in the ACE-DETECT study. The patients’ mean age was 61 and 69% of the patients were male. The most common indication for the ICD was primary prevention. All patients had been diagnosed with a cardiomyopathy, most having severely reduced LVEF. A history of atrial fibrillation, atrial flutter or atrial tachycardia was present in nearly half of the patients enrolled in the trial and approximately half of the patients had ventricular fibrillation or ventricular tachycardia previously detected by their ICD. Of the 130 patients enrolled in the ACE-DETECT trial, 21 patients had previously used ZOLL’s LifeVest WCD.

WCD shock therapy and shock alarms were disabled, but shock alarm markers were recorded. WCD parameters were programmed to nominal settings. ICD parameters were left to the discretion of the investigator. Patients were asked to wear our ASSURE System as much as possible for 30 days except when showering or bathing. Clinical follow-ups were conducted weekly via phone and patients returned for final follow-ups at the end of the 30-day period. Both the WCD and ICD were interrogated to collect all stored arrhythmia episodes, and WCD data also included minutes of wear per day. Patients separately reported their perceived discomfort for eight anatomical regions on the torso at baseline and final follow-up. Relative comfort and ease of use were assessed after wear by patients who had prior experience wearing ZOLL’s LifeVest WCD.

The primary endpoint was the false positive alarm rate compared to a pre-specified objective performance goal of 0.29 per patient-day (2.0 false alarms per patient week). False positive alarms were defined as a WCD shock alarm event marker associated with a rhythm other than ventricular fibrillation or ventricular tachycardia. This comparator rate was based on the reported false alarms, defined as false arrhythmia declarations, in the 2016 ZOLL LifeVest WCD 4000 operating manual.

Other outcome measures included a summary of WCD and ICD detected episodes, patient use compliance and adverse events determined to be at least possibly related to the device. Other detected episodes types included true positive alarms, true positive detections and missed events.

Results

The primary endpoint performance goal was achieved. Three false positive alarms occurred in the cohort of 130 patients over a total of 3,501 patient-days, or 9.6 years, of device exposure. The observed false

 

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positive alarm rate was 0.00075 per patient-day or one false positive alarm every 1,333 days. This was well below the pre-specified performance goal of 0.29 per patient-day (p<0.001), equivalent to one false positive alarm every 3.4 days.

A total of 163 WCD episodes were recorded in 18 patients. Four of these episodes in three patients were adjudicated as ventricular fibrillation or ventricular tachycardia (true positive detections) and were also detected by the ICD. The remaining 159 WCD episodes in 17 patients were adjudicated as other rhythm with noise, uncertain rhythm with noise or atrial flutter without noise. Of the 159 WCD episodes, 156 closed before a shock alarm event marker was recorded because the noise was resolved or the rhythm was determined to be non-shockable. In the remaining three episodes, a shock alarm event marker (false positive alarm) was recorded. Two of these episodes occurred during a ventricular paced rhythm in one patient and one during a sinus rhythm in another patient.

The ICDs detected a total of 106 episodes in 51 patients that were adjudicated as rhythm type ventricular fibrillation or ventricular tachycardia. These include the four WCD true positive detections discussed above, of which three received ICD therapy. The remaining 102 episodes were not detected by the WCD as they either did not have a duration of at least 20 seconds or the rate was less than 170 bpm.

Compliance

Patients were asked to wear our ASSURE System for a period of 30 days. Due to some patients returning our ASSURE System after the required 30-day period, patients wore our ASSURE System for a median of 31 days with a median daily use of 23 hours. Approximately 95% of patients had a median daily wear time of at least 23 hours. No significant differences were found in use by age or by sex.

Safety

None of the observed adverse events were classified as serious or unanticipated adverse effects. The most frequently reported events were mild skin irritation, followed by musculoskeletal-related complaints such as muscle strain related to carrying the monitor. One patient reported severe musculoskeletal pain related to wearing the WCD.

Comfort

Of the 130 patients enrolled, 127 completed the comfort survey at both the outset of the study (the “baseline”), and at end of wear for eight anatomical regions on the torso. Of these 127, 89.0% reported no or slight discomfort at baseline, and 83.5% reported no or slight discomfort at end of wear.    

Twenty-one of the 130 patients who participated in our ACE-DETECT clinical trial had previously worn ZOLL’s LifeVest WCD. 76% of these patients reported that our ASSURE System was easier to use and more comfortable than ZOLL’s LifeVest WCD.

ACE-CONVERT Trial

Overview

We sponsored the ASSURE WCD Clinical Evaluation – Conversion Efficacy Study (ACE-CONVERT), a prospective, nonrandomized study at four sites across the United States. Patients were enrolled at two of the four sites. The purpose of the trial was to evaluate shock conversion efficacy of the ASSURE defibrillation waveform in humans. Adults undergoing electrophysiology procedures with planned induction of ventricular arrhythmias were eligible.

 

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Thirteen patients were enrolled in the ACE-CONVERT trial. The mean age was 55 and 54% were male. All enrolled patients underwent new ICD implant or ICD replacement. Additionally, the enrolled patients had a mix of primary etiologies of cardiovascular disease and all had comorbidities. The mean LVEF was 46.8%.

Ventricular fibrillation was induced and the ASSURE defibrillation shock was delivered on physician command. If the first shock was not successful, a second shock from our ASSURE System was delivered. If this second shock was not successful, the commercial external defibrillator was to be used to deliver a rescue shock.

The primary endpoint was cumulative first and second shock conversion rate with a performance goal of greater than or equal to 94% based on prior studies. Other outcome measures included the first shock conversion rate and a summary of adverse events.

Results

The primary endpoint of cumulative first and second shock efficacy for conversion of ventricular fibrillation was 100%, exceeding the 94% pre-specified performance goal. The first shock efficacy was 84.6%. A total of 15 shocks were delivered from our ASSURE System in 13 patients, and no patient required rescue defibrillation.

Safety

Three adverse events occurred in three subjects (23.1%). All events were mild skin irritation from the adhesive defibrillation pads and all events resolved without further sequelae.

Animal Studies

Overview

Animal studies were performed to develop and evaluate an Optimized Biphasic Truncated Exponential (“oBTE”) defibrillation waveform using a 140 µF capacitor chosen for use in our ASSURE System. A 140 µF capacitor was selected to minimize the overall size of the WCD while enabling delivery up to 170 J shock.

The ED50 Study evaluated defibrillation efficacy in swine (approximately 10 kg) between the oBTE waveform and the waveform (“cBTE”) used in ZOLL’s LifeVest WCD. The primary endpoint was a non-inferiority comparison in first shock efficacy rates of the oBTE and cBTE waveforms at each of three different impedance levels. This method was chosen as a way of demonstrating that the oBTE waveform was clinically at least as effective as the cBTE waveform.

Because we expected nearly 100% efficacy for both waveforms, limiting the ability to detect statistical differences, we attenuated the voltage for both waveforms to approximately 50% efficacy at three impedance levels. The swine were placed under general anesthesia and prior to the first ventricular fibrillation episode, three 1,000V conditioning shocks were delivered during normal sinus rhythm to stabilize the transthoracic impedance for subsequent shocks. Ventricular fibrillation was induced using direct current from via a 9-volt battery and terminated, using defibrillation electrodes placed anterior and posterior to the thorax, with either the oBTE or cBTE at random. The ventricular fibrillation episodes were organized into 10 blocks; each block included randomized treatment from each of the two waveforms at three different impedance levels (50, 85 and 125 ohms) to reflect the anticipated range observed in humans.

The Full Energy Study evaluated defibrillation efficacy success at full energy in large (approximately 30 kg) swine. The animal preparation was the same as described for the ED50 Study except that the defibrillation electrodes were placed on lateral sides of the thorax. The ventricular fibrillation episodes were organized into 10 blocks. Within each block, two shocks were delivered, one of each waveform. The first shock was randomized to

 

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either the 170J oBTE or 150J cBTE waveform, and the second shock was the alternate. Shocks were delivered after at least five seconds of ventricular fibrillation. The primary endpoint was a non-inferiority comparison of the first shock efficacy rate.

Results

In the ED50 Study, a total of 2,160 ventricular fibrillation inductions were performed in 36 swine to compare defibrillation efficacy between the oBTE and cBTE waveforms at 50, 85 and 125 ohms. At each of the three impedance levels, the 95% confidence interval for the defibrillation efficacy difference did not cross the 10% limit and thus fulfilled the non-inferiority criteria. At 85 and 125 ohms, the confidence interval did not cross 0%, and provides 95% confidence that the shock success rate of the oBTE waveform is superior to the cBTE waveform.

 

 

In the Full Energy Study, a total of 120 ventricular fibrillation inductions were performed in six swine. First shock conversion of ventricular fibrillation for both the 170J oBTE waveform and the 150J cBTE waveform was 100%. The 95% confidence interval for the defibrillation efficacy difference did not cross the 10% limit, and thus fulfilled the non-inferiority criteria.

Safety

Adverse events were mild skin irritation from the adhesive defibrillation pads in three swine, representing 23.1% of the swine tested.

ASSURE Registry

Approval to market our ASSURE System was granted by the FDA on July 27, 2021. We plan to establish a patient registry, the ASSURE Patient Registry, to enroll patients who are fitted with the system. The primary goal of the ASSURE Patient Registry is to establish a database to support endpoint analysis for the ASSURE Post Approval Study. The secondary goal is to provide data to support other retrospective studies specifically related to performance of our ASSURE System under its intended use. As of                , 2021, over                  patients have been protected by our ASSURE System. The first appropriate shock was delivered on                 , 2021, successfully defibrillating an                  year old                  patient in                 .

 

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Commercial Strategy

We developed our commercial strategy and built our direct sales force to primarily target general cardiologists, interventional cardiologists and cardiac electrophysiologists across the United States, who represent the primary specialists managing the care of patients at a known risk of suffering from SCA. Our sales, marketing and product education efforts are focused on capturing market share and driving adoption by offering healthcare providers an innovative, safe and effective WCD alternative with better wear time compliance.

In the United States, as of July 31, 2021, our direct sales organization consisted of five regional sales leaders, nine sales territory managers, a director of market access and five field clinical specialists. Our sales organization has substantial experience launching and establishing new disruptive therapies into cardiology practices, as well as extensive experience with the DME commercialization process.

Our regional sales leaders and sales territory managers are responsible for developing sales territory business plans, targeting and opening new accounts, and driving adoption of our ASSURE System. They also support the training and proper use of our ASSURE System. During our initial launch, they will also assist with patient fitting and training. As we continue to grow the size of our U.S. sales organization through our launch phases, we expect to add a strategic mix of regional sales leaders and sales territory managers with strong sales backgrounds and experience in cardiac rhythm management and DME medical equipment sales and who possess extensive knowledge of cardiology and electrophysiology practices. We also plan to partner, hire or contract with a separate network of patient care specialists to assist with fitting and training patients.

We developed our commercial launch strategy with three main phases. In Phase One, our limited launch, we will target initial launch sites which include our clinical trial sites and key advisors, and plan to optimize our delivery process and customer experience. In Phase Two, our targeted launch, we plan to use our dedicated sales organization to increase prescriber awareness of our ASSURE System across additional U.S. cities. Specifically, we plan to expand into additional high WCD-volume cities by the end of 2021. We estimate that approximately 82% of U.S. WCD prescription volume is generated by less than approximately 31% of prescribers. In Phase Three, our national launch, we intend to scale our sales team to reach a wider range of prescribers across the entire United States.

We also intend to promote broader awareness of WCD technology among both patient and physician populations, as well as awareness of the benefits and advantages of our ASSURE System. We plan to engage in activities with healthcare providers highlighting the benefits of our ASSURE System and to increase awareness of our ASSURE System amongst at-risk populations through patient education initiatives.

Our initial commercial priority is the United States, where we plan to begin to market our ASSURE System and generate revenue from product sales. We expect to subsequently expand into international markets, the scale and timing of which will depend on a variety of factors, including the size of the developed market for WCD technology, barriers to entry in such country or region, regulatory approvals and other factors specific to certain countries and regions. Our initial international focus will be on Western Europe, which currently has the most highly penetrated WCD markets outside the United States.

Third Party Coverage and Reimbursement

In the United States, we expect to derive nearly all of our revenue from the rental of our ASSURE System directly to patients and our direct billing of various third-party payors, including Medicare, Medicaid, private insurance companies, health maintenance organizations and other healthcare-related organizations. In addition, we expect that any portion of the costs associated with our ASSURE System that are not covered by these third-party payors, such as co-payments, will be billed directly to the patient by us. Third-party payors require physicians and hospitals to identify the product and service for which they are seeking reimbursement by using HCPCS codes, which are assigned and maintained by CMS and PDAC. As WCD therapy has been widely

 

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used in patients for approximately 20 years in the United States, reimbursement codes and payments are well-established and WCDs are covered by Medicare, Medicaid and many private health insurance plans. Medicare payments are based on a capped rental methodology, and the typical Medicare payment for a WCD is approximately $2,900 per month. The maximum amount a patient can be charged over the course of their rental is approximately $26,000.

We have been issued a Medicare Provider Number by the CMS, which enables us to bill Medicare for reimbursement for our ASSURE System as an accredited Durable Medical Equipment Supplier.

Medicare pays for WCDs as items of Durable Medical Equipment under the DMEPOS Fee Schedule, and our ASSURE System is eligible for payment under the existing code for WCD therapy, K0606. Private payor reimbursement rates are generally in line with Medicare rates and vary based on several factors, including but are not limited to the payor, geographic location, contract terms and other factors. Most large payors have established coverage policies in place to cover WCD therapy.

Outside the United States, reimbursement levels vary significantly by country and by region, particularly based on whether the country or region at issue maintains a single-payor system. WCD therapy is eligible for reimbursement in the European Union, Australia, Israel, Japan, Singapore, Canada and China. Annual healthcare budgets generally determine the number of WCD systems that will be paid for by the payor in these single-payor system countries and regions. Reimbursement is obtained from a variety of sources, including government-sponsored and private health insurance plans, and combinations of both. Some countries or regions may require us to gather additional clinical data before granting coverage and reimbursement for our ASSURE System. We intend to work with payors to obtain coverage and reimbursement approval in countries and regions where it makes economic sense to do so.

Research and Development

We intend to continue to invest in research and development activities focused on improvements and enhancements to our ASSURE System, expanded digital healthcare, WCD and monitoring offerings, a new suite of emergency medical therapeutic and notification offerings and advanced diagnostic monitoring products. Research and development expenses were approximately $23 million and $19 million, for the fiscal years ended April 30, 2020 and 2021, respectively. Additionally, we expect to pursue regulatory approval for other indications in the United States.

Manufacturing and Supply

We utilize third-party supplier partners to manufacture our ASSURE System and its components. Outsourcing manufacturing reduces our need for capital investment and reduces operational expense. Additionally, outsourcing provides expertise and capacity necessary to scale up or down based on demand for our ASSURE System. We believe our manufacturing capacity is sufficient to meet market demand for our ASSURE System for the foreseeable future. We select our supplier partners to ensure that our ASSURE System and its components are safe and effective, adhere to all applicable regulations, are of the highest quality, and meet our supply needs. We employ a rigorous supplier partner assessment, qualification, and selection process targeted to supplier partners that meet the requirements of the FDA and the International Organization for Standardization and quality standards supported by internal policies and procedures. Our quality assurance process monitors and maintains supplier performance through qualification and periodic supplier partner reviews and audits. Each of our tier one supplier partners has been independently audited by the FDA.    

Our contract manufacturing partners inspect, test and assemble our ASSURE System under strict manufacturing processes supported by internal policies and procedures, they also perform final quality control testing of each ASSURE System. Our contract manufacturing partners are all in compliance with current Good Manufacturing Practice, or cGMP, regulations applicable to our ASSURE System.

 

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We intend to utilize a rental business model, meaning that certain components can be reused from patient to patient. At the end of a patient prescription, the patient ships our ASSURE System back to our contract manufacturing partners, who dispose of the single-prescription use garment and then inspect, test and recertify the other components for use by another patient. We expect that the reusable nature of our systems will allow each one to be used multiple times and reduce our ongoing need for inventory.

Competition

Our ASSURE System is designed to offer improvements in the WCD market for patients, physicians, and payors. However, the medical technology industry is highly competitive, subject to rapid change and significantly affected by new product introductions and other activities of industry participants.

We compete as a therapy in the market for the treatment of patients at risk of suffering a SCA. We consider our primary competition to be other WCD devices designed to treat patients at risk of suffering an SCA. ZOLL’s LifeVest WCD is currently the only other WCD device approved for commercialization in the United States by the FDA and has been available to and used by physicians for approximately 20 years. Although we believe that our ASSURE System will offer significant benefits that can distinguish us from our competitors, our ability to compete effectively in the WCD market will depend on a number of factors, including awareness of our brand and products amongst both patients and physicians; our ability to obtain the necessary regulatory approvals; our product’s safety; the pricing of our products; our ability to grow and protect our patent portfolio; our product support services and patients’ perceptions about the ease of use and comfort level of our products. For more information on the competitive factors that we face in our market, see “Risk Factors—Risks Related to our Business—If our competitors are able to develop or market products and services that are more effective, or gain greater acceptance in the marketplace, than any products and services we develop, our commercial opportunities will be reduced or eliminated.”

Intellectual Property

In order to remain competitive, we must develop and maintain protection for the proprietary aspects of our technologies. We rely on a combination of patent, copyright, trademark and trade secret laws, and confidentiality and invention assignment agreements, to protect our intellectual property rights. The protection of intellectual property has been and remains a priority for us.

We rely on utility patent, design patent or other similar protection and registration mechanisms through various jurisdictions in the world that relate to our ASSURE System. As of July 31, 2021, we had 101 issued patents, and 162 pending published and unpublished patent applications globally. Assuming all required fees and other charges are paid, the earliest expiry date for issued patents owned or used by us is in 2025.

We rely on trademarks, service marks, trade names and brand names, such as our registered trademarks such as our registered trademarks ASSURE, KESTRA and KESTRA CARESTATION to distinguish our products from the products of our competitors, and have registered or applied to register these trademarks. We have registered or applied for the ASSURE mark in the United States and selected locations internationally, but we may be unable to obtain, maintain, protect or enforce our trademarks in the markets where we currently or may in the future operate.

We also rely upon trade secrets, know-how and continuing technological innovation, and may in the future rely upon licensing opportunities, to develop and maintain our competitive position. However, trade secrets and know how may be difficult to protect. We protect our proprietary rights through a variety of methods, including confidentiality agreements and proprietary information agreements with third party contract manufacturers, suppliers, employees, consultants and others who may have access to proprietary information that we own or license for use.

 

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There is no active litigation involving any of our patents or other intellectual property rights and we have not received any notices of patent infringement. We may be required to enforce or defend our intellectual property rights against third parties in the future. For additional information regarding these and other risks related to our intellectual property portfolio and their potential effect on us, see “Risk Factors—Risks Related to Our Intellectual Property.”

Government Regulation

Our products and our operations are subject to extensive and ongoing regulation by the U.S. Food and Drug Administration (the “FDA”), the CMS and other federal and state authorities in the United States. Regulations cover virtually every critical aspect of a medical device company’s business operations, including research activities, product development, quality and risk management, contracting, reimbursement, medical communications, and sales and marketing. In addition, we are subject to regulation by CMS, state law, and private payor requirements as a DME supplier with respect to our product rental and payor billing operations. In the United States, the Federal Food, Drug and Cosmetic Act (the “FDCA”) and the implementing regulations of the FDA govern, among other things, product design and development, pre-clinical and clinical testing, premarket clearance or approval, establishment registration and device listing, product manufacturing, quality systems, import and export, product labeling, product storage, recalls and field safety corrective actions, advertising and promotion, product sales and distribution, and post-market surveillance (including complaint handling and adverse event reporting). Our business is subject to various federal, state and local regulations, including but not limited to ISO 13485, ISO 14971 and the FDA’s QSR contained in 21 CFR Part 820.

FDA Premarket Clearance and Approval Requirements

Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a premarket notification under Section 510(k) of the FDCA or a PMA. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the QSR, establishment registration and product listing, reporting of adverse events, and truthful and non-misleading labeling, advertising and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, special labeling requirements, post-market surveillance, patient registries and FDA product-specific guidance documents. While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Under the 510(k) clearance process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another commercially available device that was cleared to through the 510(k) process.

Devices deemed by the FDA to pose the greatest risks, such as life-sustaining or life-supporting devices, those that are of substantial importance in preventing impairment of human health, or which present a potential unreasonable risk of illness or injury, are placed in Class III, requiring approval of a premarket approval application, or PMA. The PMA process is more stringent, time-consuming and expensive than the 510(k) clearance process. Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.

 

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Our ASSURE System is a Class III device that has received a PMA. For the purpose of our PMA, our digital health platform is separate from our ASSURE System and is treated as a FDA Class I 510(k)—exempt device.

PMA Pathway

Class III devices require a PMA before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA application, the applicant must demonstrate that the device is safe and effective, and the PMA application must be supported by extensive data, including data from pre-clinical studies and human clinical trials. The PMA application must also contain a full description of the device and its components, a full description of the methods, facilities and controls used for manufacturing, and proposed labeling. Following receipt of a PMA application, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA application, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. During this review period, the FDA may request additional information or clarification of information already provided. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:

 

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the device may not be safe, effective, reliable or accurate to the FDA’s satisfaction;

 

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the data from pre-clinical studies and clinical trials may be insufficient to support approval;

 

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

 

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changes in FDA approval policies or adoption of new regulations may require additional data.

An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of the applicant, its clinical trial data and clinical sites, as well as its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with FDA requirements, including the Quality System Regulation, or QSR. PMA applications are also subject to the payment of user fees, which for fiscal year 2021 includes a standard application fee of $365,657.

The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA application constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA application with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported a PMA or requirements to conduct additional clinical studies post-approval. The FDA may condition a PMA on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.

Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission of the same type of information as a PMA application, except that the supplement is limited to information needed to support

 

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any changes from the device covered by the original PMA application and may not require as extensive clinical data or the convening of an advisory panel. Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA application are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.

Clinical Trials

Clinical trials are almost always required to support a PMA application and are sometimes required to support a 510(k) submission. All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. If the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements and obtain Institutional Review Board, or IRB approval when conducting such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

In addition, regardless of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an IRB for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient and does not require an IDE application, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. The FDA’s approval of an IDE application allows clinical testing to go forward, but it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success criteria. All clinical trials must be conducted in accordance with applicable FDA regulations including for example those that govern good clinical practices, IRB review, investigational device labeling, prohibitions on promotion, and recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to grant approval or clearance of a product. Clinical trials that meet certain requirements must be entered into the clinical trials registry at clinicaltrials.gov.

The commencement or completion of any clinical trial may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons, including, but not limited to, the following:

 

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the FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;

 

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patients do not enroll in clinical trials at the rate expected;

 

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patients, sponsor or study sites do not comply with trial protocols;

 

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patient follow-up is not at the rate expected;

 

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patients experience adverse side effects;

 

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patients die during a clinical trial, even though their death may not be related to the products that are part of our trial;

 

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IRBs and third-party clinical investigators may delay or reject the trial protocol;

 

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third-party clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with the clinical trial protocol, good clinical practices or other FDA requirements;

 

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the sponsor or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent with the clinical trial protocol or investigational or statistical plans;

 

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third-party clinical investigators have significant financial interests related to the sponsor or the study that the FDA deems to make the study results unreliable, or the company or investigators fail to disclose such interests;

 

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regulatory inspections of our clinical trials, which may, among other things, require us to undertake corrective action or suspend or terminate our clinical trials;

 

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changes in governmental regulations or administrative actions;

 

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the interim or final results of the clinical trial are inconclusive or unfavorable as to safety or efficacy; and

 

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the FDA concludes that our trial design is inadequate to demonstrate safety and efficacy.

Post-market Regulation

After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:

 

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establishment registration and device listing with the FDA;

 

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QSR requirements, which require manufacturers, including third-party manufacturers and suppliers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process, as well as maintain various records;

 

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labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for uncleared, unapproved or “off-label” uses and impose other restrictions on labeling;

 

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FDA guidance on off-label dissemination of information and responding to unsolicited requests for information;

 

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clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices;

 

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medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;

 

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correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

 

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complying with the federal law and regulations requiring Unique Device Identifiers (“UDI”) on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database (“GUDID”); and

 

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the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations.

Additionally, the FDA may require us to conduct post-market surveillance studies or establish and maintain a system for tracking our products through the chain of distribution to the patient level. The FDA enforces regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include the manufacturing facilities of our subcontractors.

The FDA has broad regulatory compliance and enforcement powers. Failure to comply with applicable regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies. These may include any of the following sanctions or consequences:

 

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warning letters or untitled letters that require corrective action;

 

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fines and civil penalties;

 

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unanticipated expenditures;

 

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delays in approving or refusal to approve future products;

 

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suspension or withdrawal of FDA 510(k) clearance or PMAs that have already been granted;

 

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product recall, withdrawal, administrative detention or seizure;

 

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interruption of production, including partial suspension or total shutdown;

 

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operating restrictions;

 

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injunctions, consent decrees; and

 

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criminal prosecution.

We and our contract manufacturers, specification developers and some suppliers of components of our products, are also required to comply with current good manufacturing practice requirements set forth in the

 

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