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WASHINGTON, DC 20549

 

x	Registration Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

 

or

 

¨	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended __________

 

or

 

¨	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

or

 

¨	Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of event requiring this shell company report: __________ For the transition period from ________ to _______________

 

Commission file no.:

 

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class: American Depository Shares each representing 2 Ordinary Shares, par value NIS 0.01 per share (1) Ordinary shares, par value NIS 0.01 per share (2)

Name of each exchange on which registered or to be registered: NASDAQ Capital Market

 

(2)	Not for trading, but only in connection with the listing of the American Depositary Shares.

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Exchange Act:  None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act:  None

 

Large accelerated filer  o

Accelerated filer  o

Non-accelerated filer  x

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

¨ Yes    o No

 

 

 

We were incorporated under the laws of the State of Israel on September 12, 2000.  Our ordinary shares are listed on the Tel Aviv Stock Exchange, or TASE, under the symbol “MZOR”.  We are filing this registration statement on Form 20-F in anticipation of the listing of our American Depositary Shares, or ADSs, on the NASDAQ Capital Market. The Bank of New York Mellon, acting as depositary, will register and deliver our ADSs, each of which will represent 5 of our ordinary shares. Currently there is no market for our ADSs or ordinary shares in the United States.

 

Unless the context otherwise indicates or requires, “Mazor Robotics”, “Mazor,” the Mazor Robotics logo and all product names and trade names used by us in this registration statement, including Renaissance™ , are our proprietary trademarks and service marks. These trademarks and service marks are important to our business. Although we have omitted the “®” and “TM” trademark designations for such marks in this registration statement, all rights to such trademarks and service marks are nevertheless reserved.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included or incorporated by reference in this registration statement on Form 20-F may be deemed to be “forward-looking statements”. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.

 

These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition,  statements relating to the research, development and use of our products,  and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.

 

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

 

 

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:

 

·

the overall global economic environment;

 

·

the impact of competition and new technologies;

 

·

general market, political and economic conditions in the countries in which we operate;

 

PART I

 

ITEM 1.               IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

A.	Directors and Senior Management

 

The following table lists the current members of our board of directors and our executive officers. The address for our directors and officers is c/o Mazor Robotics Ltd., 7 Haeshel St., Caesarea Industrial Park South, 38900, Israel.

 

Name	Position
Jonathan Adereth	Chairman of the Board of Directors
Ori Hadomi	Chief Executive Officer, Director
Gil Bianco	External Director
David Schlachet	External Director
Sarit Soccary Ben-Yochanan	Director
Sharon Levita	Chief Financial Officer, Secretary
Moshe Shoham	Chief Technology Officer
Eliyahu Zehavi	Chief Operating Officer
Avi Posen	Vice President of Sales, International
Doron Dinstein	Chief Medical Officer
Christopher Sells	Vice President of Sales, United States
Christopher Prentice	Vice President of Marketing

For further details, see “Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management.”

B.

Advisers

 

Our principal legal advisers are Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, located at 1633 Broadway, 32 nd Floor, New York, NY 10019; and CBLS Law Offices, located at 5 Azrieli Center, Square Tower, Tel Aviv 67025, Israel.

 

C.

Auditors

 

Somekh Chaikin, Certified Public Accountants (Israel), a member of KPMG International, or KPMG, audited our consolidated financial statements for the fiscal years ended December 31, 2012, 2011 and 2010. The address of KPMG is 7 Nahum Het Street, Haifa 31905, Israel.

 

ITEM 2.               OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

 

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ITEM 3.               KEY INFORMATION

 

A.	Selected Financial Data

 

The selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements and notes thereto. The selected consolidated statement of operations data for fiscal years 2012, 2011 and 2010, and the selected consolidated balance sheet data at December 31, 2012 and 2011, have been derived from our audited consolidated financial statements and notes thereto set forth elsewhere in this Form 20-F. The selected consolidated statement of operations data for fiscal year 2009, and the selected consolidated balance sheet data at December 31, 2010 have been derived from other audited consolidated financial statements not included herein. The selected consolidated statement of operations data for fiscal year 2008, and the selected consolidated balance sheet data at December 31, 2009 and 2008 have been derived from other unaudited consolidated financial statements not included herein. The selected financial data should be read in conjunction with our consolidated financial statements, and are qualified entirely by reference to such consolidated financial statements.   Additionally, and as explained in Note 2B to the December 31, 2012 consolidated financial statements, the Company determined that its functional currency had changed in September 2012 from New Israeli Shekels to U.S. dollars.

 

(in thousands except net loss per share data)		Years Ended December 31,
		2012				2011				2010				2009				2008
Statements of Operations Data
Revenue		$	12,175			$	5,904			$	3,973			$	1,363			$	584
Cost of sales		$	2,893			$	1,879			$	961			$	473			$	438
Gross profit (loss)			9,282				4,025				3,012				890				146
Operating costs and expenses:
Research and development		$	2,760			$	3,062			$	2,292			$	1,382			$	1,936
Selling and marketing		$	8,887			$	6,990			$	4,592			$	2,461			$	2,615
General and administrative		$	1,845			$	1,639			$	1,424			$	1,184			$	1,456
Total operating costs and expenses		$	13,492			$	11,691			$	8,308			$	5,027			$	6,007
Loss from operations		$	(4,210	)		$	(7,666	)		$	(5,296	)		$	(4,137	)		$	(5,861	)
Net loss		$	(7,064	)		$	(7,782	)		$	(5,773	)		$	(4,340	)		$	(5,531	)
Net loss attributable to ordinary shareholders		$	(7,064	)		$	(7,782	)		$	(5,773	)		$	(4,340	)		$	(5,531	)
Net loss per share – Basic and diluted attributable to ordinary shareholders		$	(0.29	)		$	(0.36	)		$	(0.29	)		$	(0.28	)		$	(0.39	)
Weighted average common  shares outstanding – Basic and diluted			24,011				21,815				19,717				15,280				14,153

 

(in thousands)		As of December 31,
		2012				2011				2010				2009				2008
Balance Sheet Data:
Cash and cash equivalents		$	12,797			$	1,655			$	4,802			$	3,537			$	1,108
Short-term investments		$	4,156			$	14,455			$	13,335			$	18,419			$	13,201
Total assets		$	21,344			$	20,424			$	21,773			$	23,936			$	15,688
Total non-current liabilities		$	4,490			$	616			$	4,233			$	3,573			$	3,147
Accumulated deficit		$	(52,006	)		$	(44,942	)		$	(37,160	)		$	(31,387	)		$	(27,047	)
Total shareholders’ equity		$	12,820			$	13,484			$	15,145			$	19,350			$	11,678

 

 

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B.	Capitalization and Indebtedness

 

The following table sets forth our capitalization as of December 31, 2012. You should read this information together with our financial statements and the related notes and with “Item 5. Operating and Financial Review and Prospects” appearing elsewhere in this registration statement.

 

		As of December 31, 2012
		(in thousands)
Liabilities
Liabilities to the OCS		$	832
Derivative liabilities on account of warrants		$	3,990
Shareholders' equity:
Share capital		$	73
Share premium		$	58,910
Amounts allocated to share options		$	554
Capital reserve for share-based payment transactions		$	3,170
Foreign currency translation reserve		$	2,119
Accumulated loss		$	(52,006	)
Total shareholder's equity		$	12,820
Total capitalization (debt and equity)		$	17,642

 

C.	Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.	Risk Factors

 

You should carefully consider the risks described below, together with all of the other information in this Form 20-F. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer and the price of our shares could decline.

 

 

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Risks Related to Our Business

 

We are a medical device company with a limited operating history, and we have incurred significant losses since our inception.

 

We are a medical device company with a limited operating history. The future success of our business depends on our ability to continue to develop and obtain regulatory clearances or approvals for innovative and commercially successful products in our field, which we may be unable to do in a timely manner, or at all. Our success and ability to generate revenue or be profitable also depends on our ability to establish our sales and marketing force, generate product sales and control costs, all of which we may be unable to do. Our lack of any significant operating history also limits your ability to make a comparative evaluation of us, our products and our prospects.

 

We have sustained net losses in every fiscal year since our inception in 2000, including a net loss of $7.1 million for the year ended December 31, 2012. As of December 31, 2012, we had total shareholders’ equity of $12.8 million and cash and cash equivalents and short term investment of approximately $17 million. We anticipate that we will continue to incur substantial net losses for at least the next two years as we expand our sales and marketing capabilities in the spine and neurosurgery products market, continue our commercialization of our Renaissance system, expand its adoption and clinical implementation, and continue to develop the corporate infrastructure required to sell and market our products. Our losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital. Any failure to achieve and maintain profitability would continue to have an adverse effect on our shareholders’ equity and working capital and could result in a decline in our share price or cause us to cease operations.

 

We cannot ensure investors that our existing cash and short-term investment balances will be sufficient to meet our future capital requirements.

 

We believe our existing cash, cash equivalents, short-term investment balances, and interest income we earn on these balances, if any, will be sufficient to meet our anticipated cash requirements through at least the next twelve months. To the extent our available cash, cash equivalents and short-term investment balances are insufficient to satisfy our operating requirements, we will need to seek additional sources of funds, including selling additional equity or debt securities or entering into a credit facility, or modifying our current business plan. Given the continued weak economic conditions, we may be unable to obtain additional financing. As a result, we may be required to reduce the scope of, or delay or eliminate, some or all of our current and planned research, development and commercialization activities. We also may have to reduce marketing, customer service or other resources devoted to our products. Any of these factors could materially harm our business and results of operations. Even if we are able to continue to finance our business, the sale of additional equity and debt securities may result in dilution to our current shareholders or may require us to grant a security interest in our assets. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our ordinary shares and could contain covenants that could restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, or at all.

 

We depend on the success of a limited portfolio of products for our revenue, which could impair our ability to achieve profitability.

 

We expect to derive most of our revenue from capital sales of our flagship Renaissance Surgical Guidance System and its future applications, recurring sales of disposable products required to use Renaissance in each surgical procedure, and service plans that are sold with the Renaissance system. Our future growth and success is dependent on the successful commercialization of the Renaissance system.  If we are unable to achieve increased commercial acceptance of Renaissance, obtain regulatory clearances or approvals for future products, or experience a decrease in the utilization of our product line or procedure volume, our revenue would be adversely affected and we would not become profitable. If certain economic, industry or regulatory events or changes occur, we may have to write-off inventory as obsolete, which could negatively impact our business and revenue.

 

 

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If surgeons and hospitals do not broadly adopt the concept of computer assisted spine surgeries and do not perceive such technology and related products as valuable and having significant advantages over the current “freehand” standard-of-care procedures, patients will be less likely to accept or be offered surgery with Renaissance, and we will fail to meet our business objectives.

 

Surgeons’ and hospitals’ perceptions of such technology having significant advantages are likely to be based on a determination that, among other factors, our products are safe, reliable, cost-effective and represent acceptable methods of treatment. Even if we can prove the clinical value of Renaissance through continued clinical use, surgeons may elect not to use our current and future Renaissance solutions for any number of other reasons. For example, surgeons may continue to operate freehand simply because such surgeries are already widely accepted. In addition, surgeons may be slow to adopt our current and future Renaissance solutions because of the perceived liability risks arising from the use of new products. Surgeons may not accept our current and future Renaissance solutions if we fail to maintain an acceptable level of product reliability or if we encounter regulatory approval or compliance issues. Hospitals may not accept Renaissance because of the capital expense, representing a significant portion of a hospital’s capital budget. Renaissance may not be cost-efficient if hospitals are not able to perform a significant volume of procedures using it.

 

If our current and future Renaissance solutions fail to achieve increased market acceptance for any of these or other reasons or if we are not successful in enforcing the contractual commitment to purchase disposable products exclusively from us, we will not be able to generate the revenue necessary to develop a sustainable, profitable business.

 

We have only limited clinical data to support the value of Renaissance, which may make patients, surgeons and hospitals reluctant to accept or purchase our products.

 

We believe that patients, surgeons and hospitals will only accept and/or purchase our products if they believe that Renaissance is a safe and effective procedure with advantages over competing products and conventional freehand procedures. To date, we have collected only limited clinical data with which to assess Renaissance’s clinical value.  From 2005 to date, over 4,000 SpineAssist (our predecessor to Renaissance) and Renaissance procedures have been performed. As Renaissance is based on the same core technology as SpineAssist, we believe that the performance is equivalent and the clinical results, such as accuracy studies of SpineAssist, are analogous to both systems.   Empirical performance experience and preliminary independent studies have verified this assumption.

 

If future publications of clinical studies indicate that surgery with Renaissance is a less safe or less effective procedure than freehand surgeries or other computer-assisted options, patients may choose not to undergo, and surgeons may choose not to use, Renaissance. Furthermore, unsatisfactory patient outcomes or patient injury could cause negative publicity for our products, particularly in the early phases of product introduction. The FDA could also rescind our marketing clearances if future results and experience indicate that our products cause unexpected or serious complications or other unforeseen negative effects. See “Risks Related to Regulatory Compliance.”

 

Adverse changes in economic conditions and reduced spending on innovative medical technology may adversely impact our business.

 

The purchase of a Renaissance surgical guidance system is discretionary and requires our customers to make significant initial commitments of capital and other resources. In addition, purchase of a Renaissance system requires a commitment to purchase exclusively from us other products and services, including our single-use disposable components. Continuing weak economic conditions or a reduction in healthcare technology spending even if economic conditions improve, could adversely impact our business, operating results and financial condition in a number of ways, including longer sales cycles, lower prices for our products and services, and reduced unit sales.

 

 

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Current credit and financial market conditions could delay or prevent our customers from obtaining financing to purchase or lease a Renaissance system, which would adversely affect our business, financial condition and results of operations.

 

Due to the continued tightening of credit markets in the recent past and concerns regarding the availability of credit, both domestically and abroad, our customers and overseas distributors may be delayed in obtaining, or may not be able to obtain, necessary financing for their purchases or leases of the Renaissance system. These delays may in some instances lead to our customers or overseas distributors postponing the shipment and installation of previously ordered systems, cancelling their system orders, or cancelling their agreements with us. An increase in delays and order cancellations of this nature could adversely affect our product sales and revenues and, therefore, harm our business and results of operations.

 

Negative worldwide economic conditions and the long lead times required by certain suppliers could prevent us from accurately forecasting demand for our products, which could adversely affect our operating results.

 

The continued negative worldwide economic conditions and market instability makes it increasingly difficult for us, our customers, our overseas distributors and our suppliers to accurately forecast future product demand trends, which could cause us to order and/or produce excess products that can increase our inventory carrying costs and result in obsolete inventory. Alternatively, this forecasting difficulty could cause a shortage of products, or materials used in our products, that could result in an inability to satisfy demand for our products and a resulting material loss of potential revenue.

 

In addition, certain of our suppliers may require extensive advance notice of our requirements in order to produce products in the quantities we desire. This long lead time may require us to place orders far in advance of the time when certain products will be offered for sale, thereby also making it difficult for us to accurately forecast demand for our products, exposing us to risks relating to shifts in consumer demand and trends and adversely affecting our operating results.

 

 Because of the numerous risks and uncertainties associated with the development of medical devices, including future versions of the Renaissance system, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of our products and successfully deliver commercial products to the market.

 

Our future capital requirements will depend on many factors, including but not limited to the following:

 

·

the revenue generated by sales of our current and future products;

 

·

our ability to manage our inventory;

 

·

the expenses we incur in selling and marketing our products and supporting our growth;

 

·

the costs and timing of regulatory clearance or approvals for new products or upgrades or changes to our current products;

 

·

the rate of progress, cost, and success or failure of on-going development activities;

 

·

the emergence of competing or complementary technological developments;

 

·

the costs of filing, prosecuting, defending and enforcing any patent or license claims and other intellectual property rights, or participating in litigation related activities;

 

·

the terms and timing of any collaborative, licensing, or other arrangements that we may establish;

 

·

the acquisition of businesses, products and technologies; and

 

·

general economic conditions and interest rates, including the continuing weak conditions.

 

 

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Our reliance on third-party suppliers, including single source suppliers, for most of the components of our Renaissance system could harm our ability to meet demand for our products in a timely and cost effective manner.

 

We rely on third-party suppliers to manufacture and supply almost all of the components used in our Renaissance system, including a number of single source suppliers to provide us with many of the major components of the Renaissance system. We currently do not have long-term contracts with most of our suppliers. As a result, some of our suppliers are not required to provide us with any guaranteed minimum production levels, and we cannot guarantee that we will be able to obtain sufficient quantities of key components in the future. In addition, our reliance on third-party suppliers involves a number of risks, including, among other things:

 

·

Our suppliers may encounter financial hardships as a result of unfavorable economic and market conditions unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;

 

·

Suppliers may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification periods, or make errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in supplying of our products to our customers;

 

·

Newly identified suppliers may not qualify under the stringent regulatory standards to which our business is subject;

 

·

We or our suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, we or our suppliers may have excess or inadequate inventory of materials and components;

 

·

We may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;

 

·

We may experience delays in delivery by our suppliers due to changes in demand from us or their other customers;

 

·

We or our suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our systems;

 

·

Our suppliers may be subject to allegations by other parties of misappropriation of proprietary information in connection with their supply of products to us, which could inhibit their ability to fulfill our orders and meet our requirements;

 

·

Fluctuations in demand for products that our suppliers manufacture for others may affect their ability or willingness to deliver components to us in a timely manner;

 

·

Our suppliers may wish to discontinue supplying components or services to us (e.g., for risk management reasons); and

 

·

We may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable.

 

 

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If any of these risks materialize, costs could significantly increase and our ability to meet demand for our products could be impacted. If we are unable to satisfy commercial demand for the Renaissance system or for our single-use disposable components in a timely manner, our ability to generate revenue would be impaired, market acceptance of our products could be adversely affected, and customers may instead purchase or use alternative products. In addition, we could be forced to secure new or alternative components through a replacement supplier. Securing a replacement supplier could be difficult, especially for complex components such as the Renaissance system components that are manufactured in accordance with our custom specifications. The introduction of new or alternative components may require design changes to our system that are subject to FDA and other regulatory clearances or approvals. We may also be required to assess the new manufacturer’s compliance with all applicable regulations and guidelines, which could further impede our ability to manufacture our products in a timely manner. As a result, we could incur increased production costs, experience delays in deliveries of our products, suffer damage to our reputation and experience an adverse effect on our business and financial results.

 

Modifications to our currently FDA-cleared products or the introduction of new products may require new regulatory clearances or approvals or require us to recall or cease marketing our current products until clearances or approvals are obtained.

 

Our Renaissance system has received marketing clearance from the FDA based on 510(k) applications. We have not been required by the FDA to obtain premarket approval, or PMA, nor to conduct any clinical trials in support of these applications. Modifications to our products, however, may require new regulatory approvals or clearances or require us to recall or cease marketing the modified products until these clearances or approvals are obtained. Any modification to one of our 510(k) cleared products that would constitute a major change in its intended use, or any change that could significantly affect the safety or effectiveness of the device would require us to obtain a new 510(k) marketing clearance and may even, in some circumstances, require the submission of a PMA application, if the change raises complex or novel scientific issues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review any manufacturer’s decision. The latest 510(k) marketing clearance expands the indication for use of Renaissance to brain surgeries, an application which has not yet been commercially released. We may continue to make additional modifications in the future to the Renaissance system without seeking additional clearances or approvals if we believe such clearances or approvals are not necessary. It is expected that the FDA will introduce stringent new changes to existing policy and practices regarding the assessment of whether a new 510(k) is required for changes or modifications to existing devices. Under these changed circumstances, the FDA may disagree with our past or future decisions not to seek a new 510(k) for changes or modifications to existing devices and require new clearances or approvals. In that case, we may be required to recall and stop marketing our products as modified, which could require us to redesign our products, conduct clinical trials to support any modifications, and pay significant regulatory fines or penalties. In addition, the FDA may not approve or clear our products for the indications that are necessary or desirable for successful commercialization or could require clinical trials to support any modifications. Any delay or failure in obtaining required clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. Any of these actions would harm our operating results.

 

Moreover, clearances and approvals are subject to continual review, and the later discovery of previously unknown problems can result in product labeling restrictions or withdrawal of the product from the market. The loss of previously received approvals or clearances, or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth prospects.

 

 

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We are currently required by the FDA to refrain from using certain terms to label and market our products, which could harm our ability to market and commercialize our current or future products.

 

The FDA's 510(k) clearances include a specification of a product's indication for use, and also authorize specific labeling and marketing claims and language in promotional materials for the U.S. market.  Failure to conform with the specific cleared labeling of our product or the use of the term Robot in our product or corporate promotional material would be considered mislabeling or off-label promotion which might lead to:

 

·

untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

 

·

customer notifications, refunds, detention or seizure of our products;

 

·

refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;

 

·

withdrawing 510(k) marketing clearances or PMA approvals that have already been granted;

 

·

refusing to provide Certificates for Foreign Government;

 

·

refusing to grant export approval for our products; or

 

·

pursuing criminal prosecution.

 

Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and financial condition.

 

We have limited sales and marketing experience and capabilities, which could impair our ability to achieve profitability.

 

To reach our revenue targets, we need to expand and strengthen our U.S. direct sales force and our foreign sales channels. Developing a sales and marketing infrastructure is expensive and time consuming and an inability to develop such an organization in a timely manner could delay the successful adoption of our products. Additionally, any sales and marketing organization that we develop may be competing against the experienced and well-funded sales and marketing infrastructure of some of our competitors. We will face significant challenges and risks in developing our sales and marketing organization, including, among others:

 

·

our ability to recruit, train and retain adequate numbers of qualified sales and marketing personnel;

 

·

the ability of sales personnel to obtain access to surgeons and persuade adequate numbers of hospitals to purchase our products;

 

·

costs associated with hiring, maintaining and expanding a sales and marketing organization; and

 

·

government scrutiny with respect to promotional activities in the healthcare industry both domestically and abroad.

 

We believe that to sell and market our products effectively, we must establish a compelling clinical and commercial offering with our products. However, potential customers (e.g., surgeons and hospitals) sometimes have long-standing relationships with large, better known companies that dominate the medical devices industry through collaborative research programs and other relationships. Because of these existing relationships, some of which may be contractually enforced, surgeons and hospitals may be reluctant to adopt Renaissance, particularly if it competes with or has the potential to compete with or diminish the need/utilization of products supported through their own collaborative research program or by these existing relationships. Even if these surgeons and hospitals purchase our Renaissance system, they may be unwilling to enter into collaborative relationships with us to promote joint marketing programs or to provide us with clinical and financial data.

 

 

We face competition from large, well-established medical device companies that are likely to launch new navigation or robotic–based products, as well as new techniques and devices for minimally invasive approaches in spine surgeries.

 

Large, well-established medical device companies, such as Medtronic Inc., Stryker Corporation, and Brainlab AG, have navigation-based products with applications for spine surgeries that have a relatively low market share but which could be further developed and marketed with greater success. Other companies, including Intuitive Surgical Inc., IMRIS Inc. and Mako Surgical Corp., have developed robotic devices for use in other parts of the human anatomy that could be modified or improved to better compete in the spine surgery market.  Even if these companies currently do not have an established presence in our fields, they may attempt to enter our markets and to apply their technologies to compete directly with us.  For example, Intuitive Surgical’s da Vinci® robot has been clinically applied in several medical centers to perform anterior-approach spine surgeries.

 

While we are unaware of any current computer-assisted product or robotic-device that could directly compete with Renaissance at this time in the spine surgery market, it is likely that at some point there will be new market entrants. Many medical device competitors enjoy competitive advantages over us, including:

 

·

significantly greater name recognition;

 

·

longer operating histories;

 

·

established exclusive relations with healthcare professionals, customers and third-party payors;

 

·

established distribution networks;

 

·

additional lines of products and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage;

 

·

greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory clearance for products and marketing approved products; and

 

·

greater financial and human resources for product development, sales and marketing and patent litigation.

 

There can be no assurance that we will be able to compete successfully against current or future competitors or that competition will not have a material adverse effect on our future revenues and, consequently, on our business, operating results and financial condition.

 

Medical device development is costly and involves continual technological change, which may render our current or future products obsolete.

 

Innovation is rapid and continuous in the medical device industry, and our competitors in the medical device industry make significant investments in research and development.  If new products or technologies emerge that provide the same or superior benefits as our products at equal or lower cost, they could render our products obsolete or unmarketable. Because our products can have long development and regulatory clearance or approval cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer demands. In addition, we face increasing competition from well-financed medical device companies in our attempts to acquire such new technologies, products and businesses. As a result, we cannot be certain that our products will be competitive with current or future products and technologies.

 

 

Our success depends, in part, on our ability to enter the brain-surgery market, and this market has significant barriers to entry.

Computer-assisted surgeries are the accepted standard-of-care in brain procedures, and stereotactic frames and frameless navigation devices have dominated this market for almost two decades. Robotic-based systems usually offer greater accuracy, safety and ease of use, and we believe they are likely to gain growing market share in brain surgeries such as biopsy and implantation of deep brain stimulating electrodes. Neurosurgeons learn how to use these technologies as part of their professional training. In recent years, new robotic devices, such as Medtech’s Rosa, have been used in brain surgery and are gaining acceptance, though still not prevalent and in very early stages. Some products will compete directly with Renaissance. As a result, we cannot be certain that surgeons will use our products or that our products will be competitive with current or future products and technologies. If we are unable to penetrate the brain-surgery market, we may not be able to generate the revenue necessary to develop a sustainable, profitable business.

We may encounter problems or delays in the assembly of our products or fail to meet certain regulatory requirements.

The current and intended future versions of our Renaissance system are complex and require the integration of a number of separate components and processes. To become profitable, we must assemble and test the Renaissance system in commercial quantities in compliance with regulatory requirements and at an acceptable cost. Increasing our capacity to assemble and test our products on a commercial scale will require us to improve internal efficiencies. We may encounter a number of difficulties in increasing our assembly and testing capacity, including:

 

If we are unable to satisfy commercial demand for our Renaissance system due to our inability to assemble and test the system in compliance with applicable regulations, our business and financial results, including our ability to generate revenue, would be impaired, market acceptance of our products could be materially adversely affected and customers may instead purchase or use, competing products.

 

Any failure in our efforts to train surgeons or hospital staff adequately could result in lower than expected product sales and potential liabilities.

 

A critical component of our sales and marketing efforts is the training of surgeons and operating room staff to properly use Renaissance. We rely on surgeons and hospital staff to devote adequate time to learn to use our products. Convincing surgeons and hospital staff to dedicate the time and energy necessary for adequate training in the use of our system is challenging, and we cannot assure that we will be successful in these efforts. If surgeons or hospital staffs are not properly trained, they may misuse or ineffectively use our products. If nurses or other members of the hospital staff are not adequately trained to assist in using our Renaissance system, surgeons may be unable to use our products. Insufficient training may result in reduced system use, unsatisfactory patient outcomes, patient injury and related liability or negative publicity, which could have an adverse effect on our product sales or create substantial potential liabilities.

 

 

We will likely continue to experience extended and variable sales cycles, which together with the unit price of the Renaissance system, could cause significant variability in our results of operations for any given quarter.

 

Our Renaissance system has a lengthy sales cycle because it is a major piece of capital equipment, the purchase of which will generally require the approval of senior management at hospitals, inclusion in the hospitals’ budget  process for capital expenditures and, in some instances, a certificate of need from the state or other regulatory clearance. As a result, a relatively small number of units are currently installed each quarter. We estimate that the sales cycle of the Renaissance system will continue to take between nine and eighteen months from the point of initial identification and contact with a qualified surgeon until closing of the purchase with the hospital. In addition, the introduction of new products could adversely impact our sales cycle as customers take additional time to assess them. Because of the lengthy sales cycle, the unit price of the Renaissance system and the relatively small number of systems installed each quarter, each installation of a Renaissance system can represent a significant component of our revenue for a particular quarter, particularly in the near term and during any other periods in which our sales volume is relatively low.

 

Certain factors that may contribute to variability in our operating results may include:

 

·

delays in shipments due for example, to natural disasters or labor disturbances;

 

·

delays or unexpected difficulties in the manufacturing processes of our suppliers or in our assembly process;

 

·

timing of the announcement, introduction and delivery of new products or product upgrades by us and by our competitors;

 

·

timing and level of expenditures associated with expansion of sales and marketing activities and our overall operations; and

 

·

changes in third-party coverage and reimbursement, changes in government regulation, or a change in a customer’s financial condition or ability to obtain financing.

 

These factors are difficult to forecast and may contribute to substantial fluctuations in our quarterly revenue and substantial variation from our projections, particularly during the periods in which our sales volume is low. Moreover, many of our expenses, such as office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any quarter. Based on the above factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. These and other potential fluctuations also mean that you will not be able to rely upon our operating results in any particular period as an indication of future performance.

 

We may be subject to cost containment efforts by our customers, which could have an adverse impact on our sales, financial condition and results of operations.

 

Some of our customers and potential customers have joined group purchasing organizations in an effort to contain costs; these group purchasing organizations negotiate pricing arrangements with medical supply manufacturers and distributors and make these negotiated prices available to the group purchasing organization’s affiliated hospitals and other members.  If we fail to respond to the cost containment efforts of our customers and potential customers, we may lose sales, which could result in an adverse impact on our financial condition and results of operations.

 

 

If we receive a significant number of warranty claims or our Renaissance system units require significant amounts of service after sale, our costs will increase and our business and financial results will be adversely affected.

 

Sales of the our Renaissance system generally include a warranty and maintenance obligation on our part for services for a period of twelve months from the date the Renaissance system is installed at a customer’s facility. We also provide technical and other services to customers beyond the warranty period pursuant to a supplemental service plan sold with each system. If product returns or warranty claims are significant or exceed our expectations, we could incur unanticipated reductions in sales or additional expenditures for parts and service. In addition, our reputation could be damaged and our products may not achieve market acceptance.

 

We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention and harm our business.

 

Our business exposes us to potential liability risks, product actions and other field or regulatory actions that are inherent in the manufacturing, marketing and sale of medical device products, particularly those used in surgery. We may be held liable if our products cause injury or death or found otherwise unsuitable or defective during usage. The Renaissance system incorporates mechanical and electrical parts, complex computer software and other sophisticated components, any of which can contain errors or failures. Complex computer software is particularly vulnerable to errors and failures, especially when first introduced. In addition, new products or enhancements to our existing products may contain undetected errors or performance problems that, despite testing, are discovered only after installation.

 

 If any of our products are defective, whether due to design or manufacturing defects, improper use of the product or other reasons, we may voluntarily or involuntarily undertake an action to remove, repair, or replace the product at our expense. In some circumstances we will be required to notify regulatory authorities of an action pursuant to a product failure. We are also required to submit a Medical Device Report, or MDR, to the FDA for any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.

 

A required notification to a regulatory authority or a failure to make a timely required notification could result in an investigation by regulatory authorities of our products, which could in turn result in field corrective actions, restrictions on the sale of the products, and civil or criminal penalties. In addition, because our products are designed to perform complex surgical procedures, defects could result in a number of complications, some of which could be serious and could cause significant harm to the patient or even cause death. The adverse publicity resulting from any of these events could cause surgeons or hospitals to review and potentially terminate their relationships with us.

 

The medical device industry has historically been subject to extensive litigation over product liability claims. We anticipate that as part of our ordinary course of business we will be subject to product liability claims alleging defects in the design, manufacture or labeling of our products. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high punitive damage payments. Although we maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims. Additionally, we may be unable to maintain our existing product liability insurance in the future at satisfactory rates or adequate amounts.

 

If coverage or reimbursement from third-party payors for procedures in which Renaissance is used, namely spinal fusions, is decreased or limited, hospitals may not purchase the Renaissance system and surgeons may perform fewer spinal fusions, which would harm our business and financial results.

 

Our ability to successfully commercialize Renaissance depends significantly on the availability of coverage and reimbursement for thoracic-lumbar spinal fusion procedures from third-party payors, including governmental programs such as Medicare and Medicaid, as well as private insurance and private health plans. Reimbursement is a significant factor considered by hospitals in determining whether to acquire new capital equipment such as our technology. Although our customers have been successful in obtaining coverage and reimbursement, we cannot be assured that procedures using our technology will be covered or reimbursed by third-party payors in the future or that such reimbursements will not be reduced to the extent that they will adversely affect capital allocations for purchase of our Renaissance system.

 

 

As part of healthcare reform and other cost containment initiatives, the U.S. Congress may pass legislation impacting coverage and reimbursement for healthcare services, including Medicare reimbursement to physicians and hospitals. Many private third-party payors look to Medicare’s coverage and reimbursement policies in setting their coverage policies and reimbursement amounts. If the Centers for Medicare and Medicaid Services, or CMS, the federal agency that administers the Medicare program, or Medicare contractors limit payments to hospitals or surgeons for thoracic-lumbar spinal fusion surgeries, private payors may similarly limit payments. In addition, state legislatures may enact laws limiting or otherwise affecting the level of Medicaid reimbursements. As a result, hospitals may not purchase the Renaissance system and surgeons may choose to decrease their volume of thoracic-lumbar spinal fusions, and, as a result, our business and financial results would be adversely affected.

 

Because hospitals receive a fixed reimbursement amount from Medicare for specified procedures or conditions, a hospital must absorb the cost of our products as part of the reimbursement payment it receives, which makes the hospital’s purchasing decisions more risky, particularly those related to expensive capital equipment.

 

Medicare pays acute care hospitals a prospectively determined amount for inpatient operating costs under the Medicare hospital inpatient prospective payment system, or PPS. Under the Medicare PPS, the prospective payment for a patient’s stay in an acute care hospital is determined by the patient’s condition and  other patient data and procedures performed during the inpatient stay using a classification system known as diagnosis related groups, or DRGs. CMS implemented a revised version of the DRG system that uses Medicare Severity DRGs, or MS-DRGs, instead of the DRGs which Medicare used previously. The MS-DRGs are intended to account more accurately for the patient’s severity of illness when assigning each patient’s stay to a payment classification. Medicare pays a fixed amount to the hospital based on the MS-DRG into which the patient’s stay is assigned, regardless of the actual cost to the hospital of furnishing the procedures, items and services provided. Accordingly, acute care hospitals generally do not receive direct Medicare reimbursement under the PPS for the specific costs incurred in purchasing medical devices. Rather, reimbursement for these costs is deemed to be included within the MS-DRG based payments made to hospitals for the services furnished to Medicare eligible inpatients in which the devices are utilized. Accordingly, a hospital must absorb the cost of our products as part of the payment it receives for the procedure in which the device is used. In addition, physicians that perform procedures in hospitals are paid a set amount by Medicare for performing such services under the Medicare physician fee schedule. Medicare payment rates for both systems are established annually.

 

At this time, we do not know the extent to which hospitals and physicians would consider third-party reimbursement levels adequate to cover the cost of our products. Failure by hospitals and surgeons to receive an amount that they consider to be adequate reimbursement for procedures in which our products are used could deter them from purchasing or using our products and limit our sales growth. In addition, pre-determined MS-DRG payments or Medicare physician fee schedule payments may decline over time, which could deter hospitals from purchasing our products or physicians from using them. If hospitals are unable to justify the costs of our products or physicians are not adequately compensated for procedures in which our products are utilized, they may refuse to purchase or use them, which would significantly harm our business.

 

Notwithstanding current or future FDA clearances, if granted, third-party payors may deny reimbursement if the payor determines that a therapeutic medical device is unnecessary, inappropriate, not cost-effective or experimental, or is used for a non-approved indication. Although we are not aware of any potential customer that has declined to purchase our Renaissance system based upon third-party payors’ reimbursement policies, cost control measures adopted by third-party payors may have a significant effect on surgeries performed using Renaissance or as to the levels of reimbursement.

 

Broad-based domestic and international government initiatives to reduce spending, particularly those related to healthcare costs, may reduce reimbursement rates for spinal surgery procedures, which will reduce the cost-effectiveness of our products.

 

Healthcare reforms, changes in healthcare policies and changes to third-party coverage and reimbursements, including recently enacted legislation reforming the U.S. healthcare system, may affect demand for our products and may have a material adverse effect on our financial condition and results of operations.  There can be no assurance that current levels of reimbursement will not be decreased in the future, or that future legislation, regulation, or reimbursement policies of third-party payors will not adversely affect the demand for our products or our ability to sell products on a profitable basis.

 

 

The Patient Protection and Affordable Care Act healthcare legislation, or “Obama Care”, adopted in the United States in March 2010 and related regulations include new taxes impacting certain health-related industries, including medical device manufacturers.  Beginning in 2013, each medical device manufacturer will have to pay an excise tax (or sales tax) in an amount equal to 2.3% of the price for which such manufacturer sells its medical devices. We believe that this excise tax will apply to our products. Other significant measures contained in Obama Care include initiatives to revise Medicare payment methodologies, initiatives to promote quality indicators in payment methodologies, initiatives related to the coordination and promotion of research on comparative clinical effectiveness of different technologies and procedures, and annual reporting requirements related to payments to physicians and teaching hospitals.

 

We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or internationally, or the effect any future legislation or regulation will have on us. The taxes imposed by Obama Care and the expansion of government’s role in the U.S. healthcare industry may result in decreased profits to us, lower reimbursements by third-party payors for surgeries in which our products are used, and reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations, possibly materially.

 

Changing models for the provision of healthcare may affect the cost-effectiveness of Renaissance.

 

All third-party payors, whether governmental or private, whether inside the United States or outside, are developing increasingly sophisticated methods of controlling healthcare costs. These cost control methods include prospective payment systems, capitated rates, benefit redesigns, pre-authorization or second opinion requirements prior to major surgery, an emphasis on wellness and healthier lifestyle interventions and an exploration of other cost-effective methods of delivering healthcare. These cost control methods also potentially limit the amount which healthcare providers may be willing to pay for medical technology which could, as a result, adversely affect our business and financial results. In addition, no uniform policy of coverage and reimbursement for medical technology exists among all these payors. Therefore, coverage and reimbursement for medical technology can differ significantly from payor to payor, and country to country.

 

We depend on key employees, and if we fail to attract and retain employees with the expertise required for our business and provide for the succession of senior management, we cannot grow or achieve profitability.

 

We are dependent on members of our senior management, in particular Ori Hadomi and Eliyahu Zehavi. Our future success will depend in part on our ability to retain our management and scientific teams, to identify, hire and retain additional qualified personnel with expertise in research and development and sales and marketing, and to effectively provide for the succession of senior management. Competition for qualified personnel in the medical device industry is intense and finding and retaining qualified personnel with experience in our industry is very difficult. We believe that there are only a limited number of individuals with the requisite skills to serve in many of our key positions, particularly in Israel, and we compete for key personnel with other medical equipment and software manufacturers and technology companies, as well as research institutions. It is often difficult to hire and retain these persons, and we may be unable to replace key persons if they leave or to fill new positions requiring key persons with appropriate experience. A significant portion of our compensation to our key employees is in the form of stock option grants. A prolonged depression in our stock price could make it difficult for us to retain our employees and recruit additional qualified personnel.

 

We do not maintain life insurance on any of our personnel. The loss of key employees, the failure of any key employee to perform or our inability to attract and retain skilled employees, as needed, or an inability to effectively plan for and implement a succession plan for key employees could harm our business.

 

 

We may attempt to acquire new products or technologies, and if we are unable to successfully complete these acquisitions or to integrate acquired businesses, products, technologies or employees, we may fail to realize expected growth.

 

Our success will depend, in part, on our ability to expand our product offerings and continue to offer the advanced computer assisted solutions for spine surgery and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses, products or technologies rather than through internal development. Successful acquisitions present a number of hurdles and risk, including:

 

·

The identification of suitable acquisition candidates can be difficult, time consuming and costly;

 

·

Integrating any acquisitions that we make into our operations is difficult, time consuming, expensive, and may involve new regulatory requirements; and

 

·

Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or expenses, or other charges such as amortization of intangible assets, any of which could harm our business and materially adversely affect our financial results or cause a reduction in the price of our ordinary shares.

 

If we do not effectively manage our growth, we may be unable to successfully develop, market and sell our products.

 

In order to achieve our business objectives, we must continue to grow. Continued growth presents numerous challenges, including:

 

·

implementing appropriate operational and financial systems and controls;

 

·

expanding manufacturing and assembly capacity and increasing production;

 

·

developing our sales and marketing infrastructure and capabilities;

 

·

identifying, attracting and retaining qualified personnel in our areas of activity;

 

·

hiring, training, managing and supervising our personnel; and

 

·

continuous compliance with regulatory and quality assurance requirements.

 

We cannot be certain that our systems, controls, infrastructure and personnel will be adequate to support our future operations. Any failure to effectively manage our growth could impede our ability to successfully develop, market and sell our products and our business will be harmed.

 

 

If we are successful in our efforts to market and sell Renaissance outside of the United States, we will be subject to various risks relating to our international activities, which could adversely affect our business and financial results.

 

We are continuing to pursue international markets for the sale of our products and, as of December 31, 2012, there were 41 SpineAssist and Renaissance systems installed in United States, Europe and Asia. As a result of these efforts and sales, we are exposed to risks separate and distinct from those we face in our U.S. operations. Our international business may be adversely affected by changing economic conditions in foreign countries. In addition, because international sales would most likely be denominated in the functional currency of the country where the product is being shipped, increases or decreases in the value of the U.S. dollar relative to foreign currencies could affect our results of operations. Engaging in international business inherently involves a number of other difficulties and risks, including:

 

·

approval of product submissions with healthcare systems outside the United States;

 

·

gathering the clinical data that may be required for product submissions with healthcare systems outside the United States;

 

·

import restrictions and controls and other government regulation relating to technology;

 

·

pricing pressures that we may experience internationally;

 

·

the availability and level of reimbursement within prevailing foreign healthcare payment systems;

 

·

compliance with existing and changing applicable foreign regulatory laws and requirements, including but not limited to the European Medical Device Directive (Council Directive 93/42/EEC), the U.S. Foreign Corrupt Practices Act of 1977, or FCPA, and the U.K. Bribery Act;

 

·

foreign laws and business practices favoring local companies;

 

·

longer payment cycles; and

 

·

shipping delays.

 

Our exposure to each of these risks may increase our costs, impair our ability to market and sell our products and require significant management attention, resulting in harm to our business and financial results.

 

Risks Related to Our Intellectual Property

 

If we, or the other parties from whom we license intellectual property, are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, our ability to compete will be harmed.

 

Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection for the technologies used in our products. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. Furthermore, we might in the future opt to license intellectual property from other parties. If we, or the other parties from whom we would license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property use in our products, resulting in harm to our competitive business position. In addition, patent and other intellectual property protection may not provide us with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that we own or have rights to.

 

U.S. patents and patent applications may be subject to interference proceedings, and U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices. Any of these proceedings could result in loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of our protection. Interference, re-examination and opposition proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are issued, they may not provide us with adequate protection or any competitive advantages. Our ability to develop additional patentable technology is also uncertain.

 

 

Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of medical products and procedures.

 

If we are unable to prevent unauthorized use or disclosure of our proprietary trade secrets and unpatented know-how, our ability to compete will be harmed.

 

Proprietary trade secrets, copyrights, trademarks and unpatented know-how are also very important to our business. We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection is appropriate or obtainable. We require our employees and consultants to execute confidentiality agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business. We also have taken precautions to initiate reasonable safeguards to protect our information technology systems. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of  our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. Our employees, consultants, contractors, outside clinical collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.

 

We could become subject to patent and other intellectual property litigation that could be costly, result in the diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.

 

The medical device industry is characterized by competing intellectual property and a substantial amount of litigation over patent and other intellectual property rights. In particular, the fields of orthopedic implants, computer-assisted surgery, or CAS, systems, and robotics are well established and crowded with the intellectual property of competitors and others. A number of companies in our market, as well as universities and research institutions, have been issued patents and have filed patent applications which relate to the use of CAS.

 

Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of a patent litigation action is often uncertain. We have not conducted an extensive search of patents issued or assigned to other parties, including our competitors, and no assurance can be given that patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the market for CAS and robotics assisted implant systems grows, and as the number of patents issued in this area grows, the possibility of patent infringement claims against us increases. In certain situations, we may determine that it is in our best interests or their best interests to voluntarily challenge a party’s products or patents in litigation or other proceedings, including patent interferences or re-examinations. As a result, we may become involved in unwanted litigation that could be costly, result in diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.

 

 

Infringement actions and other intellectual property claims and proceedings brought against or by us, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources.

 

We cannot be certain that we will successfully defend against allegations of infringement of patents and intellectual property rights of others. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the other party’s patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the other party’s patents or violate the terms of a license to which we are a party, we could be required to pay damages. We could also be prevented from selling our products unless we could obtain a license to use technology or processes covered by such patents or will be able to redesign the product  to avoid infringement. A license may not be available at all or on commercially reasonable terms or we may not be able to redesign our products to avoid infringement. Modification of our products or development of new products could require us to conduct clinical trials and to revise our filings with the FDA and other regulatory bodies, which would be time consuming and expensive. In these circumstances, we may be unable to sell our products at competitive prices or at all, our business and operating results could be harmed.

 

O ur product development is limited by existing intellectual property owned by other companies. Our development of new generations of our products might depend on licensing of such intellectual property.

 

As we enhance our current product offerings and develop new ones, we may find it advisable or necessary to seek licenses from other parties who hold patents covering technology or methods necessary for the development of our products. If we cannot obtain these licenses, we could be forced to design around those patents at additional cost or abandon the product altogether. As a result, our ability to grow our business and compete in the market may be harmed.

 

Risks Related to Regulatory Compliance

 

If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.

 

Our medical device products and operations are subject to extensive regulation by the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, and various other federal, state and foreign governmental authorities. Government regulations and requirements specific to medical devices are wide ranging and govern, among other things:

 

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design, development and manufacturing;

 

·

testing, labeling and storage;

 

·

clinical trials;

 

·

product safety;

 

·

marketing, sales and distribution;

 

·

premarket clearance or approval;

 

·

record keeping procedures;

 

·

advertising and promotions;

 

·

recalls and field 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; and

 

·

product export.

 

 

In the United States, before we can market a new medical device, or a new use of, or claim for, or significant modification to, an existing product, we must first receive either premarket clearance under Section 510(k) of the FDCA, or approval of a PMA from the FDA, unless an exemption applies. In the 510(k) marketing clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed device, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Bench tests, pre-clinical and/or clinical data are sometimes required to support substantial equivalence. The PMA approval pathway requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on data obtained in clinical trials. Both of these processes can be expensive and lengthy and  entail significant fees, unless exempt. The FDA’s 510(k) marketing clearance process usually takes from three to 12 months, but it can last longer. The process of obtaining PMA approval is much more costly and uncertain than the 510(k) marketing clearance process. It generally takes from one to three years, or even longer, from the time the PMA application is submitted to the FDA, until an approval is obtained. There is no assurance that we will be able to obtain FDA clearance or approval for any of our new products on a timely basis, or at all.

We may inadvertently breach government and contractual privacy laws and obligations.

 

In the course of performing our business we obtain certain confidential patient health information, such as patient names and dates of Renaissance procedures.  In the event of an inadvertent disclosure, we could be subject to enforcement measures, including civil and criminal penalties and fines for violations of the privacy or security standards, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, or the Health Information Technology for Economic and Clinical Health Act, or HITECH, or subject to violation of contractual claims of customers.

 

Failure to obtain regulatory approval in additional foreign jurisdictions will prevent us from expanding the commercialization of our products abroad .

 

To be able to market and sell our products in most other countries, we must obtain regulatory approvals and comply with the regulations of those countries. These regulations, including the requirements for approvals and the time required for regulatory review, vary from country to country. Obtaining and maintaining foreign  regulatory approvals are expensive, and we cannot be certain that we will receive regulatory approvals in any foreign country in which we plan to market our products. If we fail to obtain or maintain regulatory approval in any foreign country in which we plan to market our products, our ability to generate revenue will be harmed.

 

As we modify existing products or develop new products in the future, including new accessories, we apply for permission to affix to such products a European Union CE mark, which is a legal requirement for medical devices intended for sale in the European Union. In addition, we will be subject to annual regulatory audits in order to maintain those CE mark permissions. We do not know whether we will be able to continue to affix the CE mark for new or modified products or that we will continue to meet the quality and safety standards required to maintain the permissions we have already received. If we are unable to maintain permission to affix the CE mark to our products, we will no longer be able to sell our products in member countries of the European Union or other areas of the world that require CE approval of medical devices.

 

 

If we or our third-party manufacturers or suppliers fail to comply with the FDA’s Quality System Regulation, our manufacturing operations could be interrupted and our product sales and operating results could suffer .

 

We and some of our third-party manufacturers and suppliers are required to comply with the FDA’s Quality System Regulation, or QSR, which covers the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. We and our manufacturers and suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we or our distributors market our products abroad.  We continue to monitor our quality management in order to improve our overall level of compliance. Our facilities are subject to inspection by U.S. and foreign regulatory agencies.  If our facilities or those of our manufacturers or suppliers fail to take satisfactory corrective action in response to an adverse QSR inspection, the regulatory authority could take enforcement action, including any of the following sanctions:

 

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untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

 

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customer notifications or repair, replacement, refunds, detention or seizure of our products;

 

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operating restrictions or partial suspension or total shutdown of production;

 

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refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;

 

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withdrawing 510(k) marketing clearances or PMA approvals that have already been granted;

 

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refusing to provide Certificates for Foreign Government;

 

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refusing to grant export approval for our products; or

 

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pursuing criminal prosecution.

 

Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.

 

Our products may in the future be subject to product actions that could harm our reputation, business operations and financial results.

 

Manufacturers may, on their own initiative, initiate actions, including a non-reportable market withdrawal or a reportable product recall, for the purpose of correcting a material deficiency, improving device performance, or other reasons. Additionally, the FDA and similar foreign health or governmental authorities have the authority to require an involuntary recall of commercialized products in the event of material deficiencies or defects in design, or manufacturing or labeling. In the case of the FDA, the authority to require a recall must be based on an FDA finding. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Product actions involving any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.

 

Companies are required to maintain certain records of actions, even if they determine such actions are not reportable to the FDA. If we determine that certain actions do not require notification of the FDA, the FDA may disagree with our determinations and require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted or failing to timely report or initiate a reportable product action.

 

 

If our products, or malfunction of our products, cause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

 

Under the FDA regulations, we are required to report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices in European Union markets are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the relevant authority in whose jurisdiction the incident occurred. We anticipate that in the future it is likely that we may experience events that would require reporting to the FDA pursuant to the MDR regulations. Any adverse event involving our products could result in future voluntary corrective actions, such as product actions or customer notifications, or agency actions, such as inspection, mandatory recall or other enforcement action. 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.

 

In addition, as the frequency of use of the Renaissance system increases and our business continues to grow, we may experience an increase in the number of incidents that could lead to MDR reports which we might need to file. The decision to file an MDR involves a judgment by us as the manufacturer. We have made decisions that certain types of events are not reportable on an MDR; however, there can be no assurance that the FDA will agree with our decisions. If we fail to report MDRs to the FDA within the required timeframes, or at all, or if the FDA disagrees with any of our determinations regarding the reportability of certain events, the FDA could take enforcement actions against us, which could have an adverse impact on our reputation and financial results.

 

We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and business.

 

Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by FDA. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may use our products off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. If the FDA determines that our promotional materials or training constitutes 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, which could have an adverse impact on our reputation and financial results.

 

We may be subject to fines, penalties, or licensure requirements, or legal liability, if it is determined that our renaissance clinical sales representatives and other employees are practicing medicine without a license.

 

State laws prohibit the practice of medicine without a license. Our clinical sales representatives, or CSRs, provide preoperative and intraoperative clinical and technical support to our customers, including assistance setting up the equipment, participation in the preoperative planning process, and facilitation of the surgeon’s use of Renaissance during surgery. We do not believe that our CSRs are engaged in the practice of  medicine, but rather are assisting our customers in the safe and proper usage of our equipment and products. Nevertheless, a governmental authority or individual actor could allege the activities of our CSRs to constitute the practice of medicine. A state may seek to have us discontinue the services provided by our CSRs or subject us to fine, penalties or licensure requirements. Any determination that our CSRs are practicing medicine without a license may result in significant liability to us.

 

The application of state certificate of need regulations could substantially limit our ability to sell our products and grow our business .

 

Some states require healthcare providers to obtain a certificate of need or similar regulatory approval prior to the acquisition of high-cost capital equipment such as Renaissance. In some states, the process required of our customers to obtain this certificate is lengthy and could result in a longer sales cycle for Renaissance. Further, in many cases, only a limited number of these certificates are available. As a result, our customers may be unable to obtain a certificate of need for the purchase of our Renaissance which could cause our sales to decline.

 

 

Federal regulatory reforms may adversely affect our ability to sell our products profitably.

 

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of a medical device. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.

 

Without limiting the generality of the foregoing, Congress has enacted, and the President signed into law, the Food and Drug Administration Amendments Act of 2007, or the Amendments. This law requires, among other things, that the FDA propose, and ultimately implement, regulations that will require manufacturers to label medical devices with unique identifiers unless a waiver is received from the FDA. Once implemented, compliance with those regulations may require us to take additional steps in the manufacture of our products and labeling. These steps may require additional resources and could be costly. In addition, the Amendments will require us to, among other things, pay annual establishment registration fees to the FDA for each of our FDA registered facilities and certify to the clinical trial reporting provisions contained in the Amendments.

 

We may be subject, directly or indirectly, to federal and state healthcare regulations and could face substantial penalties if we are unable to fully comply with such regulations and laws.

 

While we do not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, many healthcare laws and regulations apply to our business. For example, we could be subject to patient privacy regulation and enforcement by both the federal government and the states in which we conduct our business. There are multiple healthcare laws and regulations that may affect our ability to operate.  New laws and regulations are being continually proposed.  For example, Obama Care and proposed regulations impose new reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed to physicians and teaching hospitals, effective in 2013. The implementation of the infrastructure to comply with these bills and regulations could be costly and any failure to provide the required information may result in civil monetary penalties.

ITEM 4.                      INFORMATION ON THE COMPANY

 

A.      History and Development of the Company

 

Our legal and commercial name is Mazor Robotics Ltd.  We were incorporated in the State of Israel on September 12, 2000.  In July 2003, we changed our name to Mazor Surgical Technologies Ltd., and in 2010 we changed our name back to Mazor Robotics Ltd.  In August 2007, we completed our initial public offering in Israel, and our ordinary shares have since been traded on the TASE, under the symbol “MZOR.”

We are a public limited liability company and operate under the provisions of the Companies Law.  Our registered office and principal place of business are located at 7 Haeshel St., Caesarea Industrial Park South, 38900, Israel.  Our telephone number in Israel is +972 -4-618 7100.  Our website address is www.mazorrobotics.com.  The information contained on our website or available through our website is not incorporated by reference into and should not be considered a part of this Registration Statement on Form 20-F, and the reference to our website in this Registration Statement on Form 20-F is an inactive textual reference only.

In August 2004, we formed a wholly owned subsidiary in the State of Delaware under the name Mazor Surgical Technologies Inc., or the Subsidiary. In October 2010, the Subsidiary changed its name to Mazor Robotics Inc.  The Subsidiary has been appointed as our agent in the United States, and its registered office is located at 2711 Centerville Rd., Suite 400, Wilmington , New Castle, DE 19808.

We engage in the development, production and marketing of innovative medical devices for supporting surgical procedures in the field of orthopedics and neurosurgery. We are a leading innovator in spine surgery and pioneered cutting-edge guidance systems and complementary products in the spine surgery market. These products provide a safer surgical environment for patients, surgeons and operating room staff.

 

We operate in the field of image-guided surgery (also known as CAS) that enables the use of surgical instruments with high precision and minimal invasiveness and that contributes to the safety of a wide range of surgical procedures.  Our flagship product, the Renaissance system, is transforming spine surgery from freehand procedures to highly accurate, state-of-the-art, guided procedures that raise the standard of care with better clinical results. Our Renaissance system has been used to perform thousands of procedures worldwide (with over 35,000 implants placed in those procedures) in a wide variety of spinal procedures, many of which would not have been attempted without this technology.  We are continuing the development of the Renaissance platform for additional spine surgery applications and are developing modifications to the system to enable it to be used for brain surgery.

 

 

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Principal Capital Expenditures

We had capital expenditures of approximately $459,000 in 2012, $465,000 in 2011, and $435,000 in 2010.  Our capital expenditures consisted mainly of machinery and equipment, computers and in 2010 included capitalized development costs. We have financed our capital expenditures from our available cash and short term investment, and expect to continue to finance our capital expenditures in a similar manner in 2013.  There are no significant capital expenditures in progress by the Company.

 

B.      Business Overview

 

Mazor Robotics pioneered the use of state-of-the-art guidance systems and complementary products in spine surgery.  Our Renaissance system greatly enhances surgical precision by enabling intra operative guidance of the surgical tools based on a pre- operative plan. The individualized pre-operative plan, performed by the surgeon, is based on a volumetric three-dimensional image generated from standard CT images using Mazor’s proprietary software.  Renaissance is used worldwide in open, minimally invasive and percutaneous spine procedures in wide range of clinical indications.

Renaissance's preoperative planning and computer-assisted mechanical guidance system  represent a different approach to spine surgery. It is important to note that the actual surgical technique is no different than what surgeons do without Renaissance, and Renaissance is not an autonomic system that itself  performs the surgery. When using Renaissance, the surgeon performs the surgery physically guided by it.

 

The guidance unit, called our RBT Device, is attached to the spine or operating table using one of our proprietary mounting systems. Our software synchronizes a set of two dimensional images of the patient's spine while on the operating table with a pre-operative CT image that displays the surgical plan. Once the synchronization of the set of two images is completed in real time, Renaissance's software guides the RBT Device to move so the device and the surgical tools attached to it are precisely aligned according to the pre-operative plan. This approach allows the surgeon to perform the surgery with extreme accuracy.  This precision does not necessarily vary with the level of invasiveness or the complexity of the anatomy or procedure, and facilitates surgeries that otherwise might not even be attempted.

Renaissance was launched in June 2011 and represents an important upgrade from our first generation SpineAssist® system, enabling and expanding the system's indications and performance.  Both Renaissance and SpineAssist are FDA-cleared and CE-marked and are in routine use in over 40 medical centers worldwide. Renaissance and SpineAssist have been used successfully in over 4,000 surgeries, involving over 35,000 implants, in a broad range of spinal applications, including spinal fusions, correction of spinal deformities, biopsy collections, tumor excisions and cement augmentations. The main usage of Renaissance has been the insertion of pedicle screws for spinal fusions.  The performance of Renaissance has been clinically validated by independent surgeons in various medical centers throughout the world.

 

Renaissance easily integrates into customary operating room workflows. A 14-center study involving 635 patients published in 2010 in a peer-reviewed article in the Spine Journal demonstrated 98.3% placement accuracy of the spinal implants guided with our Renaissance system. By comparison, the scientific literature on placement accuracy varies, but a meta-analysis of 12,299 thoracolumbar screws, published in the same journal in 2007, demonstrated 90.3% placement accuracy in freehand surgeries. Our system’s hardware and software is customizable, which permits surgeons to take new approaches in challenging cases not previously possible using a precise preoperative surgical plan.

 

Renaissance also minimizes radiation that is used in monitoring freehand procedures and that is considered to be one of the principal impediments to adoption of minimally invasive techniques in spinal surgery. The reduction in radiation makes the procedure safer for the surgeon, patient and operating room staff.

 

Our pipeline includes innovative products that we believe will continue to advance surgical techniques. Among some of these developments are applications that facilitate intra-operative verification of the location of implants using imaging technologies as well as other applications in the areas of cranial surgery, such as brain biopsies and guidance of deep brain stimulation implants.

 

 

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We own four U.S. patents, and notices of allowance on two additional patent applications. In addition, we have rights to six patent applications in national phase and three provisional patent applications.  We also own five patents that were granted in other countries.   All of our patents and patent applications are in the areas of computer-assisted surgery, robotics, imaging and implants. 

 

Our business model is to generate revenue from unit sales of Renaissance, sales of disposable products used by Renaissance, sales of accessories and spare parts and sales of service contracts.

Our Products

 

Components of the Renaissance System

 

The principal components of the Renaissance system are as follows: 

 

RBT Device : While the surgery is executed by the attending surgeon, the positioning of the drill and its trajectory is guided by Renaissance’s RBT Device.  The RBT Device is a portable, computer-controlled, miniature (50X90 mm, 400-gram), six degrees-of-freedom, parallel hexapod robot (also known as a "Stewart Platform"), with an end-effector resolution of less than 200 microns under laboratory conditions.  Using our proprietary software, the RBT Device spatially positions and orientates surgical tools intra-operatively in accordance with the planned surgical blueprint.  All RBT Device movements are a result of the preoperative plan and are monitored by a closed-loop control process.

Figure 1: RBT Device

Renaissance Workstation (WS ):  WS runs graphical user-interface software responsible for the preoperative planning, image acquisition and correlation, kinematic calculations and real-time RBT Device motion control. It is the main console at which the computing and electronic components of Renaissance interface with our proprietary planning and execution software.  The WS houses an image processing unit, a control unit and stores RBT device, and is equipped with a control panel, a multi-touch screen monitor, a rear connectors panel and storage compartments.  The WS has a video-in signal connection, which receives the x-ray input from the C-Arm, the most common fluoroscopy system used to image the patient’s spine in the operating room, or other compatible intraoperative imaging systems (e.g., CT).

Figure 2: Renaissance Workstation

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Multi-Directional Bridge : The Multi-Directional Bridge is attached to the railings on both sides of the patient's bed by dedicated connectors. A third docking point is on the patient’s spine, via a 2 mm head pin, to a spinous process superior to the operated spinal segment. The Multi-Directional Bridge can be moved laterally in parallel to the patient's spinal column.  This mounting option is often used in minimally invasive surgeries involving multiple levels.

Figure 3: Multi-Directional Bridge Mounting Platform