Microbot Medical(MBOT) - 2019 Q4 - Annual Report

PART I Business Microbot Medical Inc. develops micro-robotic endoluminal surgery devices, focusing on SCS for hydrocephalus and Liberty for endovascular procedures Company Overview Microbot is a pre-clinical medical device company focused on developing robotic endoluminal surgery devices, including SCS and Liberty systems - Microbot is a pre-clinical medical device company specializing in the research, design, and development of next-generation robotic endoluminal surgery devices[18] - The company's main product development efforts are focused on the Self Cleaning Shunt (SCS) for hydrocephalus and the Liberty™ system, a fully disposable robot for endovascular procedures[19] - The company's intellectual property portfolio consists of 37 issued/allowed patents and 15 pending patent applications worldwide[20] Technological Platforms The company's technology is built on four main platforms: ViRob, TipCAT, CardioSert, and Liberty, integrating acquired and developed systems for endoluminal procedures - ViRob is an autonomous crawling micro-robot designed to navigate within human body spaces like blood vessels and is the basis for the SCS product[23] - TipCAT is a self-propelled locomotive device using interconnected balloons for forward motion in tubular anatomies, designed to reduce lumen damage[25] - CardioSert technology, acquired in May 2018, features a guidewire delivery system with controllable tip curvature and stiffness, initially for cardiology but with potential in neurosurgery[26] - Liberty, unveiled in January 2020, is a compact, fully disposable robotic system for endovascular procedures, designed to be operated remotely and reduce radiation exposure for physicians[28] Product Pipeline The company's pipeline is led by the Self-Cleaning Shunt (SCS) for hydrocephalus and the Liberty robotic system for endovascular interventions - The Self-Cleaning Shunt (SCS) is designed to be a universal ventricular catheter component that uses an internal robotic mechanism to prevent blockages in CSF shunts[47][48] - Pre-clinical in-vitro studies for the SCS have shown its potential to prevent shunt occlusion, and follow-up studies are underway to validate safety and efficacy for regulatory submissions[50][51][52] - The Liberty robotic system is a fully disposable, compact system for endovascular procedures, designed to reduce capital equipment needs and improve operator safety, featuring a 'One & Done' tool combining a guidewire and microcatheter[58] - The company plans to commence animal trials for the Liberty device as early as Q1 2021, with a potential FDA submission in Q4 2021[59] Competition Microbot faces competition for its SCS device from Anuncia Inc. and Aqueduct Neurosciences, and for its Liberty system from Corindus Vascular Robotics and others - The SCS device faces potential direct competition from Anuncia Inc.'s Alivio ReFlow™ Ventricular System and non-direct competition from Aqueduct Neurosciences' non-shunt technology[67] - The primary competitor for the Liberty robotic system is the CorPath GRX system from Corindus Vascular Robotics (Siemens); other competitors include Robocath and Hansen Medical (J&J)[71] - The company believes existing robotic systems have drawbacks such as being cumbersome, requiring significant capital expenditure, and having limited maneuverability, which Liberty aims to address[71] Intellectual Property The company's intellectual property strategy relies on licensed technology, internal development, patents, and trade secrets, with 37 issued/allowed patents and 15 pending applications - The company holds an IP portfolio of 37 issued/allowed patents and 15 pending applications worldwide[74] - The SCS and TipCAT technologies are exclusively licensed from TRDF, requiring meeting development milestones, including commencing first-in-human clinical trials by December 2021, to avoid termination[81] - Under the TRDF agreement, Microbot is obligated to pay royalties of 1.5% to 3.0% on net sales of licensed products[82] - The company's issued U.S. patents covering its product candidates will expire between 2026 and 2033[80] Research and Development Research and development is a primary focus, with expenses increasing to $3.0 million in 2019 from $2.5 million in 2018, supported by Israeli Innovation Authority grants Research and Development Expenses | Expense Category | 2019 | 2018 | | :--- | :--- | :--- | | Research and Development | $3,048,000 | $2,515,000 | - The company has received approximately $1.5 million in grants from the Israeli Innovation Authority (IIA) through December 31, 2019. These grants are repayable via royalties of 3%-3.5% on future sales[86] - The company has submitted existing SCS animal trial data to the FDA in a pre-submission meeting to seek an Early Feasibility Study (EFS), with a goal to commence controlled human trials under an EFS as early as Q3 2022[94] Government Regulation Microbot's products are subject to extensive regulation by the FDA in the U.S. and similar authorities abroad, with expected classification as Class II medical devices - Products are subject to extensive regulation by the U.S. Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FDCA)[103] - The company expects its products to be classified as Class II devices, requiring either a 510(k) premarket notification or a de novo clearance from the FDA before commercial distribution[109] - For commercialization in Europe, a CE Mark certificate is required, which verifies compliance with the Medical Device Regulation (MDR 2017/745)[130] - In Israel, medical devices must be registered with the Ministry of Health (MOH) through its AMAR department, a process that is expedited if the device has approval from a 'recognized' country like the U.S. or E.U[131][132] Risk Factors The company faces significant risks, including operating losses, need for additional capital, COVID-19 disruptions, development and regulatory hurdles, and intellectual property challenges Risks Relating to Financial Position and Need for Additional Capital Microbot is a development-stage company with no revenue and a history of significant operating losses, requiring additional funding to support its development programs - The company has incurred significant operating losses since inception, generates no revenue, and may never achieve or sustain profitability[140][141] - Additional funding will be needed to continue operations, and an inability to raise capital on attractive terms could force the company to delay, reduce, or eliminate product development or commercialization[145][146] - The COVID-19 pandemic may cause significant disruptions to clinical trials, patient enrollment, and supply chains, which could materially adversely affect the business[151][152][153] Risks Relating to the Development and Commercialization of Product Candidates The company's success is heavily dependent on its lead candidates, SCS and Liberty, facing risks from inconclusive trials, regulatory hurdles, competition, and reliance on third-party manufacturers - Interim data from the SCS animal trial was inconclusive for assessing safety, leading the company to seek an Early Feasibility Study (EFS) from the FDA, which may not be granted[154][156] - The FDA may not agree with the company's classification of the SCS as a Class II device, potentially requiring a more burdensome De Novo or PMA submission process, which would increase costs and delay commercialization[166][167] - The acquired CardioSert technology is subject to a buy-back clause if commercialization deadlines (starting January 2021) are not met, which could jeopardize the Liberty device development[171][172] - The company relies on third-party manufacturers, which entails risks related to supply availability, quality control, and potential termination of agreements[181] Risks Relating to Intellectual Property The company's rights to develop SCS and TipCAT depend on a TRDF license, which can be terminated if development milestones are not met, alongside risks of litigation and patent protection challenges - The license for SCS and TipCAT technologies from TRDF requires meeting development milestones, including commencing first-in-human clinical trials by December 2021, to avoid termination of the license[213] - The medical device industry is characterized by extensive intellectual property litigation, which could lead to significant expenses and prevent the sale of products[219] - The company's success depends on its ability to obtain and maintain patent protection and trade secrets for its technologies, which is a lengthy and costly process with no guarantee of success[220][221] Risks Relating to Operations in Israel Microbot's operations in Israel expose it to regional instability, foreign currency exchange risk, restrictions from government grants, and employee military reserve duty obligations - Political, economic, and military conditions in Israel, where the company has facilities and key personnel, could directly and adversely affect operations[227] - A significant portion of expenses are in New Israeli Shekels (NIS), exposing the company to foreign currency exchange rate fluctuations against the U.S. dollar[230] - Funding from the Israeli Innovation Authority (approx. $1.5 million through 2019) comes with restrictions on transferring technology or manufacturing outside Israel and requires royalty payments on future sales[234][235] Properties Microbot does not own real property, with its principal executive office in Hingham, Massachusetts, and leased facility space in Yokneam, Israel - The company's principal executive office is at 25 Recreation Drive, Unit 108, Hingham, MA 02043[246] - The company leases approximately 6,975 square feet of facility space in Yokneam, Israel[246] Legal Proceedings The company is involved in significant litigation, including a $3.7 million payment for a rescinded 2017 financing, a new $6.75 million lawsuit from other investors, and a short-swing profit lawsuit with a counterclaim - Following a lost appeal, the company paid approx. $3.7 million to Sabby entities to rescind their participation in a June 2017 financing[248] - The company is now being sued by other investors from the same 2017 financing (Empery and Hudson Bay) who are seeking the return of their $6.75 million purchase price[248] - The company has sued Alliance Investment Management to disgorge approx. $480,000 in alleged short-swing profits, which has led to a counterclaim against Microbot by Joseph Mona[249][253] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'MBOT' with approximately 150 record holders, no history of cash dividends, and details on equity compensation plans - The company's common stock trades on the NASDAQ Capital Market under the symbol 'MBOT'[259] - As of April 9, 2020, there were approximately 150 holders of record of the common stock[260] - The company has never paid cash dividends and does not plan to in the foreseeable future[261] Securities Available for Issuance Under Equity Compensation Plans | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 230,972 | $13.4 | 252,357 | | Equity compensation plans not approved by security holders | 140,388 | $2.3 (calculated) | - | | Total | 371,360 | | 252,357 | Management's Discussion and Analysis of Financial Condition and Results of Operations Microbot, a pre-clinical medical device company, reported a net loss of $7.2 million in 2019, with increased R&D expenses and decreased G&A expenses, and a working capital of $31.1 million Results of Operations For the year ended December 31, 2019, research and development expenses increased by $533,000 to $3.05 million, while general and administrative expenses decreased by $537,000 to $4.19 million Operating Expenses Summary | (in thousands) | 2019 | 2018 | Increase/(Decrease) | | :--- | :--- | :--- | :--- | | Research and development expenses | $3,048 | $2,515 | $533 | | General and administrative expenses | $4,192 | $4,729 | $(537) | | Financing (income) expenses, net | $103 | $16 | $87 | | Capital (Gain) Loss | $(96) | $- | $(96) | - The increase in R&D expenses in 2019 was primarily due to an increase in materials and professional services[288] - The decrease in G&A expenses in 2019 was primarily due to lower share-based compensation and public relations costs[289] Liquidity and Capital Resources As of December 31, 2019, Microbot had working capital of approximately $31.1 million, believing it sufficient for at least 24 months, though pending litigation could impact this - As of December 31, 2019, the company had net working capital of approximately $31,110,000[292] - The company believes its cash will be sufficient to fund operations for at least 24 months, but notes that losing the pending litigation for $6.75 million could reduce this period[295] Cash Flow Summary | (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,451) | $(5,310) | | Net cash used in investing activities | $(2,453) | $(223) | | Net cash from financing activities | $36,770 | $(18) | | Net increase (decrease) in cash | $27,866 | $(5,551) | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate sensitivity on cash and foreign exchange rate fluctuations due to expenses in non-U.S. dollar currencies - The company's primary market risk is interest income sensitivity on its cash and cash equivalents, but due to their short-term nature, the impact of rate changes is expected to be minimal[301] - The company is exposed to foreign exchange risk as a significant portion of its operating expenses are payable in currencies other than the U.S. dollar[302] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes in the last fiscal quarter - Management concluded that as of December 31, 2019, the company's disclosure controls and procedures were effective[307] - Management concluded that as of December 31, 2019, the company's internal control over financial reporting was effective[308] - There were no changes in internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[310] PART III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 Proxy Statement - The information required by this item is incorporated by reference from the company's 2020 Proxy Statement[313] Executive Compensation Information regarding director and executive compensation is incorporated by reference from the company's 2020 Proxy Statement - The information required by this item is incorporated by reference from the company's 2020 Proxy Statement[315] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's 2020 Proxy Statement - The information required by this item is incorporated by reference from the company's 2020 Proxy Statement[316] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2020 Proxy Statement, listing independent board members - The information required by this item is incorporated by reference from the company's 2020 Proxy Statement[317] - The independent directors are listed as Messrs. Waizer, Bornstein, Burell, Madden and Laxminarain, and Ms. Aileen Stockburger[319] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2020 Proxy Statement - The information required by this item is incorporated by reference from the company's 2020 Proxy Statement[320] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents and material contracts - This item lists the financial statements and exhibits filed as part of the Form 10-K[322] Financial Statements Consolidated Balance Sheets As of December 31, 2019, total assets increased to $37.1 million from $6.1 million in 2018, driven by a rise in cash and cash equivalents, with stockholders' equity increasing to $31.5 million Balance Sheet Highlights | (U.S. dollars in thousands) | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total current assets | $35,936 | $5,831 | | Total assets | $37,126 | $6,090 | | Total current liabilities | $4,826 | $4,760 | | Total liabilities | $5,586 | $4,760 | | Total stockholders' equity | $31,540 | $1,330 | | Total liabilities and stockholders' equity | $37,126 | $6,090 | Consolidated Statements of Operations For the year ended December 31, 2019, the company reported a net loss of $7.247 million, nearly identical to 2018, with a basic and diluted net loss per share of $1.70 Statements of Operations Summary | (U.S. dollars in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Research and development | $3,048 | $2,515 | | General and administrative | $4,192 | $4,729 | | Operating loss | $(7,240) | $(7,244) | | Net loss | $(7,247) | $(7,260) | | Basic and diluted net loss per share | $(1.70) | $(2.41) | Consolidated Statements of Cash Flows For the year ended December 31, 2019, net cash used in operating activities was $6.5 million, while net cash provided by financing activities was $36.8 million, resulting in a $27.9 million increase in cash Cash Flow Activities | (U.S. dollars in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,451) | $(5,310) | | Net cash used in investing activities | $(2,453) | $(223) | | Net cash from financing activities | $36,770 | $(18) | | Increase (decrease) in cash, cash equivalents and restricted cash | $27,866 | $(5,551) | | Cash, cash equivalents and restricted cash at end of period | $33,129 | $5,263 | Notes to Consolidated Financial Statements The notes detail accounting policies, business risks, and financial line items, including the company's pre-revenue status, government grant obligations, significant litigation, and 2019 equity offerings - The company has not generated revenues and management believes its cash balance of $28.7 million as of Dec 31, 2019 is sufficient to fund operations for more than 12 months (Note 1)[361] - The company is obligated to pay royalties of 3%-3.5% on future sales up to the grant amount of approx. $1.5 million received from the Israeli Innovation Authority (IIA) (Note 8)[418] - The company is a defendant in a lawsuit seeking the return of a $6.75 million investment from a 2017 financing, following a prior adverse judgment that resulted in a payment of approx. $3.7 million to another investor from the same financing (Note 8)[428] - In 2019, the company raised gross proceeds of approximately $28 million through multiple registered direct offerings of common stock and warrants (Note 9)[445][446][447][448][449][450]