424B4
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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-266207

 

43,000,000 Shares

 

 

LOGO

Common Shares

 

 

We are offering 43,000,000 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 20, 2022, the last reported sale price of our common shares as reported on Nasdaq Global Market was $2.11 per common share. The final public offering price was determined through negotiation between us and the underwriters in this offering.

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

   $ 1.75      $ 75,250,000  

Underwriting discounts and commissions(1)

   $ 0.11      $ 4,703,125  

Proceeds, before expenses, to LumiraDx Limited

   $ 1.64      $  70,546,875  

 

 

(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 43,000,000 common shares, the underwriters have an option to purchase up to an additional 6,450,000 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 July 25, 2022.

 

Goldman Sachs & Co. LLC    Evercore ISI     SVB Securities     Raymond James

 

 

Prospectus dated July 20, 2022


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     17  

Forward-Looking Statements

     98  

Market, Industry and Other Data

     101  

Use of Proceeds

     102  

Dividend Policy

     103  

Capitalization

     104  

Dilution

     106  

Selected Historical Financial Information

     108  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     112  

Business

     142  

Management

     202  

Principal Shareholders

     218  

Certain Relationships and Related Party Transactions

     222  

Description of Capital Stock

     225  

Shares Eligible for Future Sale

     243  

Certain Material U.S. Federal Income Tax Considerations

     245  

Underwriting

     251  

Expenses

     259  

Enforcement of Civil Liabilities

     260  

Concurrent Private Placement

     261  

Legal Matters

     261  

Experts

     261  

Where You Can Find More Information

     261  

Index to Financial Statements

     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.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our 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 point-of-care (“POC”) diagnostic company addressing the current limitations of legacy POC systems by bringing 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 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.

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 COVID-19 tests for which we have received regulatory approval, authorization, certification or clearance for use on our Platform, including our SARS-CoV-2 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

 

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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 SARS-CoV-2 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 SARS-CoV-2 antigen pool test, our SARS-CoV-2 & Flu A/B tests, our SARS-CoV-2 & RSV test and our SARS 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 COVID-19 pandemic and the resulting acute need for timely diagnostic information, we developed our SARS-CoV-2 antigen test, SARS-CoV-2 antigen pool test, SARS-CoV-2 antibody test, SARS-CoV-2 & Flu A/B tests, SARS-CoV-2 & RSV test and SARS-CoV-2 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 SARS-CoV-2 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 SARS-CoV-2 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 SARS-CoV-2 antigen tests and ranked our test as most sensitive and accurate. Our SARS-CoV-2 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.

Our recently CE Marked SARS-CoV-2 Ag Ultra test matches the same high-performance as the LumiraDx SARS-CoV-2 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.

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.

 

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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 COVID-19 testing markets. Therefore, based on the same chemistry and test strip design as our SARS-CoV-2 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 SARS-CoV-2 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 SARS-CoV-2 Ag test strips, in anticipation of a potential commercial launch. Beyond 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 COVID-19 reagent testing kits for use on open molecular systems, LumiraDx SARS-CoV-2 RNA STAR, SARS-CoV-2 RNA STAR Complete, SARS-CoV-2 & Flu A/B RNA STAR Complete and Dual-Target SARS CoV-2 STAR Complete. LumiraDx SARS-CoV-2 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 SARS-CoV-2 RNA STAR Complete utilizes a direct amplification method that combines lysis and amplification in a single step, detecting SARS-CoV-2 nucleic acid in under 20 minutes, without needing to perform any specimen purification or extraction. We have obtained an EUA for LumiraDx SARS-CoV-2 RNA STAR. We have also obtained an EUA for SARS-CoV-2 RNA STAR Complete and commenced commercial sales and have affixed the CE Mark to these products. Our SARS-CoV-2 & Flu A/B RNA STAR Complete and Dual-Target SARS 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.    We believe that delivering a broad menu of diagnostic tests for

 

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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. In addition to developing our own tests, we work with well-established third parties to accelerate menu expansion on our Platform.

 

   

Grow our installed base by executing an institutional sales and channel partnership model.    We initially intend to focus our sales efforts on large healthcare systems, government organizations and national pharmacy chains that want to deploy comprehensive POC testing across their networks. We have assembled an experienced commercial team focused on key stakeholder adoption at the senior level of these organizations to deploy our Platform across their extensive healthcare networks.

 

   

Expand into additional healthcare settings and underserved markets.    We believe our Platform’s user-friendly setup, competitive cost structure and potential for a broad test menu make it an attractive instrument for roll out in settings where POC testing has traditionally been more challenging, such as low and middle income countries. We intend to leverage our Platform’s adaptable architecture across future Instrument models for additional professional and, over time, 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.    We plan to continue to invest in research and development (“R&D”) to expand our test offering into additional specialty areas, such as allergy, toxicology, fertility, veterinary and in-patient hospital, that could benefit from fast, accurate diagnostic test results from our Platform.

 

   

Continue to innovate across our Platform.    Our Platform’s connectivity allows information to be managed and shared between patients and healthcare providers to enhance patient experience. Our focus on data driven improvements will also allow us to roll out supply chain improvements and quality control features through direct data communication with our customers. We plan to introduce platform tools that enable customers and users to understand and act on, among other things, technical issues, test results, and test inventory management.

 

   

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.    We see significant opportunity to make testing more accessible to individuals, in the workplace, at school, and in the home. Our Amira System is based on the same chemistry and strip design as our high performing SARS-CoV-2 antigen test on our Platform and is intended to be a high sensitivity mass screening and home testing system for COVID-19. We plan to distribute the Amira SARS-CoV-2 Ag test at a price and volume that enables high frequency, mass testing at scale—both to potentially control the 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 antigen test has been authorized by the U.S. Food and Drug Administration (“FDA”) under an EUA only for the qualitative detection of SARS-CoV-2 nucleocapsid protein and has not been authorized for use to detect any other viruses or pathogens. This test and any other tests for which we have and may obtain an EUA only, has not been cleared or approved by the FDA, and therefore we cannot, until such time as such clearance or approval has been obtained, market such test in the United States following the termination of the EUA. We may not obtain additional regulatory approval, authorization, certification, or clearance of tests on our Platform or our Amira System, and we may not be able to successfully develop and commercialize additional tests on the Platform or the Amira System, including scaling up manufacturing and sales capacity.

 

   

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

 

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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. SARS-CoV-2 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 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

 

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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 SARS-CoV-2 STAR Complete (announced on June 8, 2022), SARS-COV-2 & 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), SARS-CoV-2 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 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 antigen test (announced on May 20, 2022).

 

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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.

 

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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.

 

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The Offering

 

Common shares offered by us

   43,000,000 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 6,450,000 common shares from us.

Common shares to be outstanding after this offering and the concurrent private placement

  


125,626,758 common shares (or 132,076,758 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 estimate the net proceeds from this offering to be approximately $68.5 million (or $79.1 million if the underwriters exercise in full their option to purchase additional common shares), after deducting 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”.

 

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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.

 

 

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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.

 

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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.

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  

 

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     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  

 

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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 SARS-CoV-2 antigen test and SARS-CoV-2 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 SARS-CoV-2 antigen pool test, our D-Dimer test, our CRP test and our SARS-CoV-2 Ag & Flu A/B tests, all of which are CE Marked. We have also received EUAs for our molecular lab reagent kits, LumiraDx SARS-CoV-2 RNA STAR and LumiraDx SARS-CoV-2 RNA STAR Complete, we affixed the CE mark to LumiraDx SARS-CoV-2 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 SARS-CoV-2 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 COVID-19-related tests, which could further impact our ability to receive FDA authorization. See “Risks Related to Government Regulation — The regulatory pathway for our 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 SARS-CoV-2 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.

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.

 

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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 SARS-CoV-2 antigen test, SARS-CoV-2 antigen pool test, SARS CoV-2 antibody test, and SARS-CoV-2 & Flu A/B tests and the presence of various variants of the virus. Since the beginning of the 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

 

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tests may be impacted and the size of our market opportunity for such tests may be impacted. While we believe that our 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 antigen test detects major global SARS-CoV-2 variants, including Delta, Gamma, Epsilon, Alpha, Beta and Omicron, there is no guarantee that our 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 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.

Our commercially available molecular lab reagent kits, LumiraDx SARS-CoV-2 RNA STAR and LumiraDx SARS-CoV-2 RNA STAR Complete will be subject to these demand fluctuations. In addition, while we have announced the plan to roll out a five-minute SARS-CoV-2 Ag Ultra test and a five-minute SARS-CoV-2 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.

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 SARS-CoV-2 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 over-the-counter (“OTC”) settings in certain countries. Revenues related to the Amira System depend on development of mass screening opportunities and continued need for 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 return-to-work screening and over time for testing in the home. Our ability to produce the planned volume of Amira SARS-CoV-2 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 SARS-CoV-2 antigen test and our SARS-CoV-2 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.

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

 

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number of reasons, including due to the evolving nature of the 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 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.

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 antigen test, and chips and other components that are subject to global shortages and necessary to manufacture our Instrument and our Amira Analyzer;

 

   

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

 

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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

 

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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.

 

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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

 

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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 scale-up in several countries and larger scale deployment of our commercially available COVID-19 tests, including our SARS-CoV-2 antigen test, SARS-CoV-2 antibody test, SARS-CoV-2 antigen pool test and SARS-CoV-2 & Flu A/B tests, as well as our SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete molecular lab reagent kits. We are also scaling up manufacturing capacity for the commercial launches of our recently CE Marked COVID-19 tests, including our SARS-CoV-2 & RSV test, our five-minute SARS-CoV-2 Ag Ultra and Ultra Pool tests, our Amira System, the Amira SARS-CoV-2 Ag test and two new molecular lab reagent kits which add the ability to test for Flu A/B and two distinct 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 diagnostic tests.

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 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 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 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 variants and peaks in demand for additional 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

 

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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 SARS-CoV-2 antigen test detects major global SARS-CoV-2 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 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.

 

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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 antigen test and SARS-CoV-2 antigen pool test: Quidel Sofia, BD Veritor Plus System, Abbott BinaxNOW COVID-19 Ag Card, general lateral flow tests and others.

 

   

For our SARS CoV-2 antibody test: Roche Elecsys Anti-SARS-CoV-2, Accelerate Diagnostics BioCheck SARS-CoV-2 Antibody Test Kits, SD Biosensor Q COVID-19 IgM/IgG Rapid Test and others.

 

   

For our SARS-CoV-2 Ag & Flu A/B tests: same as above antigen tests, Roche and SD Biosensor SARS-CoV-2 and Influenza A/B tests.

 

   

For our INR test: Roche Coaguchek and others.

 

   

For our D-Dimer test: Roche Cobas h232 and others.

 

   

For our CRP test: Affinion (Abbott) and others.

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), denial-of-service 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.

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 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 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.

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.

 

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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.”

 

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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.

 

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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 case-by-case basis.

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.

 

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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 in vitro 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.

 

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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 SARS-CoV-2 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 SARS-CoV-2 variants, change in seasons or mucus composition mix further impact our current SARS-CoV-2 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.

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 SARS-CoV-2 antigen test, SARS-CoV-2 antibody test, SARS-CoV-2 RNA STAR test and SARS-CoV-2 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 SARS-CoV-2 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 SARS-CoV-2 antigen test, SARS-CoV-2 antibody test, SARS-CoV-2 RNA STAR test and SARS-CoV-2 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 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 SARS-CoV-2 antigen test, LumiraDx SARS-CoV-2 antibody test, LumiraDx SARS-CoV-2 RNA STAR test, and LumiraDx SARS-CoV-2 RNA STAR Complete test have not been cleared or approved by FDA. The LumiraDx SARS-CoV-2 antigen test has been authorized by FDA under an EUA only for the qualitative detection of SARS-CoV-2 nucleocapsid protein. The LumiraDx SARS-CoV-2 antibody test has been authorized by FDA under an EUA only for the qualitative detection of total antibodies to SARS-CoV-2. The LumiraDx SARS-CoV-2 RNA STAR and LumiraDx SARS-CoV-2 RNA STAR Complete tests have been authorized by FDA under an EUA only for the qualitative detection of nucleic acid from SARS-CoV-2. These tests have not been authorized for use to detect any other viruses or pathogens. The tests that have received EUAs are authorized in the United States for the duration of the declaration that circumstances exist justifying the authorization of emergency use of IVD tests for detection and/or diagnosis of COVID-19 under Section 564(b)(1) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 360bbb-3(b)(1), unless the authorization is terminated or revoked sooner. We have also submitted a request for an EUA for our SARS-CoV-2 Ag & Flu A/B tests, but we have not yet received authorization for this combo test and currently 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

 

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and even if we submit the required information, there can be no guarantee that authorization will be granted by the FDA.

For our IVD devices for other indications, we may not market these devices for the POC until we have received the requisite regulatory approvals, clearances, classifications or certifications for each product. Our product development program may be curtailed, redirected, eliminated or delayed at any time for many reasons, including if the FDA, other regulatory authorities or Notified Bodies change how these devices are regulated or assessed, and we cannot predict whether we will successfully develop and commercialize these devices. The FDA, a comparable foreign regulatory authority or Notified Bodies may require more information, including additional clinical data, to support approval, clearance, classification or certification, which may delay or prevent approval or certification and our commercialization plans, or we may decide to abandon the development program. Any of the foregoing scenarios could materially harm the commercial prospects of our products.

Healthcare policy changes, including legislation reforming the U.S. or other health care systems, may have a material adverse effect on our financial condition, results of operations and cash flows.

In the United States and in some non-U.S. jurisdictions, there have been, and likely will continue to be, a number of legislative initiatives and regulatory changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act (“ACA”) was enacted, which made a number of substantial changes in the way health care is financed by both governmental and private insurers. Among other things, the ACA required each certain medical device manufacturer to pay an excise tax (“Medical Device Excise Tax”) equal to 2.3% of the price for which such manufacturer sells its medical devices that are listed with FDA. However, this tax was permanently eliminated as part of the 2020 federal spending package, effective January 1, 2020.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and congressional challenges. Congress previously considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), includes a provision that decreased the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, commonly referred to as the “individual mandate,” to $0, effective January 1, 2019. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA. Following an appeal made by certain defendants, on June 17, 2021, the U.S. Supreme Court dismissed the plaintiffs’ challenge to the ACA without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an Executive Order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The Executive Order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to challenge repeal or replace the ACA, will impact our business.

 

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While the current U.S. presidential administration has signaled its intent to pursue policies strengthening the ACA, the prior U.S. presidential administration sought to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. From January 2017 to January 2021, former President Trump signed several Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directed federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Another Executive Order terminated the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018, the U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay the more than $12 billion in ACA risk corridor payments to third-party payors who argued that such payments were owed to them. This decision was appealed to the U.S. Supreme Court, which on April 27, 2020, reversed the U.S. Court of Appeals for the Federal Circuit’s decision and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are not yet known.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. The Protecting Access to Medicare Act of 2014 (“PAMA”) was signed to law on April 1, 2014, and, among other things, significantly altered the payment methodology under the Clinical Laboratory Fee Schedule (“CLFS”). The CFLS applies to a wide variety of laboratories, including national chains, physician offices, and hospital laboratories. Regulations finalized in 2016 stipulated that for the reporting period beginning in 2017 and every three years thereafter (or annually in the case of advanced diagnostic laboratory tests), applicable clinical laboratories must report laboratory test payment data for each Medicare-covered clinical diagnostic laboratory test that it furnishes during the specified time period. The reported data must include the payment rate (reflecting all discounts, rebates, coupons and other price concessions) and the volume of each test that was paid by each private payor (including health insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations). Additionally, effective January 1, 2018, the Medicare payment rate for a test on the CLFS is equal to the weighted median of private payor rates determined for the test, based on the data of applicable laboratories that are collected during a specified data collection period and reported to CMS during a specified data reporting period. The payment amount for a test cannot drop more than 10 percent as compared to the previous year’s payment amount for the first three years after implementation of the new payment system, and not more than 15 percent per year for the subsequent three years. Under the Laboratory Access to Beneficiaries (“LAB Act”), Congress delayed reporting for applicable clinical laboratory tests that are not advanced diagnostic laboratory tests by one year. Applicable clinical laboratory test data that was supposed to be reported between January 1, 2020 to March 31, 2020, was delayed until January 1, 2021 to March 31, 2021. The CARES Act further delayed the reporting period for another year, until January 1, 2022 to March 31, 2022. The CARES Act also delayed the 15% payment reduction cap under PAMA by one year. For 2020, the rates for clinical laboratory tests that are not advanced diagnostic laboratory tests or new clinical laboratory tests may not be reduced by more than 10% of the rates for 2019. There is no payment reduction for 2021, and there will be a 15% reduction cap for each of 2022, 2023, and 2024. Also, under PAMA, CMS is required to adopt temporary billing codes to identify new tests and new advanced diagnostic laboratory tests that have been cleared or approved by FDA. For an existing test that is cleared or approved by FDA and for which Medicare payment is made as of April 1, 2014, CMS is required to assign a unique billing code if one has not already been assigned by the agency. In addition to assigning the code, CMS is required to publicly report payment for the tests. We cannot

 

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determine at this time the full impact of PAMA on our business, financial condition and results of operations.

Additionally, the Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers and suppliers of up to 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional action is taken by Congress. Pursuant to the CARES Act, as well as subsequent legislation, these reductions have been suspended from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic. Following the suspension, a 1% payment reduction will occur beginning April 1, 2022 through June 30, 2022, and the 2% payment reduction will resume on July 1, 2022, and increase up to 3% in the final fiscal year of this sequester. The full impact of the sequester law on our business is uncertain. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In addition, the Middle-Class Tax Relief and Job Creation Act of 2012 mandated an additional change in Medicare reimbursement for clinical laboratory tests.

Additionally, the previous administration announced several executive orders since July 24, 2020 relating to implementing several of the administration’s healthcare proposals and in response the COVID-19 pandemic. For example, on August 6, 2020, the Trump administration issued an executive order that directed the FDA to identify a list of essential medicines, medical countermeasures and critical inputs that are medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms. In response, on October 30, 2020, the FDA published a list of 227 drug and biological product essential medicines and medical countermeasures, and a list of 96 device medical countermeasures. It is unclear what impact this order and list will have on our business.

Additionally, recent regulatory changes regarding health information may impact our products such as the Connect Manager, EHR Connect, the Connect Hub and the Engage app. On March 9, 2020, the HHS, Office of the National Coordinator for Health Information Technology (“ONC”) and CMS promulgated final rules aimed at supporting seamless and secure access, exchange, and use of electronic health information (“EHI”) by increasing innovation and competition by giving patients and their healthcare providers secure access to health information and new tools, allowing for more choice in care and treatment. The final rules are intended to clarify and operationalize provisions of the 21st Century Cures Act (the “Cures Act”), regarding interoperability and “information blocking,” and create significant new requirements for health care industry participants. Information blocking is defined as activity that is likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI, where a health information technology developer, health information network or health information exchange knows or should know that such practice is likely to interfere with access to, exchange or use of EHI. The new rules create significant new requirements for health care industry participants, and require certain electronic health record technology to incorporate standardized application programming interfaces (“APIs”), to allow individuals to securely and easily access structured EHI using smartphone applications. The ONC will also implement provisions of the Cures Act requiring that patients can electronically access all of their EHI (structured and/or unstructured) at no cost. Finally, to further support access and exchange of EHI, the final ONC rule implements the information blocking provisions of the Cures Act and identified eight “reasonable and necessary activities” as exceptions to information blocking activities, as long as specific conditions are met. In light of the COVID-19 public health emergency, ONC stated that it intends to exercise enforcement discretion for three months at

 

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the end of certain ONC Health IT Certification Program compliance dates associated with the Cures Act final ONC rule. Pursuant to the final rule, health IT developers were initially to be subject to requirements such as prohibitions on participating in any action that constitutes information blocking, providing certification to the Secretary of HHS that they will not take actions that constitute information blocking, and other requirements regarding information blocking six months from May 1, 2020, when the final rule was published in the Federal Register. However, on October 29, 2020, HHS released an Interim Final Rule, effective December 4, 2020, pushing compliance with such requirements to April 5, 2021. Certified API Developers must now comply with new administrative requirements and must provide all certified API technology by December 31, 2022.

These rules seek to implement significant reforms regarding the access, use and exchange of patient data. These rules may benefit us in that they make it more difficult for EHR vendors to engage in data blocking activity, promote common standards for data exchange, and provide for easier patient access to their EHI. However, these rules may also make it easier for other similar companies to enter the market, creating increased competition and reducing our market share. It is unclear at this time what the costs of compliance with the final rules will be, and what additional risks there may be to our business.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, greater use of new technology assessment review boards for determination of cost and comparative effectiveness, lower reimbursement, and new payment methodologies. This could lower the price that we receive for any approved product. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient revenue, attain profitability or commercialize our product candidates, if approved. Congress has proposed on several occasions to impose a 20% coinsurance on patients for clinical laboratory tests reimbursed under the Medicare Clinical Laboratory Fee Schedule, which would require us to bill patients for these amounts. Because of the relatively low reimbursement for many clinical laboratory tests, in the event that Congress were to ever enact such legislation, the cost of billing and collecting for these tests would often exceed the amount actually received from the patient and effectively increase our costs of billing and collecting.

The changes to the regulatory system implemented in the EEA by the IVDR include stricter requirements for clinical evidence and pre-market assessment of safety and performance, new classifications to indicate risk levels of individual IVDs, requirements for conformity assessment by Notified Bodies of most IVDs, additional requirements concerning the scope and content of quality management systems, traceability of products and transparency as well as increased responsibility of economic operators, including those required of importers and distributors within the EEA of products manufactured in third countries. We are also required to provide clinical data in the form of a performance evaluation report as part of the conformity assessment process prior to CE marking and in post marketing clinical follow-up activities. Fulfilment of the obligations imposed by the IVDR may cause us to incur substantial costs. We may be unable to fulfil these obligations, or our Notified Body, where applicable, may consider that we have not adequately demonstrated compliance with our related obligations to merit a CE Certificate of Conformity on the basis of the IVDR.

The regulatory pathway for our COVID-19 tests and healthcare professionals’ understanding of the novel coronavirus is continually evolving and may result in unexpected or unforeseen challenges.

We have obtained EUAs from the FDA for our SARS-CoV-2 antigen test and our SARS-CoV-2 antibody test. We also received EUAs for our molecular lab reagent kits, SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete. Our SARS-CoV-2 antigen pool test is not FDA authorized, cleared

 

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or approved and can be used for surveillance purposes only in the United States. Additionally, in the EEA, we affixed a CE Mark (based on a self-assessment of the conformity of the products with the Essential Requirements of Directive 98/79/EC on in vitro diagnostic medical devices) (the “IVDD”)), as permitted prior to the entry into application of the IVDR on May 26, 2022) to our commercially available SARS-CoV-2 antigen test, SARS-CoV-2 antibody test, SARS-CoV-2 antigen pool test, SARS-CoV-2 Ag & Flu A/B tests and our SARS-CoV-2 RNA STAR Complete molecular lab reagent kit and we may submit such tests for regulatory approval, authorization, certification or clearance in other jurisdictions. We have also affixed the CE Mark to new COVID-19 tests, including our SARS-CoV-2 & RSV test, our five-minute SARS-CoV-2 Ag Ultra and Ultra Pool tests, our Amira System, the Amira SARS-CoV-2 Ag test and two new molecular lab reagent kits which add the ability to test for Flu A/B and two distinct COVID-19 virus genes to our Fast Lab Solutions product line. Following the United Kingdom’s departure from the European Union, the CE Mark will continue to be recognized in Great Britain (“G.B.”) until June 30, 2023. From July 1, 2023, a U.K. Conformity Assessed (“UKCA”) Mark will be required to place IVDs on the G.B. market (whereas, in Northern Ireland a CE Mark or a CE Mark and UKNI Mark will be required). In addition, in the United Kingdom any COVID-related tests are further subject to coronavirus test device approval (“CTDA”). To date, we have only obtained CTDA approval for our SARS-CoV-2 antigen test, our SARS-CoV-2 Ag & Flu A/B tests and our SARS-CoV-2 RNA STAR Complete molecular lab reagent kit. The volume of tests being developed for COVID-19 and the speed at which parties are acting to create and test many diagnostic tests for COVID-19 is unusual and evolving or changing plans or priorities within regulatory authorities, including changes based on new knowledge of COVID-19 and how the disease affects the human body, may significantly affect the regulatory timeline for our SARS-CoV-2 antigen test, SARS-CoV-2 antigen pool test, SARS-CoV-2 antibody test and our other COVID-19 related tests. The circumstances surrounding the pandemic may adversely impact the regulatory approval timeline for our Platform and its components both in relation to the COVID-19 tests, and our other tests generally if regulatory authorities prioritize tests for COVID-19 over other diseases. Results from clinical testing, the identification of new variants, may raise new questions and require us to proceed with additional reviews or clinical trials, including revising proposed endpoints or adding new clinical trial sites or cohorts of subjects. Additionally, our understanding of COVID-19, its infectiveness and other effects on the human body, the ability of individuals to develop antibodies against the virus and the effectiveness of any immune response in preventing future infections are constantly evolving, with new research suggesting sometimes surprising results being published on a frequent basis. New discoveries, new variants or changed understanding of how the virus affects the human body, particularly of its infectivity, impact of various variants and individuals’ immune response to it, could render existing tests, including ours, technologically or commercially obsolete or inferior to new methods that we may or may not be able to develop on a timely basis without significant resources and funding.

Even though we have obtained EUAs for our SARS-CoV-2 antigen test, our SARS-CoV-2 antibody test and our molecular lab reagent kits, SARS-CoV-2 RNA STAR and SARS-CoV-2 RNA STAR Complete, and even if we obtain EUAs for additional tests in the future, an EUA terminates when the emergency determination underlying the EUA terminates. More generally, the FDA has signaled an intention to transition away from providing EUAs for COVID-19-related tests, which could further impact our ability to receive FDA authorization. Moreover, the FDA may revoke an EUA at any time if it determines that the legal criteria for issuing the EUA are no longer met, including if the product may not be effective or the product’s potential benefits for such use do not outweigh its known and potential risks, and we therefore cannot predict how long, if ever, any EUA applicable to our Platform would remain in place. Any revocation or termination of an EUA applicable to our Platform could adversely impact our business in a variety of ways, including if we and our manufacturing collaborators have invested significantly in the supply chain to produce our COVID-19 tests.    

In December 2021, the FDA issued the draft guidance, Transition Plan for Medical Devices Issued Emergency Use Authorizations (EUAs) During the Coronavirus Disease 2019 (COVID-19)

 

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Public Health Emergency (the “Transition Plan”), for public comment which, among other things, proposes a 180-day transition period for manufacturers to submit marketing applications (e.g., 510(k) clearance, de novo classification or PMA) prior to the date that an EUA termination becomes effective. After the 180 days, a manufacturer may continue to market its device while the application is pending, provided that the FDA has accepted the application for substantive review prior to the end of the 180-day period and the FDA has not taken a final action on the marketing submission. Manufacturers will be expected to comply with all regulatory requirements at the end of the 180-day period, even if their marketing applications are still pending. The final Transition Plan ultimately published by the FDA may deviate, potentially significantly, from the draft Transition Plan and it is therefore impossible to know exactly how the final Transition Plan will impact our business and regulatory compliance requirements.

In addition, since the regulatory path to authorization of any COVID-19 test is evolving in various jurisdictions and other third parties are simultaneously focused on bringing their COVID-19 tests to market, there may be a widely used product in circulation in a specific country prior to our receipt of regulatory approval, authorization, certification or clearance or before we can CE or UKCA Mark our Instrument in such country, which would limit our ability to market and gain traction on sale of our Platform. Unexpected issues, including any that we have not yet observed, could lead to significant reputational damage for us and our Platform going forward and other issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources.

If we fail to comply with the complex federal, state, local and foreign laws and regulations that apply to our business, we could suffer severe consequences that could materially and adversely affect our operating results and financial condition.

We are or expect to become subject to broadly applicable healthcare laws, including fraud and abuse, transparency, and privacy and security laws, which are regulated and enforced by both the federal government and the states in which we conduct our business. These health care laws and regulations include, for example:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement, or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The ACA amended the intent element of the federal Anti-Kickback Statute to clarify that a person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. The term remuneration has been interpreted broadly to include anything of value. Further, courts have found that if “one purpose” of the remuneration is to induce referrals, the federal Anti-Kickback Statute is violated. Violations are subject to significant civil and criminal fines and penalties for each violation, imprisonment, and exclusion from government healthcare programs. In addition, a claim submitted for payment to any federal healthcare program that includes items or services that were made as a result of a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (“FCA”). There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, though the exceptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor;

 

   

the federal civil and criminal false claims laws, including the FCA, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or

 

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causing to be presented, false, fictitious or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs; knowingly making, using, or causing to be made or used, a false record or statement material to a false, fictitious or fraudulent claim or an obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring qui tam actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery or settlement. When an entity is determined to have violated the FCA, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

 

   

HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false fictitious or fraudulent statement or entry in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA fraud provisions without actual knowledge of the statute or specific intent to violate it;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (the “HITECH Act”), and their respective implementing regulations, which impose, among other things, certain requirements relating to the privacy, security and transmission of individually identifiable health information on certain covered healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their respective “business associates,” or third parties that create, receive, maintain, transmit or obtain protected health information in connection with providing a service on behalf of a covered entity. The HITECH Act also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;

 

   

the federal Physician Payments Sunshine Act, created under the ACA, as amended by the Health Care and Education Reconciliation Act of 2010, and its implementing regulations, which require manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to direct or indirect payments and other transfers of value made to U.S.-licensed physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician providers (such as physicians assistants and nurse practitioners), and teaching hospitals, as well as ownership and investment interests held by the physicians and their immediate family members;

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

 

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analogous U.S. state, local and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers and may be broader in scope than their federal equivalents; state and foreign laws that require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources, state and foreign laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or product pricing; state, local and foreign laws that require the registration of medical device sales representatives; state laws that prohibit other specified practices, such as (i) billing physicians for testing that they order or waiving coinsurance, copayments, deductibles, and other amounts owed by patients, and (ii) billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; and state and foreign laws governing the privacy and security of health information, some of which may be more stringent than those in the United States (such as the European Union, which adopted the GDPR (as defined below)) in certain circumstances, and may differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert the Company’s attention from the business.

It is possible that governmental and enforcement authorities will conclude that our business practices, including our arrangements with physicians and other healthcare providers, some of whom may receive stock options as compensation for services provided, may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to significant sanctions, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, reputational harm, exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to similar penalties. Any action for violation of these laws, even if successfully defended, could incur significant legal expenses and divert management’s attention from the operation of the business. In addition, the marketing authorization, certification and commercialization of any product we develop outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other laws. All of these could harm our ability to operate our business and our financial results.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that we may run afoul of one or more of the requirements.

Sales of our products in other jurisdictions, including the EEA and the United Kingdom, will also be subject to equivalent or comparable laws and failure to comply with these laws could have serious

 

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financial, as well as reputational, consequences for the Company. Key laws and regulations that apply to our business in the EEA and U.K. include, among others:

 

   

the General Data Protection Regulation (Regulation (EU) 2016/679) (“GDPR”), which sets out the data protection laws across the EEA and is particularly important for the collection, storage and use of patient data;

 

   

the U.K. General Data Protection Regulation (the “U.K. GDPR”), read alongside the Data Protection Act 2018 (the “U.K. DPA”) set out data protection laws for the United Kingdom; and

 

   

relevant anti-bribery and corruption laws enacted by EEA countries and the U.K. Bribery Act 2010.

Additionally, our failure to comply could lead to civil and/or criminal penalties in individual Member States.

When we seek to commercially distribute our POC IVD devices in the United States, if our devices are not considered CLIA waived or if we are delayed in or unable to obtain a CLIA waiver for such devices, our business may be harmed.

In the United States, our IVD devices are subject to compliance with the Clinical Laboratory Improvements Act of 1988 (the “CLIA”) and its implementing regulations. CLIA establishes quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test is performed. A laboratory is broadly defined to include any facility that performs laboratory testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health. Under CLIA, FDA categorizes IVD tests by their degree of complexity: (1) waived; (2) moderately complex; and (3) highly complex. When a test is categorized as waived, it may be performed by laboratories that have a Certificate of Waiver.

Tests that are waived by the CLIA regulations are automatically categorized as waived following 510(k) clearance or PMA approval. Otherwise, following clearance or approval, tests may be categorized either as moderate or high complexity according to the CLIA categorization criteria. A manufacturer of a test categorized as moderate complexity may request categorization of the test as waived through a CLIA Waiver by Application (“CW”) submission to FDA. In a CW submission, the manufacturer provides evidence to FDA that a test meets the CLIA statutory criteria for waiver. Specifically, waived tests are simple laboratory examinations and procedures that have an insignificant risk of an erroneous result, including those that (A) employ methodologies that are so simple and accurate as to render the likelihood of erroneous results by the user negligible, or (B) FDA has determined pose no unreasonable risk of harm to the patient if performed incorrectly. Further, when FDA authorizes tests for use at the POC under an EUA, such tests are deemed to be CLIA waived tests. As such, such tests can be performed in a patient care setting that is qualified to have the test performed there as a result of operating under a CLIA Certificate of Waiver for the duration of the emergency declaration. A CLIA waiver is critical to the marketability of a product into the POC diagnostics market. With regard to future products for which we may seek a CLIA waiver from FDA, any failure or material delay to obtain such waiver could harm our business and could harm the marketability of our products to the POC diagnostics market.

We are subject to stringent and changing privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business.

We collect, store, process and transmit sensitive data, including legally protected health information, personal information, intellectual property and proprietary business information. As we

 

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seek to expand our business, we are, and will increasingly become, subject to numerous state, federal and foreign laws, regulations and standards, as well as contractual obligations, relating to the collection, use, retention, security, disclosure, transfer and other processing of sensitive and personal information in the jurisdictions in which we operate. In many cases, these laws, regulations and standards apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries and other parties with which we have commercial relationships and our subsidiaries’ own data collection and processing practices. These laws, regulations and standards may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that will materially and adversely affect our business, financial condition and results of operations. The regulatory framework for data privacy, data security and data transfers worldwide is rapidly evolving, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business, and as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. Failure to comply with any of these laws and regulations could result in enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business.

There are numerous E.U., U.K. and U.S. federal and state laws and regulations related to the privacy and security of health information. These laws and regulations include HIPAA, as amended by the HITECH Act, and their respective implementing regulations, which establish a set of national privacy and security standards for the protection of protected health information by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. HIPAA requires covered entities and business associates to develop and maintain policies and procedures with respect to protected health information that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information and ensure the confidentiality, integrity and availability of electronic protected health information. The HHS may impose penalties for a failure to comply with a requirement of HIPAA. Penalties will vary significantly depending on factors such as the date of the violation, whether the failure to comply was known or should have been known, or whether the failure was due to willful neglect. These penalties include significant civil monetary penalties, criminal penalties and, in certain instances, imprisonment. 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 HIPAA regulations. In the event of a significant breach, the reporting requirements could include notification to the general public. Enforcement activity can result in reputational harm, and responses to such enforcement activity can consume significant internal resources. Additionally, if we are unable to properly protect the privacy and security of protected health information we create, receive, maintain, or transmit on behalf of our covered entity customers, we could be found to have breached our contracts as well as HIPAA and other applicable data privacy and security laws. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and we cannot be sure how these regulations will be interpreted, enforced or applied to our operations.

In addition, many states in which we operate have laws that protect the privacy and security of sensitive and personal information. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate

 

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compliance efforts. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which increases privacy rights for California residents and imposes stringent data privacy and security obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide disclosures to California consumers and provide such consumers with data protection and privacy rights, including the ability to opt-out of certain sales of personal information. However, certain personal information, such as information that is subject to HIPAA or clinical trial regulations, is exempt from the CCPA. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. While any information we maintain in our role as a business associate may be exempt from the CCPA, other records and information we maintain on our customers may be subject to the CCPA. Additionally, the California Privacy Rights Act (the “CPRA”), was passed in California in November 2020. While it also would likely exempt personal information that we handle as a business associate, the CPRA will impose additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Further, new health information standards, whether implemented pursuant to HIPAA, the HITECH Act, congressional action or otherwise, could have a significant effect on the manner in which we handle health-related information, and the cost of complying with these standards could be significant.

The enactment of the CCPA and CPRA has led to a wave of similar legislative developments in other states in the U.S., which creates the potential for a patchwork of overlapping but different state laws and could mark the beginning of a trend toward more stringent privacy legislation in the U.S. This could increase our potential liability and adversely affect our business, financial condition and results of operations. For example, Virginia passed the Consumer Data Protection Act, Colorado passed the Colorado Privacy Act, and Utah passed the Consumer Privacy Act, all of which become effective in 2023. Many other states are considering proposed comprehensive data privacy legislation and all 50 states have passed some form of legislation relating to privacy or cybersecurity (for example, all 50 states have enacted laws requiring disclosure of certain personal data breaches). At the federal level, the United States Congress is considering various proposals for comprehensive federal data privacy legislation and, while no comprehensive federal data privacy law currently exists, we are subject to applicable existing federal laws and regulations, such as the rules and regulations promulgated under the authority of the Federal Trade Commission, which regulates unfair or deceptive acts or practices, including with respect to data privacy and security. These state statutes, and other similar state or federal laws, may require us to modify our data processing practices and policies and incur substantial compliance-related costs and expenses.

If we do not comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions. New legislation and state constitutional amendments proposed or enacted in several U.S. states impose, or have the potential to impose, additional obligations on companies that collect, store, use, retain, disclose, transfer and otherwise process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we could become subject if it is enacted. All of these evolving compliance and operational requirements impose significant costs that are likely to increase

 

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over time, may require us to modify our data processing practices and policies, divert resources from other initiatives and projects, and could restrict the way products and services involving data are offered, all of which may have a material and adverse impact on our business, financial condition and results of operations.

Laws, regulations and standards in many non-U.S. jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information, which impose significant compliance obligations. For example, the processing of personal data, including clinical trial data, is governed by the provisions of the GDPR in the EEA. The U.K. GDPR read alongside the U.K. DPA are the applicable laws in the United Kingdom. Following the United Kingdom’s withdrawal from the European Union on January 31, 2020, pursuant to the transitional arrangements agreed between the United Kingdom and European Union, the GDPR continued to have effect in U.K. law until December 31, 2020. On December 31, 2020, the GDPR ceased to have effect in the United Kingdom. However, as of January 1, 2021, the U.K.’s E.U. (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain U.K. specific amendments) into U.K. law (referred to as the U.K. GDPR). The U.K. GDPR (as amended) and U.K. DPA set out the United Kingdom’s data protection regime, which is independent from but aligned with the European Union’s regime. The GDPR, the U.K. GDPR and U.K. DPA impose stringent data privacy and security requirements on both processors and controllers of personal data, including health data and other personal data collected during clinical trials. In particular, the GDPR imposes requirements relating to ensuring there is a lawful basis for processing personal data, extends the rights of individuals to whom the personal data relates, materially expands the definition of what is expressly noted to constitute personal data, requires additional disclosures about how personal data is to be used, imposes limitations on retention of personal data, imposes strict rules on the transfer of personal data out of the EEA and/or U.K. to third countries that do not ensure an adequate level of protection, like the United States, creates mandatory data breach notification requirements in certain circumstances, and establishes onerous new obligations on service providers who process personal data on behalf of others in connection with their E.U. or U.K. establishment. On June 28, 2021, the European Commission adopted an adequacy decision permitting flows of personal data between the European Union and the United Kingdom to continue without additional requirements. However, the U.K. adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/ extends that decision and remains under review by the European Commission during this period. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is unclear how U.K. data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term. These changes may lead to additional costs and increase our overall risk exposure.

In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of personal data from the EEA. For example, on July 16, 2020, the Court of Justice of the European Union (the “CJEU”) invalidated the E.U.-U.S. Privacy Shield Framework (the “Privacy Shield”) under which personal data could be transferred from the EEA to United States entities who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (“SCCs”) (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of SCCs must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals. On June 4, 2021, the European Commission published a decision adopting an updated set of SCCs designed to address issues identified by the CJEU. The revised SCCs must be used for relevant new data transfers from September 27, 2021; and existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. The new SCCs apply

 

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only to the transfer of personal data outside of the EEA and not the United Kingdom. The United Kingdom is not subject to the European Commission’s new standard contractual clauses but has published its own transfer mechanism, the International Data Transfer Agreement (“IDTA”), which enables transfers from the United Kingdom. We will be required to implement these new safeguards when conducting restricted data transfers under the GDPR and the U.K. GDPR and doing so will require significant effort and cost. In addition, additional measures may be required even when relying on standard contractual clauses or the IDTA, where the laws of the importer’s country do not offer an adequate level of protection, such as the United States. Currently, we rely on standard contractual clauses to facilitate international data transfers although we are hoping to introduce an approved set of Binding Corporate Rules.

The GDPR and the U.K. GDPR and U.K. DPA may impose additional responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms ensuring compliance with E.U. and U.K. data protection rules. This may be onerous and adversely affect our business, financial condition and results of operations. Failure to comply with the requirements of the GDPR and the U.K. GDPR and U.K. DPA and related privacy and data protection legislation may result in a variety of enforcement measures, including significant fines and other administrative measures. The GDPR and the U.K. GDPR and U.K. DPA have introduced substantial fines for breaches of the data protection rules, increased powers for foreign regulatory authorities, enhanced rights for individuals, and introduced new rules on judicial remedies and collective redress. We may be subject to claims by third parties, such as patients or regulatory bodies, that we or our employees or independent contractors inadvertently or otherwise breached GDPR or the U.K. GDPR and U.K. DPA and related data protection rules. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we do not prevail, we could be required to pay substantial fines and/or damages and could suffer significant reputational harm. Even if we are successful, litigation could result in substantial cost and be a distraction to management and other employees.

The GDPR and the U.K. GDPR and U.K. DPA authorize competent authorities to impose penalties and fines for certain violations of up to 4% of an undertaking’s total global annual revenue for the preceding financial year or 20 million (or £17.5 million under the U.K. DPA), whichever is greater. In addition to administrative fines, a wide variety of other potential enforcement powers are available to competent authorities in respect of potential and suspected violations of the GDPR and the U.K. GDPR and U.K. DPA, including extensive audit and inspection rights, and powers to order temporary or permanent bans on all or some processing of personal data carried out by noncompliant actors. Data protection authorities of EEA countries, and the U.K. Information Commissioner’s Office, may interpret the GDPR and the U.K. GDPR and U.K. DPA, and national laws differently and impose additional requirements, which contributes to the complexity of processing personal data in or from, or between, the EEA and/or U.K. Given the breadth and depth of changes in data protection obligations, complying with its requirements has caused us to expend significant resources and such expenditures are likely to continue into the near future as we respond to new interpretations, additional guidance, and potential enforcement actions and patterns. While we have taken steps to comply with the GDPR and the U.K. GDPR and U.K. DPA, and implementing legislation in the United Kingdom and applicable EEA countries, including by seeking to establish appropriate lawful bases for the various processing activities we carry out as a controller, reviewing our security procedures, and entering into data processing agreements with relevant customers and business partners, we cannot assure you that our efforts to achieve and remain in compliance have been, and/or will continue to be, fully successful.

If we or our third-party partners fail to comply or are alleged to have failed to comply with data protection and privacy laws and regulations, or if we were to experience a data breach involving personal data, we could be subject to government enforcement actions or private lawsuits. Any associated claims, inquiries, or investigations or other government actions could lead to unfavorable

 

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outcomes that have a material impact on our business including through significant penalties or fines, monetary judgments or settlements including criminal and civil liability for us and our officers and directors, increased compliance costs, delays or impediments in the development of new products, negative publicity, increased operating costs, diversion of management time and attention, or other remedies that harm our business, including orders that we modify or cease existing business practices.

The GDPR and the U.K. GDPR and U.K. DPA are complex laws and the regulatory guidance is still evolving, including with respect to how the GDPR and the U.K. GDPR and U.K. DPA should be applied in the context of transactions from which we may gain access to personal data. Data protection authority activity differs across the EEA countries (and the United Kingdom), with certain authorities applying their own agenda which shows there is significant uncertainty in the manner in which data protection authorities will seek to enforce compliance with GDPR in the medical research fields. For example, it is not yet clear if such authorities will conduct random audits of companies subject to the GDPR or the U.K. GDPR and U.K. DPA or will only respond to complaints filed by individuals who claim their rights have been violated. Enforcement actions to date in other industries have resulted in significant fines and other penalties.

We make public statements about our use and disclosure of personal information through our privacy policy, information provided on our internet platform and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees, consultants, or vendors fail to comply with our published policies, certifications and documentation. The publication of our privacy policy and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any failure, real or perceived, by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us could cause our customers to reduce their use of our products and services and could materially and adversely affect our business, financial condition and results of operations. In many jurisdictions, enforcement actions and consequences for non-compliance can be significant and are rising. In addition, from time to time, concerns may be expressed about whether our products, services or processes compromise the privacy of customers and others. Concerns about our practices with regard to the collection, use, retention, security, disclosure, transfer and other processing of personal information or other privacy-related matters, even if unfounded, could damage our reputation and materially and adversely affect our business, financial condition and results of operations.

Many statutory requirements, both in the United States and abroad, include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our third-party service providers. For example, laws in all 50 U.S. states and the District of Columbia require businesses to provide notice to consumers whose sensitive personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. We also may be contractually required to notify customers or other counterparties of a security breach. Although we may have contractual protections with our third-party service providers, contractors and consultants, any actual or perceived security breach could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual protections we may have from our third-party service providers, contractors or consultants may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections. As many businesses, we have suffered an increased number of phishing and

 

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hacking attempts and have increased protection and training to avoid these, there can however be no guarantee some of these may be successful. In 2020, we suffered one incident of unlawful access to our financing invoices accounts in Colombia with payment being made to an unauthorized party, we were able to submit a complaint and recover such funds. In addition, one of our external logistics and fulfillment partners suffered a cyber-attack which impacted their operations and had a short-term impact on our ability to make deliveries. Our business continuity plans operated well in this instance but a more sustained prolonged incident with one of our key providers could impact our operations and disrupt supply.

In addition to the possibility of fines, lawsuits, regulatory investigations, public censure, other claims and penalties, and significant costs for remediation and damage to our reputation, we could be materially and adversely affected if legislation or regulations are expanded in a manner that requires changes in our data processing practices and policies or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively impact our business. 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. Any inability to adequately address data privacy or security-related concerns, even if unfounded, or to comply with applicable laws, regulations, standards and other obligations relating to data privacy and security, could result in additional cost and liability to us, harm our reputation and brand, damage our relationships with customers and have a material and adverse impact on our business.

If the validity of an informed consent from a patient enrolled in a clinical trial was challenged, we could be forced to stop using some of our resources, which would hinder our product development efforts.

We have implemented measures to ensure that all clinical data and genetic and other biological samples that we receive from our collaborators have been collected from subjects who have provided appropriate informed consent for purposes which extend to our product development activities. We seek to ensure these data and samples are provided to us on a subject de-identified or pseudonymized manner. We also have measures in place to ensure that the subjects from whom the data and samples are collected do not retain or have conferred on them any proprietary or commercial rights to the data or any discoveries derived from them. Our clinical research organization (“CRO”) collaborators conduct clinical trials in a number of different countries, and, to a large extent, we rely upon them to comply with the subject’s informed consent and with local law and international regulation. The collection of data and samples in many different countries results in complex legal questions regarding the adequacy of informed consent and the status of genetic material under a large number of different legal systems. The subject’s informed consent obtained in any particular country could be challenged and/or withdrawn in the future, and those informed consents could prove invalid, unlawful, or otherwise inadequate for our purposes. Any findings against us, or our collaborators, could deny us access to or force us to stop using some of our clinical samples, which would hinder our product development efforts. We could become involved in legal challenges, which could consume our management and financial resources.

Sales of our products in the EEA are regulated through a process that may require certification by a Notified Body in order to affix a CE Mark, which, for the time being, allows us to continue placing our products on the market in the United Kingdom. Such processes are uncertain, particularly in light of changes to the regulatory framework. There may be a risk of delay in placing our products on the market and, once on the market, a risk of review and challenges to certain certified statuses.

Our CE Marked products (including our Instrument for use with the INR test by users other than for self-testing, the INR test and control, INRstar, SARS-CoV-2 antigen test, SARS-CoV-2 antigen pool test, SARS CoV-2 antibody test, SARS-CoV-2 Ag & Flu A/B tests, SARS-CoV-2 & RSV test,

 

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SARS-CoV-2 Ag Ultra and Ultra Pool tests, SARS-CoV-2 RNA Star, SARS-CoV-2 RNA Star Complete, SARS-CoV-2 & Flu A/B RNA STAR Complete, Dual-Target SARS CoV-2 STAR Complete, our HbA1c test, our NT-proBNP test, our CRP test, our D-Dimer test and our Amira System) were CE Marked prior to May 26, 2022 in accordance with the IVDD. In accordance with the IVDD conformity assessment procedures, we performed a self-assessment of the conformity of these products with the Essential Requirements of Annex I to the IVDD. Following this self-assessment, we issued a Declaration of Conformity allowing us to affix the CE Mark to the products.

Products for which we issued a Declaration of Conformity in accordance with the IVDD prior to May 26, 2022 based on a self-assessment, and which will be up-classed under the IVDR and require the involvement of a Notified Body under the IVDR for the first time, may rely on the transitional provisions of the IVDR and can continue to be placed on the EEA market until the following dates:

 

   

high individual risk and high public health risk products (Class D): May 26, 2025;

 

   

high individual risk and/or moderate public health risk products (Class C): May 26, 2026;

 

   

moderate individual risk and/or low public health risk (Class B): May 26, 2027; and

 

   

low individual risk and low public health risk products placed on the market in a sterile condition (Class A sterile): May 26, 2027.

However, we may only rely on the transitional provisions of the IVDR provided that: (i) the devices continue to comply with applicable requirements imposed by the IVDD; (ii) we respect the IVDR requirements relating to post-market surveillance, market surveillance, vigilance, registration of economic operators and devices from May 26, 2022, in place of the corresponding requirements in the IVDD; and (iii) no significant changes are made in the design and intended purpose of the devices during the transitional period.

In accordance with the transitional provisions provided in the IVDR, IVDs placed on the EEA market before May 26, 2022 in compliance with the IVDD may continue to be supplied until May 26, 2025. IVDs placed on the EEA market from May 26, 2022, in accordance with the transitional provision above, may continue to be supplied for an additional year after the deadline for placing on the market.

We have a number of CE Marked products which have been placed on the market prior to May 26, 2022 for which we may seek an extension of their intended use. If any significant changes are made to these products, these products could no longer benefit from the transitional provisions above and we may need to CE Mark these products in accordance with the IVDR. CE Marking our products in accordance with the IVDR is likely to require the intervention of a Notified Body to obtain CE Certificates of Conformity. We have engaged with Notified Bodies (GMED, BSI, TÜV SÜD, TÜV Rheinland, DEKRA GmbH and DEKRA B.V.) and have started detailed discussions with BSI. However, there is a risk of delay in getting these products to market if the Notified Body has capacity constraints and/or if the Notified Body has any issues with our technical documentation. Our ability to continue selling our products may be impacted if we cannot update our products to the new IVDR standards before the end of the transitional periods described above.

It should be appreciated that there is a severe shortage of capacity of Notified Bodies to assess all IVDs that will require Notified Body certification under the IVDR, and that it is widely recognized that applications for assessment by the Notified Bodies may be subject to significant delays. While we have taken a proactive approach to mitigate this risk, including approaching most of the IVDR accredited Notified Bodies (GMED, BSI, TÜV SÜD, TÜV Rheinland, DEKRA GmbH, DEKRA B.V., and 3EC International) and restructuring our quality management systems and technical documentation to align with the IVDR requirements, there can be no assurance that our ability to market IVDs in the EEA in the future will not be interrupted and this could, in turn, have a negative impact on our business and operating results.

 

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After the launch of any additional products or certain improvements to existing products, we may be subject to challenges by National Competent Authorities of E.U. Member States if there are issues that arise that question the safety and performance of these products. Such challenges may arise from a routine audit by a regulatory authority, due to device vigilance reports submitted by us, Field Safety Corrective Actions being initiated by us or the regulatory authority, or complaints made by competitors, whether those complaints are founded or not.

We take our responsibilities as a manufacturer of medical devices seriously and where possible take all voluntary measures to have independent third parties assess our designs and processes. This includes certification to the international standard for quality management, ISO 13485:2016 by LRQA, an accredited management systems certification body, testing of our Instrument to the international standard for electrical safety, IEC 61010-1:2015 / IEC 61010-2-101:2015 by CSA International, an independent and accredited safety certification body, and for the international standard for electromagnetic compatibility, IEC 61326-2-6:2012 by ETS Ltd, an independent and accredited EMC test laboratory.

We also offer a number of products that we do not believe come within the scope of the IVDR nor come within the scope of the E.U. Regulation on Medical Devices (Regulation (EU) 2017/745). There is a risk we may be subject to challenges by the Competent Authorities of E.U. Member States regarding the classification of these products, particularly if there was a question about safety or performance stemming from a user or a complaint from a competitor.

LumiraDx UK Limited is the legal manufacturer and regulatory owner of our products and is based in the United Kingdom. The United Kingdom’s departure from the European Union (“Brexit”), and the future relationship of the United Kingdom with the European Union, remains uncertain and there may be delays and barriers in obtaining access to the EEA.

Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the European Union, the United Kingdom was subject to a transition period until December 31, 2020 (“Transition Period”), during which European Union rules continued to apply. The United Kingdom and the European Union have signed an E.U.-U.K. Trade and Cooperation Agreement (the “TCA”), which became provisionally applicable on January 1, 2021 and entered into force on May 1, 2021. This agreement provides details on how some aspects of the United Kingdom and European Union’s relationship may operate in the future. However, there are still many uncertainties. On May 26, 2022, the IVDR entered into application in the European Union. However, the IVDR is not applicable in the United Kingdom. In the United Kingdom, IVDs are governed by the Medical Devices Regulations 2002 (SI 2002 No 618, as amended) (“UK MDR 2002”) which retains a regulatory framework similar to the framework set out by the IVDD. It is unclear to what extent the United Kingdom will seek to align its regulations with the IVDR. As a result, there will be some regulatory divergence in the United Kingdom from the European Union. In light of the fact that the CE Marking process is set out in E.U. law, which no longer applies in the United Kingdom, the United Kingdom has devised a new route to market culminating in a UKCA Mark to replace the CE Mark for placing IVDs on the market in Great Britain. Northern Ireland will, however, continue to be covered by the regulations governing CE Marks (a CE Mark or a CE Mark and UKNI Mark will be required to place products on the Northern Ireland market). CE Marks will continue to be recognized in G.B. for medical devices until June 30, 2023, however all medical devices and IVDs must be registered with the MHRA, in order to be placed on the G.B. market. The E.U. legal framework, including the IVDR, remains applicable in Northern Ireland (any products placed on the market in the NI must be compliant with E.U. law). From July 1, 2023 a UKCA Mark will be required in order to place a device on the G.B. market, however manufacturers can use the UKCA Mark on a voluntary basis prior to July 1, 2023 if they wish to do so. The nature of any new regulation in the United Kingdom is uncertain, and as such,

 

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we may experience delays in obtaining future access to the United Kingdom and EEA markets. The United Kingdom’s departure from the European Union has also impacted customs regulations and impacted timing and easy of shipments into the European Union from the United Kingdom.

Under the IVDD and the IVDR, legal manufacturers located outside of the EEA are required to appoint an Authorized Representative established in an EEA country. Given the uncertainty at the end of the Transition Period, we have established our E.U. Authorized Representative in the European Union. After considering a number of factors, including location, language capabilities, communication efficiencies and transparency considerations, we appointed LumiraDx AB, a LumiraDx affiliate established in Sweden, as our Authorized Representative. Our regulatory experts are actively engaged through relevant industry bodies, such as the British In-Vitro Diagnostics Association (“BIVDA”), to proactively communicate with the U.K. government on any new proposed regulatory regime applicable in the United Kingdom.

We intend to export our products to numerous countries outside of the EEA. Many other countries require certificates of free sales (“CFS”), and/or certificates of foreign government (“CFG”) as a condition of allowing the importation of medical devices from a relevant country of origin. One of the typical prerequisites to the issuance of CFS and CFG certificates is the requirement that the products being certified are legally marketed in their country of origin. Now that the Transition Period has ended and the United Kingdom has its own independent regulatory regime, we may face delays due to such new U.K. regulatory regime, which may in turn cause us to experience delays in obtaining requisite certificates and regulatory clearance in other countries. Additionally, as a result of Brexit, we, as a U.K.-based manufacturer, will no longer be able to utilize a number of Mutual Recognition Agreements and Technical Cooperation Programs that the European Union has agreed with other countries (subject to any agreement reached to the contrary), and therefore we may suffer delays in obtaining requisite regulatory clearances in other countries. The occurrence of any of the foregoing could have a material adverse effect on our financial condition and results of operations.

Article 16 of the Withdrawal Agreement concluded between the EU and the United Kingdom concerning the withdrawal of the United Kingdom from the EU includes the Northern Ireland Protocol. This Protocol provides that Northern Ireland will remain within the EU single market for goods. On June 13, 2022, the British Government published draft national legislation that would, among other things, impact the ongoing validity of the Protocol. On June 15, 2022, the European Commission declared its intention to recommence legal action against the United Kingdom before the European Court of Justice challenging the proposed British legislation. If the United Kingdom adopts the proposed national legislation in its current form and the European Court of Justice concludes that this constitutes a breach of the country’s obligations agreed in the Withdrawal Agreement, the EU may decide to impose trade sanctions on the United Kingdom. This could lead to a trade war between the two trading blocs.

We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws, export and import controls, sanctions, embargoes, and anti-money laundering laws and regulations.

Various of our activities may be subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and foreign state and national anti-bribery and anti-money laundering laws or rules in the countries in which we conduct activities.

Export controls and trade sanctions laws and regulations may restrict or prohibit altogether the provision, sale, or supply of our products, services, and technology to certain governments, persons,

 

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entities, countries, and territories, including those that are the target of comprehensive sanctions or an embargo. In addition, we ship a significant number of our Platforms into Africa as part of our collaboration with BMGF. Various countries, including countries in Africa, have export control and embargo restrictions which need to be managed and monitored.

Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We rely on independent distributors to sell our Platform internationally, and can be held liable under certain circumstances for the corrupt or other illegal activities of such distributors, or our employees, agents, contractors, or other partners. Other U.S. companies in the medical device and pharmaceutical field have faced criminal penalties under the FCPA for the corrupt activities of their third-party representatives and agents. We are also subject to similar anti-bribery laws in the other jurisdictions in which we operate, including the U.K.’s Bribery Act 2010, which also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. These laws are complex and far-reaching in nature, and, as a result, although we have implemented policies and procedures to ensure compliance with anti-corruption laws, we cannot assure you that none of our employees, representatives, contractors, distributors, partners, or agents will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, financial condition and results of operations or our reputation. We could also suffer severe penalties, including substantial criminal and civil penalties, disgorgement, reputational harm and other remedial measures.

Our activities in the United States subject us to various laws relating to foreign investment and the export of certain technologies, and our failure to comply with these laws or adequately monitor the compliance of our suppliers and others we do business with could subject us to substantial fines, penalties and even injunctions, the imposition of which on us could have a material adverse effect on the success of our business.

Because we have a U.S. subsidiary and substantial operations in the United States, we are subject to U.S. laws and regulations that regulate foreign investments in U.S. businesses and access by foreign persons to technology developed and produced in the United States. These laws include Section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800, 801, and 802, as amended, administered by the Committee on Foreign Investment in the United States; and the Export Control Reform Act of 2018, which is being implemented in part through Commerce Department rulemakings to impose new export control restrictions on “emerging and foundational technologies” yet to be fully identified. Application of these laws, including as they are implemented through regulations being developed, may negatively impact our business in various ways, including by restricting our access to capital and markets; limiting the collaborations we may pursue; regulating the export, reexport, and transfer (in-country) of our products, services, and technology from the United States and abroad; increasing our costs and the time necessary to obtain required authorizations and to ensure compliance; and threatening monetary fines and other penalties if we do not comply with these laws.

 

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Intellectual Property Risks Related to Our Business

If we are unable to obtain and maintain patent and other intellectual property protection for products we develop and for our technology, or if the scope of intellectual property protection obtained is not sufficient, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize any products we may develop may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries for our Platform in its current or an updated form and other products. Patent law as applied to inventions in the fields in which we operate is complex and uncertain, so we cannot make any assurances that we will be able to obtain or maintain patent or other intellectual property rights, or that the patent and other intellectual property rights we may obtain will be valuable, provide an effective barrier to competitors or otherwise provide competitive advantages. If we are unable to obtain or maintain patent or other intellectual property protection with respect to our proprietary products, our business, financial condition and results of operations could be materially harmed.

Changes in the patent laws or in the interpretation thereof in the United States and other countries may diminish our ability to protect our inventions and to obtain, maintain, and enforce our intellectual property rights; more generally, such changes could affect the value of our intellectual property, including by limiting the potential scope of patent coverage that we can obtain. We cannot predict whether any particular patent applications we are currently pursuing will be granted as a patent or whether the claims of any particular patents, if obtained, will provide sufficient exclusivity over our competitors.

The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications or patents at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patent-eligible aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with employees, consultants, and other parties who have access to confidential aspects of our research and development output, including aspects that may be patent-eligible, any of these parties may breach the agreements and disclose such output before we are able to file a patent application directed to the disclosed subject matter, thereby jeopardizing our ability to seek patent protection for that subject matter. In addition, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after the priority date, or in some cases not at all prior to issuance. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

The patent position of companies in our industry generally is unsettled, involves complex legal and factual questions, and has been the subject of much litigation in recent years. Whether our pending and future patent applications will be granted and the scope, validity, enforceability, and commercial value of any patents we have obtained are highly uncertain. Our pending and future patent applications may not result in patents that protect any new products or our Platform in its current or an updated form. Our pending and future patent applications may not effectively prevent others from commercializing competitive products.

Moreover, the claim scope being pursued in a patent application may need to be significantly reduced or otherwise altered in order to achieve the grant of a patent, and the scope of a patent can be reinterpreted after issuance. Furthermore, there are differences in what subject matter may be patent eligible in the various jurisdictions in which we seek patent protection. For example, claims to certain

 

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diagnostic methods may not be patentable in the U.S. but may still be patentable in Europe, and claims to certain other methods may be patentable in the U.S. but not in other jurisdictions. Even if a patent application is issued as a patent, the granted claims may not provide us with any meaningful protection, prevent others from competing with us, or otherwise provide us with any competitive advantage. Any patents that we hold may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any of our products will be protectable or remain protected by valid and enforceable patents. Our competitors and other third parties may be able to circumvent our patents by developing similar or alternative products and solutions in a non-infringing manner. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or impact our stock price.

Our commercial success depends on our ability to develop, manufacture, market and sell our products and use our products and technologies without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. We operate in a crowded technology area in which there are numerous issued patents and patent applications and in which there has been substantial litigation regarding patent and other intellectual property rights. There also is a substantial number of administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the USPTO, or oppositions and other comparable proceedings in foreign jurisdictions. There are inherent uncertainties in these legal matters, some of which are beyond management’s control, making the ultimate outcomes difficult to predict

Third parties may assert that we are using their patented or other proprietary technology without their authorization. As we continue to commercialize our Platform in its current or an updated form, launch new products, and enter new markets, we expect that, as part of business strategies designed to impede our successful commercialization and entry into new markets or otherwise, competitors will claim that our products, services, research and development activities, manufacturing methods, software and/or technologies infringe, misappropriate or otherwise violate their intellectual property rights. Third parties, including, for example, one or more of our competitors listed in “Business—Competition”, may have obtained, and may in the future obtain, patents under which such third parties may claim that the use of our technologies constitutes patent infringement. For example, we are aware of third-party patents in the U.S. and Europe that contain claims that may be relevant to our NT-proBNP test kit. If a patent infringement action based on one or more of these patents were to be brought against us, we might have to argue that our test kit or the manufacture or use thereof does not infringe any valid claim of the asserted patent(s); and there would be no assurance that a court would find in our favor on issues of infringement or validity of such patents. Furthermore, because a patent application generally is unavailable to the public until 18 months from the priority date (and, at least in the United States, can optionally be kept secret until the patent is granted), we have no way of knowing, at any given time, whether others have filed new patent applications directed to technologies that we or our collaborators will use.

If third parties, including our competitors, believe that our products or technologies infringe, misappropriate or otherwise violate their intellectual property, such third parties may seek to enforce their intellectual property, including patents, against us by filing an intellectual property-related lawsuit, including a patent infringement lawsuit, against us. There is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. We may also choose to challenge the patentability, validity or enforceability of any third-party patent that we believe may have applicability in our field, and any other third-party patent that may be asserted against us. Such

 

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challenges may be brought either in court or by requesting that the USPTO, or other foreign patent offices review the patent claims. However, there can be no assurance that any such challenge will be successful and if not successful, we may be estopped from asserting in a district court any grounds already raised or that could have been raised in certain proceedings, such as inter partes review (IPR) at the USPTO.

Intellectual property litigation is costly, and even if we prevail, the substantial cost of such litigation could affect our business and financial condition. Intellectual property litigation may also be lengthy and time-consuming and may divert the attention of our management and technical personnel in defending ourselves against any of these claims. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our cash position, reputation and stock price. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize, and sell products. In the event of a successful claim against us of infringement or misappropriation, we may be required to pay substantial damages (including treble damages and attorneys’ fees if we are found to have willfully infringed a patent) to and obtain one or more licenses from third parties, or we may be prohibited from selling certain products, all of which could have a material adverse impact on our cash position and business and financial condition. Moreover, any licenses that we are compelled to obtain may require substantial payments or cross-licenses under our intellectual property rights, and it may be nonexclusive, in which case our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to sell some of our products, which could have a material adverse effect on our business and financial condition.

In addition, we may be unable to obtain any required licenses at a reasonable cost, if at all. We could therefore incur substantial costs relating to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. Moreover, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any required licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products would materially affect our ability to grow and maintain profitability and would have a material adverse impact on our business.

Developments in patent law could have a negative impact on our business.

Changes in either the patent laws or interpretation of patent laws could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of granted patents. From time to time, the U.S. Supreme Court (the “Supreme Court”), other federal courts, the U.S. Congress, the U.S. Patent and Trademark Office (“USPTO”), or courts or patent offices or authorities in other jurisdictions may change the standards of patentability or patent eligibility, and any such changes could have a negative impact on our business. Generally, jurisdictions outside the United States have a “first to file” patent system. In the United States, prior to March 2013, the “first to invent” a claimed invention was entitled to the patent (assuming that all other requirements were met). Following the passage of the Leahy-Smith America Invents Act (the “America Invents Act”), the United States transitioned to a “first inventor to file” system, under which the first inventor to file a patent application on an invention is entitled to the patent (assuming that all other requirements are met) even if another party was the first to invent the claimed invention. The America Invents Act also included a number of significant changes that affect the way patent applications are prosecuted and that also may affect patent litigation. These include the introduction of derivation proceedings; expansion of the permitted content of third-party submissions to the USPTO during patent prosecution; and additional procedures to challenge the validity of a patent after issuance, including post-grant review and inter partes review. The America Invents Act and its continued implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the

 

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enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, the patent positions of companies in our industry are particularly uncertain. Recent Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. For example, the eligibility of diagnostic method claims and “gene patents” for patent protection were considered in two landmark Supreme Court cases, Mayo Collaborative v. Prometheus Laboratories (“Prometheus”), and Association for Molecular Pathology v. Myriad Genetics (“Myriad”). In Prometheus, a case involving patent claims to a medical testing method directed to optimizing the amount of drug administered to a specific patient, patentee’s claims were deemed not to incorporate inventive content, above and beyond merely describing underlying natural correlations, sufficient to render the claimed processes patent-eligible. In Myriad, a case brought by multiple plaintiffs challenging the validity of patent claims relating to the breast cancer susceptibility genes BRCA1 and BRCA2, the court held that isolated genomic DNA that exists in nature, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent-eligible subject matter, but that cDNA, which is an artificial construct created from RNA transcripts of genes, may be patent eligible. The Federal Circuit has begun to apply the holdings in Prometheus and Myriad. For example, in 2015, the Federal Circuit in Ariosa v. Sequenom (“Ariosa”) applying Prometheus, found claims to a prenatal diagnostic method that relied on a natural product to be patent ineligible. A number of appeals to the Federal Circuit in subsequent cases, such as Athena v. Mayo (“Athena”) have been decided in a similar way.

We cannot fully predict what impact the Supreme Court’s decisions in Prometheus and Myriad and other decisions, such as the Federal Circuit’s decisions in Ariosa and Athena, may have on our ability or the ability of companies or other entities to obtain or enforce patents relating to diagnostic and therapeutic methods, DNA, genes, or genomic-related discoveries in the future. Despite the precedent set forth in these decisions, the contours of when claims reciting laws of nature, natural phenomena, or abstract ideas may meet the patent eligibility requirements are not clear and may take years to develop via application at the USPTO and interpretation in the courts. There are many patents claiming nucleic acids and diagnostic methods based on natural correlations that were issued before the recent Supreme Court decisions discussed above, and although many of these patents may be invalid under the standards set forth in the Supreme Court’s recent decisions, until successfully challenged, these patents are presumed valid and enforceable, and the patentees could allege that we infringe, or request that we obtain a license to, one or more of these patents. Whether the patents were issued prior to or after these Supreme Court decisions, we might have to defend ourselves against claims of infringement, or we might have to obtain licenses, if available. In any of the foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an injunction that would prevent us from using the patented subject matter in question if we are unable to obtain a license on reasonable terms or at all. Such outcomes could materially affect our ability to offer our products and services and could have a material adverse impact on our business. Even if we are able to obtain a license or to successfully defend against claims of patent infringement, the cost and distraction associated with the defense or settlement of these claims could have a material adverse impact on our business. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.

We may be unable to protect or enforce our intellectual property effectively, which could harm our competitive position.

Obtaining and maintaining a strong patent position is important to our business. No patent application is guaranteed to mature into a patent, and we cannot predict the total pendency of any application that does become a patent. Moreover, the granted patent rights may not be sufficiently broad

 

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to prevent others from marketing products similar to ours or from designing around our patents. Patent law relating to the scope and validity of claims in the technology fields in which we operate is complex and uncertain, so we cannot be certain that we will be able to obtain or maintain patent rights, or that the patent rights we may obtain will be valuable, provide an effective barrier to competitors, or otherwise provide competitive advantages. Others may have filed, and in the future may file, patent applications directed to subject matter similar or even identical to ours. To determine the priority of inventions or demonstrate that we did not derive our invention from another, we may have to participate in interference or derivation proceedings that could result in substantial costs in legal fees and could substantially affect the scope of our patent protection. We cannot be certain that our patent applications will prevail over those filed by others. Also, our intellectual property rights may be subject to other challenges by third parties. Patents we obtain have been and in the future could be challenged in litigation or in administrative proceedings such as ex parte reexamination, inter partes review, or post grant review in the United States or opposition proceedings in Europe or other jurisdictions and may be found to be invalid or unenforceable. For example, one of our European patents directed to a nucleic acid amplification method is currently subject to an opposition proceeding at the European Patent Office. While we are defending against this opposition, there is a risk that the opponent may invalidate one or more of the granted claims or require an amendment of the claims in a way that may prevent us from asserting this patent against a party marketing a potentially competitive, infringing product.

Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, and other governmental fees for patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the costs associated with complying with numerous procedural provisions during the patent application process. We may or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in irrevocable abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the respective jurisdiction. If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer.

Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or other proceedings against those who have infringed our patent rights, and we may or may not choose to monitor for infringing activity, taking into consideration the expense and time commitment associated with such enforcement and monitoring. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

We depend on trademarks to establish a market identity for the Company and our Platform. To maintain the value of our trademarks, we may have to file lawsuits against third parties to prevent them from using trademarks confusingly similar to or dilutive of our registered or unregistered trademarks. We also may not obtain registrations for our pending or future trademark applications and might have to defend our registered trademarks and pending applications from challenges by third parties. Enforcing or defending our registered and unregistered trademarks might result in significant litigation costs and, if we are unsuccessful, might result in damages, including the inability to continue using certain trademarks.

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

In addition to patent protection, we also rely upon trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants

 

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and third-parties, to protect our confidential and proprietary information. For example, significant elements of our Platform, including, for example, the manufacture of our test strips, are protected by trade secrets and know-how that are not publicly disclosed. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and any recourse we may have against such misconduct may not result in a remedy that protects our interests fully. Enforcing a claim that a party has illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, information that is a trade secret may be independently developed by others, which would prevent legal recourse for us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information were to be independently developed by a competitor, our competitive position could be harmed.

Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation.

We may use open source software in connection with our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the use of open source software and/or compliance with open source licensing terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming noncompliance with open source licensing terms. Some open source software licenses require users who distribute software containing open source software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code, which could include valuable proprietary code of the user, on unfavorable terms or at no cost. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source licensing terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations and could help our competitors develop products and services that are similar to or better than ours.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some countries do not protect intellectual property rights to the same extent as do the laws of the United Kingdom or of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain such countries. The legal systems of some countries, particularly low and middle income countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to medical diagnostics. This could make it difficult for us to prevent or stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against parties such as government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Because patent and other intellectual property laws differ in each country, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United Kingdom or the United States. Accordingly, we may choose not to seek patent protection in certain countries, and if so, we will not have the benefit of

 

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patent protection in such countries. Moreover, we may not be able to predict all of the countries where patent protection ultimately will be desirable, for commercialization or marketing purposes or otherwise. If we fail to timely file a patent application for an invention in any country, we may be precluded from doing so at a later date, and we therefore would be unable to obtain patent protection for that invention in that country.

Additionally, the laws pertaining to patent ownership and assignment may differ from country to country. If we fail to obtain proper assignments for any inventions developed by us and/or our employees, or for any invention that we otherwise acquire rights to, we may lose rights to patent protection for those inventions, which may cause our competitive position to suffer.

Proceedings to enforce our patent rights in jurisdictions worldwide could result in substantial costs and divert our efforts and attention from other aspects of our business. Our efforts to protect our intellectual property rights in any particular jurisdiction may be inadequate. In addition, changes in the law and legal decisions by courts in jurisdictions worldwide may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

Many of our employees, including members of our senior management, were previously employed at other diagnostic companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in obtaining such an agreement from each party who in fact develops intellectual property during the course of employment, consultancy, or contractual arrangement, respectively, which may result in claims by or against us relating to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.

Patents have a limited lifespan. For example, in the U.S., if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. While extensions may be available, the life of a patent, and the protection it affords, is limited. In the U.S. a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. Even if patents covering our products are obtained, once the patent life has expired, we may be open to competition from competitive

 

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products. If one of our products requires extended development, testing and/or regulatory review, patents protecting such products might expire before or shortly after such products are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours, which could have a material adverse effect on our business, financial condition and results of operations.

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

Our pending and future trademark applications in the United Kingdom, the United States, and other jurisdictions may not be allowed or may be opposed. Once filed and registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic. Our use of our trademarks or trade names may be determined to infringe the trademarks or trade names of others. To enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. We may not ultimately be able to protect our trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to comply with our obligations under our licenses with third parties, we could lose license rights that are important to our business.

We are a party to license agreements pursuant to which we in-license certain patents and other intellectual property. Each of our existing licenses imposes various obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate the license, in which event we would not be able to use the licensed intellectual property.

We may have limited control over the maintenance and prosecution of these in-licensed rights, activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that is licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than had we conducted them ourselves.

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

We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or

 

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other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our Financial Condition and Capital Requirements

We are an early, commercial-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

We are an early, commercial-stage company and have a limited operating history. We began operations in 2014 under the original parent company of the group, LumiraDx Group (incorporated in England and Wales) and the current parent company was incorporated in the Cayman Islands in 2016. Our limited operating history, particularly in light of our business model based upon sales of diagnostic tests enabled by our Platform, may make it difficult to evaluate our current business and predict our future performance. Any assessment of our potential for profitability or prediction about our future success or viability is subject to significant uncertainty. We have encountered and will continue to encounter risks and difficulties frequently experienced by early, commercial-stage companies in rapidly evolving industries. If we do not address these risks successfully, our business will suffer.

We have a history of net losses. We may incur net losses in the future and we may never achieve profitability.

We have historically incurred substantial net losses, including net losses of $56.2 million during the three months ended March 31, 2022, and $100.9 million during the year ended December 31, 2021. From our inception in 2014 through March 31, 2022, we had an accumulated deficit of $724.0 million. Our losses may continue as a result of ongoing research and development expenses and increased sales and marketing costs, as well as other factors. These losses have had, and may continue to have, an adverse effect on our working capital, total assets, and shareholders’ equity. Because of the numerous risks and uncertainties associated with our research, development, and commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations, and cash flows.

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.

Our consolidated financial statements for and as of the year ended December 31, 2021 contained a statement regarding a material uncertainty that may cast significant doubt about our ability to continue as a going concern, which related in particular to our ability to meet the requirements of the minimum net sales covenant obligation in the 2021 Senior Secured Loan. While we believe the Amendment and the July 18, 2022 amendment to the 2021 Senior Secured Loan agreed to with Pharmakon should address this significant doubt, if we do not complete a Qualifying Financing on or prior to September 30, 2022, we believe that we will need to obtain a further 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. See “—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 perception that we might be unable to continue as a going concern may make it more difficult to obtain financing

 

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for the continuation of our operations on terms that are favorable to us, or at all, and could result in the loss of confidence by investors and employees. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that our investors will lose all or a part of their investment.

We 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.

To the extent that our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products or as a result of lower than currently expected rates of reimbursement from commercial third-party payors and government payors or other risks described in this prospectus, we anticipate seeking to sell common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding, or seek other debt financing. We may also consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:

 

   

increase our sales and marketing efforts to drive market adoption of our Platform and address competitive developments;

 

   

seek approvals, authorizations, certifications or clearances from regulatory authorities for our existing and new products;

 

   

fund development and marketing efforts of any future products;

 

   

rapidly expand our manufacturing, sales and marketing efforts, including for our Platform and Amira System;

 

   

expand our technologies to cover additional tests;

 

   

acquire, license or invest in technologies;

 

   

acquire or invest in complementary businesses or assets; and

 

   

finance capital expenditures and general and administrative expenses.

Our present and future funding requirements will depend on many factors, including:

 

   

our ability to achieve revenue growth;

 

   

the cost of rapidly expanding our operations and offerings, including our manufacturing, sales and marketing efforts;

 

   

our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of and reimbursement for our Platform;

 

   

our rate of progress in, and cost of research and development activities associated with, products in research and early development;

 

   

the effect of competing technological and market developments;

 

   

costs related to rapid international expansion;

 

   

our rate of progress in establishing reimbursement arrangements with domestic and international commercial third-party payors and government payors; and

 

   

the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.

The various ways we could raise additional capital carry potential risks. To the extent we are otherwise permitted to do so pursuant to our existing obligations, we may raise additional capital

 

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through the sale of equity or convertible debt securities, as a result of which ownership interests of our common shareholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends. See the section titled “—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.” We might also raise funds through collaborations and licensing arrangements, which might require us to relinquish significant rights to our Platform or other technologies or products or grant licenses on terms that are not favorable to us.

The global financial markets have experienced a period of disruption and instability as a result of the COVID-19 pandemic and the conflict between Russia and Ukraine, generally increasing the difficulty of accessing the capital and credit markets and resulting in intervention from national governments around the world. Accordingly, additional equity or debt financing might not be available on reasonable terms, if at all.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we would expect to have to delay, reduce the scope of, or eliminate one or more research and development programs, international expansion and commercial launch plans or sales and marketing initiatives. In addition, we may have to work with a third party on one or more of our development programs, which could lower the economic value of those programs to us.

We may be required to repurchase for cash, or to facilitate the purchase by a third party of, all of our shares held by BMGF if we default under the Cooperation Agreement (as defined herein) (and, when entered into, the A&R Cooperation Agreement (as defined herein)), which could have an adverse impact on us and limit our ability to make distributions to our shareholders.

In the event that we are in breach of certain provisions of the Cooperation Agreement or, when entered into, the A&R Cooperation Agreement, following a 120 day cure period, we are required to repurchase for cash, or to facilitate the purchase by a third party of, all of our shares held by BMGF at certain terms that may not be favorable to us. This would also include the common shares acquired in the concurrent private placement, if any. If this occurs, cash used for this purpose may adversely affect our liquidity, cause us to reduce expenditures in other areas of our business, and/or curtail our growth plans. If we do not have sufficient cash on hand to purchase the securities and are unable to procure third party purchasers for the relevant securities, we may have to seek financing alternatives in order to meet our obligations, and there is no certainty that financing would be available on reasonable terms or at all. Also, while the 2021 Senior Secured Loan is outstanding, in order to permit any repurchase of the securities of our Company held by BMGF for cash we would need to seek a waiver from Pharmakon, amend the terms of the 2021 Senior Secured Loan, or otherwise restructure our existing debt obligations to avoid a breach of the 2021 Senior Secured Loan. There can be no guarantees that such a waiver, amendment 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, amendment or providing for such restructuring. If we are not successful we would therefore only be able to arrange for a third party to purchase the securities of our Company held by BMGF in order to satisfy our obligations under the Cooperation Agreement or, when entered into, the A&R Cooperation Agreement.

We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

We expect to continue to incur significant legal, accounting, reporting, and other expenses that we did not incur as a private company. As a public company, we also incur costs which we have not

 

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incurred previously, including, but not limited to, costs and expenses for increased directors and officers insurance, investor relations, and various other costs of a public company. We anticipate that we will continue to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to retain, recruit and bring on qualified board members. We expect that the additional costs we incur as a public company, including costs associated with corporate governance requirements, will be considerable relative to our costs as a private company.

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.

Furthermore, after the date we are no longer an emerging growth company, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise capital, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price or cause it to be more volatile.

The ability of our U.S. subsidiaries to use net operating loss carryforwards and other tax attributes to offset future taxable income may be subject to certain limitations.

As of December 31, 2021, our U.S. subsidiaries had $41.1 million in gross net operating losses. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to annual limitations on its ability to use its pre-change net operating loss carryforwards or other tax attributes (“NOLs”), to offset future taxable income or reduce taxes. We have not determined whether past changes in the ownership of our equity have resulted in an ownership change under Section 382 of the Code with respect to our U.S. subsidiaries. In addition, future changes in the ownership of our equity, some of which may be outside of our control, could result in ownership changes under Section 382 of the Code with respect to our U.S. subsidiaries. Furthermore, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to use a material portion of the NOLs, even if we attain profitability.

 

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Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates.

Although a significant portion of our revenues is currently derived in U.S. dollars, we also have significant revenues currently being denominated in other currencies. In addition, we have raised funds in U.S. dollars but a large part of our costs is in U.K. pound sterling. Unfavorable fluctuations in foreign currency exchange rates could have a material adverse effect on our results of operations.

Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our net revenues, operating income and the value of balance-sheet items originally denominated in other currencies. These changes cause our growth in consolidated earnings stated in U.S. dollars to be higher or lower than our growth in local currency when compared against other periods.

As we continue to leverage our global delivery model, more of our expenses will be incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies against the U.S. dollar or U.K. pound sterling could increase costs for delivery of services at off-shore sites by increasing labor and other costs that are denominated in local currency. There can be no assurance that our contractual provisions will offset their impact, or that any future currency hedging activities, which are designed to partially offset this impact, will be successful. In addition, our future currency hedging activities could themselves be subject to risk. These could include risks related to counterparty performance under future hedging contracts and risks related to currency fluctuations. We also face risks that extreme economic conditions, political instability or hostilities or disasters of the type described below could impact our underlying exposures, perhaps eliminating them. Such an event could lead to losses being recognized on any future currency hedges then in place, not offset by anticipated changes in the underlying hedge exposure.

Risks Related to Ownership of Our Securities and Tax Considerations

We may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

We expect to use the net proceeds from this offering 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. In general, our management will have broad discretion in the application of the net proceeds from this offering and could spend the net proceeds in ways that do not necessarily improve our operating results or enhance the value of our common shares.

An active trading market for our common shares may not be sustained, which would adversely affect the liquidity and price of our common shares.

The market price and trading volume of our common shares may fluctuate significantly due to the general market and economic conditions and may change for a variety of other reasons, not necessarily related to our actual operating performance. We have experienced low trading volumes in our common shares, and thus relatively small purchases and sales can have a significant effect on our stock price. An active trading market for our common shares may not be sustained, which would adversely affect the liquidity and price of our common shares. In addition, the price of our common shares may vary due to general economic conditions and forecasts, our general business condition

 

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and the release of our financial reports. If our common shares become delisted from Nasdaq and are quoted on the OTC Bulletin Board (an inter-dealer automated quotation system for equity securities that is not a national securities exchange), the liquidity and price of our common shares may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. The price of our common shares and its volatility will also be impacted by the number of our common shares that are publicly owned and available for trading. You may be unable to sell your securities unless an active market for our common shares is sustained. Furthermore, the initial offering price for the common shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common shares at prices equal to or greater than the price paid by you in this offering.

The dual class structure of our ordinary shares and common shares has the effect of concentrating voting control with those shareholders who held our share capital prior to the Merger, including our directors, executive officers and their respective affiliates. This ownership will limit or preclude the ability of holders of our common shares to influence corporate matters, including the election of directors, amendments of our memorandum and articles of association, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.

Our ordinary shares have ten votes per share on matters to be voted on by shareholders, and our common shares have one vote per share. As of March 31, 2022, our directors, executive officers and their affiliates hold in the aggregate 45.4% of the voting power of our issued share capital. Because of the ten-to-one voting ratio between our ordinary shares and our common shares, the holders of our ordinary shares collectively continue to control a significant percentage of the combined voting power of our share capital and therefore be able to control all matters submitted to our shareholders for their approval. This concentrated control may limit or preclude the ability of the holders of our common shares to influence corporate matters for the foreseeable future, including the election of directors, the removal of any of the LumiraDx directors that Ron Zwanziger, Dave Scott or Jerry McAleer are entitled to nominate and have appointed to the board of directors (the “Founder Directors”) from our board of directors, amendments of our memorandum and articles of association, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval. This may prevent or discourage unsolicited acquisition proposals or offers for our issued share capital. In addition, each of our Founder Directors are members of our board of directors and cannot be removed from the board of directors without the voting approval of the ordinary shares held by Ron Zwanziger, our Chief Executive Officer and co-founder, and his affiliates. Furthermore, the terms of our arrangements with BMGF, Morningside Venture Investments Limited (“Morningside”), and CVS, grant each of BMGF, Morningside and CVS a right to appoint a director to our board of directors. Under the applicable agreements, the appointment rights shall terminate (i) in the case of BMGF or Morningside, once either party sells or no longer controls more than 25%; or (ii) in the case of CVS, once a sale or combination of sales results in CVS beneficially owning less than 75%, in each case of their respective initial holding of our ordinary shares, as converted from series A preferred shares in connection with the Merger. BMGF’s previous board appointee resigned from our board of directors in April 2021 and BMGF has not exercised its right to appoint a replacement director, but retains its right to do so.

Apart from certain limited circumstances described in our Amended and Restated Memorandum of Association and Articles of Association (“Amended and Restated Articles”), our ordinary shares must be converted into common shares before they can be sold or transferred. The conversion of ordinary shares to common shares will have the effect, over time, of increasing the relative voting power of those holders of our common shares who retain their shares in the long term. As a result, it is possible that one or more of the persons or entities holding our common shares could gain significant voting control as other holders of our ordinary shares sell or otherwise convert ordinary shares into common

 

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shares. We do not expect to issue any additional ordinary shares. Any future issuances of our ordinary shares would be dilutive to holders of common shares.

Future resales of our common shares, warrants or notes, sales of substantial amounts of our common shares in the public market, or the conversion of substantial amounts of our ordinary shares into common shares for sale in the public market, or the perception that these sales and/or conversions may occur, could cause the market price of our common shares to decline.

The common shares issued in connection with this offering will be freely tradable without restriction or further registration under the Securities Act.

In connection with this offering, we, our directors and executive officers and certain entities affiliated with directors and executive officers have agreed with the underwriters to a “lock-up,” pursuant to which we have agreed that, subject to certain exceptions, neither we nor they will sell, hedge or otherwise dispose of any common shares without the prior written consent of Goldman Sachs & Co. LLC for 90 days after the date of this prospectus. Following the expiration of the applicable lock-up period, these common shares will also be eligible for future sale.

Our Amended and Restated Articles, which became effective in connection with the consummation of the Merger, imposed a 180-day lock-up period from the date of the closing of the Merger, on certain holders of our common shares. This lock-up period expired on March 28, 2022, following which an aggregate of 40.3 million of our common shares became eligible for sale in the public market, subject to the requirements of Rule 144 under the Securities Act, and the restrictions imposed on certain shareholders under our insider trading policy. Additionally, in connection with the Merger certain holders of our common shares entered into the amended and restated Sponsor Agreement, dated April 6, 2021, as amended pursuant to the Amendment to the Sponsor Agreement dated August 19, 2021 (the “Sponsor Agreement”), which imposed a one-year lock-up period from the date of the closing of the Merger, which will expire on September 29, 2022. Upon the expiration of the applicable lock-up periods, holders of our common shares may sell large amounts of our common shares in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in the trading price of our common shares.

In addition, sales of substantial amounts of our common shares in the public market, or the conversion of substantial amounts of ordinary shares into common shares, or the exercise of certain warrants into common shares, for sale in the public market, or the perception that these sales, exercises and/or conversions may occur, could cause the market price of our common shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. In connection with the consummation of the Merger, we entered into a registration rights agreement (the “Merger Registration Rights Agreement”) providing certain of our shareholders with customary demand registration rights and piggy-back registration rights with respect to registration statements filed by us after the closing of the Merger. The common shares, if any, purchased by BMGF in the concurrent private placement will be “Registrable Securities” as that term is defined in the Merger Registration Rights Agreement and BMGF will be entitled to the registration rights set forth therein with respect to such common shares. In addition, in connection with the Convertible Notes offering, we entered into a registration rights agreement providing the holders of Convertible Notes with customary demand registration rights (the “Noteholder Registration Rights Agreement” and together with the Merger Registration Rights Agreement, the “Registration Rights Agreements”). Upon the effectiveness of any registration statement we file pursuant to the Registration Rights Agreements, in a registered offering of securities pursuant to the Securities Act, or otherwise in accordance with Rule 144 under the Securities Act, such holders may sell large amounts of common shares, Convertible Notes and warrants in the public market or in privately negotiated transactions, which could have the effect of increasing the volatility in the trading price of our common shares or warrants or putting

 

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significant downward pressure on the price of our common shares or warrants. Additionally, downward pressure on the market price of our common shares or warrants likely will result from sales of common shares issued in connection with the exercise of warrants. Further, sales of common shares could encourage short sales by market participants. Generally, short selling means selling a security, contract or commodity not owned by the seller. The seller is committed to eventually purchase the financial instrument previously sold. Short sales are used to capitalize on an expected decline in the security’s price. Short sales of our common shares could have a tendency to depress the market price of our common shares, which could increase the potential for short sales.

We cannot predict the size of future issuances of common shares or the effect, if any, that future issuances and sales of common shares will have on the market price of our common shares. Sales of substantial amounts of common shares, or the perception that such sales could occur, may adversely affect prevailing market prices of our common shares.

We rely on key vendors, such as Computershare Trust Company, N.A. for trading and transfer agent roles and other operational needs. These vendors may have strict internal guidelines that we cannot control. For example, shareholders who do not have their accounts set up in line with Computershare’s requirements may experience delays in their ability to access and trade their securities. In addition, these key vendors may themselves rely on third party service providers to support their own operations. The failure of any key vendor, or of any service provider to a key vendor, to fulfill its obligations, for any reason, could cause operational issues that could lead to legal liability, regulatory issues, reputational harm and financial losses.

We cannot predict the effect our dual class structure may have on the market price of our common shares.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our common shares, in adverse publicity, or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices, including FTSE Russell and S&P Dow Jones which impacted indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under any such announced policies or future policies, the dual class structure of our share capital could make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices would not invest in our common shares. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our common shares less attractive to other investors. As a result, the market price of our common shares could be adversely affected. It is unclear what additional effects such policies will have on the valuations of publicly-traded companies excluded from such indices, but it is possible that they may depress valuations, as compared to similar companies that are included or may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors or otherwise increase the volatility of the price of our common shares.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” For example, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant

 

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to Section 404 of the Sarbanes-Oxley Act. We could be an emerging growth company for up to five years from the closing of the Merger. We cannot predict if investors will find our common shares less attractive because we will rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. 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, and we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company. If we lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime, we would incur significant legal, accounting and other expenses that we would not incur as a foreign private issuer.

We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) 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 (iii) 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. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

In order to maintain our current status as a foreign private issuer, either (a) a majority of our common shares must be directly or indirectly owned of record by non-residents of the U.S. or (b)(i) a majority of our directors and executive officers may not be U.S. citizens or residents, (ii) more than 50% of our assets cannot be located in the U.S. and (iii) our business must be administered principally outside the U.S. If we were to lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and

 

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costly. These rules and regulations could also make it more difficult for us to attract and retain qualified directors.

As a foreign private issuer, and as permitted by the Nasdaq listing requirements, we follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.

The Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may, follow home country practice in lieu of the above requirements, or we may choose to comply with the Nasdaq listing exchange requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board of directors to consist of independent directors. Since a majority of our board of directors may not consist of independent directors, fewer board members may be exercising independent judgment and the level of board oversight on the management of the Company may decrease as a result. In addition, the Nasdaq listing rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. As a foreign private issuer, we are not subject to these requirements, and although we currently have an audit committee comprising of three independent directors, we may in the future change the composition of our audit committee. The Nasdaq listing rules may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, as well as certain issuances of share capital. We may consider following home country practice in lieu of the requirements under the Nasdaq listing rules with respect to certain corporate governance standards which may afford less protection to investors.

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.

In connection with the audits of our financial statements for the years ended December 31, 2020 and December 31, 2021, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses specifically resulted from (i) insufficient segregation of duties related to the posting of manual journal entries and (ii) the lack of documented evidence for management review controls related to significant accounting estimates and judgements.

We have insufficient segregation of duty related to the posting of manual journal entries. Additionally, where an independent review does occur, there is insufficient evidence to justify the operation of the control. These control failures are a result of resource constraints which result in inadequate staffing within the finance function to support sufficient segregation of duties and insufficient risk assessment procedures.

We lack documented evidence of review for management review controls related to significant accounting estimates and judgements although reviews were performed by various levels of management. This lack of documented review is a result of controls that are not designed at a sufficient level of detail.

Although we have begun to add appropriate levels of staffing, these material weaknesses have not been remediated as of the date of this prospectus.

 

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Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. In light of the material weaknesses that were identified in connection with the audits of our financial statements described above, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common shares. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

We do not anticipate paying any cash dividends in the foreseeable future.

We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common shares. As a result, capital appreciation in the price of our common shares, if any, will be your only potential source of gain on an investment in our common shares. The terms of the 2021 Senior Secured Loan preclude us, among other things, from paying cash dividends to our shareholders without the consent of Pharmakon.

Accordingly, if you purchase common shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common shares, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common shares. See the section titled “Dividend Policy.”

Shareholders will not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of common shares.

Our directors are authorized to issue common shares or grant rights to subscribe for common shares or shares of such undesignated class or classes (however designated) as the directors may determine, up to our authorized share capital from time to time. Our Amended and Restated Articles do not include any preemptive rights to entitle a shareholder to participate in any further issuances of common shares. This could cause existing shareholders to experience substantial dilution of their interest in us.

If equity or industry research analysts publish negative evaluations of LumiraDx, including a downgrade of the price target of our common shares, the price of our common shares could decline.

The trading market for our common shares relies in part on the research and reports that equity and industry research analysts publish about us or our business. We do not control these analysts. If

 

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one or more of the analysts covering our business downgrade their evaluations of our common shares, the price of our common shares could decline. If one or more of these analysts cease to cover our common shares, we could lose visibility in the public market for our common shares, which in turn could cause the price of our common shares to decline.

Our business and operations could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of our business and growth strategy and impact the price of our common shares.

Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the price of our common shares or other factors may in the future cause us to become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism could result in substantial costs and divert management’s attention and resources from our business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers or customers and make it more difficult for us to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, the price of our common shares could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.

If we were classified as a “passive foreign investment company” for U.S. federal income tax purposes (“PFIC”), U.S. holders of our common shares would be subject to adverse U.S. federal income tax consequences.

In general, we will be a PFIC for any taxable year in which either: (i) at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains, rents, and royalties, other than rents or royalties derived in the active conduct of a trade or business); or (ii) at least 50% of the quarterly average value of the gross assets held by us during such taxable year produce, or are held for the production of, passive income. For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any subsidiary corporation in which we own at least 25% of the value of the subsidiary’s stock.

Based on the current and expected composition of our income and assets and the value of our assets, we do not expect to be a PFIC for the current taxable year or in the foreseeable future. However, no assurances regarding our PFIC status can be provided. The determination of whether we are a PFIC for any taxable year is a fact-intensive determination that can only be made after the end of each year, and will depend on the composition of our income and assets and the value of our assets from time to time (including the value of our goodwill, which will generally be determined in part by reference to the market price of our common shares, which may fluctuate considerably). The composition of our income and assets will also be affected by the amount of cash that we raise in any future offerings or other financing transactions. Because the value of our goodwill will generally be determined by reference to our market capitalization, we could become a PFIC for any taxable year if the price of our common shares declines significantly while we hold a substantial amount of cash and financial investments. We also could become a PFIC if we do not generate sufficient income from our business in any taxable year relative to the amount of passive income that we generate in such taxable year. In addition, the application of the PFIC rules is subject to some uncertainties and the proper characterization of certain items of our income and assets is not entirely clear. Accordingly, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. We express no belief regarding our PFIC status with respect to any U.S. holder that acquired equity interests (or options or other rights to acquire equity interests) in us prior to the Merger.

 

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If we were classified as a PFIC, a “U.S. holder” (as defined in the section titled “Certain Material U.S. Federal Income Tax Considerations”) of our common shares would be subject to adverse U.S. federal income tax consequences, including potential increased tax liability. In addition, for each year during which we were classified as a PFIC, a U.S. holder of our common shares would generally be required to file IRS Form 8621 with such U.S. holder’s U.S. federal income tax return to report certain information concerning its ownership of our common shares. Each U.S. holder of our common shares should consult its own tax advisor regarding the PFIC rules and should read the discussion under “Certain Material U.S. Federal Income Tax Considerations—U.S. Federal Income Tax Consequences of the Ownership and Disposition of Common Shares—U.S. Holders—Passive Foreign Investment Company Rules” in this prospectus.

U.S. holders that own 10% or more of our equity interests may be subject to adverse U.S. federal income tax consequences under rules applicable to U.S. shareholders of controlled foreign corporations.

A non-U.S. corporation generally will be classified as a controlled foreign corporation for U.S. federal income tax purposes (“CFC”) if “10% U.S. equityholders” (as defined below) own, directly, indirectly or constructively, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. We do not believe that we would be classified as a CFC during the taxable year ended December 31, 2021, although CFC status is determined after taking into account complex constructive ownership rules and, accordingly, there can be no assurance in this regard. However, certain of our subsidiaries are classified as CFCs (as a result of the application of certain constructive ownership rules which treat our U.S. subsidiaries as owning the equity of those subsidiaries), and it is possible that we may be classified as a CFC in the future. The U.S. federal income tax consequences for U.S. holders who at all times are not 10% U.S. equityholders would not be affected by the CFC rules. However, a U.S. holder that owns (or is treated as owning, directly, indirectly or constructively, including by applying certain attribution rules) 10% or more of the combined voting power or value of all of classes of our equity interests (including equity interests attributable to deemed exercise of options and convertible debt instruments) (a “10% U.S. equityholder”) would generally be subject to current U.S. federal income taxation on a portion of our applicable subsidiaries’ earnings and profits (as determined for U.S. federal income tax purposes) and our earnings and profits (if we were classified as a CFC), regardless of whether such 10% U.S. equityholder receives any actual distributions. In addition, if we were classified as a CFC, a portion of any gains realized on the sale of our common shares by a 10% U.S. equityholder may be treated as ordinary income. A 10% U.S. equityholder will also be subject to additional U.S. federal income tax information reporting requirements with respect to our subsidiaries that are classified as CFCs and with respect to us (if we were classified as a CFC) and substantial penalties may be imposed for noncompliance. Each U.S. holder should consult its own tax advisor regarding the CFC rules and whether such U.S. holder may be a 10% U.S. equityholder for purposes of these rules.

Changes in taxation legislation or practice may adversely affect the Company and our group and the tax treatment for holders of our common shares.

Any change in taxation legislation or practice in the United Kingdom or other jurisdictions to which the Company and our group have exposure could adversely affect the value of the Company and/or affect the post-tax returns to holders of our common shares. Statements in this prospectus concerning the taxation of the Company and taxation of holders of our common shares are based upon current tax law and published practice any aspect of which is, in principle, subject to change that could adversely affect the Company and our group and/or the taxation of holders of our common shares, and which may have an adverse effect on the market value of our common shares.

 

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There have been significant recent changes both made and proposed to international tax laws that increase the complexity, burden and cost of tax compliance for all multinational groups. The Organization for Economic Co-operation and Development (“OECD”) is continuously considering recommendations for changes to existing tax laws. We expect to continue to monitor these and other developments in international tax law which may adversely affect the Company and its group and after-tax returns to holders of common shares.

In particular, the tax risks to the Company and its group and to holders of common shares may be affected by the OECD’s Action Plan on Base Erosion and Profit Shifting (the “BEPS Action Plan”). The aim of the BEPS Action Plan is that jurisdictions should change their domestic tax laws and introduce additional or amended provisions in double taxation treaties. Examples of possible outcomes of the BEPS Action Plan could be that the ability of entities such as the Company and members of its group to benefit from reliefs under double taxation treaties, or to obtain tax deductions for finance costs, could be adversely affected, potentially increasing the effective tax rate of the group. Final reports on all action points were published on October 5, 2015, but it remains unclear in many cases whether, when, how and to what extent certain jurisdictions will decide to adopt or further adopt those recommendations and different jurisdictions may implement any such recommendations in different ways. On July 12, 2016, the Council of the European Union formally adopted a directive containing a package of measures to combat tax avoidance (“ATAD”). The scope of ATAD was amended and widened by a further directive formally adopted by the Council of the European Union on May 29, 2017 (“ATAD 2”). The implementation of ATAD and/or ATAD 2, which (among other initiatives) requires implementation of certain recommendations of the BEPS Action Plan within the European Union, may adversely affect the Company and its group.

In addition, further work is currently being undertaken by the OECD on potential future recommendations related to the challenges arising from the digitalization of the global economy, specifically relating to reform of the international allocation of taxing rights, or Pillar One, and a system ensuring a minimum level of tax for multinational enterprises, or Pillar Two, which may result in additional adverse tax consequences for the Company and its group.

Recently introduced economic substance legislation of the Cayman Islands may adversely impact us or our operations.

The Cayman Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Cooperation (Economic Substance) Act, (as revised) (the “Substance Act”) came into force in the Cayman Islands introducing certain economic substance requirements for in-scope Cayman Islands entities which are engaged in certain “relevant activities”. As we are a Cayman Islands company, compliance obligations include filing annual notifications for the Company, which need to state whether we are carrying out any relevant activities and whether we are claiming an exemption from the obligations to meet the economic substance tests to the extent required under the Substance Act (the “Substance Test”). If we are carrying out such relevant activities, or are claiming such an exemption we are further required to file annually a report as to whether we have satisfied the Substance Test or the bias on which we are claiming such exemption. As it is a new regime, it is anticipated that the Substance Act will evolve and be subject to further clarification and amendments. We may need to allocate additional resources to keep updated with these developments and may have to make changes to our operations in order to comply with all requirements under the Substance Act. Failure to satisfy these requirements may subject us to penalties under the Substance Act.

 

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We expect the Company and LumiraDx Group to operate so as to be treated solely as a resident of the United Kingdom for tax purposes, but changes to our management and organizational structure and/or to the tax residency laws of other jurisdictions where we operate may cause the relevant tax authorities to treat the Company as also being a resident of another jurisdiction for tax purposes.

Under current U.K. tax law, if the location of a company’s central management and control is in the United Kingdom, or if a company is incorporated in the United Kingdom, it is regarded as resident for tax purposes in the United Kingdom unless (i) it is concurrently treated as resident for tax purposes in another jurisdiction (applying the rules of that other jurisdiction for determining tax residency) that has a double tax treaty with the United Kingdom and (ii) there is a residency tie-breaker provision in that tax treaty which allocates tax residence to that other jurisdiction.

Based upon our anticipated management and organizational structure, we believe that the Company and LumiraDx Group (and the other U.K. incorporated companies in the group) should be regarded as tax resident solely in the United Kingdom. However, because this analysis is highly factual and may depend on future changes in our management and organizational structure, as well as future changes in the tax residency laws of other jurisdictions where we operate, there can be no assurance regarding the determination of the tax residence of such companies in the future.

Should any such company be treated as resident in a jurisdiction other than the United Kingdom it could be subject to taxation in that jurisdiction and may be required to comply with a number of material and formal tax obligations, including withholding tax and/or reporting obligations provided under the relevant tax law, which could result in additional costs and expenses.

We are a Cayman Islands company. Because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, shareholders may have fewer shareholder rights than they would have under U.S. law.

Our corporate affairs are governed by our then current memorandum and articles of association (as may be amended from time to time), the Companies Act (as revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of directors are to a large extent governed by the common law of the Cayman Islands. This common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of directors under Cayman Islands law are not as clearly defined as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less prescriptive body of securities law than the United States. In addition, some states in the United States, such as Delaware, have more fulsome and judicially interpreted bodies of corporate law than the Cayman Islands.

In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders with the exception that the shareholders may request a copy of our then current memorandum and articles of association. Under our Amended and Restated Articles, our directors have discretion to determine whether or not, and under what conditions, our corporate records may be inspected by shareholders, but are not obliged to make them available to shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion. As a result, you may be limited in your ability to protect your interests if you are

 

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harmed in a manner that would otherwise enable you to sue in a U.S. federal court. As a result of all of the above, shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board or controlling shareholders than they would as shareholders of a U.S. company.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law.

We expect to conduct a significant portion of our operations outside the United States through our subsidiaries. The majority of our directors and executive officers reside outside the United States and a majority of the group’s assets are located outside of the United States As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under either under U.S. federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is uncertainty as to whether the courts of the Cayman Islands would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state and it is uncertain whether such Cayman Islands courts would hear original actions brought in the Cayman Islands against us or such persons predicated upon the securities laws of the United States or any state. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

Anti-takeover provisions in our Amended and Restated Articles may discourage, delay or prevent a change in control.

Some provisions in our Amended and Restated Articles, may discourage, delay or prevent a change in control of the Company or management that holders of our common shares may consider unfavorable, including, among other things, the following:

 

   

provisions that permit our board of directors by resolution to issue undesignated classes of shares with such preferred, deferred or other special rights or restrictions as the board of directors may determine in their discretion, without any further vote or action by our shareholders. If issued, the rights, preferences, designations and limitations of any class of undesignated shares could operate to the disadvantage of the outstanding ordinary shares or common shares, the holders of which would not have any pre-emption rights in respect of such an issue of undesignated shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers;

 

   

our shareholders may not take action by written consent, but may only take action at annual or extraordinary meetings of our shareholders. As a result, a holder controlling a majority of our share capital would not be able to amend our Amended and Restated Articles or remove directors without holding a meeting of our shareholders called in accordance with our Amended and Restated Articles. Our Amended and Restated Articles further provide that special meetings of our shareholders may be called only by shareholders holding not less than one-third of the voting rights who are entitled to vote at general meetings. However, shareholders may propose only ordinary resolutions to be put to a vote at such a meeting and shall have no right to propose resolutions with respect to the election, appointment or removal of any person as a director or to amend our Amended and Restated Articles. Our Amended and Restated Articles provide no other right to put any proposals before an annual general

 

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meeting or an extraordinary general meeting. These provisions might delay the ability of our shareholders to force consideration of a proposal or for shareholders controlling a majority of our share capital to take any action, including the removal of directors;

 

   

our board of directors is classified into three classes of directors (being the Founder Directors, the Class I directors and the Class II directors). A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for shareholders to replace a majority of the directors on a classified board of directors. Shareholders may only remove the Class I directors and Class II directors for cause by way of passing a special resolution; and

 

   

each of the Founder Directors cannot be removed from the board of directors absent the voting approval of the ordinary shares held by Ron Zwanziger, our Chief Executive Officer and co-founder, and his affiliates. This provision would prevent shareholders from removing any of the Founder Directors from their respective positions on the board of directors.

Holders of our common shares may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association and have been provided for in the Amended and Restated Articles, subject to the restrictions described therein. Advance notice of at least 21 clear days is required for the convening of our annual general shareholders’ meeting and at least 14 clear days’ notice of any other general meeting of our shareholders (other than an adjourned meeting). A quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy. To the extent that shareholders hold in aggregate less than one-third of the outstanding voting shares in the Company, they cannot call general meetings or annual general meetings. To the extent that shareholders hold in the aggregate one third of the outstanding voting shares of the Company, as set out above, an extraordinary general meeting may be convened but shareholders cannot include matters for consideration at such a meeting requiring the approval of a special resolution or are matters relating to the election, appointment, removal of any person as a director.

We may become subject to taxation in the Cayman Islands which would negatively affect our results.

We have received an undertaking from the Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Act (as revised) of the Cayman Islands, for a period of 20 years from the date of grant of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on or in respect of the shares, debentures or other obligations of the Company or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by the Company to its members or a payment of principal or interest or other sums due under a debenture or other obligation of the Company. If we otherwise were to become subject to taxation in the Cayman Islands, our financial condition and results of operations could be materially and adversely affected.

There may be a risk of us being subject to tax in jurisdictions in which we do not currently consider ourselves to have any tax resident subsidiaries or permanent establishments.

Our tax treatment is dependent, among other things, on the jurisdiction of our residence, including the residence of our subsidiaries, for tax purposes. We are a Cayman Islands exempted company with

 

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limited liability, resident in U.K. for tax purposes. We attempt to manage our business such that each of our subsidiaries is resident for tax purposes solely in its jurisdiction of incorporation and does not unintentionally create a taxable permanent establishment or other taxable presence in any other jurisdiction.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements regarding our current expectations or forecasts of future events. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, the Platform, other products, tests, ongoing and planned preclinical studies and clinical trials, regulatory submissions and approvals, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations are forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate,” “will” and “potential,” among others.

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under “Risk Factors.” These risks and uncertainties include:

 

   

our ability to compete in the highly competitive markets in which we operate, and potential adverse effects of this competition;

 

   

our ability to maintain revenues if our products and services do not achieve and maintain broad market acceptance, or if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards and changing regulatory requirements;

 

   

uncertainty, downturns and changes in the markets we serve;

 

   

our expectations regarding the size of the POC market for the Platform, the size of the various addressable markets for certain tests and our ability to penetrate such markets by driving the conversion of healthcare providers’ testing needs onto the Platform;

 

   

our commercialization strategy, including our plans to initially focus our sales efforts on large healthcare systems, government organizations and national pharmacy chains that want to deploy comprehensive POC testing across their networks, our strategy on the commercialization of our current and future assays and our ability to launch and obtain regulatory approval for new tests;

 

   

our ability to increase the installed base of our Instruments;

 

   

our ability to repay or service our debt obligations and meet the financial covenants related to such debt obligations;

 

   

our belief that we will be able to drive commercialization of the Platform through the launch of our SARS-CoV-2 antigen and SARS-CoV-2 antibody tests;

 

   

the willingness of healthcare providers to use a POC system over central lab systems and the rate of adoption of the Platform by healthcare providers and other users;

 

   

the scalability and commercial viability of our manufacturing methods and processes, especially in light of the anticipated demand for the Platform and our minimum commitments to supply the Platform to customers;

 

   

our ability to source suitable raw materials and components for the manufacture of the Instrument and test strips in a timely fashion;

 

   

our ability to maintain our current relationships, or enter into new relationships, with diagnostics or research and development companies, third party manufacturers and commercial distribution collaborators;

 

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our ability to effectively manage our anticipated growth;

 

   

our ability to rapidly develop and commercialize diagnostics tests that are accurate and cost-effective;

 

   

the timing, progress and results of our diagnostics tests, including statements regarding launch plans and commercialization plans for such tests, all which may be delayed by or halted due to a number of factors, including the impact of the COVID-19 pandemic and the end of the COVID-19 pandemic;

 

   

the timing, scope or likelihood of regulatory submissions, filings, approvals, authorizations, certifications, clinical trials or clearances;

 

   

the pricing, coverage and reimbursement of the Instrument and tests, if approved;

 

   

our ability to enforce our intellectual property rights and to operate our business without infringing, misappropriating, or otherwise violating the intellectual property rights and proprietary technology of third parties;

 

   

developments and projections relating to our competitors and our industry;

 

   

our ability to develop effective internal controls over financial reporting;

 

   

our ability to attract, motivate and retain qualified employees, including members of our senior management team;

 

   

the effects of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business or operations;

 

   

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;

 

   

our expectations regarding the time during which we will be an emerging growth company under the “JOBS Act and a foreign private issuer;

 

   

the future trading price of our common shares and impact of securities analysts’ reports on these prices;

 

   

our ability to fully derive anticipated benefits from existing or future acquisitions, joint ventures, investments or dispositions;

 

   

exchange rate fluctuations and volatility in global currency markets;

 

   

potential adverse tax consequences resulting from the international scope of our operations, corporate structure and financing structure;

 

   

U.S. tax legislation enacted in 2017, which could materially adversely affect our financial condition, results of operations and cash flows;

 

   

increased risks resulting from our international operations and expectations of future expansion of such operations;

 

   

our ability to comply with various trade restrictions, such as sanctions and export controls, resulting from our international operations;

 

   

government and agency demand for our products and services and our ability to comply with government contracting regulations; and

 

   

our ability to operate in a litigious environment.

 

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These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections of this prospectus titled “Risk Factors” and elsewhere in this prospectus or incorporated herein by reference. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

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

 

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MARKET, INDUSTRY AND OTHER DATA

Certain information included in this prospectus concerning LumiraDx’s industry, including its total addressable market, the volume of tests and the shift of tests from the central lab to the POC are based on our good faith estimates and assumptions derived from our management’s knowledge of the industry and other information currently available to LumiraDx. This prospectus also includes 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.

The industry in which we operate, as well as the assumptions and estimates of our future performance and the future performance of the industry in which we operate, are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus, that could cause results to differ materially from those expressed in these estimates.

 

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USE OF PROCEEDS

We estimate the net proceeds from this offering to be approximately $68.5 million (or approximately $79.1 million if the underwriters exercise their option to purchase additional shares in full), after deducting 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.

Our expected use of the net proceeds from this offering represents our current intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the consummation of this offering or the amounts that we will actually spend on the uses set forth above. Our board of directors will have broad discretion in applying the net proceeds of this offering and investors will be relying on our judgment regarding the application of the net proceeds of this offering.

As of the date of this prospectus, we intend to invest the net proceeds in short-term interest-bearing investment-grade securities, certificates of deposit or government securities. The goal with respect to the investment of these net proceeds is capital preservation and liquidity so that such funds are readily available to fund our operations.

 

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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.

LumiraDx is a holding company that does not conduct any business operations of its own. As a result, LumiraDx is dependent upon cash dividends, distributions and other transfers from its subsidiaries to make dividend payments, and such subsidiaries may be restricted in their ability to pay dividends or distributions, or make other transfers to LumiraDx. In addition, the terms of our 2021 Senior Secured Loan preclude LumiraDx from paying cash dividends to its shareholders without the consent of Pharmakon. We have also agreed that we will not pay certain distributions, dividends or undertake returns of capital, without the prior written consent of BMGF.

If LumiraDx does pay a cash dividend on the common shares or ordinary shares in the future, it may only pay such dividend out of its profits available for distribution or (subject to applicable solvency requirements) share premium or contributed surplus under Cayman Islands law. Our board of directors will have complete discretion regarding the declaration and payment of dividends, and the Founder Directors will be able to influence our dividend policy. The amount of any future dividend payments we may make will depend on, among other factors, our strategy, future earnings, financial condition, cash flow, working capital requirements, capital expenditures, contractual restrictions and applicable provisions of our Amended and Restated Articles.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and total capitalization as of March 31, 2022:

 

   

on an actual basis; and

 

   

as adjusted to give effect to (i) the issuance and sale of 43,000,000 common shares in this offering at the public offering price of $1.75 per common share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the issuance and sale by us in the concurrent private placement of $25.0 million of our common shares to BMGF after deducting certain advisory fees payable by us in connection with the concurrent private placement.

The information in this table should be read in conjunction with the information set forth under the sections titled “Selected Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus, the financial statements and related notes thereto included elsewhere in this prospectus. Our historical results do not necessarily indicate our expected results for any future periods.

 

     As of March 31, 2022  
     Actual(1)     As
Adjusted
 
     (in thousands)  

Cash and cash equivalents

   $ 166,046     $ 257,989  
  

 

 

   

 

 

 

Debt

     (356,887     (356,887

Equity:

    

Share capital and share premium

     (755,097     (663,154

Foreign currency translation reserve

     10,322       10,322  

Other reserves

     (104,957     (104,957

Accumulated deficit

     724,497       724,497  
  

 

 

   

 

 

 

Total equity attributable to equity holders of the parent

     (125,235     (33,292

Non-controlling interests

     377       377  
  

 

 

   

 

 

 

Total equity

     (124,858     (32,915
  

 

 

   

 

 

 

Total capitalization

   $ (315,699   $ (131,813
  

 

 

   

 

 

 

 

(1)

This table does not reflect the investments of $26.1 million in April 2022 and $15.4 million in June 2022 pursuant to the Royalty Agreement. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Royalty Agreement.”

The number of common shares issued and outstanding immediately after the closing of this offering and the concurrent private placement, as adjusted in the table above, 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

 

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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, 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 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.”

 

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DILUTION

If you invest in our common shares, your ownership interest will be diluted to the extent of the difference between the public offering price per common share paid by purchasers of our common shares in this offering and the concurrent private placement and the as adjusted net tangible book value per share (including our outstanding common shares and ordinary shares) immediately after the consummation of this offering and the concurrent private placement.

As of March 31, 2022, we had a net tangible book value of $450.0 million, corresponding to a net tangible book value of $1.77 per share (including our outstanding common shares and ordinary shares). Net tangible book value per share (including our outstanding common shares and ordinary shares) represents the amount of our total assets less our total liabilities, excluding intangible assets, divided by the total number of our common shares and ordinary shares issued and outstanding as of March 31, 2022.

After giving effect to the sale by us of the common shares offered by us in this offering and the issuance and sale by us in the concurrent private placement of $25.0 million of our common shares to BMGF, at the public offering price of $1.75 per common share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2022 would have been approximately $542.0 million, representing $1.74 per share (including our outstanding common shares and ordinary shares). This represents an immediate decrease in net tangible book value of $0.03 per share (including our outstanding common shares and ordinary shares) to existing shareholders and will result in an immediate dilution of $0.01 per common share to new investors purchasing common shares in this offering. Dilution for this purpose represents the difference between the price per common share paid by these purchasers and the as adjusted net tangible book value per share (including our outstanding common shares and ordinary shares) immediately after the consummation of this offering and the concurrent private placement.

The following table illustrates this dilution to new investors purchasing common shares in this offering (without giving effect to any exercise by the underwriters of their option to purchase additional shares):

 

Public offering price per common share

      $ 1.75  

Net tangible book value per share (including our outstanding common shares and ordinary shares) as of March 31, 2022

   $ 1.77     

Decrease in net tangible book value per share (including our outstanding common shares and ordinary shares) attributable to this offering and the concurrent private placement

   $ 0.03     
  

 

 

    

As adjusted net tangible book value per share (including our outstanding common shares and ordinary shares) after giving effect to this offering and the concurrent private placement

      $ 1.74  
     

 

 

 

Dilution per common share to new investors participating in this offering

      $ 0.01  
     

 

 

 

If the underwriters exercise their option to purchase additional common shares in full, the as adjusted net tangible book value per share after this offering and the concurrent private placement would be $1.74 per share (including our outstanding common shares and ordinary shares), the decrease in as adjusted net tangible book value per share would be $0.03 per share (including our outstanding common shares and ordinary shares) and the dilution to new investors purchasing common shares in this offering would be $0.01 per common share.

 

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The foregoing tables and calculations (other than historical net tangible book value) are 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 outstanding 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, 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 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.”

To the extent that any outstanding options are exercised, new options are issued under the 2021 Stock Option and Incentive Plan, or we otherwise issue additional common shares in the future at a price less than the public offering price, there will be further dilution to the investors. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The consolidated historical financial data in this section has been prepared in accordance with 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 selected 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.

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 income statement within Finance income and Finance expense.

 

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Consolidated Historical Financial Data

 

    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  

 

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     As of
December 31,
    As of
March 31,
 
     2020     2021     2022  
     (in thousands)  

Consolidated Statement of Financial Position:

      

Assets

      

Non–Current Assets

      

Other non-current assets

   $ 241     $ 569     $ 592  

Intangibles and goodwill

     40,723       37,048       35,723  

Right-of-use assets

     10,386       27,746       25,823  

Property, plant and equipment

     87,082       173,397       172,691  
  

 

 

   

 

 

   

 

 

 

Total Non-Current Assets

     138,432       238,760       234,829  
  

 

 

   

 

 

   

 

 

 

Current Assets

      

Inventories

     85,516       149,055       164,729  

Tax receivable

     20,680       15,022       16,061  

Trade and other receivables

     109,295       109,798       77,562  

Restricted cash

     2,455              

Cash and cash equivalents

     158,717       132,145       166,046  
  

 

 

   

 

 

   

 

 

 

Total Current Assets

     376,663       406,020       424,398  
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 515,095     $ 644,780     $ 659,227  
  

 

 

   

 

 

   

 

 

 

Liabilities and Equity

      

Liabilities

      

Non-Current Liabilities

      

Debt due after more than one year

   $ (139,734   $ (301,129   $ (356,887

Preferred shares

     (451,721            

Lease liabilities

     (8,991     (25,514     (24,132

Stock warrants

           (10,407     (5,002

Deferred tax liabilities

     (1,230     (779     (676
  

 

 

   

 

 

   

 

 

 

Total Non-Current Liabilities

     (601,676     (337,829     (386,697
  

 

 

   

 

 

   

 

 

 

Current Liabilities

      

Debt due within one year

     (147,238     (191     (133

Government and other grants

     (44,037     (38,941     (35,663

Trade and other payables

     (95,246     (99,641     (106,129

Lease liabilities due within one year

     (2,114     (5,582     (5,747
  

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     (288,635     (144,355     (147,672

Equity

      

Share capital and share premium

     (152,732     (754,023     (755,097

Foreign currency translation reserve

     19,905       19,706       10,322  

Other reserves

     (99,821     (104,957     (104,957

Accumulated deficit

     607,657       (676,223     724,497  
  

 

 

   

 

 

   

 

 

 

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
  

 

 

   

 

 

   

 

 

 

Total Equity and Liabilities

   $ (515,095   $ (644,780   $ (659,227
  

 

 

   

 

 

   

 

 

 

 

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     Year Ended
December 31
    Three Months Ended
March 31,
 
     2020     2021     2021     2022  
     (in thousands)  

Consolidated Statement of Cash Flows:

        

Cash Flows from Operating Activities

        

Loss for the period

   $ (240,997   $ (100,755   $ (180,789   $ (56,172

Adjustments to reconcile loss for the period to net cash used in operating activities:

        

Depreciation

     8,527       22,868       3,490       7,880  

Amortization

     2,387       2,827       582       525  

Net finance expenses

     126,774       (63,625     153,862       22,535  

Equity based share based payment transactions

     3,191       33,909       21,002       7,976  

Increase in tax receivable

     (11,269     (4,663     (688     (1,470

Accrued preferred shares dividends

     23,578       16,156       5,327        

Listing charge

           27,607              

Changes to working capital:

        

Inventories

     (73,302     (66,874     (57,659     (18,608

Trade and other receivables

     (89,213     7,511       48,491       31,840  

Trade payables and other liabilities

     100,997       (9,544     (2,889     3,798  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash used in Operating Activities

     (149,327     (134,583     (9,271     (1,696

Cash Flows from Investing Activities

        

Purchases of property, plant, equipment

     (64,381     (106,346     (35,427     (10,262
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash generated used in Investing Activities

     (64,381     (106,346     (35,427     (10,262

Cash Flows from Financing Activities

        

Proceeds from issuance of preferred shares

     162,401                    

Proceeds from debt issuance, net of issuance costs

     62,391       361,830       364,310        

Proceeds from issuance of convertible notes, net of issuance costs

     70,917                   54,325  

Proceeds from issuance of share capital

           38,568              

Shares issued on the exercise of share options

     41       104             1,074  

Repayment of principal portion of lease liabilities

     (3,054     (5,429     (1,172     (1,539

Cash interest paid, net of interest received

     (12,114     (29,894     (5,522     (6,100

Early extinguishment of debt

     (3,600     (3,637     (2,350      

Cash issued for non-controlling interest

           (1,968            

Repayments of debt

     (40,396     (140,552     (140,103     (83
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash generated from Financing Activities

     236,586       219,022       215,163       47,677  

Net (Decrease) / Increase in Cash and Cash Equivalents

   $ 22,878     $ (21,907   $ 170,465     $ 35,719  

Movement in Cash and Cash Equivalents

        

Cash and cash equivalents at the beginning of the period

     139,387       161,172       161,172       132,145  

Exchange (loss) / gain on cash and cash equivalents

     (1,093     (7,120     2,881       (1,818

Net Increase / (decrease) in cash and cash equivalents

     22,878       (21,907     170,465       35,719  

Cash and Cash Equivalents at the end of the period

   $ 161,172     $ 132,145     $ 334,518     $ 166,046  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this prospectus and in the section titled “Selected Historical Financial Information.” The following discussion is based on our financial information prepared in accordance with the IFRS, as issued by the International Accounting Standards Board, which may differ in material respects from generally accepted accounting principles in other jurisdictions, including U.S. generally accepted accounting principles. This discussion and other parts of this prospectus contain forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.” Please also see the section titled “Forward-Looking Statements.”

We have elected to omit discussion of the earliest of the three years covered by our consolidated financial statements presented in this prospectus because that disclosure for the fiscal year ended December 31, 2019 was included in our Proxy Statement and Prospectus part of the Registration Statement on Form F-4 (File 333-257745) under the section titled “LumiraDx’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Overview

We are a next-generation POC diagnostic company addressing the current limitations of legacy POC systems by bringing 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 our Platform, which is an integrated system comprised of a small, versatile 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 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 capacity to manufacture over 28 million test strips a month for our Platform, we have deployed over 25,000 Instruments across nearly 100 countries, and we have more than 1,600 staff across the globe.

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 tests and those under development are designed to address unmet diagnostic needs in the fields of respiratory disease, cardiovascular disease, diabetes, and coagulation disorders.

 

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We have a portfolio of COVID-19 tests for which we have received regulatory approval, authorization, certification or clearance for use on our Platform, including our SARS-CoV-2 antigen test commercially available (i) under an 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 CE Mark in the 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 EUL by the World Health Organization, and our SARS-CoV-2 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 SARS-CoV-2 antigen pool test, our SARS-CoV-2 & Flu A/B tests, our SARS-CoV-2 & RSV test and our SARS CoV-2 Ag Ultra and Ultra Pool tests. Our SARS-CoV-2 antigen test has been authorized by the FDA under an EUA only for the qualitative detection of SARS-CoV-2 nucleocapsid protein and has not been authorized for use to detect any other viruses or pathogens. This test and any other tests for which we may obtain an EUA only has not been cleared or approved by FDA, and therefore we cannot, until such time as such clearance or approval has been obtained, market such test in the United States following the termination of the EUA.

Our broader test menu includes our 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 COVID-19 pandemic and the resulting acute need for timely diagnostic information, we developed our SARS-CoV-2 antigen test, SARS-CoV-2 antigen pool test, SARS-CoV-2 antibody test, SARS-CoV-2 & Flu A/B tests, SARS-CoV-2 & RSV test and SARS-CoV-2 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 SARS-CoV-2 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 SARS-CoV-2 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 SARS-CoV-2 antigen tests and ranked our test as most sensitive and accurate. Our SARS-CoV-2 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.

Our recently CE Marked SARS-CoV-2 Ag Ultra test matches the same high-performance as the LumiraDx SARS-CoV-2 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.

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

 

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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.

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 COVID-19 testing markets. Therefore, based on the same chemistry and test strip design as our SARS-CoV-2 antigen test on our Platform, we have developed the Amira System, for which we have affixed the CE Mark for POC use in professional settings. The Amira System is a high-sensitivity mass screening and home testing system for COVID-19. We plan to manufacture and distribute our Amira System at a price and volume that enables both (i) mass testing required to support continued safe re-opening of the economy as well as (ii) broad scale diagnostic testing in high burden countries. Subject to completion of product development, regulatory approval, authorization, certification or clearance for professional and home use, market demand and manufacturing scale-up of the Amira System, we currently expect to launch our Amira System for professional use by the end of summer 2022, with a manufacturing capacity of building up to 300 million tests per month over time and capability of producing many more, depending on market need for mass screening testing. We anticipate the retail price of our Amira SARS-CoV-2 Ag test to be between $2.00-$4.00 per test, significantly lower than many existing COVID-19 tests currently on the market as well as the equivalent tests on our Instrument. For very high-volume purchases and shipments to low- and middle-income countries (“LMICs”), we expect the price to be lower. We have installed a high-volume manufacturing line for the Amira SARS-CoV-2 Ag test strips, in anticipation of a potential commercial launch. Beyond 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 COVID-19 reagent testing kits for use on open molecular systems, LumiraDx SARS-CoV-2 RNA STAR, SARS-CoV-2 RNA STAR Complete, SARS-CoV-2 & Flu A/B RNA STAR Complete and Dual-Target SARS CoV-2 STAR Complete. LumiraDx SARS-CoV-2 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 SARS-CoV-2 RNA STAR Complete utilizes a direct amplification method that combines lysis and amplification in a single step, detecting SARS-CoV-2 nucleic acid in under 20 minutes, without needing to perform any specimen purification or extraction. We have obtained an EUA for LumiraDx SARS-CoV-2 RNA STAR. We have also obtained an EUA for SARS-CoV-2 RNA STAR Complete and commenced commercial sales and have affixed the CE Mark to these products. Our SARS-CoV-2 & Flu A/B RNA STAR Complete and Dual-Target SARS 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

 

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countries, Japan, Colombia, Brazil, India and South Africa and over time plan to further expand to the largest 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.

On the Platform, we have 50+ tests in our three-year roadmap for community-based healthcare settings and plan to launch additional tests, subject to successful development and regulatory approval, authorization, certification or clearance. Our key tests under development include: high sensitivity Troponin I for cardiovascular disease and Strep A molecular. Our tests are subject to extensive regulatory requirements and we seek to obtain regulatory approval, authorization, certification or clearance on a test-by-test basis. We are focused on commercializing our tests on pace with receipt of the requisite regulatory approval, authorization, certification or clearance and any delays in commercialization of our tests or decreases in the expected market demand for our tests could adversely impact our operations and financial results. We have also entered into R&D collaborations with well-established diagnostic companies that have market-leading assays and capabilities in specific conditions to further accelerate the expansion of the test menu for our Platform. See the section titled “Business—Research and Development” for additional details on our R&D collaboration agreements. Additionally, our R&D team is focused on continuous enhancement of our disruptive technologies.

The diagnostics industry, including IVD and POC systems, is rapidly evolving, and we face competition from established diagnostics companies as well as new market entrants. We believe the principal competitive factors in our industry include flexibility and ease of use, time to result, accuracy, reputation, price, innovation and compatibility with existing processes. We currently have eight tests commercially available on the Instrument. These eight tests compare favorably against the current tests available in the market based on sensitivity, precision, time to result and ease of use, and our tests in development are designed and are being validated against their respective lab standard. Many of our competitors have greater brand recognition, resources, sales forces, intellectual property portfolios, larger customer bases and more established and larger scale manufacturing capabilities.

Our proprietary microfluidic test strip is designed to accommodate all of our assays and sample types in a single-design architecture. We can manufacture our test strips at large scale and low cost on our proprietary manufacturing system. We believe our scalable manufacturing process provides us with a sustainable cost position that allows us to provide cost-efficient diagnostic solutions to the POC market. It also enables us to expand into attractive geographies and alternative healthcare settings where high quality POC testing has previously not been feasible.

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. 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 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.

As of December 31, 2021, we have 201 employees focused on sales and marketing located in 21 countries and plan to open additional sales offices to further expand our presence globally. We have direct sales operations in the United States, most major European countries, Japan, India, South Africa, Colombia and Brazil.

We manufacture our test strips on highly automated, manufacturing equipment designed and manufactured specifically for us. All of our test strips are manufactured on a common platform using a

 

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high volume, web-based manufacturing process that allows the production of multiple test strip sizes and designs. Utilizing a common platform allows us to leverage volume and have efficient manufacturing costs and provides flexibility to respond more rapidly to changing market demands across our product portfolio.

As of March 31, 2022, we have raised over $1.1 billion through the issuance of debt and equity securities and from our partners since inception. We have primarily deployed this capital to develop and commercialize our Platform and build manufacturing capabilities and a commercial organization that have the potential to deliver on our aspiration to be the global leader in POC diagnostics.

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 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. 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.

 

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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 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. SARS-CoV-2 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 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

 

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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 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 “—Liquidity and Capital Resources – Indebtedness – Convertible Notes.”

Royalty Agreement

On April 27, 2022, we entered into 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 “—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 “—Liquidity and Capital Resources – Indebtedness” for further details on the 2021 Senior Secured Loan.

 

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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 SARS-CoV-2 STAR Complete (announced on June 8, 2022), SARS-COV-2 & 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), SARS-CoV-2 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 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 antigen test (announced on May 20, 2022).

Factors Affecting Our Performance

We believe there are several important factors that have impacted and that we expect will impact or will continue to impact our financial performance and results of operations, including:

 

   

COVID-19 test utilization.    We believe that our ability to sell POC COVID-19 tests during the COVID-19 pandemic has established strong brand awareness and acceptance of our technology and built an installed base of Instruments with potential long-term POC customers. The ongoing test utilization of our current installed base will likely be strongly linked to the overall prevalence of COVID-19 infections and the overall need for testing in those settings where Instruments have been installed. Reduced test utilization at these settings would lead to reduced revenue for our COVID-19 test strips.

 

   

Increase the installed base of our Instruments.    Our Instrument runs a variety of diagnostic testing technologies utilizing our disposable test strips. We initially intend to focus our sales efforts on large healthcare systems, government organizations and national pharmacy chains that want to deploy comprehensive POC testing across their networks. We believe the successful large-scale deployment of an installed base of Instruments will provide revenue growth in both the near term and the long term through consumption of our current and future assays. We expect our installed base of Instruments to continue to grow as we increase penetration in our existing markets, expand into new markets and add new assays.

 

   

Commercialization of our current and future assays.    We believe that delivering a broad menu of diagnostic tests for community-based healthcare on a single Platform is critical to transforming the POC market. We have a growing pipeline of tests and panels for cardiovascular disease, respiratory disease, diabetes, and coagulation disorders, designed to deliver lab-comparable performance. We believe that successful execution of this global market-driven menu strategy will lead to wide adoption of our Platform and high utilization of our diagnostic tests. Any delays in commercialization of our assays or decreases in the expected market demand for our assays could adversely impact our operations and financial results.

 

   

Highly automated, cost efficient manufacturing process.    Our proprietary microfluidic test strip is capable of accommodating all of our currently contemplated POC assays within a single design architecture. We manufacture our test strips on highly automated manufacturing equipment designed and manufactured specifically to meet high volume demand at a low cost. We believe the automated manufacturing process of our test strips provides an industry leading cost position. In order to meet the anticipated demand for our Platform, we may need to continue to add manufacturing capacity. This may require continued investments, including the purchase of manufacturing equipment, the lease or purchase of new facilities, leasehold and building improvements to our existing and future facilities, and hiring of new personnel.

 

   

Investment in regulatory approvals, authorizations, certifications and clinical trials.    We will incur increased costs to conduct clinical trials and to obtain regulatory approvals,

 

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authorizations, certifications or clearances as we commercialize our products across global markets. Clinical trials demonstrating the acceptable performance of our products may be required in order to obtain regulatory approvals or clearances. Additional regulatory approvals, authorizations, certifications or clearances will impact our ability to sell both our Instruments and test strips in various geographies. Any delays in regulatory approvals, authorizations, certifications or clearances of our tests or a lack of strong clinical trial evidence for the performance of our tests could adversely impact our operations and financial results.

 

   

Investment in global expansion.    We intend to continue to expand the availability of our Platform on a global basis. We intend to establish subsidiaries in additional countries, where appropriate, and hire additional resources in sales, marketing and administration in order to develop the market for our products, engage in sales activities and establish other commercial capabilities to serve the needs our customers. If our investment in our global expansion does not generate expected revenue growth, then our operations and financial results could be adversely impacted.

While each of these areas present significant opportunities for us, they also pose significant risks and challenges that we must address. See the section titled “Risk Factors” for more information.

Components of Results of Operations

Revenue

We expect to continue to derive substantially all our revenue from sales of our Platform, which includes sales of our Instrument, test strips, other related products and services and our Fast Lab Solution. Such sales may have multiple performance obligations under IFRS 15 Revenue from Contracts with Customers, or IFRS 15; therefore, we may recognize revenue associated with a single sale of our Platform both at a point in time and over time. We recognize revenue from the initial sale of the Instrument, test strips and other related products separate from the sale of our connectivity solutions and other services under IFRS 15.

Our Platform will also be made available to customers under operating lease arrangements. Revenue from operating leases are recognized on a straight-line basis over the term or, when lease revenue is entirely variable and subject to subsequent reagent sales, as the performance obligation to deliver reagents is satisfied.

We allocate revenue between products and services based on the relative standalone selling price of each performance obligation.

Products.     We derive a significant portion of our product revenue from the sale of our Instrument, test strips, other related products and our Fast Lab Solution. We sell or lease our products directly to users, including healthcare systems, government organizations, national pharmacy chains, diagnostic labs, hospitals and other healthcare providers. In addition, we sell the Instrument, test strips and other related products through wholesalers and distributors. We sell, place free of charge and rent Instruments to customers depending on the needs of the customer and market profile.

Services. We expect to derive substantially all our service revenue from revenue allocated from the sale of our Platform to our connectivity solutions, such as Connect Manager and EHR Connect. These services allow customers to manage their Instruments and to analyze diagnostic data, provide decision support tools and enforce quality control policies. During 2020 and 2021, less than 1% of our service revenue was derived from sales of our Platform. During this time, the majority of our service revenue related to maintenance on historical software licenses, access to hosted cloud offerings, training, support and other services related to products.

 

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We intend to seek, in the near term, regulatory approval, authorization, certification or clearance for multiple diagnostic assays on our Platform. Assuming we receive regulatory approvals, authorizations, certifications or clearances, we expect the revenue from sales of our Instrument, test strips and other related products and services to increase significantly.

Costs of Sales and Operating Expenses

Cost of sales.     Cost of sales generally consists of the cost of (i) materials and direct labor, including bonus and benefits, (ii) equipment and infrastructure expenses associated with manufacturing and packaging our Platform products, (iii) third party products, (iv) warehousing, handling and shipping costs and (v) the provision of software support and services. Equipment and infrastructure expenses include maintenance and depreciation of manufacturing equipment, facilities costs and amortization of leasehold improvements and of acquired technology. Also included are provisions for excess and obsolete inventory and warranty returns. As we continue to scale our manufacturing operations, improve existing products and introduce new products, it is possible that we will have obsolete parts and materials and our manufacturing output will not match demand, especially in times of volatile demand resulting in write downs for obsolete and short expiry materials and products.

We expect cost of sales to generally increase in line with the increase in the number of Platform products we sell.

Research and development expense.    Research and development expense consists of costs incurred to develop our Platform, and includes salaries and benefits, equipment and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, clinical trials and other outside costs, and costs to develop our technology and add additional assays to our Platform. Research and development costs are expensed as incurred.

We expect that our research and development expenses will continue to increase as we continue to develop additional assays for our Platform and conduct our ongoing and new clinical trials. These expenses may fluctuate from period to period due to the timing and extent of these expenses incurred within a period.

Selling, marketing and administrative expense.    Our selling, marketing and administrative expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing, executive, accounting and finance, legal and human resources functions. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, travel and stock-based compensation, as well as marketing and educational activities and allocated overhead expenses.

We expect our selling, marketing and administrative expenses to increase as we expand our sales force and increase our marketing activities to drive adoption of our Platform. We also expect that our administrative expenses will continue to increase as we increase our headcount and as we incur costs associated with operating as a public company after the Merger, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations. While we expect these costs to increase in absolute dollars, we expect them to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage from period to period due to the timing and extent of these expenses.

Listing expenses.    Our listing expenses include expenses associated with the Merger with CAH and listing on Nasdaq. These expenses include professional fees incurred with bankers, lawyers,

 

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accountants and other advisors as well as an IFRS 2 charge for the difference in the fair value of the shares deemed to have been issued by us in the Merger transaction to CAH shareholders and the net assets of CAH.

Finance Income

Finance income consists of interest earned on our cash and cash equivalents and net foreign currency exchange gains. Our interest income has not been significant to date, but may increase as we invest surplus cash from any future financing transactions in short term, fixed income investments until those proceeds are fully deployed. Net foreign currency exchange gains relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar, primarily related to our U.K. operations denominated in British pound sterling. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Finance Expense

Finance expense consists primarily of cash and non-cash interest on debt obligations, dividends on our series A preferred shares and series B preferred shares, changes in fair value of our financial liabilities designated as fair value through profit and loss and net foreign currency exchange losses. Interest expense includes cash interest expense on outstanding debt, as well as non-cash accretion of debt issuance costs and debt proceeds classified as equity under IFRS. Dividends on the series A preferred shares and series B preferred shares accrue cumulatively at an 8% annual rate. All our outstanding series A preferred shares automatically converted into ordinary shares immediately prior to the Merger and all our outstanding series B preferred shares automatically converted into common shares immediately prior to the Merger and did not result in cash settlement of the accrued dividends. Our 10% Notes (as defined below) and series B preferred shares have been designated as financial liabilities at fair value through profit and loss. At each reporting date, these liabilities are re-measured and any increase in liability is recorded as a finance expense. Net foreign currency exchange losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar, primarily related to our U.K. operations denominated in U.K. pound sterling. We expect our finance expense to continue to fluctuate as we manage our debt obligations and due to changes in foreign currency exchange rates.

Provision for Income Taxes

During 2020, benefit from income taxes primarily related to a U.K. tax credit on qualifying research and development expenses. In 2021 we are no longer eligible for the same tax credit. We are now under the Research and Development Expenditure Credit (“RDEC”) scheme in the United Kingdom and research and development expenditure credits are now recorded as reductions in research and development expenses. We expect to incur tax expense as we recognize income in jurisdictions where no net operating loss carryforwards exist.

 

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Operating Results

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

 

     Year Ended
December 31,
 
     2020     2021  
     (in thousands)  

Consolidated Statement of Profit and Loss and Comprehensive Income

    

Revenue:

    

Products

   $ 135,656     $ 415,654  

Services

     3,497       5,774  
  

 

 

   

 

 

 

Total revenue

     139,153       421,428  

Cost of sales:

    

Products

     (84,456     (268,835

Services

     (1,750     (1,053
  

 

 

   

 

 

 

Total cost of sales

     (86,206     (269,888
  

 

 

   

 

 

 

Gross profit

     52,947       151,540  

Operating expenses:

    

Research and development expenses

     (107,539     (130,221

Selling, marketing and administrative expenses

     (46,129     (130,520

Listing expenses

           (36,202
  

 

 

   

 

 

 

Total operating expense

     (153,668     (296,943
  

 

 

   

 

 

 

Loss from operations

     (100,721     (145,403
  

 

 

   

 

 

 

Finance income (expense):

    

Finance income

     22,500       165,426  

Finance expense

     (172,722     (117,934
  

 

 

   

 

 

 

Total finance expense, net

     (150,222     (47,492

Loss before provision for income taxes

     (250,943     (97,911

Benefit (provision) from income taxes

     9,946       (2,844
  

 

 

   

 

 

 

Net loss

   $ (240,997   $ (100,755
  

 

 

   

 

 

 

Comparison of the Years Ended December 31, 2020 and 2021

Revenue

Products

 

     Year Ended
December 31,
     Change  
     2020      2021      $      %  
     (in thousands)  

Products

   $ 135,656      $ 415,654      $ 279,998        206.4

Product revenue was $415.7 million for the year ended December 31, 2021 compared to $135.7 million for the year ended December 31, 2020, an increase of $280.0 million, or 206.4%. The increase in products revenue was due to a full year of sales of our Platform products. We began sales of our Platform products in September 2020. During the year ended December 31, 2021, revenue from Platform sales and Fast Lab Solutions was $356.6 million and $41.5 million, respectively. During the year ended December 31, 2020, revenue from Platform sales and Fast Lab Solutions was $111.2 million and $1.4 million, respectively. The remainder of product sales was primarily from the

 

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resale and distribution of third-party medical diagnostic products. During the years ended December 31, 2021 and 2020, revenue from lease arrangements for diagnostic products was $1.5 and $0.9 million, respectively.

Services

 

     Year Ended
December 31,
     Change  
     2020      2021      $      %  
     (in thousands)  

Services

   $ 3,497      $ 5,774      $ 2,277        65.1

Service revenue was $5.8 million for the year ended December 31, 2021 compared to $3.5 million for the year ended December 31, 2020, an increase of $2.3 million, or 65.1%. The increase was a result of an increase in Platform service offerings.

Cost of Sales

Products

 

     Year Ended
December 31,
    Change  
     2020     2021     $     %  
     (in thousands)  

Products

   $ (84,456   $ (268,835   $ (184,379     218.3

Cost of sales for products was $268.8 million for the year ended December 31, 2021 compared to $84.5 million for the year ended December 31, 2020, an increase of $184.4 million, or 218.3%. The increase in cost of sales was associated with sales of our Platform products. Product cost of sales as a percentage of product revenue increased slightly from 62% in 2020 to 65% in 2021. This slight increase is a result of the negative impact of inventory scrap and lower initial production yields from our COVID-19 antigen tests early in 2021 as we expanded production to quickly meet market needs.

Services

 

     Year Ended
December 31,
    Change  
     2020     2021     $      %  
     (in thousands)  

Services

   $ (1,750   $ (1,053   $ 697        (39.8 )% 

Cost of sales for services was $1.1 million for the year ended December 31, 2021 compared to $1.8 million for the year ended December 31, 2020, a decrease of $0.7 million, or 39.8%. The decrease was due to decreases in software hosting costs.

Operating Expenses

R&D Expenses

 

     Year Ended December 31,     Change  
     2020     2021     $     %  
     (in thousands)  

R&D expenses

   $ (107,539   $ (130,221   $ (22,682     21.1

 

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R&D expenses were $130.2 million for the year ended December 31, 2021 compared to $107.5 million for the year ended December 31, 2020, an increase of $22.7 million, or 21.1%. The increase in research and development expenses was primarily due to an increase of $12.6 million in personnel-related costs due to increased hiring of R&D personnel, an increase of $4.9 million in facilities and depreciation expense as we expanded our research and development headcount, an increase of $5.4 in costs incurred related to the continued development of the manufacturing process, and an increase of $14.2 million of supplies and laboratory equipment. These increases were partially offset by a decrease of $5.7 million in the use of third-party research development partners, an increase of $7.1 million in grant offsets and a decrease in $2.0 million in development costs related to our Instrument.

Selling, Marketing and Administrative Expenses

 

     Year Ended
December 31,
    Change  
     2020     2021     $     %  
     (in thousands)  

Selling, marketing and administrative expenses

   $ (46,129   $ (130,520   $ (84,391     182.9

Selling, marketing and administrative expenses were $130.5 million for the year ended December 31, 2021 compared to $46.1 million for the year ended December 31, 2020, an increase of $84.4 million, or 182.9%. The increase was primarily due to an increase of $27.7 million in personnel-related costs as we expanded our sales and marketing headcount to support our growth, an increase of $9.4 million in professional fees including legal and audit fees and an increase of $40.2 million in stock-based compensation expense primarily related to the grant of options to Ron Zwanziger, Dave Scott and Jerry McAleer (the “Founders”), for additional information see the section titled “Management—Founders’ Equity Awards”.

Listing Expenses

 

     Year Ended
December 31,
    Change  
     2020      2021     $     %  
     (in thousands)  

Listing expenses

   $      $ (36,202   $ (36,202     100.0

Listing expenses were $36.2 million for the year ended December 31, 2021 compared to $nil for the year ended December 31, 2020, an increase of $36.2 million, or 100%. The increase was due to $27.6 million in an IFRS 2 charge for the difference in the fair value of the shares deemed to have been issued by LumiraDx in the Merger transaction to CAH shareholders and the net assets of CAH and due to $8.6 million of transaction costs.

Finance Expense, Net

Finance Income

 

     Year Ended
December 31,
     Change  
     2020      2021      $      %  
     (in thousands)  

Finance income

   $ 22,500      $ 165,426      $ 142,926        635.2

Finance income was $165.4 million for the year ended December 31, 2021 compared to $22.5 million for the year ended December 31, 2020, an increase of $142.9 million, or 635.2%. The

 

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increase was primarily due to a $101.0 million gain in 2021 related to fair value adjustments on our 10% Notes (as defined below) and series B preferred shares which are designated at fair value through profit and loss and $64.1 million of gain related to the conversion of convertible financial instruments as a result of our Merger with CAH (compared to $nil for the year ended December 31, 2020). Those increases were partially offset by a decrease of $21.9 million in foreign exchange gains arising from transactions and asset and liability balances denominated in currencies other than the U.S. dollar.

Finance Expense

 

     Year Ended December 31,     Change  
     2020     2021     $      %  
     (in thousands)  

Finance expense

   $ (172,722   $ (117,934   $ 54,788        (31.7 )% 

Finance expense was $117.9 million for the year ended December 31, 2021 compared to $172.7 million for the year ended December 31, 2020, a decrease of $54.8 million, or 31.7%. This decrease was primarily due to a $112.0 million loss in 2020 related to fair value adjustments on our 10% Notes (as defined below) and series B preferred shares which are designated at fair value through profit and loss, partially offset by an increase of $43.0 million in interest costs in connection with the increased borrowings outstanding and an increase of $14.6 million in foreign exchange losses arising from transactions and asset and liability balances denominated in currencies other than the U.S. dollar.

Benefit (Provision) for Income Taxes

 

     Year Ended
December 31,
    Change  
     2020      2021     $     %  
     (in thousands)  

Benefit (provision) for income taxes

   $ 9,946      $ (2,844   $ (12,790     (128.6 )% 

Provision for income taxes was $2.8 million for the year ended December 31, 2021 compared to a benefit of $9.9 million for the year ended December 31, 2020, a decrease of $12.8 million, or 128.6%. Credit from income taxes in 2020 is primarily related to a U.K. tax credit on qualifying research and development expenses. In 2021, we are no longer eligible for the same tax credit. We are now under the RDEC scheme in the United Kingdom and research and development expenditure credits are now recorded as reductions in research and development expenses. The tax provision for the year ended December 31, 2021 is primarily attributable to current taxes where net operating loss carryforwards are not available.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses and negative cash flows from operations. As of March 31, 2022, we had an accumulated deficit of $724.0 million ($676.2 million as of December 31, 2021). We expect to incur additional operating losses in the near future and our operating expenses will increase as we continue to expand our sales organization, increase our marketing efforts to drive market adoption of our Platform, and invest in the development of new product offerings from our research and development activities. If demand for our Platform increases, we anticipate that our capital expenditure requirements will also increase in order to build additional capacity to meet this demand. Moreover, following the completion of the Merger, we have and will continue to incur additional costs associated with operating as a public company, including expenses

 

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related to legal, accounting and financial reporting and regulatory matters, maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations.

The timing and amount of our cost of sales and operating expenditures will depend largely on:

 

   

the cost of purchasing materials to manufacture our products and to maintain sufficient inventory to meet demand;

 

   

the cost of maintaining and expanding our manufacturing capacity;

 

   

the cost of expanding sales, marketing and distribution capabilities in new and existing sales regions in which we may receive marketing approval, authorization, certification or clearance;

 

   

the scope and results of our current and planned research and development activities;

 

   

the outcome, timing and cost of meeting regulatory requirements to commercialize our products in global markets;

 

   

the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates, including any such patent claims and intellectual property rights that we have licensed under our existing license agreements;

 

   

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our Platform and its components;

 

   

the terms of our existing research and development and commercialization arrangements with third parties, including any minimum commitments in our contractual arrangements with such parties;

 

   

our ability to establish and maintain additional such arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration, partnership or similar arrangement;

 

   

our need and ability to hire additional management, scientific, medical, accounting and financial reporting and other personnel to scale the Company;

 

   

the costs to operate as a public company, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;

 

   

market acceptance of our product; and

 

   

the effect of competing technological and market developments, including other products that may compete with our Platform and other products and services.

We have funded our operations primarily from the issuance of equity securities, convertible preferred stock, convertible notes and debt securities, as well as from revenue from sales of our existing products and services. As of March 31, 2022 and since inception, we have raised over $1.1 billion through the issuance of debt and equity securities and from our partners. Our capital raising activities in recent years have included the following (terms as defined herein):

 

   

issuance of $75.3 million of the 10% Notes in July and November 2020, from which we received $74.3 million from investors (the 10% Notes converted to common shares in connection with the Merger);

 

   

issuance of 33,008 series B preferred shares in November 2020, from which we raised $164.5 million from investors (such series B preferred shares converted to common shares in connection with the Merger);

 

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entering into the 2021 Senior Secured Loan in March 2021, with borrowings of $300.0 million, which was used, in part, to prepay amounts outstanding under the 2020 Senior Secured Loan entered into in March 2021 with incremental additional facility in January 2021;

 

   

merger with CAH, a special purpose acquisition company, in September 2021, from which we received gross proceeds of $38.0 million;

 

   

partnering with BMGF to help them achieve certain key objectives, we have received approximately $119.0 million in support from them through a combination of equity, grants and loans, which includes grant funding in the aggregate amount of approximately $36.0 million from Gates Philanthropy Partners. Our $8.0 million grant agreement with BMGF required us to return any funds not utilized on qualifying expenses by December 31, 2020. Due to our dedication of resources to responding to the COVID-19 pandemic, we reached an agreement with BMGF for an extension of the grant period to June 30, 2022. As of December 31, 2021, we had available $8.9 million in grant funds that had not been utilized related to multiple grants;

 

   

issuance of $56.5 million of the Convertible Notes in March 2022, from which we received approximately $54.0 million in net proceeds; and

 

   

entering into the Royalty Agreement, from which we have raised gross proceeds of $41.5 million as of the date of this prospectus.

For further information as to our indebtedness and the Royalty Agreement, see the sections titled “—Indebtedness” and “—Royalty Agreement” below.

As of March 31, 2022, we had cash and cash equivalents of $166.0 million ($132.1 million as of December 31, 2021). Based on our current business plan, we believe our existing cash and cash equivalents, including the proceeds from the Royalty Agreement, together with the proceeds from this offering and the concurrent private placement will be sufficient to enable us to fund our operations and capital expenditure requirements, including meeting our liabilities as they fall due, for the foreseeable future (being at least a twelve month period from the date of this prospectus). This belief assumes that we will have completed a Qualifying Financing (as defined herein) for which this offering and the concurrent private placement would qualify (assuming gross proceeds of at least $100 million) on or prior to September 30, 2022. See “Risk Factors – 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.”

To the extent revenue from our Platform or otherwise grows, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. The forecast of our capital requirements is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If our available cash balances, including the net proceeds from this offering and the concurrent private placement, and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, we would expect to finance our cash needs, as needed through the procurement of additional capital, including through additional equity and debt financings. The various ways we could raise additional capital carry potential risks. 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.

 

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Cash Flows

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

 

     Year Ended December 31,  
     2020