The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and the related
notes and the other financial information included elsewhere in this Quarterly
Report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those discussed below and elsewhere in this Quarterly Report,
particularly those under "Risk Factors."
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 under Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements include statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, assumptions, estimates,
intentions and future performance, and involve known and unknown risks,
uncertainties and other factors, which may be beyond our control, and which may
cause our actual results, performance or achievements to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. All statements other than statements of historical
fact are statements that could be forward-looking statements. You can identify
these forward-looking statements through our use of words such as "may," "can,"
"anticipate," "assume," "should," "indicate," "would," "believe," "contemplate,"
"expect," "seek," "estimate," "continue," "plan," "point to," "project,"
"predict," "could," "intend," "target," "potential" and other similar words and
expressions of the future.
There are a number of important factors that could cause the actual results to
differ materially from those expressed in any forward-looking statement made by
us. These factors include, but are not limited to:
? our limited operating history;
? our history of operating losses in each year since inception and expectation
that we will continue to incur operating losses for the foreseeable future;
? our current and future capital requirements to support our development and
commercialization efforts for the Pure-Vu System and our ability to satisfy
our capital needs;
? our ability to remain compliant with the requirements of The Nasdaq Capital
Market for continued listing;
? our dependence on the Pure-Vu System, our sole product;
? our ability to commercialize the Pure-Vu System;
? our ability to obtain approval from regulatory agents in different
jurisdictions for the Pure-Vu System;
? our Pure-Vu System and the procedure to cleanse the colon in preparation for
colonoscopy are not currently separately reimbursable through private or
governmental third-party payors;
? our ability to obtain approval or certification from regulatory or other
competent entities in different jurisdictions for the Pure-Vu System;
? our dependence on third-parties to manufacture the Pure-Vu System;
? our ability to maintain or protect the validity of our patents and other
intellectual property;
19
? our ability to retain key executives and medical and science personnel;
? our ability to internally develop new inventions and intellectual property;
? interpretations of current laws and the passages of future laws;
? acceptance of our business model by investors;
? the accuracy of our estimates regarding expenses and capital requirements
? our ability to adequately support growth; and
? our ability to project in the short term the hospital medical device
environment considering the global pandemic and strains on hospital systems
The foregoing does not represent an exhaustive list of matters that may be
covered by the forward-looking statements contained herein or risk factors that
we are faced with that may cause our actual results to differ from those
anticipated in our forward-looking statements. Please see "Part II-Item 1A-Risk
Factors" for additional risks which could adversely impact our business and
financial performance.
All forward-looking statements are expressly qualified in their entirety by this
cautionary notice. You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date of this report or
the date of the document incorporated by reference into this report. We have no
obligation, and expressly disclaim any obligation, to update, revise or correct
any of the forward-looking statements, whether as a result of new information,
future events or otherwise. We have expressed our expectations, beliefs and
projections in good faith and we believe they have a reasonable basis. However,
we cannot assure you that our expectations, beliefs or projections will result
or be achieved or accomplished.
20
Overview
We have developed the Pure-Vu System, a medical device that has been cleared by
the U.S. Food and Drug Administration (the "FDA") to help facilitate the
cleansing of a poorly prepared gastrointestinal tract during colonoscopy and to
help facilitate upper gastrointestinal ("GI") endoscopy procedures. The Pure-Vu
System is also CE marked in the European Economic Area (EEA) for use in
colonoscopy. The Pure-Vu System integrates with standard and slim colonoscopes,
as well as gastroscopes, to improve visualization during colonoscopy and upper
GI procedures while preserving established procedural workflow and techniques.
Through irrigation and evacuation of debris, the Pure-Vu System is designed to
provide better-quality exams. Challenges exist for inpatient colonoscopy and
endoscopy, particularly for patients who are elderly, with comorbidities, or
active bleeds, where the ability to visualize, diagnose and treat is often
compromised due to debris, including fecal matter, blood, or blood clots. We
believe this is especially true in high acuity patients, like GI bleeding where
the existence of blood and blood clots can impair a physician's view and
removing them can be critical in allowing a physician the ability to identify
and treat the source of bleeding on a timely basis. We believe use of the
Pure-Vu System may lead to positive outcomes and lower costs for hospitals by
safely and quickly improving visualization of the colon and upper GI tract,
potentially enabling effective diagnosis and treatment without delay. In
multiple clinical studies to date, involving the treatment of challenging
inpatient and outpatient cases, the Pure-Vu System has consistently helped
achieve adequate bowel cleanliness rates greater than 95% following a reduced
prep regimen. We also believe that the technology may be useful in the future as
a tool to help reduce user dependency on conventional pre-procedural bowel prep
regimens. Based on our review and analysis of 2019 market data and 2021
projections for the U.S. and Europe, as obtained from iData Research Inc., we
believe that during 2021 approximately 1.5 million inpatient colonoscopy
procedures were performed in the U.S. and approximately 4.8 million worldwide.
Upper GI bleeds occurred in the U.S. at a rate of approximately 400,000 cases
per year in 2019, according to iData Research Inc. The Pure-Vu System has been
assigned an ICD-10 code in the US. The system does not currently have unique
codes with any private or governmental third-party payors in any other country
or for any other use; however, we intend to pursue reimbursement activities in
the future, particularly in the outpatient colonoscopy market. We received
510(k) clearance in February 2022 from the FDA for our Pure-Vu EVS System and
recently commenced commercialization of this product. We do not expect to
generate significant revenue from product sales until the COVID-19 pandemic has
fully subsided and we further expand our commercialization efforts, which is
subject to significant uncertainty.
Recent Developments
On April 21, 2022, the Company announced that it had completed enrollment in the
European Union Feasibility Study of the Pure-Vu System, which is evaluating the
clinical outcomes in patients with a history of poor bowel preparation using
both a low volume preparation with limited diet restrictions and the Pure-Vu
System. A poster featuring topline data from this European Union Feasibility
Study has been selected to be presented at Digestive Disease Week® in May 2022,
the world's premier meeting for physicians, researchers, and industry in the
fields of gastroenterology, hepatology, endoscopy, and gastrointestinal surgery.
Financial Operations Overview
We have generated limited revenues to date from the sale of products. We have
never been profitable and have incurred significant net losses each year since
our inception, including a loss of $4.8 million for the three months ended March
31, 2022, and we expect to continue to incur net operating losses for the
foreseeable future. As of March 31, 2022, we had $20.3 million in cash and cash
equivalents and an accumulated deficit of $127.6 million. We expect our expenses
to increase in connection with our ongoing activities to commercialize and
market the Pure-Vu System, including additional expenditures in sales and
marketing personnel, clinical affairs and manufacturing. Accordingly, we will
need additional financing to support our continuing operations. We will seek to
fund our operations through public or private equity or debt financings or other
sources, which may include collaborations with third parties. The sale of equity
and convertible debt securities may result in dilution to our shareholders and
certain of those securities may have rights senior to those of our common
shares. If we raise additional funds through the issuance of preferred stock,
convertible debt securities or other debt financing, these securities or other
debt could contain covenants that would restrict our operations. Any other third
party funding arrangement could require us to relinquish valuable rights. The
source, timing and availability of any future financing will depend principally
upon market conditions, and, more specifically, on the progress of our product
and clinical development programs as well as commercial activities. Adequate
additional financing may not be available to us on acceptable terms, or at all.
Our failure to raise capital as and when needed would have a negative impact on
our financial condition and our ability to pursue our business strategy. We will
need to generate significant revenues to achieve profitability, and we may never
do so. Furthermore, the extent of the impact and effects of the outbreak of the
coronavirus COVID-19 on the operation and financial performance of our business
will depend on future developments, including the duration and spread of the
outbreak, related travel advisories and restrictions, production delays, or the
uncertainty with respect to the accessibility of additional liquidity or capital
markets, all of which are highly uncertain and cannot be predicted. If the
demand for our Pure-Vu system is impacted by this outbreak for an extended
period, our results of operations may be materially adversely affected.
We expect to continue to incur significant expenses and increasing operating
losses for at least the next several years as we continue to expand our
commercial launch. We expect our expenses will increase in connection with our
ongoing activities, as we:
? continue to expand commercialization;
? scale manufacturing with our contracted partners for both the workstation and
disposable portions of the Pure-Vu System;
? develop future generations of the Pure-Vu System to improve user interface,
optimize handling and reduce the cost structure;
? raise sufficient funds to effectuate our business plan, including
commercialization activities and reimbursement efforts related to our Pure-Vu
System and our research and development activities, including clinical and
regulatory development, and the continued development and enhancement of our
Pure-Vu System; and
? operate as a public company.
21
Critical Accounting Policies and Estimates
Our accounting policies are essential to understanding and interpreting the
financial results reported on the condensed consolidated financial statements.
The significant accounting policies used in the preparation of our condensed
consolidated financial statements are summarized in Note 3 to the consolidated
financial statements and notes thereto found in our Annual Report on Form 10-K
for the year ended December 31, 2021. Certain of those policies are considered
to be particularly important to the presentation of our financial results
because they require us to make difficult, complex or subjective judgments,
often as a result of matters that are inherently uncertain.
During the three months ended March 31, 2022, there were no material changes to
matters discussed under the heading "Critical Accounting Policies and
Significant Judgement and Estimates" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
Comparison of Three Months Ended March 31, 2022 and 2021
Revenue
As of March 31, 2022, our initial commercial launch of the recently FDA-cleared
Pure-Vu EVS System has generated limited revenue. We expect to generate greater
revenue from product sales as we expand our commercialization efforts; however,
this is subject to significant uncertainty.
Revenue totaled $20.0 thousand for the three months ended March 31, 2022,
compared to $51.0 thousand for the three months ended March 31, 2021. The
decrease of $31.0 thousand was primarily attributable to the impact in hospitals
of the Omicron Covid-19 variant early in the first quarter, and the controlled
phase-out of the Pure-Vu Gen 2 System ahead of the EVS launch later in the
quarter, which received FDA clearance during the first quarter.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2022 totaled $174.0
thousand, compared to $28.0 thousand for the three months ended March 31, 2021.
The increase of $146.0 thousand was primarily attributable to the cost of our
system disposable evaluation and commercial units in the amount of $15.0
thousand, and the additional impairment of the remaining inventory of our second
generation systems in the amount of $159.0 thousand.
22
Research and Development
Research and development expenses include cash and non-cash expenses relating to
the advancement of our development and clinical programs for the Pure-Vu System.
We have research and development capabilities in electrical and mechanical
engineering with laboratories in our facility in Israel for development and
prototyping, and electronics design and testing. We also use consultants and
third-party design houses to complement our internal capabilities.
Research and development expenses totaled $1.3 million for the three months
ended March 31, 2022 compared to $1.3 million for the three months ended March
31, 2021.
Sales and Marketing
Sales and marketing expenses include cash and non-cash expenses primarily
related to our sales and marketing personnel and infrastructure supporting the
commercialization of the Pure-Vu System.
Sales and marketing expenses for the three months ended March 31, 2022 totaled
$1.0 million, compared to $0.7 million for the three months ended March 31,
2021. The increase of $0.3 million was primarily attributable to increases of
$0.3 million in salaries and other personnel related cost to support our
commercialization efforts of the Pure-Vu EVS System.
General and Administrative
General and administrative expenses consist primarily of costs associated with
our overall operations and being a public company. These costs include
personnel, legal and financial professional services, insurance, investor
relations, compliance related fees, and expenses associated with obtaining and
maintaining patents.
General and administrative expenses for the three months ended March 31, 2022
totaled $2.1 million, compared to $2.4 million for the three months ended March
31, 2021. The decrease of $0.3 million was primarily attributable to decreases
of $0.1 million in professional services and $0.3 million share-based
compensation, partially offset by increases in salaries and other personnel
related costs of $0.1 million.
Other Income and Expenses
Other expense, net for the three months ended March 31, 2022 totaled $0.3
million compared to other expense, net of $0.2 million for the three months
ended March 31, 2021. The increase of $0.1 million in other expenses, net was
primarily attributable to an increase of $0.2 million in finance expense and a
decrease of $0.1 million from the gain on the change in estimated fair value of
contingent royalty obligation.
23
Liquidity and Capital Resources
To date, we have generated minimal revenues, experienced negative operating cash
flows and have incurred substantial operating losses from our activities. We
expect operating costs will increase significantly as we incur costs associated
with commercialization activities related to the Pure-Vu System. We expect to
continue to fund our operations primarily through utilization of our current
financial resources, future product sales, and through the issuance of debt or
equity. As of March 31, 2022, our accumulated deficit was $127.6 million. Such
conditions raise substantial doubts about our ability to continue as a going
concern.
In March 2021, we entered into an Equity Distribution Agreement (the "Equity
Distribution Agreement") with Oppenheimer & Co. Inc. ("Oppenheimer"), under
which we may offer and sell from time to time common shares having an aggregate
offering price of up to $25.0 million. During the three months ended March 31,
2022, we sold approximately 6.0 million shares of our common stock under this
agreement, resulting in net cash proceeds of $3.0 million, after deducting
issuance costs of $0.1 million.
We have been continuously evaluating the actual and potential business impacts
related to the COVID-19 pandemic. While the full impact of the pandemic
continues to evolve, the financial markets have been subject to significant
volatility that adversely impacts our ability to enter into, modify, and
negotiate favorable terms and conditions relative to equity and debt financing
initiatives. The uncertain financial markets, potential disruptions in supply
chains, mobility restraints, and changing priorities could also affect our
ability to enter into key agreements. The outbreak and government measures taken
in response to the pandemic have also had a significant impact, both direct and
indirect, on businesses and commerce, as worker shortages have occurred; supply
chains have been disrupted; facilities and production have been suspended; and
demand for certain goods and services, such as medical services and supplies,
have spiked, while demand for other goods and services have fallen. The future
progression of the outbreak and its effects on our business and operations are
uncertain. We and our third-party contract manufacturers, contract research
organizations, and clinical sites may also face disruptions in procuring items
that are essential to our research and development activities, including, for
example, medical and laboratory supplies, in each case, that are sourced from
abroad or for which there are shortages because of ongoing efforts to address
the outbreak.
While expected to be temporary, these disruptions will negatively impact our
sales, results of operations, financial condition, and liquidity in 2022.
Our ability to continue as a going concern for the next twelve months from the
issuance of our Annual Report on Form 10K, depends on our ability to execute our
business plan, increase revenue and reduce expenditures. As of March 31, 2022,
we had cash and cash equivalents of $20.3 million and an accumulated deficit of
$127.6 million. Based on our current business plan, we believe our cash and cash
equivalents as of March 31, 2022 will be sufficient to meet our anticipated cash
requirements into the first quarter of 2023. We will need to raise significant
additional capital to continue to fund operations. We may seek to sell common or
preferred equity, convertible debt securities or seek other debt financing. In
addition, we may seek to raise cash through collaborative agreements or from
government grants. The sale of equity and convertible debt securities may result
in dilution to our shareholders and certain of those securities may have rights
senior to those of our common shares. If we raise additional funds through the
issuance of preferred stock, convertible debt securities or other debt
financing, these securities or other debt could contain covenants that would
restrict our operations. Any other third-party funding arrangement could require
us to relinquish valuable rights. The source, timing and availability of any
future financing will depend principally upon market conditions, and, more
specifically, on the progress of our product and clinical development programs
as well as commercial activities. Funding may not be available when needed, at
all, or on terms acceptable to us. Lack of necessary funds may require us, among
other things, to delay, scale back or eliminate expenses including those
associated with our planned product development, clinical trial and commercial
efforts.
As of March 31, 2022, we had total current assets of $22.4 million and total
current liabilities of $3.4 million resulting in working capital of $19.0
million. Net cash used in operating activities for the three months ended March
31, 2022 was $5.2 million, which includes a net loss of $4.8 million, offset by
non-cash expenses principally related to share based compensation expense of
$0.5 million, depreciation and amortization of $0.1 million, amortization of
debt issuance costs of $0.1 million, issuance of common stock for board of
directors' compensation of $0.1 million, amortization on operating lease
right-of- use asset of $0.1 million and inventory impairment of $0.2 million,
offset by changes in net working capital items principally related to the
increase in prepaid expenses and other current assets of $0.4 million, the
increase in accounts payable and accrued expenses of $0.7 million, and an
increase in inventory of $0.4 million.
24
Net cash used in investing activities for the three months ended March 31, 2022
totaled $1.0 thousand related to the purchase of fixed assets of $1.0 thousand.
Net cash provided by financing activities for the three months ended March 31,
2022 totaled $3.0 million related to proceeds from issuance of common shares
pursuant to at-the-market issuance registered offering of $3.1 million, offset
by financing fees related to the at the market offering of $0.1 million.
As of March 31, 2022, we had cash and cash equivalents of $20.3 million. We will
need additional financing to support our continuing operations. We will seek to
fund our operations through public or private equity or debt financings or other
sources, which may include collaborations with third parties. The sale of equity
and convertible debt securities may result in dilution to our shareholders and
certain of those securities may have rights senior to those of our common
shares. If we raise additional funds through the issuance of preferred stock,
convertible debt securities or other debt financing, these securities or other
debt could contain covenants that would restrict our operations. Any other third
party funding arrangement could require us to relinquish valuable rights. The
source, timing and availability of any future financing will depend principally
upon market conditions, and, more specifically, on the progress of our product
and clinical development programs as well as commercial activities. Adequate
additional financing may not be available to us on acceptable terms, or at all.
Our failure to raise capital as and when needed would have a negative impact on
our financial condition and our ability to pursue our business strategy. We will
need to generate significant revenues to achieve profitability, and we may never
do so. Furthermore, the extent of the impact and effects of the outbreak of the
coronavirus COVID-19 on the operation and financial performance of our business
will depend on future developments, including the duration and spread of the
outbreak, related travel advisories and restrictions, production delays, or the
uncertainty with respect to the accessibility of additional liquidity or capital
markets, all of which are highly uncertain and cannot be predicted. If the
demand for our Pure-Vu system is impacted by this outbreak for an extended
period, our results of operations may be materially adversely affected.
On July 16, 2021 (the "Effective Date"), we entered into a loan facility (the
"Kreos Loan Agreement") with Kreos Capital VI (Expert Fund) LP (the "Lender").
Under the Kreos Loan Agreement, Lender will provide us with access to term loans
in an aggregate principal amount of up to $12.0 million. We drew $9.0 million of
term loans pursuant to the Kreos Loan Agreement on the Effective Date, and
applied $8.2 million of the proceeds, inclusive of a negotiated prepayment
premium of approximately $0.2 million, to repay in full all amounts outstanding
under, and discharge all obligations in respect of our prior Loan and Security
Agreement, entered into in December 2019, as was amended from time to time, (the
"SVB Loan Agreement") with Silicon Valley Bank. As a result, the SVB Loan
Agreement, together with all documents and agreements executed in connection
therewith, including certain liquidity covenants, have terminated and all liens
associated therewith have been released as of the Effective Date. We intend to
use the remaining proceeds of the Kreos Loan Agreement to enhance our product
development and commercial growth plans, and for general corporate purposes. In
the fourth quarter of 2021, we drew down the full $3.0 million aggregate
principal amount of Tranche C.
Shelf Registration Statement
On March 16, 2021, we filed a shelf registration statement (File No. 333-254343)
with the Securities and Exchange Commission (the "2021 Shelf Registration
Statement"), which was declared effective on March 26, 2021, that allows us to
offer, issue and sell up to a maximum aggregate offering price of $100.0 million
of any combination of our common stock, preferred stock, warrants, debt
securities, subscription rights and/or units from time to time, together or
separately, in one or more offerings. As of March 31, 2022, we have not sold any
securities under the 2021 Shelf Registration Statement, except as described
below.
The 2021 Shelf Registration Statement includes a prospectus registering an
at-the-market offering program pursuant to an Equity Distribution Agreement (the
"Equity Distribution Agreement") with Oppenheimer & Co. Inc. ("Oppenheimer"),
entered into in March 2021, under which Oppenheimer may offer and sell from time
to time shares of our common stock having an aggregate offering price of up to
$25.0 million, subject to the provisions of General Instruction I.B.6 of Form
S-3, which provides that we may not sell securities in a public primary offering
with a value exceeding one-third of our public float in any twelve-month period
(approximately $8.8 million beginning effective as of March 29, 2022, the date
of filing of our most recent Annual Report on Form 10-K) unless our public float
is at least $75 million. If our public float meets or exceeds $75.0 million at
any time, we will no longer be subject to the restrictions set forth in General
Instruction I.B.6 of Form S-3, at least until the filing of our next Section
10(a)(3) update as required under the Securities Act.
During the quarter ended March 31, 2022, we sold approximately 6.0 million
shares of our common stock pursuant to the above-described Equity Distribution
Agreement, resulting in net cash proceeds of $3.0 million, after deducting
issuance costs of $0.1 million. To date, we have sold an aggregate of
approximately 7.2 million shares of our common stock pursuant to the Equity
Distribution Agreement, resulting in net cash proceeds of $4.8 million, after
deducting issuance costs of $0.2 million.
Our ability to issue securities is subject to market conditions and other
factors including, in the case of our debt securities, our credit ratings.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under SEC rules, such as
relationships with unconsolidated entities or financial partnerships, which are
often referred to as structured finance or special purpose entities, established
for the purpose of facilitating financing transactions that are not required to
be reflected on our balance sheets.
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