As filed with the Securities and Exchange Commission on July 1
9
, 2022. Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Exact name of Registrant as specified in its charter)
Cayman Islands |
2834 |
Not Applicable | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
LumiraDx Limited
c/o Ocorian Trust (Cayman) Limited
PO Box 1350, Windward 3, Regatta Office Park
Grand Cayman
KY1-1108
Cayman Islands
(345)
640-0540
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Dorian LeBlanc, Chief Financial Officer
LumiraDx, Inc.
221 Crescent Street, 5
th
Floor Waltham, MA 02543
(888) 586-4721
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
| John J. Satory Ian Lopez Fried, Frank, Harris, Shriver & Jacobson (London) LLP 100 Bishopsgate London EC2N 4AG United Kingdom Telephone: +44 20 7972-9600 |
Simon Raftopoulos Appleby (Cayman) Ltd 71 Fort Street, PO Box 190 Grand Cayman, KY1-1104 Telephone: +1 345 949-4900 |
Denny Won Kristin VanderPas Charles S. Kim Dave Peinsipp Cooley LLP 3 Embarcadero Center, 20th Floor San Francisco, California 94111 (415) 693-2000 |
Approximate date of commencement of proposed sale to the public:
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.
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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.
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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.
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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.
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated July 1
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, 2022 40,000,000 Shares
Common Shares
We are offering 40,000,000 of our common shares, par value $0.0000028 per common share (“common shares”).
Our common shares are listed on the Nasdaq Global Market under the symbol “LMDX”. On July 15, 2022, the last reported sale price of our common shares as reported on Nasdaq Global Market was $2.35 per common share. The final public offering price will be determined through negotiation between us and the underwriters in this offering and the recent market price used throughout the prospectus may not be indicative of the final offering price.
Our common shares have one vote per common share on matters to be voted on by shareholders. Our ordinary shares, par value $0.0000028 per ordinary share (“ordinary shares”), have 10 votes per ordinary share on matters to be voted on by shareholders. Following this offering and the concurrent private placement (as described below), our directors, executive officers and their respective affiliates will hold a number of ordinary shares, common shares or securities convertible into common shares that grant them approximately 44.2% of our total voting power, based on shares outstanding as of March 31, 2022 and assuming no exercise of the underwriters’ option to purchase additional common shares referred to below and without giving effect to any investment by such persons pursuant to this offering. For further information, see the section titled “Description of Capital Stock” beginning on page 225 of this prospectus.
We are aware of certain related parties who have indicated an interest in purchasing common shares in this offering, in each case at the public offering price. Morningside (as defined below) has indicated that they intend to purchase such number of common shares as necessary to maintain their current pro rata ownership of the Company’s common shares. In addition, Ron Zwanziger, who is our Chairman and Chief Executive Officer, and William Umphrey, who is a shareholder, either directly or through their affiliated vehicles, have indicated an interest in purchasing, in aggregate, up to $15 million of common shares in this offering. Because this indication of interest is not a binding agreement or commitment to purchase, we could determine to sell more, less, or no shares to such related parties. See the section titled “Underwriting - Indications of Interest.”
In addition, the Bill & Melinda Gates Foundation (“BMGF”) has agreed to purchase from us, concurrently with this offering in a private placement, $25.0 million of our common shares at the public offering price. The sale of common shares in the concurrent private placement will not be registered under the Securities Act of 1933, as amended (the “Securities Act”). The closing of this offering is not conditioned upon the closing of the private placement. See the section titled “Concurrent Private Placement”.
We are a “foreign private issuer” and an “emerging growth company”, each as defined under applicable U.S. federal securities laws and, as such, have elected to comply with certain reduced reporting requirements in this prospectus and may elect to do so in future filings.
See the section titled “Risk Factors” beginning on page 17 to read about factors you should consider before deciding to invest in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per Common Share |
Total |
|||||||
| Public offering price |
$ |
$ |
||||||
| Underwriting discounts and commissions (1) |
$ |
$ |
||||||
| Proceeds, before expenses, to LumiraDx Limited |
$ |
$ |
||||||
(1) |
See the section titled “Underwriting” for a description of the compensation payable to the underwriters. |
To the extent that the underwriters sell more than 40,000,000 common shares, the underwriters have an option to purchase up to an additional 6,000,000 common shares from us at the public offering price, less underwriting discounts and commissions.
The underwriters expect to deliver the common shares against payment in New York, New York on , 2022.
Goldman Sachs & Co. LLC |
Evercore ISI |
SVB Securities |
Raymond James |
Prospectus dated , 2022
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F-1 |
You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by or on our behalf. Any amendment or supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such amendment or supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. See the section titled “Where You Can Find More Information.”
Neither we nor the underwriters have authorized any other person to provide you with different or additional information. Neither we nor the underwriters take responsibility for, nor can we or they provide assurance as to the reliability of, any other information that others may provide. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and our business, financial condition, results of operations and/or prospects may have changed since those dates. This prospectus contains summaries of certain provisions contained in some of the documents described in this prospectus, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to in this prospectus have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described under the section titled “Where You Can Find More Information.”
For investors outside of the United States: neither we nor the underwriters have taken any action to permit a public offering of these securities or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.
i
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our securities. Before making an investment decision, you should read this entire prospectus carefully, including the matters set forth under the sections of this prospectus titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the financial statements and related notes included elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements that involve significant risks and uncertainties. See the section titled “Forward-Looking Statements” for more information. As used in this prospectus, unless the context otherwise requires, references to “LumiraDx,” “we,” “us,” “our,” or the “Company” refer to LumiraDx Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands, and its consolidated subsidiaries.
Overview
We are a next-generation (“POC”) diagnostic company addressing the current limitations of legacy POC systems by bringing antigen test). With our Platform, our goal is to address the key challenges faced by healthcare providers in providing efficient and cost-effective patient care. Our microfluidic technology and Platform have been proven to meet the market needs for fast, high sensitivity, convenient and connected diagnostic test results – for health systems, emergency rooms, retail pharmacy chains and other community settings. As of March 31, 2022, we have deployed over 25,000 Instruments across nearly 100 countries, and we have more than 1,600 staff across the globe.
point-of-care
lab-comparable
performance to the POC in minutes on a single instrument with a low cost of ownership. We are focused on transforming community-based healthcare by providing critical diagnostic information to healthcare providers at the point of need, thereby enabling more informed medical decisions to improve health outcomes while lowering costs. We have developed and launched the LumiraDx Platform (the “Platform”), which is an integrated system comprised of a small, versatile, POC diagnostic instrument (the “Instrument”), precise, low-cost
microfluidic test strips, and seamless, secure digital connectivity. We currently have 12 diagnostic tests for which we have obtained regulatory approval, authorization, certification or clearance for use on our Platform and a broad menu of tests in development. Our proprietary Platform is designed to simplify, scale down, and integrate multiple testing methodologies onto a single instrument and offer a broad menu of tests with lab-comparable
performance at a low cost and with results generally in 10 minutes or less from sample to result (12 minutes for our SARS-CoV-2
We are initially focused on the development of tests for several of the most common conditions diagnosed or managed in community-based healthcare settings. For many of the tests we commercialize, or plan to commercialize, we believe there are no existing high-performance POC competing alternatives which provide highly accurate results in a short period of time at the POC. Our initial authorized and CE Marked (as defined below) tests and those under development are designed to address unmet diagnostic needs in the fields of respiratory disease, cardiovascular disease, diabetes, and coagulation disorders.
We have a portfolio of antigen test commercially available (i) under an emergency use authorization (“EUA”) in the United States, which authorizes the emergency use of the test during the period in which an emergency declaration remains in effect, (ii) pursuant to affixing the European Union Conformity Marking (the “CE Mark”) in the
COVID-19
tests for which we have received regulatory approval, authorization, certification or clearance for use on our Platform, including our SARS-CoV-2
1
European Economic Area (“EEA”) and, until June 30, 2023, in the United Kingdom, (iii) pursuant to approvals in Japan and Brazil, and (iv) in Africa and elsewhere based on such approvals and an emergency use listing (“EUL”) by the World Health Organization, and our antibody test commercially available under an EUA in the United States and CE Marked in the EEA, permitting it to be available in the United Kingdom until June 30, 2023. Recently, we have CE Marked our antigen pool test, our & Flu A/B tests, our & RSV test and our SARS
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
CoV-2
Ag Ultra and Ultra Pool tests. Our broader test menu includes our International Normalized Ratio (“INR”) test for monitoring warfarin therapy, our HbA1c test for monitoring diabetes, our
NT-proBNP
test for aiding in the diagnosis of heart failure, our D-Dimer
test for aiding in diagnosis and exclusion of venous thromboembolism, and our CRP test, all of which are CE Marked. In addition, we have obtained various approvals for distribution in a wide variety of countries across the globe. Each of these tests deliver lab comparable performance from a fingerprick of blood in 12 minutes or less. In response to the antigen test, antigen pool test, antibody test, & Flu A/B tests, & RSV test and Ag Ultra and Ultra Pool tests for use in community-based healthcare settings. These tests have demonstrated highly accurate results within minutes on our Instrument. We have commercialized our antigen test in the EEA, Japan, India, Brazil, the United States and other countries to customers, including the National Health Service and CVS Pharmacy Inc. and have made shipments of Instruments and antigen test strips to a number of countries in Africa as part of our collaboration with BMGF. PLOS Medicine published a living systematic review and meta-analysis of more than 60 antigen tests and ranked our test as most sensitive and accurate. Our antigen test is currently being used and implemented in various testing programs across the globe, including in accident and emergency departments, care homes, retail pharmacies and other primary care settings. We are also supporting testing in schools, workplaces, travel and events where there continues to be a need for diagnostic testing.
COVID-19
pandemic and the resulting acute need for timely diagnostic information, we developed our SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
Our recently CE Marked Ag Ultra test matches the same high-performance as the LumiraDx antigen test with results at the POC in five minutes. We consider speed and accuracy of test results to be at the core of LumiraDx’s transformative potential and represent competitive advantages in POC diagnostics. We believe the potentially significant time saved in diagnosis when using our test could mean lives saved for acute care patients, and result in significant increase in throughput for hospitals, pharmacy chains and other locations with high testing volumes.
SARS-CoV-2
SARS-CoV-2
Our continued planned development of our Ultra tests as a product line provides the opportunity to move the entire respiratory market towards fast and high sensitivity antigen testing, including Flu A/B and RSV. We believe the innovation of the Ultra test strips’ design has made important contributions to the development of assays such as high sensitivity troponin, used to aid physicians in the early detection and rule out of acute myocardial infarction.
The launch of our additional respiratory assays, such as Flu A/B and RSV, outside of
COVID-19,
allows us to meet the growing demand for POC diagnostics in primary care across the EEA and the United Kingdom as we move to a post-pandemic world where traditional respiratory viruses will co-circulate
with COVID-19
and rapid testing and differentiation will be desired. We believe that the large number of Instrument placements during the COVID-19
pandemic has established strong brand awareness and acceptance of our technology and built an installed base with potential long-term POC customers. 2
With the addition of INR, CRP,
D-Dimer,
HbA1c and NT-proBNP
to the test menu, we are today able to cover a wide variety of assays desired in community-based settings. We are now able to offer on our Platform a majority of the currently used assays at POC in primary care settings and pharmacies across the EEA and the United Kingdom. For our customers it will enable the consolidation of multiple instruments to a single connected Platform and workflow. We also see a continued testing opportunity for the low complexity mass screening and home antigen test on our Platform, we have developed a mass screening testing system (the “Amira System”), which consists of (i) a small, battery operated, disposable device (the “Amira Analyzer”), (ii) the Amira Ag test and (iii) a phone/tablet application for test management and reporting for POC use. We have affixed the CE Mark to our Amira System for POC use in professional settings and have installed a high-volume manufacturing line for the Amira Ag test strips, in anticipation of a potential commercial launch. Beyond
COVID-19
testing markets. Therefore, based on the same chemistry and test strip design as our SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
COVID-19,
our Amira System will be the basis of our home testing platform, potentially bringing fast, accurate, affordable self-testing and monitoring to individuals in their home, empowering them to better manage their health and outcomes. We have also used our technology to develop four rapid RNA STAR, RNA STAR Complete, & Flu A/B RNA STAR Complete and Dual-Target SARS RNA STAR allows laboratories to utilize their existing molecular lab infrastructure in a high-throughput format by reducing amplification time from approximately one hour down to 12 minutes. LumiraDx RNA STAR Complete utilizes a direct amplification method that combines lysis and amplification in a single step, detecting nucleic acid in under 20 minutes, without needing to perform any specimen purification or extraction. We have obtained an EUA for LumiraDx RNA STAR. We have also obtained an EUA for RNA STAR Complete and commenced commercial sales and have affixed the CE Mark to these products. Our & Flu A/B RNA STAR Complete and Dual-Target SARS
COVID-19
reagent testing kits for use on open molecular systems, LumiraDx SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
CoV-2
STAR Complete. LumiraDx SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
CoV-2
STAR Complete have both been CE Marked. Beyond the lab, we believe this technology has significant implications for our forthcoming POC molecular programs. We believe our Platform and its attractive value proposition will have broad appeal to healthcare providers globally that are seeking innovative POC solutions to improve outcomes and lower costs. In the professional POC settings where our Platform is placed, customers are looking to implement comprehensive POC testing within their institutions leveraging both (i) our broad menu as well as (ii) our quality, compliance and data management infrastructure. As such, we currently have direct sales and marketing operations in 21 countries, including the United States, most Western European countries, Japan, Colombia, Brazil, India and South Africa and over time plan to further expand to the largest in vitro diagnostic (“IVD”) markets, including China and Southeast Asia. We sell mainly to large healthcare systems, government organizations and national pharmacy chains that can deploy comprehensive POC testing across their extensive healthcare provider networks.
Our Strategy
Our goal is to become the market leading provider in POC testing and to establish our Platform as the industry standard. To achieve this objective, we intend to:
| • | Offer a comprehensive menu of high-performance diagnostic tests for community-based healthcare settings. |
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| community-based healthcare on a single Platform is critical to transform the POC market. We are executing a global market-driven menu strategy designed to drive the conversion of our customers’ testing needs onto our Platform. Our tests, both cleared and in development, are initially focused on the most common medical conditions for certain respiratory disease, cardiovascular disease, diabetes, and coagulation disorders. Our portfolio includes high-volume tests currently available at the POC (e.g., INR, HbA1c, CRP), tests that currently do not have a viable POC solution (e.g., FDA-defined high-sensitivity Troponin I), and innovative diagnostic test panels, such as Flu A/B + SARS-CoV-2. |
| • | Grow our installed base by executing an institutional sales and channel partnership model. |
| • | Expand into additional healthcare settings and underserved markets. home-use settings. We plan further enhancements to our Platform, such as making the Instrument more robust to enable use in more challenging settings such as in areas of extreme heat and dust. |
| • | Continue to innovate to expand into specialty areas. in-patient hospital, that could benefit from fast, accurate diagnostic test results from our Platform. |
| • | Continue to innovate across our Platform. |
| • | Continue to expand use of our technology and apply it to non-healthcare settings and applications such as mass population screening and home-testing, initially through the potential commercial launch of our Amira System.SARS-CoV-2 COVID-19. We plan to distribute the Amira SARS-CoV-2 COVID-19 pandemic in high burden countries as well as to support a continued safe re-opening of economies, subject to regulatory approval, authorization, certification or clearance. |
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Summary of Risk Factors
The following is a summary of certain, but not all, of the risks that could adversely affect our business, financial condition and results of operations. If any of the risks actually occur, our business could be materially impaired, the trading price of our common shares could decline, and you could lose all or part of your investment. Investing in our securities entails a high degree of risk as more fully described in the section titled “Risk Factors.” You should carefully consider such risks before deciding to invest in our securities.
| • | We are at a pivotal point in the commercialization of our Platform, and we may not succeed for a variety of reasons. |
| • | Our short-term revenue prospects will vary with the amount of demand for COVID-19 tests generally and our tests in particular, including as a result of the presence of variants, which may be further adversely impacted by wide-spread implementation of authorized vaccines or other vaccines or boosters that are subsequently approved or authorized. |
| • | Our SARS-CoV-2 SARS-CoV-2 |
| • | Our strategy to globally launch a broad menu of tests may not be as successful as currently envisioned. |
| • | We may not be able to generate sufficient revenue from our Platform to achieve and maintain profitability. |
| • | Our borrowing arrangements contain restrictions that limit our flexibility in operating our business, and failure to comply with any of these restrictions could result in acceleration of our debt. |
| • | As a result of our debt covenants, our consolidated financial statements contain a statement regarding a material uncertainty that may cast significant doubt about our ability to continue as a going concern. |
| • | Business or economic disruptions or global health concerns, such as the ongoing COVID-19 pandemic, have harmed and may continue to seriously harm our business and increase our costs and expenses. |
| • | We rely on a limited number of suppliers or, in some cases, sole source suppliers, for the components of our Platform and our Amira System and for other materials and may not be able to find replacements or immediately transition to alternative suppliers. |
| • | As we continue to expand our business, we may experience problems in scaling our manufacturing and commercial operations, and if we are unable to support demand for our Platform, our Amira System or our test strips, including ensuring that we have adequate capacity to meet increased demand, if any, or we are unable to successfully manage the evolution of our Platform or our Amira System, our business could suffer. |
| • | Our business and reputation will suffer if our products do not perform as expected. |
| • | We currently derive a significant portion of our revenue from a small number of tests and key customers, and loss of any of these customers could cause a material reduction in revenues. |
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| A significant portion of our revenue remains COVID-19 related, and we may not be able to scale other assays sufficiently fast. |
| • | The loss of any member of our senior management team or our inability to attract and retain highly skilled scientists, engineers, software developers, technicians and salespeople could adversely affect our business. |
| • | Our business and the sale of our products are subject to extensive regulatory requirements and there is a new regulatory framework which entered into application in the European Union on May 26, 2022, which could delay or otherwise impact our ability to obtain certification of new products and, after a transitionary period, of existing products and consequently our ability to continue to commercialize such products could be affected, impacting revenues. |
| • | If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or achieve profitability. |
| • | The dual class structure of our ordinary shares and our common shares has the effect of concentrating voting control with those holders of our share capital prior to the merger of our wholly owned subsidiary, then known as LumiraDx Merger Sub, Inc., with and into CA Healthcare Acquisition Corp. (“CAH”), a Delaware corporation (the “Merger”). |
| • | If we are unable to obtain and maintain patent and other intellectual property protection for our products and technology, our ability to successfully commercialize any products we develop may be adversely affected. |
| • | If we experience a significant disruption in the expansion of our operations for any reason, our ability to continue to operate our business and meet increased demand could be materially harmed. |
| • | We have identified material weaknesses in our internal control over financial reporting and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired. |
| • | Investors should not rely on prior financial projections used by CAH in connection with the Merger. |
Recent Developments
Preliminary Selected Operating Results for 2022 Second Quarter (Unaudited)
Set forth below are certain preliminary and unaudited estimates of selected financial information for and as of the three months ended June 30, 2022 and actual unaudited financial information for and as of the three months ended June 30, 2021. The preliminary financial information included in this section reflects management’s estimates based solely upon information available to us as of the date of this prospectus. The preliminary financial results presented below are not a comprehensive statement of our financial results for and as of the three months ended June 30, 2022 and June 30, 2021. In addition, the preliminary financial results presented above have not been audited by our independent registered public accounting firm, KPMG LLP. Accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto and assumes no responsibility for, and disclaims any association with, this information.
The preliminary financial results presented below are subject to the completion of our financial closing procedures. We have provided ranges, rather than specific amounts, for certain of the
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preliminary estimates for the unaudited financial information described below primarily because our financial closing procedures for and as of the three months ended June 30, 2022 are not yet complete. As a result, our actual results may differ from these estimates due to the completion of our financial closing procedures and adjustments with respect thereto, including, but not limited to, in light of considerations noted in this section, as well as other developments that may arise between now and the time our final quarterly financial statements are completed, and such changes could be material. Therefore, you should not place undue reliance upon these preliminary financial results. For instance, during the course of the preparation of the respective financial statements and related notes, additional items that would require material adjustments to be made to the preliminary estimated financial results presented above may be identified. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within our control. Accordingly, the financial results in any particular period may not be indicative of future results. See the section titled “Forward-Looking Statements.”
We estimate our cash and cash equivalents to be $105.2 million as of June 30, 2022 (compared with $166.0 million and $132.1 million as of March 31, 2022 and December 31, 2021, respectively). In the three months ended June 30, 2022, our cash and cash equivalents benefited from aggregate gross proceeds of $41.5 million pursuant to the Royalty Agreement (as defined below). See the section titled “—Royalty Agreement.” We have not concluded the final accounting treatment related to the Royalty Agreement and, as such, our estimated operating loss range as shown below could be materially different if the final accounting conclusion differs from our estimate thereof.
We estimate that our total debt increased as of June 30, 2022 ($358.1 million) from December 31, 2021 ($301.3 million) principally as a result of our issuance on March 3, 2022 of $56.5 million of the Convertible Notes, which will mature on March 1, 2027. See the section titled “—2022 First Quarter Financial Performance.” In accordance with IFRS, costs related to debt issuances are recorded as a reduction of the proceeds and recognized using the effective interest method until the maturity date.
Revenue is estimated to be between $44 million and $46 million for the three months ended June 30, 2022 and was $87.2 million for the same period in 2021. This is an estimated decrease of between $43.2 million and $41.2 million, or a decrease of between 49.6% to 47.3%, respectively, for the three months ended June 30, 2022, compared with the three months ended June 30, 2021. The estimated decrease in revenue is attributable to reduced demand for our COVID-19 products.
Operating loss is estimated to be between $79 million and $86 million, including an estimated $21.1 million in combined stock-based compensation and depreciation and amortization (non-cash) expenses, for the three months ended June 30, 2022. This is an estimated increase in operating loss of between $32.7 million and $39.7 million, or an increase of between 70.6% to 85.7%, for the three months ended June 30, 2022, compared with the three months ended June 30, 2021 ($46.3 million). The estimated increase in operating loss is expected to have been driven primarily by slightly negative gross profit and higher other operating expenses. The slightly negative gross profit estimated for the three months ended June 30, 2022 is expected to reflect principally the impact of volatility of demand for our COVID-19 products, with the lower revenue levels due to reduced demand for products in the period resulting in period manufacturing costs not being fully offset by the incremental gross profit from product sales. Increases to inventory reserves and the writedown of inventory previously purchased reflecting prior period COVID-19 product demand are estimated to be $10.3 million for the three months ended June 30, 2022 compared with $25.6 million in same period in 2021. Other operating expenses also increased primarily due to additional research and development expenses in support of the launch of several new tests. In respect of non-cash expenses impacting our operating loss, we
7
estimate $9.3 million of stock-based compensation expense and $7.3 million of depreciation and amortization for the three months ended June 30, 2022 compared with $3.8 million and $4.6 million, respectively, of such expenses in the same period in 2021.
2022 First Quarter Financial Performance (Unaudited)
Set forth below is selected unaudited financial information for and as of the three months ended March 31, 2021 and March 31, 2022. The financial results presented below have not been audited by our independent registered public accounting firm, KPMG LLP.
For the three months ended March 31, 2022, we delivered revenue of $126.4 million, compared with $106.9 million for three months ended March 31, 2021. antigen test strips on the Platform contributed $77.5 million and Fast Lab Solutions delivered revenue of $38.3 million during the three month period ended March 31, 2022, with the revenue reflecting in large part high demand for our
SARS-CoV-2
COVID-19
tests during the surge in the COVID-19
pandemic brought upon by the Omicron variant in the early part of the period (January in particular) with reduced demand later in the period as the surge subsided. Our manufacturing investments enabled us to meet testing demand during the COVID-19
pandemic surge in the early part of 2022 and we anticipate that these investments further position us to provide for rapid growth in volumes for both our existing products and our R&D pipeline. Total gross profit for the three months ended March 31, 2022 was $50.0 million, compared with $43.3 million for the same period in the prior year. The improvement in gross profit was driven primarily by the increase in sales of Platform products relating to
COVID-19.
Gross profit as a percentage of revenue decreased slightly from 40.9% for the three months ended March 31, 2021 to 40.0% for the same period in 2022. This slight decrease is primarily the result of the number of Instruments placed free of charge with customers, offset by increases in production yields. Research and development costs were $41.3 million for the three months ended March 31, 2022, compared with $26.7 million for the three months ended March 31, 2021. The 54.7% increase between these periods reflected principally our investments in our R&D center in Glasgow and increased spending to support the launch of several new tests. It also reflected slightly higher stock-based compensation expense payments between the periods ($1.5 million and $0.7 million for the three months ended March 31, 2022 and March 31, 2021, respectively).
Sales, marketing and administrative expenses for the three months ended March 31, 2022 were $40.2 million, compared with $38.1 million for the same period in the prior year. The 5.5% increase between these periods reflected principally increases in personnel-related costs as we expanded our sales and marketing headcount to support our growth which more than offset lower stock-based compensation expense payments between the periods ($6.1 million and $20.3 million in the three months ended March 31, 2022 and March 31, 2021, respectively). Operating losses were $31.4 million and $21.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
Our net loss for the three months ended March 31, 2022 was $56.2 million compared with $180.8 million in the same period of 2021. Our net loss for the three months ended March 31, 2021 reflected the impact of a $131.1 million loss related to fair value adjustments on our 10% Notes and Series B preferred shares which are designated at fair value through profit and loss (compared with a $5.4 million gain related to fair value adjustments on our public warrants for the three months ended March 31, 2022). Our net loss for the three months ended March 31, 2022 also included a $19.2 million foreign exchange loss related mainly to the accounting for intercompany loan balances with no consolidated cash impact to us (compared with a foreign exchange gain of $6.5 million for the three
8
months ended March 31, 2021). We had
non-cash
interest expenses related to the accretion of debt issuance costs of $1.8 million and $17.2 million for the three months ended March 31, 2022 and 2021, respectively, with the reduced interest in the period in 2022 reflecting the conversion of our convertible notes in connection with the Merger. Our cash and cash equivalents as of March 31, 2022 was $166.0 million (compared with $132.1 million as of December 31, 2021). The balance as of March 31, 2022, reflected the proceeds from our issuance on March 3, 2022 of $56.5 million of the Convertible Notes. The Convertible Notes accrue annual interest at 6% payable semi-annually in arrears starting September 1, 2022. The Convertible Notes will mature on March 1, 2027 and are convertible at the holder’s option at an initial conversion rate of 108.4346 common shares per $1,000 principal amount of Convertible Notes. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources – Indebtedness – Convertible Notes.”
Royalty Agreement
On April 27, 2022, we entered into a royalty agreement with USB Focus Fund LumiraDx 2A, LLC, USB Focus Fund LumiraDx 2B, LLC, Pacific Premier Trust Custodian FBO Willard L. Umphrey (a trust account of Willard L. Umphrey), Pacific Premier Trust Custodian FBO Leon Okurowski ROTH IRA (a trust account of Leon Okurowski) and Pear Tree Partners, L.P (the “Royalty Agreement”) pursuant to which certain investors agreed to make investments in the Company to fund the purchase of additional Instruments, and in return, we agreed to pay certain royalty payments to such investors pursuant to the terms of the Royalty Agreement. In April, the relevant investors made an initial investment of $26.1 million pursuant to the Royalty Agreement and in June, the relevant investors made an additional investment of $15.4 million pursuant to the Royalty Agreement, for aggregate gross proceeds of $41.5 million since we entered into the Royalty Agreement. We may, at our discretion, accept additional investments of up to $8.5 million, for an aggregate maximum offering amount of $50.0 million. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources – Royalty Agreement.”
2021 Senior Secured Loan Amendments
In the first half of 2022, we have agreed with Pharmakon on certain amendments to the 2021 Senior Secured Loan. On March 28, 2022, the terms of the 2021 Senior Secured Loan were amended to provide for our entering into the Royalty Agreement. On June 17, 2022 and July 18, 2022, we agreed to further amendments with Pharmakon principally focused on amending the minimum net sales covenant and also providing for a revised minimum liquidity covenant. See the section titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources—Indebtedness” for further details on the 2021 Senior Secured Loan.
Regulatory Developments
In the first half of 2022, in the EEA, we affixed CE Marks to a number of new products, including the following: the Amira System (announced June 9, 2022), Dual-Target STAR Complete (announced on June 8, 2022), & Flu A/B RNA Star Complete (announced on June 8, 2022), NT-proBNP test (announced on June 2, 2022), HbA1c test (announced on May 26, 2022), Ag Ultra test (announced on May 19, 2022) and CRP test (announced on January 11, 2022). We have also received an updated CE Certificate of Conformity on our antigen test (announced on May 20, 2022).
SARS-CoV-2
SARS-COV-2
SARS-CoV-2
D-Dimer
test to provide a new exclusion claim to allow clinicians to rule out VTE in symptomatic patients (announced on June 2, 2022) and received the EUL by the World Health Organization for our SARS-CoV-2
9
Corporate Information
LumiraDx Limited was incorporated on August 24, 2016 under the laws of the Cayman Islands. On September 29, 2016, we acquired all of the outstanding shares of LumiraDx Group Limited, formally known as LumiraDx Holdings Limited, which was the original parent company of the LumiraDx group, in a share for share exchange. On September 28, 2021, we consummated the Merger pursuant to the Agreement and Plan of Merger, dated as of April 6, 2021, as amended pursuant to the Amendment to the Merger Agreement dated August 19, 2021, as further amended pursuant to the Amendment No. 2 to the Merger Agreement dated August 27, 2021 (collectively, the “Merger Agreement”), by and among LumiraDx, LumiraDx Merger Sub, Inc., a newly formed Delaware corporation and wholly owned subsidiary of LumiraDx (“Merger Sub”), and CAH, which, among other things, provided for Merger Sub to be merged with and into CAH with CAH being the surviving corporation in the Merger.
Our registered office is located at Ocorian Trust (Cayman) Limited, P.O. Box 1350, Windward 3, Regatta Office Park, Grand Cayman
KY1-1108,
Cayman Islands, and our telephone number is +1 (345) 640-0540.
Our principal website address is www.lumiradx.com. The information contained on, or that can be accessed through, our website does not form a part of, and is not incorporated by reference into, this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
Trademarks and Service Marks
LumiraDx and its respective subsidiaries own or have rights to trademarks, trade names and service marks that they use in connection with the operation of their business. In addition, their names, logos and website names and addresses are their trademarks or service marks. Other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this prospectus are listed without the applicable
®
, ™
and SM symbols, but they will assert, to the fullest extent under applicable law, their rights to these trademarks, trade names and service marks. Implications of Being an Emerging Growth Company and a Foreign Private Issuer
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
| • | to the extent that we no longer qualify as a foreign private issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation; |
| • | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); and |
| • | an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. |
10
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the previous three years; (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the U.S. Securities and Exchange Commission (“SEC”); or (iv) the last day of the fiscal year following the fifth anniversary of the closing of the Merger. We may choose to take advantage of some but not all of these exemptions.
In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. Further, even after we no longer qualify as an emerging growth company, we may qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We are also a “foreign private issuer.” Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
| • | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act; |
| • | the requirement to comply with Regulation FD, which requires selective disclosure of material information; |
| • | the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| • | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. |
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.
11
The Offering
| Common shares offered by us |
40,000,000 common shares. | |
| Option to purchase additional common shares |
We have granted the underwriters an option for a period of 30 days after the date of this prospectus to purchase up to an additional 6,000,000 common shares from us. | |
| Common shares to be outstanding after this offering and the concurrent private placement |
118,979,342 common shares (or 124,979,342 common shares if the underwriters exercise their option to purchase additional shares in full). | |
| Concurrent private placement |
BMGF has agreed to purchase from us, concurrently with this offering in a private placement, $25.0 million of our common shares at the public offering price. The sale of common shares in the concurrent private placement will not be registered under the Securities Act. The closing of this offering is not conditioned upon the closing of such private placement. See the section titled “Concurrent Private Placement”. | |
| Use of proceeds |
We expect the net proceeds from this offering to be approximately $85.9 million (or $99.0 million if the underwriters exercise in full their option to purchase additional common shares), assuming a public offering price of $2.35 per common share, which was the last reported sale price of our common shares on the Nasdaq Global Market (“Nasdaq”) on July 15, 2022, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We currently expect to use the net proceeds from this offering, together with our cash and cash equivalents, principally for general corporate purposes, including working capital in respect of our R&D, business development, and sales and marketing activities as well as ordinary course capital expenditures. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or other assets, although we currently have no agreements or understandings with respect to any such acquisitions or investments. See the section titled “Use of Proceeds.” | |
| Listing |
Our common shares are listed on the Nasdaq Global Market under the symbol “LMDX”. On July 15, 2022, the last reported sale price of our common shares as reported on Nasdaq was $2.35 per common share. | |
12
| Dividend policy |
We have never declared or paid any cash dividend on the ordinary shares or the common shares, and do not anticipate declaring or paying any cash dividends on the ordinary shares or common shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the commercialization of our products and expansion of our business. See the section titled “Dividend Policy.” | |
| Voting rights |
Common shares are entitled to one vote per share on a proposed shareholder resolution. By contrast, ordinary shares are entitled to ten votes per share on a proposed shareholder resolution. See the sections titled “Risk Factors” and “Description of Capital Stock” for further information on our dual class share structure and the rights attaching to our common shares and ordinary shares. | |
| Risk factors |
Investing in our securities involves substantial risks. See the section titled “Risk Factors” for a description of certain of the risks you should consider before investing in our securities. | |
| Indications of Interest |
We are aware of certain related parties who have indicated an interest in purchasing common shares in this offering, in each case at the public offering price. Morningside (as defined below) has indicated that they intend to purchase such number of common shares as necessary to maintain their current pro rata ownership of the Company’s common shares. In addition, Ron Zwanziger, who is our Chairman and Chief Executive Officer, and William Umphrey, who is a shareholder, either directly or through their affiliated vehicles, have indicated an interest in purchasing, in aggregate, up to $15 million of common shares in this offering. Because this indication of interest is not a binding agreement or commitment to purchase, we could determine to sell more, less, or no shares to such related parties. See the section titled “Underwriting - Indications of Interest.” Ron Zwanziger and any other officer or director who may purchase shares in this offering has entered into a lock-up agreement such that they will be subject to the lockup period with respect to such shares. Other related persons who may purchase shares in this offering would not be locked-up for such shares. | |
13
The number of common shares to be outstanding immediately after the closing of this offering and the concurrent private placement is based on 68,341,044 common shares and 185,343,353 ordinary shares outstanding as of March 31, 2022 and excludes:
| • | 11,163,930 common shares issuable upon the exercise of outstanding stock options as of March 31, 2022, with a weighted-average exercise price of $9.45 per common share; |
| • | 3,101,000 common shares issuable upon the exercise of outstanding stock options that were granted after March 31, 2022, with a weighted-average exercise price of $4.74 per common share; |
| • | 80,667,058 ordinary shares issuable upon the exercise of outstanding stock options as of March 31, 2022, with a weighted-average exercise price of $6.55 per ordinary share; |
| • | 13,578,241 common shares issuable upon the exercise of outstanding warrants (comprising the public warrants, the 2020 Warrants, the Jefferies Warrants, the Pharmakon Warrants and the SVB Warrants, each as defined below) outstanding as of March 31, 2022, with a weighted-average exercise price of $8.63 per common share (such weighted-average exercise price has been calculated, in respect of the Pharmakon Warrants only, using the exercise price of $10.00 per common share which applied to the Pharmakon Warrants on March 31, 2022 and until the amendment of the underlying warrant instrument is effective as described in the section titled “Description of Capital Stock – Warrants – Pharmakon Warrants”); |
| • | 5,403,892 ordinary shares issuable upon the exercise of warrants (comprising the 2016 Warrants and the 2019 Warrants, each as defined below) outstanding as of March 31, 2022, with a weighted average exercise price of $2.10 per ordinary share; |
| • | 6,126,554 common shares reserved for issuance upon conversion of the Convertible Notes (as defined herein), assuming the initial conversion rate of 108.4346 common shares per $1,000 principal amount of Convertible Notes, as provided for in the indenture governing the Convertible Notes; |
| • | 19,301,591 common shares available for issuance under the 2021 Stock Option and Incentive Plan; and |
| • | 15,229,865 common shares available for issuance under the 2021 Employee Stock Purchase Plan (the “ESPP”). |
The number of common shares outstanding immediately after the closing of this offering and the concurrent private placement as set out above (i) assumes no conversion of the outstanding ordinary shares into common shares and (ii) excludes any common shares potentially issuable under the terms of the Royalty Agreement (as defined herein) if investors do not receive the required return on their investment under such Royalty Agreement. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources – Royalty Agreement.”
Unless otherwise indicated, this prospectus reflects and assumes no exercise by the underwriters of their option to purchase additional common shares from us and no exercise of the outstanding stock options and the outstanding warrants described above.
Summary Consolidated Historical Financial Data
The following tables set forth a summary of our consolidated historical financial data for the periods indicated. The consolidated historical financial data in this section has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). Such information for and as of the years ended December 31, 2020 and December 31, 2021 is derived from our audited consolidated financial statements, which are included elsewhere in this prospectus.
Our summary financial information for and as of the three months ended March 31, 2021 and March 31, 2022 has not been audited by our independent registered public accounting firm, KPMG LLP.
14
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, any numerical discrepancies in any table between totals and sums of the amounts listed are due to rounding.
Our historical results are not necessarily indicative of our future results. You should read this data in conjunction with the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are
re-measured.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of profit and loss and comprehensive income. All foreign exchange gains and losses are presented in the statement of profit and loss and comprehensive income within Finance income and Finance expense. Year Ended December 31, |
Three Months Ended March 31, |
|||||||||||||||
2020 |
2021 |
2021 |
2022 |
|||||||||||||
| (in thousands, except share and per share data) |
||||||||||||||||
| Statement of Profit and Loss and Comprehensive Income: |
||||||||||||||||
| Revenue |
||||||||||||||||
| Products |
$ | 135,656 | $ | 415,654 | $ | 105,786 | $ | 125,626 | ||||||||
| Services |
3,497 | 5,774 | 1,086 | 786 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total Revenue |
139,153 | 421,428 | 106,872 | 126,412 | ||||||||||||
| Cost of sales |
||||||||||||||||
| Products |
(84,456 | ) | (268,835 | ) | (63,072 | ) | (76,363 | ) | ||||||||
| Services |
(1,750 | ) | (1,053 | ) | (483 | ) | (23 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total Cost of Sales |
(86,206 | ) | (269,888 | ) | (63,555 | ) | (76,386 | ) | ||||||||
| Gross Profit |
52,947 | 151,540 | 43,317 | 50,026 | ||||||||||||
| Operating Expenses |
||||||||||||||||
| Research and development expenses |
(107,539 | ) | (130,221 | ) | (26,741 | ) | (41,319 | ) | ||||||||
| Selling, marketing and administrative expenses |
(46,129 | ) | (130,520 | ) | (38,051 | ) | (40,156 | ) | ||||||||
| Listing expenses |
— | (36,202 | ) | — | — | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Operating Loss |
(100,721 | ) | (145,403 | ) | (21,475 | ) | (31,449 | ) | ||||||||
| Finance income |
22,500 | 165,426 | 6,583 | 5,420 | ||||||||||||
| Finance expense |
(172,722 | ) | (117,943 | ) | (165,984 | ) | (27,926 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net finance (expense)/income |
(150,222 | ) | 47,492 | (159,401 | ) | (22,506 | ) | |||||||||
| Loss before Tax |
(250,943 | ) | (97,911 | ) | (180,876 | ) | (53,955 | ) | ||||||||
| Tax (expense)/credit for the period |
9,946 | (2,844 | ) | 87 | (2,217 | ) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Loss for the period |
$ | (240,997 | ) | $ | (100,755 | ) | $ | (180,789 | ) | $ | (56,172 | ) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Loss/(gain) attributable to non-controlling interest |
(17 | ) | 174 | 44 | 78 | |||||||||||
| Net loss attributable to equity holders of parent—basic and diluted |
$ | (240,980 | ) | $ | (100,929 | ) | $ | (180,833 | ) | $ | (56,250 | ) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Net loss per share attributable to equity holders of parent—basic and diluted |
$ | (1.82 | ) | $ | (0.62 | ) | $ | (1.37 | ) | $ | (0.22 | ) | ||||
| |
|
|
|
|
|
|
|
|||||||||
| Weighted-average number of ordinary and common shares used in loss per share—basic and diluted |
132,192,880 | 163,255,784 | 132,204,201 | 253,074,575 | ||||||||||||
15
As of December 31, |
As of March 31, |
|||||||||||
2020 |
2021 |
2022 |
||||||||||
(in thousands) |
||||||||||||
| Consolidated Statement of Financial Position: |
||||||||||||
| Cash and cash equivalents |
$ | 158,717 | $ | 132,145 | $ | 166,046 | ||||||
| |
|
|
|
|
|
|||||||
| Working capital (1) |
88,028 | 261,665 | 276,726 | |||||||||
| |
|
|
|
|
|
|||||||
| Total assets |
515,095 | 644,780 | 659,227 | |||||||||
| |
|
|
|
|
|
|||||||
| Preferred shares |
(451,721 | ) | — | — | ||||||||
| Total equity attributable to equity holders of the parent |
375,009 | (163,051 | ) | (125,235 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Non-controlling interests |
207 | 455 | 377 | |||||||||
| |
|
|
|
|
|
|||||||
| Total Equity |
$ | 375,216 | $ | (162,596 | ) | $ | (124,858 | ) | ||||
| |
|
|
|
|
|
|||||||
| (1) | We define working capital as current assets less current liabilities. |
Year Ended December 31, |
Three Months Ended March 31, |
|||||||||||||||
2020 |
2021 |
2021 |
2022 |
|||||||||||||
| Consolidated Statement of Cash Flows: |
||||||||||||||||
| Net cash used in operating activities |
$ | (149,327 | ) | $ | (134,583 | ) | $ | (9,271 | ) | $ | (1,696 | ) | ||||
| Net cash used in investing activities |
(64,381 | ) | (106,346 | ) | (35,427 | ) | (10,262 | ) | ||||||||
| Net cash provided by financing activities |
236,586 | 219,022 | 215,163 | 47,677 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents |
$ | 22,878 | $ | (21,907 | ) | $ | 170,465 | $ | 35,719 | |||||||
16
RISK FACTORS
An investment in our common shares carries a significant degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus, including our financial statements and the related notes appearing elsewhere in this prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment in our common shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common shares could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See the section titled “Forward-Looking Statements.” Additional risks and uncertainties not currently known to us or which we currently deem immaterial may also have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Business and Strategy
We are at a pivotal point in the commercialization of our Platform, and we may not succeed for a variety of reasons.
Since our inception in 2014 until March 31, 2022, we have incurred $501.9 million in research and development costs to develop our Platform, our Amira System, and our Fast Lab Solutions products which support high-complexity laboratory testing (“Fast Lab Solutions”). As of the date of this prospectus, we have eight POC diagnostic tests commercially available for our Platform: our antigen test and antibody test, commercially available under EUA and CE Mark, which we introduced to the EEA and United Kingdom markets in 2019; our INR test, our antigen pool test, our Ag & Flu A/B tests, all of which are CE Marked. We have also received EUAs for our molecular lab reagent kits, LumiraDx RNA STAR and LumiraDx RNA STAR Complete, we affixed the CE mark to LumiraDx RNA STAR Complete and we commenced sales in the United States, the EEA and the United Kingdom. We have submitted an EUA request to the FDA for our Ag & Flu A/B tests. To date we have not yet received FDA authorization for this combo test and the FDA has indicated that authorization will not be provided as further information is required including, among other things, additional data points related to Flu A/B testing. The timing of any updated submissions to the FDA depends on the prevalence of Flu A/B and our ability to collect further data and even if we submit the required information, there can be no guarantee that authorization will be granted by the FDA. More generally, the FDA has signaled an intention to transition away from providing EUAs for tests, which could further impact our ability to receive FDA authorization. See “Risks Related to Government Regulation — The regulatory pathway for our
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
D-Dimer
test, our CRP test and our SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
COVID-19-related
COVID-19
tests and healthcare professionals’ understanding of the novel coronavirus is continually evolving and may result in unexpected or unforeseen challenges.” We have engaged in a large, broad-scale launch of our antigen test and we are relying on such test to create brand awareness and a revenue base to support our cost infrastructure as well as to create an installed base of the Instrument.
SARS-CoV-2
While we have launched certain tests, we have limited commercial experience with our Platform. The launch of additional tests may be delayed, be less successful than we anticipate, or fail for any of the reasons that large commercial launches are ultimately unsuccessful. For example:
| • | Our tests, produced at large scale, might not perform to standards that we have experienced to date. We therefore may not obtain or maintain regulatory approval, authorization, certification or clearance for some of our diagnostic tests in research and development, which may have a significant impact on the commercialization of our Platform. |
17
| • | We have a number of diagnostic tests in our near-term pipeline. We may not receive relevant regulatory approval, authorization, certification or clearance for some or all of these diagnostic tests in a timely fashion, or at all, and this may impact significantly the commercialization of our Platform. |
| • | Unexpected or inconsistent clinical data from existing and future clinical trials, or a regulator’s or the market’s perception of these clinical data when compared to our internal comparative data, may adversely impact our ability to obtain regulatory approval, authorization, certification or clearance for, or market acceptance of, our diagnostic tests. |
| • | Our Instrument, the Amira Analyzer and our test strips are made on sophisticated manufacturing systems, and these may not operate at large scale as anticipated. |
| • | We may have difficulty sourcing raw materials and components, including micro processing or semiconductor chips or capacitors, to make our Instrument, Amira Analyzer and test strips in a timely fashion in necessary quantities, or these materials and components might not comply with our specifications, which are exacting. |
| • | We may not be able to supply our products through sales channels that are effective and efficient. |
| • | Potential users of our Platform might not accept our Platform as being better than those POC systems that are already available, at the prices we charge or at all. |
| • | Governmental and third-party payors might decline to cover our products or reimburse our users for the cost of our products at favorable rates or at all. |
| • | We may not be able to scale-up and sustain operations to a level that allows our investments in technology, equipment, personnel and other resources to achieve sustainable and profitable commercial activities. |
| • | Our management, manufacturing, sales and marketing, logistics, research and development, regulatory and other personnel might not be able to sustain the high level of operations that we anticipate we will require to generate revenue and to operate profitably. |
| • | External factors, such as the ongoing COVID-19 pandemic, or political or social instability or unrest in our principal markets, such as the recent conflict between Russia and Ukraine, and their potential impact might adversely affect us in ways that we have not planned for. |
Operations of the type and scope that we plan are subject to many uncertainties, and many that are undertaken are unsuccessful. We cannot be certain that we will be able to achieve our business objectives as described in this prospectus, and if our assumptions regarding these risks and uncertainties are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations could be adversely affected.
Our short-term revenue prospects will vary with the amount of demand for
COVID-19
tests and our operating results may fluctuate significantly, which may make our future operating results difficult to predict. Our short-term revenue prospects will continue to vary with the amount of demand for our commercially available antigen test, antigen pool test, SARS & Flu A/B tests and the presence of various variants of the virus. Since the beginning of the
SARS-CoV-2
SARS-CoV-2
CoV-2
antibody test, and SARS-CoV-2
COVID-19
pandemic, various vaccines for COVID-19
have received approval to be placed on the market. As additional effective COVID-19
vaccines or treatments are developed, approved or authorized and rolled out to protect against and treat the virus, demand for our COVID-19
18
tests may be impacted and the size of our market opportunity for such tests may be impacted. While we believe that our antigen test detects major global variants, including Delta, Gamma, Epsilon, Alpha, Beta and Omicron, there is no guarantee that our basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period, which in turn could have a material adverse effect on our business, financial condition and results of operations.
COVID-19
tests will remain in demand if new variants appear, the availability and efficacy of vaccines/boosters or the mitigation of the COVID-19
pandemic earlier than expected for any other reason could negatively impact demand for our Platform and sales of our Instrument, test strips and other products. While our SARS-CoV-2
SARS-CoV-2
COVID-19
tests will be able to accurately detect all variants of concern. In addition, competitors may produce more accurate tests or tests which receive more favorable demand, both of which may impact our revenue streams and profitability. It is not unreasonable to expect COVID-19
may become a more seasonal flu-like
illness, subject to seasonality which will impact revenue cycles. The unpredictability of demand for our COVID-19
tests could mean that our quarterly and annual operating results may fluctuate significantly. As a result, comparing our operating results on a period-to-period
Our commercially available molecular lab reagent kits, LumiraDx RNA STAR and LumiraDx RNA STAR Complete will be subject to these demand fluctuations. In addition, while we have announced the plan to roll out a five-minute Ag Ultra test and a five-minute Ag Ultra Pool test (both of which have been CE Marked), the launch of such tests is subject to further validation and clinical trials and regulatory approvals, authorizations, certifications or clearances. Launches may be delayed as clinical trials require the presence of virus for clinical testing. Completion of trials may be impacted or delayed in case of low prevalence of the virus.
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
New product development involves a lengthy and complex process and we may be unable to commercialize additional tests on our Platform on a timely basis, or at all.
The launch of additional tests on our Platform may be delayed or may not be successful. There can be no assurance that our Platform will accurately and rapidly identify biomarkers associated with conditions and diseases of importance to our customers, including
COVID-19,
for a variety of technical reasons or that our Platform will compete with market alternatives or gain market acceptance. Our diagnostic tests which are in development will take time to develop and commercialize, if we are able to commercialize them at all. Many other POC testing systems are designed for one or few related tests, increasing the odds of creating a successful test but decreasing the odds of developing a system with broad testing abilities. Our strategy involves designing a platform that is diverse and powerful enough to produce high-quality testing abilities for a broad array of tests. While we believe this strategy will result in an industry-leading standard for POC tests, it also creates a very high hurdle for success, which we may not ultimately clear. Various tests may require improved product performance specifications over time.
Further, there can be no assurance that any new diagnostic tests we develop will have acceptable clinical performance. Before we can commercialize any new diagnostic tests, we will need to expend significant funds in order to:
| • | conduct substantial research and development, including validation studies and potentially clinical trials; |
| • | further develop and scale our research and development efforts to accommodate different test strip designs or adjustments; and |
| • | further develop and scale our infrastructure to be able to analyze increasingly large amounts of data. |
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Our Platform development process involves a high degree of risk, and development efforts may fail for many reasons, including:
| • | failure of the products to perform as expected at the research or development stage; |
| • | lack of validation data; or |
| • | failure to demonstrate the clinical utility of the products or pass clinical trials or obtain relevant regulatory approval, authorization, certification or clearance. |
As we develop our Platform and our diagnostic tests, we will have to make significant investments in product development, marketing and selling resources. In addition, competitors may develop and commercialize competing products faster than we are able to do so.
Our Amira System has been CE Marked for use in professional settings but may not obtain other necessary regulatory approvals, authorizations, certifications or clearances, and we may not be able to successfully commercialize our Amira System, including scaling up manufacturing and sales capacity.
Our Amira System, which includes strips, device and patient mobile device application, is based upon our Platform and our antigen test. Our Amira System, which was CE Marked for POC use in professional settings in the first half of 2022, will require additional regulatory approvals, authorizations, certifications or clearances prior to commercialization in professional settings in certain countries outside the EEA. In addition, we may need to seek additional regulatory approvals, authorizations, certifications or clearances for specific or limited use cases based on our commercialization plans. Even though we completed POC clinical testing of our Amira System and affixed the CE Mark to the Amira System in professional settings, we expect we will need to perform additional clinical testing to obtain additional regulatory approvals, authorizations, certifications or clearances for our Amira System, including for use in (“OTC”) settings in certain countries. Revenues related to the Amira System depend on development of mass screening opportunities and continued need for
SARS-CoV-2
over-the-counter
COVID-19
testing. We expect to continue to devote significant operational and financial resources to the commercialization of our Amira System to meet expected demand for mass screening applications, including at schools, airports, universities, for screening and over time for testing in the home. Our ability to produce the planned volume of Amira Ag tests will be dependent on our ability, and the ability of our contract manufacturers, to successfully and rapidly scale up manufacturing and sales capacities. These efforts may divert management’s attention and resources from other diagnostic tests, including our antigen test and our antibody test, available on our Platform. We may encounter significant difficulties in our efforts to scale, manufacture and supply our Amira System and we cannot guarantee that any of these challenges will be met in a timely manner or at all.
return-to-work
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
We may not be able to generate sufficient revenue from our Platform to achieve and maintain profitability.
We believe our commercial success is dependent upon our ability to successfully market and sell our Platform to customers, including large healthcare systems, government organizations, national pharmacy chains and community-based healthcare settings, to launch and commercialize our Instrument and diagnostic tests (including those for
COVID-19)
in new markets, to continue to expand our current relationships and develop new relationships with diagnostic companies, and to develop and commercialize new POC diagnostic tests. We are scaling our operations assuming a rapid uptake of our Instrument and our COVID-19
tests, but the demand for our Platform may not increase for a 20
number of reasons, including due to the evolving nature of the antigen tests and INR tests and from the sale of third-party distribution products (i.e. third-party medical devices, including blood gas meters and blood glucose meters, sold in some countries, such as Brazil and Colombia) and our anticoagulation management programs. We may not be able to continue revenue growth, maintain existing revenue levels or achieve profitability.
COVID-19
pandemic, or unsuccessful execution of our strategy designed to meet the increased demand for COVID-19
tests, or otherwise. If we are unsuccessful in the commercialization of our COVID-19
tests, then we will need significant financial resources to maintain our operations. We have experienced early revenue growth from the sale of our Platform to healthcare professionals, principally for our SARS-CoV-2
Our existing customers and collaborators may decide to decrease or discontinue their use of our Platform due to changes in research and product development plans, changes in the occurrence of certain diseases, such as
COVID-19,
failures in clinical trials, financial constraints, or utilization of internal testing resources or tests performed by other parties, all of which are circumstances outside of our control. In addition to reducing our revenue, this may reduce our exposure to early stage research that facilitates the incorporation of newly-developed information about various tests into our Platform. We are currently not profitable. Even if we succeed in increasing the adoption of our Platform by large healthcare systems, government organizations, national pharmacy chains and community-based healthcare settings, maintaining and creating relationships with our existing and new customers and collaborators and developing and commercializing additional POC diagnostic tests, we may not be able to generate sufficient revenue to achieve or maintain profitability.
Business or economic disruptions or global health concerns, such as the ongoing
COVID-19
pandemic, have harmed and may continue to seriously harm our business and increase our costs and expenses. The global impact of the ongoing
COVID-19
pandemic has been rapidly evolving in many countries, including the United Kingdom where our main research, development and manufacturing operations are located, and has led to the implementation of various responses, including government-imposed quarantines, travel restrictions, business and school closures and other public health safety measures. These responses to the COVID-19
pandemic have impacted and may continue to materially and adversely impact our business and results of operations due to, among other factors: | • | improvements to our COVID-19 product line and Flu A/B tests are dependent on access to clinical trials and the prevalence of the flu, and we have experienced and may continue to experience delays in our clinical trials as a result of the lack of sample availability, particularly with respect to flu type B; |
| • | a delay in regulatory approval, authorization, certification or clearance by FDA, and other applicable foreign regulatory authorities to some of our diagnostic assays in development, if such foreign regulatory authorities focus their resources on and give priority to COVID-19 testing and treatments or to a specific form of COVID-19 testing that is different than our tests; |
| • | a disproportionate impact on the healthcare groups and other healthcare professionals with whom we contract; |
| • | supply shortages for materials used to manufacture our COVID-19 products, including swabs and extraction buffers necessary for use with our SARS-CoV-2 |
| • | disruptions to our supply chains and sales and marketing efforts due to restrictions on courier delivery services and other transportation systems; |
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| • | disruptions to operations at our current and future manufacturing systems and facilities and those of our third-party vendors, collaborators, and suppliers; |
| • | difficulty accessing the capital and credit markets on favorable terms, or at all, a severe disruption and instability in the global financial markets, and deteriorations in credit and financing conditions which could affect our access to capital necessary to fund our existing and scaled business operations or address maturing liabilities on a timely basis; |
| • | the potential negative impact on the health or productivity of employees, especially if a significant number of them are impacted by the COVID-19 pandemic; |
| • | a deterioration in our ability to ensure business continuity during a disruption; and |
| • | social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate, including any impact of the current conflict between Russia and Ukraine. |
This
COVID-19
pandemic, as well as intensified measures undertaken to contain the spread of COVID-19,
including variants such as Omicron, could decrease healthcare industry spending; adversely affect demand for our Platform; cause one or more of our customers to file for bankruptcy protection or go out of business; cause one or more of our customers to fail to renew, terminate, or renegotiate their contracts; affect the ability of our business development team to travel worldwide to potential customers and the ability of our professional services teams to conduct in-person
services and trainings; impact expected spending from new customers; negatively impact collections of accounts receivable; lead to the closure of our existing or future manufacturing facilities or any of our other production, research and/or distribution facilities; and restrict the movement of people and goods, which could negatively impact employee availability (particularly, in respect of our R&D and sales and marketing teams), any of which would harm our business, financial condition and results of operations. In addition, while we have taken remote work, group isolation and other measures to prevent an outbreak of COVID-19
among our employees, further waves of the COVID-19
pandemic, including new variants, could further disrupt our operations as the success of the measures we have implemented is uncertain. Any changes in the regulations, travel restrictions and other public safety measures that have been or may be imposed by countries in response to the COVID-19
pandemic could impact our COVID-19
testing volumes and, in particular, as such regulations, travel restrictions and public safety measures are lifted, our COVID-19
testing volumes may decrease. The loss of any member of our senior management team or our inability to attract and retain highly skilled scientists, engineers, software developers, technicians and salespeople could adversely affect our business.
Our success depends on the skills, experience and performance of key members of our senior management team, including Ron Zwanziger, our Chairman and Chief Executive Officer, Dave Scott, Ph.D., our Chief Technology Officer, and Jerry McAleer, Ph.D., our Chief Scientist. The individual and collective efforts of these employees will be essential as we continue to develop our Platform and additional products, and as we expand our commercial activities. The loss or incapacity of existing members of our executive management team or key scientists and engineers could adversely affect our operations, particularly if we experience difficulties hiring qualified successors. We do not have any employment agreements (other than brief
at-will
offer letters) or non-compete
agreements with our co-founders
(i.e., Ron Zwanziger, Dave Scott and Jerry McAleer), and because of their knowledge of the industry and our operations, we believe the loss of any one of their services, or any of them leaving and providing services to any of our competitors, could result in a disruption of our operations and/or put us at a competitive disadvantage, which will likely have a material adverse effect on our business. Our R&D programs and manufacturing operations depend on our ability to attract and retain highly skilled scientists, engineers, software developers and technicians. We may not be able to attract
22
or retain a sufficient number of qualified scientists, engineers, software developers and technicians in the future due to the competition for qualified personnel in our industry. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. We may also have difficulties locating, recruiting or retaining a sufficient number of qualified salespeople to successfully scale up our sales and marketing efforts to meet expected demands. Recruiting and retention difficulties can limit our ability to support our R&D and sales and marketing programs. In addition, all of our employees in the United States are
at-will,
which means that either we or the employee may terminate their employment at any time. We also do not maintain “key person” insurance on any of our employees. Our Platform and our other products may never achieve significant commercial market acceptance.
Our Platform may never gain significant acceptance in the marketplace and, therefore, may never generate substantial revenue or profits for us. Our ability to achieve commercial market acceptance for our Platform will depend on several factors, including:
| • | our ability to demonstrate the clinical utility and cost effectiveness of our Platform and its potential advantages over existing POC systems, or for certain tests, over central lab counterparts, to the medical community; |
| • | our ability, and that of our collaborators, to secure and maintain FDA and other applicable regulatory approval, authorization, certification or clearance for certain components of our Platform; |
| • | our ability to expand our test menu and provide a broad range of tests on our Platform while maintaining consistency and precision; |
| • | our ability to obtain relevant regulatory approval, authorization, certification or clearance for our diagnostic assays in development, particularly those in our near-term pipeline; |
| • | the agreement by commercial third-party payors and government payors to cover and to reimburse our Instrument and test strips, the scope and extent of which will affect healthcare providers’ willingness to pay for our Instrument and test strips and likely heavily influence their decisions to recommend use of our Platform; |
| • | the willingness of healthcare providers to use a POC system over central lab counterparts and the rate of adoption of our Platform by healthcare providers and other users; and |
| • | the impact of our investments in our Platform innovation and commercial growth. |
We believe that the successful completion of clinical trials, publication of scientific and medical results in peer-reviewed journals, and presentations at leading conferences will be important to facilitate the broad adoption of our Platform. Publication in leading medical journals is subject to a peer-review process, and peer reviewers may not consider the results of studies involving our Platform sufficiently novel or worthy of publication.
The failure of our Platform to be listed in physician guidelines or of our clinical trials to produce favorable results or to be published in peer-reviewed journals could limit the adoption of our Platform. We may not be successful in addressing these or other factors that might affect the market acceptance of our Platform and technologies. Our Amira System and Fast Lab Solutions products will face similar difficulties in achieving commercial market acceptance. Failure to achieve widespread market acceptance of our Platform and other products would materially harm our business, financial condition and results of operations.
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A limited number of customers currently represent a substantial portion of our revenue. If we fail to retain these customers, our revenue could decline significantly.
We currently derive a substantial portion of our revenue from sales to certain key customers, including CVS Pharmacy Inc. (“CVS”) in the United States, Azienda Zero (“AZ”), which is an Italian government entity for the Veneto region in Italy, and the National Health Service (the “NHS”) in the United Kingdom. As a result, our revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of these customers or any other significant future customers, and to the extent that customers such as AZ and the NHS are public sector customers, those customers need to ensure that any purchases they make are in compliance with public procurement tender rules which third parties may challenge if such rules are not adhered to. Our agreements with CVS and the NHS do not have minimum purchase requirements. We do not currently have any contractual arrangements with AZ. Our business with AZ is established pursuant to tenders awarded by AZ which do not contain any minimum purchase requirements. Any of our significant customers may decide to purchase less than they have in the past, may alter their purchasing patterns or procurement policies at any time with limited notice, or may decide not to continue to use our Platform and test strips at all, any of which could cause our revenue to decline and adversely affect our business, financial condition and results of operations.
We rely on a limited number of suppliers or, in some cases, sole source suppliers, for the components of our Platform and our Amira System and for other materials and may not be able to find replacements or immediately transition to alternative suppliers.
We rely on several sole source suppliers for certain components or accessories and materials used in our Instrument, our Amira Analyzer and our test strips, such as test strip materials, reagents and Instrument components. In addition, we currently rely solely on Flextronics Ltd. (“Flextronics”), as the sole manufacturer of our Instrument, with components and assemblies supplied by Flextronics and by outside vendors. All of our test strips are manufactured in our facilities but contain components, such as reagents, that are supplied by outside vendors.
In the case of any alternative supplier for our Instrument or Amira Analyzer, the materials or components of our Instrument or Amira Analyzer, or our test strips, there can be no assurance that replacement materials or components will be available or will meet our quality control and performance requirements for our operations or products. For example, in November 2020, there was a shortage of a component for use in our Instrument which significantly constrained the production and delivery of our Instrument to customers until we added an additional supplier. We may also have difficulty sourcing raw materials and components, including micro processing or semiconductor chips or capacitors, in a timely fashion in necessary quantities, or these materials and components might not comply with our specifications, which are exacting. The prices for these materials fluctuate, and their available supply may be unstable depending on market conditions and global demand. An interruption in our ability to develop and produce our Instrument, Amira Analyzer or test strips could occur if we encounter delays or difficulties in securing components of our Instrument, Amira Analyzer or our test strips, including due to the
COVID-19
pandemic, and if we cannot then obtain an acceptable substitute at an acceptable price. Any changes in availability of such materials and any increases in their prices could lead to required changes in performance, regulatory approval, authorization, certification or clearance processes. If we encounter delays or difficulties in securing, reconfiguring or revalidating the equipment and reagents we require for our Platform and other products, our business, financial condition, results of operations and reputation could be adversely affected. Because of a long lead-time to delivery of certain components of our manufacturing system and Platform, we are required to place orders for a variety of items well in advance of scheduled production runs. We have increased our flexibility to purchase strategic components within shorter lead times by
24
entering into scale up arrangements with the suppliers of these components. Although we attempt to match our inventory and production capabilities to estimates of marketplace demand, to the extent Instrument and test strip orders materially vary from our estimates, we may experience continued constraints in our Platform production and delivery capacity, which could adversely impact our business, financial condition and results of operations. Furthermore, we maintain an allowance for excess or obsolete inventories. The allowance is based on a review of inventory materials on hand, which we compare with estimated future usage. These estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends such as competitive pricing and new product introductions, estimated inventory levels, and the shelf life of products. As 2020 was the first year of significant sales of our Platform products, we have limited history to make these estimates. In addition, the unpredictability of demand for our COVID-19 tests adds further difficulty in making such estimates. If actual future results vary, these estimates may need to be adjusted, with an effect on sales and our profits in the period of the adjustment (such adjustments have resulted, and could continue to result, in write-offs, adversely impacting our gross profit). Actual results could differ from these estimates. Should our need for raw materials and components used in production continue to fluctuate, we could incur additional costs associated with either expediting or postponing delivery of those materials. In an effort to control costs, we have implemented a lean manufacturing system. Managing the change from discrete to continuous flow production requires time and management commitment. Lean initiatives and limitations in our supply chain capabilities may result in component shortages that delay shipments and cause fluctuations in revenue.
Further, we believe that there are a limited number of other equipment manufacturers that are currently capable of supplying and servicing the equipment necessary for the manufacturing of our Instrument, Amira Analyzer and test strips. We have spent significant time and resources developing our manufacturing processes with our existing collaborators, and the use of equipment or materials furnished by these replacement suppliers would require us to significantly alter our operations. It could take a very long time to obtain a new manufacturing system for test strips if additional capacity were needed. Transitioning to a new supplier would therefore be time consuming and expensive, may result in interruptions or delays in our operations, could affect the performance specifications of our operations or could require that we revalidate our Platform and could require us to obtain additional clearance, authorization, approval, certification, accreditation or licensure for the changes. There can be no assurance that we will be able to secure alternative equipment, reagents, and other materials, and bring such equipment, reagents, and materials on line and revalidate them without experiencing interruptions in our workflow.
We may experience manufacturing problems or delays that could limit the growth of our revenue or increase our losses.
Our current and planned manufacturing operations are critical to our commercialization plans, and these operations may not be sufficient to withstand the demands we intend to place on them. Any disruption in the operation of any of our facilities or the facilities of our suppliers could impact our supply chain and operation of our Platform and our ability to conduct our business and generate revenue. We may in the future encounter unforeseen situations that would result in delays or shortfalls in our production as well as delays or shortfalls caused by our outsourced manufacturing suppliers and by other third-party suppliers who manufacture components for our Platform and other products, including delays caused by or constraints on capacity as a result of the
COVID-19
pandemic. If we are unable to keep up with demand for our Platform and other products, our revenue could be impaired, market acceptance for our Platform and other products could be adversely affected and our customers might instead purchase our competitors’ products. Our inability to successfully manufacture the components of our Platform would have a material adverse effect on our business, financial condition and results of operations. 25
If our or our suppliers’ or collaborators’ present or future facilities were to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, storms, tornadoes, earthquakes, other inclement weather events or natural disasters, employee malfeasance, terrorist acts, public health crises or pandemics, power outages, or otherwise, it may render it difficult or impossible for us to maintain or increase our manufacturing and other operations sufficiently to meet demand, and our business could be severely disrupted. Our facilities and the equipment we use to manufacture our Platform would be costly to replace and could require substantial lead time to repair or replace.
As we continue to expand our business, we may experience problems in scaling our manufacturing and commercial operations, and if we are unable to support demand for our Platform, our Amira System or our test strips, including ensuring that we have adequate capacity to meet increased demand, if any, or we are unable to successfully manage the evolution of our Platform or our Amira System, our business could suffer.
In connection with the commercialization of our Platform, we have added, and expect to continue to add, personnel in the areas of sales, marketing, manufacturing, regulatory, quality assurance, customer and technical service and other support functions. We also continue to scale our manufacturing, sales and marketing capabilities. If our sales volume grows, we will need to continue to increase our workflow capacity for sales, customer service, billing and general process improvements, expand our internal quality assurance program and to scale up our manufacturing systems quickly. We will need additional sales, scientific and technical personnel to market our Platform and our Amira System and follow up on any reported quality issues. Our Amira System is focused on mass screening opportunities and OTC sales, and marketing channels for professional and OTC sales vary significantly and may require additional support. We will also need to secure additional facilities, purchase additional equipment, some of which can take several months or more to procure, setup, and validate, and to significantly and rapidly increase our capacity to meet any increased demand. There is no assurance that any of these increases in scale, expansion of personnel, equipment, software and computing capacities, or process enhancements will be successfully implemented on a timely basis, or at all, or that we will have adequate space in our facilities to accommodate such required expansion. Even if these and other measures are implemented successfully, we still expect to experience continued capacity constraints as we commercialize our products.
If additional diagnostic products are commercialized and new tests are developed, we may need to implement adjustments to our Platform and our processes and hire new personnel with different qualifications. Failure to manage this growth or transition could result in delays in the development of new test strips, higher product costs, declining product quality, deteriorating customer service, and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our Platform and our Amira System and could damage our reputation and the prospects for our business.
If we experience a significant disruption in the expansion of our operations for any reason, our ability to continue to operate our business and meet increased demand could be materially harmed.
As we expand our capacity, we believe it may be necessary to both expand our existing facilities and to add one or more new facilities to meet anticipated demand. We have significantly scaled our manufacturing facilities and added warehouse and office space and we expect to continue to
scale-up
or expand, where required, over the next few years, in order to make necessary adjustments based on market needs and product demand. Failure to complete, or timely complete, these expansion projects on time or at all, may significantly delay our workflows and operations, which may adversely affect our business, financial condition and results of operations. In addition, our financial condition may be adversely affected if we are unable to complete these expansion projects on budget and otherwise on 26
terms and conditions acceptable to us. Finally, our financial condition will be adversely affected if demand for our Platform and our Amira System does not materialize in line with our current expectations and if, as a result, we end up building excess capacity that does not yield a reasonable return on our investment.
We have devoted and continue to devote significant resources for the
scale-up
and commercialization of our COVID-19
tests. We are working toward the large-scale technical development and manufacturing antigen test, antibody test, antigen pool test and & Flu A/B tests, as well as our RNA STAR and RNA STAR Complete molecular lab reagent kits. We are also scaling up manufacturing capacity for the commercial launches of our recently CE Marked & RSV test, our five-minute Ag Ultra and Ultra Pool tests, our Amira System, the Amira Ag test and two new molecular lab reagent kits which add the ability to test for Flu A/B and two distinct diagnostic tests.
scale-up
in several countries and larger scale deployment of our commercially available COVID-19
tests, including our SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
COVID-19
tests, including our SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
COVID-19
virus genes to our Fast Lab Solutions product line. The number of potential tests that we are able to produce and bring to market is dependent on our ability, and the ability of our contract manufacturers, to successfully and rapidly scale up manufacturing capacity and our ability to scale up our marketing and sales capacities. To support these scale-ups,
we will need to expend significant resources and capital quickly, and we therefore have diverted and expect to continue to divert resources and capital from our other non-COVID-19
We have entered into, and may continue to enter into, contractual arrangements with customers, suppliers, distributors, manufacturers or other collaborators that contain restrictions or minimum commitments which limit our ability to develop, manufacture, supply, commercialize and distribute our
COVID-19
tests. If we fail to meet contractual obligations under our agreements or if we enter into agreements that restrict our ability to develop, manufacture, supply, commercialize and distribute our COVID-19
tests, we may be required to pay damages to the counterparty or contest disagreements or disputes, which could have a material and adverse effect on our business, financial condition and results of operations. Given the rapidity of both the onset of the diagnostic tests; a possible reduction in our ability to rapidly pivot research, development and commercialization back to other areas of focus; and lost time associated with addressing the demand for our variants and peaks in demand for additional
COVID-19
pandemic and our commercialization efforts with respect to our COVID-19
tests, as well as the complexity of the economics of a diagnostic test for a pandemic, we are still considering how to adjust our pricing strategy for these tests and cannot provide assurance as to the ultimate impact of each COVID-19
test on our financial condition and results of operations. Focus on such COVID-19
tests could have the lasting impacts of significant diversions of resources and attention away from the development of other non-COVID-19
COVID-19
tests. We have started diverting focus from COVID-19
tests onto other tests, such as the roll-out
of our recently CE Marked D-Dimer
and CRP tests in the EEA, but this transition and our focus may depend on the onset of new SARS-CoV-2
COVID-19
testing, as such there may be various fluctuations in supply and demand and impact on overall sales and sales of other tests. We are continuously updating and improving our Platform based on the needs of various tests, and this may impact changes, such as upgrades or new versions of our Instrument.
Our Platform is continuously evolving and will continue to do so as more tests are added to our Platform. A specific test may require specific test strip or design changes which could also impact Instrument set up. In addition, we are continuously improving our Instrument and have a pipeline of
27
upgrades to make the Instrument more robust and further lower the costs over time. This may require regular updates to our Instrument, including software upgrades and in certain cases the need to swap out the Instrument for an updated version. It is possible that our Instrument may prove to operate less reliably than we anticipated or degrade in efficacy over time. If this occurs, this may likewise necessitate updates to our design or software or replacement of Instruments, which could adversely affect our business, financial condition, results of operations and/or reputation. The replacement or refurbishment for further use of an Instrument may require sales and customer support and may lead to older versions of our Platform becoming obsolete which could have an adverse impact on our financial results. The need for an upgrade to an Instrument may impact the commercialization of certain diagnostic assays which require an upgraded Instrument.
Our current tests or any tests that we develop to cover additional menu or diagnostic testing may not be successfully developed or commercialized or gain the acceptance of the public or the medical community.
We plan to implement a broad range of tests on our Platform over time. Each test requires a significant amount of R&D and comes with its own technical challenges. In addition, we aim for all tests to provide
lab-comparable
results based on comparison against the lab standard reference for such test, where such lab reference is available. In light of the technical and complicated nature of some test strips, R&D timelines may be delayed and lab-comparable
results or expected performance criteria may not be met or only be met over time as improvements are rolled out. This may affect our ability to launch or commercialize our tests and could have an adverse impact on our financial results. While we have encouraging internal data for many diagnostic tests, we have not yet performed multi-site, external clinical analyses of most of these tests or otherwise compared these results against clinical results. While our antigen test detects major global variants including Delta, Gamma, Epsilon, Alpha, Beta and Omicron variants, there is no guarantee that our tests will be able to accurately detect all variants of concern. Sensitivity and specificity concerns with respect to
SARS-CoV-2
SARS-CoV-2
COVID-19
tests generally could negatively affect demand for our Platform and therefore our business, financial condition and results of operations. Similar concerns about our collaborators, though unrelated to us, could likewise create negative publicity, which could negatively impact demand for our Platform or harm our reputation. These concerns could be wrongly attributed to our tests and could negatively affect sales of our Instrument. Additionally, concerns about COVID-19
tests generally could adversely affect our business as the general public may associate our COVID-19
tests with them. In addition, the medical community is continuously learning and publishing scientific literature about COVID-19
and the success of our COVID-19
tests will depend, in part, on the ability of the tests to detect the virus (or antibodies) or variants of the virus and on acceptance of the test results by the public and medical community. If any of our tests or those of other parties developing similar products receive negative or unfavorable publicity, or the medical community publishes information criticizing the accuracy, effectiveness or utility of COVID-19
tests, whether or not ours, it could result in a decrease in demand for any product that we may develop. In addition, responses by the U.S. federal, state or foreign governments to negative public perception or ethical concerns related to COVID-19
tests may result in new legislation or regulations that could limit our ability to develop or commercialize any product, obtain or maintain regulatory approval, authorization, certification or clearance, if applicable, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition and results of operations, and may delay or impair the development and commercialization of our products or demand for any products we may commercialize. 28
We have limited data on the performance of our Platform to date and limited experience in marketing and selling our Platform, and if we are unable to expand our direct sales and marketing force to adequately address our customers’ needs, our business may be adversely affected.
We have limited data on the performance of our Platform to date and limited experience in marketing and selling our Platform, which had its formal commercial launch in the EEA and the United Kingdom in 2019 with our INR test and in 2021 for our CRP and
D-Dimer
tests in the EEA and the United Kingdom. We do not currently have, and may not be successful in developing, the capacity to market, sell, or distribute our Platform or other products we may develop effectively or in volumes high enough to support our planned growth. We currently and will continue to sell our Platform on a region or country specific basis across our footprint in Europe, the United States, South America, Africa and Asia using a combination of direct sales and sales through our distributors. Our future sales will depend in large part on our ability to develop and substantially expand our sales force and to significantly increase the scope of our marketing efforts. Our target market of identifying customers in healthcare systems, government organizations, national pharmacy chains and community-based healthcare settings is a large and diverse market. As a result, we believe it is necessary to develop a large sales force that includes sales representatives with a variety of specific technical backgrounds. We will also need to attract and develop a significant amount of marketing personnel with industry expertise. Competition for such employees is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which could negatively impact sales and market acceptance of our products and limit our revenue growth and potential profitability.
Our expected future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, and integrate additional employees. Our future financial performance and our ability to commercialize our products and to compete effectively will depend, in part, on our ability to manage this potential future growth effectively, without compromising quality.
We also enlist distributors, and we may potentially enlist local collaborators, to assist with sales, distribution, and customer support. Locating, qualifying, and engaging a significant number of distribution collaborators with local industry experience and knowledge will be necessary to effectively market and sell our products. We may not be successful in finding, attracting, and retaining a sufficient number of distributors or other collaborators or we may not be able to enter into such arrangements on favorable terms, or at all. Our sales in low and middle income countries also depend on support from our global health partners, such as BMGF and from national governments. Developing such relationships may require significant resources, time and management attention and could adversely affect our ability to make sales.
Sales practices utilized by our distributors that are locally acceptable may not comply with sales practices standards required under the laws of the United Kingdom, the United States or other jurisdictions that apply to us, which could create additional compliance costs and risk and demand additional resources, time and management attention. If our sales and marketing efforts are not successful, we may not achieve significant market acceptance for our products, which would materially and adversely impact our business, financial condition and results of operations.
If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or achieve profitability.
The diagnostics industry, including IVD and POC systems, is rapidly evolving, and we face competition from companies that offer products in our targeted application areas. Our principal
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competition comes from established diagnostic companies. Our competitors include laboratory or POC companies such as Abbott Laboratories, Becton, Dickinson and Company, Danaher Corporation, GenMark Diagnostics, Inc., Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, Quidel Corporation, Roche Diagnostics Corporation, Siemens Healthineers AG, Inc. and many others. In addition to diagnostic systems, we believe these companies may also develop their own approved, certified or cleared diagnostic kits, which can be sold to the clients who have purchased their systems. In addition, new and existing companies could seek to develop tests that compete with ours.
For each of the eight commercially available tests for our Platform, we face competition from other commercially available tests, including:
| • | For our SARS-CoV-2 SARS-CoV-2 COVID-19 Ag Card, general lateral flow tests and others. |
| • | For our SARS CoV-2 antibody testAnti-SARS-CoV-2, SARS-CoV-2 COVID-19 IgM/IgG Rapid Test and others. |
| • | For our SARS-CoV-2 & Flu A/B tests SARS-CoV-2 |
| • | For our INR test |
| • | For our D-Dimer test |
| • | For our CRP test |
Our tests in development are designed and validated against their respective lab standard.
Many of our current and future competitors are either publicly traded, or are divisions of publicly-traded companies, and may enjoy a number of competitive technological, financial and market access advantages over us, including:
| • | greater name and brand recognition; |
| • | substantially greater financial and human resources and expertise; |
| • | broader or superior product lines; |
| • | larger sales forces and more established distributor networks; |
| • | substantial intellectual property portfolios; |
| • | larger and more established customer bases, relationships with healthcare professionals and third-party payors; and |
| • | better established, larger scale, and lower cost manufacturing capabilities. |
We believe that the principal competitive factors in all of our target markets include:
| • | cost of instruments and consumables; |
| • | flexibility and ease of use; |
| • | time to result; |
| • | accuracy, including sensitivity and specificity, and reproducibility of results; |
| • | reputation among customers; |
| • | innovation in product offerings; and |
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| • | compatibility with existing processes. |
Furthermore, even if we do develop new marketable products or services, our current and future competitors may develop products and services that are more commercially attractive than ours, and they may bring those products and services to market earlier or more effectively than us. If we are unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of our Platform, which could prevent us from increasing or sustaining our revenues or achieving sustained profitability. Our competitors may also use their patent portfolios, developed in connection with developing their tests, to allege that our Platform infringes their patents, and we could face litigation with respect to such allegations and the validity of such patents.
The diagnostic industry is subject to rapidly changing technology which could make our Platform and other products we develop obsolete.
Our industry is characterized by rapid technological changes, frequent new product introductions and enhancements and evolving industry standards, all of which could make our Platform and the other products we are developing obsolete. Our future success will depend on our ability to anticipate and keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop as a result of technological and scientific advances. The attractiveness of our Platform partly depends on the ability to continue to add additional assays and tests in a timely manner. Failure to deliver such tests in the timelines suggested may affect our business plan and ability to obtain greater market penetration, or otherwise cause us to lose market share.
In recent years, there have been advances in methods used to analyze very large amounts of information. We must continuously enhance our Platform and develop new products to keep pace with evolving standards of care. If we do not update our Platform, including successfully developing new tests for our Instrument, such as multiplex test strips with the ability to detect an increased number of markers in a single sample, it could become obsolete and sales of our Platform and any new products could decline, which would have a material adverse effect on our business, financial condition and results of operations.
Our business and reputation will suffer if our products do not perform as expected, particularly as test strip volume increases, or if we are unable to establish and comply with stringent quality standards to ensure that the highest level of quality is observed in the performance of our Platform, our Amira System and our Fast Lab Solutions products.
Inherent risks are involved in providing and marketing diagnostic tests and related services. Our success depends on the market’s confidence that we can provide reliable, high-quality diagnostic products and information that may be used to make critical healthcare decisions. There is no guarantee that the accuracy and reproducibility we have demonstrated to date will continue as our volume of test strips increases or as we commercialize additional tests. We believe that our customers are likely to be particularly sensitive to product defects and errors, including if our products fail to detect certain diseases with high accuracy from clinical specimens. As a result, the failure of any of our products to perform as expected could significantly impair our operating results and our reputation. We may be subject to legal claims arising from any defects or errors.
We must maintain top service standards and government-mandated and other quality controls. Past and future performance or accuracy defects, incomplete or improper process controls, or mishandling of samples or test strips due to inadequate training can lead to incorrect diagnostic results and potentially result in adverse outcomes for patients. These events could lead to voluntary or legally mandated safety alerts relating to our Platform, our Amira System, our Fast Lab Solutions products or our facilities and could result in recalls, such as the recall that we initiated in early January 2021, based
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on reports of suspected false positive results, or the removal of our Platform, our Amira System or our Fast Lab Solutions products from the market. Insufficient quality controls and any resulting negative outcomes could result in significant costs and litigation, as well as negative publicity that could reduce demand for our products and payors’ willingness to cover our products. Even if we maintain adequate controls and procedures, damaging and costly errors may occur.
If we cannot maintain our current relationships, or enter into new relationships, with diagnostics or research and development companies, or if our collaborators do not perform as expected, our product development could be delayed.
We rely on research and development collaborators to research and develop certain tests for our Platform. We have existing research and development agreements with well-established diagnostic companies that have market-leading capabilities in specific disease areas or targets, such as infectious diseases, respiratory assays, enteric diseases and others. The inability of these companies to deliver on research and development projects or our inability to use or have sufficient access to required reagents derived from such projects could have an adverse effect on our ability to launch additional tests and thus on our business, financial condition and results of operations.
Our success in the future depends in part on our ability to maintain these relationships and to enter into new relationships. This can be difficult due to several factors, including internal and external constraints placed on these organizations that can limit the number and type of relationships with companies such as ours that can be considered and consummated. In addition, collaboration, manufacturing and supply agreements can be complex and contain certain provisions that may be susceptible to multiple interpretations. The resolution of any interpretation disagreement that may arise could be adverse to us, for example, by increasing our royalties payable to third parties, by narrowing what we believe to be the scope of our rights to certain intellectual property, or increasing what we believe to be our financial or other obligations under these agreements, and any such outcome could have a material adverse effect on our business, financial condition and results of operations. In addition, we expect that we will have capacity constraints on demand for our overall test portfolio, and we will need to make decisions regarding allocation of supply of such tests, which could have an adverse effect on new or existing relationships with third parties and governments.
We are currently engaged, and expect to continue to engage, in discussions with companies regarding commercial opportunities. There is no assurance that any of these discussions will result in commercial agreements, or if an agreement is reached, that the resulting engagement will be successful and that such companies will perform as expected or that clinical, sales and marketing activities conducted as part of the engagement will produce successful outcomes.
Additionally, speculation in the industry about our existing or potential engagements with life science companies may be a catalyst for adverse speculation about us, our products, and our technology, which may result in harm to our reputation and our business.
We may acquire other businesses or form joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant expense.
We may pursue acquisitions of businesses and assets as well as strategic alliances and joint ventures that leverage our Platform and industry experience to expand our offerings or distribution. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial condition, results of
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operations and cash flows. Integration of an acquired company also may disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a material negative effect on our results of operations and financial condition. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance, or joint venture.
To finance any acquisitions or joint ventures, we may choose to issue our common shares as consideration, which would dilute the ownership of our shareholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common shares is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our common shares as consideration.
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks.
In addition to the various direct sales units that have already been established in the United States, most Western European countries, Japan, India, South Africa, Colombia and Brazil, we are planning to both continue to grow direct sales operations as well as extend distribution agreements for our Instrument and test strips in various countries. In addition, in Africa, we plan to continue to collaborate with
non-governmental
organizations, such as BMGF, to build programs that utilize our Platform to improve patient outcomes across multiple countries on the African continent. We plan to maintain sales representatives and distributor relationships, to conduct healthcare provider and patient association outreach activities, to extend research and development capabilities and to expand payor relationships internationally. Doing business internationally involves a number of risks, including: | • | multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, economic sanctions, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and licenses; |
| • | potential competition from existing or future local and regional product offerings; |
| • | difficulties in complying with a multitude of product regulations in various jurisdictions, including evolving regulatory pathways in response to the ongoing COVID-19 pandemic; |
| • | failure by us or our distributors to obtain regulatory approvals, authorizations, certifications or clearances for the use of our products in various countries; |
| • | additional potentially relevant third-party patent rights; |
| • | complexities and difficulties in obtaining protection and enforcing our intellectual property; |
| • | difficulties in staffing and managing foreign operations; |
| • | complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems; |
| • | our dependence on cooperation and donor funding of local aid sources and private foundations, particularly in developing regions such as Africa, as well as cooperation from national healthcare programs and governments; |
| • | logistics and regulations associated with shipping samples, including infrastructure conditions and transportation delays; |
| • | limits in our ability to penetrate international markets if we are not able to conduct our tests locally; |
| • | financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products, and exposure to foreign currency exchange rate fluctuations; |
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| • | additional exposure to foreign economic factors, including inflation, recession, and fluctuations in interest rates; |
| • | the risk that regional or local distributors may not commit the necessary resources to market and sell our products to the level of our expectations or may choose to favor marketing the products of our regional or local competitors; |
| • | natural disasters, political and economic instability, including wars, terrorism, and political and civil unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions (such as the military conflict involving Russia and Ukraine, and subsequent economic sanctions imposed on Russia and Belarus); and |
| • | regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), or its books and records or anti-bribery provisions, or similar anti-bribery or anti-corruption laws or regulations in other jurisdictions, such as the United Kingdom’s Bribery Act 2010. |
Any of these factors could significantly harm our future international expansion and operations and, consequently, our business, financial condition and results of operations.
Our commercial success in Africa will be dependent on continued donor funding of healthcare initiatives in Africa from a wide variety of sources such as the African Medical Supplies Platform (“AMSP”), Partnership for Supply Chain Management (“PSCM”), The Global Fund to Fight AIDS, Tuberculosis and Malaria, the World Health Organization, the United Nations Children Fund, Médecins Sans Frontières and private foundations such as BMGF, the Clinton Health Access Initiative and the Rockefeller Foundation. Our ability to work collaboratively with these funders and with national healthcare programs will be important to our success in utilizing our Platform to help transform primary care delivery in Africa and improve patient outcomes and delays in such efforts may impact the roll out of these programs, as a lot of parties are involved and we do not control operations of such complex entities.
If we were sued for product liability or professional liability we could face substantial liabilities that exceed our resources.
The marketing, sale and use of our products could lead to the filing of product liability claims were someone to allege that our Platform, our Amira System or other products identified inaccurate or incomplete information or otherwise failed to perform as designed. We may also be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend.
We maintain product and professional liability insurance, but this insurance may not fully protect us from the financial impact of defending against, settling, or paying damages in respect of product liability or professional liability claims and such policies will be subject to limitations and exclusions. Any product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could damage our reputation, cause current customers to terminate existing agreements, or cause potential customers to seek other suppliers, any of which could adversely impact our business, financial condition and results of operations.
We are subject to, and may in the future become subject to, claims and litigation that could result in significant expenses and could ultimately result in unfavorable outcomes for us.
From time to time, we may be involved in litigation and other proceedings, including matters related to product liability claims, commercial disputes and intellectual property claims, as well as
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regulatory, employment, and other claims related to our business. Litigation related to the Company, our business, and our operations or financial performance may also involve customers, competitors, suppliers, patients, shareholders, governmental authorities or other third parties, including potential whistleblower claims and other employee-related claims. Our Amira System may be marketed OTC and could thus bring consumer liability claims with it. Litigation can be lengthy, expensive and disruptive to our operations, and results cannot be predicted with certainty. An adverse decision could result in significant settlement amounts, monetary damages, fines or injunctive relief that could affect our business, financial condition and results of operations. Even if lawsuits do not result in an unfavorable outcome, the costs of defending or prosecuting such lawsuits may be material to our business and our operations. Moreover, these lawsuits may divert management’s attention from the operation of our business, which could adversely affect our business, financial condition and results of operations.
Our employees, principal investigators, consultants, and collaborators may engage in misconduct or other improper activities, including
non-compliance
with regulatory standards and requirements, and insider trading. We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants, and collaborators. Misconduct by these parties could include intentional failures to comply with the regulations of FDA and other applicable foreign regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United Kingdom, the United States and in other countries, report financial information or data inaccurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, such as insider trading, and our code of conduct and anti-bribery policies and the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations, particularly as we seek to rapidly expand our business on a global scale. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, which could have a significant impact on our business. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations.
We depend on our information technology systems, and any failure of these systems could harm our business.
We depend on information technology and telecommunications systems for significant elements of our operations, including all connectivity solutions associated with our Platform, our research and development data and quality management system, our knowledge and inventory management system, our factory controls, our customer provisioning and analytics reporting and our patient care database management. We have installed, and expect to expand, a number of enterprise software systems that affect a broad range of business processes and functional areas, including for example, systems handling human resources, financial controls and reporting, contract management, regulatory compliance, and other infrastructure operations. In addition to the aforementioned business systems, we intend to extend the capabilities of both our preventative and detective security controls by
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augmenting the monitoring and alerting functions, the network design, and the automatic countermeasure operations of our technical systems. These information technology and telecommunications systems support a variety of functions, including operations, test validation, sample processing, quality control, customer service support, research and development activities, scientific and medical curation, and general administrative activities. In addition, our third-party billing and collections provider depends upon technology and telecommunications systems provided by outside vendors.
Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and
back-up
measures, some of our servers are potentially vulnerable to physical or electronic break-ins,
computer viruses, and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our information technology and telecommunications systems, failures or significant downtime of our information technology or telecommunications systems or those used by our third-party service providers could prevent our Platform from functioning properly and conducting analyses or prevent us from preparing and providing reports, conducting research and development activities, and managing the administrative aspects of our business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have an adverse effect on our business. Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
In the ordinary course of our business, we may collect and store sensitive data, including legally protected health information, personal information, intellectual property and proprietary business information owned or controlled by ourselves or our customers, payors, and collaborators. We manage and maintain our applications and data utilizing a combination of
on-site
systems, managed data center systems, and cloud-based data center systems. We may communicate sensitive patient data to customers through our Platform. These applications and data encompass a wide variety of business-critical information and regulated information including research and development information, commercial information, and business and financial information. We face risks relative to protecting this critical information, including: loss of access risk; inappropriate disclosure risk; inappropriate modification risk; and the risk of our being unable to adequately monitor our controls over these risks. These risks arise as a result of threats coming from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. We, and the third parties upon which we rely, may be subject to a variety of such evolving threats, including, but not limited to, social-engineering attacks (including through phishing and business email compromise attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, and other similar threats. In early 2020, one of our subsidiaries experienced a business email compromise attack in which funds were diverted to a threat actor but we were able to recover the funds from the banking system.
denial-of-service
Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant
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interruptions in our operations, loss of data and income, reputational harm and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems (including our products) or the third-party information technology systems that support us and our services.
The secure processing, storage, maintenance, and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure, and that of our third-party service providers, may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance, or other disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost, or stolen. Although we have implemented commercially reasonable security measures and a formal, dedicated enterprise security program to prevent unauthorized access to patient data, our Platform gives broad access to physicians, where the physicians control any other access to our Platform, and there is no guarantee we can continue to protect our online portal and mobile application from breach. Further, as we develop products and features that may be used or accessed outside of the traditional healthcare setting, there will be additional challenges to protecting the security of information and systems. Unauthorized access, loss or dissemination could also disrupt our operations, including our Platform’s ability to conduct analyses and provide test results and our ability to provide customer assistance services, conduct research and development activities, collect, process, and prepare company financial information, provide information about our products and other patient and healthcare provider education and outreach efforts through our website or otherwise, or to manage the administrative aspects of our business, and may damage our reputation, any of which could adversely affect our business.
Any unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the federal Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), and its implementing regulations, and regulatory penalties. The U.S. Department of Justice is responsible for criminal prosecutions under HIPAA. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of protected health information. Furthermore, in the event of a breach as defined by HIPAA, we may be required to comply with specific reporting requirements under the HIPAA regulations, which may include notification to the general public, depending on the scale of the breach.
In addition, the interpretation and application of consumer, health-related, and data protection laws in the United States, the United Kingdom, the EEA and elsewhere are often uncertain, contradictory, and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business or reputation. In addition, these privacy regulations may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business.
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To the extent that the remote work policies we implemented due to the
COVID-19
pandemic remain in effect, information that is normally protected, including company confidential information, may be less secure. Cybersecurity and data security threats continue to evolve and raise the risk of an incident that could affect our operations or compromise our business information or sensitive personal data, including health data. We may also need to collect more extensive health-related information from our employees to manage our workforce. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
Adverse macroeconomic or business conditions may have a negative impact on our business.
Continuing concerns over the economic impact of the
COVID-19
pandemic, health care reform legislation, geopolitical issues, such as the conflict between Russia and Ukraine, the availability and cost of credit including as a result of rising interest rates, supply constraints, inflation and the impact of government stimulus programs in the United States and other countries have contributed to volatility in the global economy and may lead to economic downturn globally or more regionally. The current military conflict between Russia and Ukraine could disrupt or otherwise adversely impact global or more regional economic conditions and related sanctions, export controls or other actions that may be initiated by nations, including the United Kingdom, the European Union, the United States and Russia, could adversely affect our business and/or our supply and distribution chains, manufacturers, suppliers or customers. If the economic climate does not improve, our business, including our access to patient samples and the addressable market for diagnostic tests that we may successfully develop, as well as the financial condition of our suppliers and our commercial third-party payors, could be adversely affected, resulting in a negative impact on our business, financial condition and results of operations. Additionally, adverse economic conditions, to the extent they continue to result in diminished liquidity and credit availability (or higher cost of credit to the extent available) in the market, could impair our ability to access capital, if required, or otherwise adversely affect our operations. In the event of further economic slowdown, investment in research and development may also experience a further corresponding slowdown. If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
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The total addressable market opportunity for our current and future products may be much smaller than we estimate.
Our estimates of the total addressable market for our Platform and our other products are based on our good faith estimates and assumptions derived from our management’s knowledge of the industry and other information currently available to us. We have also relied on industry and market data that we have obtained from periodic industry publications, third-party studies and surveys and other filings of public companies in our industry. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. This industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein. We are responsible for all of the disclosure contained in this prospectus, and we believe the industry and market data that we obtained from third-party sources are reliable.
Further, the continued development of, and approval, authorization, certification, classification or clearance of our tests or other products may affect these market opportunity estimates. Our market opportunity may also be limited by new diagnostic tests or other products that enter the market. If any of our estimates prove to be inaccurate, the market opportunity for our Platform and our other products could be significantly less than we estimate. If this turns out to be the case, our potential for growth may be limited and our business and future prospects may be materially adversely affected.
Investors should not rely on prior financial projections used by CAH in connection with the Merger.
The Proxy Statement and Prospectus which was part of our Registration Statement on Form revenue, and actual events and our results have differed, and may continue to differ, materially from what was projected. Important factors that may affect actual results and cause the forecasts to not be achieved include, but are not limited to, risks and uncertainties set forth in the section titled “Forward-Looking Statements.” As a result, such projections should not be relied on as guidance and are not otherwise predictive of actual future events.
F-4
(File 333-257745)
in connection with the Merger, which we completed on September 28, 2021, presented certain forecasted financial information used by CAH in connection with the Merger. The forecasts were based on numerous potential variables identified and assumptions made by CAH at the time of preparation. Such variables and assumptions are inherently uncertain, including the unpredictability of COVID-19-related
Risks Related to Our Financial Indebtedness
Our borrowing arrangements contain restrictions that limit our flexibility in operating our business, and failure to comply with any of these restrictions could result in acceleration of our debt.
The terms of the agreements governing our existing indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on us. For example, our 2021 Senior Secured Loan (as defined below) obligates us to satisfy certain minimum net sales thresholds and minimum liquidity levels.
Non-compliance
with the covenant restrictions or obligations in respect of our financial indebtedness could result in an event of default, which could result in some or all of our obligations thereunder becoming immediately due and payable and restrict our access to credit. In addition, default under any of the agreements could trigger default under other indebtedness pursuant to cross-default provisions. 39
2021 Senior Secured Loan
In March 2021, LumiraDx Investment Limited, one of our subsidiaries, entered into a senior secured term loan (as amended from time to time, the “2021 Senior Secured Loan”), with BioPharma Credit Investments V (Master) LP and BPCR Limited Partnership, as lenders, and BioPharma Credit PLC (collectively, “Pharmakon”), as collateral agent. We have borrowed $300.0 million under the 2021 Senior Secured Loan, which is subject to an interest rate of 8.0% per annum payable in quarterly installments and matures on March 29, 2024. The 2021 Senior Secured Loan has been guaranteed by the Company and certain of its subsidiaries, and secured by collateral comprising a substantial proportion of our assets, including security over intellectual property, shares, bank accounts and receivables held by such entities. The 2021 Senior Secured Loan contains various covenants that limit our ability to engage in specified types of transactions without the prior consent of Pharmakon, including, but not limited to:
| • | making certain restricted payments, including paying dividends on, or repurchasing or making distributions with respect to, our equity securities subject to certain exceptions; |
| • | selling, transferring, leasing or disposing of certain assets; |
| • | encumbering or permitting liens on certain assets; |
| • | incurring certain indebtedness; and |
| • | entering into certain transactions with affiliates. |
The 2021 Senior Secured Loan also includes certain financial covenants, which were amended pursuant to the Amendment (as defined below) as described more fully below, in respect of:
| • | minimum net sales thresholds; and |
| • | minimum liquidity levels. |
Based on our current expectations of near-term revenue and bearing in mind the unpredictability of demand for our
COVID-19
tests, we believe that without the Amendment (as defined below), it is highly unlikely that we would have met the minimum net sales thresholds at least when tested at June 30, 2022, September 30, 2022 and December 31, 2022. Uncertainty as to our ability to meet our obligations under the minimum net sales covenant in the 2021 Senior Secured Loan (pre-Amendment)
gave rise to our consolidated financial statements for the year ended December 31, 2021 containing a statement regarding a material uncertainty that may cast significant doubt about our ability to continue as a going concern. See “—Risks Related to Our Financial Condition and Capital Requirements – As a result of our debt covenants, our consolidated financial statements contain a statement regarding a material uncertainty that may cast significant doubt about our ability to continue as a going concern.” 40
On June 17, 2022, the 2021 Senior Secured Loan was amended to provide for a revised minimum net sales covenant and also provided for a revised minimum liquidity covenant (the “Amendment”). Prior to the Amendment, the covenant in the 2021 Senior Secured Loan set the minimum net sales, tested on a quarterly basis at the end of each fiscal quarter with respect to each trailing
12-month
period, to be at least (a) $400.0 million for the calendar year 2021 and (b) $500.0 million for each calendar year thereafter. With the Amendment, in the event we complete a Qualifying Financing (as defined below) on or prior to September 30, 2022, the 2021 Senior Secured Loan set the minimum net sales covenant, tested on a quarterly basis at the end of each fiscal quarter with respect to each trailing 12-month
period, as follows: | Quarter End |
Net Sales | |
| June 30, 2022 | $375,000,000 | |
| September 30, 2022 | $300,000,000 | |
| December 31, 2022 | $240,000,000 | |
| March 31, 2023 | $275,000,000 | |
| June 30, 2023 | $325,000,000 | |
| September 30, 2023 | $375,000,000 | |
| December 31, 2023 | $500,000,000 |
In the event we complete a Qualifying Financing on or prior to December 31, 2022 and if we maintain a minimum liquidity level of at least $400.0 million throughout the preceding fiscal quarter (as tested on the 15th and the last day of each calendar month), which we do not currently expect to achieve, then the relevant minimum net sales covenant set out above would not apply.
Until such time as we are able to complete a Qualifying Financing that occurs on or prior to December 31, 2022, the 2021 Senior Secured Loan sets the minimum net sales covenant, tested on a quarterly basis at the end of each fiscal quarter with respect to each trailing
12-month
period, to be at least (i) $375.0 million when tested on June 30, 2022, and (ii) $400.0 million when tested on September 30, 2022. If we do not complete a Qualifying Financing on or prior to December 31, 2022, for testing dates subsequent to September 30, 2022, the minimum net sales thresholds would be $500.0 million, in each case tested on a quarterly basis at the end of the respective fiscal quarter with respect to the then trailing 12-month
period. “Qualifying Financing” is defined in the Amendment as the Company raising gross proceeds in an aggregate amount of at least $125.0 million (or its equivalent in another currency or currencies) through the issuance of Qualifying Equity Interests (as defined in the 2021 Senior Secured Loan). On July 18, 2022, we agreed with Pharmakon to amend the definition of Qualifying Financing to be at least $100.0 million (or its equivalent in another currency or currencies). We have to complete a Qualifying Financing on or prior to December 31, 2022 for the lower minimum net sales thresholds to apply solely with respect to any fiscal quarter occurring after the completion of such Qualifying Financing.
If we do not complete a Qualifying Financing (for example, if the gross proceeds from this offering and the concurrent private placement are less than $100.0 million) on or prior to September 30, 2022, we believe we are unlikely to meet the minimum net sales threshold of $400.0 million for the trailing
12-month
period ending September 30, 2022. In this scenario, we would be required to take further action prior to September 30, 2022 to obtain a further waiver from Pharmakon, further amend the terms of the 2021 Senior Secured Loan or to otherwise restructure our existing debt obligations to avoid a breach of covenant. The Amendment also provides a minimum liquidity level that we are to maintain as follows:
| • | prior to a Qualifying Financing occurring on or prior to December 31, 2022 (or if such Qualifying Financing does not occur), a minimum liquidity level of at least $40.0 million, tested on a monthly basis at the end of each calendar month; and |
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| • | following a Qualifying Financing occurring on or prior to December 31, 2022, a minimum liquidity level of at least $75.0 million, tested on both the 15th day and last day of each such calendar month. |
Notwithstanding the Amendment, if we do not complete a Qualifying Financing on or before September 30, 2022, we believe that we will need to obtain a waiver from Pharmakon, further amend the terms of the 2021 Senior Secured Loan, or otherwise restructure our existing debt obligations to avoid a breach of covenant. There can be no guarantees that such waivers, amendments or restructuring will be possible, if and when desired. Further, even if we are successful in such efforts, there may be costs associated with this, such as financial compensation or further restrictions imposed by Pharmakon as a condition of granting any such waiver or amendment or providing for such restructuring. For example, we were able to obtain the Amendment to the 2021 Senior Secured Loan with Pharmakon in exchange for an increase in the facility fee to be paid to Pharmakon on any repayment, including prepayment, of the 2021 Senior Secured Loan as well as an amendment to the strike price for 1,485,848 warrants held by BioPharma Credit PLC and BioPharma Credit Investments V (Master) LP. See the section titled “Description of Capital Stock – Warrants – Pharmakon Warrants” for further details of the change to the strike price.
A breach of any of the covenants under the 2021 Senior Secured Loan could, absent a waiver of such covenant obligation by Pharmakon, result in an event of default. Upon the occurrence of an event of default under the 2021 Senior Secured Loan, Pharmakon could elect to accelerate and declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit and could proceed against the collateral granted to secure such indebtedness, including taking possession of, or disposing of, any such collateral, including substantially all of our intellectual property, and applying any deposits held in the secured bank accounts of the Company and certain of its subsidiaries towards repayment of the 2021 Senior Secured Loan. If Pharmakon takes possession of, or disposes of, collateral, such as, potentially, substantially all of our intellectual property, this would have a material adverse effect on our business, financial condition and results of operations. In the case of an insolvency or insolvency proceedings event of default in respect of our U.S. subsidiaries, no election by Pharmakon is required and the acceleration would happen automatically. An event of default and subsequent acceleration under the 2021 Senior Secured Loan would also trigger a cross-default under the Convertible Notes (as defined below), as a result of which the trustee or holders of the Convertible Notes may declare the principal and accrued interest on the Convertible Notes immediately due and payable. An event of default under the 2021 Senior Secured Loan would also trigger a cross-default under the BMGF Unsecured Loan (as defined below), as a result of which the holder of the BMGF Unsecured Loan may declare the principal and accrued interest on the BMGF Unsecured Loan immediately due and payable. Such declarations would have an immediate material adverse effect on our liquidity.
Further, upon the occurrence of a change in control, the 2021 Senior Secured Loan requires mandatory prepayment of amounts outstanding thereunder. Such change in control may involve one of (i) the persons who are the direct or indirect shareholders of LumiraDx as of March 23, 2021, ceasing to beneficially own, directly or indirectly, 30.0% of the then-outstanding share capital of LumiraDx, (ii) a sale of all or substantially all of the consolidated assets of LumiraDx Investment Limited and its subsidiaries, (iii) LumiraDx ceasing to own, directly or indirectly, 100.0% of the equity interests in LumiraDx Investment Limited or (iv) a merger or consolidation of one of LumiraDx, LumiraDx Group or LumiraDx Investment Limited, as applicable, in which such entity is not the surviving entity.
Convertible Notes
In March 2022, we issued $56.5 million in aggregate principal amount of the 6.0% Convertible Senior Subordinated Notes due 2027 (the “Convertible Notes”) in a private offering pursuant to the terms of an indenture dated March 3, 2022, between LumiraDx, as issuer, and U.S. Bank Trust
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Company, National Association, as trustee. The interest rate on the Convertible Notes is fixed at 6.0% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2022. The Convertible Notes are unsecured and are subordinated and postponed to the prior payment in full of any designated senior debt as defined in the indenture, which includes the 2021 Senior Secured Loan. The Convertible Notes mature on March 1, 2027, unless earlier converted by the holders or repurchased or redeemed by us.
The indenture includes covenants customary for an indenture governing convertible notes, as well as covenants limiting the incurrence of more than $400 million of secured indebtedness (including the 2021 Senior Secured Loan) and $100 million of unsecured indebtedness (including the Convertible Notes) and limiting certain substantial transactions with affiliates, in each case, subject to certain exceptions. The indenture governing the Convertible Notes includes certain customary events of default after which the Convertible Notes may be declared immediately due and payable and certain types of bankruptcy or insolvency events of default involving LumiraDx after which the Convertible Notes would become automatically due and payable.
BMGF Unsecured Loan
We have also borrowed $18.0 million from BMGF pursuant to a note purchase agreement, which is structurally subordinated to the 2021 Senior Secured Loan (the “BMGF Unsecured Loan”). In connection with the BMGF Unsecured Loan we have agreed to the use of the proceeds for specific programs and have committed to provide access to our future products to support BMGF’s charitable purposes. In the event that certain triggering events occur, BMGF may exercise rights to require us to perform certain technology transfers to a third party to allow for the use of the related technology and to manufacture the relevant products under a license granted by us to BMGF in order to support and further BMGF’s charitable purposes. The BMGF Unsecured Loan accrues interest at the rate of 2.0% per annum, payable in quarterly installments, and unless otherwise extended and subject to any event of default, matures on October 15, 2024.
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resource—Indebtedness” for additional information regarding our borrowing arrangements.
Servicing our debt may require a significant amount of cash. We may not have sufficient cash flow from our business, or otherwise be able to raise the funds necessary, to service our indebtedness in respect of the 2021 Senior Secured Loan, Convertible Notes and BMGF Unsecured Loan, settle conversions of the Convertible Notes or repurchase the Convertible Notes for cash upon a fundamental change. Any such shortfall could adversely affect our business and results of operations.
Our ability to make scheduled payments of the principal of, to make quarterly payments on, or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
In addition, holders of the Convertible Notes are entitled to convert the Convertible Notes at any time prior to 5:00 p.m. (New York City time) on the second scheduled trading day immediately before the maturity date of March 1, 2027. If one or more holders elect to convert their Convertible Notes, unless we elect (or are required) to satisfy our conversion obligation by delivering solely our common shares (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, conversions of Convertible Notes in connection with our delivery of a redemption notice (which is only permitted upon the satisfaction of certain requirements set forth in the
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governing indenture) may require us to pay an interest make-whole payment equal to the remaining scheduled payments of interest that would have been made on the Convertible Notes to be converted had such Convertible Notes remained outstanding from the conversion date through March 1, 2026, and such interest make-whole payment may be made in cash.
Holders of the Convertible Notes also have the right to require us to repurchase their Convertible Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Convertible Notes) at a repurchase price equal to 100.0% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any.
Our business may not generate cash flows from operations in the future that are sufficient to service our debt, or pay cash amounts payable upon conversion or redemption of the Convertible Notes while also funding necessary capital expenditures or at all. If we are unable to generate sufficient cash flows to satisfy our liquidity requirements, we would be required to adopt one or more funding alternatives, such as selling assets, restructuring debt or obtaining additional debt financing or equity capital, which may be on terms that are onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to successfully adopt a funding alternative, refinance our debt or raise additional capital when needed, which would result in a default on our debt obligations. Any such default and related cross-default under our borrowing arrangements would have a material adverse affect our business and results of operations. See the section titled “Risk Factors—Risks Related to Our Financial Condition and Capital Requirements—We will likely require additional capital to fund our existing operations, develop our Platform and Amira System, commercialize new products and expand our operations as currently planned.”
Our failure to repurchase the Convertible Notes at a time when the repurchase is required by the indenture governing the Convertible Notes or to pay any cash payable on future conversions as required by such indenture would constitute a default under such indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof. Additionally, subject to certain exceptions, if we fail to timely file any document or report required under the Exchange Act, in certain circumstances we may be required to pay additional interest of up to 0.5% per annum on our Convertible Notes in order to avoid an event of default under the indenture, which may affect our ability to repay the Convertible Notes. Furthermore, if we do not remedy such failure within 360 days after receiving notice thereof from the noteholders, there would be an event of default under the indenture.
Transactions relating to our Convertible Notes may affect the value of our securities.
The conversion of some or all of the Convertible Notes would dilute the ownership interests of existing shareholders to the extent we satisfy our conversion obligation by delivering common shares upon any conversion of such Convertible Notes. If holders of our Convertible Notes elect to convert their Convertible Notes, we may elect (or be required to) settle our conversion obligation by delivering to them a significant number of our common shares, which would cause dilution to our existing shareholders. The terms of the 2021 Senior Secured Loan would likely require us to make such an election since it includes restrictions on making certain cash payments in respect of the Convertible Notes. In addition, conversions of Convertible Notes in connection with our delivery of a redemption notice (which is only permitted upon the satisfaction of certain requirements set forth in the governing indenture) may require us to pay an interest make-whole payment equal to the remaining scheduled payments of interest that would have been made on the Convertible Notes to be converted had such
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Convertible Notes remained outstanding from the conversion date through March 1, 2026, and such interest make-whole payment may be made in our common shares. Furthermore, the conversion rate applicable to the Convertible Notes may be increased on March 3, 2023 and March 3, 2024, if the average of the daily volume weighted average prices of our common shares over the 20 consecutive trading days immediately preceding either date is below a specified level, provided that the conversion rate may not be increased to a rate that exceeds 137.9310 common shares per $1,000 principal amount (subject to adjustment in accordance with the terms of the indenture).
The arbitrage or hedging strategy by purchasers of the Convertible Notes may affect the value of our common shares.
We expect that many investors in, and potential purchasers of the Convertible Notes will employ, or seek to employ, an arbitrage strategy with respect to the Convertible Notes. Investors would typically implement such a strategy by selling short our common shares underlying the Convertible Notes and dynamically adjusting their short position while continuing to hold the Convertible Notes. Investors may also implement this type of strategy by entering into swaps on our common shares in lieu of or in addition to selling short our common shares. This activity could decrease (or reduce the size of any increase in) the market price of our common shares at that time.
Risks Related to Government Regulation
If commercial third-party payors or government payors fail to provide coverage or adequate reimbursement for our Platform or future products we develop, if any, our revenue and prospects for profitability would be harmed.
In both domestic and foreign markets, the commercial success of our Platform and any future products we may develop will depend on the extent to which we obtain and maintain coverage and adequate reimbursement from governments or third-party payors. These third-party payors include government healthcare programs (such as Medicare and Medicaid in the United States or national or regional health services or payors in
non-U.S.
jurisdictions), managed care organizations, health maintenance organizations, private health insurers, and other organizations. Physicians may not use our Platform or diagnostic tests unless commercial third-party payors and government payors pay for all, or a substantial portion, of the list price, and certain commercial third-party payors may not agree to reimburse our Platform if the Centers for Medicare & Medicaid Services (“CMS”), or pricing and reimbursement authorities in other jurisdictions do not issue a positive coverage decision. In the United States, CMS decides whether and to what extent a product will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Therefore, we believe that obtaining and maintaining a favorable reimbursement rate from CMS for our Platform will be a necessary element in achieving material commercial success. Healthcare providers and patients may not order our Platform unless third-party payors cover and pay for all, or a substantial portion, of the list price, and certain commercial third-party payors may not agree to reimburse our Platform if CMS does not provide adequate coverage and reimbursement. Further, while due to the
COVID-19
pandemic, millions of individuals have lost or will be losing employer-based insurance coverage, which may adversely affect our ability to commercialize our products, as part of the Families First Coronavirus Response Act, the Paycheck Protection Program and Health Care Enhancement Act, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and the Coronavirus Response and Relief Supplemental Appropriations Act, the U.S. Department of Health and Human Services (“HHS”) has previously provided claims reimbursement to health care providers generally at Medicare rates for testing uninsured individuals for COVID-19
on or after February 4, 2020. This program stopped accepting claims for reimbursement in March 2022 and it is unclear whether the program will resume at a future date. It is also unclear whether providers would use such avenue for reimbursement for our products if it was available. 45
If CMS denies reimbursement of our Platform, withdraws its coverage policies after reimbursement is obtained, reviews and adjusts the rate of reimbursement, or stops paying for our Platform altogether, our revenue and results of operations would be adversely effected. Additionally, we could experience negative consequences, including:
| • | we could be forced to rely on private insurance coverage, which would greatly decrease our intended market opportunity for our Platform; |
| • | a negative coverage determination could adversely affect our ability to enter into partnerships with leading healthcare systems; and |
| • | we may need to conduct additional clinical validation, utility and other studies as part of an appeal of a negative Medicare coverage decision, and even if we expended the substantial time and resources to conduct such studies, they may not be successful and they may not result in a positive Medicare coverage determination. |
Coverage and reimbursement of diagnostic tests by third-party payors may depend on a number of factors, including a payor’s determination that our Platform or other products are:
| • | not experimental or investigational and are otherwise authorized for marketing in the jurisdiction; |
| • | medically necessary; |
| • | appropriate for the specific patient; |
| • | cost-effective; |
| • | supported by peer-reviewed publications; |
| • | included in clinical practice guidelines; and |
| • | supported by clinical utility studies. |
In the United States, no uniform policy for coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for our products can differ significantly from payor to payor. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. One payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product. Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. If coverage and adequate reimbursement is not maintained or made available, or is available only to limited levels, we may not be able to successfully commercialize our Platform. We cannot be sure that coverage and reimbursement will be maintained or made available for, or accurately estimate the potential revenue from, our Platform or assure that coverage and reimbursement will be available for any product that we have or may develop. If we cannot maintain or obtain coverage and adequate reimbursement from third party payors for our Platform or any future products, demand for such products may decline or may not grow as we expect, which could limit our ability to generate revenue and have a material adverse effect on our financial condition, results of operations and cash flow.
In both domestic and foreign jurisdictions, third-party payors, including government payors, are increasingly attempting to contain healthcare costs by demanding price discounts or rebates and limiting both coverage on which diagnostic products they will pay for and the amounts that they will pay for new diagnostic products. Because of the cost-containment trends, third-party payors that currently
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provide reimbursement for, or in the future cover, our Platform may reduce, suspend, revoke, or discontinue reimbursement or coverage at any time.
As a result, there is significant uncertainty surrounding whether the use of products that incorporate new technology, such as our Platform, will be eligible for coverage by third-party payors or, if eligible for coverage, what the reimbursement rates will be for those products. The fact that a diagnostic product has been covered and reimbursed in the past, for any particular indication or in any particular jurisdiction, does not guarantee that such a diagnostic product will remain covered or reimbursed or that similar or additional diagnostic products will be covered or reimbursed in the future.
In addition, we may develop new assays that may require obtaining a Current Procedure Terminology (“CPT”) procedure code. CMS prices the new clinical diagnostic laboratory test codes using a “crosswalking” or “gapfilling” process. “Crosswalking” occurs when a new test or substantially revised test is determined to be similar to an existing test, multiple existing test codes, or a portion of an existing test code, which can then be utilized to determine reimbursement. “Gapfilling” is a process by which CMS will refer the codes to the Medicare Administrative Contractors (“MACs”) to allow them to determine an appropriate price, since there is no comparable, existing code. After a year of reimbursement at the local MAC rates, CMS calculates a national limitation amount based on the median of rates for the test code across all MACs. In addition, CMS may not provide coverage for certain of the new codes for Multi-analyte Assays with Algorithmic Analyses (“MAAAs”) due to concerns that clinical efficacy and usefulness have not been widely established and documented. CMS has left the approval of new codes for MAAAs under the purview of the MACs. Our reimbursement could be adversely affected by CMS’ action in this area, including by a negative national coverage determination. If it limits coverage or reduces reimbursement for the new test codes or does not pay for our new MAAA codes, then our revenue will be adversely affected. There can be no guarantees that Medicare and other payors will establish positive or adequate coverage policies or reimbursement rates. We cannot predict whether future health care initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us. The expansion of government’s role in the U.S. health care industry, and changes to the reimbursement amounts paid by Medicare and other payors for our current tests and our planned future tests, may reduce our profits, if any, and have a materially adverse effect on our business, financial condition, results of operations and cash flows.
In some foreign countries, the proposed pricing for a product must be approved before it may be lawfully marketed. The requirements governing pricing vary widely from country to country. For example, in the European Union, while most Member States apply some sort of pricing measures or controls, pricing and reimbursement of IVDs is not harmonized at an E.U. level. Member States in the European Union have exclusive competence to determine pricing and reimbursement of IVDs within their jurisdiction. In addition, many jurisdictions reimburse IVDs as part of the costs associated with certain treatments or procedures. In those cases, the pricing and reimbursement of our tests will be determined by the costs allocated to testing as part of the procedure and whether the relevant health service will select and procure our products. Therefore, the price we obtain for our products will vary depending on the different statutory health schemes within each E.U. Member State. There can be no assurance that any country that has price controls or reimbursement limitations for diagnostic products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.
Moreover, in the European Union, some Member States may require the completion of additional studies that compare the cost-effectiveness of a particular medical device candidate to currently available therapies. This Health Technology Assessment (“HTA”), which is currently governed by the national laws of the individual E.U. Member States, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of
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use of a given medical device in the national healthcare systems of the individual country is conducted. The outcome of HTA regarding specific medical devices will often influence the pricing and reimbursement status granted to these medical devices by the competent authorities of individual E.U. Member States. On December 15, 2021, the Health Technology Regulation (“HTA Regulation”), was adopted. The HTA Regulation is intended to boost cooperation among E.U. Member States in assessing health technologies, including new medical devices, and providing the basis for cooperation at E.U. level for joint clinical assessments in these areas. When it enters into application in 2025, the HTA Regulation will be intended to harmonize the clinical benefit assessment of HTA across the European Union.
The U.S. and foreign governments continue to propose and enact or promulgate legislation, regulations, guidance and other policies designed to reduce the cost of healthcare. For example, in some foreign markets, the government controls the pricing of many healthcare products. We expect that there will continue to be federal and state proposals to implement governmental controls or impose healthcare requirements. In addition, the Medicare program and increasing emphasis on managed care in the United States will continue to put pressure on product pricing. Cost control initiatives could decrease the price that we would receive for any products in the future, which would limit our revenue and profitability.
Payors from whom we may receive reimbursement are able to withdraw or decrease the amount of reimbursement provided for our products at any time in the future.
Our commercial success also depends on our ability to maintain coverage and adequate reimbursement from those payors that decide to cover and reimburse our Platform. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Payors could withdraw coverage and stop providing reimbursement for our products in the future or may reimburse our products only on a basis.
case-by-case
Further, even if we obtain written agreements regarding coverage and reimbursement with certain payors, these agreements are not guarantees of indefinite coverage in an adequate amount. For example, these agreements are typically terminable without cause by either party and are typically renewable annually, and the applicable payor could opt against renewal upon expiration. In addition, the terms of certain of our written arrangements may require
pre-approval
from the payor or other controls and procedures prior to use by a healthcare provider. To the extent these requirements are not followed, our Platform may fail to receive some or all of the reimbursement payments to which it is otherwise entitled. These payors must also conclude that claims for our Platform satisfy the applicable contractual criteria. In addition, our written agreements regarding reimbursement with payors may not guarantee the receipt of reimbursement payments at what we believe to be the applicable reimbursement rate for such claims. If payors withdraw coverage for our products or reduce the reimbursement amounts for our products, our ability to generate revenue could be limited, which may have a material adverse effect on our financial condition, results of operations and cash flow. Our business and the sale of our products are subject to extensive regulatory requirements, including compliance with labeling, manufacturing and reporting controls. If we fail or are unable to timely obtain the necessary authorizations, approvals, certifications or clearances for new products, our ability to generate revenue could be materially harmed.
Our products are classified as IVDs in the United Kingdom and the European Union and as medical devices in the United States and are subject to extensive regulation in the United Kingdom by the Medicines and Healthcare Products Regulatory Agency (“MHRA”), in the European Union by the
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national competent regulatory authorities and in the United States by the FDA and other federal, state and local authorities and by similar regulatory authorities in other jurisdictions, as well as notified bodies in the European Union (the “Notified Bodies,” and each a “Notified Body”). Our products should be used in line with their intended use, applicable Instructions for Use (“IFUs”) and product authorizations or certifications. Customers may choose to use our products “off label”. However, as a manufacturer, our obligation is to limit our marketing and promotion to “on label” uses only. Government regulation of IVDs and medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things:
| • | design, development and manufacturing; |
| • | testing and labeling, including directions for use, processes, controls, quality assurance and packaging; |
| • | storage, distribution, installation and servicing; |
| • | preclinical studies and clinical trials; |
| • | establishment registration and listing; |
| • | product safety and effectiveness; |
| • | marketing, sales and distribution; |
| • | premarket approval, certification, de novo classification, 510(k) clearance and EUA; |
| • | recordkeeping procedures; |
| • | advertising and promotion; |
| • | complaint handling, corrections and removals, and recalls; |
| • | post-market surveillance, including reporting of deaths or serious injuries, and malfunctions that, if they were to recur, would be likely to cause or contribute to a death or serious injury; and |
| • | product import and export. |
In the United States, before we can market a new medical device, or a new use of, or claim for, an existing product, we must first receive either 510(k) clearance, de novo classification, Premarket Approval (“PMA”) or EUA from the FDA, unless an exemption applies.
The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or longer, from the time the application is submitted to the FDA until an approval is obtained. The process of obtaining 510(k) clearances or PMA approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all.
An EUA may be granted for unapproved medical products, including IVDs, which authorizes the products to be marketed in the context of an actual or potential emergency that has been designated by the government. The
COVID-19
pandemic has been designated such a national emergency. EUAs authorize the use of specific products based on criteria established by statute, including that the product at issue may be effective in diagnosing, treating, or preventing serious or life-threatening diseases when there are no adequate, approved, and available alternatives. An EUA is subject to additional conditions and restrictions and is product specific. An EUA terminates when the emergency determination underlying the EUA terminates. 49
We cannot assure you that we will be able to obtain any 510(k) clearance, de novo classification, PMA approval or additional EUAs. The FDA can delay, limit or deny 510(k) clearance, de novo classification, PMA approval or EUA of a device for many reasons, including:
| • | we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended uses; |
| • | the data from our preclinical studies and clinical trials may be insufficient to support clearance, classification, approval or authorization, where required; and |
| • | the manufacturing process or facilities we use may not meet applicable requirements. |
The FDA may refuse our requests for 510(k) clearance, de novo classification, premarket approval or EUA of new products, new intended uses or modifications to existing products. Additionally, even if obtained, 510(k) clearances, de novo classifications, premarket approvals or EUAs could be withdrawn or revoked at any time for a number of reasons, including the failure of our Platform or other products to perform as expected. In particular, other companies have had their FDA approvals, or authorizations, including EUAs, revoked due to sensitivity and specificity concerns, and we cannot predict the circumstances under which the FDA would revoke an EUA for a
COVID-19
test, including ours, as an understanding of the virus and the efficacy of tests and treatments is continuously evolving. If we receive approval, authorization, certification, classification or clearance for our tests, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as compliance with the Quality System Regulation, inspections by the FDA, continued adverse event and malfunction reporting, corrections and removals reporting, registration and listing, and promotional restrictions, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance or the FDA takes action to assess compliance, we may not be permitted to market our tests and/or may be subject to fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions; and criminal prosecution. For example, the FDA recently contacted us relating to an update that we had made to our SARS-CoV-2 antibody test strips which we had submitted to the FDA in March 2022, requesting further data and a review in respect of the update, which has meant that distribution of the updated test strips in the United States has been suspended pending this review. A limited number of the updated test strips had already been distributed at the time the FDA contacted us and we are recalling those that remain outstanding (valued at approximately $50,000) in light of the FDA review. Additionally, in line with similar requests that the FDA has made to other antigen test providers, the FDA recently requested that we update the product labeling on our SARS-CoV-2 antigen test to provide a serial testing requirement for asymptomatic individuals and recommend testing twice over three days with at least 24 hours (and no more than 48 hours) between tests for such asymptomatic individuals. We may be subject to similar regulatory compliance actions of
non-U.S.
jurisdictions. The advertising and promotion of our products in the EEA, made up of the 27 E.U. Member States and the countries in the EFTA Pilar of the EEA (Norway, Iceland and Liechtenstein), is subject to the EEA countries’ national laws applying the diagnostic medical devices Regulation 2017/746 (“IVDR”), Directive 2006/114/EC concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation of individual EEA countries governing the advertising and promotion of IVDs. EEA countries’ legislation may also restrict or impose limitations on our ability to advertise our products directly to the general public. In addition, voluntary E.U. and national industry Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals, which could negatively impact our business, operating results and financial condition.
in vitro
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We may recall, replace, or make corrections to our Instrument, test strips or other products which could negatively impact manufacturing, supply and customer relationships, and may result in adverse regulatory action, including revision or revocation of an EUA. For example, beginning in early January 2021, based on reports of suspected false positive results, we initiated recalls of some test strips for our antigen test. As per applicable regulations, we notified and corresponded with the FDA, the MHRA, the U.K. regulatory authority, and the national competent regulatory authorities of the affected E.U. Member States, regarding these actions. To mitigate further potential interference effects or false positives, we also added error checking measures in the Instrument, manufacturing process controls and quality control testing and release criteria, as well as a mandatory software update rolled out in February 2021 and a subsequent voluntary software update rolled out in March 2021. We cannot guarantee that no issues will arise with regards to batches in the field where customers do not implement proposed software updates or batches manufactured prior to changes being implemented. We continue to monitor and investigate any complaints. The impact of the existence of various variants, change in seasons or mucus composition mix further impact our current antigen test. We also recalled a small number of Instruments from the field in the first quarter of 2022 when it was determined that there was an increased risk of incorrect results being provided with respect to high precision assays. In addition, we will be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products in the EEA. We must comply with IVD reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any IVD we manufacture or distribute, fines, suspension of regulatory clearances or approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, financial condition and results of operations.
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
All manufacturers placing medical devices on the market in the EEA are legally bound to report incidents and trends involving devices they produce or sell within strict deadlines to the regulatory agency (“Competent Authority”), in whose jurisdiction the incident occurred. Under the IVDR, an incident is defined as any malfunction or deterioration in the characteristics or performance of a device made available on the market, including
use-error
due to ergonomic features, as well as any inadequacy in the information supplied by the manufacturer and any harm as a consequence of a medical decision, action taken or not taken on the basis of information or result(s) provided by the device. Malfunction of our products could result in future corrective actions, such as recalls, including corrections, or customer notifications, or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the malfunctions adequately or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected products, initiate voluntary recalls, and redesign the products. Regulatory authorities may also take actions against us, such as ordering recalls, requiring conduct of field safety corrective actions, imposing fines, or seizing the affected products. Any activities, whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We will need to submit numerous applications for approval, authorization, certification, classification or clearance for each test as it becomes available, which could put significant pressure on R&D and regulatory staff, resulting in delays. From time to time, legislation is drafted and introduced in the United Kingdom, the EEA jurisdictions or the United States that could significantly change the statutory provisions governing any regulatory approval, authorization, certification, classification or clearance that we receive in such jurisdictions. In addition, regulatory authorities may change their
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authorization, clearance, classification and approval policies, adopt additional regulations or revise existing regulations, or take other actions that may prevent or delay, approval, authorization, certification, classification or clearance of our products under development or impact our ability to modify any marketed products on a timely basis.
Changes in the way the FDA and other comparable foreign regulatory authorities regulate or Notified Bodies assess products developed, manufactured, certified, validated and marketed by commercial manufacturers like us could result in delay or additional expense in offering our products and products that we may develop in the future.
In the United States, we have marketed our antigen test, antibody test, RNA STAR test and RNA STAR Complete test pursuant to the “Policy for Diagnostic Tests for Coronavirus Disease-2019 during the Public Health Emergency” issued by FDA on February 29, 2020 and most recently revised on November 15, 2021. This policy originally allowed for the limited development and distribution of diagnostic test kits and antibody tests to detect viral particles and identify antibodies of the virus by commercial manufacturers prior to or without an EUA, subject to certain notification requirements. As of November 2021, the FDA ended this notification policy and generally expects the submission and issuance of an EUA prior to the distribution of such tests. We have obtained EUAs from the FDA for our antigen test, antibody test, RNA STAR test and RNA STAR Complete test, and such tests are authorized for use at the POC under the EUA granted for each such test. Our tests should be used in line with approved IFUs and within their approved authorizations. A wave of regulatory applications in the United States or applications submitted to Notified Bodies in the European Union for purposes of obtaining CE Certificates of Conformity, where applicable, combined with
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
COVID-19
operational challenges, including potential staff shortages at regulatory authorities and agencies, as well as Notified Bodies and elsewhere, could result in delays in approvals, authorizations, certifications or clearances for our COVID-19
tests or otherwise. The FDA, other comparable foreign regulatory authorities or Notified Bodies may prioritize certain applications or submissions based on the testing methodologies or other factors. In addition, the FDA has issued and may issue further guidance (such as the draft Transition Plan discussed below) or change regulatory requirements at any time, which may delay our marketing and sales efforts and/or necessitate costly measures to maintain regulatory compliance with respect to these and any future products, which would have a detrimental effect on our business. Our LumiraDx antigen test, LumiraDx antibody test, LumiraDx RNA STAR test, and LumiraDx RNA STAR Complete test have not been cleared or approved by FDA. The LumiraDx antigen test has been authorized by FDA under an EUA only for the qualitative detection of nucleocapsid protein. The LumiraDx antibody test has been authorized by FDA under an EUA only for the qualitative detection of total antibodies to The LumiraDx RNA STAR and LumiraDx
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
SARS-CoV-2
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SARS-CoV-2.
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