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What changed in Organogenesis Holdings Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Organogenesis Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+328 added−327 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Organogenesis Holdings Inc.'s 2023 10-K

328 paragraphs added · 327 removed · 261 edited across 7 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

159 edited+46 added−14 removed404 unchanged
Biggest changeThe degree of market acceptance of our products will continue to depend on a number of factors, including: • the safety and efficacy of our products; • the potential and perceived advantages of our products over alternative treatments; • clinical data and the clinical indications for which our products are approved; • product labeling or product insert requirements of the FDA or other regulatory authorities, including any limitations or warnings contained in approved labeling; • the cost of, and relative reimbursement rate for, using our products relative to the use of our competitors’ products or alternative treatment modalities; • relative convenience and ease of administration; • the strength of marketing and distribution support; • the quality of the service and support provided to our customers; • the timing of market introduction of competitive products; • publicity concerning our products or competing products and treatments; 38 Table of Contents • our reputation and the reputation of the products; • the shelf life of our products and our ability to manage the logistics of the end-user supply chain; and • sufficient and readily accessible third-party insurance coverage and reimbursement.
Biggest changeIn general, physicians may be slow to change their medical treatment practices and use of our products for the following reasons, among others: • their lack of experience using our products; • lack of evidence supporting additional patient benefits from use of our products over conventional methods; • pressure to contain costs; • preference for other treatment modalities or our competitors’ products; • perceived liability risks generally associated with the use of new products and procedures; • limited availability of coverage and/or reimbursement from third-party payers; and • the time that must be dedicated to training. 39 Table of Contents The degree of market acceptance of our products will continue to depend on a number of factors, including: • the safety and efficacy of our products; • the potential and perceived advantages of our products over alternative treatments; • clinical data and the clinical indications for which our products are approved; • product labeling or product insert requirements of the FDA or other regulatory authorities, including any limitations or warnings contained in approved labeling; • the cost of, and relative reimbursement rate for, using our products relative to the use of our competitors’ products or alternative treatment modalities; • relative convenience and ease of administration; • the strength of marketing and distribution support; • the quality of the service and support provided to our customers; • the timing of market introduction of competitive products; • publicity concerning our products or competing products and treatments; • our reputation and the reputation of the products; • the shelf life of our products and our ability to manage the logistics of the end-user supply chain; and • sufficient and readily accessible third-party insurance coverage and reimbursement.
Because there is a lack of consistency and uniformity in wound sizes, it is likely that some skin substitute product is discarded with every treatment. The rebate obligation took effect January 1, 2023, and CMS proposed a methodology to implement the rebate in the MPFS rulemaking.
Because there is a lack of consistency and uniformity in wound sizes, it is likely that some skin substitute product is discarded with every treatment. The rebate obligation took effect January 1, 2023, and CMS proposed a methodology to implement the rebate in the MPFS rulemaking.
The applicable percentage is required to be at least 10 percent of total allowed charges for the drug in a given calendar quarter.
The applicable percentage is required to be at least 10 percent of total allowed charges for the drug in a given calendar quarter.
In the 2023 MPFS final rule, published on November 1, 2022, CMS did not apply a higher applicable percentage to any products other than the hydrogel example they used in the proposed rule and stated that they plan to collect additional information about products that may have unique circumstances such that an increased applicable percentage (higher than 10 percent) would apply.
In the 2023 MPFS final rule, published on November 1, 2022, CMS did not apply a higher applicable percentage to any products other than the hydrogel example they used in the proposed rule and stated that they plan to collect additional information about products that may have unique circumstances such that an increased applicable percentage (higher than 10 percent) would apply.
Events that may prevent successful or timely completion of clinical development include: • the FDA may require additional clinical trials in connection with the approval of product candidates; • delays in reaching a consensus with the FDA or other regulatory authorities on trial design; • delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites; • delays in opening clinical trial sites or obtaining required IRB or independent ethics committee approval at each clinical trial site; • our decision or the requirement of regulators or IRBs to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements, a finding that the participants are being exposed to unacceptable 46 Table of Contents health risks, or the imposition of a clinical hold as a result of a serious adverse event or after an inspection of our clinical trial operations or clinical trial sites; • delays in recruiting suitable patients to participate in our future clinical trials, including, but not limited to challenges associated with any resurgence of COVID-19; • failure by us, any CROs we engage or any other third parties to adhere to clinical trial or regulatory requirements; • failure by us, any CROs we engage or any other third parties to perform in accordance with Good Clinical Practice, or GCP, cGMPs, or applicable regulatory guidelines in the United States and other international markets; • failure by physicians to adhere to delivery protocols leading to variable results; • delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical trial sites, including delays by third parties with whom we have contracted to perform certain of those functions due to COVID-19 or other reasons; • insufficient or inadequate supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates; • delays in having patients complete participation in a clinical trial or return for post-treatment follow-up; • clinical trial sites or patients dropping out of a clinical trial at a rate higher than we anticipate; • selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data; • receipt of negative or inconclusive clinical trial results; • occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; • occurrence of serious adverse events in clinical trials of the same class of agents conducted by other sponsors; and • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; ReNu is in Phase 3 clinical development for the management of symptoms associated with knee OA.
Events that may prevent successful or timely completion of clinical development include: • the FDA may require additional clinical trials in connection with the approval of product candidates; • delays in reaching a consensus with the FDA or other regulatory authorities on trial design; • delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites; • delays in opening clinical trial sites or obtaining required IRB or independent ethics committee approval at each clinical trial site; • our decision or the requirement of regulators or IRBs to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements, a finding that the participants are being exposed to unacceptable health risks, or the imposition of a clinical hold as a result of a serious adverse event or after an inspection of our clinical trial operations or clinical trial sites; • delays in recruiting suitable patients to participate in our future clinical trials, including, but not limited to challenges associated with any resurgence of COVID-19; • failure by us, any CROs we engage or any other third parties to adhere to clinical trial or regulatory requirements; • failure by us, any CROs we engage or any other third parties to perform in accordance with Good Clinical Practice, or GCP, cGMPs, or applicable regulatory guidelines in the United States and other international markets; • failure by physicians to adhere to delivery protocols leading to variable results; 48 Table of Contents • delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical trial sites, including delays by third parties with whom we have contracted to perform certain of those functions due to COVID-19 or other reasons; • insufficient or inadequate supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates; • delays in having patients complete participation in a clinical trial or return for post-treatment follow-up; • clinical trial sites or patients dropping out of a clinical trial at a rate higher than we anticipate; • selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data; • receipt of negative or inconclusive clinical trial results; • occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; • occurrence of serious adverse events in clinical trials of the same class of agents conducted by other sponsors; and • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; ReNu is in Phase 3 clinical development for the management of symptoms associated with knee OA.
U.S. federal and state laws that affect our ability to operate include, but are not limited to: • the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering, or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; • the federal physician self-referral law, which prohibits a physician from referring a patient to an entity with which the physician (or an immediate family member) has a financial relationship, for the furnishing of certain designated health services for which payment may be made by Medicare or Medicaid, unless an exception applies; • federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other government payers that are false or fraudulent; • 18 U.S.C. § 1347, which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or from making false or fraudulent statements to defraud any healthcare benefit program (i.e., public or private); • federal transparency laws, including the Physician Payments Sunshine Act which requires the tracking and disclosure to the federal government by pharmaceutical and medical device manufacturers of payments and other transfers of value to physicians and teaching hospitals as well as ownership and investment interests that are held by physicians and their immediate family members; and • state law equivalents of each of these federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical and medical device companies to comply with their industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict certain payments that may be made to healthcare providers and other potential referral sources; state laws that require drug and medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that prohibit giving gifts to licensed healthcare professionals; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts in certain circumstances, such as specific disease states.
U.S. federal and state laws that affect our ability to operate include, but are not limited to: • the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering, or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; • the federal physician self-referral law, which prohibits a physician from referring a patient to an entity with which the physician (or an immediate family member) has a financial relationship, for the furnishing of certain designated health services for which payment may be made by Medicare or Medicaid, unless an exception applies; • federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other government payers that are false or fraudulent; • 18 U.S.C. § 1347, which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or from making false or fraudulent statements to defraud any healthcare benefit program (i.e., public or private); • federal transparency laws, including the Physician Payments Sunshine Act which requires the tracking and disclosure to the federal government by pharmaceutical and medical device manufacturers of payments and other transfers of value to physicians and teaching hospitals as well as ownership and investment interests that are held by physicians and their immediate family members; and • state law equivalents of each of these federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical and medical device companies to comply with their industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict certain payments that may be made to healthcare providers and other potential referral sources; state laws that require drug and medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that prohibit giving gifts to licensed healthcare professionals; and state laws governing the 55 Table of Contents privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts in certain circumstances, such as specific disease states.
Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, trading our common stock could be conducted only in the over-the-counter (“OTC”) market or on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange.
Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, trading our common stock could be conducted only in the over-the-counter (OTC) market or on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange.
While we have invested significantly in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches. For example, in August 2020, our information technology (“IT”) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time.
While we have invested significantly in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches. For example, in August 2020, our information technology (IT) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time.
The failure by us or one of our suppliers to comply with applicable regulatory requirements could result in, among other things, the FDA or other governmental authorities: 66 Table of Contents • imposing fines and penalties on us; • preventing us from manufacturing or selling our products; • delaying or denying pending applications for approval or clearance of our products or of new uses or modifications to our existing products, or withdrawing or suspending current approvals or clearances; • ordering or requesting a recall of our products; • issuing warning letters or untitled letters; • imposing operating restrictions, including a partial or total shutdown of production or investigation of any or all of our products; • refusing to permit to import or export of our products; • detaining or seizing our products; • obtaining injunctions preventing us from manufacturing or distributing any or all of our products; • commencing criminal prosecutions or seeking civil penalties; and • requiring changes in our advertising and promotion practices.
The failure by us or one of our suppliers to comply with applicable regulatory requirements could result in, among other things, the FDA or other governmental authorities: • imposing fines and penalties on us; • preventing us from manufacturing or selling our products; 69 Table of Contents • delaying or denying pending applications for approval or clearance of our products or of new uses or modifications to our existing products, or withdrawing or suspending current approvals or clearances; • ordering or requesting a recall of our products; • issuing warning letters or untitled letters; • imposing operating restrictions, including a partial or total shutdown of production or investigation of any or all of our products; • refusing to permit to import or export of our products; • detaining or seizing our products; • obtaining injunctions preventing us from manufacturing or distributing any or all of our products; • commencing criminal prosecutions or seeking civil penalties; and • requiring changes in our advertising and promotion practices.
Allegations that we, our officers, or our employees violated any one of these laws can be made by individuals called “whistleblowers” who may be our employees, customers, competitors, or other parties. Government policy is to encourage individuals to become whistleblowers and file a complaint in federal court alleging wrongful conduct.
Allegations that we, our officers, or our employees violated any one of these laws can be made by individuals called "whistleblowers" who may be our employees, customers, competitors, or other parties. Government policy is to encourage individuals to become whistleblowers and file a complaint in federal court alleging wrongful conduct.
Furthermore, Medicare has signaled that it may revise its two-tiered bundled payment policy for skin substitutes. Medicare solicited comments in rulemaking for calendar year 2019 related to proposed updates and policy changes under the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System.
Furthermore, Medicare has signaled that it may revise its two-tiered bundled payment policy for skin substitutes. Medicare solicited comments in rulemaking for calendar year 2019 related to proposed updates and policy changes under the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Payment System.
We obtain some of the components for our products from a limited group of suppliers. For us to be successful, our suppliers must be able to provide us with these components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed-upon specifications, at acceptable costs, and on a timely basis.
We obtain some of the components for our products from a limited group of suppliers. These suppliers must be able to provide us with these components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed-upon specifications, at acceptable costs, and on a timely basis.
If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results or prevent fraud, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. • We face significant and continuing competition, which could adversely affect our business, results of operations, and financial condition. • Rapid technological change could cause our products to become obsolete, and if we do not enhance our product offerings through our research and development efforts, we may be unable to effectively compete. • To be commercially successful, we must convince physicians that our products are safe and effective alternatives to existing treatments and that our products should be used in their procedures. • Our failure to comply with regulatory obligations could result in negative effects on our business. • The FDA may determine that certain of our products that are, or are derived from, human cells or tissues, such as Affinity, Novachor, and NuShield, do not qualify for regulation solely under Section 361 of the Public Health Services Act, or PHSA.
If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results or prevent fraud, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. • We face significant and continuing competition, which could adversely affect our business, results of operations, and financial condition. • Rapid technological change could cause our products to become obsolete, and if we do not enhance our product offerings through our research and development efforts, we may be unable to effectively compete. • To be commercially successful, we must convince physicians that our products are safe and effective alternatives to existing treatments and that our products should be used in their procedures. 36 Table of Contents • Our failure to comply with regulatory obligations could result in negative effects on our business. • The FDA may determine that certain of our products that are, or are derived from, human cells or tissues, such as Affinity, Novachor, and NuShield, do not qualify for regulation solely under Section 361 of the Public Health Services Act, or PHSA.
Under the Company bylaws, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum will be the Court of Chancery of the State of Delaware for: • any derivative action or proceeding brought on behalf of the Company; • any action asserting a claim of breach of a fiduciary duty owed by, or any wrongdoing by, any director, officer or employee of the Company to the Company or the Company’s stockholders; • any action asserting a claim arising pursuant to any provision of the DGCL, the certificate of incorporation (including as it may be amended from time to time), or the bylaws; • any action to interpret, apply, enforce or determine the validity of the certificate of incorporation or the bylaws; or • any action asserting a claim governed by the internal affairs doctrine, in each case, except for, (1) any action as to which the Court of Chancery determines that there is an indispensable party not subject to the personal jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten (10) days following such determination) and (2) any action asserted under the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated thereunder, for which federal courts have exclusive jurisdiction.
Under the Company bylaws, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum will be the Court of Chancery of the State of Delaware for: • any derivative action or proceeding brought on behalf of the Company; • any action asserting a claim of breach of a fiduciary duty owed by, or any wrongdoing by, any director, officer or employee of the Company to the Company or the Company’s stockholders; 66 Table of Contents • any action asserting a claim arising pursuant to any provision of the DGCL, the certificate of incorporation (including as it may be amended from time to time), or the bylaws; • any action to interpret, apply, enforce or determine the validity of the certificate of incorporation or the bylaws; or • any action asserting a claim governed by the internal affairs doctrine, in each case, except for, (1) any action as to which the Court of Chancery determines that there is an indispensable party not subject to the personal jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten (10) days following such determination) and (2) any action asserted under the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated thereunder, for which federal courts have exclusive jurisdiction.
We are subject to the following factors, among others, that may negatively affect our operating results: • the announcement or introduction of new products by our competitors; • failure of government healthcare programs and private health plans to cover our products or to timely and adequately reimburse the users of our products; • the rate of reimbursement by government and private insurers for use of our products; • any change in Medicare payment policy which provides a competitive advantage to our competitor’s products; • any change in government healthcare programs’ and private health plans’ policies regarding sales and reimbursement of durable medical equipment (“DME”), including a prohibition on physician-owned DME supplier entities; • whether our products or our competitors’ products are granted pass-through reimbursement status or included in the “bundled” reimbursement structure; • our ability to upgrade and develop our systems and infrastructure to accommodate growth; • our ability to attract and retain key personnel in a timely and cost-effective manner; • our ability to offer our wound care and surgical products and supplies using our existing sales force and distribution network; • the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations, and infrastructure; • changes in, or enactment of new laws or regulations promulgated by federal, state, or local governments; • cost containment initiatives or policies developed by government and commercial payers that create financial incentives not to use our products; • our inability to demonstrate that our products are cost-effective or superior to competing products; • our ability to develop new products; • discovery of product defects during the manufacturing process; • initiation of a government investigation into potential non-compliance with laws or regulations; • issuance of government advisory opinions or program bulletins that could negatively affect one or more of our sales models; 36 Table of Contents • sanctions imposed by federal or state governments due to non-compliance with laws or regulations; • recall of one or more of our products by the FDA due to noncompliance with FDA requirements; and • general economic conditions as well as economic conditions specific to the healthcare industry.
We are subject to the following factors, among others, that may negatively affect our operating results: • the announcement or introduction of new products by our competitors; • failure of government healthcare programs and private health plans to cover our products or to timely and adequately reimburse the users of our products; • the rate of reimbursement by government and private insurers for use of our products; • any change in Medicare payment policy which provides a competitive advantage to our competitor’s products; 37 Table of Contents • any change in government healthcare programs’ and private health plans’ policies regarding sales and reimbursement of durable medical equipment (DME), including a prohibition on physician-owned DME supplier entities; • whether our products or our competitors’ products are granted pass-through reimbursement status or included in the "bundled" reimbursement structure; • our ability to upgrade and develop our systems and infrastructure to accommodate growth; • our ability to attract and retain key personnel in a timely and cost-effective manner; • our ability to offer our wound care and surgical products and supplies using our existing sales force and distribution network; • the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations, and infrastructure; • changes in, or enactment of new laws or regulations promulgated by federal, state, or local governments; • cost containment initiatives or policies developed by government and commercial payers that create financial incentives not to use our products; • our inability to demonstrate that our products are cost-effective or superior to competing products; • our ability to develop new products; • discovery of product defects during the manufacturing process; • initiation of a government investigation into potential non-compliance with laws or regulations; • issuance of government advisory opinions or program bulletins that could negatively affect one or more of our sales models; • sanctions imposed by federal or state governments due to non-compliance with laws or regulations; • recall of one or more of our products by the FDA due to noncompliance with FDA requirements; and • general economic conditions as well as economic conditions specific to the healthcare industry.
If we do not successfully remediate the material weaknesses described above, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results, which could cause our financial results to be materially misstated and require restatement.
If we do not successfully remediate the material weakness described above, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results, which could cause our financial results to be materially misstated and require restatement.
For example, it could: • increase our vulnerability to adverse changes in general economic, industry, and competitive conditions; • require us to dedicate a substantial portion of our cash flow from operations to making payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • expose us to the risk of increased interest rates as certain of our borrowings are at variable rates, and we may not be able to enter into interest rate swaps and any swaps we enter into may not fully mitigate our interest rate risk; • restrict us from capitalizing on business opportunities; • make it more difficult to satisfy our financial obligations, including payments on our indebtedness; • place us at a competitive disadvantage compared to our competitors that have less debt; and limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy, or other general corporate purposes.
For example, it could: • increase our vulnerability to adverse changes in general economic, industry, and competitive conditions; • require us to dedicate a substantial portion of our cash flow from operations to making payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • expose us to the risk of increased interest rates as certain of our borrowings are at variable rates, and we may not be able to enter into interest rate swaps and any swaps we enter into may not fully mitigate our interest rate risk; • restrict us from capitalizing on business opportunities; 63 Table of Contents • make it more difficult to satisfy our financial obligations, including payments on our indebtedness; • place us at a competitive disadvantage compared to our competitors that have less debt; and limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy, or other general corporate purposes.
Although we have independent third-party appraisals that confirm the reasonableness of the service fees we pay, if we were to be found to have violated NOTA’s prohibition on the sale or transfer of human tissue for valuable consideration, we, our officers, or employees, would potentially be subject to criminal enforcement sanctions, which could materially and adversely affect our business, results of operations, and financial condition. 51 Table of Contents Many of the products we manufacture and process are derived from human tissue and therefore have the potential for disease transmission.
Although we have independent third-party appraisals that confirm the reasonableness of the service fees we pay, if we were to be found to have violated NOTA’s prohibition on the sale or transfer of human tissue for valuable consideration, we, our officers, or employees, would potentially be subject to criminal enforcement sanctions, which could materially and adversely affect our business, results of operations, and financial condition. 53 Table of Contents Many of the products we manufacture and process are derived from human tissue and therefore have the potential for disease transmission.
Our business is subject to continuing significant regulatory obligations by the FDA and other authorities, compliance with which is expensive and time-consuming and may impede our ability to fully exploit our technologies or otherwise limit our ability to meet other business objectives.
Our business is subject to continuing and evolving significant regulatory obligations by the FDA and other authorities, compliance with which is expensive and time-consuming and may impede our ability to fully exploit our technologies or otherwise limit our ability to meet other business objectives.
Our indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness and could have other important consequences to our debt holders and significant effects on our business.
In addition, our indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness and could have other important consequences to our debt holders and significant effects on our business.
The Company’s quarterly operating results may fluctuate significantly because of several factors, including: • labor availability and costs for hourly and management personnel; • profitability of the Company’s products, especially in new markets and due to seasonal fluctuations; 68 Table of Contents • changes in interest or exchange rates; • impairment of long-lived assets; • macroeconomic conditions, both nationally and locally; • negative publicity relating to our products; • changes in consumer preferences and competitive conditions; and • expansion to new markets.
The Company’s quarterly operating results may fluctuate significantly because of several factors, including: • labor availability and costs for hourly and management personnel; • profitability of the Company’s products, especially in new markets and due to seasonal fluctuations; • changes in interest or exchange rates; 71 Table of Contents • impairment of long-lived assets; • macroeconomic conditions, both nationally and locally; • negative publicity relating to our products; • changes in consumer preferences and competitive conditions; and • expansion to new markets.
The success of any new product offering or enhancement to an existing product will depend on numerous factors, including our ability to: • properly identify and anticipate physician and patient needs; 37 Table of Contents • develop and introduce new products or product enhancements in a timely manner; • adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties; • demonstrate the safety and efficacy of new products, including through the conduct of additional clinical trials; • obtain the necessary regulatory clearances or approvals for new products or product enhancements; • achieve adequate coverage and reimbursement for our products; and • compete successfully against other skin substitutes and other modalities for treating wounds such as negative-pressure wound therapy and hyperbaric oxygen.
The success of any new product offering or enhancement to an existing product will depend on numerous factors, including our ability to: • properly identify and anticipate physician and patient needs; • develop and introduce new products or product enhancements in a timely manner; • adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties; • demonstrate the safety and efficacy of new products, including through the conduct of additional clinical trials; • obtain the necessary regulatory clearances or approvals for new products or product enhancements; • achieve adequate coverage and reimbursement for our products; and • compete successfully against other skin substitutes and other modalities for treating wounds such as negative-pressure wound therapy and hyperbaric oxygen.
The Patient Protection and Affordable Care Act (the “PPACA”) imposed, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States. Under these provisions, the Congressional Research Service predicted that the total cost to the medical device industry may be up to $20 billion over a decade.
The Patient Protection and Affordable Care Act (the PPACA) imposed, among other things, an excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States. Under these provisions, the Congressional Research Service predicted that the total cost to the medical device industry may be up to $20 billion over a decade.
As such, we believe that we are business associates and therefore subject to HIPAA’s requirements and restrictions with respect to handling such protected health information, and have executed business associate agreements with certain customers. In addition, California has enacted the California Consumer Privacy Act (“CCPA”), which came into effect on January 1, 2020.
As such, we believe that we are business associates and therefore subject to HIPAA’s requirements and restrictions with respect to handling such protected health information, and have executed business associate agreements with certain customers. In addition, California has enacted the California Consumer Privacy Act (CCPA), which came into effect on January 1, 2020.
Current or future changes in our stock ownership may trigger an “ownership change,” some of which may be outside our control. Accordingly, our ability to utilize our net operating loss carryforwards to offset federal taxable income, if any, could be limited by Section 382, which could potentially result in increased future tax liability to us.
Current or future changes in our stock ownership may trigger an "ownership change," some of which may be outside our control. Accordingly, our ability to utilize our net operating loss carryforwards to offset federal taxable income, if any, could be limited by Section 382, which could potentially result in increased future tax liability to us.
If such an excise tax on sales of our products in the United States is enacted, it could have a material adverse effect on our business, results of operations, and financial condition. We could incur asset impairment charges related to certain leasehold improvements, which could adversely affect our business, results of operations, and financial condition.
If such an excise tax on sales of our products in the United States is enacted, it could have a material adverse effect on our business, results of operations, and financial condition. We could incur asset impairment charges related to certain leasehold improvements and construction in progress, which could adversely affect our business, results of operations, and financial condition.
We may also experience significant and unpredictable reductions in demand for certain of our 45 Table of Contents products if patients are unable to access certain advanced therapies due to stay-at-home orders or other governmental actions taken to address a public health emergency.
We may also experience significant and unpredictable reductions in demand for 47 Table of Contents certain of our products if patients are unable to access certain advanced therapies due to stay-at-home orders or other governmental actions taken to address a public health emergency.
In particular, HCT/Ps that meet certain criteria set forth in the FDA’s regulations at 21 C.F.R. § 1271.10 are regulated solely under Section 361 of the PHSA, so-called “Section 361 HCT/Ps”, and are not subject to any premarket clearance or approval requirements.
In particular, HCT/Ps that meet certain criteria set forth in the FDA’s regulations at 21 C.F.R. § 1271.10 are regulated solely under Section 361 of the PHSA, so-called "Section 361 HCT/Ps", and are not subject to any premarket clearance or approval requirements.
Because we depend upon a limited group of suppliers and manufacturers for our products, including our NuShield, Affinity, Apligraf and PuraPly Antimicrobial products, we may incur significant product development costs and experience material delivery delays if we lose any significant supplier, which could materially impact sales of our products.
Because we depend upon a limited group of suppliers and manufacturers for our products, including our Apligraf, Affinity, CYGNUS, Novachor, NuShield and PuraPly Antimicrobial products, we may incur significant product development costs and experience material delivery delays if we lose any significant supplier, which could materially impact sales of our products.
In addition, our ability to utilize our federal net operating loss carryforwards may be limited under Section 382 of the Code. In the event of an “ownership change”, Section 382 imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change net operating losses of the loss corporation experiencing the ownership change.
In addition, our ability to utilize our federal net operating loss carryforwards may be limited under Section 382 of the Code. In the event of an "ownership change", Section 382 imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change net operating losses of the loss corporation experiencing the ownership change.
An “ownership change” is defined by Section 382 as a cumulative change in ownership of our company of more than 50% within a three-year period. As of December 31, 2021, we performed a study and determined that there is no limitation on our federal net operating losses.
An "ownership change" is defined by Section 382 as a cumulative change in ownership of our company of more than 50% within a three-year period. As of December 31, 2021, we performed a study and determined that there is no limitation on our federal net operating losses.
While our products are currently covered by most MACs, we cannot be certain they will be in the future. Wound care supplies, such as our product line acquired from CPN Biosciences, are subject to coding verification from CMS’s Pricing, Data Analysis and Coding contractor (the “PDAC”).
While our products are currently covered by most MACs, we cannot be certain they will be in the future. Wound care supplies, such as our product line acquired from CPN Biosciences, are subject to coding verification from CMS’s Pricing, Data Analysis and Coding contractor (the PDAC).
Section 90004 of the Infrastructure Investment and Jobs Act, enacted in November 2021, requires manufacturers to pay a refund to the federal government if more than a certain applicable percentage of their single-use product is not administered to a patient and is discarded (“wasted”) by providers.
Section 90004 of the Infrastructure Investment and Jobs Act, enacted in November 2021, requires manufacturers to pay a refund to the federal government if more than a certain applicable percentage of their single-use product is not administered to a patient and is discarded ("wasted") by providers.
A number of enforcement actions have been taken against manufacturers that promote products for “off-label” uses (i.e., uses that are not described in the approved or cleared labeling), including actions alleging that claims submitted to government healthcare programs for reimbursement of products that were promoted for “off-label” uses are fraudulent in violation of the Federal False Claims Act or other federal and state statutes and that the submission of those claims was caused by off-label promotion.
In addition, a number of enforcement actions have been taken against manufacturers that promote products for off-label uses (i.e., uses that are not described in the approved or cleared labeling), including actions alleging that claims submitted to government healthcare programs for reimbursement of products that were promoted for off-label uses are fraudulent in violation of the Federal False Claims Act or other federal and state statutes and that the submission of those claims was caused by off-label promotion.
The United States Supreme Court agreed to review the case and on June 17, 2021, ordered that the Fifth Circuit’s decision be reversed and that the case be dismissed. Additionally, on August 16, 2022, Congress passed legislation to limit the price of drugs and biological under the Medicare program.
The United States Supreme Court agreed to review the case and on June 17, 2021, ordered that the Fifth Circuit’s decision be reversed and that the case be dismissed. Additionally, on August 16, 2022, Congress passed legislation to limit the price of drugs and biologicals under the Medicare program.
CMS has the authority to increase the applicable percentage that applies to refunds for discarded product if there are “unique circumstances.” We submitted comments on the proposal noting the unique circumstances related to skin substitutes and asking CMS to apply a higher percentage.
CMS has the authority to increase the applicable percentage that applies to refunds for discarded product if there are "unique circumstances." We submitted comments on the proposal noting the unique circumstances related to skin substitutes and asking CMS to apply a higher percentage.
Under the Internal Revenue Code of 1986, as amended, or the Code, the deductibility of the net operating loss-carry-forward as of December 31, 2022 and all future net operating loss-carry-forwards is limited to 80% of taxable income, limiting or delaying in part the use of net operating loss-carry-forwards.
Under the Internal Revenue Code of 1986, as amended, or the Code, the deductibility of the net operating loss-carry-forward as of December 31, 2023 and all future net operating loss-carry-forwards is limited to 80% of taxable income, limiting or delaying in part the use of net operating loss-carry-forwards.
CMS has the authority to increase the applicable percentage that applies to refunds for discarded product if there are “unique circumstances.” We submitted comments on the proposal noting the unique circumstances related to skin substitutes and asking CMS to apply a higher percentage.
CMS has the authority to increase the applicable percentage that applies to refunds for discarded product if there are "unique circumstances." We submitted comments on the proposal noting the unique circumstances related to skin substitutes and asking CMS to apply a higher percentage.
Compliance with these regulations and laws is costly, and failure to comply with applicable legal and regulatory obligations could adversely affect us in a variety of ways that include, but are not limited to, significant criminal, civil, and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities.
Compliance with these regulations and laws is costly, and failure to comply with applicable legal and regulatory obligations could adversely affect us in a variety of ways that include, but are not limited to, significant criminal, civil, and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and 57 Table of Contents restrictions on certain business activities.
To the extent that our suspension of any of these products is determined not to comply with the 361 HCT/P Guidance, we may be subject to regulatory sanctions, which could adversely affect our business, results of operations, and financial condition. • Because we depend upon a limited group of suppliers and manufacturers for our products, including Apligraf, Affinity, Novachor, NuShield and PuraPly Antimicrobial products, we may incur significant product development costs or experience material delivery delays if there is an interruption in supply from any one of these suppliers or manufacturers, which could materially impact sales of our products. • We are dependent on the proper functioning of our and third-party manufacturing facilities, our supply chain and our sales force, all of which could be negatively impacted by public health emergencies, including the global COVID-19 pandemic, or other factors, in a manner that could materially adversely affect our business, financial condition or results of operations. • Uncertainty and adverse changes in the general economic conditions, including inflation, may negatively affect our business. • Significant disruptions of our information technology systems or breaches of information security could adversely affect our business, results of operations, and financial condition. 35 Table of Contents • Our patents and other intellectual property rights may not adequately protect our products. • We engage in transactions with related parties and the transactions present possible conflicts of interest that could have an adverse effect on our business, results of operations, and financial condition. • The Inflation Reduction Act of 2022, signed into law on August 16, 2022, includes several provisions to lower prescription costs for people with Medicare and reduce health care spending by the federal government.
To the extent that our suspension of any of these products is determined not to comply with the 361 HCT/P Guidance, we may be subject to regulatory sanctions, which could adversely affect our business, results of operations, and financial condition. • Because we depend upon a limited group of suppliers and manufacturers for our products, including Apligraf, Affinity, CYGNUS, Novachor, NuShield and PuraPly Antimicrobial products, we may incur significant product development costs or experience material delivery delays if there is an interruption in supply from any one of these suppliers or manufacturers, which could materially impact sales of our products. • We are dependent on the proper functioning of our and third-party manufacturing facilities, our supply chain and our sales force, all of which could be negatively impacted by public health emergencies, including the global COVID-19 pandemic, or other factors, in a manner that could materially adversely affect our business, financial condition or results of operations. • Uncertainty and adverse changes in the general economic conditions, including recent turmoil in the global banking system, may negatively affect our business. • Significant disruptions of our information technology systems or breaches of information security could adversely affect our business, results of operations, and financial condition. • Our patents and other intellectual property rights may not adequately protect our products. • We engage in transactions with related parties and the transactions present possible conflicts of interest that could have an adverse effect on our business, results of operations, and financial condition. • The Inflation Reduction Act of 2022 (IRA), signed into law on August 16, 2022, includes several provisions to lower prescription costs for people with Medicare and reduce health care spending by the federal government.
In addition, regardless of merit or eventual outcome, product liability claims may result in: • harm to our business reputation; • investigations by regulators; • significant defense costs; • distraction of management’s attention from our primary business; • substantial monetary awards to patients or other claimants; • loss of revenue; • exhaustion of any available insurance and our capital resources; and • decreased demand for our products.
In addition, regardless of merit or eventual outcome, product liability claims may result in: • harm to our business reputation; • investigations by regulators; • significant defense costs; • distraction of management’s attention from our primary business; • substantial monetary awards to patients or other claimants; 40 Table of Contents • loss of revenue; • exhaustion of any available insurance and our capital resources; and • decreased demand for our products.
In the future, we may also wish to market our existing HCT/P 50 Table of Contents products for new intended uses that may render them ineligible for regulation as Section 361 HCT/Ps and cause them to require premarket clearance or approval and comply with post-market regulations under the medical device or biological product provisions of the FDCA and/or PHSA instead.
In the future, we may also wish to market our existing HCT/P products for new intended uses that may render them ineligible for regulation as Section 361 HCT/Ps and cause them to require premarket clearance or approval and comply with post-market regulations under the medical device or biological product provisions of the FDCA and/or PHSA instead.
If we 55 Table of Contents are found to be liable for FCPA or other violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions, including contract cancellations or debarment, and loss of reputation, any of which could have a material adverse impact on our business, financial condition, and results of operations.
If we are found to be liable for FCPA or other violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions, including contract cancellations or debarment, and loss of reputation, any of which could have a material adverse impact on our business, financial condition, and results of operations.
When ASP data are not available in the quarterly ASP file published by CMS (for instance our Affinity product in the fourth quarter of 2021), the Part A/B MACs establish payment for drugs and biologics in their jurisdiction(s). In these situations, MACs can update their reimbursement methodology as frequently as quarterly, without notice.
When ASP data are not available in the quarterly ASP file published by CMS (for instance our Affinity product in the fourth quarter of 2021), the Part A/B MACs establish payment for drugs and biologics in their jurisdiction(s). In these situations, MACs 59 Table of Contents can update their reimbursement methodology as frequently as quarterly, without notice.
As noted above, some of the products that we distribute are considered Section 361 HCT/Ps. The FDA’s regulation of HCT/Ps includes requirements for registration and listing of products; donor screening and testing; processing and distribution, known as “Current Good Tissue Practices,” or cGTP; labeling; record keeping and adverse-reaction reporting; and inspection and enforcement.
As noted above, some of the products that we distribute are considered Section 361 HCT/Ps. The FDA’s regulation of HCT/Ps includes requirements for registration and listing of products; donor screening and testing; processing and distribution, known as "Current Good Tissue Practices," or cGTP; labeling; record keeping and adverse-reaction reporting; and inspection and enforcement.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. 59 Table of Contents If we are unable to protect the confidentiality of our trade secrets and know-how, our business and competitive position would be harmed.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. If we are unable to protect the confidentiality of our trade secrets and know-how, our business and competitive position would be harmed.
We are required under generally accepted accounting principles to test goodwill for impairment at least annually and to review our goodwill, amortizable intangible assets, and other assets acquired through merger and acquisition activity, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.
We are required under generally accepted accounting principles in the United States (GAAP) to test goodwill for impairment at least annually and to review our goodwill, amortizable intangible assets, and other assets acquired through merger and acquisition activity, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.
We may have liability for the actions of independent sales agencies in marketing our products and our lack of control over their activities impedes our ability to prevent, detect or address such non-compliance. We intend to develop relationships and arrangements with additional independent sales agencies in order to increase our sales with respect to certain of our products.
We may have liability for the actions of independent sales agencies in marketing our products and our lack of control over their activities impedes our ability to prevent, detect or address such non-compliance. 42 Table of Contents We intend to develop relationships and arrangements with additional independent sales agencies in order to increase our sales with respect to certain of our products.
Factors that could lead to impairment of goodwill, amortizable intangible assets, and other assets acquired via acquisitions include significant adverse changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment) and declines 44 Table of Contents in the financial condition of our business.
Factors that could lead to impairment of goodwill, amortizable intangible assets, and other assets acquired via acquisitions include significant adverse changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment) and declines in the financial condition of our business.
Although we believe that we have all necessary regulatory approvals or clearances legally required for the products that we currently market, the introduction of new or modified products may require us to secure new approvals or clearances.
Although we believe that we have all necessary regulatory approvals or clearances legally required for the products that we currently market, the introduction of new or modified products, or new or modified FDA regulatory rules, may require us to secure new approvals or clearances.
The Inflation Reduction Act (IRA) establishes a Drug Price Negotiation Program that requires the Secretary of Health and Human Services to negotiate the price of certain high expenditure Medicare drugs that do not have generic or biosimilar competition. The law also establishes Medicare Part B inflationary rebates, effective Q1 2023.
The IRA establishes a Drug Price Negotiation Program that requires the Secretary of Health and Human Services to negotiate the price of certain high expenditure Medicare drugs that do not have generic or biosimilar competition. The law also establishes Medicare Part B inflationary rebates, effective Q1 2023.
However, RMAT designation does not assure that marketing approval will be granted and, if granted, that the approval process would be any faster than it would have otherwise been. 48 Table of Contents In January 2021, we announced RMAT designation for ReNu for the management of symptoms associated with knee OA.
However, RMAT designation does not assure that marketing approval will be granted and, if granted, that the approval process would be any faster than it would have otherwise been. In January 2021, we announced RMAT designation for ReNu for the management of symptoms associated with knee OA.
We may also hire additional employees who are currently employed at other medical device, pharmaceutical, or biotechnology companies, including our competitors. Additionally, consultants or other independent agents with whom we may contract may be or have been in a contractual arrangement with one or more of our competitors.
We may also hire additional employees who are currently employed at other medical device, pharmaceutical, or biotechnology 61 Table of Contents companies, including our competitors. Additionally, consultants or other independent agents with whom we may contract may be or have been in a contractual arrangement with one or more of our competitors.
The full impact of the Leahy-Smith Act on our business is not yet clear, but it could result in increased costs and more limited patent protection, either of which could adversely affect our business, results of operations, and financial condition. 60 Table of Contents Moreover, recent U.S.
The full impact of the Leahy-Smith Act on our business is not yet clear, but it could result in increased costs and more limited patent protection, either of which could adversely affect our business, results of operations, and financial condition. Moreover, recent U.S.
In addition, we may 61 Table of Contents not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.
In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.
Our products are manufactured using technically complex processes requiring specialized facilities, highly specific raw materials, and other production constraints. The complexity of these processes, as well as strict company and government standards 39 Table of Contents for the manufacture and storage of our products, subjects us to production risks.
Our products are manufactured using technically complex processes requiring specialized facilities, highly specific raw materials, and other production constraints. The complexity of these processes, as well as strict company and government standards for the manufacture and storage of our products, subjects us to production risks.
We engage in various types of activities, including the conduct of speaker programs to educate physicians, the provision of reimbursement advice and support to customers, and the 53 Table of Contents provision of customer and patient support services, that have been the subject of government scrutiny and enforcement action within the medical device industry.
We engage in various types of activities, including the conduct of speaker programs to educate physicians, the provision of reimbursement advice and support to customers, and the provision of customer and patient support services, that have been the subject of government scrutiny and enforcement action within the medical device industry.
Specifically, the Patient Protection and Affordable Care Act, or PPACA, enacted in 2010, contains provisions for Medicare demonstration programs that create financial incentives to treat patients with chronic wounds conservatively and not use our products. Furthermore, all our products are not paid separately in the outpatient hospital setting which is our largest customer base.
Specifically, the Patient Protection and Affordable Care Act, or 58 Table of Contents PPACA, enacted in 2010, contains provisions for Medicare demonstration programs that create financial incentives to treat patients with chronic wounds conservatively and not use our products. Furthermore, all our products are not paid separately in the outpatient hospital setting which is our largest customer base.
Unfavorable results from these trials or studies or from similar trials or studies conducted by others may negatively affect the use or adoption of our products by physicians, hospitals, and payers, which could have a negative impact on the market acceptance of these products and their profitability.
Unfavorable results from these trials or studies or from similar trials or studies conducted by others may negatively 52 Table of Contents affect the use or adoption of our products by physicians, hospitals, and payers, which could have a negative impact on the market acceptance of these products and their profitability.
We face significant and continuing competition, which could adversely affect our business, results of operations, and financial condition. 64 Table of Contents We face significant and continuing competition in our business, which is characterized by rapid technological change and significant price competition. Market share can shift as a result of technological innovation and other business factors.
We face significant and continuing competition, which could adversely affect our business, results of operations, and financial condition. We face significant and continuing competition in our business, which is characterized by rapid technological change and significant price competition. Market share can shift as a result of technological innovation and other business factors.
Patent and Trademark Office and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment, and other provisions during the patent application process.
The U.S. Patent and Trademark Office and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment, and other provisions during the patent application process.
As of January 1, 2022, we began reporting ASP for all our skin substitute products that are paid separately as biologics. The first such ASP report was made on April 30, 2022 for Q1 2022. Government price reporting requirements are complex.
As of January 1, 2022, we began reporting ASP for all our skin substitute products that are paid separately as biologics. The first such ASP report was made on April 30, 2022 for Q1 56 Table of Contents 2022. Government price reporting requirements are complex.
We are party to a securities class action lawsuit as disclosed in Item 3, “Legal Proceedings”. We may be subject to additional lawsuits, including class action or securities derivative lawsuits as well as incur additional legal fees and may face negative impacts to our stock price and reputation.
We are party to a securities class action lawsuit as disclosed in Item 3, "Legal Proceedings". We may be subject to additional lawsuits, including class action or securities derivative lawsuits as well as incur additional legal fees and may face negative impacts to our stock price and reputation.
If we do not report ASP or if we incorrectly report ASP, we may have to restate ASP for prior quarters or may face penalties, including statutory and regulatory sanctions. 34 Table of Contents • Section 90004 of the Infrastructure Investment and Jobs Act, enacted in November 2021, requires manufacturers to pay a refund to the federal government if more than a certain applicable percentage of their single-use product is not administered to a patient and is discarded (“wasted”) by providers.
If we do not report ASP or if we incorrectly report ASP, we may have to restate ASP for prior quarters or may face penalties, including statutory and regulatory sanctions. • Section 90004 of the Infrastructure Investment and Jobs Act, enacted in November 2021, requires manufacturers to pay a refund to the federal government if more than a certain applicable percentage of their single-use product is not administered to a patient and is discarded ("wasted") by providers.
This could significantly disrupt our ability to purchase or lease required equipment, supplies, products and components in a cost-effective and timely manner and could have a material adverse effect on our business, results of operations, and financial condition.
This could significantly disrupt our ability to purchase or lease required equipment, supplies, products 41 Table of Contents and components in a cost-effective and timely manner and could have a material adverse effect on our business, results of operations, and financial condition.
The presence of this competition in our market may lead to pricing pressure, which would make it more difficult to sell our products at a price that will make us profitable or prevent us from selling our products at all.
The presence of this competition in our market may lead to pricing pressure, which would make it more difficult to sell our products at a price that will make us profitable 67 Table of Contents or prevent us from selling our products at all.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC before making an investment decision regarding our Class A common stock. • Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control. • We have incurred significant losses in past years, and, notwithstanding our reported net income for the 2020, 2021 and 2022 fiscal years, we may incur losses in the future. • Our success will depend in part on the extent to which coverage and adequate reimbursement for the costs of our products and related services will be available from government payers, private health insurers, and other third-party payers and we do not know whether such reimbursement will be available or, if such reimbursement is available, the rate at which it will be available.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading "Risk Factors" and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC before making an investment decision regarding our Class A common stock. • Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control. • We have incurred significant losses in past years, and, notwithstanding our reported net income since the year ended December 31, 2020, we may incur losses in the future. • Our success will depend in part on the extent to which coverage and adequate reimbursement for the costs of our products and related services will be available from government payers, private health insurers, and other third-party payers and we do not know whether such reimbursement will be available or, if such reimbursement is available, the rate at which it will be available.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
We may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets, or other investments become impaired. Any such charge would adversely impact our financial results. Our ability to use our net operating loss carryforwards may be subject to certain limitations.
We may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets, or other investments become impaired. Any such charge would adversely impact our financial results. 46 Table of Contents Our ability to use our net operating loss carryforwards may be subject to certain limitations.
The failure to comply with prohibitions on “off-label” promotion can result in significant monetary penalties, revocation or suspension of a company’s business license, suspension of sales of certain products, product recalls, civil or criminal sanctions, exclusion from participating in federal healthcare programs, or other enforcement actions.
The failure to comply with prohibitions on off-label promotion can result in significant monetary penalties, revocation or suspension of a company’s business license, suspension of sales of certain products, product recalls, civil or criminal sanctions, exclusion from participating in federal healthcare programs, or other enforcement actions.
External factors, such as regulatory compliance obligations, competitive alternatives, lack of market acceptance, and shifting market preferences, may also affect the successful implementation of a new line of business or a new product 42 Table of Contents or service.
External factors, such as regulatory compliance obligations, competitive alternatives, lack of market acceptance, and shifting market preferences, may also affect the successful implementation of a new line of business or a new product or service.
In light of the 361 HCT/P Guidance, our labeling and marketing claims for our placental-based membrane products, including our Affinity, NuShield, and Novachor products, clarify that they are intended as wound coverings, and thus meet the homologous use requirement to qualify as Section 361 HCT/Ps.
In light of the 361 HCT/P Guidance, our labeling and marketing claims for our placental-based membrane products, including our Affinity, NuShield, and Novachor products, clarify that they are intended as protective barriers, and thus meet the homologous use requirement to qualify as Section 361 HCT/Ps.
The total amount of any discarded product rebate liability is not known at this time. • We have identified material weaknesses in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective.
The total amount of any potential discarded product rebate liability is not known at this time. • We have identified a material weakness in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective.
Management may be unable 41 Table of Contents to hire, train, retain, motivate, and manage necessary personnel or to identify, manage, and exploit existing and potential strategic relationships and market opportunities. In addition to expanding our organization, we are expanding our manufacturing capabilities, which requires significant capital expenditures.
Management may be unable to hire, train, retain, motivate, and manage necessary personnel or to identify, manage, and exploit existing and potential strategic relationships and market opportunities. In addition to expanding our organization, we are expanding our manufacturing capabilities, which requires significant capital expenditures.
Preliminary, initial or interim data also remain subject to audit and 47 Table of Contents verification procedures that may result in the final data being materially different from such preliminary, initial or interim data. As a result, preliminary, initial or interim data should be considered carefully and with caution until the final data are available.
Preliminary, initial or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from such preliminary, initial or interim data. As a result, preliminary, initial or interim data should be considered carefully and with caution until the final data are available.
The rate of reimbursement and coverage for the use of our products has been and may continue to be unstable, unpredictable and subject to changes in government and private payer policies that could adversely affect our business, results of operations, and financial condition.
The rate of reimbursement and coverage for the use of our products has been and may continue to be unstable, unpredictable and subject to changes in government and private payer policies (including the adoption of new LCDs) that could adversely affect our business, results of operations, and financial condition.
We can provide no assurance that we are or will remain in compliance with diverse privacy and security requirements in all of the jurisdictions 43 Table of Contents in which we do business.
We can provide no assurance that we are or will remain in compliance with diverse privacy and security requirements in all of the jurisdictions in which we do business.
The requirements and restrictions apply to “covered entities” (which include health care providers and insurers) as well as to their business associates that receive protected health information from them in order to provide services to or perform certain activities on their behalf.
The requirements and restrictions apply to "covered entities" (which include health care providers and insurers) as well as to their business associates that receive protected health information from them in order to provide services to or perform certain activities on their behalf.
As of December 31, 2022, we also had state net operating loss carry-forwards of approximately $14.3 million expiring from the year ended December 31, 2031 through 2038. It is uncertain whether and to what extent applicable state tax laws will conform to the federal rule, though we are already subject to limitations in net operating loss utilization in certain states.
As of December 31, 2023, we also had state net operating loss carry-forwards of approximately $9.4 million expiring from the year ended December 31, 2031 through 2038. It is uncertain whether and to what extent applicable state tax laws will conform to the federal rule, though we are already subject to limitations in net operating loss utilization in certain states.
In particular, such products may require FDA approval of Biologics License Applications, or BLAs, under Section 351 of the Public Health Service Act (the “PHSA”), Premarket Approval, or PMA, submissions under Section 515 of the Federal Food, Drug, and Cosmetic Act, or FDCA, or may require clearance under Section 510(k) of the FDCA.
In particular, such products may require FDA approval of Biologics License Applications, or BLAs, under Section 351 of the PHSA, Premarket Approval, or PMA, submissions under Section 515 of the Federal Food, Drug, and Cosmetic Act, or FDCA, or may require clearance under Section 510(k) of the FDCA.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeNussdorf, who are also our stockholders. In addition, Messrs. Ades and Nussdorf are members of our Board of Directors. In Norwood, Massachusetts, we have a leased facility of approximately 43,850 square feet for office and laboratory use. The lease commenced on March 13, 2019. The rent commencement date was February 1, 2020.
Biggest changeNussdorf, who are also our stockholders. In addition, Messrs. Ades and Nussdorf are members of our Board of Directors. In Norwood, Massachusetts, we have a leased facility of approximately 43,850 square feet for office, laboratory, and manufacturing use. The lease commenced on March 13, 2019. The rent commencement date was February 1, 2020.
Removed
With the expiration of the La Jolla facility leases on December 31, 2021, we entered into a lease in August 2020 for approximately 23,000 square feet in San Diego, California for office and laboratory use. The lease commenced on April 1, 2021.
Added
We lease smaller facilities in Alabama, California, Florida, and Massachusetts, for manufacturing, warehouse, office, and laboratory space, under agreements with varying expiration dates through 2031.
Removed
The initial lease term is ten years from the lease commencement date, with an option to extend the term for a period of five years. In San Diego, California, we have leased a warehouse of approximately 19,000 square feet to store the manufacturing equipment from the La Jolla facilities. The lease expires on June 30, 2024.
Removed
In Birmingham, Alabama, we had a leased facility of approximately 25,000 square feet to support our amniotic products. The lease expired on December 31, 2022. We moved the operation from Birmingham, Alabama to our Canton, Massachusetts campus. We continue to maintain our R&D operations in Birmingham in a small leased facility.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are currently preparing our papers in support of our motion to dismiss the litigation for failure to state a claim upon which relief can be granted. We are not a party to any other material legal proceedings.
Biggest changeOn March 13, 2023, we filed our motion to dismiss the litigation for failure to state a claim upon which relief can be granted. Briefing was completed on May 30, 2023 and on February 20, 2024, the Court heard oral arguments on the motion to dismiss. The timing for a ruling on the motion to dismiss is currently uncertain.
The complaint alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks unquantified damages as well as attorneys’ fees, expert fees and other costs. The action is in the early stages of litigation. We believe the claims are without merit and intend to vigorously contest them.
The amended complaint alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks unquantified damages as well as attorneys’ fees, expert fees and other costs. The action is in the early stages of litigation. We believe the claims are without merit and intend to vigorously contest them.
However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. ITEM 4. MINE SA FETY DISCLOSURES Not applicable. 70 Table of Contents PART II
However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. ITEM 4. MINE SA FETY DISCLOSURES Not applicable. 74 Table of Contents PART II
From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. These matters may include intellectual property, employment and other general claims.
We are not a party to any other material legal proceedings. From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. These matters may include intellectual property, employment and other general claims.
ITEM 3. LE GAL PROCEEDINGS On December 10, 2021, a class action complaint captioned Somogyi v. Organogenesis Holdings Inc., et al. was filed on behalf of a putative class of all purchasers of our securities against us and our Chief Executive Officer and Chief Financial Officer in the United States District Court for the Eastern District of New York.
Organogenesis Holdings Inc., et al. was filed on behalf of a putative class of all purchasers of our securities against us and our Chief Executive Officer and Chief Financial Officer in the 73 Table of Contents United States District Court for the Eastern District of New York. The court appointed Donald Martin as lead plaintiff. Mr.
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The court appointed Donald Martin as lead plaintiff. Mr.
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ITEM 3. LE GAL PROCEEDINGS On December 10, 2021, a class action complaint captioned Somogyi v.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 70 PART II Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 71 Item 6. Reserved 72 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 73 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 86 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 74 PART II Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 75 Item 6. Reserved 76 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 77 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 90 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCOMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN Among Organogenesis Holdings Inc., the NASDAQ Composite Index, and the NASDAQ Biotechnology Index 71 Table of Contents (1) This performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any filing of Organogenesis Holdings Inc. under the Securities Act of 1933, as amended.
Biggest changeCOMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN Among Organogenesis Holdings Inc., the NASDAQ Composite Index, and the NASDAQ Biotechnology Index (1) This performance graph shall not be deemed to be "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that 75 Table of Contents Section, and shall not be deemed incorporated by reference into any filing of Organogenesis Holdings Inc. under the Securities Act of 1933, as amended.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A common stock is listed on the Nasdaq Capital Market under the symbol “ORGO”.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A common stock is listed on the Nasdaq Capital Market under the symbol "ORGO".
Stock Performance Graph (1) The following graph shows a comparison from December 29, 2017 through December 31, 2022 of cumulative total return on assumed investments of $100.00 in cash in each of our Class A common stock, the NASDAQ Composite Index and the NASDAQ Biotechnology Index.
Stock Performance Graph (1) The following graph shows a comparison from December 31, 2018 through December 29, 2023 of cumulative total return on assumed investments of $100.00 in cash in each of our Class A common stock, the NASDAQ Composite Index and the NASDAQ Biotechnology Index.
As of February 15, 2023, a total of 131,176,200 shares of our Class A common stock were outstanding and we had 583 holders of record of our Class A common stock. This number does not include shareholders for whom shares are held in “nominee” or “street” name.
As of February 26, 2024, a total of 131,963,176 shares of our Class A common stock were outstanding and we had 607 holders of record of our Class A common stock. This number does not include shareholders for whom shares are held in "nominee" or "street" name.
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For the period beginning on December 29, 2017 through December 10, 2018, the graph reflects cumulative total return based on the price per share of the Class A common stock of our predecessor company, Avista Healthcare Public Acquisition Corp., prior to the closing of our business combination.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth, for the periods indicated, our results of operations: 76 Table of Contents Year Ended December 31, 2022 2021 2020 Net revenue $ 450,893 $ 467,359 $ 338,298 Cost of goods sold 105,019 114,199 87,319 Gross profit 345,874 353,160 250,979 Operating expenses: Selling, general and administrative 283,808 250,200 204,193 Research and development 39,762 30,742 20,086 Total operating expenses 323,570 280,942 224,279 Income from operations 22,304 72,218 26,700 Other expense, net: Interest expense (2,009 ) (7,236 ) (11,279 ) Gain on settlement of deferred acquisition consideration - - 2,246 Loss on the extinguishment of debt - (1,883 ) - Other income (loss), net (13 ) (13 ) 97 Total other expense, net (2,022 ) (9,132 ) (8,936 ) Net income before income taxes 20,282 63,086 17,764 Income tax (expense) benefit (4,750 ) 31,116 (530 ) Net income $ 15,532 $ 94,202 $ 17,234 EBITDA and Adjusted EBITDA The following table presents a reconciliation of GAAP net income to non-GAAP EBITDA and non-GAAP Adjusted EBITDA, for each of the periods presented: Year Ended December 31, 2022 2021 2020 (in thousands) Net income $ 15,532 $ 94,202 $ 17,234 Interest expense 2,009 7,236 11,279 Income tax expense (benefit) 4,750 (31,116 ) 530 Depreciation 5,845 5,781 4,438 Amortization 4,883 4,949 3,745 EBITDA 33,019 81,052 37,226 Stock-based compensation expense 6,552 3,864 1,661 Restructuring charge (1) 2,268 4,704 618 Gain on settlement of deferred acquisition consideration (2) - - (2,246 ) Recovery of certain notes receivable from related parties (3) - (179 ) (1,516 ) Cancellation fee (4) - - 1,950 Write-off of certain assets (5) 4,200 1,104 - Change in fair value of Earnout (6) - (3,985 ) 203 Settlement fee (7) 2,600 700 - Loss on extinguishment of debt (8) - 1,883 - Facility construction project pause (9) 632 - - CPN transaction costs (10) - - 929 Adjusted EBITDA $ 49,271 $ 89,143 $ 38,825 (1) Amounts reflect employee retention and benefits as well as other exit costs associated with the Company’s restructuring activities.
Biggest changeResults of Operations The following table sets forth, for the periods indicated, our results of operations: Year Ended December 31, 2023 2022 2021 Net revenue $ 433,140 $ 450,893 $ 467,359 Cost of goods sold 106,481 105,019 114,199 Gross profit 326,659 345,874 353,160 Operating expenses: Selling, general and administrative 269,754 283,808 250,200 Research and development 44,380 39,762 30,742 Total operating expenses 314,134 323,570 280,942 Income from operations 12,525 22,304 72,218 Other expense, net: Interest expense, net (2,190 ) (2,009 ) (7,236 ) Loss on the extinguishment of debt — — (1,883 ) Other income (loss), net 57 (13 ) (13 ) Total other expense, net (2,133 ) (2,022 ) (9,132 ) Net income before income taxes 10,392 20,282 63,086 Income tax (expense) benefit (5,447 ) (4,750 ) 31,116 Net income and comprehensive income $ 4,945 $ 15,532 $ 94,202 81 Table of Contents EBITDA and Adjusted EBITDA The following table presents a reconciliation of GAAP net income to non-GAAP EBITDA and non-GAAP Adjusted EBITDA, for each of the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Net income $ 4,945 $ 15,532 $ 94,202 Interest expense, net 2,190 2,009 7,236 Income tax expense (benefit) 5,447 4,750 (31,116 ) Depreciation 10,448 5,845 5,781 Amortization 4,918 4,883 4,949 EBITDA 27,948 33,019 81,052 Stock-based compensation expense 8,996 6,552 3,864 Restructuring charge (1) 3,796 2,268 4,704 Recovery of certain notes receivable from related parties (2) — — (179 ) Write-off of certain assets (3) — 4,200 1,104 Change in fair value of earnout (4) — — (3,985 ) Settlement fee (5) — 2,600 700 Loss on extinguishment of debt (6) — — 1,883 Facility construction project pause (7) — 632 — Legal and consulting fees (8) 1,182 — — Sales retention (9) 694 — — Adjusted EBITDA $ 42,616 $ 49,271 $ 89,143 (1) Amounts reflect employee retention and benefits as well as other exit costs associated with the Company’s restructuring activities.
Other expense, net Interest expense —Interest expense consists of interest on our outstanding indebtedness, including amortization of debt discount and debt issuance costs, net of interest income recognized.
Other expense, net Interest expense, net —Interest expense, net consists of interest on our outstanding indebtedness, including amortization of debt discount and debt issuance costs, net of interest income recognized.
The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and the disclosure at the date of the financial statements, as well as revenue and expenses recorded during the reporting periods.
The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and the disclosure at the date of the consolidated financial statements, as well as revenue and expenses recorded during the reporting periods.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.
In determining whether a valuation allowance for deferred tax assets is necessary, we analyze both positive and negative evidence related to the realization of deferred tax assets including projected future taxable income, recent financial results and estimates of future reversals of deferred tax assets and liabilities.
In determining whether a valuation allowance for deferred tax assets is necessary, we analyze both positive and negative evidence related to the realization of deferred tax assets including projected future taxable income, recent financial results and estimates of future reversals of deferred tax assets and liabilities.
In consideration of the factors discussed above, in the fourth quarter of 2021, we determined it was more likely than not that our deferred tax assets would be realized in the future and released the valuation allowance on our net U.S. deferred tax assets as of December 31, 2021, resulting in a benefit of $48.3 million in income taxes.
In consideration of the factors discussed above, in the fourth quarter of 2021, we determined it was more likely than not that our deferred tax assets would be realized in the future and released the valuation allowance on our net U.S. deferred tax assets as of December 31, 2021, resulting in a benefit of $48.3 million in income taxes.
Our Sports Medicine products include NuShield for surgical applications in targeted soft tissue repairs; and Affinity, Novachor, PuraPly MZ, and PuraPly AM for management of open wounds in the surgical setting. We currently sell these products through independent agencies and our direct sales force.
Our Sports Medicine products include NuShield for surgical applications in targeted soft tissue repairs; and Affinity, Novachor, PuraPly MZ, PuraPly AM, and PuraPly SX for management of open wounds in the surgical setting. We currently sell these products through independent agencies and our direct sales force.
Research and development expenses Research and development expenses include personnel costs for our research and development personnel, expenses related to improvements in our manufacturing processes, enhancements to our currently available products, and additional investments in our product and platform development pipeline. Our research and development expenses also include expenses for clinical trials. We expense research and development costs as incurred.
Research and development expenses Research and development expenses include expenses for clinical trials, personnel costs for our research and development personnel, expenses related to improvements in our manufacturing processes, enhancements to our currently available products, and additional investments in our product and platform development pipeline. We expense research and development costs as incurred.
We expect that our cash on hand and other components of working capital as of December 31, 2022, availability under the 2021 Credit Agreement, plus net cash flows from product sales, will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this Annual Report on Form 10-K.
We expect that our cash on hand and other components of working capital as of December 31, 2023, availability under the 2021 Credit Agreement, plus net cash flows from product sales, will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this Annual Report on Form 10-K.
In addition, we are also required to make representations and warranties and comply with certain non-financial covenants that are customary in loan agreements of this type, including restrictions on the payment of dividends, repurchase of stock, incurrence of indebtedness, dispositions and acquisitions. As of December 31, 2022, we were in compliance with the covenants under the 2021 Credit Agreement.
In addition, we are also required to make representations and warranties and comply with certain non-financial covenants that are customary in loan agreements of this type, including restrictions on the payment of dividends, repurchase of stock, incurrence of indebtedness, dispositions and acquisitions. As of December 31, 2023, we were in compliance with the covenants under the 2021 Credit Agreement.
These reductions are accrued at the time revenue is recognized, based upon historical experience and specific circumstances. Accounts Receivable, Net Accounts receivables are stated at invoice value less estimated allowances for doubtful accounts. We continually monitor customer payments and maintain a reserve for estimated losses resulting from our customers’ inability to make required payments.
These reductions are accrued at the time revenue is recognized, based upon historical experience and specific circumstances. Accounts Receivable, Net Accounts receivables are stated at invoice value less estimated allowances for credit losses. We continually monitor customer payments and maintain a reserve for estimated losses resulting from our customers’ inability to make required payments.
We maintained the same position that our net U.S. deferred tax assets did not require a valuation allowance as of December 31, 2022. We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.
We maintained the same position that our net U.S. deferred tax assets did not require a valuation allowance as of December 31, 2023. We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.
While we reported net income for the most recent three years, we have incurred significant losses since inception and we may incur operating losses in the future as we expend resources as part of our efforts to grow our organization to support the planned expansion of our business.
While we reported net income for the most recent four years, we have incurred significant losses since inception and we may incur operating losses in the future as we expend resources as part of our efforts to grow our organization to support the planned expansion of our business.
The aggregated consideration amounted to $19.0 million as of the acquisition date which consisted of $6.4 million in cash, 2,151,438 shares of our common stock with a fair value of $8.8 million, and a contingent consideration (the “Earnout”) with a fair value at such time of $3.8 million.
The aggregated consideration amounted to $19.0 million as of the acquisition date which consisted of $6.4 million in cash, 2,151,438 shares of our common stock with a fair value of $8.8 million, and a contingent consideration (the Earnout) with a fair value at such time of $3.8 million.
The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate 85 Table of Contents settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $28.7 million, an increase in inventory of $9.3 million, and a decrease in operating leases and other liabilities of $12.2 million, all of which were partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $13.2 million.
Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $28.7 million, an increase in inventory of $9.3 million, and a decrease 86 Table of Contents in operating leases and other liabilities of $12.2 million, all of which were partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $13.2 million.
The effective tax rate for 2022 was 23.4% and was computed based on the statutory rate of 21% 80 Table of Contents adjusted primarily for state and local income taxes, nondeductible officer compensation and an out-of-period adjustment for an error included in the beginning balance of the deferred tax asset.
The effective tax rate for 2022 was 23.4% and was computed based on the statutory rate of 21% adjusted primarily for state and local income taxes, nondeductible officer compensation and an out-of-period adjustment for an error included in the beginning balance of the deferred tax asset.
The 2021 Credit Agreement requires us to make consecutive quarterly installment payments equal to the following: (a) from September 30, 2021 through and including June 30, 2022, $0.5 million; (b) from September 30, 2022 through and including June 30, 2023, $0.9 million; (c) from September 30, 2023 through and including June 30, 2025, $1.4 million and (d) from September 30, 2025 and the last day of each quarter thereafter until August 6, 2026 (the “Term Loan Maturity Date”), $1.9 million.
The 2021 Credit Agreement requires us to make consecutive quarterly installment payments equal to the following: (a) from September 30, 2021 through and including June 30, 2022, $0.5 million; (b) from September 30, 2022 through and including June 30, 2023, $0.9 million; (c) from September 30, 2023 through and including June 30, 2025, $1.4 million and (d) from September 30, 2025 and the last day of each quarter thereafter until August 6, 2026 (the "Term Loan Maturity Date"), $1.9 million.
The 2021 Credit Agreement, as amended, provides for a term loan facility not to exceed $75.0 million (the “Term Loan Facility”) and a revolving credit facility not to exceed $125.0 million (the “Revolving Facility”). Advances made under the 2021 Credit Agreement may be either SOFR Loans or ABR Loans, at our option.
The 2021 Credit Agreement, as amended, provides for a term loan facility not to exceed $75.0 million (the Term Loan Facility) and a revolving credit facility not to exceed $125.0 million (the Revolving Facility). Advances made under the 2021 Credit Agreement may be either SOFR Loans or ABR Loans, at our option.
There are a number of limitations related to the use of Adjusted EBITDA 74 Table of Contents rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP.
There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP.
We generally expect our selling, general and administrative expenses to continue to 75 Table of Contents increase due to increased investments in market development and the geographic expansion of our sales forces as we drive for continued revenue growth.
We generally expect our selling, general and administrative expenses to continue to increase due to increased investments in market development and the geographic expansion of our sales forces as we drive for continued revenue growth.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of this Annual Report on Form 10-K.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section of this Annual Report on Form 10-K.
In addition, we consider whether it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position.
In addition, we consider whether it is more likely than not that the 80 Table of Contents tax position will be sustained on examination by taxing authorities based on the technical merits of the position.
We had outstanding borrowings of $71.3 million under our Term Loan Facility and no borrowings outstanding under our Revolving Facility with $125 million available for future revolving borrowings, respectively. 2019 Credit Agreement In March 2019, we, our subsidiaries and SVB, and the several other lenders thereto entered into a credit agreement, as amended (the “2019 Credit Agreement”), providing for a term loan facility of $40.0 million and a revolving credit facility of up to $60.0 million.
We had outstanding borrowings of $66.6 million under our Term Loan Facility and no borrowings outstanding under our Revolving Facility with $125 million available for future revolving borrowings, respectively. 2019 Credit Agreement In March 2019, we, our subsidiaries and SVB, and several other lenders thereto entered into a credit agreement, as amended (the 2019 Credit Agreement), providing for a term loan facility of $40.0 million and a revolving credit facility of up to $60.0 million.
For the year ended December 31, 2021, income tax benefit was $31.1 million, which primarily resulted from the release of the valuation allowance previously recorded against the full amount of our net U.S. deferred tax assets as of December 31, 2021. See footnote “15. Income Taxes” to our audited financial statements included in this Annual Report on Form 10-K .
For the year ended December 31, 2021, income tax benefit was $31.1 million, which primarily resulted from the release of the valuation allowance previously recorded against the full amount of our net U.S. deferred tax assets as of December 31, 2021. See Note 15, Income Taxes to our audited consolidated financial statements included in this Annual Report on Form 10-K.
We generated net revenue of $450.9 million, $467.4 million, and $338.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. We reported net income of $15.5 million, $94.2 (which includes a $48.3 million benefit from release of a tax valuation allowance), and $17.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.
We generated net revenue of $433.1 million, $450.9 million, and $467.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. We reported net income of $4.9 million, $15.5 million, and $94.2 million (which includes a $48.3 million benefit from release of a tax valuation allowance) for the years ended December 31, 2023, 2022, and 2021, respectively.
We generally expect that research and development expenses will increase as we continue to conduct clinical trials on new and existing products, move products through the regulatory pathway (e.g., seek BLA approval), bring new products to market, and enhance our manufacturing process and procedures.
We generally expect that research and development expenses will increase as we continue to conduct clinical trials on new and existing products, move products through the regulatory pathway (e.g., seek BLA approval), add personnel to support product enhancements as well as to bring new products to market, and enhance our manufacturing process and procedures.
As of December 31, 2022, we had an accumulated deficit of $45.3 million. Our primary sources of capital to date have been from sales of our products, borrowings from related parties and institutional lenders and proceeds from the sale of our Class A common stock.
As of December 31, 2023, we had an accumulated deficit of $41.0 million. Our primary sources of capital to date have been from sales of our products, borrowings from related parties and institutional lenders and proceeds from the sale of our Class A common stock.
The increase in research and development expenses was primarily due to increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products, an increase in product costs associated with our pipeline products not yet commercialized and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our products.
The increase in research and development expenses was primarily driven by an increase in compensation expenses of $2.2 million, due to increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products, an increase of $2.4 million in other clinical research and consulting costs associated with our pipeline products not yet commercialized, and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our product candidates.
Investing Activities During the year ended December 31, 2022, we used $33.9 million of cash in investing activities solely consisting of capital expenditures. During the year ended December 31, 2021, we used $31.2 million of cash in investing activities solely consisting of capital expenditures.
Investing Activities During the year ended December 31, 2023, we used $24.4 million of cash in investing activities solely consisting of capital expenditures. During the year ended December 31, 2022, we used $33.9 million of cash in investing activities solely consisting of capital expenditures.
Recently Issued Accounting Pronouncements For a description of recently issued accounting pronouncements, including the expected dates of adoption and the estimated effects, if any, on our consolidated financial statements, see footnote “2. Significant Accounting Policies” to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements For a description of recently issued accounting pronouncements, including the expected dates of adoption and the estimated effects, if any, on our consolidated financial statements, see Note 2, Significant Accounting Policies to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K. 89 Table of Contents
Income Tax (Expense) Benefit Years Ended December 31, Change 2022 2021 2020 2022 to 2021 2021 to 2020 (in thousands, except for percentages) Income tax (expense) benefit $ (4,750 ) $ 31,116 $ (530 ) $ (35,866 ) (115 %) $ 31,646 ** ** not meaningful For the year ended December 31, 2022, income tax expense of $4.8 million included $2.8 million of current income taxes and $2.0 million of deferred income taxes.
Income Tax (Expense) Benefit Years Ended December 31, Change 2023 2022 2021 2023 to 2022 2022 to 2021 (in thousands, except for percentages) Income tax (expense) benefit $ (5,447 ) $ (4,750 ) $ 31,116 $ (697 ) 15 % $ (35,866 ) (115 %) For the year ended December 31, 2023, income tax expense of $5.4 million included $3.4 million of current income taxes and $2.0 million of deferred income taxes.
We maintained the same position that our net U.S. deferred tax assets did not require a valuation allowance as of December 31, 2022. Our U.S. provision for income taxes relates to current tax expense associated with taxable income that could not be offset by state net operating losses.
We believe that our net U.S. deferred tax assets did not require a valuation allowance as of December 31, 2023. Our U.S. provision for income taxes relates to current tax expense associated with taxable income that could not be offset by net operating losses or research and development credits.
We recognize revenue from sales of our Advanced Wound Care and Surgical & Sports Medicine products when the customer obtains control of our product, which occurs at a point in time and may be upon procedure date, shipment, or delivery, based on the contractual terms of a contract.
As of December 31, 2023, we had approximately 260 direct sales representatives and approximately 160 independent agencies. 79 Table of Contents We recognize revenue from sales of our Advanced Wound Care and Surgical & Sports Medicine products when the customer obtains control of our product, which occurs at a point in time and may be upon procedure date, shipment, or delivery, based on the contractual terms of a contract.
For the year ended December 31, 2021, selling, general and administrative expenses increased by $46.0 million, or 23%, as compared to the year ended December 31, 2020.
For the year ended December 31, 2022, selling, general and administrative expenses increased by $33.6 million, or 13%, as compared to the year ended December 31, 2021.
For the year ended December 31, 2021, research and development expenses increased by $10.7 million, or 53%, as compared to the year ended December 31, 2020.
For the year ended December 31, 2022, research and development expenses increased by $9.0 million, or 29%, as compared to the year ended December 31, 2021.
We regularly review inventory quantities on hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value based upon management’s assumptions of future material usage, yields and obsolescence, which are a result of future demand and market conditions and the effective life of certain inventory items.
It also includes cell banks and the cost of tests mandated by regulatory agencies, of the materials to qualify them for production. 88 Table of Contents We regularly review inventory quantities on hand and record a provision to write down excess and obsolete inventory to its estimated net realizable value based upon management’s assumptions of future material usage, yields and obsolescence, which are a result of future demand and market conditions and the effective life of certain inventory items.
Income Taxes” to our audited financial statements included in this Annual Report on Form 10-K. Liquidity and Capital Resources Since our inception, we have funded our operations and capital expenditures through cash flows from product sales, loans from affiliates and entities controlled by certain of our affiliates, third-party debt and proceeds from the sale of our capital stock.
Liquidity and Capital Resources Since our inception, we have funded our operations and capital expenditures through cash flows from product sales, loans from affiliates and entities controlled by certain of our affiliates, third-party debt and proceeds from the sale of our capital stock.
During the year ended December 31, 2020, net cash provided by operating activities was $5.5 million, resulting from our net income of $17.2 million and non-cash charges of $16.0 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $27.8 million.
During the year ended December 31, 2022, net cash provided by operating activities was $24.9 million, resulting from our net income of $15.5 million, non-cash charges of $43.4 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $34.1 million.
For the year ended December 31, 2021, net revenue from our Advanced Wound Care products increased by $135.6 million, or 46%, as compared to the year ended December 31, 2020.
For the year ended December 31, 2022, net revenue from our Advanced Wound Care products decreased by $8.0 million, or 2%, as compared to the year ended December 31, 2021.
Commitments and Contingencies” to our audited financial statements included in this Annual Report on Form 10-K. (3) Amounts reflect the collection of certain notes receivable from related parties previously reserved. See footnote “19. Related Party Transactions” to our audited financial statements included in this Annual Report on Form 10-K.
See Note 11, Restructuring , to our audited consolidated financial statements included in this Annual Report on Form 10-K. (2) Amounts reflect the collection of certain notes receivable from related parties previously reserved. See Note 19, Related Party Transactions , to our audited consolidated financial statements included in this Annual Report on Form 10-K.
We recognized $1.9 million as loss on the extinguishment of the loan for the year ended December 31, 2021.
We recognized $1.9 million as loss on the extinguishment of the loan for the year ended December 31, 2021. Income taxes We account for income taxes using an asset and liability approach.
Our Advanced Wound Care products include Apligraf for the treatment of venous leg ulcers (“VLUs”) and diabetic foot ulcers (“DFUs”); Dermagraft for the treatment of DFUs (manufacturing currently suspended pending transition to a new manufacturing facility or engagement of a third-party manufacturer); PuraPly AM as an antimicrobial barrier for a broad variety of wound types; and the Affinity, Novachor and NuShield wound coverings to address a variety of wound sizes and types.
Our Advanced Wound Care products include Apligraf for the treatment of VLUs and DFUs; Dermagraft for the treatment of DFUs (manufacturing and distribution currently suspended pending transition to a new manufacturing facility or engagement of a third-party manufacturer); PuraPly AM and PuraPly XT as antimicrobial barriers and native, cross-linked ECM scaffold for a broad variety of wound types; and Affinity, Novachor and NuShield placental allografts to address a variety of wound sizes and types as a protective barrier and ECM scaffold.
These items include non-cash equity compensation, restructuring charges, loss on the extinguishment of debt, mark-to-market adjustments on our Earnout liability, transaction costs related to CPN acquisition, gain on settlement of deferred acquisition consideration, recovery of certain notes receivable from related parties, write-off of the capitalized costs related to certain unfinished construction work, the cancellation fee for terminating certain agreements or pausing a certain construction project, and settlement fee for a certain dispute.
These items include non-cash equity compensation, restructuring charges, recovery of certain notes receivable from related parties, write-off of the capitalized costs related to certain unfinished construction work and other long-term assets, the change in the fair value of the earnout liability in connection with the CPN acquisition, fees paid in connection with settlement of previously disputed GPO fees, loss on the extinguishment of debt, and the cancellation fee for terminating certain agreements or pausing a certain construction project.
Inventory Inventory is stated at the lower of cost (determined under the first-in first-out method) or net realizable value. Inventory includes raw materials, work in process and finished goods. It also includes cell banks and the cost of tests mandated by regulatory agencies, of the materials to qualify them for production.
Inventory Inventory is stated at the lower of cost (determined under the first-in first-out method) or net realizable value. Inventory includes raw materials, work in process and finished goods.
Impairment of Long-Lived Assets We review other long-lived assets (including identifiable definite lived intangible assets) for impairment whenever events or changes in circumstances indicate that the useful life is shorter than originally estimated or the carrying amount of an asset or asset group may not be recoverable.
Impairment of Long-Lived Assets We review long-lived assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.
Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable and other current assets of $17.9 million, an increase in inventory of $6.7 million, and a decrease in accounts payable and other liabilities of $4.6 million, all of which were partially offset by an increase in accrued expenses and other current liabilities of $1.4 million.
Net cash used in changes in our operating assets and liabilities included an increase in inventories and prepaid expenses of a total of $18.3 million, and a decrease in net operating lease liabilities of $8.4 million, partially offset by an increase in accounts payable, accrued expenses, and other current and noncurrent liabilities of $3.1 million, and a decrease in accounts receivable of $5.5 million.
The decrease in gross profit resulted primarily from decreased sales volume and increased manufacturing-related costs, partially offset by a shift in product mix to our higher gross margin products. For the year ended December 31, 2021, cost of goods sold increased by $26.9 million, or 31%, as compared to the year ended December 31, 2020.
The decrease in gross profit resulted primarily from a decrease in the pricing for certain of our products, as well as a shift in product mix. For the year ended December 31, 2022, cost of goods sold decreased by $9.2 million, or 8%, as compared to the year ended December 31, 2021.
Amount in 2022 reflects the disposal of certain equipment related to the same facility. See footnote “8. Property and Equipment, Net” to our audited financial statements included in this Annual Report on Form 10-K. (6) Amounts reflect the change in the fair value of the Earnout liability in connection with the CPN acquisition. See footnote “3.
See Note 8, Property and Equipment, Net , to our audited consolidated financial statements included in this Annual Report on Form 10-K. (4) Amounts reflect the change in the fair value of the earnout liability in connection with the CPN acquisition. See Note 3, Acquisition to our audited consolidated financial statements included in this Annual Report on Form 10-K.
This consisted primarily of the repayment of borrowings of $70.0 million under the 2019 Credit Agreement, the payment of $1.6 million to extinguish this debt facility, the payment of finance lease obligations of $2.6 million, and the payment of $2.2 million related to other financing activities. 82 Table of Contents The net cash used in financing activities was principally offset by $73.2 million in net proceeds from the 2021 Credit Agreement and $2.2 million in proceeds from the exercise of common stock options.
This consisted primarily of the repayment of borrowings of $70.0 million under the 2019 Credit Agreement, the payment of $1.6 million to extinguish this debt facility, the payment of finance lease obligations of $2.6 million, and the payment of $2.2 million related to other financing activities.
Cost of Goods Sold and Gross Profit 78 Table of Contents Years Ended December 31, Change 2022 2021 2020 2022 to 2021 2021 to 2020 (in thousands, except for percentages) Cost of goods sold $ 105,019 $ 114,199 $ 87,319 $ (9,180 ) (8 %) $ 26,880 31 % Gross profit $ 345,874 $ 353,160 $ 250,979 $ (7,286 ) (2 %) $ 102,181 41 % For the year ended December 31, 2022, cost of goods sold decreased by $9.2 million, or 8%, as compared to the year ended December 31, 2021.
Cost of Goods Sold and Gross Profit Years Ended December 31, Change 2023 2022 2021 2023 to 2022 2022 to 2021 (in thousands, except for percentages) Cost of goods sold $ 106,481 $ 105,019 $ 114,199 $ 1,462 1 % $ (9,180 ) (8 %) Gross profit $ 326,659 $ 345,874 $ 353,160 $ (19,215 ) (6 %) $ (7,286 ) (2 %) For the year ended December 31, 2023, cost of goods sold increased by $1.5 million, or 1%, as compared to the year ended December 31, 2022.
In the Advanced Wound Care market, we focus on the development and commercialization of advanced wound care products for the treatment of chronic and acute wounds in various treatment settings. We have a comprehensive portfolio of regenerative medicine products capable of supporting patients from early in the wound healing process through wound closure regardless of wound type.
We have a comprehensive portfolio of regenerative medicine products capable of supporting patients from early in the wound healing process through wound closure regardless of wound type.
During the year ended December 31, 2020, we used $23.5 million of cash in investing activities consisting of capital expenditures of $17.7 million and payment of $5.8 million related to the acquisition of CPN. Financing Activities During the year ended December 31, 2022, net cash used in financing activities was $2.2 million.
During the year ended December 31, 2021, we used $31.2 million of cash in investing activities solely consisting of capital expenditures. Financing Activities During the year ended December 31, 2023, net cash used in financing activities was $5.5 million.
The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
(8) Amount reflects the loss recognized on the extinguishment of the 2019 Credit Agreement upon repayment in 2021. See footnote “12. Long-Term Debt Obligations” to our audited financial statements included in this Annual Report on Form 10-K. (9) Amount reflects the cancellation fees incurred in connection with the Company’s decision to pause one of its manufacturing facility construction projects.
See Note 12, Long-Term Debt Obligations , to our audited consolidated financial statements included in this Annual Report on Form 10-K. (7) Amount reflects the cancellation fees incurred in connection with the Company’s decision to pause one of its manufacturing facility construction projects. (8) Amount reflects the legal and consulting fees incurred related to the recently published and withdrawn LCDs.
We have and intend to continue to generate data from clinical trials, real-world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products. Several of our existing and pipeline products in our portfolio have premarket approval (“PMA”), or 510(k) clearance from the FDA.
We offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care. We have and intend to continue to generate data from clinical trials, real-world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products.
If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.
First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements.
Acquisition” to our audited financial statements included in this Annual Report on Form 10-K. (7) Amounts reflect the fee the Company paid to a GPO to settle previously disputed GPO fees. See footnote “2. Significant Accounting Policies” to our audited financial statements included in this Annual Report on Form 10-K.
(5) Amounts reflect the fee the Company paid to a GPO to settle previously disputed GPO fees. See Note 2, Significant Accounting Policies to our audited consolidated financial statements included in this Annual Report on Form 10-K. (6) Amount reflects the loss recognized on the extinguishment of the 2019 Credit Agreement upon repayment in 2021.
The increase in cost of goods sold was primarily due to increased unit volumes, and additional manufacturing and quality control headcount. For the year ended December 31, 2021, gross profit increased by $102.2 million, or 41%, as compared to the year ended December 31, 2020.
The increase in cost of goods sold was primarily due to product mix. For the year ended December 31, 2023, gross profit decreased by $19.2 million, or 6%, as compared to the year ended December 31, 2022.
If the estimate of future demand is inaccurate based on actual sales, we may increase the write-down for excess inventory for that component. Goodwill Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed.
If the estimate of future demand is inaccurate based on actual sales, we may increase the write-down for excess inventory for that component. Income Taxes We account for income taxes using an asset and liability approach.
For the year ended December 31, 2021, total other expense, net, increased by $0.2 million, or 2%, as compared to the year ended December 31, 2020. Interest expense decreased by $4.0 million, or 36%, primarily due to the reduced interest rate for borrowings under the 2021 Credit Agreement.
The increase resulted primarily from increases in interest rates in 2023. For the year ended December 31, 2022, total other expense, net, decreased by $7.1 million, or 78%, as compared to the year ended December 31, 2021. The decrease in interest expense in 2022 resulted from the lower interest rate for the borrowings under the 2021 Credit Agreement.
For the year ended December 31, 2021, net revenue from our Surgical & Sports Medicine products decreased by $6.6 million, or 15%, as compared to the year ended December 31, 2020.
For the year ended December 31, 2023, net revenue from our Surgical & Sports Medicine products decreased by $1.0 million, or 4%, as compared to the year ended December 31, 2022. The decrease in Surgical & Sports Medicine net revenue was primarily due to a shift in distributor focus.
Comparison of the Years Ended December 31, 2022, 2021, and 2020 Revenue Years Ended December 31, Change 2022 2021 2020 2022 to 2021 2021 to 2020 (in thousands, except for percentages) Advanced Wound Care $ 422,231 $ 430,237 $ 294,624 $ (8,006 ) (2 %) $ 135,613 46 % Surgical & Sports Medicine 28,662 37,122 43,674 (8,460 ) (23 %) (6,552 ) (15 %) Net revenue $ 450,893 $ 467,359 $ 338,298 $ (16,466 ) (4 %) $ 129,061 38 % For the year ended December 31, 2022, net revenue from our Advanced Wound Care products decreased by $8.0 million, or 2%, as compared to the year ended December 31, 2021.
(9) Amount reflects the compensation expenses related to retention for those sales employees impacted by the recently published and withdrawn LCDs. 82 Table of Contents Comparison of the Years Ended December 31, 2023, 2022, and 2021 Revenue Years Ended December 31, Change 2023 2022 2021 2023 to 2022 2022 to 2021 (in thousands, except for percentages) Advanced Wound Care $ 405,514 $ 422,231 $ 430,237 $ (16,717 ) (4 %) $ (8,006 ) (2 %) Surgical & Sports Medicine 27,626 28,662 37,122 (1,036 ) (4 %) (8,460 ) (23 %) Net revenue $ 433,140 $ 450,893 $ 467,359 $ (17,753 ) (4 %) $ (16,466 ) (4 %) For the year ended December 31, 2023, net revenue from our Advanced Wound Care products decreased by $16.7 million, or 4%, as compared to the year ended December 31, 2022.
Given the extensive time and cost required to conduct clinical trials and receive FDA approvals, we believe that our data and regulatory approvals provide us with a strong competitive advantage. Our product development expertise and multiple technology platforms provide a robust product pipeline, which we believe will drive future growth.
Several of our existing and pipeline products in our portfolio have PMA, or 510(k) clearance from the FDA. Given the extensive time and cost required to conduct clinical trials and receive FDA approvals, we believe that our data and regulatory approvals provide us with a strong competitive advantage.
Our mission is to provide integrated healing solutions that substantially improve medical outcomes and the lives of patients while lowering the overall cost of care. We offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care.
We offer our differentiated products and in-house customer support to a wide range of health care customers including hospitals, wound care centers, government facilities, ASCs and physician offices. Our mission is to provide integrated healing solutions that substantially improve medical outcomes and the lives of patients while lowering the overall cost of care.
Commitments and Contingencies” to our audited financial statements included in this Annual Report on Form 10-K. 77 Table of Contents (5) Amount in 2021 reflects the write-off of certain design and consulting fees previously capitalized related to the construction in progress at one of the Company’s Canton, Massachusetts facilities.
(3) Amount in 2021 reflects the write-off of certain design and consulting fees previously capitalized related to the construction in progress at one of the Company’s Canton, Massachusetts facilities. Amount in 2022 reflects the disposal of certain equipment related to the same facility.
Under the 2021 Credit Agreement, we are required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly.
We may elect to reduce or terminate the Revolving Facility in its entirety at any time by repaying all outstanding principal and unpaid accrued interest. 87 Table of Contents Under the 2021 Credit Agreement, we are required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly.
Risk Factors” in this Annual Report on Form 10-K for an additional discussion of risks. Our primary uses of cash are working capital requirements, capital expenditure and debt service payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities.
Our primary uses of cash are working capital requirements, capital expenditure and debt service payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is used principally for our personnel as well as manufacturing costs related to the production of our products.
We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.
We have also recorded a foreign provision for income taxes related to our wholly-owned subsidiary in Switzerland. We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.
We may prepay the Term Loan Facility. Once repaid, amounts borrowed under the Term Loan Facility may not be re-borrowed. We must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the Revolving Termination Date, a fee for our non-use of available funds (the “Commitment Fee”).
We must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the "Revolving Termination Date") and on the Revolving Termination Date, a fee for our non-use of available funds (the Commitment Fee). The Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio.
Working capital is used principally for our personnel as well as manufacturing costs related to the production of our products. Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers.
Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers. 85 Table of Contents Our capital expenditures consist primarily of building improvements, manufacturing equipment, and computer hardware and software.
The following table presents our cash and outstanding debt as of the dates indicated: December 31, 2022 2021 2020 (in thousands) Cash and cash equivalents $ 102,478 $ 113,929 $ 84,394 Line of credit $ - $ - $ 10,000 Term loan net of debt discount and issuance cost 70,769 73,425 59,710 Finance lease obligations - 200 15,061 Total debt $ 70,769 $ 73,625 $ 84,771 Under the line of credit or the Revolving Facility, we have up to $125.0 million available for future revolving borrowings, subject to maintaining compliance with financial and non-financial covenants. 81 Table of Contents Cash Flows The following table summarizes our cash flows for each of the periods presented: Year Ended December 31, 2022 2021 2020 (in thousands) Net cash provided by operating activities $ 24,859 $ 61,978 $ 5,466 Net cash used in investing activities (33,898 ) (31,220 ) (23,498 ) Net cash provided by (used in) financing activities (2,199 ) (1,036 ) 42,468 Net increase (decrease) in cash and restricted cash $ (11,238 ) $ 29,722 $ 24,436 Operating Activities During the year ended December 31, 2022, net cash provided by operating activities was $24.9 million, resulting from our net income of $15.5 million, non-cash charges of $43.4 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $34.1 million.
Cash Flows The following table summarizes our cash flows for each of the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 30,917 $ 24,859 $ 61,978 Net cash used in investing activities (24,364 ) (33,898 ) (31,220 ) Net cash used in financing activities (5,505 ) (2,199 ) (1,036 ) Net increase (decrease) in cash and restricted cash $ 1,048 $ (11,238 ) $ 29,722 Operating Activities During the year ended December 31, 2023, net cash provided by operating activities was $30.9 million, resulting from our net income of $4.9 million, non-cash charges of $44.0 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $18.1 million.
Selling, General and Administrative Expenses Years Ended December 31, Change 2022 2021 2020 2022 to 2021 2021 to 2020 (in thousands, except for percentages) Selling, general and administrative $ 283,808 $ 250,200 $ 204,193 $ 33,608 13 % $ 46,007 23 % For the year ended December 31, 2022, selling, general and administrative expenses increased by $33.6 million, or 13%, as compared to the year ended December 31, 2021.
The decrease in gross profit resulted primarily from decreased sales volume and increased manufacturing-related costs, partially offset by a shift in product mix to our higher gross margin products. 83 Table of Contents Selling, General and Administrative Expenses Years Ended December 31, Change 2023 2022 2021 2023 to 2022 2022 to 2021 (in thousands, except for percentages) Selling, general and administrative $ 269,754 $ 283,808 $ 250,200 $ (14,054 ) (5 %) $ 33,608 13 % For the year ended December 31, 2023, selling, general and administrative expenses decreased by $14.1 million, or 5%, as compared to the year ended December 31, 2022.
We have utilized net operating losses to offset all of the 2022 federal taxable income but have exhausted net operating losses and are subject to limitations in the net operating loss utilization in certain states. We have also recorded a foreign provision for income taxes related to our wholly-owned subsidiary in Switzerland.
The utilization of our remaining federal net operating losses is subject to an 80% taxable income limitation and for certain states we have no net operating losses remaining to offset state taxable income or the utilization of the remaining state net operating losses are subject to a limitation.
As of December 31, 2022, we had an accumulated deficit of $45.3 million and working capital of $147.6 million which included $102.5 million in cash and cash equivalents. We also have $125.0 million available for future revolving borrowings under our Revolving Facility (see footnote “12.
As of December 31, 2023, we had an accumulated deficit of $41.0 million and working capital of $144.5 million which included $103.8 million in cash and cash equivalents.
Upon termination of the 2019 Credit Agreement, the Company recognized $1.9 million as loss on the extinguishment of the loan for the year ended December 31, 2021. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
Other Expense, Net Years Ended December 31, Change 2022 2021 2020 2022 to 2021 2021 to 2020 (in thousands, except for percentages) Interest expense $ (2,009 ) $ (7,236 ) $ (11,279 ) $ 5,227 (72 %) $ 4,043 (36 %) Gain on settlement of deferred acquisition consideration - - 2,246 - 0 % (2,246 ) (100 %) Loss on the extinguishment of debt - (1,883 ) - 1,883 (100 %) (1,883 ) ** Other income (expense), net (13 ) (13 ) 97 - 0 % (110 ) (113 %) Total other expense, net $ (2,022 ) $ (9,132 ) $ (8,936 ) $ 7,110 (78 %) $ (196 ) 2 % ** not meaningful For the year ended December 31, 2022, total other expense, net, decreased by $7.1 million, or 78%, as compared to the year ended December 31, 2021.
The increase in research and development expenses was primarily due to increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products, an increase in product costs associated with our pipeline products not yet commercialized and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our products. 84 Table of Contents Other Expense, Net Years Ended December 31, Change 2023 2022 2021 2023 to 2022 2022 to 2021 (in thousands, except for percentages) Interest expense, net $ (2,190 ) $ (2,009 ) $ (7,236 ) $ (181 ) 9 % $ 5,227 (72 %) Loss on the extinguishment of debt — — (1,883 ) — ** 1,883 (100 %) Other income (expense), net 57 (13 ) (13 ) 70 (538 %) — 0 % Total other expense, net $ (2,133 ) $ (2,022 ) $ (9,132 ) $ (111 ) 5 % $ 7,110 (78 %) ** not meaningful For the year ended December 31, 2023, total other expense, net, increased by $0.1 million, or 5%, as compared to the year ended December 31, 2022.
Long-Term Debt Obligations” to our audited financial statements included in this Annual Report on Form 10-K). For the year ended December 31, 2022, we reported $450.9 million in net revenue, $15.5 million in net income and $24.9 million of cash inflows from operating activities.
For the year ended December 31, 2023, we reported $433.1 million in net revenue, $4.9 million in net income and $30.9 million of cash inflows from operating activities.
Unless the context otherwise requires, for purposes of this section, the terms “we,” “us,” “the Company,” “Organogenesis” or “our company” refer to Organogenesis Holdings Inc. and its subsidiaries as they currently exist. Overview Organogenesis is a leading regenerative medicine company focused on the development, manufacture, and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets.
Unless the context otherwise requires, for purposes of this section, the terms we," "us," "our," "the Company," "Organogenesis" and "ORGO" will refer to Organogenesis Holdings Inc. and its subsidiaries as they currently exist.
These increases were partially offset by a $4.2 million decrease resulting from the CPN Earnout fair value adjustment and a $2.0 million decrease in the cancellation fee incurred in the three months ended March 31, 2020 to cancel certain product development and consulting agreements. 79 Table of Contents Research and Development Expenses Years Ended December 31, Change 2022 2021 2020 2022 to 2021 2021 to 2020 (in thousands, except for percentages) Research and development $ 39,762 $ 30,742 $ 20,086 $ 9,020 29 % $ 10,656 53 % For the year ended December 31, 2022, research and development expenses increased by $9.0 million, or 29%, as compared to the year ended December 31, 2021.
Research and Development Expenses Years Ended December 31, Change 2023 2022 2021 2023 to 2022 2022 to 2021 (in thousands, except for percentages) Research and development $ 44,380 $ 39,762 $ 30,742 $ 4,618 12 % $ 9,020 29 % For the year ended December 31, 2023, research and development expenses increased by $4.6 million, or 12%, as compared to the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed3 unchanged
Biggest changeBased on the principal amount outstanding as of December 31, 2022, an immediate 10% change in the interest rate would not have a material impact on our financial position, results of operations or cash flows. 86 Table of Contents Foreign Currency and Market Risk The majority of our employees and our major operations are currently located in the United States.
Biggest changeBased on the principal amount outstanding as of December 31, 2023, an immediate 10% change in the interest rate would not have a material impact on our financial position, results of operations or cash flows. Foreign Currency and Market Risk The majority of our employees and our major operations are currently located in the United States.
Interest Rate Risk As of December 31, 2022, we had $71.3 million in borrowings outstanding under our Term Loan Facility and no borrowings outstanding under our Revolving Facility, respectively. Borrowings under our 2021 Credit Agreement bear interest at variable rates.
Interest Rate Risk As of December 31, 2023, we had $66.6 million in borrowings outstanding under our Term Loan Facility and no borrowings outstanding under our Revolving Facility, respectively. Borrowings under our 2021 Credit Agreement bear interest at variable rates.

Other ORGO 10-K year-over-year comparisons