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As filed with the Securities and Exchange Commission on June 25, 2021.
Registration Statement No. 333-257000​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Nyxoah SA
(Exact name of Registrant as specified in its charter)
Belgium
(State or other jurisdiction of
incorporation or organization)
3841
(Primary Standard Industrial
Classification Code Number)
Not applicable
(I.R.S. Employer
Identification Number)
Rue Edouard Belin 12
1435 Mont-Saint-Guibert, Belgium
+32 10 22 23 55
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Corporation Service Company
1090 VERMONT AVENUE N.W.
Washington D.C. 20005
United States
Telephone: +1 800 927 9800
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Jonathan L. Kravetz, Esq.
John T. Rudy, Esq.
Mintz, Levin, Cohn, Ferris, Glovksy &
Popeo, P.C.
One Financial Center
Boston, MA 02111
(617) 542 6000
Philippe Remels
NautaDutilh BV/SRL
Chaussée de La Hulpe 120
1000 Brussels, Belgium
+32 2 566 80 00
Shayne Kennedy, Esq.
Latham & Watkins LLP
650 Town Center Drive
20th Floor
Costa Mesa, CA 92626
(714) 540 1235
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The term “new or revised financial accounting standards” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated June 25, 2021
Preliminary Prospectus
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2,760,000 Shares
NYXOAH SA
Ordinary Shares
$        per share
Nyxoah SA is offering 2,760,000 shares, assuming an initial public offering price per share of $31.46, equivalent to an initial public offering price per share of €26.50, assuming an exchange rate of €1.00 = $1.1872, the noon buying rate in The City of New York on June 18, 2021 set forth in the H.10 statistical release of the Federal Reserve Board on June 21, 2021.
This is our initial public offering of our ordinary shares in the United States. We have applied to list our ordinary shares The Nasdaq Global Market under the symbol “NYXH.” Our ordinary shares are traded on Euronext Brussels under the symbol “NYXH.” On June 24, 2021, the last reported sale price of our ordinary shares on Euronext Brussels was €26.00 per ordinary share, equivalent to a sale price of $30.88 per ordinary share, assuming an exchange rate of  €1.00 = $1.1872, the noon buying rate in The City of New York on June 18, 2021 set forth in the H.10 statistical release of the Federal Reserve Board on June 21, 2021.
This investment involves risk. See “Risk Factors” beginning on page 12.
We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements in future reports after the completion of this offering. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”
Per Share
Total
Initial public offering price
$        $       
Underwriting discount and commission(1)
$ $
Proceeds, before expenses, to Nyxoah SA
$ $
(1)
See “Underwriting” beginning on page 179 for additional information regarding underwriting compensation.
Certain of our existing shareholders, including Cochlear Investments Pty Ltd. and ResMed Inc., have indicated an interest in purchasing an aggregate of up to approximately $34.0 million in our ordinary shares in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering.
The underwriters have a 30-day option to purchase up to 414,000 additional shares from us at the initial public offering price less the underwriting discount and commission.
Bank Degroof Petercam SA/NV is not a U.S.-registered broker-dealer; therefore, to the extent that it intends to effect any sales of the ordinary shares in the United States, it will do so through Global Alliance Securities, LLC, its affiliated U.S.-registered broker-dealer, in accordance with the applicable U.S. securities laws and regulations, and as permitted by FINRA regulation.
Neither the Securities and Exchange Commission, or SEC, nor any U.S. state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to investors on or about           , 2021.
Piper Sandler
Stifel
Cantor
Degroof Petercam
The date of this prospectus is           , 2021

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ABOUT THIS PROSPECTUS
We are responsible for the information contained in this prospectus and any free-writing prospectus we prepare or authorize. We and the underwriters have not authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any free writing prospectus must inform themselves about, and observe any restrictions relating to this offering and the distribution of this prospectus and any free writing prospectus outside the United States.
We are a limited liability company (naamloze vennootschap / société anonyme) incorporated under the laws of Belgium. Less than a majority of our directors and officers named in this prospectus are citizens or residents of the United States and a significant portion of the assets of the directors and officers named in this prospectus and substantially all of our assets are located outside of the United States. As a result, it may not be possible for you to effect service of process within the United States upon such persons or to enforce against them or against us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Belgium, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated on the U.S. federal securities laws.
We are incorporated in Belgium, and a majority of our outstanding securities are owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Our financial statements included in this prospectus are presented in Euros and, unless otherwise specified, all monetary amounts are in Euros. All references in this prospectus to “$,” “U.S. dollars,” and “dollars” means U.S. dollars and all references to “€” and “Euro,” mean Euros, unless otherwise noted.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms “Nyxoah,” “the Company,” “we,” “us” and “our” refer to Nyxoah SA and its wholly owned subsidiaries. In this prospectus, any reference to any provision of any legislation shall include any amendment, modification, reenactment or extension thereof. Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender. All references to “shares” in this prospectus refer to ordinary shares of Nyxoah SA with no nominal value
TRADEMARKS
“Nyxoah,” the Nyxoah logo, Genio and other trademarks or service marks of Nyxoah appearing in this prospectus are the property of Nyxoah or its subsidiaries. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their right thereto. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. We do not intend to use or display other companies’ trademarks and trade names to imply any relationship with, or endorsement or sponsorship of us by, any other companies.
 
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MARKET AND INDUSTRY DATA
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market opportunity, is based on information from our own management estimates and research, as well as from industry and general publications, research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. The industry publications and third-party studies generally state that the information that they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these publications and third-party studies is reliable, we have not independently verified the market and industry data obtained from these third-party sources. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus. See “Special Note Regarding Forward-Looking Statements.” These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in our forecasts or estimates or those of independent third parties. While we believe our internal research is reliable and the definition of our market and industry are appropriate, neither such research nor these definitions have been verified by any independent source.
PRESENTATION OF FINANCIAL INFORMATION
This prospectus includes financial information which has been derived from our audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019, our unaudited condensed consolidated interim financial statements for the three months ended March 31, 2021 and 2020, and the related notes, which are collectively referred to as “consolidated financial statements” or “financial statements,” and can be found beginning on page F-1 of this prospectus.
We maintain our books and records in Euros and we prepare our audited consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. None of the consolidated financial statements in this prospectus were prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Except with respect to U.S. dollar amounts presented as contractual terms, amounts denominated in U.S. dollars when received or paid and unless otherwise indicated, certain amounts in Euros contained in this prospectus have been translated into U.S. dollars at the rate of €1.00 to $1.1872, which was the noon buying rate of the Federal Reserve Bank of New York on June 18, 2021. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars or Euros at that or any other exchange rate as of that or any other rate. We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
 
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our ordinary shares. You should read the entire prospectus carefully, including “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus before making an investment decision.
Overview
We are a medical technology company focused on the development and commercialization of innovative solutions to treat Obstructive Sleep Apnea, or OSA. Our lead solution is the Genio system, a CE-Marked, patient-centric, minimally invasive, next generation hypoglossal neurostimulation therapy for the treatment of moderate to severe OSA. OSA is the world’s most common sleep disordered breathing condition and is associated with increased mortality risk and comorbidities including cardiovascular diseases, depression and stroke. Our innovative technology platform is a first-of-its-kind bilateral hypoglossal nerve stimulation device designed to treat OSA, by maintaining an open airway for a restful night’s sleep. We started generating revenue from the sale of the Genio system in Europe in July 2020, and we are currently conducting our DREAM pivotal trial designed to support marketing authorization in the United States. We are developing a significant body of clinical evidence to further support the strong value proposition of the Genio system and its ability to improve the health and quality of life of OSA patients.
OSA is the most prevalent sleep disordered breathing condition. It occurs due to the relaxation of the soft tissue, throat and tongue muscles in a patient’s airway, which causes an obstruction that temporarily prevents breathing during sleep. It is estimated that OSA currently affects approximately 936 million people globally between the ages of 30 and 69, of which approximately 425 million people suffer from moderate to severe OSA and require treatment. This chronic disease negatively affects a patient’s health and quality of life.
The standard of care first-line therapy for patients with moderate to severe OSA is continuous positive airway pressure, or CPAP. CPAP is a treatment whereby air, at a constant or automated pressure, is pushed into the upper airway via a facial or nasal mask that the patient must wear during sleep. Despite its proven efficacy, CPAP has been associated with many limitations that make compliance a serious challenge. Various second line therapies such as mandibular oral devices or anatomical surgical procedures also have substantial limitations. In recent years, hypoglossal nerve stimulation technology has emerged as a viable second-line therapy to treat patients suffering from moderate to severe OSA. This technology is centered on stimulating the hypoglossal nerve, which activates the genioglossus muscle resulting in a forward protrusion of the tongue to maintain an open airway.
Competitive hypoglossal nerve stimulation systems have proven to provide safe and effective therapy for those suffering from moderate to severe OSA, however there still remain several limitations. The leading hypoglossal nerve stimulation systems consist of multiple implantable components requiring multiple incisions, including an implantable pulse generator with a battery and one or more leads. In addition, existing systems preclude a subset of the OSA patient population diagnosed with complete concentric collapse, or CCC, at the level of the soft palate. These OSA patients are currently contraindicated for hypoglossal nerve stimulation systems. In order to diagnose CCC, a drug induced sleep endoscopy, or DISE, procedure is required. Due to the current contraindication, all OSA patients seeking hypoglossal nerve stimulation therapy are required to undergo a DISE procedure. It is estimated that approximately 30% of moderate to severe OSA patients are affected by CCC and are therefore unable to receive hypoglossal nerve stimulation therapy.
The Genio system is the first neurostimulation system for the treatment of OSA to include a battery-free and leadless neurostimulator capable of delivering bilateral hypoglossal nerve stimulation. The system includes a single implanted component that can be implanted in a minimally invasive procedure requiring only a single incision. We developed the Genio system with a patient-centric approach, designed for comfort and safety, to increase compliance and improve quality of life. The Genio system includes a single implanted device that can be placed through a minimally invasive, single-incision surgery under the chin.
 
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The power source for our stimulator is external. Unlike competing hypoglossal nerve stimulators, the lack of an implantable battery or additional leads limits the need for complex tunneling and only requires a single incision for implantation. Our minimally invasive procedure is typically completed in approximately one hour and allows patients to recover quickly and resume normal activities typically within a week. Patients return to the physician approximately six weeks later for device titration, which typically involves an in-lab sleep trial to analyze breathing frequency. Further, our external activation chip eliminates the need for additional surgical procedures to replace depleted batteries and enables software, firmware or external hardware updates and upgrades to be implemented without the need for surgical intervention thereby limiting potential infection risk due to an additional procedure.
Our proprietary technology has enabled the CE-Marked system to provide bilateral stimulation to the hypoglossal nerve. Other hypoglossal nerve stimulation systems approved or cleared for treating OSA provide are unilateral and provide hypoglossal nerve stimulation to only one branch of the hypoglossal nerve. We believe bilateral stimulation results in a stronger muscle contraction, a more symmetric tongue movement and a wider opening of the airway, which has the potential to provide better clinical outcomes. Furthermore, we believe that bilateral stimulation has the potential to address moderate to severe OSA patients with CCC, who are currently contra-indicated for, or unable to be treated with, existing hypoglossal nerve stimulation OSA systems.
We continue to develop a substantial body of clinical data regarding the Genio system. In 2019, we completed our BiLAteral hypoglossal nerve STimulation for treatment of Obstructive Sleep Apnea, or BLAST OSA trial, which was the basis for receiving CE-Mark on the Genio system. Our ongoing BilatEral Hypoglossal Nerve StimulaTion for TreatmEnt of ObstRuctive SLEEP Apnoea clinical trial, or BETTER SLEEP trial, is aimed at evaluating the effectiveness of the Genio system for patients suffering from CCC. We believe that positive results from this trial may eliminate the need for Genio system patients to undergo the DISE procedure prior to implantation of the Genio system, thereby leading to a potential indication expansion in Europe. In June 2021, we announced initial top-line results from the six-month data for the BETTER SLEEP clinical trial. We are planning to submit the complete trial results to our E.U. Notified Body with the goal of expanding the CE-Marked indication to include CCC. We also are conducting our Dual-sided Hypoglossal neRvE stimulAtion for the treatMent of Obstructive Sleep Apnea clinical trial, or DREAM trial, a pivotal trial designed to support marketing authorization in the United States. We anticipate initial 12-month data for the DREAM trial will be available by the fourth quarter of 2022. Assuming a positive outcome from the DREAM trial, we expect to apply for marketing authorization in the United States with the aim of being commercially available in the United States in the second half of 2023.
We are initially targeting markets in Europe, Australia and New Zealand where we have identified a country-specific reimbursement pathway or execution strategy. We began our commercial launch in Germany in July 2020. After obtaining reimbursement approval in Germany through the existing hypoglossal nerve stimulation special innovation funding program, or NUB, we generated our first revenue in the second half of 2020. In 2021, we successfully obtained reimbursement in Germany under a dedicated DRG code for hypoglossal nerve stimulation and also recently obtained reimbursement under an OSA-specific DRG code in Switzerland from the Federal Statistic Office, or BFS. The reimbursement coverage in both Germany and Switzerland includes the cost of the Genio system, implant procedure, hospital stay and follow-up care. We expect to begin marketing in Switzerland and in Spain in 2021. Based on market access activities conducted by us over the past several years, we have developed tailored reimbursement strategies using assessments of the local requirements of target countries. In countries where there is existing reimbursement coverage in place, we plan to rely on existing coding and reimbursement. In countries where there is no existing reimbursement coverage, we will seek to be the first in that market to obtain reimbursement coverage. In countries without existing reimbursement coverage, we plan to pursue reimbursement with a strategy that includes (i) making the Genio system commercially available for patients through country specific innovation funding pathways for procedures and products that would not yet be covered by an existing code, (ii) supporting case-by-case funding submission in focus hospitals that can use their budget to fund the therapy, (iii) entering into specific commercial deals with privately funded hospital groups, or (iv) out-of-pocket payment.
We have established a systematic approach to commercializing the Genio system in our target markets, focusing on active engagement, education and market development across patients, physicians
 
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and hospitals. We currently market our therapy to physicians and hospitals where ear, nose, and throat doctors, or ENTs, sleep doctors and general practitioners see, diagnose and treat patients with OSA. We are actively expanding our current European sales and marketing organization with country-specific sales teams established in connection with obtaining reimbursement. Our sales teams are focused on prioritizing high volume ENT centers and sleep centers, and on building long-standing relationships with key physicians such as sleep doctors, ENTs and general practitioners who have strong connections to the OSA patient population that may be eligible for our therapy. We support physicians using the Genio system through all aspects of the patient’s journey, starting from initial diagnosis through surgical support and post-implantation patient follow-up. We also seek to establish long-term relationships with key opinion leaders, or KOLs, and patient associations that are oriented towards the needs of our patients and customers. Our sales and marketing organization is focused on building physician awareness through referral network development, education, targeted KOL development and training, and direct-to-consumer marketing.
In addition to our ongoing clinical studies, we are also committed to continuing our research and development efforts related to the Genio system, with an emphasis on improving clinical outcomes, optimizing patient adoption and comfort, increasing access for a greater number of patients, and allowing more physicians to perform the implantation procedure. We also continue to enhance our scalable technology platform to allow for quick and streamlined release of new features and functionalities through software, firmware and hardware updates and upgrades and therapy enhancement.
Our Competitive Strengths
We are focused on transforming the lives of patients who suffer from moderate to severe OSA by continuing to develop, clinically validate, manufacture and commercialize our innovative Genio system. We believe the Genio system offers a compelling solution for a large and significantly underpenetrated global patient population and that our focus and experience in treating patients with OSA, combined with the following strengths, will allow us to build our business and potentially expand our market opportunity:

Disruptive, patient-centric neurostimulation solution to treat moderate to severe OSA.

Growing body of clinical data and long-term clinical strategy.

Significant product development and new indication pipeline.

Platform technology protected by comprehensive and broad intellectual property.

Strong and experienced team.
The Genio System Market Opportunity
OSA therapy is a large and growing market. We believe there is a significant population in the United States with moderate to severe OSA who are unable to use or achieve the intended clinical benefit from CPAP and who would be eligible for the Genio system upon approval. Published scientific literature estimates that there are currently approximately 24.5 million individuals with moderate to severe OSA in our initial target markets in Europe, Australia and New Zealand. Based on published scientific literature, we estimate that approximately 2.7 million patients are diagnosed annually in those countries and that approximately 80% of diagnosed patients are prescribed a CPAP device. Published scientific literature reports non-compliance rates to CPAP between 29% and 83%. Based on these data, and for purposes of calculating the total addressable market in Europe, Australia and New Zealand for the Genio system, we estimate that approximately 35% of patients that are prescribed CPAP in those countries are not compliant with the therapy. Additionally, certain patients possesses anatomical characteristics, including higher body-mass-index or increased tongue fat deposition that make them ineligible for hyperglossal nerve stimulation. Taking that into account, we estimate that approximately 70% of those non-compliant patients are eligible for hypoglossal nerve stimulation based on their anatomical characteristics. As a result, we believe the total addressable market in Europe, Australia and New Zealand for the Genio system is at least 520,000 patients, which represents an estimated annual market opportunity of approximately $11 billion based on our current pricing for the Genio system. We also plan to enter the United States market, assuming we obtain marketing authorization in the United States, where published scientific
 
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literature estimates there are approximately 23.7 million individuals with moderate to severe OSA. Based on the same assumptions set out above, we estimate a target market of approximately 510,000 patients in the United States, which represents an estimated annual total addressable market of approximately $10 billion based on our current pricing for the Genio system.
Limitations of Competing Hypoglossal Nerve Stimulation Devices
There are several treatment options available to OSA patients, including medical management, involving lifestyle changes such as weight loss, CPAP therapy, mandibular advancement devices, or MADs, surgical interventions, and advanced neurostimulation devices. We are aware of two competing hypoglossal nerve stimulation devices for use in treating patients with OSA. While the benefits of hypoglossal nerve stimulation have been well-recognized, we believe competing hypoglossal nerve stimulation solutions suffer from several limitations, including:

Neurostimulator with Internal Battery

In most cases, the internal battery, once depleted, must be replaced in a further surgical procedure. Additional procedures may result in an increased risk of infection at the incision site.

The neurostimulator is positioned in a subcutaneous pocket, and the device may be palpable or visible in the chest area.

Competing systems have received 1.5T MRI clearance for head/neck and extremity scans only.

Multiple Implantable Components Requiring Multiple Surgical Incisions

Competing systems require multiple parts to be implanted including leads and a cuff electrode.

Competing systems require multiple surgical incisions and subcutaneous lead tunneling. These multiple steps during implantation, can result in an increased risk of surgical infection.

Unilateral Stimulation

Unilateral stimulation delivers stimulation to only one branch of the hypoglossal nerve, which limits options for nonresponding or contraindicated patients, including patients with CCC.
Our Solution
We developed the Genio system to provide patients suffering from moderate to severe OSA with an alternative hypoglossal nerve stimulation system that addresses their unmet needs. We believe our minimally invasive solution has the potential to become the leading neurostimulation solution for many patients suffering from moderate to severe OSA, including, if authorized, patients with CCC. The Genio system has obtained CE Mark and we are currently pursuing FDA marketing authorization.
The Genio system is the first neurostimulation system for the treatment of OSA to include a battery-free and leadless neurostimulator capable of delivering bilateral hypoglossal nerve stimulation. The system includes a single implanted component that can be implanted in a minimally invasive procedure requiring only a single incision. We developed the system using a patient-centric approach to offer patients a convenient alternative designed to overcome the limitations of competing neurostimulation devices. The Genio system consists of an implantable stimulator, a detachable external activation chip, a disposable patch, charging unit, and external stimulator used during implantation to test activation and function of the implantable stimulator.
 
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We designed the Genio system to advance patient care and provide a convenient treatment option to the large and underpenetrated patient population suffering from OSA. We believe the following factors offer meaningful benefits for patients, physicians and payors that have the potential to drive broad adoption of our system:

Patient-centric therapeutic option.   The results from our BLAST OSA trial demonstrated safety and effectiveness data of the Genio system for patients suffering with moderate to severe OSA that was sufficient to obtain a CE-Mark from the European Notified Body. These results showed significant benefits in the following patient-centered outcomes:

Attractive safety profile.   The results from the BLAST OSA trial demonstrated that the Genio system was well tolerated with no device-related serious adverse events, or SAEs, reported during the course of the trial.

Compelling clinical data.   Clinical data suggest that the Genio system provides a clinically effective therapy for patients eligible for hypoglossal nerve stimulation treatment. The BLAST OSA trial found a 47.3% reduction in mean individual AHI (p-value<0.0001) and a decrease in mean individual Oxygen Desaturation Index, or ODI, of 43.3% (p-value<0.0001), at six months following implantation, compared to their baseline measurements, for patients using the Genio system.

Convenient therapy leading to strong compliance.   Our device is designed to be convenient for patients to use, once implanted and optimized, requiring no additional programming or therapy titration. The BLAST OSA data reported that 91% of patients used the system more than five nights per week over a period of six months following implantation.

Improved quality of life.   Results from the BLAST OSA trial demonstrated that patients’ quality of life significantly improved as assessed using the FOSQ-10 questionnaire, with an increase in mean score by 1.9 units (p-value=0.0157) and a decrease on the Epsworth Sleepiness Scale, or ESS, score, by a mean of 3.3 units (p-value=0.0113). Additionally, the number of sleep partners who reported that their partner did not snore, or snored only softly, increased from 4.2% at baseline to 65%.

Bilateral hypoglossal nerve stimulation.   The Genio system was designed to provide bilateral stimulation of the hypoglossal nerve. We believe bilateral stimulation results in a stronger muscle contraction, a more symmetric tongue movement and a wider opening of the airway, which has the potential to provide better clinical outcomes. We also believe that the Genio system’s bilateral stimulation has the potential to treat moderate to severe OSA in patients with CCC, and we are currently evaluating this in our BETTER SLEEP clinical trial. These patients are currently contraindicated for hypoglossal neurostimulation systems.

Minimally invasive implant procedure and design.   The Genio system only has one implantable, low profile component, which is leadless and battery-free, and only requires a single incision for implantation. The surgical implantation occurs during an outpatient procedure that lasts approximately one hour. Importantly, our system relies on our proprietary duty cycle stimulation algorithm to control the frequency and strength of the neurostimulation. As a result, our system
 
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does not require the implantation of a sensing lead to monitor breathing. We believe that the minimally invasive procedure enables patients to recover quickly and resume normal activities within a week. We also believe that our single-incision implantation process will facilitate adoption by a growing number of physicians and surgeons.

External activation chip and battery.   The Genio systems’s power source is located in the external activation chip, requiring no battery to be implanted in the patient. Similarly, the external activation chip also includes the software for each user’s personalized therapy and can be updated or upgraded without the need for an additional surgical intervention. By eliminating the need for additional surgeries to replace a depleted battery and by enabling updates without additional surgeries, we believe the Genio system may offer a potential reduction in systematic healthcare costs.
Our Strategy
Our mission is to become a global leader in providing innovative and effective solutions to treat patients suffering from OSA. The key elements of our strategy to achieve this goal and promote future growth include:

Obtaining marketing authorization in the United States.

Promoting awareness of the Genio system among physicians, patients and payors to accelerate market adoption.

Continuing to enhance the Genio system and expand its indications.

Pursuing and establishing favorable reimbursement coverage of the Genio system.

Continuing to build a commercial infrastructure in selected geographies.
Risks Associated With Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others:

We have a limited operating history, have incurred losses in each period since our inception and may not be able to achieve or maintain profitability in the future.

Our future financial performance depends on the commercial acceptance of the Genio system in target markets.

Even though we have obtained certification, a CE-Mark, in Europe for the Genio system based on first positive clinical trial results, there is no guarantee that we will be able to maintain our current certification or to obtain additional certification or marketing authorizations in other jurisdictions, including the United States, or that the results from our ongoing and planned clinical trials will be sufficient for us to obtain or maintain such certifications or authorizations.

We may not receive, or may be delayed in receiving, the necessary marketing authorizations or certifications for our Genio system or any future product candidates, and failure to timely obtain necessary marketing authorizations or certifications for our product candidates would have a material adverse effect on our business.

Our future financial performance depends on the commercial acceptance of the Genio system in target markets.

Even if we receive marketing authorizations, clearances or certifications in our target markets to commercialize the Genio system or any product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm our business.

The ongoing COVID-19 pandemic, and the occurrence of another pandemic, epidemic or other health crisis, could have a negative impact on our product development and manufacturing activities, the recruitment and conduct of our clinical trials and our ability to source required funding, which could delay or prevent us from executing our strategy as planned.
 
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A loss or degradation in performance of the suppliers on which we depend for services and components used in the production and assembly of the Genio system could have a material effect on our business, financial condition and results of operations.

We may not be able to manufacture or outsource manufacturing of the Genio system in sufficient quantities, in a timely manner or at a cost that is economically attractive.

Our products and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.

The Genio system is still unapproved in certain significant markets, such as the United States market, and seeking and obtaining regulatory authorization or certification for active implantable medical devices can be a long, expensive and uncertain process.

Our inability to fully protect and exploit our intellectual property and trade secrets may adversely affect our financial performance and prospects.

The dual listing of our ordinary shares following the U.S. offering may adversely affect the liquidity and value of the ordinary shares.

We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weaknesses, we may not be able to report our financial results accurately or to prevent fraud.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Start-ups Act, or JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

the ability to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in management’s discussion and analysis of financial condition and results of operations in this prospectus;

exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, in the assessment of our internal controls over financial reporting; and

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 requirements of holding a non-binding advisory vote on executive compensation, including golden parachute compensation.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. We will 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 more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer” with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three year period, by our company of more than $1.0 billion in non-convertible debt securities held by non-affiliates; and (iv) the last day of the fiscal year ending after the fifth anniversary of this initial public offering.
We may choose to take advantage of some but not all of these reduced burdens. For example, we have presented only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus, and intend to take advantage of the exemption from the auditor attestation on the effectiveness of our internal control over financial reporting. Accordingly, the information that we provide shareholders and holders of our ordinary shares may be different than you might obtain from other public companies.
 
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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. Given that we currently report and expect to continue to report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
Implications of Being a Foreign Private Issuer
We are also considered a “foreign private issuer” under U.S. securities laws. In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, members of our Board of Directors and our principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We will remain a foreign private issuer until such time that 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 the members of the Board of 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.
We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies.
Corporate History and Information
We were incorporated on July 15, 2009 as a company with limited liability (naamloze vennootschap/société anonyme) incorporated and operating under the laws of Belgium. We are registered with the legal entities register (Brabant Wallon) under enterprise number 0817.149.675. We were publicly listed on Euronext Brussels in September 2020. We have three wholly owned subsidiaries: Nyxoah Ltd, an Israeli limited company incorporated in January 2008 under the name M.L.G. Madaf G. Ltd and our subsidiary since October 2009, Nyxoah Pty Ltd, an Australian limited company incorporated in 2017, and Nyxoah, Inc., a Delaware corporation incorporated in May 2020.
Our headquarters and principal executive offices are located at Rue Edouard Belin 12, 1435 Mont-Saint-Guibert, Belgium, and our telephone number is +32 10 22 23 55. Our website address is www.nyxoah.com. The information contained on, or accessible through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained in, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase ordinary shares in this offering.
 
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THE OFFERING
Ordinary shares offered by us
2,760,000 ordinary shares.
Underwriters’ option to purchase additional ordinary shares in the offering
The underwriters have an option, exercisable within 30 days from the date of this prospectus, to purchase up to 414,000 additional ordinary shares.
Ordinary shares to be outstanding immediately after the offering
24,867,609 ordinary shares (or 25,281,609 ordinary shares if the underwriters exercise in full their option to purchase an additional 414,000 ordinary shares).
Use of proceeds
We estimate that we will receive net proceeds from the offering of approximately $78.3 million (€65.9 million), based on an assumed offering price of  $31.46 per ordinary share, or €26.50 per ordinary share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, (i) to advance the commercialization of the Genio system in our initial target markets in Europe, Australia and New Zealand and for pre-commercialization activities in the United States; (ii) to continue gathering clinical data and to support physician initiated clinical research projects related to OSA patient treatments; (iii) to further finance R&D activities related to the next generation of the Genio system and to continue to build a pipeline of new technologies and explore potential collaboration opportunities in the field of monitoring and diagnostics for OSA; and (iv) the remainder for working capital and general corporate purposes.
See “Use of Proceeds” for a more complete description of the intended use of proceeds from the offering.
Risk factors
See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ordinary shares.
Proposed Nasdaq Global Market trading symbol for our ordinary shares
“NYXH.”
Euronext Brussels trading symbol for our ordinary shares
“NYXH.”
The number of ordinary shares that will be outstanding after this offering is based on 22,107,609 ordinary shares outstanding as of March 31, 2021 and excludes:

997,500 ordinary shares issuable upon the exercise of warrants outstanding as of March 31, 2021 pursuant to our warrant plans, at a weighted average exercise price of €9.21 per ordinary share.
Unless otherwise indicated, all information contained in this prospectus does not reflect and does not take into account:

any issuance of ordinary shares upon the exercise of warrants subsequent to March 31, 2021; and

any exercise by the underwriters of their option to purchase up to 414,000 additional ordinary shares in the offering.
Certain of our existing shareholders, including Cochlear Investments Pty Ltd. and ResMed Inc., have indicated an interest in purchasing an aggregate of up to approximately $34.0 million in our ordinary shares in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering.
 
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our historical consolidated financial data for the periods indicated. We derived the consolidated income statement for the years ended December 31, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.
We derived the consolidated income statement as of the three months ended March 31, 2020 and 2021, and the consolidated statement of financial position data as of March 31, 2021 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus, prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, the standard of IFRS applicable to interim financial statements.
Our historical results are not necessarily indicative of the results that may be expected in the future and our results as of March 31, 2021 and for the year ending December 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The following summary consolidated financial data for the periods and as of the dates indicated are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and related notes beginning on page F-1 of this prospectus, as well as the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Consolidated Income Statement:
(In thousands, except per share data)
Years Ended December 31
Three Months Ended
March 31
2020
2019
2021
2020
Revenue
69 185
Cost of goods sold
(30) (52)
Gross Profit
39 133
General and administrative expenses
(7,522) (4,226) (1,818) (1,178)
Research and development expenses
(473) (630) (852) (7)
Clinical expenses
(1,053) (848) (342) (177)
Manufacturing expenses
(460) (489) (901) (62)
Quality assurance and regulatory expenses
(227) (227) (325) (25)
Patent fees and related
(123) (267) (674) (58)
Therapy development income / (expenses)
(1,864) (902) (548) (352)
Other operating expenses
459 (126) 4 (191)
Operating loss for the period
(11,224) (7,715) (5,323) (2,050)
Financial income
62 71 4 19
Financial expense
(990) (740) (325) (336)
Loss for the period before taxes
(12,152) (8,384) (5,644) (2,367)
Taxes
(93) (70) (25) (13)
Loss for the period
(12,245) (8,454) (5,669) (2,380)
Loss attributable to equity holders
(12,245) (8,454) (5,669) (2,380)
Currency translation differences
(58) 168 (70) 272
Total Comprehensive loss for the period, net of tax
(12,303) (8,286) (5,739) (2,108)
Loss attributable to equity holders
(12,303) (8,286) (5,739) (2,108)
Basic and diluted Loss Per Share
(0.677) (0.568) (0.256) (0.151)
 
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Consolidated Statement of Financial Position:
As of March 31
Actual
As Adjusted(1)
(In thousands)
2021
2021
Cash and cash equivalents
86,207 152,043
Total assets
110,650 176,486
Total equity attributable to shareholders
91,503 157,339
Total liabilities
19,147 19,147
(1)
As adjusted to give effect to the issuance and sale of 2,760,000 ordinary shares in the offering at the assumed initial offering price of  €26.50 per ordinary share ($31.46 per ordinary share), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted information presented above is illustrative only and will adjust based on the actual offering price, the actual number of ordinary shares offered by us, and the other terms of the offering determined at pricing. Each €1.00 ($1.1872) increase or decrease in the assumed initial offering price of  €26.50 per ordinary share ($31.46 per ordinary share), would increase or decrease each of as adjusted cash and cash equivalents, total assets and total equity attributable to shareholders by approximately €2.6 million ($3.1 million), assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ordinary shares we are offering. Each increase or decrease of 1,000,000 in the number of ordinary shares offered by us would increase or decrease each of as adjusted cash and cash equivalents, total assets and total shareholders’ equity by approximately €24.9  million ($29.6 million), assuming that the initial offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
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RISK FACTORS
Investing in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase our ordinary shares. If any of the following risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our ordinary shares could decline, and you could lose part or all of your investment. Please also see “Special Note Regarding Forward-Looking Statements.”
Risks Related to Our Financial Position
The ongoing COVID-19 pandemic may continue to negatively affect various aspects of our business, including slowing the progress of our clinical trials, delaying or impeding our commercialization activities with respect to the Genio system, disrupting our operations and the operations of third parties with which we conduct business, and impacting our ability to raise additional capital, any or all of which could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
As of the date of this prospectus, the COVID-19 pandemic, caused by the novel strain of coronavirus SARS-CoV-2, has caused substantial disruptions of economies and human societies worldwide for over a year. Efforts to contain the spread of the pandemic in our target markets for the Genio system in Europe, in the United States where we will seek to commercialize the Genio system if it ultimately gains marketing authorization, and in many other countries across the globe, have involved imposing widespread restrictions on travel, periodic quarantines and shelter-in-place orders, limitations on the permitted size of group gatherings, shuttering of businesses, implementation of programs for remote schooling, and other crisis-driven measures. Notwithstanding these efforts and remarkable successes achieved in the development and recent distribution of vaccines, vast portions of the populations in most countries have yet to be inoculated, and numerous nations and regions have experienced multiple surges that have sickened millions of people, strained the capacity of healthcare systems, and caused an estimated 2.8 million deaths worldwide. Over the course of the pandemic, government-imposed precautionary measures have been relaxed in certain countries or states as the spread of COVID-19 has decelerated, only to be reinstated in many jurisdictions due to an ensuing resurgence in cases. The concerning emergence of numerous new strains of SARS-CoV-2, which the current vaccines were not specifically designed to immunize against, casts more uncertainty over the future effects of the pandemic.
The duration, geographic scope and costs of the societal and economic disruptions caused by the COVID-19 pandemic cannot be reasonably estimated at this time, and it is not possible to accurately predict the extent of the adverse effects of the pandemic on our business. However, we have experienced certain impacts and may experience others which, if they continue for an extended period of time, could have material adverse effects on our operations and the execution of our business plans. Examples of these include the following:

We have experienced some delays in the conduct of our current clinical trials, as individuals with moderate to severe obstructive sleep apnea, or OSA, defer seeking treatments, physicians have fewer in-person meetings to recruit and enroll patients, and recruited patients are hindered by restrictions in traveling to and accessing clinical sites. In addition, resources at hospitals have been diverted to dealing with the pandemic, causing delays in scheduling screening evaluations, implant procedures, and follow-up monitoring visits. As a result of the foregoing factors, the expected timeline for data readouts of our clinical trials may be negatively impacted, which would adversely affect our business.

We rely on independent clinical investigators other third-party service providers to assist us in managing, monitoring and otherwise carrying out our nonclinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs.

We also rely on third party suppliers and contract manufacturers to produce and assemble certain components of the Genio system. Our principal suppliers are Medistri SA, Resonetics, VSI Parylene, Reinhardt Microtech GmbH (Cicor), Lust Hybrid, Meko, S&D Tech SRL. The raw
 
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materials used by our suppliers are purchased in the open market. We could experience supply chain delays or shortages of these system components, which could impact both our ability to meet current timetables for our clinical trials and also hamper our ability to fulfill commercial orders for the system.

We temporarily closed our executive offices and implemented various governmental safety guidelines, including work-from-home policies for most employees. The effects of government orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

We have instituted work-from-home policies for certain of our employees, and this could adversely affect our operations, the productivity of our employees and our ability to conduct and complete our nonclinical studies and clinical trials.

In our initially targeted European markets, the pandemic could cause delays in pursuing and obtaining governmental and other third-party reimbursement decisions, as the work of these organizations may be slowed due to personnel work-from-home measures and travel and other scheduling constraints.

The COVID-19 pandemic also presents a number of challenges for our sales and marketing efforts, including, among others, the impact on our marketing and sales team in Europe due to travel limitations and government-mandated work-from-home or shelter-in-place orders, potential decreased product demand due to reduced numbers of in-person meetings with prescribers, and patient visits with physicians, potential delays in scheduling DISE and implant treatments, as well as increased unemployment resulting in lower new prescriptions.

In addition, the ability of the U.S. Food and Drug Administration, or FDA, and other regulatory authorities or other bodies to engage in routine regulatory and oversight activities, such as the review and authorization or certification of new products and the inspection of manufacturing and clinical trial sites, may be affected by the COVID-19 pandemic. The FDA and other regulatory authorities or other bodies may have slower response times or be under-resourced. If the global health concerns continue to disrupt or prevent regulatory authorities from conducting their regular reviews, inspections, or other regulatory activities, it could significantly impact the timely review and process our marketing applications, clinical trial authorizations, or other regulatory submissions, which could have a material adverse effect on our business.

The near- and longer-term future impacts of the COVID-19 pandemic on global and national economies, and related impacts on the availability of investment capital in financial markets, continues to be uncertain. Continued economic disruptions could cause a contraction in equity capital and debt markets, making access to financing unavailable on acceptable terms or at all.
The global COVID-19 pandemic continues to evolve rapidly. The ultimate impacts of the COVID-19 pandemic are highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we continue to monitor the COVID-19 situation closely. To the extent the COVID-19 pandemic adversely affects our business, results of operations, cash flows, financial condition and/or prospects, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. We have included additional discussions of certain impacts and potential impacts of the COVID-19 pandemic in other portions of this “Risk Factor” this section. These are intended to provide examples of such adverse effects and are, by necessity, not comprehensive. The full extent to which the COVID-19 pandemic will impact our business operations, financial condition, results of operations, and cash flows will depend on future developments, including, but not limited to, the ultimate severity, scope and duration of the pandemic before it is brought under control, the pace at which governmental and private travel and other restrictions and concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, and the speed with which national economies recover, all of which are highly uncertain.
 
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We have a limited operating history, have incurred losses in each period since our inception and may not be able to achieve or maintain profitability in the future.
We were incorporated in 2009, obtained certification (CE-Mark) for our Genio system in March 2019, and had our first commercial sales in Germany in July 2020. Since commencing commercialization, we have generated only limited revenue from commercial sales of the Genio system. We have incurred operating losses and negative operating cash flows in each period since we were incorporated in 2009, including operating losses of €7.7 million and €11.2 million and negative operating cash flows of €6.0 million and €7.0 million for each of the years ended December 31, 2019 and December 31, 2020, respectively, and operating losses of  €2.1 million and €5.3 million and negative operating cash flows of  €1.2 million and €4.2 million for each of the three months ended March 31, 2020 and March 31, 2021, respectively. As of March 31, 2021, we had an accumulated deficit of €66.0 million. These losses have resulted primarily from costs incurred in the development of our Genio system, as well as from general and administrative costs associated with our operations and manufacturing.
Following this offering, we expect that our operating expenses will continue to increase as we fund the continued development of our technology and the Genio product line, seek to expand manufacturing and sales and marketing capabilities, seek further regulatory clearances, certifications, approvals and marketing authorizations, particularly in the United States, for the Genio system, and as we incur the additional costs associated with being a public company in the United States. In June 2020, we obtained approval from the FDA under an investigational device exemption, or IDE, to begin our pivotal trial, the dual-sided hypoglossal nerve stimulation for the treatment of obstructive sleep apnea, or DREAM, trial. The aim of the DREAM trial, if the data are positive, is to support market authorization of the Genio system in the United States, as well as to support obtaining coverage and reimbursement more generally. We also plan to conduct additional clinical trials, and as a result, we expect clinical expenses will increase significantly over the next several years.
As a result, we expect to continue to incur operating losses for the foreseeable future, and we may never achieve profitability, which could impair our ability to sustain operations or obtain any required additional funding. Furthermore, even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis. If we do not achieve or sustain profitability in the future, we may suffer net losses or negative operating cash flows in subsequent periods.
Our future financial performance depends on the commercial acceptance of the Genio system in target markets.
The Genio system is currently our only commercial product, which we market in certain European countries, and our success depends entirely upon its market acceptance and adoption by physicians, payors and patients. The Genio system may not gain commercial acceptance in target markets. If we fail to gain and maintain commercial market acceptance of the Genio system in our target markets, for instance, because of insufficient price and reimbursement levels from government and third-party payors, competition, or the inability to demonstrate the benefits and cost-effectiveness of the Genio system compared to other products available on the market, the amount of revenue generated from sales of the Genio system in the future could continue to be limited, and could even decrease over time. In addition, the Genio system has not received marketing authorization in the United States, and our future financial performance will depend on the successful completion of our DREAM pivotal trial, which is intended to support an application for market authorization to commercialize the Genio system in the United States.
These and other factors present obstacles to commercial acceptance of the Genio system in target markets and could lead to our failure, or a substantial delay, in gaining significant market acceptance of the Genio system in target markets, which could affect our ability to generate revenue. Any failure of the Genio system to achieve meaningful market acceptance will harm our business and future prospects.
Even if the offering is successful, we may require additional capital in the future, which may not be available to us on commercially favorable terms, or at all.
We expect to incur significant expenses and operating losses over the next few years, and we may need to raise additional capital in the future. We have so far been financed primarily by funds invested by our shareholders, including in connection with our initial public offering on Euronext Brussels in
 
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September 2020. Based on our current operating plan and our existing cash and cash equivalents, together with the anticipated net proceeds from this offering, we expect to be able to fund our operations through 2024. However, we have based these estimates on assumptions that may prove to be incorrect, and we could spend our financial resources much faster than currently expected. Any future funding requirements will depend on many factors, including without limitation:

acceptance of our Genio system by patients, physicians, government payors, private payors, and the market generally in our target markets;

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

the cost and timing of obtaining additional regulatory clearances, approvals, classifications, certifications or other marketing authorizations for the Genio system;

the cost and timing of establishing additional sales and marketing capabilities;

the cost of research and development activities;

the cost of filing and prosecuting patent applications and other intellectual property rights and defending and enforcing our patents or other intellectual property rights in various jurisdictions;

the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights;

the cost associated with any complications or side effects related to the use of the Genio system;

costs associated with any product recall that may occur;

the effect of competing technological and market developments;

the extent to which we acquire or invest in products, technologies and businesses, although we currently have no commitments or agreements relating to any of these types of transactions; and

the costs of operating as a public company in Belgium and the United States.
Any additional equity or debt financing that we raise may contain terms that are not favorable to us or our shareholders. If we raise additional funds by selling additional ordinary shares or other securities convertible into or exercisable or exchangeable for ordinary shares after this offering, the issuance of such securities will result in dilution to our shareholders. The price per share at which we sell additional ordinary shares or securities convertible into or exercisable or exchangeable for ordinary shares in future transactions may be higher or lower than the price per ordinary share paid by investors in this offering.
In addition, any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our ordinary shares, make certain investments and engage in certain merger, consolidation or asset sale transactions. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or products, or grant licenses on terms that are not favorable to us.
Furthermore, we cannot be certain that additional funding will be available on acceptable terms, if at all. For example, while the overall economic impact caused by the COVID-19 pandemic may be difficult to fully assess, it is currently causing significant disruption to the global financial markets. If these disruptions are sustained or recurrent, they could make it more difficult for us to access capital, which could in the future negatively affect our ability to source required funding and could delay or prevent us from executing our strategy as planned. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or license to third-parties the rights to commercialize products or technologies that we would otherwise seek to commercialize ourselves. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations.
Any loss or decrease of subsidies, reimbursable cash advances and tax reductions may affect our financial resources.
Since September 2011, we have received financial support from the Walloon Region in the form of recoverable cash advances and subsidies. In March 2018, in accordance with Section 27A of the Australian
 
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Industry Research and Development Act 1986, the Australian Government gave notice to Nyxoah Pty Ltd, our Australian subsidiary, of registration for the research and development, or R&D, tax incentive from the 2017/2018 income year. This incentive represents 43.5% of the yearly eligible R&D expenditure.
All these subsidies and reimbursable cash advances increased our financial resources to support R&D and clinical development projects. However, we cannot predict whether we or our subsidiaries will continue to benefit from such incentives and/or advantages and/or to what extent. The repayment obligations with respect to the financial support from the Walloon Region will also have the effect of reducing our profitability until fully repaid.
Risks Related to Development of Our Products and Product Candidates
Even though we have obtained certification, a CE-Mark, in Europe for the Genio system based on first positive clinical trial results, there is no guarantee that we will be able to maintain our current certification or to obtain additional certification or marketing authorizations in other jurisdictions, including the United States, or that the results from our ongoing and planned clinical trials will be sufficient for us to obtain or maintain such certifications or authorizations.
Even though we have obtained certification (CE-Mark) in Europe for the Genio system based on positive results from our BiLAteral hypoglossal nerve STimulation for treatment of Obstructive Sleep Apnea, or BLAST, clinical trial, there is no assurance that ongoing and future clinical trials we may conduct to support further marketing authorizations, certifications or clearances (or to maintain existing ones) will be successful and that the Genio system will perform as intended. We may be required to develop more clinical evidence than we currently anticipate before we are able to demonstrate to the satisfaction of the FDA or other regulatory authorities that the Genio system is safe and effective for its intended use, if ever. To obtain a certificate of conformity, manufacturers need to comply with the essential requirements set forth in Council Directive 90/385/EEC, the Active Implantable Medical Devices Directive, or the AIMD Directive, and in particular to demonstrate that devices are designed and manufactured in such a way that they will not compromise the clinical condition or safety of patients, or the safety and health of users and others (that the potential benefits outweigh potential risks). In addition, medical devices must achieve the performance intended by the manufacturer and be designed, manufactured and packaged in a suitable manner. However, if the Genio system causes or contributes to consumer injuries or other harm or other serious issues arise as to the device’s performance, it may be necessary to conduct further clinical trials to confirm the device can perform safely and effectively.
In particular, even if certification has been obtained in Europe, there is no guarantee for success in the U.S. pivotal trial or for future U.S. marketing authorization. The FDA’s standard of review differs from that required to obtain a CE-Mark in Europe, which only indicates that the device in question is in full compliance with European legislation. Medical devices certified for marketing in the European Union need notably to demonstrate that they are designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. On the other hand, before FDA approval of a medical device in the United States, a device must not only be shown to be safe, but also effective its intended use, or in the case of a 510(k) clearance, substantially equivalent to a predicate device.
We may not receive, or may be delayed in receiving, the necessary marketing authorizations or certifications for our Genio system or any future product candidates, and failure to timely obtain necessary marketing authorizations or certifications for our product candidates would have a material adverse effect on our business.
In the United States, before we can market a new medical device, or a new use of, or other significant modification to an existing, marketed medical device, we must first receive either clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or the FDCA, approval of a premarket approval, or PMA, application or grant of a de novo classification request from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down classified, or a 510(k) exempt device. To be
 
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“substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the process of obtaining PMA approval, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life sustaining, life supporting or implantable devices. In the de novo classification process, a manufacturer whose novel device under the FDCA would otherwise be automatically classified as Class III and require the submission and approval of a PMA prior to marketing is able to request down-classification of the device to Class I or Class II on the basis that the device presents a low or moderate risk. If the FDA grants the de novo classification request, the applicant will receive authorization to market the device. This device type may be used subsequently as a predicate device for future 510(k) submissions.
The PMA approval, 510(k) clearance and de novo classification processes can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can take longer. The process of obtaining a PMA or de novo classification is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. In addition, PMAs and de novo classification requests generally require the applicant to have conducted one or more clinical trials. Despite the time, effort and cost expended in seeking a marketing authorization, there is no assurance that the FDA will grant it. Any delay or failure to obtain necessary regulatory marketing authorizations could harm our business. Furthermore, even if we are granted such marketing authorizations, they may include significant limitations on the indicated uses for the device, which may limit the potential commercial market for the device.
To date, we have not obtained authorization from the FDA to market any product candidate in the United States, and we expect to either request a de novo classification or submit a PMA application for our Genio system. If the FDA requires us to go through a lengthier, more rigorous examination for our product than we currently expect, our product introduction could be delayed or prevented, which would have a material adverse impact on our business and prospects. Following completion of our DREAM pivotal trial, we expect to engage further with the FDA to discuss the clinical trial results and to determine the most appropriate regulatory pathway to pursue in order to obtain marketing authorization in the United States, which may be either a PMA or a de novo classification request. Even if the FDA determines that a de novo classification request would be acceptable, after reviewing the contents of such a future application, the FDA may nonetheless determine that any special controls we propose to implement do not sufficiently mitigate the risks associated with the device and that the Genio system cannot be reclassified as a Class II device and therefore, must remain in Class III. The FDA will decline a de novo request if it determines that (i) general and special controls are insufficient to provide reasonable assurance of safety and effectiveness of the device; (ii) the data provided in the de novo request are insufficient to determine whether general and special controls can provide a reasonable assurance of safety and effectiveness of the device; or (iii) the probable benefits of the device do not outweigh the probable risks. In such a scenario, the FDA’s decision may require us to prepare and submit a PMA for the Genio system, which would then remain a Class III device that could not be legally marketed until FDA reviews and approves the device based on the PMA application. We may not be able to meet the requirements to obtain device reclassification under the de novo pathway or PMA approval, and even if we do obtain marketing authorization under one of those pathways, the FDA may place significant limitations on any such marketing authorization depending on the available safety and effectiveness data for the Genio system for its intended uses.
In order to sell our products in member countries of the European Union, or the EU, our products must comply with the essential requirements of the EU Medical Devices Directive (Council Directive 93/42/EEC) and the Active Implantable Medical Devices Directive (Council Directive 90/385/EEC). Compliance with these requirements is a prerequisite to be able to affix the European Conformity, or CE, mark to our products, without which they cannot be sold or marketed in the EU. To demonstrate compliance with the essential requirements we must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risks) classification. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can issue an EC Declaration of Conformity
 
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based on a self-assessment of the conformity of its products with the essential requirements of the EU Medical Devices Directive and the Active Implantable Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization accredited or designated by a member state of the EU to conduct conformity assessments, or a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a certificate of conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE-Mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. If we fail to remain in compliance with applicable European laws and directives and corresponding EU member state laws, we would be unable to continue to affix the CE-Mark to our products, which would prevent us from selling them within the EU.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Non-compliance with the above requirements would also prevent us from selling our products in these three countries.
Following the end of the “Brexit” Transition Period, from January 1, 2021 onwards, the MHRA will be responsible for the UK medical device market. The new regulations will require medical devices to be registered with the UK Medicines and Healthcare products Regulatory Agency, or MHRA, (but manufacturers will be given a grace period of four to 12 months to comply with the new registration process). Manufacturers based outside the UK will need to appoint a UK Responsible Person to register devices with the MHRA in line with the grace periods. By July 1, 2023, in the UK (England, Scotland, and Wales), all medical devices will require a UKCA (UK Conformity Assessed) mark but CE-Marks issued by EU Notified Bodies will remain valid until this time. However, UKCA marking alone will not be recognized in the EU. The rules for placing medical devices on the Northern Ireland market will differ from those in the UK. Compliance with this legislation is a prerequisite to be able to affix the UKCA mark to our products, without which they cannot be sold or marketed in the UK.
The FDA or foreign regulatory authorities or Notified Bodies can delay, limit or deny marketing authorization or certification of a device for many reasons, including:

our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or Notified Bodies that our products are safe and effective for their intended uses;

the disagreement of the FDA, foreign regulatory authorities or other foreign (regulatory) body with the design or implementation of our clinical trials or the interpretation of data from non-clinical studies or clinical trials;

serious and unexpected adverse device effects experienced by participants in our clinical trials;

the data from our non-clinical studies and clinical trials may be insufficient to support clearance, certification, de novo classification or approval, where required;

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

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

the potential for approval policies or regulations of the FDA or foreign regulatory authorities to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
 
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Our growth will depend, in part, on our ability to expand the indications for the Genio system, as well as to continue to development enhancements to the system and also develop and commercialize additional products.
Expanding indications for our Genio system and developing new products is expensive and time-consuming and could divert management’s attention away from our core business. We plan to continue to invest in pursuing additional indications for our Genio system and in improving the Genio system to develop next generation versions designed to improve patient comfort, efficacy and convenience. For example, our ongoing BETTER SLEEP trial is designed to provide sufficient clinical evidence to enable us to market our Genio system outside the United States to patients suffering from moderate to severe OSA and who also have completed concentric collapse, or CCC. Until the outcomes of that clinical trial are fully available, there can be no assurance that our Genio system will be demonstrated to be safe and effective for the treatment of moderate to severe OSA patients with CCC.
The success of any such product development efforts will depend on several factors, including our ability to do the following:

properly identify and anticipate physician and patient needs;

develop and introduce new products and product enhancements in a timely manner;

avoid infringing upon the intellectual property rights of third parties;

obtain necessary licenses from or reach commercial agreements with third parties owning proprietary technologies or solutions;

demonstrate, if required, the safety and efficacy of new products with data from preclinical studies and clinical trials;

obtain the necessary regulatory authorizations and/or certifications for expanded indications, new products or product modifications;

be fully compliant with requirements related to marketing of new devices or modified products;

provide adequate training to potential users of our products;

receive adequate coverage and reimbursement for procedures performed with our products; and

develop an effective and dedicated sales and marketing team.
If we are not successful in expanding indications and developing and commercializing new products and product enhancements, our ability to increase our revenue in the future may be impaired.
Clinical trials involve a lengthy and expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
We obtained CE-Mark certification in Europe for the Genio system in March 2019, commenced sales of the Genio system in Germany in July 2020, and are pursuing marketing activities in advance of commencing selling efforts in several other European countries. In the United States, we recently received IDE approval to commence our DREAM trial, which if successfully completed, we anticipate relying upon to support our application for marketing authorization of the Genio system in the U.S. market.
Before obtaining marketing clearance, approval or certification from regulatory authorities or Notified Bodies respectively for the sale of our Genio system, or any additional products we may develop, we expect to conduct clinical trials to demonstrate the safety and efficacy of the device in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing.
It is possible that even if the Genio system has a beneficial effect, that effect may not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect adverse effects caused by our Genio system, or
 
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mistakenly believe that our system caused certain adverse effects when that is not in fact the case. Also, the inclusion and exclusion criteria we define may not sufficiently capture a trial subject population that would be most appropriate for treatment with our Genio system.
The outcome of prior clinical trials may not be predictive of the success of later clinical trials. For example, the positive outcome of our BLAST clinical trial, based on which we obtained certification for the Genio system in the EU, does not ensure that our DREAM trial or BETTER SLEEP trials will be successful. Furthermore, interim results of a clinical trial do not necessarily predict final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through non-clinical studies and earlier clinical trials. Many companies in the medical device industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we cannot be certain that we will not face such setbacks.
The design of a clinical trial can determine whether its results will support marketing authorization or certification of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. We have limited experience in designing clinical trials, and there is no certainty that the design of our ongoing clinical trials will ultimately support marketing authorization or certification. Even if we believe that the results of clinical trials for our product candidates warrant marketing authorization or certification, the FDA or comparable non-U.S. regulatory authorities and Notified Bodies may disagree and may not grant marketing authorization or certification of our product candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Any pivotal or other clinical trials that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates.
The initiation and completion of clinical trials may be prevented, delayed, or halted for numerous reasons. We may experience delays in our clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following:

we may be required to submit additional IDEs to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject our IDE application and notify us that we may not begin clinical trials, or place restrictions on the conduct of such trials;

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

regulators and/or institutional review boards, or IRBs, or other bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site;

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

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

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

we might have to suspend or terminate clinical trials for various reasons, including occurrence of adverse events or other findings that the subjects in our clinical trials are being exposed to unacceptable health risks;

we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB or other bodies and/or regulatory authorities for re-examination;
 
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regulators, IRBs, or other parties or bodies may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements;

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

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

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

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

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

our current or future products may have undesirable side effects or other unexpected characteristics.
Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of any product candidate.
In addition, clinical trials must be conducted in accordance with the laws and regulations of the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and IRBs or other bodies at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our devices produced under current good manufacturing practice, or cGMP, requirements and other regulations. Furthermore, we rely on clinical trial sites, and we may in the future rely on contract research organizations, or CROs, to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and we may in the future depend on CROs to conduct our clinical trials in compliance with good clinical practice, or GCP, requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the trial to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both. In addition, conducting clinical trials in various countries may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. service providers, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.
Interim, “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more trial subject data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim, top-line or preliminary data from our clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular registry, trial or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. Importantly, interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. As a result, the interim, top-line or preliminary results that we report may differ from future results of the same trial, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Interim, top-line or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim, top-line or preliminary data we previously published.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which
 
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could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular non-clinical trial or clinical trial is based on what is typically extensive information, and others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our products and product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock. For all of the foregoing reasons, interim, top-line and preliminary data should be viewed with caution until the final data are available.
Attracting patients to perform clinical trials and meeting clinical trial objectives can be more costly and time-consuming than expected, has already been adversely impacted by the ongoing COVID-19 pandemic, and could be adversely affected by another health crisis.
In order conduct our clinical trials, we must recruit, screen and enroll eligible patients. Patients may be identified from the investigator’s own practice clinic or hospital or may be referred by another physician. Potential clinical trial participants must provide informed consent before undergoing certain clinical tests that are used to determine whether the patient meets the enrollment criteria for inclusion in the clinical trial is ineligible and must be excluded. As a result, at the time of informed consent, we do not know if a patient will be eligible to participate in the trial. For example, patients with CCC are excluded from our DREAM trial, and we cannot determine eligibility until after the patient has consented and undergone a drug-induced sleep endoscopy. To that end, we will need to screen many more patients than we intend to enroll in order to meet our enrollment criteria. After a patient is determined to be eligible and is enrolled in the clinical trial, they must comply with the trial requirements and undergo periodic time-consuming tests, including a sleep test in a sleep lab. Not all patients who undergo screening will ultimately be eligible for the enrollment in our clinical trials. Moreover, some of the enrolled participants may not comply with the requirements of the trial, thereby leading to poor or unusable data, or some may withdraw from the trial, which may compromise the results of the clinical trial.
We may not be able to initiate, continue and/or complete in a timely manner clinical trials if we are unable to locate and enroll a sufficient number of eligible patients within the planned recruitment period to participate in these trials as required by the applicable regulatory authorities in the United States, Europe and any other applicable jurisdictions.
Delays in subject enrollment or failure of trial subjects to continue to participate in a clinical trial may delay commencement or completion of the clinical trial, cause an increase in the costs of the clinical trial and delays, or result in the failure of the clinical trial. Patient enrollment in our clinical trials may be affected by many factors including:

the fact that the Genio system is an implantable device requiring clinical trial subjects to undergo surgery;

the existence of a competing device with FDA marketing authorization and long-term data supporting its safety and efficacy;

clinicians’ and patients’ perceptions as to the potential advantages and risks of the Genio system in relation to other available therapies, including any new product candidates that may be approved for the indications we are investigating;

the severity of the condition, moderate to severe OSA, under investigation and clinicians’ and patients’ perceptions as to the potential advantages and risks of the Genio system in relation to other available therapies, including any new product candidates that may be approved for this indication;

the size and nature of the patient population;

the severity of the disease under investigation;

the eligibility criteria for the trial in question;
 
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subject compliance with the trial protocol;

the design of the clinical trial;

the referral practices of physicians;

limitations placed on enrollment by regulatory authorities or other bodies;

the ability to monitor trial subjects adequately during and after treatment;

the proximity and availability of clinical trial sites for prospective subjects;

the approval of other devices or therapeutics for the target indications;

efforts to facilitate timely enrollment;

other clinical trials competing for the same target patients as those of our clinical trials; and

the necessity for the trial subjects to dedicate their time to multiple visits to the clinic and/or sleep lab for tests, including a sleep test in a lab, forming part of the clinical trial.
In addition, as a result of the COVID-19 pandemic, and related “shelter in place” or “quarantine” orders and other public health guidance measures, we have experienced and may experience in the future disruptions that could materially impact the ability to recruit patients to participate in our trials or otherwise disrupt normal functioning of the healthcare system which could impair our ability to conduct our clinical trials and business in general as planned. Potential causes of these disruptions include but are not limited to:

delay of surgeon training due to the limitations of traveling for surgeons to be trained, proctors and our staff;

delay of surgeon training due to the closing or restricted use of cadaver lab facilities hosting the training sessions;

limitations of number of implants due to COVID-19 and recommendations from regulatory or health authorities to limit elective surgeries;

delays in site initiation and subject enrollment due to diversion of healthcare resources away from the conduct of clinical trials, including the unavailability, diversion or reallocation of resources and facilities of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

delays or difficulties in enrolling subjects in our clinical trials because COVID-19 in some cases has reduced the willingness of patients to participate or continue to participate in clinical trials, resulting in the need to recruit new potential participants and go through new screening processes;

increased rates of subjects withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine; and

potential non-compliance of subjects with clinical trial protocols if quarantine impedes patient movement or interrupts or restricts healthcare services.
Any difficulties in enrolling a sufficient number of subjects for any of our clinical trials, or any subjects withdrawing from the clinical trials or not complying with the trial protocols, could result in significant delays and could require us to abandon one or more clinical trials altogether. If our trial sites are restricted in performing elective surgeries or following up with their trial subjects, this may lead to missing information and may potentially impact clinical trial data quality and integrity. Enrollment delays and other issues with our clinical trials may result in increased research and development costs that may exceed the resources available to us and in delays to commercially launch the Genio system in target markets, if authorized for sale in such markets.
Serious adverse events, or SAEs, or undesirable side effects or other unexpected properties of our product candidates may be identified during development that could delay or prevent the product candidate’s marketing authorization or certification.
As is the case with implantable medical devices generally, it is likely that there may be side effects and adverse events associated with the use of our Genio system or any future product candidate. Results of our
 
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clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. SAEs or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, an IRB or regulatory authorities or other bodies to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of marketing approval or certification by the FDA, Notified Bodies or comparable non-U.S. regulatory authorities. If any of our product candidates is associated with SAEs or undesirable side effects or has properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many medical devices that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the device.
Additionally, if any of our product candidates, including the Genio system, receives marketing authorization from the FDA, the side effects observed in clinical trials could result in a more restrictive label than we anticipate.
Risks Related to Commercialization and Reimbursement
Our future financial performance depends on the commercial acceptance of the Genio system in target markets.
The Genio system is our only commercial product, which we market in certain European countries. The Genio system is CE-Marked since March 2019 for the treatment of OSA. We are working to obtain reimbursement and gain commercial market acceptance of the Genio system in initial target markets in Europe, but to date we have generated only limited revenue from commercial sales of the Genio system in Germany after commencing sales in that country in July 2020. The Genio system may not gain commercial acceptance in target markets. If we are delayed in gaining, or fail to gain and maintain commercial market acceptance of the Genio system in our target markets, because of insufficient price and reimbursement levels from government and third-party payors, competition, or the inability to demonstrate to physicians and other potential customers the benefits and cost-effectiveness of the Genio system relative to other products available on the market, the amount of revenue generated from sales of the Genio system in the future could continue to be limited, and could even decrease over time. In addition, the Genio system has not received marketing authorization in the United States, and our future financial performance will depend on the successful completion of our DREAM trial intended to support a U.S. marketing application. Any failure of the Genio system to achieve meaningful market acceptance will harm our business and future prospects.
Even if we receive marketing authorizations, clearances or certifications in our target markets to commercialize the Genio system or any product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm our business.
The commercial success of the Genio system and any other product candidates we develop will depend substantially, both in the United States and abroad, on the extent to which coverage and reimbursement for our products and related procedures will be available from government health administration authorities, private health insurers and other third-party payors such as managed care and similar healthcare management organizations. Thus, our ability to commercialize the Genio system and any product candidates we develop will depend to a significant degree on which government authorities and third-party payors decide to cover our products and at what reimbursement levels. If reimbursement is not available, or is available only to a limited extent, we may not be able to successfully commercialize our products. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish and maintain pricing sufficient to realize a meaningful return on our investment.
There is significant uncertainty related to government and other third-party payor coverage and reimbursement of newly approved medical devices. Regulatory approvals and pricing and reimbursement for new device products vary widely from country to country. Some countries require approval of the sale price of a device before it can be marketed. In many countries, the pricing review period begins after marketing authorization or certification is granted. In some non-U.S. markets, pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain
 
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marketing authorization or certification for a product in a particular country but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing authorization or certification.
The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products, which could affect our ability to sell our product candidates profitably. These payors may not view the Genio system or any other product candidates, if authorized for marketing, as cost-effective, and coverage and reimbursement may not be available to our customers, or may not be sufficient to allow our product candidates, if authorized for marketing, to be sold on a competitive basis. Cost-control initiatives could cause us to decrease the price we might establish for products, which could result in lower than anticipated product revenues. Further, if the prices for our product candidates, if authorized for marketing, decrease or if governmental and other third-party payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer. Marketing authorization or certification of a product does not guarantee sufficient reimbursement to achieve commercial success.
There may also be delays in obtaining coverage and reimbursement for newly approved products, and coverage may be more limited than the indications for which the product is authorized by the FDA or comparable non-U.S. regulatory authorities. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost products or may be incorporated into existing payments for other services.
Obtaining and maintaining coverage and reimbursement can be a time-consuming process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products. Increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We may not be able to provide data sufficient to satisfy governmental and third-party payors that procedures using our products should be covered and reimbursed. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if available, that the reimbursement rates will be adequate.
Outside the United States, reimbursement levels vary significantly by country and by region, particularly based on whether the country or region at issue maintains a single-payor system. Annual healthcare budgets generally determine the number of therapeutic devices like the Genio system that will be paid for by the payor in these single-payor system countries and regions. Some countries or regions may require us to gather additional clinical data before granting coverage and reimbursement for our products. We are currently working with payors in the EU to obtain coverage and reimbursement approval in countries and regions where it makes economic sense to do so; however, we may not obtain such coverage, which could have a material adverse effect on our business, financial condition and results of operations and impair our ability to grow our business.
We have limited experience marketing and selling our Genio system, and if we are unable to expand, manage and maintain our direct sales and marketing organization, we may not be able to generate revenue growth.
We have only limited experience in marketing and selling our Genio system. To achieve commercial success, we will need to expand our internal sales and marketing organization to commercialize the Genio system in markets that we will target directly. Expanding our sales and marketing team further will entail recruiting additional managerial, operational, financial and other employees, which is expensive and time-consuming and could delay product launches.
For example, if we obtain regulatory authorization to market the Genio system in the United States, we intend to build a direct sales force. We have no experience marketing and selling the Genio system in the United States. To commence commercial launch will require us to hire, develop, grow and retain a U.S.
 
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marketing and sales organization. To do so will require significant investment in recruiting and training as we ramp up to a U.S. commercial launch. There is significant competition for marketing and sales personnel experienced in medical device sales. Once we hired such personnel, we expect to provide them with in-depth training, which can be lengthy, because it will require significant education for new marketing and sales representatives to achieve the level of clinical competency with the Genio system that physicians expect. Upon completion of training, our sales representatives will require lead time in the field to grow their network of accounts and achieve productivity levels we expect them to reach in any individual territory. If we are unable to attract, motivate, develop and retain a sufficient number of qualified sales personnel, and if our sales representatives do not achieve the productivity levels we expect them to reach, our revenue will not grow at the rate we expect and our financial performance will suffer.
If the commercial launch of the Genio system in the United States or another jurisdiction for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, our sales efforts may be hindered in target markets if we fail to develop complementary products.
We may also decide to target certain markets indirectly via distributors or other arrangements. If we are unable to find suitable distribution partners, lose these distribution partners or if our distribution partners fail to sell our products in sufficient quantities, on commercially viable terms or in a timely manner, the commercialization of the Genio system could be materially harmed, which could prevent us from achieving or maintaining profitability.
Hesitation to change or to undertake special training and economic, social, psychological and other concerns among physicians may limit general acceptance and adoption of the Genio system.
Even if the Genio system receives marketing authorization or certification from the appropriate regulatory authorities or Notified Bodies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Our efforts to educate the medical community and third-party payors regarding the benefits of the Genio system are expected to require significant resources and may not be successful.
Acceptance of the Genio system will depend on physicians being convinced of the distinctive characteristics, clinical performance, benefits, safety and cost-effectiveness of the device and being prepared to undertake special training in certain cases. Furthermore, physicians will likely only adopt the Genio system if they determine, based on experience, clinical data, and published peer-reviewed journal articles that the Genio system is an attractive treatment solution, and that third-party payors, such as government programs and private health insurance plans, will provide coverage and adequate reimbursement for its use. Regarding the Genio system, only two articles related to the BLAST OSA trial have been published in the European Respiratory Journal and Laryngoscope Investigative Otolaryngology.
The degree of market acceptance of the Genio system and any other product candidates we develop will depend on a number of social, psychological, economic and other factors and concerns, including

general conservatism about the adoption of new treatment practices and reluctance to switch their patients from existing therapies;

personal history of adverse events and severe/serious adverse events;

lack or perceived lack of long-term evidence supporting additional patient benefits;

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

limited or lack of reimbursement and coverage within healthcare payment systems;

costs associated with the purchase of new products and equipment;

other procedures competing for physician time and attention;

the fact that the Genio system contains an implantable device requiring surgery for implantation;

the time commitment that may be required for special training;
 
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insufficient level of commercial attractiveness to physicians;

the extent of ongoing support required by the clinician; and

the extent of ongoing involvement of the patient in therapy.
We may focus our financial and managerial resources on a particular market resulting in a failure to capitalize on markets that may be more profitable or for which there is a greater likelihood of success.
Taking into account our current financial and managerial resources, we will have to carefully prioritize the order in which we address of our target European markets for commercialization of the Genio system, based on parameters such as market size, market readiness, and competition, and then allocate our financial and managerial resources accordingly. In order to identify our primary target markets, we make projections on the number of people by target market. These projections are derived from a variety of sources, including, but not limited to, scientific literature, governmental statistics and market research, and are highly contingent on a number of variables that are difficult to predict and may prove to be too high. If as a result of these or other factors the market for the Genio system does not develop as currently anticipated, our ability to generate revenue could be materially adversely affected. Further, if we use our financial and managerial resources to promote a particular indication expansion that is not ultimately sufficiently commercially successful, this could result in a smaller population of patients who could benefit from the Genio system than we anticipate which would result in lower potential revenue.
Competition from medical device companies and medical device subsidiaries of large healthcare and pharmaceutical companies is intense and expected to increase.
The medical technology industry is highly competitive, subject to change and significantly affected by new product introductions and other activities of industry participants. Our competitors have historically dedicated and will continue to dedicate significant resources to promoting their products or developing new products or methods to treat moderate to severe OSA. We compete as a second line therapy in the OSA treatment market for patients with moderate to severe OSA.
We consider other companies that have designed hypoglossal nerve stimulation technologies to treat OSA as direct competitors. We are aware of only one currently marketed nerve stimulation device for the treatment of OSA, the Inspire Medical system marketed by Inspire Medical Systems, Inc., and one other nerve stimulation system for the treatment of OSA commercially available in Europe from ImThera/​LivaNova PLC. The Inspire Medical system is currently the only neuro stimulation system approved to treat moderate to severe OSA in the United States. Additionally, we also consider, as indirect competition, invasive surgical treatment options such as uvulopalatopharyngoplasty and maxillomandibular advancement surgery and, to a lesser extent, mandibular advancement devices, which are primarily used in the treatment of mild to moderate OSA.
In Europe, the Genio system is CE-Mark certified for use as a second-line therapy in the treatment of moderate to severe OSA in patients who do not tolerate, refused or failed CPAP therapy. If one or more CPAP device manufacturers successfully develop a CPAP device that is better tolerated and demonstrates significantly higher compliance rates, or if improvements in other second-line therapies make them more effective, cost effective, easier to use or otherwise more attractive than the Genio system, these therapies could have a material adverse effect on our sales, financial condition and results of operations.
Companies against which we compete, directly or indirectly, may have competitive advantages with respect to primary competitive factors in the OSA treatment market, including:

greater company, product and brand recognition;

a more extensive body of clinical data demonstrating product reliability and durability;

more effective marketing to and education of patients, physicians and sleep centers;

greater product ease of use and patient comfort;

more sales force experience and greater market access;

better product support and service;

more advanced technological innovation, product enhancements and speed of innovation;
 
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more effective pricing and revenue strategies;

lower procedure costs to patients;

more effective reimbursement teams and strategies;

dedicated practice development; and

more effective clinical training teams.
The commercial availability of any approved competing product could potentially inhibit recruitment and enrollment in our clinical trials. We may successfully conclude our clinical trials and obtain final regulatory authorization or certification, and nevertheless may fail to compete against competitors or alternative treatments that may be available or developed for the relevant indication. Alternative treatments include devices and surgery, as well as potential pharmacological treatments, among others. New treatment options may emerge yielding clinical results better than or equal to those achieved with the Genio system, possibly at a lower cost. Emergence of such new therapies may inhibit our ability to develop and grow the market for the Genio system. Furthermore, new entrants into the markets in which we operate could also decide to more aggressively compete on price, requiring us to reduce prices to maintain market share.
The ongoing COVID-19 pandemic, and the occurrence of another pandemic, epidemic or other health crisis, could have a negative impact on our product development and manufacturing activities, the recruitment and conduct of our clinical trials and our ability to source required funding, which could delay or prevent us from executing our strategy as planned.
Our business and the business of our development and manufacturing partners and suppliers could be materially adversely affected by the impacts of pandemics, epidemics or other health crises, including the ongoing COVID-19 pandemic. The ultimate impact of the COVID-19 pandemic or any similar health pandemic or epidemic is highly uncertain and subject to rapid change.
Our business could be adversely affected by health epidemics wherever we have clinical trial sites or other business operations. In addition, health epidemics could cause significant disruption in the operations of third-party manufacturers, suppliers and other third parties upon whom we rely. Most recently, the global COVID-19 pandemic and government measures taken in response have also had a significant impact on businesses and commerce worldwide, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended across a variety of industries; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In connection with COVID-19, we implemented various governmental safety guidelines, including work-from-home policies for certain employees. The effects of government orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.
We depend on a global supply chain to manufacture the components of the Genio system which are sent to our facilities in Israel and Belgium, where final assembly is to be completed. Quarantines, shelter-in-place and similar government orders, or the expectation that such orders, shutdowns or other restrictions could occur, whether related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt our supply chain.
If our relationships with our suppliers or other vendors are terminated or scaled back as a result of the COVID-19 pandemic or other health epidemics, we may not be able to enter into arrangements with alternative suppliers or vendors or do so on commercially reasonable terms or in a timely manner. Switching or adding additional suppliers or vendors involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new supplier or vendor commences work. As a result, delays may occur, which could adversely impact our ability to meet our desired clinical development and any future commercialization timelines. Although we carefully manage our relationships with our suppliers and vendors, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not harm our business.
 
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In addition, our ongoing clinical trials have been and may continue to be affected by the COVID-19 pandemic. Clinical site initiation, subject enrollment and activities that require visits to clinical sites, including data monitoring, have been and may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic or concerns among patients about participating in clinical trials during a pandemic. Some trial subjects may have difficulty following certain aspects of clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. For example, some clinical trial subjects, including patients in our DREAM clinical trial in the United States may not be able to attend follow-ups and comply with trial protocols. These challenges have and in the future may continue to increase the costs of completing our clinical trials. Similarly, if we are unable to successfully recruit and retain subjects and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 or experience additional restrictions by their institutions, city or state, our clinical trial operations could be adversely impacted. There is also the risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events.
The COVID-19 pandemic has resulted in significant disruption of global financial markets, resulting in economic downturns in many countries that could continue to significantly impact our business and operations and may reduce our ability to access capital, which could in the future negatively affect our access to investment capital. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of the ordinary shares. These and similar, and perhaps more severe, disruptions in our operations could have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects.
Risks Related to Our Dependence on Third Parties and on Key Personnel
A loss or degradation in performance of the suppliers on which we depend for services and components used in the production and assembly of the Genio system could have a material effect on our business, financial condition and results of operations.
The Genio system requires customized components and services that are currently available from a limited number of sources. If these suppliers decide not to supply, are unable to supply, or if they provide us with components or services of insufficient quality, this could harm our reputation and business by affecting, for example, product availability and performance. Our suppliers might not be able or willing to continue to provide us with the components or services we need, at suitable prices or in sufficient quantity or quality. If any of our existing suppliers is unable or unwilling to meet our demand for components or services, or if the services or components that they supply do not meet quality and other specifications, clinical trials or sales of the Genio system could be delayed or halted, which could prevent us from achieving or maintaining profitability. For instance, we currently rely on a single source supplier for a number of critical components to the Genio system. We are seeking to qualify additional suppliers for certain of our components. The addition of a new supplier to the production process generally requires extensive evaluations, testing and regulatory approval, making it difficult and costly for us to diversify our exposure to single source suppliers. In addition, if we have to switch to a replacement supplier for any of our product components or for certain services required for the production and assembly of the Genio system such as, for example, the sterilization and coating of the product components, or if we have to commence our own manufacturing to satisfy market demand, we may face delays, and the manufacturing and delivery of the Genio system could be interrupted for an extended period of time, which could delay completion of our clinical trials or commercialization and prevent us from achieving or maintaining profitability. Alternative suppliers may be unavailable, may be unwilling to supply, may not have the necessary regulatory approvals or certifications, or may not have in place an adequate quality management system. Furthermore, modifications to a service or component made by a third-party supplier could require new approvals or certifications from the relevant regulatory authorities before the modified service or component may be used.
If we are required to change the manufacturer of a critical component of our implant systems, we will be required to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability to manufacture our implant systems in a timely manner. If we encounter demand for our system in excess of our inventory and we need to contract with these additional suppliers, we will face challenges in meeting
 
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that demand. Transitioning to a new supplier could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our implant systems or could require that we modify the design of those systems. If the change in manufacturer results in a significant change to any product, new marketing authorizations or certification from the FDA or similar regulatory authority may be necessary before we implement the change, which could cause substantial delays. The occurrence of any of these events could harm our ability to meet the demand for our products in a timely or cost-effective manner.
In addition, our suppliers may discontinue their supply of components or services upon which we rely before the end of the product life of the Genio system. The timing of a discontinuation may not allow us sufficient time to develop and obtain any regulatory authorizations or certifications as required for replacement components or service before we exhaust our inventory. If suppliers discontinue their supply of components or services, we may have to pay premium prices to our suppliers to keep their production or service lines open or to obtain alternative suppliers, buy substantial inventory to last until the scheduled end of life of the Genio system or through such time as we have an alternative component developed and authorized by the regulatory authorities, or temporarily cease supplying the Genio system once our inventory of the affected component is exhausted.
Any of these interruptions to the supply of services or components could result in a substantial reduction in our available inventory and an increase in our production costs.
We may be unable to attract and retain management and other personnel we need to succeed.
Given our current state of the development, reliance on the expertise and experience of our board of directors, management and other key employees, as well as contractors, in management, engineering, manufacturing, clinical and regulatory matters, sales and marketing, and other functions is crucial. The departure of any of these individuals without timely and adequate replacement or the loss of any of our senior management or other key employees would make it difficult for us to achieve our objectives in a timely manner, or at all. We might not be able to find and attract other individuals with similar levels of expertise and experience or similar relationships with commercial partners and other market participants. In addition, our competitive position could be compromised if a member of senior management transferred to a competitor.
We expect to expand our operations and grow our clinical development, manufacturing, administrative and commercial operations. This will require hiring a number of qualified clinical, scientific, commercial and additional administrative, sales and marketing personnel. Competition for skilled personnel is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. Competitors may have greater financial and other resources, different risk profiles and a longer history than we do. If we are unable to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our development, commercialization or growth. Failure to retain or attract key personnel could have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects. In addition, if, as a result of COVID-19, our employees are not able to come to work, then this could also have a material adverse effect on our business, results of operations, cash flows, financial condition and/or prospects.
We rely, or may rely in the future, on third parties to provide critical advice and conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of clinical trials. Third-party performance failure may increase our developments costs, delay granting of regulatory authorizations or certifications or delay or prevent commercialization.
We rely, and may rely in the future, on third parties to conduct certain clinical trials, perform data collection and analysis and provide marketing, manufacturing, regulatory advice and other services that are crucial to our business. In particular, our technology and product development activities or clinical trials conducted in reliance on third parties may be delayed, suspended, or terminated if the third parties do not devote a sufficient amount of time or effort to our activities or otherwise fail to successfully carry out their contractual duties or to meet regulatory obligations or expected deadlines; if we replace a third party; if the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons including the loss of data; or if the third party becomes bankrupt or enters into liquidation.
 
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We may not always have the ability to control the performance of third parties in their conduct of their activities. Our agreements with these third parties generally allow the third party to terminate the agreement at any time, subject to standard notice terms. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, or agreements with such third parties are terminated for any reason, we would be required to find a replacement third party to conduct the required activities. We may be unable to enter into a new agreement with another third party on commercially acceptable terms. Furthermore, if the quality or accuracy of the data obtained by the third party is compromised, or if data are otherwise lost, we would be required to repeat the affected trial. Third-party performance failures may therefore increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of the Genio system in target markets. In addition, our third-party agreements usually contain a clause limiting such third party’s liability, such that we may not be able to obtain full compensation for any losses that we may incur in connection with the third party’s performance failures.
Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we design our clinical trials and will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA and other regulatory authorities require us to comply with GCP regulations and international standards relating to the conduct, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control to manage those operations does not relieve us of these responsibilities and requirements. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the marketing authorization or certification process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. We also are required to register ongoing clinical trials and post the results of certain completed clinical trials on certain government-sponsored databases, such as ClinicalTrials.gov in the United States, within specified time frames. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties for any reason, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation and ability to supply our products on a timely basis.
Expedited, reliable shipping is essential to our operations since the components of the Genio system are manufactured to our specifications by third-party suppliers in various jurisdictions. While the initial assembly of the different electronic components is done by different external suppliers, the final assembly is performed in our facility in Tel Aviv. As a result, we rely heavily on providers of transport services for reliable and secure point-to-point transport of the key components of the Genio system to our facility and for tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any components, it would be costly to replace such components in a timely manner and such occurrences, if they resulted in delays to the assembly and shipment of the completed Genio system to customers, may damage our reputation and lead to decreased demand for the Genio system and increased cost and expense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability to process orders for the Genio system on a timely basis.
 
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Risks Related to the Countries in which We Operate
Significant parts of our operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel.
Our research and development facility and all manufacturing facilities are located in Tel Aviv, Israel. In addition, the majority of our employees and some officers are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly adversely affect our business. Any armed conflicts, terrorist activities, political instability in the region or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our business conditions in general and harm our results of operations. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although Israeli legislation requires the Israeli government to cover the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained, or if maintained, will be sufficient to fully compensate us if any damages are incurred. Any losses or damages incurred by us could have a material adverse effect on our business.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our business and operations.
Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act (or FCPA); the UK Bribery Act 2010 (the “Bribery Act”); and other anti-corruption laws that apply in countries where we do business. The FCPA, the Bribery Act, and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, a financial or other advantage to government officials or other persons to induce them to improperly perform a relevant function or activity (or reward them for such behavior). U.S. authorities that enforce the FCPA, including the Department of Justice, deem most health care professionals and other employees of foreign hospitals, clinics, research facilities and medical schools in countries with public health care or public education systems to be “foreign officials” under the FCPA. When we interact with foreign health care professionals and researchers in testing and marketing our products abroad, we must have policies and procedures in place sufficient to prevent us and agents acting on our behalf from providing any bribe, gift or gratuity, including excessive or lavish meals, travel or entertainment in connection with marketing our products and services or securing required permits and approvals such as those needed to initiate clinical trials in foreign jurisdictions. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the maintenance of books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and the development and maintenance of an adequate system of internal accounting controls for international operations. The SEC is involved with the books and records provisions of the FCPA.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the EU, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations.
If we fail to comply with these laws and regulations, we could be subject to governmental investigations, prosecutions and penalties, including substantial fines and potential imprisonment of the individuals involved. Any such circumstances would carry the risk of substantial damage to our reputation for corporate integrity and would likely have a material adverse effect on our business and future prospects.
Risks Related to Manufacturing
We may not be able to manufacture or outsource manufacturing of the Genio system in sufficient quantities, in a timely manner or at a cost that is economically attractive.
Our revenue and other operating results will depend, in large part, on our ability to manufacture and sell the Genio system in sufficient quantities and quality, in a timely manner, and at a cost that is economically attractive.
 
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We expect to be required to significantly increase manufacturing volumes as clinical trials on the Genio system are expanded and the Genio system is commercialized. The capacity of our facility in Tel Aviv is expected to cover the Genio Implantable Stimulator and Genio External Stimulator demand up until the end of 2021. Manufacturing of the Genio Activation Chip and the Genio Charging Unit is mostly outsourced to a third party contract manufacturing organization. In order to support future demand for the Genio system, we may need to expand our manufacturing capacity, which could require opening a new facility or additional outsourcing to a third-party contract manufacturing organization. For example, if we obtain regulatory authorization to market the Genio system in the United States we would likely have to significantly increase our manufacturing capabilities in order to satisfy anticipated demand. We expect that this could include opening a manufacturing facility in the United States. Opening a new manufacturing facility could involve significant additional expenses, including for the construction of a new facility, the movement and installation of key manufacturing equipment, the modification of manufacturing processes and for the recruitment and training of new team members. In addition, we must also notify, and in most cases obtain approval from, regulatory authorities regarding any changes or modifications to our manufacturing facilities and processes, and the regulatory authorities might not authorize us to proceed or might delay the process significantly.
In addition, our current business expectation is that the cost of goods sold will decline over time as the cumulative volume of Genio systems manufactured grows. However, we or our suppliers might not be able to increase yields and/or decrease manufacturing costs with time, and in fact costs may increase, which could prevent us from achieving or maintaining profitability.
Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for our Genio system and manage our inventory.
To ensure adequate inventory supply of the Genio system in general and its components, we must forecast inventory needs and place orders with our suppliers based on our estimates of future demand for the Genio system and its components. To date, we have only commercialized the Genio system in limited quantities in Germany, and our ability to accurately forecast demand for our Genio system could be negatively affected by many factors, including failure to accurately manage our expansion strategy, product introductions by competitors, an increase or decrease in customer demand for the Genio system or for products of our competitors, failure to accurately predict customer acceptance of new products, unanticipated changes in general market conditions or regulatory matters, and weakening of economic conditions or consumer confidence in future economic conditions. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of the Genio brand. Conversely, if we underestimate customer demand for the Genio system, our third-party contract manufacturers may not be able to deliver products to meet our requirements, and this could result in damage to our reputation and customer relationships. In addition, if we experience a significant increase in demand, additional supplies of raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers or third-party manufacturers might not be able to allocate sufficient capacity in order to meet our increased requirements, which could have an adverse effect on our ability to meet customer demand for the Genio system.
We intend to maintain sufficient levels of inventory in order to protect ourselves from supply interruptions. As a result, we will be subject to the risk that a portion of our inventory will become obsolete or expire, which could affect our earnings and cash flows due to the resulting costs associated with the inventory impairment charges and costs required to replace such inventory.
Risks Related to Legal and Regulatory Compliance Matters
Our products and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.
Our Genio system is regulated as a medical device. We and our products are subject to extensive regulation in the United States and elsewhere, including by the FDA and its foreign counterparts. The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices: design, development and manufacturing; testing, labeling, content and language of instructions for use and
 
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storage; clinical trials; product safety; establishment registration and device listing; marketing, sales and distribution; pre-market clearance, classification and approval; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval trials; and product import and export.
The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. The FDA enforces its regulatory requirements through, among other means, periodic unannounced inspections. We do not know whether we or our contract manufacturers will be found compliant in connection with any future FDA inspections. Failure to comply with applicable regulations could jeopardize our ability to sell the Genio system and any other product candidates, if they obtain marketing authorization, and result in enforcement actions such as: warning letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial suspension of production; refusal to grant future clearances or approvals; withdrawals or suspensions of clearances or approvals, resulting in prohibitions on sales of our products; and in the most serious cases, criminal penalties.
The Genio system is still unapproved in certain significant markets, such as the United States market, and seeking and obtaining regulatory authorization or certification for active implantable medical devices can be a long, expensive and uncertain process.
Applications for prior regulatory authorization in the countries where we intend to sell or market the Genio system and any other products we develop may require extensive non-clinical, clinical and performance testing, all of which must be undertaken in accordance with the requirements of regulations established by the relevant regulatory agencies, which are complex and have become more stringent over time. We may be adversely affected by potential changes in government policy or legislation applicable to implantable medical devices. At the date of this prospectus, we have received certification to market the Genio system in the European Union, or EU, member states through CE-Marking and Israeli Medical Devices and Accessories, or AMAR, also through CE-Marking. CE-Marking is also valid in the European Economic Area, or EEA (which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland).
In the United States, we are in the early stages of a process of seeking marketing authorization. We received an IDE approval from the FDA on June 23, 2020, which allows us to proceed with certain clinical testing of the Genio system in the United States, and we are in the process of determining the appropriate regulatory pathway to pursue for seeking marketing authorization for the device from the FDA. Even though we have received approval an IDE, the Genio system may not successfully obtain marketing authorization. In addition, there may be substantial and unexpected delays in the process, for example in the initiation and completion of clinical trial testing and evaluation.
Since the Genio system is a wireless medical device, additional complications may arise with respect to obtaining marketing authorization in the United States. For example, the Federal Communications Commission must also determine that wireless medical devices, such as the Genio system, are compatible with other uses of the spectrum on which the device operates, and that power levels and the frequency spectrum of the wireless energy transfer comply with applicable regulations.
Even if we obtain marketing authorization or certification for our product candidates, the terms of such authorizations or certifications and ongoing regulation of our products may limit how we manufacture and market our products. Compliance with such requirements may involve substantial resources, which could materially impair our ability to generate revenue.
Even if marketing authorization, certification or approval of a product candidate is received, commercial products and their manufacturers are subject to ongoing review and extensive regulation, including with respect to the manufacture, medical device reporting, import, export, registration, listing of devices and post-market surveillance of the product. For example, medical device manufacturers must submit periodic reports to the FDA after obtaining marketing authorization. These reports include information about failures and certain adverse events associated with the device after its marketing authorization.
 
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Failure to submit such reports, or failure to submit the reports in a timely manner, could result in enforcement action by the FDA. Following its review of the periodic reports, the FDA might ask for additional information or initiate further investigation. Accordingly, assuming we receive marketing authorization or certification for one or more of our product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, and quality control. If we are not able to comply with post-market regulatory requirements, we could have any marketing authorizations or certifications we have obtained for our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-market regulations may have a negative effect on our operating results and financial condition.
Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA and other regulatory authorities, which may include, among other things: untitled letters or warning letters; fines, injunctions, consent decrees and civil penalties; recalls, termination of distribution, administrative detention, or seizure of our products; customer notifications or repair, replacement or refunds; operating restrictions or partial suspension or total shutdown of production; delays in or refusal to grant our requests for future clearances, de novo classifications, approvals, certifications or other marketing authorizations of new products, new intended uses, or modifications to existing products; withdrawals or suspensions of any granted marketing authorizations or certifications, resulting in prohibitions on sales of our products; or criminal prosecution. Any of these sanctions could have a material adverse effect on our reputation, business, financial condition and results of operations.
In addition, the FDA may change its marketing authorization policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay marketing authorization of any product candidate under development or impact our ability to modify any products authorized for market on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain marketing authorizations, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we have obtained.
Failure to comply with the significant regulations and approvals to which our manufacturing facilities and those of our third-party suppliers are subject to may affect our business.
We currently manufacture the Genio system and have entered into relationships with third party suppliers to manufacture and supply certain components of the Genio system. Our manufacturing practices and the manufacturing practices of our third-party suppliers are subject to ongoing regulation and periodic inspection. In the United States, the methods used in, and the facilities used for, the manufacture of medical devices must comply with the FDA’s Quality System Regulation, or QSR, which is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, and servicing of medical devices. Furthermore, we will be required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors. The Genio system is also subject to similar state regulations and various laws and regulations of other countries governing manufacturing.
Any failure to follow and document the adherence to regulatory requirements (including having in place an adequate quality management system in line with the most up-to-date standards and regulations) by us or our third- party suppliers may lead to significant delays in the availability of the Genio system for commercial sale or clinical trials, may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval or maintenance of marketing applications for the Genio system.
In the United States, the FDA and other federal and state agencies, including the Department of Justice, closely regulate compliance with all requirements governing medical device products, including requirements pertaining to marketing and promotion of devices in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging violations of the FDCA and other statutes, including the False Claims Act and other federal and state health care fraud and abuse laws as well as state consumer
 
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protection laws. Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, may yield various results, including:

litigation involving patients using our products;

restrictions on our products, manufacturers or manufacturing processes;

restrictions on the labeling or marketing of a product;

restrictions on product distribution or use;

requirements to conduct post-marketing studies or clinical trials;

untitled or warning letters;

fines, restitution or disgorgement of profits or revenues;

consent decrees;

total or partial suspension or clinical hold of one or more of our clinical trials;

total or partial suspension or withdrawal regulatory approvals;

total or partial suspension of production or distribution;

delay of or refusal to approve pending applications or supplements to approved applications or to provide future market authorizations, certifications or approvals;

mandatory communications with physicians and other customers about concerns related to actual or potential safety, efficacy, and other issues involving us;

withdrawal of the products from the market;

mandatory product recalls or seizure of products;

damage to relationships with any potential collaborators;

unfavorable press coverage and damage to our reputation; or

injunctions or the imposition of civil or criminal penalties.
Any of the foregoing actions could be detrimental to our reputation or result in significant costs or loss of revenues. Any of these actions could significantly and negatively affect supply of the Genio system, if authorized for sale by the FDA. If any of these events occurs, we could be exposed to product liability claims and we could lose customers and experience reduced sales and increased costs.
Our ability to continue sales of our product in the European Union may be materially impaired if we do not take necessary steps to comply with the certification requirements of the new EU Medical Device Regulation.
On May 25, 2017, the EU Medical Devices Regulation (Regulation 2017/745) entered into force, which repeals and replaces Council Directive 93/42/EEC, or the Medical Devices Directive, and Council Directive 90/385/EEC, or the AIMD Directive. Unlike directives, which must be implemented into the national laws of the EU member states, regulations are directly applicable (i.e., without the need for adoption of EU member state laws implementing them) in all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation.
The Medical Devices Regulation was originally intended to become effective three years after publication, but in April 2020 the transition period was extended by the European Parliament and the Council of the EU by an additional year, until May 26, 2021. Devices lawfully placed on the market pursuant to the EU Medical Devices Directive and the AIMD Directive prior to May 26, 2021 may generally continue to be made available on the market or put into service until May 26, 2025. Once effective, the new regulations will among other things:
 
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Strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

Establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

Improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

Set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and

Strengthen the rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market.
These modifications may have an effect on the way we design and manufacture product and products candidates and conduct our business in the EU and EEA (also including Norway, Liechtenstein and Iceland). For example, as a result of the transition towards the new regime, Notified Body review times have lengthened, and product introductions or modifications could be delayed or canceled, which could adversely affect our ability to grow our business. While our products have recently been certified under the AIMD Directive and can remain on the EU market until May 2024 and we are already preparing the implementation of the new requirements of the Medical Devices Regulation, we cannot exclude unexpected regulatory hurdles and possible delays while transitioning towards the new regime.
The EU-UK Trade and Cooperation Agreement, or TCA, came into effect on January 1, 2021. The TCA does not specifically refer to medical devices. However, as a result of Brexit, the EU Medical Devices Regulation will not be implemented in the UK, and previous legislation that mirrored the EU Medical Devices Regulation in the UK law has been revoked. The regulatory regime for medical devices in the UK will continue to be based on the requirements derived from current EU legislation, and the UK may choose to retain regulatory flexibility or align with the EU Medical Devices Regulation going forward. CE-markings will continue to be recognized in the UK, and certificates issued by EU-recognized Notified Bodies will be valid in the UK, until June 30, 2023. For medical devices placed on the UK market after this period, the UK Conformity Assessment, or UKCA, marking will be mandatory. In contrast, UKCA marking and certificates issued by UK Notified Bodies will not be recognized on the EU market. The TCA does provide for cooperation and exchange of information in the area of product safety and compliance, including market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, the “rules of origin” criteria will need to be reviewed. Depending on which countries products will be ultimately sold in, manufacturers may start seeking alternative sources for components if this would allow them to benefit from no tariffs. The rules for placing medical devices on the Northern Ireland market will differ from those in the UK. These modifications may have an effect on the way we design and manufacture products and we conduct our business in these countries.
Seeking, obtaining and maintaining certification in the EU under the new Medical Device Regulation, with the CE-Mark to be re-certified before May 2024, can be an uncertain process and Notified Bodies have limited resources and may experience backlogs.
Under the EU Medical Devices Regulation, devices such as our Genio system currently on the market in the EU that have been granted a CE-Mark under the AIMD Directive, will need to be re-evaluated and re-certified in accordance with the new Medical Devices Regulation. Any modification to an existing CE-Marked medical device will also require review and certification under the EU Medical Devices Regulation. Under normal circumstances, medical device manufacturers must undergo on-site audits by Notified Bodies in order to maintain their CE-Mark certifications per the requirements of the EU Medical Devices Directive. As many CE-Mark certifications will become void as part of the transition to the EU Medical Devices Regulation, Notified Bodies also have to start certifying medical devices in accordance with the EU Medical Devices Regulation. As another consequence of the COVID-19 pandemic, Notified Bodies’ on-site audits have not been feasible due to quarantine and travel restrictions and most of them have been postponed. Even though some specific measures have been implemented to determine whether remote
 
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audits can be conducted or be supplemented with an on-site audit once travel restrictions are lifted, this situation could significantly impact the ability of Notified Bodies to timely review and process our regulatory submissions.
The EU Medical Devices Regulation also requires a re-designation of the Notified Bodies, the organizations designated by the EU member state in which they are based that are responsible for assessing whether medical devices and manufacturers of medical devices meet the applicable regulatory requirements in the EU. To be re-designated, Notified Bodies must demonstrate increased technical expertise in their scope of designation, as well as improved quality management systems. This re-designation process has caused backlogs in the assessment of medical devices and medical device manufacturers during the transition period leading up to the May 2021, the effective date of the EU Medical Devices Regulation. In the European Union, not all Notified Bodies have been re-designated so far and the COVID-19 pandemic has significantly slowed down their designation process. Without EU Medical Devices Regulation designation, Notified Bodies may not yet start certifying devices in accordance with the new Regulation.
The CE-Mark obtained in 2019 for our Genio system will remain valid until March 2024, and it must be re-certified under the EU Medical Devices Regulation before then. The re-certification requires us to present documentation and other evidence demonstrating that the performance and the safety of the system has been maintained and that the system continues to meet existing regulations and standards. Otherwise, the marketing and sale of the Genio system in EU member states may be temporarily or permanently prohibited. Significant modifications to the Genio system, if any, will also require certification under the EU Medical Devices Regulation.
The overall backlogs experienced by the Notified Bodies having already been re-designated (including the Dutch company DEKRA Certification B.V., which issued the CE-Mark and an ISO 13485:2016 certificate to us under the AIMD Directive) might have a negative impact on the re-certification of the Genio system. We believe, however, that we are on track to meet the new requirements by the deadlines set forth in the EU Medical Devices Regulation.
Any third-party entities that we rely upon for distribution of our products in the EU, such as our local distributor in Spain, also need to be compliant with the EU Medical Devices Regulation. If a distributor in the EU fails to meet the EU Medical Devices Regulation requirements, on a timely basis or at all, the marketing and sale of the Genio system by such distributor may be temporarily or permanently prohibited.
Any delay or failure to comply with the EU Medical Devices Regulation could result in the sale of the Genio system being temporarily or permanently prohibited in EU member states and affect our reputation, business, financial condition, results of operations and prospects.
Compliance with regulations for quality systems for medical device companies is difficult, time consuming and costly.
We have developed and maintains a quality management system for medical devices intended to ensure quality of our products and activities. The system is designed to be in compliance with regulations in many different jurisdictions, including the QSR mandated by the FDA in the United States and the requirements of the AIMD Directive in the European Union, including the international standard ISO13485 required by the member states in Europe that recognize the CE-Mark, as well as Israel, New Zealand and Australia.
Compliance with regulations for quality management systems for medical device companies is time consuming and costly, and there are changes in such regulations from time to time. For example, the latest version of ISO13485, ISO13485:2016, aims to harmonize the requirements of ISO13485 with the requirements of the AIMD Directive. While management believes that we are compliant with existing quality management system regulations for medical device companies as of the date of this prospectus, it is possible that we may be found to be non-compliant with new or existing regulations in the future. In addition, we may be found to be non-compliant as a result of future changes in, or interpretation of, the regulations for quality systems. If we do not achieve compliance or subsequently become non-compliant, the regulatory authorities may require that we take appropriate action to address non-conformance issues identified in a regulatory audit, and may, if we do not take such corrective actions in a timely manner, withdraw marketing clearance, or require product recall or take other enforcement action.
 
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Our external vendors must, in general, also comply with the quality systems regulations and ISO13485. Any of our external vendors may become non-compliant with quality systems regulations or ISO13485, which could result in enforcement action by regulatory authorities, including, for example a warning letter from the FDA or a requirement to withdraw from the market or suspend distribution, or export or use of products manufactured by one or more of our vendors.
Any change or modification to a device (including changes to the manufacturing process) may require supplemental filings to regulatory authorities or new submissions for marketing authorization or certification (depending on the jurisdiction) and must be made in compliance with appropriate quality system regulations (such as the QSR for the United States and the AIMD Directive and the EU Medical Devices Regulation for Europe), which may cause interruption to or delays in the marketing and sale of our products. Regulations and laws regarding the manufacture and sale of AIMDs are subject to future changes, as are administrative interpretation and policies of regulatory agencies. If we fail to comply with such laws and regulations where we would intend to market the Genio system, we could be subject to enforcement action including recall of our device, withdrawal of approval, authorization, certification or clearance and civil and criminal penalties. If any of these events occur, it may materially and adversely affect our business, financial condition, results of operations and prospects.
Active implantable medical devices such as the Genio system carry risks associated with the surgical procedure for implant or removal of the device, use of the device, or the therapy delivered by the device.
The Genio system is a medical device with complex electronic circuits and software and includes a component that is implanted in the patient through a surgical procedure. It is not possible to design and build electronic implantable medical devices that are 100% reliable, since all electronic devices carry a risk of failure. Furthermore, all surgical procedures carry risks, and the effectiveness of any medical therapy varies between patients. The consequences of failure of the Genio system include complications arising from product use and associated surgical procedures and could range from minor to life-threatening effects and even death.
All medical devices have associated risks. Regulatory authorities regard active implantable medical devices, or AIMDs, as the highest risk category of medical devices and, accordingly, AIMDs are subject to a high level of scrutiny when seeking regulatory approval or other marketing authorization. The Genio system was reviewed, classified and the certificate of conformity as an AIMD was issued by our European Notified Body allowing us to affix the CE-Mark. A CE-Mark in Europe indicates that the device in question is in full compliance with European legislation. Medical devices authorized for marketing in the European Union need to comply with the essential requirements laid down in the AIMD Directive and in particular to demonstrate that they are designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others (that the potential benefits outweigh potential risks). In addition, medical devices must achieve the performance intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. Devices authorized first in the European Union may be associated with an increased risk of post-marketing safety alerts and recalls. On the other hand, before FDA premarket approval of a medical device in the United States, a device must be shown to be safe and effective per its intended use. The risks associated with medical devices and the therapy delivered by them, include, among others, risks associated with any surgical procedure, such as infection, allergic reaction, and consequences of anesthesia and risks associated with any implantable medical device such as device movement, electromagnetic interference, device failure, tissue damage including nerve damage, pain and psychological side effects associated with the therapy or the surgical procedure.
Adverse events associated with these risks may lead some patients to blame us, the physician or other parties for such occurrences. This may result in product liability lawsuits, medical malpractice lawsuits, investigations by regulatory authorities, adverse publicity, criminal charges or other harmful circumstances for us. Any of those circumstances may have a material adverse effect on our ability to conduct our business, to continue selling the Genio system, to achieve revenue objectives, or to develop future products.
If our products are defective, or otherwise pose safety risks, the relevant governmental authorities could require their recall, or we may need to initiate a recall of our products voluntarily.
AIMDs are characterized by a complex manufacturing process, requiring adherence to demanding product specifications. The Genio system uses many disciplines including electrical, mechanical, software,
 
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biomaterials, and other types of engineering. Device failures discovered during the clinical trial phase may lead to suspension or termination of the trial. In addition, device failures and malfunctions may result in a recall of the product, which may relate to a specific manufacturing lot or may affect all products in the field. Recalls may occur at any time during the life cycle of a device after regulatory authorization has been obtained for the commercial distribution of the device. For example, engineers employed by us undertaking development or manufacturing activities may make an incorrect decision or make a decision during the engineering phase without the benefit of long-term experience, and the impact of such wrong decisions may not be felt until well into a product’s life cycle.
The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future.
Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new marketing authorizations for the device before we may market or distribute the corrected device. Seeking such authorizations may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties or civil or criminal fines.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary withdrawals or corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could also harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results.
Recalls of the Genio system would divert managerial and financial resources and could result in damaged relationships with regulatory authorities and lead to loss of market share to competitors. In addition, any product recall may result in irreparable harm to our reputation. Any product recall could impair our ability to produce products in a cost-effective and timely manner in order to meet customer demand. We may also be required to bear other costs or take other actions that may have a negative impact on future revenue and could prevent us from achieving or maintaining profitability.
The misuse or off-label use of our product candidates may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
Any marketing authorization or certification we may receive for our Genio system or other product candidates will be limited to specified indications for use, and we must also comply with requirements concerning advertising and promotion of the system. Promotional communications with respect to medical devices are subject to a variety of legal and regulatory restrictions and must be consistent with the device’s intended use, data from any clinical trials, and established specifications. Thus, we will not be able to promote the Genio system for indications or uses for which they are not authorized. We plan to train our marketing personnel and direct sales force not to promote the Genio system for uses outside of the authorized indications for use, known as “off-label uses.” We cannot, however, prevent a physician from using our devices off-label, when in the physician’s independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use our devices off-label, which could harm our reputation in the marketplace among physicians and patients.
 
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If the FDA or any other regulatory authority determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or other enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.
In addition, physicians may misuse our products or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our devices are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. Product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.
We face the risk of product liability claims that could be expensive, divert management’s attention and harm our reputation and business. We may not be able to maintain adequate product liability insurance.
Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing of medical devices. The Genio system is designed to be implanted in the body and to affect important bodily functions and processes. As with any other complex medical device, there exists the reasonable certainty that, over time, one or more components of some Genio systems will malfunction. As a medical device manufacturer, we are exposed to the product liability claims arising from the Genio system failures and malfunctioning, product use and associated surgical procedures. This risk exists even if the Genio system is certified or authorized for commercial sale by regulatory authorities or Notified Bodies and manufactured in facilities licensed and regulated by the applicable regulatory authority or Notified Body. The medical device industry has historically been subject to extensive litigation over product liability claims, and we may face product liability suits if the Genio system causes, or merely appears to have caused, patient injury or death. In addition, an injury that is caused by the activities of our suppliers, such as those who provide us with components and raw materials, may be the basis for a claim against us. Product liability claims may be brought against us by patients, healthcare providers or others selling or otherwise being exposed to the Genio system, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in one or more of the following:

costs of litigation;

distraction of management’s attention from our primary business;

the inability to commercialize the Genio system or new products;

decreased demand for the Genio system;

damage to our reputation;

product recalls or withdrawals from the market;

withdrawal of clinical trial participants;

substantial monetary awards to patients or other claimants; or

loss of sales.
While we may attempt to manage our product liability exposure by proactively recalling or withdrawing from the market any defective products, any recall or market withdrawal of our products may delay the supply to our customers and may impact our reputation. We may not be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future and these efforts may not have the intended effect of preventing product malfunctions and the accompanying product liability that may result. Such recalls and withdrawals may also be used by our competitors to harm our
 
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reputation for safety or be perceived by patients as a safety risk when considering the use of our products, either of which could have a material adverse effect on our business, financial condition and results of operations.
Although we maintain product liability and clinical trial liability insurance at levels we believe are appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, coverage may not be adequate to protect us against any future product liability claims. If we are unable to obtain insurance at an acceptable cost or on acceptable terms or otherwise protect against potential product liability claims, we could be exposed to significant liabilities, including claims for amounts in excess of insured liabilities. As of the date of the prospectus, there are no product liability claims against us.
We bear the risk of warranty claims on the Genio system.
We bear the risk of warranty claims on the Genio system. We may not be successful in claiming recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a successful warranty claim against us by a customer, and any such recovery from a vendor or supplier may be inadequate to fully compensate us. In addition, warranty claims brought by our customers related to third-party components may arise after our ability to bring corresponding warranty claims against such suppliers expires, which could result in costs to us. As of the date of the prospectus, there are no warranty claims against us.
We are and will be subject to healthcare fraud and abuse laws and other laws applicable to our business activities and if we are unable to comply with such laws, we could face substantial penalties.
We are subject to various federal, state and local laws pertaining to healthcare fraud and abuse laws, including anti-kickback, false claims and transparency laws.
Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular vis-à-vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to healthcare professionals or entities. In addition, many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis) on medical device manufacturers, similar to the requirements in the United States. For instance, pursuant to the Belgian Act of December 18, 2016 and its implementing Royal Decree of June 14, 2017, which entered into force on June 23, 2017, manufacturers of medical devices are required to document and disclose all direct or indirect premiums and benefits granted to healthcare professionals, healthcare organizations and patient organizations with a practice or a registered office in Belgium. Also, under Article 10 of the Belgian Act of March 25, 1964, it is prohibited (subject to limited exceptions) in the context of the supply of medical devices to offer or grant any advantage or benefit in kind to amongst others healthcare professionals and healthcare organizations. In addition, certain countries also mandate implementation of commercial compliance programs.
These healthcare laws and regulations may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute any products for which we obtain marketing approval. The healthcare laws and regulations that may affect our ability to operate include, but are not limited to:

the U.S. federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

the U.S. federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal government program, or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government. In addition, the government
 
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may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act. Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement;

the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including in some circumstances mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

the U.S. federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

the U.S. federal transparency requirements under the Physician Payments Sunshine Act require manufacturers of FDA-authorized drugs, devices, biologics and medical supplies covered by Medicare or Medicaid to report, on an annual basis, to the Department of Health and Human Services information related to payments and other transfers of value to physicians, teaching hospitals and physician ownership and investment interests. Beginning in 2022, such obligations will include payments and other transfers of value provided in the previous year to additional healthcare professionals, including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants and certified nurse midwives; and

analogous foreign and state laws and regulations such as state anti-kickback and false claims laws and analogous non-U.S. fraud and abuse laws and regulations, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require medical device companies to comply with the device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring device manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and non-U.S. laws, including the EU General Data Protection Regulation, or GDPR, also govern the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices, including our financial arrangements with physicians, some of whom receive compensation in the form of stock options, which could be viewed as influencing the purchase of or use of our products in procedures they perform and may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations.
Any action brought against us for violations of these laws or regulations, even if successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. We may be subject to private qui tam actions brought by individual whistleblowers on behalf of the federal or state governments, with potential liability under the federal False Claims Act including mandatory treble damages and significant per-claim penalties. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded
 
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healthcare programs. Any of the foregoing consequences will negatively affect our business, financial condition and results of operations.
Healthcare policy changes, including legislation or regulations aiming to reform the U.S. healthcare system, could harm our business, financial condition and results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our product candidates, if authorized for marketing. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products.
We expect additional state and federal healthcare policies and reform measures to be adopted in the future, any of which could limit reimbursement for healthcare products and services or otherwise result in reduced demand for our product candidates, if approved, or additional pricing pressure and have a material adverse effect on our industry generally and on our customers. We cannot predict what other healthcare programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation in the United States may negatively affect our business, financial condition and results of operations. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

our ability to set a price that we believe is fair for the Genio system;

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

the availability of capital.
Any changes of, or uncertainty with respect to, future coverage or reimbursement rates could affect demand for our product candidates, if approved, which in turn could impact our ability to successfully commercialize our device and could have a material adverse effect on our business, financial condition and results of operations.
We are subject to, or may in the future become subject to, federal, state, and foreign laws and regulations imposing obligations on how we collect, store, use and process information collected from or about patients or their procedures using our products. Our actual or perceived failure to comply with such obligations could harm our business. Ensuring compliance with such legal requirements could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.
The collection and use of personal health data in the European Union and European Economic Area, or EEA, is governed by the GDPR. Since we are located in the European Union, we are subject to the GDPR when we use personal data from anywhere in the world for purposes of our business in the EEA. The territorial reach of the GDPR also includes the activities of businesses located outside of the EEA that relate to the businesses’ provision of goods or services to residents in the EEA, or monitoring the behavior of people in the EEA. We are therefore also subject to the GDPR even where our data processing activities take place outside of the European Union and relate only to our business outside of the European Union to the extent that such activities involve the personal data of individuals located in the European Union and relate to our offer of goods or services to them, or to our monitoring of their behavior. The GDPR imposes strict requirements on controllers and processors of personal data, including special protections for “sensitive information” which includes health and genetic information of data subjects and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules This may be onerous and may interrupt or delay our development activities, and adversely affect our business, financial condition, results of operations and prospects.
The GDPR also regulates the transfer of personal data subject to the GDPR to so-called third countries that have not been found to provide adequate protection to such personal data, including the United States. Recent legal developments in Europe have created complexity and uncertainty regarding such transfers.
 
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For instance, on July 16, 2020, the Court of Justice of the European Union, or CJEU, invalidated the EU-U.S. Privacy Shield Framework, or the Privacy Shield, under which personal data could be transferred from the EEA to U.S. entities who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (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 such clauses alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, including, in particular, applicable surveillance laws and rights of individuals, and additional measures and/or contractual provisions may need to be put in place; however, whether any particular additional measures would be deemed to be adequate is uncertain. The CJEU went on to state that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and that the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer. Failure to comply with the GDPR could result in penalties for noncompliance (including possible fines of up to the greater of €20 million and 4% of our global annual turnover for the preceding financial year for the most serious violations, as well as the right to compensation for financial or non-financial damages claimed by individuals under Article 82 of the GDPR). If any of these events were to occur, our business and financial results could be significantly disrupted and adversely affected.
In addition, the GDPR provides that European Union member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data, leading to additional uncertainties.
In addition to the GDPR, the European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life. The proposed legislation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive. While the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators’ recent guidance are driving increased attention to cookies and other tracking technologies. Some regulators have started to enforce the strict approach in recent guidance. Compliance with existing and future rules concerning cookies and other tracking technologies could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Regulation of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities and may negatively impact our efforts to understand users.
Further, in March 2017, the United Kingdom formally notified the European Council of its intention to leave the European Union pursuant to Article 50 of the Treaty on European Union, or Brexit. The United Kingdom ceased to be a European Union Member State on January 31, 2020, but enacted a Data Protection Act substantially implementing the GDPR, effective in May 2018, which was further amended to align more substantially with the GDPR following Brexit. It is unclear how UK data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated. Currently, the data protection laws of the UK and the EU remain closely aligned, which means that the UK also requires additional analysis of local laws and additional measures for transfers of personal data out of the UK to countries (including the U.S.) that have not been deemed by the UK to have adequate data protection laws. While the UK has deemed that the EEA has adequate data protection laws, meaning that we can freely transfer personal data from the U.K. to our business in Belgium or elsewhere in the EEA, the European Commission has not yet deemed the UK to have adequate data protection laws, which could affect our ability to transfer personal data from the EEA to the UK Currently there is a four to six-month grace period agreed in the EU and United Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, whilst the parties discuss an adequacy decision. The European Commission published a draft adequacy decision on 19 February 2021. If adopted, the decision will enable data transfers from EU member states to the United Kingdom for a four-year period, subject to subsequent extensions. We are required to comply with both the GDPR and the UK GDPR, with each regime having the ability to fine up to the greater of €20 million (in the case of the GDPR) or £17,5 million (in the case of the UK GDPR) and 4% of total annual revenue. We may need to appoint a
 
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local representative in the UK, and incur other additional costs and risks as a result of the UK and the EU having separate data protection regimes.
In addition, in the conduct of our business, we may at times process personal data, including health-related personal data. When conducting clinical trials, we face risks associated with collecting trial participants’ data, especially health data, in a manner consistent with applicable laws and regulations. In the EU and the UK, certain guidance issued by the organization representing the national data protection supervisory authorities may conflict with the requirements or guidelines of the entities that oversee clinical trials, creating uncertainty, increased compliance costs and potential delays in the process of gaining approval to conduct our clinical trials.
We also face risks inherent in handling and in protecting the security of personal data, including health-related data. In addition to specific healthcare laws and regulations, the U.S. federal government and various states have adopted or proposed laws, regulations, guidelines, and rules with respect to the collection, distribution, use, and storage of personal information of patients. For example, HIPAA imposes requirements on certain healthcare providers, health plans and healthcare clearinghouses, or Covered Entities, as well as their business associates that perform services for them that involve the use or disclosure of individually identifiable health information, called Protected Health Information, or PHI, under HIPAA, relating to the privacy and security of PHI, including the use of mandatory contractual terms, or Business Association Agreements, in some circumstances, as well as privacy and security standards and breach notification requirements. Failure to comply with the HIPAA privacy and security standards can result in significant civil monetary penalties and, in certain circumstances, criminal penalties. HIPAA also imposes penalties on third parties that wrongfully obtain PHI. State attorneys general can also bring a civil action to enjoin a HIPAA violation or to obtain statutory damages on behalf of residents of his or her state.
In addition, state privacy and security laws and regulations vary from state to state, constantly evolve, and remain subject to significant change. In some cases, such laws and regulations can impose more restrictive requirements than HIPAA and other U.S. federal laws, thus complicating compliance efforts. By way of example, California and Virginia have enacted significant privacy laws that give residents of those states expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. Failure to comply with these state privacy laws could result in penalties and present unresolved compliance issues. In addition, the enactment of a U.S. federal privacy law is possible. The changing number of U.S. state or federal privacy laws may increase our compliance costs and potential liability. Other states are considering similar bills, which could be enacted in the future. In addition to fines and penalties that may be imposed for failure to comply with state law, some states also provide for private rights of action to patients for misuse of or unauthorized access to personal information.
We are not subject to HIPAA, but our customers, research collaborators and others in the United States with whom we do business are. Accordingly, we must ensure that any business arrangements that we have with Covered Entities are structured to comply with HIPAA and ensure that we have the authority to obtain any PHI that may be disclosed to us. Some countries also are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. Any actual or perceived failure by us or the third parties with whom we work to comply with privacy or security laws, policies, legal obligations, or industry standards, or any security incident that results in the unauthorized release or transfer of PHI, may result in governmental enforcement actions and investigations by U.S. federal and state regulatory authorities, fines and penalties, claims, litigation, and/or adverse publicity, including by consumer advocacy groups and other private parties, and could cause our customers, their patients and other healthcare professionals to lose trust in us, which could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.
Any failure, or perceived failure, by us to comply with privacy and data protection laws, rules and regulations could result in proceedings or actions against us by governmental entities or others. These proceedings or actions may subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and severely disrupt our business.
 
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Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
We and certain third parties that we rely on for our operations collect and store confidential and sensitive information, and our and their operations are highly dependent on information technology systems, including internet-based systems, which may be vulnerable to damage or interruption from earthquakes and hurricanes, fires, floods and other natural disasters, and attacks by computer viruses, unauthorized access, terrorism, and war, as well as telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could have a material adverse effect on our business. For example, the loss of clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Since the Genio system is a wireless medical device, additional complications may arise with respect to the wireless, RF, technology used for the communication between the system parts. While we have reviewed and determined the integrity of the Genio system and the communication protocol, use of wireless technology imposes a risk that third parties might attempt to access our system. An additional risk is related to interruption or distortion of communication by other devices that might be used in the vicinity of the system, especially when in use by the user, which might have an effect on the effectiveness of the therapy delivered by the system. Any disruption or security breach or other security incident that resulted in a loss of or damage to our data or applications, or the inappropriate access to or disclosure of personal, confidential, or proprietary information could delay our product development, clinical trials, or commercialization efforts, result in increased overhead costs and damage our reputation, all of which could negatively affect our business, financial condition and operating results.
The secure processing, maintenance and transmission of our confidential business information and other information maintained or processed in our business, including sensitive or confidential patient or employee data, is critical to our operations. Such information includes, among other things, intellectual property and proprietary information, the confidential information of any of our future collaborators and licensees, the personal data of our employees, and personal data from patients using the Genio system, which falls into the specially protected category of health data, for which additional safeguards are required under applicable laws. Unauthorized access to or disclosure of any sensitive or confidential patient, trial participant, or employee data, including whether through breach of computer systems, systems failure, employee negligence, fraud or misappropriation, or otherwise, or unauthorized access to or through our information systems and networks, whether by our employees or third parties, or the perception that this has occurred, could result in negative publicity, legal liability and damage to our reputation and could also expose us to sanctions for violations of laws and regulations relating to privacy and data security. Although we have general liability and cybersecurity insurance coverage, our insurance may not cover all claims, continue to be available to us on reasonable terms or be sufficient in amount to cover one or more large claims; additionally, the insurer may disclaim coverage as to any claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, prospects, operating results and financial condition.
Despite our security measures, our information technology systems and infrastructure may be vulnerable to attacks by hackers or internal bad actors, or breached due to employee error, a technical vulnerability, malfeasance or other disruptions. Phishing attempts, social engineering, and other attacks upon our information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. In addition to unauthorized access to or acquisition of personal information, confidential information, or other sensitive information, such attacks could include the deployment of harmful malware and ransomware, and may use a variety of methods, including denial-of-service attacks, social engineering and other means, to attain such unauthorized access or acquisition or otherwise affect service reliability and threaten the confidentiality, integrity and availability of information. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws
 
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that protect the privacy of personal information, significant regulatory penalties, and such an event could disrupt our operations, damage our reputation, and cause a loss of confidence in us and our ability to commercialize our products and conduct clinical trials, which could adversely affect our reputation and delay our commercialization strategy for our Genio system and clinical development of our current and future products.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology or loss of data, including any cyber security incidents, could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability which could harm our ability to operate our business effectively and adversely affect our business and reputation.
Our ability to execute our business plan and maintain operations depends on the continued and uninterrupted performance of our information technology (IT) systems, some of which are in our control and some of which are in the control of third parties. In the ordinary course of our business, we collect and store sensitive data, including personally identifiable information about our employees, intellectual property, and proprietary business information (confidential information). We manage and maintain our applications and data utilizing on-site systems and we also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors who may or could have access to our confidential information. These applications and data encompass a wide variety of business-critical information including research and development information and business and financial information.
The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy. Despite the implementation of security measures, our IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures, cyber-attacks, computer viruses, ransomware attacks, phishing schemes, breaches, unauthorized access, interruptions due to employee error or malfeasance or other disruptions, damage from natural disasters, terrorism, war and telecommunication and electrical failures, or other attempts to harm or access our systems. Moreover, despite network security and back-up measures, some of our servers and those of our business partners are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems. These events could lead to the unauthorized access, disclosure and use of confidential information. Breaches resulting in the compromise, disruption, degradation, manipulation, loss, theft, destruction, or unauthorized disclosure or use of confidential information, or the unauthorized access to, disruption of, or interference with our products and services, can occur in a variety of ways, including but not limited to, negligent or wrongful conduct by employees or others with permitted access to our IT systems and information, or wrongful conduct by hackers, competitors, or certain governments. Our third party vendors and business partners face similar risks.
Cyber-attacks come in many forms, including the deployment of harmful malware or ransomware, exploitation of vulnerabilities, phishing and other use of social engineering, and other means to compromise the confidentiality, integrity, and availability of our IT systems and confidential information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated or remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. There can be no assurance that we will promptly detect or intercept any such disruption or security breach, if at all. If our computer systems are compromised, we could be subject to fines, damages, reputational harm, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our business, in addition to possibly requiring substantial expenditures of resources to remedy. For example, any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regarding our patients or employees, could harm our reputation, require us to comply with breach notification laws under GDPR and other legal equivalents, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. In addition, the loss of data from clinical trials of the Genio system could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce data, and a cybersecurity breach could adversely affect our reputation and could result in other negative consequences, including disruption of our internal operations, increased cyber security protection costs, lost revenues or litigation. Despite
 
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precautionary measures to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.
Changes in or inadequate funding for, or disruptions caused by global health concerns impacting, the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new medical devices to be reviewed and/or authorized by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. Additionally, the FDA and regulatory authorities outside the United States have implemented various restrictions or other policy measures in response to the COVID-19 pandemic.
If a prolonged government shutdown or slowdown occurs or if global health concerns continue to prevent the FDA or other regulatory authorities or bodies from conducting business as usual or conducting inspections or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Risks Related to Intellectual Property
The inability to fully protect and exploit our intellectual property and trade secrets may adversely affect our financial performance and prospects.
Our success will depend significantly on our ability to protect our proprietary and licensed in rights, including in particular the intellectual property and trade secrets related to the Genio system. We rely on a combination of patent(s) (applications), trademarks, designs and trade secrets, and use non-disclosure, confidentiality and other contractual agreements to protect our technology. If we are unable to obtain and maintain sufficient intellectual property protection for the Genio system or other product candidates that we may identify, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors and other third parties could develop and commercialize product candidates similar or identical to ours, and our ability to successfully commercialize the Genio system and other product candidates that we may pursue may be impaired.
We generally seek patent protection where possible for those aspects of our technology and products that we believe provide significant competitive advantages. However, obtaining, maintaining, defending and enforcing pharmaceutical patents is costly, time consuming and complex, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Under certain of our license or collaboration agreements, we may not have the right to control the preparation, filing, prosecution and maintenance of patent applications, or to maintain the rights to patents licensed to or from third parties. Further, we cannot be certain that patents will be issued with respect to our pending or future patent applications. In addition, we do not know whether any issued patents will be upheld as valid or proven enforceable against alleged infringers or
 
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whether they will prevent the development of competitive patents or provide meaningful protection against competitors or against competitive technologies.
The patent position of medical device companies generally is uncertain, involves complex legal, technological and factual questions. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. The subject matter claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Therefore, our pending and future patent applications may not result in patents being issued in relevant jurisdictions that protect the Genio system or our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive product candidates, and even if our patent applications issue as patents in relevant jurisdictions, they may not issue in a form that will provide us with any meaningful protection for our product candidates or technology, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Additionally, our competitors may be able to circumvent our patents by developing similar or alternative product candidates or technologies in a non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, revocation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others, or other proceedings in the USPTO or applicable foreign offices that challenge priority of invention or other features of patentability. An adverse determination in any such submission, proceeding or litigation could result in loss of exclusivity or freedom to operate, patent claims being narrowed, invalidated or held unenforceable, in whole or in part, limit the scope or duration of the patent protection of the Genio system or our product candidates, all of which could limit our ability to stop others from using or commercializing similar or identical product candidates or technology to compete directly with us, without payment to us, or result in our inability to manufacture or commercialize product candidates or approved products (if any) without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates, or could have a material adverse effect on our ability to raise funds necessary to continue our research programs or clinical trials. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
In addition, our intellectual property rights might be challenged, invalidated, circumvented or rendered unenforceable. Our competitors or other third parties may successfully challenge and invalidate or render unenforceable our issued patents, including any patents that may be issued in the future. This could prevent or limit our ability to stop competitors from marketing products that are identical or substantially equivalent to the Genio system. In addition, despite the broad definition of our concepts and inventions in our portfolio, as is common in technological progress, competitors may be able to design around our patents or develop products that provide outcomes that are comparable to the Genio system but that are not covered by our patents. Much of our value is in our intellectual property, and any challenge to our intellectual property portfolio (whether successful or not) may affect our value.
We could become subject to intellectual property litigation.
The medical device industry is characterized by rapidly changing products and technologies and there is intense competition to establish intellectual property and proprietary rights covering the use of these new products and the related technologies. This vigorous pursuit of intellectual property and proprietary rights has resulted and will continue to result in extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product and/or a process infringes a patent involves complex legal and factual issues, and the outcome of such disputes is often uncertain.
There may be existing patents of which we are unaware that are inadvertently infringed by the Genio system. We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough,
 
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nor can we be certain that we have identified each and every third-party patent and pending patent application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could have been filed by third parties without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use of our product candidates. The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates. We may incorrectly determine that our product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market the Genio system and our product candidates.
Any infringement claim against us, even if without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources and/or divert the time and efforts of management from the conduct of our business. In addition, any intellectual property litigation could force us to do one or more of the following: (i) stop selling the Genio system or using technology that contains the allegedly infringing intellectual property; (ii) forfeit the opportunity to license our patented technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; (iii) pay substantial damages to the party whose intellectual property rights we may be found to be infringing; or (iv) redesign those products that contain or utilize the allegedly infringing intellectual property. As of the date of the Prospectus, there is no intellectual property litigation pending against us.
Additionally, competitors and other third parties may infringe or otherwise violate our issued patents or other intellectual property or the patents or other intellectual property of our licensors. In addition, our patents or the patents of our licensors may become involved in inventorship or priority disputes. Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. To counter infringement or other unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Our ability to enforce patent rights also depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents or that our patents are invalid or unenforceable. In a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology. An adverse result in any litigation proceeding could put one or more of our owned or licensed patents at risk of being invalidated, held unenforceable or interpreted narrowly. We may find it impractical or undesirable to enforce our intellectual property against some third parties.
Patent terms may be inadequate to protect our competitive position with respect to the Genio system and our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, 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. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive devices. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result,
 
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our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours for a meaningful amount of time, or at all.
Depending upon the timing, duration and conditions of any FDA marketing approval of our product candidates, one or more of our owned or licensed U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act, and similar legislation in the European Union and certain other countries. The Hatch-Waxman Act permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for the applicable product candidate will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and nonclinical data and launch their product earlier than might otherwise be the case, and our competitive position, business, financial condition, results of operations and prospects could be materially harmed.
If we are unable to protect the confidentiality of our proprietary information, our business and competitive position would be harmed.
We rely upon unpatented confidential and proprietary information, including technical information, know-how, and other trade secrets to develop and maintain our competitive position with respect to the Genio system. While we generally enter into non-disclosure or confidentiality agreements with our employees and other third parties to protect our intellectual property and trade secrets, we cannot guarantee that we have entered into such agreements with each party that may have or has had access to our proprietary information. Further, despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, and we may not be able to obtain adequate remedies for such breaches. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our product candidates that we consider proprietary. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary information will be effective. If any of our proprietary information is disclosed to or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.
We depend on exclusive licenses and agreements with third parties, which might not provide adequate protection for our technology.
We rely on licensing agreements providing us exclusivity in the field of our practice. While we have ensured through multiple robust agreements acquisition of exclusive licenses and freedom to operate for our technology, as with any agreement, under unexpected or unpredictable circumstances, these could be under a risk of being terminated despite companies’ efforts and diligence in ensuring integrity of the agreement. Should the agreements be found invalid or licenses revoked and the licensor decide to sue us for infringement of its patents rights, this could expose us to risks of litigation. In addition, any intellectual property litigation could force us to do one or more of the following: (i) stop selling the Genio system or using technology that contains the allegedly infringing intellectual property; (ii) forfeit the opportunity to license our patented technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; (iii) pay substantial damages to the party whose intellectual property rights we may be found to be infringing; or (iv) redesign those products that contain or utilize the allegedly infringing intellectual property.
The requirement to obtain licenses to third party intellectual property could also arise in the future. If we need to license in any third-party intellectual property, we could be required to pay lump sums or royalties on our products. In addition, if we are required to obtain licenses to third party intellectual property, we might not be able to obtain such licenses on commercially reasonable terms or at all.
 
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We may be subject to claims by third parties asserting that we or our employees have infringed upon, misappropriated or otherwise violated their intellectual property rights, or claiming ownership of what we regard as our own intellectual property.
Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s former employer. We may also be subject to claims that patents and applications we have filed to protect inventions of our employees, consultants and advisors, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims.
If we fail in prosecuting or 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 prosecuting or defending against such claims, litigation could result in substantial costs, delay development of our product candidates and be a distraction to management. Any of the foregoing events would harm our business, financial condition, results of operations and prospects.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these 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. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. 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. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, and domain names, or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

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

we, or our current or future licensors might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future;

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

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

it is possible that our pending owned or licensed patent applications or those that we may own or license in the future will not lead to issued patents;
 
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issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;

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

we may not develop additional proprietary technologies that are patentable;

the patents of others may harm our business; and

we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could harm our business, financial condition, results of operations and prospects.
Risks Related to the Offering and these Securities
Investors in the offering will experience immediate and substantial dilution in the book value of their investment.
The initial offering price of the ordinary shares in the offering is substantially higher than the pro forma net tangible book value per ordinary share before giving effect to the offering. Accordingly, if you invest in the ordinary shares in the offering, you will incur immediate substantial dilution of €20.86 per ordinary share ($24.77 per ordinary share), based on an assumed initial offering price of €26.50 per ordinary share ($31.46 per ordinary share) and our pro forma net tangible book value as of March 31, 2021. In addition, following the offering, investors in the offering will have contributed approximately 33.6% of the total gross consideration paid by shareholders to purchase our ordinary shares, but will only own ordinary shares representing approximately 11.1% of our ordinary shares outstanding after the offering. Furthermore, if the underwriters exercise their option to purchase additional ordinary shares, or if the board authorizes the issue of additional shares, warrants or convertible securities are issued and subsequently exercised, you could experience further dilution. For a further description of the dilution that you will experience immediately after the offering, see “Dilution.”
Certain of our existing principal shareholders, including Cochlear Investments Pty Ltd. and ResMed Inc., have indicated an interest in purchasing an aggregate of up to approximately $34.0 million in our ordinary shares in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering.
There has been no prior market for the ordinary shares on a U.S. securities exchange and an active and liquid market for the securities may fail to develop, which could harm the market price of the ordinary shares.
Prior to the offering, while our ordinary shares have been traded on Euronext Brussels since September 2020, there has been no public market on a U.S. securities exchange for our ordinary shares.
Although we have applied to list the ordinary shares on the Nasdaq Global Market, an active trading market for the ordinary shares may never develop or be sustained following the offering. The offering price may not be indicative of the market price of the ordinary shares or after the offering. In the absence of an active trading market for the ordinary shares, investors may not be able to sell their ordinary shares at or above the offering price or at the time that they would like to sell.
Following the offering and after the ordinary shares begin trading on the Nasdaq Global Market, our ordinary shares will continue to be admitted to trading on Euronext Brussels. We cannot predict the effect of this dual listing on the value of the ordinary shares. However, the dual listing of the ordinary shares may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the ordinary shares.
 
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The dual listing of our ordinary shares following the U.S. offering may adversely affect the liquidity and value of the ordinary shares.
Following the U.S. offering and after the ordinary shares begin trading on the Nasdaq Global Market, our ordinary shares will continue to be listed on Euronext Brussels. Trading of the ordinary shares in these markets will take place in different currencies (U.S. dollars on the Nasdaq Global Market and € on Euronext Brussels), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Belgium). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on Euronext Brussels could cause a decrease in the trading price of the ordinary shares on the Nasdaq Global Market. Investors could seek to sell or buy our ordinary shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both the trading prices on one exchange and the ordinary shares available for trading on the other exchange. However, the dual listing of the ordinary shares may reduce the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the ordinary shares in the United States.
The trading price of our equity securities may be volatile due to factors beyond our control, and purchasers of the ordinary shares could incur substantial losses.
The market prices of the ordinary shares and shares may be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their ordinary shares or shares at or above the price originally paid for the security. The market price for the ordinary shares may be influenced by many factors, including:

actual or anticipated fluctuations in our financial condition and operating results;

the release of new data from our DREAM and other clinical trials;

actual or anticipated changes in our growth rate relative to our competitors;

competition from existing products or new products that may emerge;

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

issuance of new or updated research or reports by securities analysts;

fluctuations in the valuation of companies perceived by investors to be comparable to us;

currency fluctuations;

additions or departures of key management or scientific personnel;

disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

changes to coverage policies or reimbursement levels by commercial third-party payors and government payors and any announcements relating to coverage policies or reimbursement levels;

announcement or expectation of additional debt or equity financing efforts;

uncertainty caused by and the unprecedented nature of the current COVID-19 pandemic;

issuances or sales of the ordinary shares by us, our insiders or our other shareholders; and

general economic and market conditions.
These and other market and industry factors may cause the market price and demand for the ordinary shares to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their shares or ordinary shares and may otherwise negatively affect the liquidity of the trading market for ordinary shares.
 
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We have broad discretion over the use of the net proceeds from the offering and may use them in ways with which you do not agree and in ways that may not enhance our operating results or the price of the ordinary shares.
Our board of directors and executive management will have broad discretion over the application of the net proceeds that we receive from the offering. We may spend or invest these proceeds in ways with which our shareholders disagree or that do not yield a favorable return, if at all. We intend to use the net proceeds from the offering, together with our existing cash resources as described in “Use of Proceeds.” However, our use of these proceeds may differ substantially from our current plans. Failure by our management to apply these funds effectively could harm our business, results of operations, cash flows, financial condition and/or prospects. Pending their use, we may invest the net proceeds from the offering in a manner that does not produce income or that loses value.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of the ordinary shares and their trading volume could decline.
The trading market for the ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or only limited securities or industry analysts cover our company, the trading price for the ordinary shares could be negatively impacted. If one or more of the analysts who covers us downgrades our equity securities or publishes inaccurate or unfavorable research about our business, the price of ordinary shares would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, or downgrades our securities, demand for ordinary shares could decrease, which could cause the price of the ordinary shares or their trading volume to decline.
We intend to retain all available funds and any future earnings and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ordinary shares.
We have never declared or paid any cash dividends on our shares, and we intend to retain all available funds and any future earnings to fund the development and expansion of our business. Therefore, you are not likely to receive any dividends on your ordinary shares for the foreseeable future and the success of an investment in ordinary shares will depend upon any future appreciation in their value. Consequently, investors may need to sell all or part of their holdings of ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that the ordinary shares will appreciate in value or even maintain the price at which our investors have purchased them. Investors seeking cash dividends should not purchase the ordinary shares.
In addition, if we choose to pay dividends in the future, exchange rate fluctuations may affect the amount of Euros that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon the payment of cash dividends or other distributions we declare and pay in euros, if any. Any dividends will generally be subject to Belgian withholding tax. See the section of this prospectus titled “Material Belgian Income Tax Consequences” for a more detailed description of Belgian taxes on dividends. These factors could harm the value of the ordinary shares.
Investors should be aware that the rights provided to our shareholders under Belgian corporate law and our articles of association differ in certain respects from the rights that you would typically enjoy as a shareholder of a U.S. company under applicable U.S. federal and state laws.
We are, and will upon the consummation of the offering be, a Belgian company with limited liability. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in Belgium. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and boards of directors in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board is required by Belgian law to consider the interests of our company, its shareholders, its employees and other stakeholders. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of our shareholders. See “Description of Share Capital and Articles of Association — Articles of Association and Other Share Information.”
 
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Future sales, or the perception of future sales, of a substantial number of our ordinary shares could adversely affect the price of the ordinary shares, and actual sales of our equity will dilute shareholders.
Future sales of a substantial number of our ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of the ordinary shares. Following the completion of the offering, based on the number of shares outstanding as of March 31, 2021, we will have 24,867,609 ordinary shares outstanding (assuming no exercise of the underwriters’ option to purchase additional ordinary shares). This includes the ordinary shares offered in the U.S. offering, which may be resold in the public market immediately without restriction, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act, which may be resold only if registered under the Securities Act or in accordance with the requirements of Rule 144 or another applicable exemption from the registration requirements of the Securities Act. See “Ordinary Shares Eligible for Future Sale — Rule 144.” Shares held by our directors, executive officers and certain shareholders will be subject to the lock-up agreements described in the “Underwriting” section of this prospectus. If, after the period during which such lock-up agreements restrict sales of the ordinary shares or if Piper Sandler & Co., Stifel, Nicolaus & Company, Incorporated, and Cantor Fitzgerald & Co. waive the restrictions set forth therein (which may occur at any time), one or more of these shareholders sell substantial amounts of ordinary shares in the public market, or the market perceives that such sales may occur, the market price of the ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.
If we issue ordinary shares in future financings, shareholders may experience dilution and, as a result, our ordinary share price may decline.
We may from time to time issue additional ordinary shares at a discount from the trading price of our ordinary shares. As a result, our shareholders would experience immediate dilution upon the issuance of any of our ordinary shares at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preference shares or shares. If we issue ordinary shares or securities convertible into ordinary shares of our share capital, our shareholders would experience additional dilution and, as a result, our ordinary share price may decline.
It may be difficult for investors outside Belgium to serve process on, or enforce foreign judgments against, us or our directors and senior management.
We are a Belgian public limited liability company. Less than a majority of the members of our board of directors and members of our executive management team are residents of the United States. All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process upon such persons or on us or to enforce against them or us a judgment obtained in U.S. courts. Original actions or actions for the enforcement of judgments of U.S. courts relating to the civil liability provisions of the federal or state securities laws of the United States are not directly enforceable in Belgium.
The United States and Belgium do not currently have a multilateral or bilateral treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for the payment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, it is accordingly required that this judgment be recognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004 Belgian Code of Private International Law. Recognition or enforcement does not imply a review of the merits of the case and is irrespective of any reciprocity requirement. A U.S. judgment will, however, not be recognized or declared enforceable in Belgium, unless (in addition to compliance with certain technical provisions) the Belgian courts are satisfied of the following:

the effect of the enforcement judgment is not manifestly incompatible with Belgian public policy;

the judgment did not violate the rights of the defendant’

the judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international private law;

the judgment is not subject to further recourse under U.S. law;
 
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the judgment is not incompatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be recognized in Belgium;

the claim was not filed outside Belgium after the same claim was filed in Belgium, while the claim filed in Belgium is still pending;

the Belgian courts did not have exclusive jurisdiction to rule on the matter;

the U.S. court did not accept its jurisdiction solely on the basis of the presence of the plaintiff or the location of goods not direct linked to the dispute in the United States;

the judgment did not concern the deposit or validity of intellectual property rights when the deposit or registration of those intellectual property rights was requested, done or should have been done in Belgium pursuant to international treaties;

the judgment did not relate to the validity, operation, dissolution, or liquidation of a legal entity that has its main seat in Belgium at the time of the petition of the U.S. court;

if the judgment relates to the opening, progress or closure of insolvency proceedings, it is rendered on the basis of the European Insolvency Regulation (EC Regulation No. 1346/2000 of May 29, 2000) or, if not, that (a) a decision in the principal proceedings is taken by a judge in the state where the most important establishment of the debtor was located or (b) a decision in territorial proceedings was taken by a judge in the state where the debtor had another establishment than its most important establishment;

the judgment submitted to the Belgian court is authentic under the laws of the state where the judgment was issued; in case of a default judgment, it can be shown that under locally applicable laws the invitation to appear in court was properly served on the defendant; a document can be produced showing that the judgment is, under the rules of the state where it was issued, enforceable and was properly served on the defendant.
In addition to recognition or enforcement, a judgment by a federal or state court in the United States against us may also serve as evidence in a similar action in a Belgian court if it meets the conditions required for the authenticity of judgments according to the law of the state where it was rendered. The findings of a federal or state court in the United States will not, however, be taken into account to the extent they appear incompatible with Belgian public policy.
Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or members of our board of directors or our executive management any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, the ordinary shares may be less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we are required to report only two years of financial results and selected financial data compared to three and five years, respectively, for comparable data reported by other public companies. We may take advantage of these exemptions until we are no longer an emerging growth company. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the aggregate market value of our ordinary shares held by non-affiliates exceeds $700 million as of the end of our second fiscal quarter before that time, in which case we would no longer be an emerging growth company as of the following December 31st (the last day of our fiscal year). We cannot predict if investors will find the ordinary shares less attractive because we may rely on these exemptions. If some investors find the ordinary shares less attractive as a result, there may be a less active trading market for the ordinary shares and the price of the ordinary shares may be more volatile.
 
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As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we will rely on certain home country corporate governance practices rather than the corporate governance requirements of Nasdaq.
We qualify as a foreign private issuer and have applied to have the ordinary shares listed on Nasdaq. As a result, in accordance with the listing requirements of Nasdaq, we will rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of Nasdaq. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently publish annual and semi-annual reports on our website pursuant to the rules of Euronext Brussels and expect to file such financial reports with the SEC, we will not be required to file periodic reports with the SEC as frequently or as promptly as U.S. public companies. Specifically, we will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K that a domestic company would be required to file under the Exchange Act. Accordingly, there may be less publicly available information concerning our company than there would be if we were not a foreign private issuer.
In addition, the Listing Rules of the Nasdaq Stock Market require a majority of the directors of a listed U.S. company to be independent, whereas in Belgium, only three directors need to be independent. The Listing Rules of the Nasdaq Stock Market further require that each of the nominating, compensation and audit committees of a listed U.S. company be comprised entirely of independent directors. However, the Belgian Corporate Governance Code recommends only that a majority of the directors on the nomination committee meet the technical requirements for independence under Belgian corporate law. At present, our audit committee is composed of three independent directors out of three members, whereas our nomination and remuneration committees are composed of two independent directors out of three members. Our board of directors has no plan to change the composition of our audit committee and nomination and remuneration committee, and we intend to follow home country practice to the maximum extent possible. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Following the consummation of the offering, the determination of foreign private issuer status will be made annually on the last business day of our most recently completed second fiscal quarter. Accordingly, we will next make a determination with respect to our foreign private issuer status on December 31, 2021. There is a risk that we will lose our foreign private issuer status in the future.
We would lose our foreign private issuer status if, for instance more than 50% of our ordinary shares are owned by U.S. residents or persons and more than 50% of our assets are located in the United States and we continue to fail to meet additional requirements necessary to maintain our foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers, which could also increase our costs.
 
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U.S. Holders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC.
In general, a non-U.S. corporation is a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income, or (ii) 75% or more of its gross income consists of passive income. For purposes of the above calculations, a non-U.S. corporation that owns, directly or indirectly, at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, investment gains and certain rents and royalties. Cash is generally a passive asset for these purposes. The value goodwill is generally treated as an active asset if it is associated with business activities that produce active income.
If we are a PFIC for any taxable year during which a U.S. holder (as defined below under “Certain Material U.S. Federal Income Tax Considerations to U.S. holders”) holds ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding years during which the U.S. holder owns the ordinary shares regardless of whether we continue to meet the PFIC test described above, unless the U.S. holder makes a specified election once we cease to be a PFIC. If we are classified as a PFIC for any taxable year during which a U.S. holder holds ordinary shares, the U.S. holder may be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements.
Based on the current estimates, and expected future composition, of our income and the value of our assets, including goodwill, we do not expect to be a PFIC for our current taxable year. However, our PFIC status for any taxable year is an annual determination that can be made only after the end of that year and will depend on the composition of our income and assets and the value of our assets from time to time. The determination of whether we are a PFIC is fact-intensive and the applicable law is subject to varying interpretation. There can be no assurance that the United States Internal Revenue Service, or IRS, will agree with our conclusion or that the IRS will not successfully challenge our position including our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets.
A U.S. holder may in certain circumstances mitigate the adverse tax consequences of the PFIC rules by filing an election to treat the PFIC as a QEF, or, if shares of the PFIC are “marketable stock” for purposes of the PFIC rules, by making a mark-to-market election with respect to the shares of the PFIC. However, we do not currently intend to provide the information necessary for U.S. holders to make a QEF election if we were treated as a PFIC for any taxable year and prospective investors should assume that a QEF election will not be available. Furthermore, if a U.S. holder were to make a mark-to-market election with respect to its ordinary shares, the U.S. holder would be required to include annually in its U.S. federal taxable income (taxable at ordinary income rates) an amount reflecting any year end increase in the value of its ordinary shares. For further discussion of the PFIC rules and the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see the section titled “Certain Material U.S. Federal Income Tax Considerations to U.S. holders.”
The U.S. federal income tax rules relating to PFICs are very complex. Prospective U.S. holders are strongly urged to consult their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of ordinary shares, the consequences to them of an investment in a PFIC, any elections available with respect to the ordinary shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of ordinary shares of a PFIC.
If a U.S. Holder is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. holder (as defined below under “Certain Material U.S. Federal Income Tax Considerations to U.S. Holders”) is treated as owning, directly, indirectly or constructively, at least 10% of the value or voting power of our ordinary shares, such U.S. holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group, if any. Because our group currently includes at least one U.S. subsidiary, under current law, any of our current non-U.S. subsidiaries and any future
 
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newly formed or acquired non-U.S. subsidiaries will be treated as controlled foreign corporations, regardless of whether we are treated as a controlled foreign corporation. A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of  “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with controlled foreign corporation reporting obligations may subject a United States shareholder to significant monetary penalties. We cannot provide any assurances that we will furnish to any United States shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the controlled foreign corporation rules of the Code. U.S. holders should consult their tax advisors regarding the potential application of these rules to their investment in ordinary shares. See section titled “Certain Material U.S. Federal Income Tax Considerations to U.S. holders” for a more detailed discussion.
We are exposed to changes in foreign currency exchange rates and interest rates.
We incur some of our expenses, and derive certain of our revenues, in currencies other than the Euro. In particular, as we expand our operations and conduct additional clinical trials in the United States, we will incur additional expenses in U.S. dollars. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates.
We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the Euro. Therefore, an unfavorable change in the value of the Euro against the U.S. dollar could have a negative impact on our revenue and earnings growth. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows. The ordinary shares being offered in the U.S. offering will trade in U.S. dollars on Nasdaq, while our ordinary shares trade in Euro on Euronext Brussels. Our financial statements are prepared in euro. Therefore, fluctuations in the exchange rate between the Euro and the U.S. dollar will also affect, among other matters, the value of our ordinary shares.
We could also sign contracts denominated in currencies other than the euro, which would increase our exposure to currency risk. In accordance with our business decisions, our exposure to this type of risk could change depending on:

the currencies in which we receive our revenues;

the currencies chosen when agreements are signed, such as licensing agreements, or co-marketing or co-development agreements;

the location of clinical trials; and

our policy for insurance cover.
At present, we have not put any specific hedging arrangements in place to address these risks. Should any of these risks materialize, this could have a material adverse effect on our business, prospects, financial condition and results of operations.
Shareholders outside Belgium may be subject to exchange rate risk.
Our ordinary shares are denominated in euros. Accordingly, an investment in the ordinary shares by an investor whose principal currency is not the Euro may expose such investor to foreign currency exchange rate risk. Any depreciation of the Euro against such foreign currency would reduce the value of the investment in the ordinary shares in terms of such foreign currency.
We will incur significant increased costs as a result of operating as a company that is publicly listed on both Nasdaq in the United States and Euronext Brussels in Belgium, and our management will be required to devote substantial time to new compliance initiatives.
As a U.S. public company listed on Nasdaq, we will incur legal, accounting, and other expenses that we did not previously incur. We will be subject to the reporting requirements of the Securities Exchange Act of
 
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1934, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq listing requirements and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” and/or a foreign private issuer. The Exchange Act would require that, as a public company, we file annual, semi-annual and current reports with respect to our business, financial condition and result of operations. However, as a foreign private issuer, we are not required to file quarterly and current reports with respect to our business and results. We currently make annual and semiannual reporting with respect to our listing on Euronext Brussels.
Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified senior management personnel or members for our board of directors.
However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Further, being a U.S. listed company and a Belgian public company with ordinary shares admitted to trading on Euronext Brussels impacts the disclosure of information and requires compliance with two sets of applicable rules. From time to time, this may result in uncertainty regarding compliance matters and result in higher costs necessitated by legal analysis of dual legal regimes, ongoing revisions to disclosure and adherence to heightened governance practices. As a result of the enhanced disclosure requirements of the U.S. securities laws, business and financial information that we report is broadly disseminated and highly visible to investors, which we believe may increase the likelihood of threatened or actual litigation, including by competitors and other third parties, which could, even if unsuccessful, divert financial resources and the attention of our management from our operations.
As a result of becoming a U.S. public company, we will become subject to additional regulatory compliance requirements, including Section 404, and if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
Pursuant to Section 404, our management will be required to assess and attest to the effectiveness of our internal control over financial reporting in connection with issuing our consolidated financial statements as of and for the year ending December 31, 2022. Section 404 also requires an attestation report on the effectiveness of internal control over financial reporting be provided by our independent registered public accounting firm beginning with our annual report following the date on which we are no longer an “emerging growth company”, which may be up to five fiscal years from the date of the offering.
The cost of complying with Section 404 will significantly increase and management’s attention may be diverted from other business concerns, which could adversely affect our results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will further increase expenses. If we fail to comply with the requirements of Section 404 in the required timeframe, we may be subject to sanctions or investigations by regulatory authorities, including the SEC and Nasdaq. Furthermore, if we are unable to attest to the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, and the market price of our ordinary shares could decline. Failure to implement or maintain effective internal control over financial reporting could also restrict our future access to the capital markets and subject each of us, our directors and our officers to both significant monetary and criminal liability. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by
 
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ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial position, results and prospects may be adversely affected.
If we fail to implement and maintain effective internal controls over financial reporting, our ability to produce accurate financial statements on a timely basis could be impaired.
Following the completion of this offering, we will be subject to reporting obligations under U.S. securities laws and the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our internal control over financial reporting in our second annual report on Form 20-F after we become public. If we fail to remediate the material weakness identified below, our management may conclude that our internal control over financial reporting is not effective. This conclusion could adversely impact the market price of our ordinary shares due to a loss of investor confidence in the reliability of our reporting processes.
In the future, we will be required to perform system and process evaluations and testing of our internal controls over financial reporting, to allow our management and our independent public registered accounting firm to report on the effectiveness of our internal control over financial reporting. In addition, our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense, expend significant management effort and we may need to hire additional accounting and financial staff with the appropriate experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future.
If we are unable to conclude that our internal controls are effective or if we have material weaknesses, investors could lose confidence in the accuracy or completeness of our reported financial information, which could have a negative effect on the trading price of our ordinary shares.
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 controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an “emerging growth company” for up to five years. At the time when we are no longer an emerging growth company, 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 controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur remediation costs. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
In connection with our preparation and the audit of our consolidated financial statements as of and for the years ended December 31, 2020 and 2019, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weaknesses, we may not be able to report our financial results accurately or to prevent fraud.
Prior to 2020, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. Further, our reporting obligations as
 
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a public company will continue to place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Although we are not yet subject to the certification or attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, in connection with the audit of our financial statements as of and for the years ended December 31, 2020 and 2019, we and our independent registered public accounting firm identified material weaknesses as defined by the Public Company Accounting Oversight Board in the United States, or the PCAOB, in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal controls 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.
In connection with the audit of our 2020 and 2019 consolidated financial statements, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting related to the fact that we do not have the accounting and financial reporting resources necessary to comply with the obligations of U.S. public reporting company, as well as the necessary expertise to implement and maintain effective internal controls over financial reporting. The identified material weaknesses are primarily related to the (i) lack of sufficient accounting and supervisory personnel who have the appropriate level of technical accounting experience and training, and (ii) lack of adequate procedures and controls to ensure that accurate financial statements can be prepared and reviewed on a timely basis for annual reporting purposes.
To address the material weaknesses, we have engaged an external advisor to help prepare the financial statements in accordance with IFRS as well as help us put in place a formal control structure to detect and prevent material misstatements. We intend to continue taking steps to remediate the material weaknesses, including hiring individuals with sufficient technical IFRS knowledge, through formalizing documentation of policies and procedures and implementing additional accounting processes and controls. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting, and therefore we may not be able to conclude when these material weaknesses will be fully remediated.
If we are unable to successfully remediate our identified material weaknesses, or if we discover additional material weaknesses, we would be required to continue disclosing such material weaknesses in future filings with the SEC, which could adversely impact investor confidence in our company and the market price of our ordinary shares, and could subject us to litigation or regulatory enforcement actions.
The Public Company Accounting Oversight Board, or PCAOB, is currently unable to inspect the audit work and practices of auditors operating in Belgium, including our auditor.
Our auditors, EY Bedrijfsrevisoren BV/Reviseurs d’Entreprises SRL, are registered with the PCAOB. Our auditors, like any other independent registered public accounting firms operating in Belgium, are not yet permitted, because of Belgian regulation impediments, to be subject to inspections by the PCAOB that assess their compliance with U.S. laws and professional standards in connection with the performance of audits of financial statements filed with the SEC. As a result, our investors may not realize the potential benefits of such inspections. Cooperation between the Belgium regulators and the PCAOB is expected in the first half of 2021.
We may be subject to securities litigation, which is expensive and could divert management’s attention.
The market price of the ordinary shares may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
We are a Belgian public limited liability company, and shareholders of our company may have different and in some cases more limited shareholder rights than shareholders of a U.S. listed corporation.
We are, and will upon the consummation of the offering be, a Belgian company with limited liability. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in Belgium. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and boards of directors in
 
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companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board is required by Belgian law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of our shareholders. See “Description of Share Capital and Articles of Association — Articles of Association and Other Share Information.”
Investors resident in countries other than Belgium may suffer dilution if they are unable to participate in future preferential subscription rights offerings.
Under Belgian law and our constitutional documents, shareholders have a waivable and cancellable preferential subscription right to subscribe pro rata to their existing shareholdings to the issuance, against a contribution in cash, of new ordinary shares or other securities entitling the holder thereof to new ordinary shares, unless such rights are limited or cancelled by resolution of our general shareholders’ meeting or, if so authorized by a resolution of such meeting, our board of directors. The exercise of preferential subscription rights by certain shareholders not residing in Belgium (including those in the United States, Australia, Israel, Canada or Japan as a result of the offering and taking into account the current shareholding and international network of our current board of directors) may be restricted by applicable law, practice or other considerations, and such shareholders may not be entitled to exercise such rights, unless the rights and ordinary shares are registered or qualified for sale under the relevant legislation or regulatory framework. In particular, we may not be able to establish an exemption from registration under the U.S. Securities Act, and we are under no obligation to file a registration statement with respect to any such preferential subscription rights or underlying securities or to endeavor to have a registration statement declared effective under the U.S. Securities Act. Shareholders in jurisdictions outside Belgium who are not able or not permitted to exercise their preferential subscription rights in the event of a future preferential subscription rights, equity or other offering may suffer dilution of their shareholdings.
Takeover provisions in the national law of Belgium may make a takeover difficult.
Public takeover bids on our shares and other voting securities, such as warrants or convertible bonds, if any, are subject to the Belgian Act of April 1, 2007 on public takeover bids, as amended and implemented by the Belgian Royal Decree of April 27, 2007, or Royal Decree, and to the supervision by the Belgian Financial Services and Markets Authority, or FSMA. Public takeover bids must be made for all of our voting securities, as well as for all other securities that entitle the holders thereof to the subscription to, the acquisition of or the conversion into voting securities. Prior to making a bid, a bidder must issue and disseminate a prospectus, which must be approved by the FSMA. The bidder must also obtain approval of the relevant competition authorities, where such approval is legally required for the acquisition of our company. The Belgian Act of April 1, 2007 provides that a mandatory bid will be required to be launched for all of our outstanding shares and securities giving access to ordinary shares if a person, as a result of its own acquisition or the acquisition by persons acting in concert with it or by persons acting on their account, directly or indirectly holds more than 30% of the voting securities in a company that has its registered office in Belgium and of which at least part of the voting securities are traded on a regulated market or on a multilateral trading facility designated by the Royal Decree. The mere fact of exceeding the relevant threshold through the acquisition of one or more shares will give rise to a mandatory bid, irrespective of whether or not the price paid in the relevant transaction exceeds the current market price.
There are several provisions of Belgian company law and certain other provisions of Belgian law, such as the obligation to disclose important shareholdings and merger control, that may apply to us and which may make an unfriendly tender offer, merger, change in management or other change in control, more difficult. These provisions could discourage potential takeover attempts that third parties may consider and thus deprive the shareholders of the opportunity to sell their shares at a premium (which is typically offered in the framework of a takeover bid).
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, particularly the sections of this prospectus titled “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. All statements other than present and historical facts and conditions contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this prospectus, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

timing, progress, completion and results of clinical trials and our research and development programs;

the timing or likelihood of regulatory filings and approvals;

our reliance on the success of our Genio system;

our ability to achieve and maintain adequate levels of coverage or reimbursement for procedures performed with our products and any future products we may seek to commercialize;

the commercialization of our products;

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology;

our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

cost associated with defending intellectual property infringement, product liability and other claims;

regulatory development in the U.S., Europe and other jurisdictions;

the rate and degree of market acceptance of our products;

our expectations about market trends;

developments relating to our competitors and our industry, including competing products;

our ability to accurately forecast customer demand and manage our inventory;

our ability to effectively manage our anticipated growth;

our ability to attract and retain qualified employees and key personnel;

statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;

our expected use of proceeds of the offering;

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

the impact on our business, financial condition and results of operations from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease in the U.S. or worldwide;

our plans to remediate our material weaknesses; and

other risks and uncertainties, including those listed under the caption “Risk Factors.”
You should refer to the section of this prospectus titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our
 
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forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.
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.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the Registration Statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
 
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the offering of approximately $78.2 million (€65.8 million), assuming an offering price of  $31.46 per ordinary share (€26.50 per ordinary share), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters’ option to purchase additional ordinary shares. If the underwriters exercise their option in full, we estimate that we will receive net proceeds from the offering of approximately $90.4 million (€76.1 million) after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each €1.00 ($1.1872) increase or decrease in the assumed initial offering price of €26.50 per ordinary share ($31.46 per ordinary share) would increase or decrease our net proceeds from the offering by €2.6 million ($3.1 million), assuming the number of ordinary shares, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ordinary shares we are offering. An increase or decrease of 1,000,000 ordinary shares offered by us would increase or decrease the net proceeds to us by €24.9 million ($29.6 million), assuming that the assumed initial offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The actual net proceeds payable to us will adjust based on the actual number of ordinary shares sold by us, the actual initial offering price and other terms of the offering determined at pricing.
The principal purposes of the offering are to increase our financial flexibility in order to fund product development and R&D activities, build out our commercial capabilities and expand the market for the Genio system. We currently expect to use the net proceeds from the offering, together with our cash and cash equivalents, as follows:

$31.0 million to advance the commercialization of the Genio system in our initial target markets in Europe, Australia and New Zealand and for pre-commercialization activities in the United States;

$23.7 million to continue gathering clinical data and to support physician initiated clinical research projects related to OSA patient treatments;

$14.5 million to further finance R&D activities related to the next generation of the Genio system and to continue to build a pipeline of new technologies and explore potential collaboration opportunities in the field of monitoring and diagnostics for OSA; and

the remainder for working capital and general corporate purposes.
This expected use of net proceeds from the offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. We may also use a portion of the net proceeds to in-license, acquire or invest in additional businesses, technologies, products or assets. However, we have no current plans, commitments or obligations to do so. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the consummation of the offering or the amounts that we will actually spend on the uses set forth above. Predicting the cost necessary to commercialize and market the Genio system can be difficult and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, our plans to develop our in-house product manufacturing capabilities, the status of and results from clinical trials, any collaborations that we may enter into with third parties for the Genio system and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from the offering. See “Risk Factors — Risks Related to the Offering and these Securities —  We have broad discretion over the use of the net proceeds from the offering and may use them in ways with which you do not agree and in ways that may not enhance our operating results or the price of the ordinary shares.”
As of March 31, 2021, we had cash and cash equivalents of €86.2 million. We believe our cash and cash equivalents, together with the net proceeds of this offering, will be sufficient to fund our operations through 2024.
Pending our use of the net proceeds from the offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments.
 
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DIVIDEND POLICY
We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future and intend to retain all available funds and any future earnings for use in the operation and expansion of our business. All of the ordinary shares offered by this prospectus will have the same dividend rights as all of our other outstanding ordinary shares. In general, distributions of dividends proposed by our board of directors require the approval of our shareholders at a meeting of shareholders with a simple majority vote, although our board of directors may declare interim dividends without shareholder approval, subject to the terms and conditions of the Belgian Code of Companies and Associations, or CCA. See “Description of Share Capital and Articles of Association.”
Our ability to distribute dividends is subject to availability of sufficient distributable profits as defined under Belgian law on the basis of our stand-alone statutory accounts prepared in accordance with Belgian GAAP. In particular, dividends can only be distributed if following the declaration and issuance of the dividends the amount of our net assets on the date of the closing of the last financial year as follows from the statutory non-consolidated financial statements (i.e., summarized, the amount of the assets as shown in the balance sheet, decreased with provisions and liabilities, all in accordance with Belgian accounting rules), and, save in exceptional cases, to be mentioned and justified in the notes to the annual accounts, decreased with the non-amortized costs of incorporation and extension and the non-amortized costs for research and development, does not fall below the amount of the paid-up capital (or, if higher, the issued capital), increased with the amount of non-distributable reserves (which include, as the case may be, the unamortized part of any revaluation surpluses).
In addition, pursuant to Belgian law and our Articles of Association, we must allocate an amount of 5% of our Belgian GAAP annual net profit to a legal reserve in its stand-alone statutory accounts, until the legal reserve amounts to 10% of our share capital. Our legal reserve currently does not meet this requirement nor will it meet the requirement at the time of the closing. Accordingly, 5% of our Belgian GAAP annual net profit during future years will need to be allocated to the legal reserve, further limiting our ability to pay out dividends to its shareholders.
For information regarding the Belgian withholding tax applicable to dividends and related U.S. reimbursement procedures, see “Material United States Federal Income and Belgian Tax Considerations — Material Belgian Tax Consequences.”
 
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2021 on an actual and on an as adjusted basis to reflect the issuance and sale of 2,760,000 ordinary shares in the offering at an assumed initial offering price of €26.50 per ordinary share ($31.46 per ordinary share), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Our capitalization following the offering will be adjusted based on the actual initial offering price and other terms of the offering determined at pricing. The table should be read in conjunction with the information contained in “Use of Proceeds,” “Summary Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.
As of March 31, 2021
(in thousands)
Actual
As Adjusted
Cash and cash equivalents
86,207 152,043
Capital and Reserves
Capital
3,798 4,272
Share premium
150,986 216,348
Share based payment reserve
2,650 2,650
Currency translation reserve
79 79
Retained Earnings
(66,010) (66,010)
Total equity
91,503 157,339
Non-current debt
Secured
2,737 2,737
Unsecured
7,794 7,794
Total non-current debt
10,531 10,531
Current debt
Secured
475 475
Unsecured
8,141 8,141
Total current debt
8,616 8,616
Total debt
19,147 19,147
Total capitalization
110,650 176,486
Each €1.00 ($1.1872) increase or decrease in the assumed initial offering price of €26.50 per ordinary share ($31.46 per ordinary share) would increase or decrease each of as adjusted cash and cash equivalents, total equity and total capitalization by approximately €2.6 million ($3.1 million), assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ordinary shares we are offering. Each increase or decrease of 1,000,000 ordinary shares offered by us would increase or decrease each of as adjusted cash and cash equivalents, total equity and total capitalization by approximately €24.9 million ($29.6 million), assuming that the assumed offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The number of ordinary shares that will be issued and outstanding after the offering, is based on 22,107,609 ordinary shares outstanding as of March 31, 2021, and excludes:

997,500 ordinary shares issuable upon the exercise of warrants outstanding as of March 31, 2021 pursuant to our warrant plans, at a weighted average exercise price of €9.21 per ordinary share.
 
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DILUTION
If you invest in the ordinary shares in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per ordinary share in this offering and our net tangible book value per ordinary share after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net book value per ordinary share.
If you invest in the ordinary shares in this global offering, your ownership interest will be diluted to the extent of the difference between the offering price per ordinary share paid by you and the as adjusted net tangible book value per share after the offering. Our net tangible book value as of March 31, 2021 was €74.3 million ($88.2 million), or €3.36 per ordinary share (equivalent to $3.99 per ordinary share). Net tangible book value per share is determined by dividing (i) our total assets less our intangible assets and our total liabilities by (ii) the number of ordinary shares outstanding as of March 31, 2021, or 22,107,609 ordinary shares.
After giving effect to our sale of 2,760,000 ordinary shares in the offering, assuming an offering price of €26.50 per ordinary share ($31.46 per ordinary share) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value at March 31, 2021 would have been €140.1 million ($166.3 million), or €5.63 per ordinary share (equivalent to $6.69 per ordinary share). This amount represents an immediate increase in net tangible book value of €2.27 per ordinary share ($2.70 per ordinary share) to our existing shareholders and an immediate dilution in net tangible book value of €20.87 per ordinary share ($24.77 per ordinary share) to new investors.
The following table illustrates this dilution on a per ordinary share basis:
As of March 31, 2021
Per Ordinary Share
Assumed initial public offering price
26.50
Historical net tangible book value per ordinary share
3.36
Increase in net tangible book value per ordinary share attributable investors participating in the offering
2.27
As adjusted net tangible book value per ordinary share after the offering
  
5.63
Dilution in as adjusted net tangible book value per ordinary share to new investors participating in the offering
20.87
Each €1.00 ($1.1872) increase or decrease in the assumed initial offering price of €26.50 per ordinary share ($31.46 per ordinary share) would increase or decrease our as adjusted net tangible book value by approximately €2.6 million ($3.1 million), or approximately €0.11 per ordinary share ($0.12 per ordinary share), and the dilution to new investors participating in this global offering would increase or decrease by approximately €0.89 per ordinary share ($1.07 per ordinary share), assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ordinary shares we are offering. An increase in the number of ordinary shares offered by us by 1,000,000 would increase the as adjusted net tangible book value by approximately €24.9 million ($29.6 million), or €0.75 per ordinary share ($0.88 per ordinary share), and the dilution to new investors participating in this global offering would be €20.12 per ordinary share ($23.87 per ordinary share), assuming that the initial offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a decrease in the number of ordinary shares offered by us by 1,000,000 would decrease the as adjusted net tangible book value by approximately €24.9 million ($29.6 million), or €0.80 per ordinary share ($0.96 per ordinary share), and the dilution to new investors participating in this global offering would be €21.67 per ordinary share ($25.73 per ordinary share), assuming that the initial offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual offering price, the number of ordinary shares offered by us and other terms of this global offering determined at pricing.
 
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If the underwriters exercise in full their option to purchase additional ordinary shares, the as adjusted net tangible book value after the offering would be €5.95 per ordinary share ($7.06 per ordinary share), the increase in the as adjusted net tangible book value to existing shareholders would be €2.59 per ordinary share ($3.07 per ordinary share), and the dilution to new investors participating in this global offering would be €20.55 per ordinary share ($24.40 per ordinary share).
The following table sets forth consideration paid to us in cash for ordinary shares purchased from us by our existing shareholders (translated into U.S. dollars at an exchange rate of €1.00 for $1.1872) and by new investors participating in this global offering based on an assumed offering price of €26.50 per ordinary share ($31.46 per ordinary share) and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Ordinary Shares
Purchased
Total
Consideration
Average
Price Per
Number
Percent
Amount
(in millions)
Percent
Ordinary
Share
Existing shareholders
22,107,609 88.9% $ 171,793,266 66.4% $ 10.83
Investors participating in this offering
2,760,000 11.1 86,831,808 33.6 31.46
Total
24,867,609 100% $ 258,625,074 100% $ 10.39
If the underwriters exercise in full their option to purchase additional ordinary shares, the percentage of ordinary shares held by existing shareholders would be reduced to 87.4% of the total number of ordinary shares outstanding after the offering, and the number of shares held by investors participating in this offering would be increased to 12.6% of the total number of ordinary shares outstanding after this offering.
The number of ordinary shares that will be outstanding after the offering is based on 22,107,609 ordinary shares outstanding as of March 31, 2021 and excludes:

997,500 ordinary shares issuable upon the exercise of warrants outstanding as of March 31, 2021 pursuant to our warrant plans, at a weighted average exercise price of €9.21 per ordinary share.
Certain of our existing shareholders, including Cochlear Investments Pty Ltd. and ResMed Inc., have indicated an interest in purchasing an aggregate of up to approximately 34.0 million in our ordinary shares in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering.
 
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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 section entitled “Selected consolidated financial data,” our audited financial statements for the years ended December 31, 2019 and 2020, our unaudited condensed interim financial statements for the three months ended March 31, 2020 and 2021, as well as related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and our expectations with respect to liquidity and capital resources, includes forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks and uncertainties described in “Risk factors” and “Special note regarding forward-looking statements” in this prospectus. Our actual results could differ materially from the results described in or implied by these forward-looking statements.
Overview
We are a medical technology company focused on the development and commercialization of innovative solutions to treat Obstructive Sleep Apnea, or OSA. Our lead solution is the Genio system, a CE-Marked, patient-centric, minimally invasive, next generation hypoglossal neurostimulation therapy for OSA. OSA is the world’s most common sleep disordered breathing condition and is associated with increased mortality risk and comorbidities including cardiovascular diseases, depression and stroke. Our innovative technology platform is the first-of-its-kind hypoglossal nerve stimulation device intended to treat OSA through bilateral stimulation, designed to maintain an open airway for a restful night’s sleep. We started generating revenue from the Genio system in Europe in July 2020, and we are currently conducting our DREAM trial designed to support marketing approval in the United States. We continue to develop a significant body of clinical evidence to support the strong value proposition of the Genio system and its ability to improve the quality of life of OSA patients.
Our Genio system includes the world’s first and only battery-free, leadless and minimally invasive neurostimulator, capable of delivering bilateral hypoglossal nerve stimulation for moderate to severe OSA patients who did not tolerate, have failed or refused conventional CPAP therapy. We developed the Genio system with a patient-centric approach, designed for comfort, safety, compliance and improved quality of life. The Genio system includes a single implanted device that can be placed through a minimally invasive, single-incision surgery under the chin. The power source for the stimulator is external. Unlike competing hypoglossal nerve stimulators, the lack of an implantable battery or additional leads eliminates the need for complex lead tunneling and only requires a single incision for implantation. This minimally invasive procedure is typically completed in approximately one hour and allows patients to recover quickly and resume normal activities typically within a week. Further, the external activation chip eliminates the need for additional surgical procedures to replace depleted batteries and enables software, firmware or external hardware updates and upgrades to be implemented without the need for surgical intervention thereby limiting potential infection risk due to an additional procedure.
Since our inception, we have generated minimal revenue. Our ability to generate revenue from product sales and become profitable will depend in our ability to successfully commercialize the Genio system following marketing approval in our initial target markets. Our activities have consisted primarily of developing our Genio system, completing our BLAST OSA trial conducted in France and Australia, commencing our BETTER SLEEP clinical trial being conducted in Australia and New Zealand that is designed to expand our CE-Mark indication to include CCC, beginning our EliSA post-marketing trial in Europe, initiating our DREAM IDE pivotal trial in the United States designed to support FDA marketing authorization, and obtaining European regulatory approval. In June 2021, we announced initial top-line results from the six-month data for the BETTER SLEEP clinical trial. We are planning to submit the complete trial results to our E.U. Notified Body with the goal of expanding the CE-Marked indication to include CCC. We anticipate initial 12-month data for the DREAM trial will be available by the fourth quarter of 2022.
We have identified a country-specific reimbursement pathway and execution strategy for each of our initial target markets in Europe, Australia and New Zealand. We began our commercial launch in Germany in July 2020. After obtaining reimbursement approval in Germany through the existing hypoglossal
 
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nerve stimulation special innovation funding program, or NUB, we generated our first revenue in the second half of 2020. In 2021, we successfully obtained reimbursement in Germany under a dedicated DRG code for hypoglossal nerve stimulation and also recently obtained reimbursement under an OSA-specific DRG code in Switzerland from the Federal Statistic Office, or BFS. The reimbursement coverage in both Germany and Switzerland includes the cost of the Genio system, implant procedure, hospital stay and follow-up care. We expect to begin marketing in Switzerland and in Spain in 2021.
Based on market access activities conducted over the past several years, we have developed tailored reimbursement strategies using assessments of the local requirements of target countries. In countries where there is existing reimbursement coverage in place, we plan to piggyback on existing coding and reimbursement, acting as a fast-follower. In countries where there is no existing reimbursement coverage, we will seek to be the first in that market to obtain reimbursement coverage. In countries without existing reimbursement coverage, the strategy could include (i) making the Genio system commercially available for patients through country specific innovation funding pathways for procedures and products that would not yet be covered by an existing code, (ii) supporting case-by-case funding submission in focus hospitals that can use their budget to fund the therapy, (iii) entering into specific commercial deals with privately funded hospital groups, or (iv) out-of-pocket payment.
Although we plan to commercialize the Genio system in Europe, Australia and New Zealand, bringing the Genio system to the U.S. market is key to our commercial strategy. Assuming a positive outcome from the DREAM trial, we expect to apply for marketing authorization in the United States with the aim of being commercially available in the United States in the second half of 2023. We have established a systematic approach to commercializing the Genio system in our target countries which focuses on active engagement, education and market development across patients, physicians and hospitals. We currently market our therapy to physicians and hospitals where ear, nose, and throat doctors, or ENTs, sleep doctors and general practitioners diagnose and treat patients with OSA.
We are actively expanding our current European sales and marketing organization with country-specific sales teams upon receiving country-specific reimbursement, such as in Germany. Our European market development team includes direct sales representatives who focus on prioritizing high volume ENT centers, sleep centers, and building long-standing relationships with key physicians such as sleep doctors, ENT doctors and general practitioners who have strong connectivity to the OSA patient population that may be eligible for our therapy. We support our physicians through all aspects of the patient journey, starting from initial diagnosis through surgical support and post implantation patient follow-up. We also seek to establish long-term partnerships with key opinion leaders and patient associations that are built on mutual trust and oriented towards the needs of our patients and customers. Our marketing organization is focused on building physician awareness through referral network development, education, targeted key opinion leader, or KOL, development and training, and direct-to-consumer marketing. We plan to build a direct sales and marketing team in the United States as we approach potential FDA marketing authorization of our Genio system.
We rely on third-party suppliers to manufacture all the components of the Genio system to our specifications. Our principal suppliers are Medistri SA, Resonetics, VSI Parylene, Reinhardt Microtech GmbH (Cicor), Lust Hybrid, Meko, and S&D Tech SRL. The raw materials used by our suppliers are purchased in the open market. Outsourcing component manufacturing reduces capital investment and reduces operational expense for us. We manage these suppliers with experienced in-house resources and require them to comply with applicable standards and regulations, as well as use quality assurance processes and technology. We seek to maintain higher levels of inventory to protect ourselves from supply interruptions. We receive all components of the Genio system at our facility in Tel Aviv, Israel where we assemble the final product and package it in our clean room. Product distribution is also done from this facility. We also operate a manufacturing facility in Belgium and plan to use this facility to further scale-up our manufacturing capacity.
To date, our primary sources of capital have been private placements and public offerings of our common stock, debt financing agreements, and revenue from the sale of our products. Since inception, we have raised equity financing of €165.4 million. As of March 31, 2021, we had cash and cash equivalents of €86.2 million, long-term debt of €10.5 million and an accumulated deficit of €66.0 million. We have devoted substantially all of our resources to research and development activities related to our Genio
 
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system, including clinical and regulatory initiatives to obtain marketing approvals and have more recently begun to build our European commercialization infrastructure. During the year ended December 31, 2020, we generated revenue of  €69,000 and our net loss was €12.3 million, and during the three months ended March 31, 2021, we generated revenue of €185,000 and our net loss was €5.7 million. Following this offering we expect that our general and administrative, research and development, quality assurance and regulatory, clinical, manufacturing, patent fees and related, therapy development and other expenses will continue to increase as we expand our marketing efforts to increase sales of the Genio system, conduct clinical trials, including our pivotal DREAM trial, seek for additional regulatory approvals and clearances and continue to invest in research and development to create product enhancements and enhance our product offering.
Key Factors and Trends
Obtaining regulatory approval in additional significant markets
We must successfully obtain timely approval or clearances and introduce new markets that gain acceptance with physicians. We are currently approved to market in Europe. And for our sales to grown, we will also need to receive FDA marketing authorization for the Genio system. We recently began the DREAM trial, which is our pivotal trial that we intend to rely on to receive marketing authorization in the United States. We anticipate announcing initial 12-month data from the DREAM trial by the fourth quarter of 2022. Assuming the data is favorable, we intend to apply to the FDA for marketing authorization for the Genio system. Our ability to expand the list of countries in which we are able to market and sell our system will significantly impact our revenue growth and the costs we incur in anticipation of such growth. Seeking for and obtaining regulatory approval for the Genio system in any of these countries is a long, expensive and uncertain process that can be impacted by numerous risks which are outside our control.
Growing and supporting our commercial organization.
We are committed to making additional investments in, and will continue to invest in recruiting, training and retaining experience and specialized sales teams. As of March 31, 2021, our European commercial team consists of seven professionals, who have substantial medical device sales and marketing, training and education as well as clinical experience and are operating from our headquarter in Belgium. Since the Genio system began being reimbursed under a dedicated DRG code in Germany, we have additionally invested in building up a dedicated direct sales and marketing organization of six individuals, led by a country director in Germany. In order to grow our business with existing and new accounts, we will need to continue making significant investments in educating physicians, hospitals and patients in the advantages of the Genio system for the treatment of moderate to severe OSA.
Continuing to invest in developing clinical support.
Publication of clinical results by us can have a significant influence on whether the Genio system is used by physicians. We intend to continue investing in clinical studies on the Genio system. We are initially targeting markets in Europe, Australia and New Zealand where we have identified a country-specific reimbursement pathway or execution strategy. We obtained reimbursement coverage and began marketing in Germany in 2020 and recently obtained reimbursement coverage in Spain and Switzerland, where we expect to begin marketing in 2021.
Increasing physician adoption and acceptance of the Genio System
The growth of our business depends on our ability to gain broader acceptance of the Genio system by continuing to make physicians aware of the benefits of the Genio system in order to generate increased demand and frequency of use and, thus, increase sales to our customers. Our ability to grow our business will also depend on our ability to expand our customer base in existing and new target markets. To date, the Genio system is our only product on the market. The Genio system has not yet received marketing approval in the United States, however. Accordingly, our future financial performance will depend on the successful completion of our planned pivotal trial in the United States.
Securing additional coverage and reimbursement by third-party payors
The level of reimbursement from third-party payors for procedures performed using the Genio system could have a substantial impact on the prices we are able to charge for the Genio system and how widely
 
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it is accepted. In many countries, payment for the Genio system will be dependent on obtaining a reimbursement code or codes for the procedure and the Genio system. Obtaining a reimbursement code can be a lengthy process that varies from country to country. While there is general consensus among physicians and payors of the medical necessity to treat OSA and increase the number of hypoglossal nerve stimulation therapy coverage decisions, we continue to develop further clinical evidence demonstrating a long-term meaningful improvement in net health outcomes for patients meeting the specified criteria. We believe that establishing and maintaining reimbursement will be important in achieving broad acceptance of our system by healthcare providers in these markets. For our sales to grow, we will also need to receive FDA marketing authorization for the Genio system. We expect that the outcomes of the ongoing pivotal DREAM trial, if favorable, will support marketing approval and reimbursement in the United States.
Continuing to invest in innovation and growth
We continue to invest in, and innovate with respect to, our existing Genio system to further improve future generations, as well as clinical outcomes, enhance the patient and physician experience and broaden the patient population that can be treated. We are also investing in building our pipeline of new products through our partnership with Vanderbilt University to expand the current neurostimulation options to treat moderate to severe OSA. While developing new products and technologies can be time consuming and costly, we believe that a pipeline of new technologies and next generation products is important for supporting increased adoption of our products. In the short term, we expect these activities to increase our net losses, but in the longer term, we anticipate they will positively impact our business and results of operations.
Due to these and other factors and trends, we expect to experience meaningful variability in our financial performance for the foreseeable future, including, but not limited to: costs, benefits and timing of new product introductions; the availability and cost of components and raw materials; and fluctuations in foreign currency exchange rates. Additionally, we experience quarters in which operating expenses, in particular research and development expenses, fluctuate depending on the stage and timing of product development.
While these factors may 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.
Impact of COVID-19 Pandemic
Our business and the business of our development and manufacturing partners and suppliers have been and may in future be affected by pandemics, epidemics, or other health crises, including the ongoing outbreak of COVID-19. The ultimate impact of the COVID-19 outbreak or any similar health pandemic or epidemic is highly uncertain and subject to rapid change. COVID-19-related issues or measures may result in stoppages, interruptions, reductions or breaks in production activities, supply chain and support functions.
The outbreak of COVID-19 and its continued persistence has created an exceptional situation requiring exceptional measures. In response, we implemented governmental safety guidelines, including implementing work-from-home policies for our sales and administrative employees and staggered work times for our lab and manufacturing employees. To date, our Tel Aviv-based manufacturing facility has not experienced a stoppage of production activities and we have not experienced a noticeable delay or decrease in supply of components from our third-party suppliers due to the COVID-19 pandemic. Additionally, our support functions, including our research and development and quality assurance activities, have also continued, albeit at a reduced capacity. We have experienced and are continuing to experience slower than anticipated enrollment in our DREAM trial due to patient screening activities and elective surgeries having been reduced and, in some cases, put on hold in Europe, Australia and the United States. We also foresee challenges in training and proctoring new centers and their surgeons in the United States and Europe. Patients may be less willing to travel to these centers or their travel may be restricted, which could also impact our clinical and commercial activities.
While the ultimate overall economic impact caused by the COVID-19 pandemic may be difficult to assess or predict, it has resulted in significant disruption to the global financial markets. If these disruptions
 
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are sustained or recurrent, it may be difficult for us to access capital if and when we need it, which could negatively affect our ability to source required funding and could delay or prevent us from executing our strategy as planned.
Although we are monitoring developments related to the COVID-19 pandemic closely, the impact of COVID-19 on our business is uncertain at this time and will depend on future developments, which cannot be predicted, including new information which may emerge concerning the efficacy or side effects of vaccines and the speed of vaccination activities, the severity of COVID-19 and the actions taken to contain it or address its impact, among other things. Therefore, we do not yet know the full extent of the impact on our business, including our supply chains, our clinical studies and our access to the capital required to execute our business strategy.
Components of Our Results of Operations
Revenue
We currently derive all of our revenue from the sale of our proprietary Genio system, which we have started commercializing in Europe and, more specifically, in Germany. We sell the Genio system to both hospitals and distributors. Revenue from selling the Genio system is recognized at a point in time when control over the Genio system is transferred to the customer, which is in general at delivery at customer site or a predefined location in the country of the customer. The revenue from the Genio system may consist of individual products or a bundle of products in the form of a kit. The revenue is then recognized at an amount that reflects the consideration to which we expect to be entitled in exchange of the Genio system. In determining the transaction price for the sale of the Genio system, we consider the effects of variable consideration. We did not have any contracts with customers subject to IFRS 15 prior to 2020 and thus there is no impact of adopting IFRS 15. As of 2020, contracts with customers are accounted under IFRS 15.
Cost of Goods Sold
Cost of goods sold consists primarily of third-party manufacturing costs that we incur to obtain the components necessary to manufacture our Genio system. Direct costs from our third-party manufacturers includes costs for raw materials plus the mark-up for the assembly of the components. Cost of goods sold also includes allocated overhead for indirect labor, depreciation and information technology, certain direct costs such as those incurred for shipping our products, and personnel costs, including salary and share-based compensation.
Gross Profit and Gross Margin
We calculate gross profit as revenue less cost of goods sold, and gross margin as gross profit divided by revenue. Our gross margin has and will continue to be affected by a variety of factors, primarily average selling prices, production and ordering volumes, third-party manufacturing costs and cost-reduction strategies. We expect our gross profit to increase in the foreseeable future as our revenue grows. Our gross margin may increase over the long-term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units.
Operating Expenses
Research and Development Expenses (in aggregate)
Research and development expenses (in aggregate) includes the following components: research and development expenses, clinical expenses, manufacturing expenses, quality assurance and regulatory expenses and patent fees and related expenses.
Research and Development Expenses
Research and development expenses consist primarily of product development, engineering to develop and support our products, testing, consulting services and other costs associated with the next generation of the Genio system. We continue to invest in improving the Genio system to develop next generation products with improved features with respect to patient comfort, therapy efficacy, reliability and patient and market acceptance. These expenses primarily include employee compensation and outsourced
 
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development expenses. We expect research and development expenses to increase in the future as we develop the next generation of the Genio system and are investing in building a new product pipeline.
Clinical Expenses
Clinical expenses consist primarily of clinical studies related to the development of our Genio system, consulting services and other costs associated with clinical activities. These expenses include employee compensation, clinical trial management and monitoring, payments to clinical investigators, data management and travel expenses for our various clinical trials. We expect clinical expenses to increase in the future as we continue to enroll additional patients in EliSA and DREAM studies.
Manufacturing Expenses
Manufacturing expenses consist primarily of employee compensation, acquisition costs of the components of the Genio system as well as distribution-related expenses such as logistics and shipping costs or non-commercial units of the Genio system. We expect our manufacturing expenses to increase in the future as we will conduct more clinical studies and continue investing in R&D.
Quality Assurance and Regulatory Expenses
Quality assurance and regulatory expenses consist primarily of quality control, quality assurance and regulatory expenses for activities non-related to the production of commercial units of the Genio system. These expenses include employee compensation, consulting, testing, and travel expenses related to the QA/RA department. We expect our quality assurance and regulatory expenses to increase in the future as we continue increasing our R&D and manufacturing activities.
Patent Fees and Related Expenses
Patent fees and related expenses consist primarily of compensation for personnel, spending related to the protection of company’s intellectual property, prosecution costs and travel expenses. We expect our patent fees and related expenses to increase in the future as we believe our intellectual property portfolio will grow over time.
Selling, General and Administrative (in aggregate)
Selling, general and administrative expenses (in aggregate) includes the following components: general and administrative expenses, therapy development expenses and other operating income/expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, and stock-based compensation, related to our finance, information technology, legal and human resource functions, as well as professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and allocated facilities-related expenses. We expect that our general and administrative expenses will increase as we expand our headcount to support our growth and incur additional expenses related to operating as a dual listed public company, including director and officer insurance coverage, legal costs, accounting costs, costs related to exchange listing and costs related to U.S. Securities and Exchange Commission, or SEC, compliance and investor relations.
Therapy Development Expenses
Therapy development expenses consist primarily of compensation for personnel, spending related to direct sale force, market access and reimbursement activities. Other therapy development expenses include training physicians, travel expenses, conferences, market research, advertising and public relations. We expect our therapy development expenses to increase in the future as commercial activities will grow over time.
Other Operating Income/Expenses
Other operating income/expenses consist of the impact of the initial measurement and re-measurement of financial debt and the Australian R&D incentive subsidies receive by our subsidiary in Australia.
 
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Results of Operations
For the Three Months Ended March 31, 2020 and 2021
The following table summarizes our results of operations for the periods presented below:
Three Months Ended
March 31
Year-Over-Year
Change
(in Thousands)
2021
2020
Euro
Change
% Change
Revenue
185 185
Cost of goods sold
(52) (52)
Gross Profit
133 133
General and administrative expenses
(1,818) (1,178) (640) 54.3%
Research and development expenses
(852) (7) (845) *
Clinical expenses
(342) (177) (165) 93.2%
Manufacturing expenses
(901) (62) (839) *
Quality assurance and regulatory expenses
(325) (25) (300) *
Patents fees & related expenses
(674) (58) (616) *
Therapy development expenses
(548) (352) (196) 55.7%
Other operating income/(expenses)
4 (191) 195 (102.1)%
Operating loss for the period
(5,323) (2,050) (3,273) 159.7%
Financial income
4 19 (15) (78.9)%
Financial expense
(325) (336) (11) (3.3)%
Loss for the period before taxes
(5,644) (2,367) (3,277) 138.4%
Taxes
(25) (13) (12) 92.3%
Loss for the period
(5,669) (2,380) (3,289) 138.2%
*
Greater than 1,000%.
Revenue
Revenue was €185,000 for the three months ended March 31, 2021, compared to no revenue for the three months ended March 31, 2020. The increase in revenue was attributable to our commercialization of the Genio system in Europe, which began in July 2020.
Cost of Goods Sold
Cost of goods sold was €52,000 for the three months ended March 31, 2021, compared to no cost for the three months ended March 31, 2020. The increase in cost of goods sold was attributable to the sales of the Genio system in Europe, which began in July 2020.
Research and Development Expenses (in aggregate)
Research and development expenses (in aggregate) increased by €2.8 million from €329,000 for the three months ended March 31, 2020 to €3.1 million for the three months ended March 31, 2021 due to the factors discussed below with respect to each component of research and development expenses (in aggregate).
Research and Development Expenses.   Before capitalization of €311,000 for the three months ended March 31, 2020, research and development expenses increased by €0.5 million, or 168%, from €318,000 (or €7,000 after capitalization of  €311,000) for the three months ended March 31, 2020 to €0.9 million for the three months ended March 31, 2021, due to an increase in staff and consulting costs to support our R&D activities.
Clinical Expenses.    Before capitalization of €1.4 million for the three months ended March 31, 2021 and capitalization of €568,000 for the three months ended March 31, 2020, clinical expenses increased
 
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by €1.1 million, or 139%, from €0.7 million (or €177,000 after capitalization of €568,000) for the three months ended March 31, 2020 to €1.8 million for the three months ended March 31, 2021 (or €342,000 after capitalization of €1.4 million). The increase in the expenses was mainly due to an increase in staff and consulting to support the completion of the BETTER SLEEP trial implantations, continuous recruitment for the EliSA trial and the ongoing DREAM IDE trial in the United States.
Manufacturing Expenses.    Before capitalization of €215,000 for the three months ended March 31, 2021 and €578,000 for the three months ended March 31, 2020, manufacturing expenses increased by €0.5 million, or 74%, from €0.6 million (or €62,000 after capitalization of €578,000) for the three months ended March 31, 2020 to €1.1 million (or €901,000 after capitalization of €215,000) for the three months ended March 31, 2021. The increase was mainly due to an increase in staff, in the production and engineering team to support capacity and yield improvement, and in purchasing raw materials to support an increase in production.
Quality Assurance and Regulatory Expenses.    Before capitalization of €133,000 for the three months ended March 31, 2021 and €263,000 for the three months ended March 31, 2020, quality assurance and regulatory expenses increased by €170,000, or 59%, from €288,000 (or €25,000 after capitalization of €263,000) for the three months ended March 31, 2020 to €458,000 (or €325,000 after capitalization of €133,000) for the three months ended March 31, 2021. The increase was mainly due to an increase in staff and QA & regulatory activities to support the manufacturing scaling-up process.
Patent Fees & Related Expenses.   Before capitalization of €56,000 for the three months ended March 31, 2020, patent fees & related expenses increased by €560,000, or 491%, from €114,000 (or €58,000 after capitalization of  €56,000) for the three months ended March 31, 2020 to €0.7 million for the three months ended March 31, 2021 due to expenses related to the license agreement with Vanderbilt University.
Selling, General and Administrative Expenses (in aggregate)
Selling, general and administrative expenses (in aggregate) increased by €0.7 million, or 41%, from €1.7 million for the three months ended March 31, 2020 to €2.4 million for the three months ended March 31, 2021 due to the factors discussed below with respect to each component of selling, general and administrative expenses (in aggregate).
General and Administrative Expenses.   General and administrative expenses increased by €0.6 million, or 54%, from €1.2 million for the three months ended March 31, 2020 to €1.8 million for the three-months ended March 31, 2021 mainly due to an increase in consulting expenses. The increase in consulting and contractors’ fees includes variable compensations for an amount of  €253,000 for the three months ended March 31, 2020 and €498,000 for the three-months ended March 31, 2021 related to a cash-settled share based payment transaction.
Therapy Development Expenses.   Therapy development expenses increased by €196,000, or 56%, from €352,000 for the three months ended March 31, 2020 to €0.5 million for the three months ended March 31, 2021. The increase in the expenses was mainly due to an increase in staff and consulting to support the launch the commercialization of the Genio system in Europe.
Other Operating Income / (Expenses).   We had other operating expenses of €191,000 for the three months ended March 31, 2020 and operating income of €4,000 for the three months ended March 31, 2021. The change in expenses was mainly due to the impact of the initial measurement and re-measurement of the financial debt.
Operating Loss
The increase of operating loss from €2.1 million for the three months ended March 31, 2020 to €5.3 million for the three months ended March 31, 2021, or a change of €3.3 million, was due to increases of activities in all departments. We are currently conducting three clinical trials to continue gathering clinical data and obtain regulatory approvals. In June 2020, we obtained IDE approval to start the DREAM trial in the United States. In line with this strategy, we continue to invest in research and development to improve and develop the next generation of the Genio system and prepare for scaling-up of production capacities.
 
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For the Years Ended December 31, 2019 and 2020
The following table summarizes our results of operations for the periods presented below:
For the year ended
December 31
Year-Over-Year
Change
(in Thousands)
2020
2019
Euro Change
% Change
Revenue
69 69
Cost of goods sold
(30) (30)
Gross Profit
39 39
General and administrative expenses
(7,522) (4,226) (3,296) (78.0)%
Research and development expenses
(473) (630) 157 24.9%
Clinical expenses
(1,053) (848) (205) (24.2)%
Manufacturing expenses
(460) (489) 29 5.9%
Quality assurance and regulatory expenses
(227) (227)
Patents fees & related expenses
(123) (267) 144 53.9%
Therapy development expenses
(1,864) (902) (962) 106.7%
Other operating income/(expenses)
459 (126) 585 464.3%
Operating loss for the period
(11,224) (7,715) (3,509) (45.5)%
Financial income
62 71 (9) (12.7)%
Financial expense
(990) (740) (250) (33.8)%
Loss for the period before taxes
(12,152)
(8,384)
(3,768)
(44.9)%
Taxes
(93) (70) (23) (32.9)%
Loss for the period
(12,245) (8,454) (3,791) (44.8)%
Revenue
Revenue was €69,000 for the year ended December 31, 2020, compared to zero for the year ended December 31, 2019. The increase in revenue was attributable to our initial commercialization of the Genio system, which began in July 2020.
Cost of Goods Sold
Cost of goods sold was €30,000 for the year ended December 31, 2020, compared to zero for the year ended December 31, 2019. The increase in cost of goods sold was attributable to the initial sales of the Genio system, which began in July 2020.
Research and Development Expenses (in aggregate)
Research and development expenses (in aggregate) decreased by €125,000, or 5.1%, from €2.5 million in 2019 to €2.3 million in 2020 due to the factors discussed below with respect to each component of research and development expenses (in aggregate).
Research and Development Expenses.   Research and development expenses decreased by €0.2 million, or 24.9%, from €0.6 million in 2019 to €0.5 million in 2020 due to the increase of development costs of the Genio system of €0.7 million and a decrease of €0.8 million of capitalized costs.
Clinical Expenses.   Clinical expenses increased by €205,000, or 24.2%, from €0.9 million for the year ended December 31, 2019 to €1.1 million for the year ended December 31, 2020. The increase in clinical expense was mainly due to an increase of €0.9 million in staff and consulting to support the completion of the BETTER SLEEP trial implantations, for continued recruitment for the EliSA trial and for the launch of the DREAM trial in the United States. The costs related to these three clinical studies increased by €0.5 million and capitalized clinical costs decreased by €1.2 million.
Manufacturing Expenses.   Manufacturing expenses decreased by €29,000, or 5.9%, from €489,000 for the year ended December 31, 2019 to €460,000 for the year ended December 31, 2020. The decrease in
 
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manufacturing expenses was mainly due to a decrease of capitalized costs of €2.0 million offset by an increase of staff and production costs of €2.0 million as we hired additional staff in the production and engineering team to support capacity and yield improvement and we purchase more raw materials to support increase in the production.
Quality Assurance and Regulatory Expenses.   Quality assurance and regulatory expenses remained €227,000 for each of the years ended December 31, 2019 and 2020. Quality assurance and regulatory expenses are primarily comprised of costs related to staff and quality assurance and regulatory activities to support scaling up our manufacturing process.
Patent Fees & Related Expenses.   Patent fees and related expenses decreased by €144,000, or 54%, from €267,000 for the year ended December 31, 2019 to €123,000 for the year ended December 31, 2020. The decrease was primarily due to the outsourcing of patent–related activities.
Selling, General and Administrative Expenses (in aggregate)
Selling, general and administrative expenses (in aggregate) increased by €3.6 million, or 68%, from €5.3 million in 2019 to €8.9 million in 2020 due to the factors discussed below with respect to each component of selling, general and administrative expenses (in aggregate).
General and Administrative Expenses.   General and administrative expenses increased by €3.3 million, or 78%, from €4.2 million for the year ended December 31, 2019 to €7.5 million for the year ended December 31, 2020. The increase is due to consulting expenses, staff and legal fees to support our growth. The increase in consulting and contractors’ fees includes variable compensations for an amount of €2.0 million related to a cash-settled share based payment transaction. The increase of €159,000 in legal fees is due to services and not to any ongoing disputes.
Therapy Development Expenses.   Therapy development expenses increased by €1.0 million, or 106.7%, from €0.9 million for the year ended December 31, 2019 to €1.86 million for the year ended December 31, 2020. The increase was primarily due to an increase of €0.7 million in staff and consulting to support the commercialization in Europe.
Other Operating Income / (Expenses).   Other operating income increased by €0.6 million, or 464.3%, from an expense of €126,000 for the year ended December 31, 2019 to an income of €459,000 for the year ended December 31, 2020. The increase was primarily due to the increase of €0.6 million in R&D Incentive (Australia) to be received on development expenses incurred by the subsidiary in Australia.
Operating Loss
The increase of operating loss from €7.7 million in 2019 to €11.2 million 2020, or a change of €3.5 million, was due to increases of activities in all departments. We are currently conducting three clinical trials to continue gathering clinical data and obtain regulatory approvals. In June 2020, we obtained IDE approval to start the DREAM trial in the United States. In line with its strategy, we continue to invest in research and development to improve and develop the next generation of the Genio system and prepare for scaling-up of production capacities.
Liquidity and Capital Resources
To date, our primary sources of capital have been private placements and public offerings of our common stock and debt financing agreements. Since inception, we have raised equity financing of €165.4 million. In September 2020, we raised €84.8 million as a result of the initial public offering of new shares on the Euronext. All of our shares were admitted to trading on the regulated market of Euronext Brussels under the symbol “NYXH”. As of March 31, 2021, we had cash and cash equivalents of €86.2 million and an accumulated deficit of €66.0 million.
Short-Term and Long-Term Obligations
Grants and Subsidies from the Walloon Region
We have been granted several recoverable cash advances by the Walloon Region since our incorporation in 2009. The recoverable cash advances are dedicated to funding specific research and development programs. The funding covers between 55% to 60% of the budgeted costs of the specified programs and
 
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bear interest at one-year Euribor + 100bp. All recoverable cash advances consist of two phases, the “research phase” and the “exploitation phase”.
During the research phase, we receive funds from the Walloon Region based on statements of expenses. At the end of the research phase, we are required to decide within six months whether or not to exploit the results of any given research program. If we decide not to exploit the results of a program, we have to transfer to the Walloon Region all real rights with respect to the results, and the cash advance does not have to be reimbursed. If we decide to exploit the results of a program funded by a recoverable cash advances, the relevant recoverable cash advance becomes refundable during the exploitation phase. The exploitation phase starts once a decision is made and has a maximum duration period determined in the relevant contract or addendum to the relevant contract (until 2037 or 2038).
The repayment of the recoverable cash advances to the Walloon Region consists of two elements:

fixed repayments paid in annual amounts throughout the duration of the exploitation phase and representing in aggregate 30% of the principal amount; and

turnover-dependent reimbursements paid as a percentage of sales of the principal amount of the recoverable cash advance depending on the actual outcome of the sales.
Total repayment is, in the aggregate (including the accrued interest), capped at two times the nominal amount.
We have contracted the following recoverable cash advances with the Walloon Region:
(in Thousands)
Contractual
Advances
Advances
received
Amounts
reimbursed
Total 7,627 7,627 519
In addition to these recoverable cash advances, we have also received several grants from the Walloon Region totaling €1.0 million, related to first requests for patents and territorial extension. The grants partially cover the expenses related to the follow-up actions to be taken after a patent request. In principle, the grants do not have to be reimbursed unless the conditions set out in the contracts related to the exploitation of the patent are not complied with.
Funding Requirements
We use our cash to fund our operations, which primarily include the cost of manufacturing our Genio system, as well operating expenses and related personnel costs. We expect research and development expenses to increase for the foreseeable future as we continue to hire personnel and invest in next-generation innovations of the Genio system and related products. In addition, we expect our general and administrative expenses to increase for the foreseeable future as we hire personnel and expand our infrastructure to both drive and support the anticipated growth in our organization. We will also incur additional expenses as a result of operating as a dual listed public company and also expect to increase the size of our administrative function to support the growth of our business. The timing and amount of our operating expenditures will depend on many factors, including:

acceptance of our therapy by patients, physicians, government payers, private payers, and the market generally;

the scope, rate of progress and cost of current or future clinical studies;

the cost of research and development activities;

the cost associated with any complications or side effects related to the use of the Genio system;

the cost of filing and prosecuting patent applications and other intellectual property rights and defending and enforcing our patents or other intellectual property rights in various jurisdictions;

the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights;

the cost and timing of additional regulatory clearances or approvals;

the cost and timing of establishing additional sales and marketing capabilities;
 
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costs associated with any product recall that may occur;

the effect of competing technological and market developments;

the extent to which we acquires or invests in products, technologies and businesses; and

the costs of operating as a dual listed public company.
As of March 31, 2021, we had cash and cash equivalents of €86.2 million. Based on our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to meet our capital requirements and fund our operations through 2024. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Without taking into account the net proceeds we expect to receive from this offering, we believe that our existing cash and cash equivalents will be sufficient to meet our capital requirements and fund our operations for the next twelve months. We may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these or other funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities, our shareholders will suffer dilution and the terms of any financing may adversely affect the rights of our shareholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing shareholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.
Cash Flows
The table below summarizes our cash flows information for the three months ended March 31, 2020 and 2021.
For the three months ended
March 31
(in Thousands)
2021
2020
Net cash used in operating activities
(4,159) (1,197)
Net cash used in investing activities
(1,775) (1,777)
Net cash used in / generated from financing activities
(104) 24,838
Movement in cash and cash equivalents