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What changed in Pulmonx Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Pulmonx Corp'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.

+446 added−429 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-01)

Top changes in Pulmonx Corp's 2023 10-K

446 paragraphs added · 429 removed · 365 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

82 edited+26 added−14 removed177 unchanged
Biggest changeMedical devices with such valid CE Certificates of Conformity issued under the MDD or the AIMD may continue to be placed on the market for the remaining validity of the CE Certificate of Conformity or until May 27, 2024 at the latest, provided that (i) the devices continue to comply with the requirements of the MDD or AIMD, (ii) there are no significant changes in the design or intended purpose and (iii) from 26 May 2021, compliance with the EU Medical Device Regulation relating to post-market surveillance, market surveillance, vigilance, registration of economic operators and of devices is ensured in place of the corresponding requirements in the MDD or AIMD.
Biggest changeManufacturers of medical devices may only benefit from the above extended transitional provisions deadlines if the following conditions are fulfilled: (i) the devices continue to comply with the requirements of the MDD or AIMD, (ii) there are no significant changes in the design and intended purpose, (iii) the devices do not present an unacceptable risk to the health or safety of patients, users or other persons, or to other aspects of the protection of public health, (iv) the manufacturer implements a quality management system by May 26, 2024 which complies with the requirements of the Medical Devices Regulation, (v) by May 26, 2024 an application is lodged with a Notified Body for conduct of the conformity assessment of the devices covered by the CE Certificate of Conformity, or the devices intended to substitute for such devices, in accordance with the MDR and a related written agreement is signed with the Notified Body by September 26, 2024, and (vi) from May 26, 2021, compliance with the MDR relating to post-market surveillance, market surveillance, vigilance, registration of economic operators and of devices is ensured in place of the corresponding requirements in the MDD or AIMD.
Zephyr Valves are typically implanted by an interventional pulmonologist at a hospital, and patients are often evaluated in a multi-disciplinary team approach that includes other lung physicians, radiologists, respiratory therapy specialists or surgeons. Our sales personnel work closely with these stakeholders to ensure quality outcomes.
Zephyr Valves are typically implanted by an interventional pulmonologist at a hospital, and patients are often evaluated in a multi-disciplinary team approach that includes other lung physicians, radiologists, respiratory therapy specialists and/or surgeons. Our sales personnel work closely with these stakeholders to ensure quality outcomes.
We believe our solution competes favorably with the Spiration Valve System for several reasons, including the strength of our published clinical data, differentiated patient selection tools and our comprehensive 16 Table of Contents technical and reimbursement support.
We believe our solution competes favorably with the Spiration Valve System for several reasons, 16 Table of Contents including the strength of our published clinical data, differentiated patient selection tools and our comprehensive technical and reimbursement support.
There can be no assurance that submission of an IDE application will result in the ability to commence clinical trials, and although the FDA’s approval of an IDE application allows clinical testing to go forward for a specified number of subjects, it does not 19 Table of Contents bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial meets its intended success criteria.
There can be no assurance that 19 Table of Contents submission of an IDE application will result in the ability to commence clinical trials, and although the FDA’s approval of an IDE application allows clinical testing to go forward for a specified number of subjects, it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial meets its intended success criteria.
On 26 May 2021, the MDR entered into application, repealing and replacing both the MDD, and Directive 90/385/EEC concerning active implantable medical devices, or AIMD.
On May 26, 2021, the MDR entered into application, repealing and replacing both the MDD, and Directive 90/385/EEC concerning active implantable medical devices, or AIMD.
The Regulation is intended to boost cooperation among EU Member States in assessing health technologies, including new medical devices, and providing the basis for cooperation at EU level for joint clinical assessments in these areas. In December 2021 the HTA Regulation was adopted and entered into force on 11 January 2022. It will apply from 2025.
The Regulation is intended to boost cooperation among EU Member States in assessing health technologies, including new medical devices, and providing the basis for cooperation at EU level for joint clinical assessments in these areas. In December 2021 the HTA Regulation was adopted and entered into force on January 11, 2022. It will apply from 2025.
Improvement in: Randomized Controlled Clinical Trials Size and Follow-up Period Procedural Success (TLVR %) Lung Function (FEV 1 %) ┬ MCID = 10%-15% Exercise Capacity (6MWD) ┬ MCID = 26 m Quality of Life (SGRQ) ┬ MCID = -4 pts LIBERATE n = 190 12 Mo 84% 18.0% p 39 m p=0.002 -7.1 pts p=0.004 TRANSFORM n = 97 6 Mo 90% 29.3 % p 79 m p -6.5 pts p=0.031 IMPACT n = 93 6 Mo 89% 16.3 % p 28 m p=0.016** -7.5 pts p STELVIO n = 68 6 Mo 88% 17.8 % P=0.001 74 m p -14.7 pts* P _______________ ┬ Difference between Zephyr Valve and control groups * Per protocol, all other values listed are intention to treat (ITT) ** Data included in FDA-approved instructions for use (IFU) The complications of treatment with Zephyr Valves can include but are not limited to pneumothorax, worsening of COPD symptoms, hemoptysis, pneumonia, dyspnea and, in rare cases, death.
Improvement in: Randomized Controlled Clinical Trials Size and Follow-up Period Procedural Success (TLVR) MCID ≥ 350mL Lung Function (FEV 1 %) ┬ MCID ≥ 10%-15% Exercise Capacity (6MWD) ┬ MCID ≥ 26 m Quality of Life (SGRQ) ┬ MCID ≥ -4 pts LIBERATE n = 190 12 Mo 84% 18.0% p 39 m p=0.002 -7.1 pts p=0.004 TRANSFORM n = 97 6 Mo 90% 29.3 % p 79 m p -6.5 pts p=0.031 IMPACT n = 93 6 Mo 89% 16.3 % p 28 m p=0.016** -7.5 pts p STELVIO n = 68 6 Mo 88% 17.8 % P=0.001 74 m p -14.7 pts* P _______________ ┬ Difference between Zephyr Valve and control groups * Per protocol, all other values listed are intention to treat (ITT) ** Data included in FDA-approved instructions for use (IFU) The complications of treatment with Zephyr Valves can include but are not limited to pneumothorax, worsening of COPD symptoms, hemoptysis, pneumonia, dyspnea and, in rare cases, death.
We continue to engage with commercial payors to establish positive national coverage policies by highlighting our compelling and robust clinical data, unique patient selection tools, favorable safety profile to more invasive options, increased patient demand and support from global treatment recommendations for the management of COPD and emphysema. 15 Table of Contents Prior Authorization Approval Process A second key element of our reimbursement strategy includes leveraging our patient reimbursement support team and knowledge of the published data to assist patients and physicians in obtaining appropriate prior authorization approvals in advance of treatment for payers that require it.
We continue to engage with commercial payors to establish positive national coverage policies by highlighting our compelling and robust clinical data, unique patient selection tools, favorable safety profile to more invasive options, increased patient demand and support from global treatment recommendations for the management of COPD and emphysema. 15 Table of Contents Prior Authorization Approval Process A second key element of our reimbursement strategy includes leveraging our patient reimbursement support team and knowledge of the published data to assist patients and physicians in obtaining appropriate prior authorization approvals in advance of treatment for payors that require it.
Reimbursement is obtained from a variety of sources, including national health care systems or private health insurance plans, or combinations thereof. We have established market access in countries across Europe and Asia Pacific, including Australia, Austria, Belgium, France, Germany, the Netherlands, United Kingdom, Scotland, Switzerland and South Korea, and other countries.
Reimbursement is obtained from a variety of sources, including national health care systems or private health insurance plans, or combinations thereof. We have established market access in countries across Europe and Asia Pacific, including Australia, Austria, Belgium, France, Germany, Japan, the Netherlands, United Kingdom, Scotland, Switzerland and South Korea, and other countries.
Commercial payors such as Aetna, Humana, and many of the largest Blue Cross Blue Shield plans including Anthem, Health Care Service Corporation, and BCBS Michigan have all issued positive coverage policies for the Zephyr Valve, and United Healthcare no longer considers the procedure unproven or experimental.
Commercial payors such as Aetna, Humana, and many of the largest Blue Cross Blue Shield plans including Anthem, Health Care Service Corporation, BCBS Michigan, and Highmark have all issued positive coverage policies for the Zephyr Valve, and United Healthcare no longer considers the procedure unproven or experimental.
International Laws In Europe, various countries have adopted anti-bribery laws providing for severe consequences in the form of criminal penalties and significant fines for individuals or companies committing a bribery offense. Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation.
In Europe, various countries have adopted anti-bribery laws providing for severe consequences in the form of criminal penalties and significant fines for individuals or companies committing a bribery offense. Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation.
All CMS programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, interpretations of policy, intermediary determinations, and government funding restrictions, all of which may materially increase or decrease the rate of program payments to healthcare facilities and other healthcare providers, including those paid for Zephyr Valve treatments. 26 Table of Contents United States Health Reform The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably.
All CMS programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, interpretations of policy, intermediary determinations, and government funding restrictions, all of which may materially increase or decrease the rate of program payments to healthcare facilities and other healthcare providers, including those paid for Zephyr Valve treatments. 27 Table of Contents United States Health Reform The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably.
We continue to develop our relationships with credible third parties, such as our partnership with the American College of Chest Physicians, on continuing medical education-accredited training and with the American Lung Association and the COPD Foundation on patient and physician education.
We continue to develop our relationships with credible third parties, such as our partnership with the American College of Chest Physicians and Medscape, on continuing medical education-accredited training and with the American Lung Association and the COPD Foundation on patient and physician education.
Our patents cover aspects of our current Zephyr Valve, loading system, airway sizing, EDC, Chartis System, AeriSeal and future product concepts. The term of individual patents depends on the legal term for patents in the countries in which they are granted.
Our patents cover aspects of our current Zephyr Valve, loading system, airway sizing, EDC, Chartis System, AeriSeal, StratX, and future product concepts. The term of individual patents depends on the legal term for patents in the countries in which they are granted.
Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to a set of FDA regulations, referred to as the General Controls for Medical Devices (General Controls), which require compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse events and malfunctions, and as appropriate, truthful and non-misleading labeling and promotional materials.
Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to a set of FDA regulations, referred to as the General Controls for Medical Devices (“General Controls”), which require compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse events and malfunctions, and as appropriate, truthful and non-misleading labeling and promotional materials.
We have also established a patient registry to collect additional data on the safety and effectiveness of the Zephyr Valve (FEV 1 ) in the United States. We have established a similar registry in France.
We have also established a patient registry to collect additional data on the safety and effectiveness (FEV 1 ) of the Zephyr Valve in the United States. We have established a similar registry in France and Japan.
Our pipeline of products that we are currently considering includes innovations in image analysis to support advanced patient selection and optimize patient outcomes, catheter technologies to improve valve deliverability and reduce procedure time and the use of AeriSeal for addressing the needs of severe emphysema patients who are not eligible for Zephyr Valves due to collateral ventilation.
Our pipeline of products that we are currently considering includes innovations in image analysis to support advanced patient selection and optimize patient outcomes, catheter technologies to improve Chartis assessment, valve deliverability and reduce procedure time and the use of AeriSeal for addressing the needs of severe emphysema patients who are not eligible for Zephyr Valves due to collateral ventilation.
For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2031 unless additional congressional action is taken.
For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2032 unless additional congressional action is taken.
We make available on our website at www.pulmonx.com, free of charge, copies of these reports and other information as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. All SEC filings are also available at the SEC’s website at www.sec.gov. 29 Table of Contents
We make available on our website at www.pulmonx.com, free of charge, copies of these reports and other information as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. All SEC filings are also available at the SEC’s website at www.sec.gov. 30 Table of Contents
When the balloon is inflated, the target lobe is blocked, and air can only escape through the catheter’s central lumen. 12 Table of Contents Airflow and pressure are displayed on the console of the Chartis System allowing for a measurement of collateral ventilation in the targeted lobe. The system works with spontaneous breathing or mechanical ventilation.
When the balloon is inflated, the target lobe is blocked, and air can only escape through the catheter’s central lumen. 12 Table of Contents Airflow and pressure can be displayed on the console of the Chartis System allowing for a measurement of collateral ventilation in the targeted lobe. The system works with spontaneous breathing or mechanical ventilation.
Physician reimbursement under Medicare generally is based on a defined fee schedule (Physician Fee Schedule) through which payment amounts are determined by the relative values of the service rendered. Medicare provides reimbursement to our hospital customers as a lump sum intended to cover all costs under a single MS-DRG payment.
Physician reimbursement under Medicare generally is based on a defined fee schedule (“Physician Fee Schedule”) through which payment amounts are determined by the relative values of the service rendered. Medicare provides reimbursement to our hospital customers as a lump sum intended to cover all costs under a single MS-DRG payment.
Class II devices are those that are subject to the General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (Special Controls). These Special Controls can include performance standards, patient registries, FDA guidance documents and post-market surveillance.
Class II devices are those that are subject to the General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (“Special Controls”). These Special Controls can include performance standards, patient registries, FDA guidance documents and post-market surveillance.
To demonstrate compliance with the GSPRs provided in the Medical Device Regulation and obtain the right to affix the CE mark, medical devices manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.
To demonstrate compliance with the GSPRs provided in the MDR and obtain the right to affix the CE mark, medical devices manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.
As a result of the NETT study, use of LVRS was restricted by the Centers for Medicare & Medicaid Services (“CMS”) to a subgroup of patients and can only be offered at a limited number of highly specialized medical centers. 7 Table of Contents Lung transplantation involves surgically removing one or both lungs and replacing them with donor lungs.
As a result of the NETT study, use of LVRS was restricted by the Centers for Medicare & Medicaid Services (“CMS”) to a subgroup of patients and can only be offered at a limited number of highly specialized medical centers. Lung transplantation involves surgically removing one or both lungs and replacing them with donor lungs.
In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable country. Our patents expire between 2023 and 2041.
In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable country. Our patents expire between 2024 and 2041.
In addition, the California Privacy Rights Act of 2020 (“CPRA”), which became effective January 1, 2023, will expand the CCPA by, among other things, giving California residents the ability to limit use of certain sensitive personal data, along with establishing restrictions on personal data retention and a new California Privacy Protection Agency to implement and enforce the new law.
In addition, the California Privacy Rights Act of 2020 (“CPRA”), which became effective January 1, 2023, expands the CCPA by, among other things, giving California residents the ability to limit use of certain sensitive personal data, along with establishing restrictions on personal data retention and a new California Privacy Protection Agency to implement and enforce the new law.
The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of internal accounting controls for international operations.
The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that 26 Table of Contents accurately and fairly reflect all transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of internal accounting controls for international operations.
In addition, over 100 scientific articles have been published on the clinical benefits of Zephyr Valves, including multiple meta-analyses, review articles, cost-effectiveness analyses and risk-benefit analyses. We are following patients enrolled in the LIBERATE study for up to five years for safety and effectiveness (FEV 1 ) assessments.
In addition, over 100 scientific articles have been published on the clinical benefits of Zephyr Valves, including multiple meta-analyses, review articles, cost-effectiveness analyses and risk-benefit analyses. We have followed patients enrolled in the LIBERATE study for up to five years for safety and effectiveness (FEV 1 ) assessments.
Some types of studies deemed to present “non-significant risk” are deemed to have an approved IDE once certain requirements are addressed and Institutional Review Board (IRB) approval is obtained.
Some types of studies deemed to present “non-significant risk” are deemed to have an approved IDE once certain requirements are addressed and Institutional Review Board (“IRB”) approval is obtained.
The Medical Device Regulation and its associated guidance documents and harmonized standards govern, among other things, device design and development, preclinical and clinical or performance testing, premarket conformity assessment, registration and listing, manufacturing, labeling, storage, claims, sales and distribution, export and import and post-market surveillance, vigilance, and market surveillance.
The MDR and its associated guidance documents and harmonized standards govern, among other things, device design and development, preclinical and clinical or performance testing, premarket conformity assessment, registration and listing, manufacturing, labeling, storage, claims, sales and distribution, export and import and post-market surveillance, vigilance, and market surveillance.
Medical devices must comply with the General Safety and Performance Requirements, or GSPRs, set out in Annex I of the Medical Device Regulation. Compliance with these requirements is a prerequisite to be able to affix the CE mark to devices, without which they cannot be marketed or sold in the EEA.
Medical devices must comply with the General Safety and Performance Requirements, or GSPRs, set out in Annex I of the MDR. Compliance with these requirements is a prerequisite to be able to affix the CE mark to devices, without which they cannot be marketed or sold in the EEA.
This procedure is highly time and resource intensive due to the complexity of the surgery. Even with a successful procedure and consistent use of anti-rejection medications, lung transplantation patients have a five-year survival rate on average.
This procedure is highly time and resource intensive due to the complexity of the surgery. Even with a successful 7 Table of Contents procedure and consistent use of anti-rejection medications, lung transplantation patients have a five-year survival rate on average.
The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the GSPRs.
The 21 Table of Contents Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the GSPRs.
While no NCD or LCD exists for endobronchial valves currently, CMS could develop an NCD, or one or more Medicare contractors could develop an LCD that either restricts coverage or restricts the patient population deemed appropriate for the treatment.
While no NCD or LCD exists for endobronchial valves currently, CMS could develop an NCD, or one or more MACs could develop an LCD that either restricts coverage or restricts the patient population deemed appropriate for the treatment.
This Certificate and the related 21 Table of Contents conformity assessment process entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.
This Certificate and the related conformity assessment process entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.
As of December 31, 2022, we had nine registered trademark filings, some of which may apply to multiple countries, and several pending trademark applications in various countries. We also rely, in part, upon unpatented trade secrets, know-how and continuing technological innovation, and licensing arrangements, to develop and maintain our competitive position.
As of December 31, 2023, we had nine registered trademarks, some of which apply to multiple countries, and several pending trademark applications in various countries. We also rely, in part, upon unpatented trade secrets, know-how and continuing technological innovation, and licensing arrangements, to develop and maintain our competitive position.
Intellectual Property We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As of December 31, 2022, we had 37 patent families in force worldwide.
Intellectual Property We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As of December 31, 2023, we had 35 patent families in force worldwide.
United States Centers for Medicare and Medicaid Services (“CMS”) Medicare is a federal program administered by CMS through Medicare Administrative Contractors.
United States Centers for Medicare and Medicaid Services (“CMS”) Medicare is a federal program administered by CMS through MACs.
We have funded an independent feasibility study using AeriSeal and sponsored another study to expand the number of patients that can be treated with Zephyr Valves. In December 2020, AeriSeal received designation as a Breakthrough Device by the FDA. We intend to submit an IDE to the FDA for commencing a clinical trial with AeriSeal.
We have funded an independent feasibility study using AeriSeal and sponsored another study to expand the number of patients that can be treated with Zephyr Valves. In December 2020, AeriSeal received designation as a Breakthrough Device by the FDA. We have received a staged IDE approval to commence a clinical trial with AeriSeal.
However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the HHS Office of the Inspector General (“OIG”). 24 Table of Contents Many states have adopted laws similar to the federal Anti-Kickback Statute.
However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the Health and Human Services (“HHS”) Office of the Inspector General (“OIG”). Many states have adopted laws similar to the federal Anti-Kickback Statute.
We are currently placing our medical devices on the market in accordance with the stringent requirements of the transitional provisions of the MDR, the requirements of the MDD and the guidance of the European Commission’s Medical Devices Coordination Group.
We are currently placing our medical devices on the market in accordance with the MDR, as well as the stringent requirements of the transitional provisions of the MDR and the requirements of the MDD, as applicable to our products, and the guidance of the European Commission’s Medical Devices Coordination Group.
Our sales territory managers also call on community physicians and pulmonary rehabilitation centers to raise awareness of Zephyr Valves as a treatment option. Our strategy is to identify territories with high unmet need, identify leading hospitals and work with champions of our solution to build emphysema centers of excellence.
Our sales territory managers also call on community physicians, nurses, respiratory therapists and pulmonary rehabilitation centers to raise awareness of Zephyr Valves as a treatment option. Our strategy is to identify territories with high unmet need, identify leading hospitals and work with champions of our solution to establish quality Zephyr Valve programs.
We generated revenue of $53.7 million, with a gross margin of 74.3% and a net loss of $58.9 million, for the year ended December 31, 2022 compared to revenue of $48.4 million, with a gross margin of 73.6% and a net loss of $48.7 million, for the year ended December 31, 2021.
We generated revenue of $68.7 million, with a gross margin of 73.9% and a net loss of $60.8 million, for the year ended December 31, 2023 compared to revenue of $53.7 million, with a gross margin of 74.3% and a net loss of $58.9 million, for the year ended December 31, 2022.
As of December 31, 2022, we had rights to 62 issued United States patents, 17 pending United States patent applications, 121 issued foreign patents and 13 pending foreign patent applications. Our most material foreign patents issued and patent applications pending are in the European Union (“EU”), France, Germany, Japan and the United Kingdom.
As of December 31, 2023, we had rights to 65 issued United States patents, 15 pending United States patent applications, 112 issued foreign patents and 15 pending foreign patent applications. Our most material foreign patents issued and patent applications pending are in the European Union (“EU”), France, Germany, Japan and the United Kingdom.
Human Capital Management Employees, Talent Management & Development 27 Table of Contents As of December 31, 2022, we had a total of 269 full time employees, with 202 employees in the U.S., 57 in Europe, and 10 in Asia Pacific. None of our employees are represented by a labor union or are a party to a collective bargaining agreement.
Human Capital Management Employees, Talent Management & Development As of December 31, 2023, we had a total of 279 full time employees, with 213 employees in the U.S., 55 in Europe, and 11 in Asia Pacific. None of our employees are represented by a labor union or are a party to a collective 28 Table of Contents bargaining agreement.
“Coding” refers to distinct numeric and alphanumeric billing codes that are used by healthcare providers to report the provision of medical services procedures and the use of supplies for specific patients to payors. CPT codes are published by the American Medical Association and are used to report medical services and procedures performed by or under the direction of physicians.
“Coding” refers to distinct numeric and alphanumeric billing codes that are used by healthcare providers to report the provision of medical services procedures and the use of supplies for specific patients to payors.
The Spiration Cross-License can be terminated by either party upon 60 days’ written notice to the other in the event certain patents are no longer owned by the other party or such patents are no longer in force; provided, that, the parties are required to negotiate in good faith during such 60-day notice period to attempt to enter into a replacement cross-license prior to such termination.
The Spiration Cross-License can be terminated by either party upon 60 days’ written notice to the other in the event certain patents are no longer owned by the other party or such patents are no longer in force; provided, that, the parties are required to negotiate in good faith during such 60-day notice period to attempt to enter into a replacement cross-license prior to such termination. 17 Table of Contents Neither party may assign or otherwise transfer the Spiration Cross-License without the written consent of the other party, except in connection with certain change-of-control transactions.
In addition, companies that would not otherwise be subject to HIPAA may become contractually obligated to follow HIPAA requirements through agreements with Covered Entities and Business Associates, and some of our customers may require us to agree to these provisions. Privacy and Information Security Laws In the ordinary course of our business, we may process personal data, including health data.
In addition, companies that would not otherwise be subject to HIPAA may become contractually obligated to follow HIPAA requirements through agreements with Covered Entities and Business Associates, and some of our customers may require us to agree to these provisions.
Medicare generally pays physicians for services based on submission of a claim using one or more 14 Table of Contents specific CPT codes. Physician payment for procedures may vary according to site of service.
CPT codes are published by the American Medical 14 Table of Contents Association and are used to report medical services and procedures performed by or under the direction of physicians. Medicare generally pays physicians for services based on submission of a claim using one or more specific CPT codes. Physician payment for procedures may vary according to site of service.
In international markets, we employ both direct and distributor-based sales models, with over 95% of our revenue generated in markets where we sell directly.
In international markets, we employ both direct and distributor-based sales models, with over 96% of our revenue generated in markets where we sell directly for the year ended December 31, 2023.
US federal and state consumer protection laws may require us to publish statements that accurately and fairly describe how we handle personal data and choices individuals may have about the way we handle their personal data.
US federal and state consumer protection laws may require us to publish statements that accurately and fairly describe how we handle personal data and choices individuals may have about the way we handle their personal data. European data protection laws, including the GDPR, impose strict compliance obligations on entities for processing personal data, including health data.
The StratX Platform is designed to enable physicians to screen treatment candidates non-invasively, prioritize between multiple potential treatment targets, if applicable, enhance case 11 Table of Contents planning and optimize procedure time, and educate themselves and their patients using the simple-to-read StratX Lung Report.
The StratX Platform is designed to enable physicians to screen treatment 11 Table of Contents candidates non-invasively, prioritize between multiple potential treatment targets, if applicable, enhance case planning, and educate themselves and their patients using the simple-to-read StratX Lung Report. In order to make the StratX Platform available to physicians, we contract with a third-party cloud service provider.
In approving a PMA application, as a condition of approval, the FDA may also require some form of post-approval study (“PAS”) or post-market surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients 20 Table of Contents when necessary to protect the public health or to provide additional or longer-term safety and effectiveness data for the device.
PMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application and may or may not require as extensive technical or clinical data or the convening of an advisory panel, depending on the nature of the proposed change. 20 Table of Contents In approving a PMA application, as a condition of approval, the FDA may also require some form of post-approval study (“PAS”) or post-market surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients when necessary to protect the public health or to provide additional or longer-term safety and effectiveness data for the device.
We believe there is a significant growth opportunity for hospitals to provide high quality comprehensive diagnosis and treatment for advanced COPD patients. We intend to continue to promote awareness of our solution through training and educating physicians, pulmonary rehabilitation centers, key opinion leaders, various medical societies, and prospective patients on the proven clinical benefits of Zephyr Valves.
We intend to continue to promote awareness of our solution through training and educating physicians, pulmonary rehabilitation centers, key opinion leaders, various medical societies, and prospective patients on the proven clinical benefits of Zephyr Valves.
We have successfully undertaken the conformity assessment procedure in the EU with a Notified Body and CE marked AeriSeal and have Therapeutic Goods Administration approval in Australia for the medical device and have completed initial feasibility research.
We have successfully undertaken the conformity assessment procedure in the EU with a Notified Body and CE marked AeriSeal on the basis of the MDD (as defined below), which we continue to place on the market in accordance with the transitional provisions of the MDR (as defined below), and have Therapeutic Goods Administration approval in Australia for the medical device and have completed initial feasibility research.
Manufacturing and Supply We manufacture all our products — valves, delivery catheters, balloon catheters and the Chartis System console — at our headquarters located at 700 Chesapeake Drive, Redwood City, California 94063 where we lease approximately 25,000 square feet of space. Our lease terminates on July 31, 2025.
We do not have any relationship with Spiration other than with respect to this cross-license agreement. Manufacturing and Supply We manufacture all our products — valves, delivery catheters, balloon catheters and the Chartis System console — at our headquarters located at 700 Chesapeake Drive, Redwood City, California 94063 where we lease approximately 25,000 square feet of space.
The CCPA and EU GDPR are examples of the increasingly stringent and evolving regulatory frameworks related to personal data processing and that increase our compliance obligations and exposure for any non-compliance.
In addition, states within the United States have enacted data privacy laws including Virginia, Colorado, Utah, and Connecticut. The CCPA and GDPR are examples of the increasingly stringent and evolving regulatory frameworks related to personal data processing and that increase our compliance obligations and exposure for any non-compliance.
As of December 31, 2022, we had an accumulated deficit of $350.3 million.
As of December 31, 2023, we had an accumulated deficit of $411.2 million.
In order to make the StratX Platform available to physicians, we contract with a third-party cloud service provider. This third-party cloud service enables physicians to upload CT scan data while removing protected health information (“PHI”) of patients from that data, in case the physicians have, inadvertently, not removed the PHI themselves.
This third-party cloud service enables physicians to upload CT scan data while removing protected health information (“PHI”) of patients from that data, in case the physicians have, inadvertently, not removed the PHI themselves. We also contract with additional third-party service providers to analyze the CT scan data using their proprietary software and provide quantitative results via the StratX Lung Report.
The laws and regulations govern, among other things, product design and development, pre-clinical and clinical testing, manufacturing, packaging, labeling, storage, record keeping and reporting, clearance or approval, marketing, distribution, promotion, import and export and post-marketing surveillance. 18 Table of Contents Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, or approval from the FDA of a PMA application.
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, or approval from the FDA of a PMA application.
Our European Union and Great Britain Notified Body, British Standards Institute (“BSI”), monitors compliance with the MDD (as defined below) requirements through both annual scheduled audits and periodic unannounced audits of our manufacturing facilities as well as our contract third-party suppliers’ facilities.
Our European Union Notified Body and Great Britain approved body, British Standards Institute (“BSI”), monitors compliance with the European Union Medical Devices Directive (Council Directive 93/42/EEC) (“MDD”), the Medical Device Regulation (Regulation (EU) 2017/745) (“MDR”), and the UK Medical Devices Regulations 2002 requirements through both annual scheduled audits and periodic unannounced audits of our manufacturing facilities as well as our contract third-party suppliers’ facilities.
In the United States, we generally ship products from our third-party logistics provider in Memphis, Tennessee and our facilities in Redwood City to our direct sales territory managers, who deliver these products to our hospital customers. Once they are trained and proficient in the procedure, we may also sell our products directly to our hospital customers.
These products are sterilized using ethylene oxide at a qualified sterilization supplier in Los Angeles, California. In the United States, we generally ship products from our third-party logistics provider in Memphis, Tennessee and our facilities in Redwood City to our direct sales territory managers, who deliver these products to our hospital customers.
The United Kingdom and the European Union have signed a EU-UK Trade and Cooperation Agreement, or TCA, which became provisionally applicable on January 1, 2021 and entered into force on May 1, 2021.
The United Kingdom and the European Union have signed a EU-UK Trade and Cooperation Agreement, or TCA, which became provisionally applicable on January 1, 2021 and entered into force on May 1, 2021. This agreement provides details on how some aspects of the United Kingdom and European Union’s relationship will operate going forwards however there are still many uncertainties.
Under current legislation the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. We believe that there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to reduce costs while expanding individual healthcare benefits.
We believe that there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to reduce costs while expanding individual healthcare benefits.
We have a strict change control policy with our suppliers to ensure that no design or process changes are made without our prior approval. Several components used in our devices rely on single source suppliers and we routinely prioritize, evaluate and qualify backup sources. The manufacture of AeriSeal, which is still in development, is completely outsourced to a contract manufacturer.
Several components used in our devices rely on single source suppliers and we routinely prioritize, evaluate and qualify backup sources. The manufacture of AeriSeal, which is still in development, is completely outsourced to a contract manufacturer. The StratX Platform’s QCT service is currently outsourced as well.
Federal False Claims Laws The federal false claims laws, including the FCA, imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program.
Some of these state prohibitions apply to referral of recipients for healthcare products or services reimbursed by any source, not only government healthcare programs, and may apply to payments made directly by the patient. 25 Table of Contents Federal False Claims Laws The federal false claims laws, including the FCA, imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program.
We rely on a combination of in-house processing and third-party suppliers for raw materials and components. We have supply agreements with a few critical suppliers while procuring most of our materials on a purchase order basis. Suppliers are routinely evaluated based on industry standards including on-site audits, as required, to be approved.
We have supply agreements with a few critical suppliers while procuring most of our materials on a purchase order basis. Suppliers are routinely evaluated based on industry standards including on-site audits, as required, to be approved. We have a strict change control policy with our suppliers to ensure that no design or process changes are made without our prior approval.
Northern Ireland will continue to follow many aspects of the European Union regulatory rules, particularly in relation to trade in goods. Our devices were regulated under MDD prior to Brexit and are subject to the UK Medical Devices Regulations 2002.
Northern Ireland will continue to follow many aspects of the European Union regulatory rules, particularly in relation to trade in goods, and including the MDR.
The StratX Platform’s QCT service is currently outsourced as well. We host the customer-facing web portal for the StratX Platform’s QCT service while using a third-party cloud service provider to direct CT scan uploads from customers to qualified radiological image analysis providers.
We host the customer-facing web portal for the StratX Platform’s QCT service while using a third-party cloud service provider to direct CT scan uploads from customers to qualified radiological image analysis providers. We perform the final assembly, inspection, testing, packaging and product release testing for the Zephyr Valve, the EDC and Chartis System at our headquarters in Redwood City.
Additionally, similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals. 25 Table of Contents Foreign Corrupt Practices Act The Foreign Corrupt Practices Act (“FCPA”) prohibits any United States individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business.
Foreign Corrupt Practices Act The Foreign Corrupt Practices Act (“FCPA”) prohibits any United States individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business.
Once the Notified Body has issued a Certificate of Conformity, the manufacturer has drawn up the Declaration of Conformity and affixed the CE mark the device can be sold throughout the European Union. We remain subject to ongoing MDR requirements including among others market surveillance after affixing the CE mark to our devices.
Our devices are Class IIa and Class IIb on the basis of the MDD and require the involvement of a Notified Body. Once the Notified Body has issued a Certificate of Conformity, the manufacturer has drawn up the Declaration of Conformity and affixed the CE mark the device can be sold throughout the European Union.
The software of each of these third-party service providers has received either 510(k) approval or successfully underwent a conformity assessment procedure with a Notified Body and was subsequently CE Marked.. We provide exclusive access to physicians to their StratX accounts and cases and monitor this CT scan upload and analysis process to ensure quality control.
The StratX Lung Report is then made available to physicians in the third-party cloud service. The software of each of these third-party service providers has received either 510(k) approval or successfully underwent a conformity assessment procedure with a Notified Body and was subsequently CE Marked in accordance with applicable legislation governing medical devices.
Devices are classified in accordance with their perceived risks in a manner similar to the United States risk classification system. Before a medical device can be marketed in the EU it must undergo a conformity assessment procedure after which the manufacturer may affix the CE mark on the devices.
Before a medical device can be marketed in the EU it must undergo a conformity assessment procedure after which the manufacturer may affix the CE mark on the devices. The class of a product determines the conformity assessment 22 Table of Contents required before the CE mark can be placed on a product.
Such obligations may include, without limitation, the California Consumer Privacy Act of 2018 (“CCPA”), the European Union’s General Data Protection Regulation 2016/679 (“EU GDPR”), and the UK GDPR. In addition, states within the United States have enacted or proposed data privacy laws including Virginia, Colorado, Utah, and Connecticut.
Such obligations may include, without limitation, the California Consumer Privacy Act of 2018 (“CCPA”), the European Union’s General Data Protection Regulation 2016/679 (“EU GDPR”), and the EU GDPR as it forms part of United Kingdom (“UK”) law (the “UK GDPR”) (collectively, the “GDPR”).
The GDPR provides the competent authorities of the EU Member States with extensive competences and powers to investigate and act against non-compliances or infringements including the potential to impose fines of up to €20 million, or 4% of the firm’s worldwide annual revenue from the preceding financial year, whichever amount is higher. 23 Table of Contents The processing of personal health data of patients in the EU and the UK is subject to stringent requirements regarding transparency and communication towards patients, identifying an appropriate legal basis for processing the personal data, purpose limitation and implementing appropriate technical and security measures as well as safeguards for the transfer of personal data outside of the EU and the UK to countries like the USA.
For example, the GDPR provides the competent authorities with extensive competences and powers to investigate and act against non-compliances or infringements including the potential to impose fines of up to €20 million under the EU GDPR, £17.5 million under the UK GDPR, or, in each case, 4% of the firm’s worldwide annual revenue from the preceding financial year, whichever amount is higher.
These reporting obligations include payments and other transfers of value made in the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives. We are subject to Open Payments and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs.
We are subject to Open Payments and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs.
We lease additional facilities in Redwood City, California of approximately 8,000 square feet and 17,000 square feet of space under lease agreements that terminates on May 31, 2024 and September 30, 2024, respectively. There is a mutual early termination option starting November 30, 2021 on the 8,000 square feet of space.
Our lease terminates on July 31, 2025. We lease additional facilities in Redwood City, California of approximately 8,000 square feet and 17,000 square feet of space under lease agreements that terminate contemporaneously on September 30, 2024. We rely on a combination of in-house processing and third-party suppliers for raw materials and components.
We intend to complete conformity assessment procedures for our medical devices in accordance with the MDR prior to the expiration of the existing Certificate(s) of Conformity issued by our Notified Body BSI. Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as Brexit.
For those devices we are placing on the market in accordance with the transitional provisions of the MDR, we intend to complete conformity assessment procedures in accordance with the MDR prior to the expiration of our existing CE Certificate(s) of Conformity issued by our Notified Body BSI on the basis of the MDD, and the expiration of the transitional provisions of the MDR.
In early January 2023 the European Commission proposed that these dates be revised to extend current transitional provisions. In February 2023, the European Parliament voted to adopt the proposal.. The MDR sets out the regulatory framework for medical devices in the European Union. The Competent Authorities of each EU Member State oversee the implementation of the MDR within their jurisdiction.
The MDR sets out the regulatory framework for medical devices in the European Union. The Competent Authorities of each EU Member State oversee the implementation of the MDR within their jurisdiction. Devices are classified in accordance with their perceived risks in a manner similar to the United States risk classification system.
The Company is committed to protecting its employees everywhere it operates. The Company identifies potential workplace risks in order to develop measures to mitigate possible hazards. In response to the COVID-19 pandemic, the Company established safety protocols, 28 Table of Contents facility enhancements, and work from home strategies to protect our employees. Some of our employees continue to work remotely.
The Company is committed to protecting its employees everywhere it operates. The Company identifies potential workplace risks in order to develop measures to mitigate possible hazards. 29 Table of Contents Available Information We were incorporated in the state of California on December 26, 1995 as Pulmonx and reincorporated in the state of Delaware on December 4, 2013.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFederal and state healthcare laws and regulations that may affect our ability to conduct business, include, without limitation: • federal and state laws and regulations regarding billing and claims payment applicable to our solution and regulatory agencies enforcing those laws and regulations; • the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as Medicare and Medicaid; • the federal false claims laws, including the FCA, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government; • federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; 60 Table of Contents • the federal Physician Payments Sunshine Act, created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) and its implementing regulations, which requires certain manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other health care professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members; • federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; • the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information on covered entities, including certain healthcare providers, health plans and healthcare clearinghouses, and their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors; HIPAA also created criminal liability for, among other things, knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; • the Federal Drug & Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; • the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits, among other things, physicians who have a financial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare and Medicaid patients to that entity for designated health services, which include clinical laboratory services, unless an exception applies.
Biggest changeFederal and state healthcare laws and regulations that may affect our ability to conduct business, include, without limitation: • federal and state laws and regulations regarding billing and claims payment applicable to our solution and regulatory agencies enforcing those laws and regulations; • the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as Medicare and Medicaid; • the federal false claims laws, including the FCA, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government; • federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • the federal Physician Payments Sunshine Act, created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) and its implementing regulations, which requires certain manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other health care professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members; • federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; • the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information on covered entities, including certain healthcare providers, health plans and healthcare clearinghouses, and their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors; HIPAA also created criminal liability for, among other things, knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; • the Federal Drug & Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; • the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits, among other things, physicians who have a financial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare and Medicaid patients to that entity for designated health services, which include clinical laboratory services, unless an exception applies. 62 Table of Contents Similarly, entities may not bill Medicare, Medicaid or any other party for services furnished pursuant to a prohibited referral; • state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and • similar healthcare laws and regulations in the European Union, the UK and other jurisdictions, including national anti-bribery laws of European countries and national rules, regulations, industry self-regulation codes reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of certain protected information, such as personal data under the GDPR.
Government regulations specific to medical devices are wide ranging and govern, among other things: • product design, development, manufacture, and release; • laboratory, pre-clinical and clinical testing, labeling, packaging, storage and distribution; • product safety and efficacy; • premarketing clearance or approval; • service operations; • record keeping; • product marketing, promotion and advertising, sales and distribution; • post-marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals; • post-market approval studies; and • product import and export.
Regulations specific to medical devices are wide ranging and govern, among other things: • product design, development, manufacture, and release; • laboratory, pre-clinical and clinical testing, labeling, packaging, storage and distribution; • product safety and efficacy; • premarketing clearance or approval; • service operations; • record keeping; • product marketing, promotion and advertising, sales and distribution; • post-marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals; • post-market approval studies; and • product import and export.
Although we have adopted policies and procedures designed to comply with these laws and regulations and conduct internal reviews of our compliance with these laws, our activities, including those relating to the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our products (such as our patient reimbursement support program) and the sale and marketing of our products, may be subject to scrutiny by under these laws.
Although we have adopted policies and procedures designed to comply with these laws and regulations and conduct internal reviews of our compliance with these laws, our activities, including those relating to the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our products (such as our patient reimbursement support program) and the sale and marketing of our products, may be subject to scrutiny under these laws.
Failure to take adequate corrective action in response to an adverse regulatory inspection could result in, among other things, a shutdown of our manufacturing or product distribution operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our device, operating restrictions and criminal prosecutions, any of which would negatively affect our business, financial condition and results of operations.
Failure to take adequate corrective action in response to an adverse regulatory inspection could result in, among other things, a shutdown of our manufacturing or product distribution operations, significant fines, suspension of marketing clearances, certification and approvals, seizures or recalls of our device, operating restrictions and criminal prosecutions, any of which would negatively affect our business, financial condition and results of operations.
If clinical studies of our future products do not produce results necessary to support regulatory clearance or approval in the United States or, with respect to our current or future products, elsewhere, we will be unable to expand the indications for or commercialize these products and may incur additional costs or experience delays in completing, or ultimately be unable to complete, the commercialization of those products.
If clinical studies of our future products do not produce results necessary to support regulatory clearance, certification or approval in the United States or, with respect to our current or future products, elsewhere, we will be unable to expand the indications for or commercialize these products and may incur additional costs or experience delays in completing, or ultimately be unable to complete, the commercialization of those products.
Accordingly, such events may disrupt or reduce the efficiency of our entire operation and negatively affect our business, financial condition, and results of operations. Currently, we carry business interruption coverage to mitigate certain potential losses but this insurance is limited in amount, and we cannot be certain that such potential losses will not exceed our policy limits.
Accordingly, such events may disrupt or reduce the efficiency of our entire operation and negatively affect our business, financial condition, and results of operations. Currently, we carry business interruption coverage and cyber insurance to mitigate certain potential losses but this insurance is limited in amount, and we cannot be certain that such potential losses will not exceed our policy limits.
CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care. Even if our future products are cleared or approved in the United States, commercialization of our products in foreign countries would require clearance or approval by regulatory authorities in those countries.
CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care. Even if our future products are cleared or approved in the United States, commercialization of our products in foreign countries would require clearance, certification or approval by regulatory authorities in those countries.
Clearance or approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. Any of these occurrences could have an adverse effect on our business, financial condition and results of operations.
Clearance, certification or approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. Any of these occurrences could have an adverse effect on our business, financial condition and results of operations.
Our failure to successfully increase sales of our solution or develop solutions that address forms of COPD beyond severe emphysema and obtain any necessary regulatory approvals or clearances in connection therewith could negatively affect our business, financial condition and results of operations. Our success depends in large part on the success of the Zephyr Valve.
Our failure to successfully increase sales of our solution or develop solutions that address forms of COPD beyond severe emphysema and obtain any necessary regulatory approvals, certification or clearances in connection therewith could negatively affect our business, financial condition and results of operations. Our success depends in large part on the success of the Zephyr Valve.
In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards against us, and harm our reputation. The clinical trial process required to obtain regulatory approvals is lengthy and expensive with uncertain outcomes.
In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards against us, and harm our reputation. The clinical trial process required to obtain regulatory approvals and certification is lengthy and expensive with uncertain outcomes.
We expect to continue to incur significant sales and marketing, research and development, regulatory and other expenses as we grow our sales force and expand our marketing efforts to increase adoption of our products, expand existing relationships with our customers, obtain regulatory clearances or approvals for our planned or future products, conduct clinical trials on our existing and planned or future products and develop new products or add new features to our existing products.
We expect to continue to incur significant sales and marketing, research and development, regulatory and other expenses as we grow our sales force and expand our marketing efforts to increase adoption of our products, expand existing relationships with our customers, obtain regulatory clearances, certification or approvals for our planned or future products, conduct clinical trials on our existing and planned or future products and develop new products or add new features to our existing products.
The research, development, marketing and sale of our current products and potential new and improved products or future product indications for which we receive regulatory clearance or approval depend upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products.
The research, development, marketing and sale of our current products and potential new and improved products or future product indications for which we receive regulatory clearance, certification or approval depend upon our maintaining working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products.
Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. Even after we have obtained the proper regulatory approval to market a device, we have ongoing responsibilities under FDA regulations and applicable foreign laws and regulations.
Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. Even after we have obtained the proper regulatory approval or certification to market a device, we have ongoing responsibilities under FDA regulations and applicable foreign laws and regulations.
Any of the foregoing consequences will negatively affect our business, financial condition and results of operations. If we modify the Zephyr Valve, we may need to seek additional clearances or approvals, which, if not granted, would prevent us from selling our modified products.
Any of the foregoing consequences will negatively affect our business, financial condition and results of operations. If we modify the Zephyr Valve, we may need to seek additional clearances, certification or approvals, which, if not granted, would prevent us from selling our modified products.
If we do not obtain and maintain international regulatory registrations or approvals for our products, we will be unable to market and sell our products outside of the United States. Sales of our products outside of the United States are subject to foreign regulatory requirements that vary widely from country to country.
If we do not obtain and maintain international regulatory registrations, certification or approvals for our products, we will be unable to market and sell our products outside of the United States. Sales of our products outside of the United States are subject to foreign regulatory requirements that vary widely from country to country.
Complying with foreign regulatory requirements, including obtaining registrations or approvals, can be expensive and time-consuming, and we may not receive regulatory approvals in each country in which we plan to market our products, or we may be unable to do so on a timely basis.
Complying with foreign regulatory requirements, including obtaining registrations, certification or approvals, can be expensive and time-consuming, and we may not receive regulatory approvals or certification in each country in which we plan to market our products, or we may be unable to do so on a timely basis.
Our failure to comply with applicable regulatory requirements could result in enforcement action by any such agency, which may include any of the following sanctions: • adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties; • repair, replacement, refunds, recall or seizure of our products; • operating restrictions, partial suspension or total shutdown of production; • denial of our requests for regulatory clearance or premarket approval of new products or services, new intended uses or modifications to existing products or services; • withdrawal of regulatory clearance or premarket approvals that have already been granted; or • criminal prosecution.
Our failure to comply with applicable regulatory requirements could result in enforcement action by any such agency and authority, which may include any of the following sanctions: • adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties; • repair, replacement, refunds, recall or seizure of our products; • operating restrictions, partial suspension or total shutdown of production; • denial of our requests for regulatory clearance, certification or premarket approval of new products or services, new intended uses or modifications to existing products or services; • withdrawal of regulatory clearance, certification or premarket approvals that have already been granted; or • criminal prosecution.
However, a failure or delay in obtaining registration or regulatory clearance or approval in one country may have a negative effect on the regulatory process in others. Healthcare reform measures could hinder or prevent the commercial success of our solutions.
However, a failure or delay in obtaining registration, certification or regulatory clearance or approval in one country may have a negative effect on the regulatory process in others. Healthcare reform measures could hinder or prevent the commercial success of our solutions.
This third-party cloud service enables physicians to upload CT scan data while removing protected health information (PHI) of patients from that data, in case the physicians have, inadvertently, not removed the PHI themselves.
This third-party cloud service enables physicians to upload CT scan data while removing protected health information (“PHI”) of patients from that data, in case the physicians have, inadvertently, not removed the PHI themselves.
Subject to certain limited exceptions, these covenants limit our ability to, among other things: • convey, sell, lease, transfer, assign, dispose of or otherwise make cash payments consisting of all or any part of our business or property; • effect certain changes in our business, management, ownership or business locations; • merge or consolidate with, or acquire all or substantially all of the capital stock or assets of, any other company; • create, incur, assume or be liable for any additional indebtedness, or create, incur, allow or permit to exist any additional liens; • pay cash dividends on, make any other distributions in respect of, or redeem, retire or repurchase, any shares of our capital stock; • make certain investments; • enter into transactions with our affiliates; and • under certain circumstances, settle pending or threatened litigation for greater amounts than are disclosed to CIBC in writing from time to time.
Subject to certain limited exceptions, these covenants limit our ability to, among other things: • convey, sell, lease, transfer, assign, dispose of or otherwise make cash payments consisting of all or any part of our business or property; • effect certain changes in our business, management, ownership or business locations; • merge or consolidate with, or acquire all or substantially all of the capital stock or assets of, any other company; • create, incur, assume or be liable for any additional indebtedness, or create, incur, allow or permit to exist any additional liens; • pay cash dividends on, make any other distributions in respect of, or redeem, retire or repurchase, any shares of our capital stock; • make certain investments; 46 Table of Contents • enter into transactions with our affiliates; and • under certain circumstances, settle pending or threatened litigation for greater amounts than are disclosed to CIBC in writing from time to time.
Any potential intellectual property litigation also could force us to do one or more of the following: • stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property; 73 Table of Contents • lose the opportunity to license our intellectual property to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; incur significant legal expenses; • pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; • pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; • redesign those products or technologies that contain the allegedly infringing intellectual property, which could be costly, disruptive and infeasible; and • attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all, or from third parties who may attempt to license rights that they do not have.
Any potential intellectual property litigation also could force us to do one or more of the following: • stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property; • lose the opportunity to license our intellectual property to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; incur significant legal expenses; • pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; • pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; • redesign those products or technologies that contain the allegedly infringing intellectual property, which could be costly, disruptive and infeasible; and • attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all, or from third parties who may attempt to license rights that they do not have.
We cannot 55 Table of Contents assure you, however, that our policies and procedures are or will be sufficient or that directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.
We cannot 56 Table of Contents assure you, however, that our policies and procedures are or will be sufficient or that directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.
It is also possible that other federal, state or foreign enforcement authorities might take action, such as federal prosecution under the FCA, if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations.
It is also possible that other federal, state or foreign enforcement authorities might take action, such as federal prosecution under the FCA, if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, additional reporting requirements and oversight if we become subject to a 66 Table of Contents corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations.
Reimbursement is obtained from a variety of sources, including government sponsors, hospital budgets, or private health insurance plans, or combinations thereof. We have established reimbursement access in countries across Europe and Asia Pacific, including Australia, Austria, Belgium, France, Germany, the Netherlands, United Kingdom (the “UK”), Scotland, Switzerland and South Korea, and other countries.
Reimbursement is obtained from a variety of sources, including government sponsors, hospital budgets, or private health insurance plans, or combinations thereof. We have established market access in countries across Europe and Asia Pacific, including Australia, Austria, Belgium, France, Germany, Japan, the Netherlands, United Kingdom (the “UK”), Scotland, Switzerland and South Korea, and other countries.
If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to 72 Table of Contents regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2031 unless additional congressional action is taken.
For example, the Budget Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2032 unless additional congressional action is taken.
We are also subject to numerous other risks relating to our manufacturing capabilities, including: • quality and reliability of components, sub-assemblies and materials that we source from third-party suppliers, that are required to meet our quality specifications, many of whom are our single source suppliers for the products they supply; • our inability to secure components, sub-assemblies and materials in a timely manner, in sufficient quantities or on commercially reasonable terms; • our inability to maintain compliance with quality system requirements or pass regulatory quality inspections; • disruptions in our production schedule and ability to manufacture and assemble products due to the COVID-19 pandemic; • our failure to increase production capacity or volumes to meet demand; • our inability to design or modify production processes to enable us to produce future products efficiently or implement changes in current products in response to design or regulatory requirements; and • difficulty identifying and qualifying, and obtaining new regulatory approvals, for alternative suppliers for components in a timely manner.
We are also subject to numerous other risks relating to our manufacturing capabilities, including: • quality and reliability of components, sub-assemblies and materials that we source from third-party suppliers, that are required to meet our quality specifications, many of whom are our single source suppliers for the products they supply; • our inability to secure components, sub-assemblies and materials in a timely manner, in sufficient quantities or on commercially reasonable terms; • our inability to maintain compliance with quality system requirements or pass regulatory quality inspections; • disruptions in our production schedule and ability to manufacture and assemble products; • our failure to increase production capacity or volumes to meet demand; • our inability to design or modify production processes to enable us to produce future products efficiently or implement changes in current products in response to design or regulatory requirements; and • difficulty identifying and qualifying, and obtaining new regulatory approvals, for alternative suppliers for components in a timely manner.
We cannot assure you that our third-party service providers with access to our or our customers’, suppliers’, trial patients’ and employees’ personally identifiable and other sensitive or confidential information in relation to which we are responsible will not breach contractual obligations imposed by us, or that they will not experience data security breaches or attempts thereof, which could have a corresponding effect on our business, including putting us in breach of our obligations under privacy and information security laws and regulations, which could in turn adversely affect our business, results of operations and financial condition.
We cannot assure you that our third-party service providers with access to our or our customers’, suppliers’, trial patients’ and employees’ personal data and other sensitive or confidential information in relation to which we are responsible will not breach contractual obligations imposed by us, or that they will not experience data security breaches or attempts thereof, which could have a corresponding effect on our business, including putting us in breach of our obligations under privacy and information security laws and regulations, which could in turn adversely affect our business, results of operations and financial condition.
Medicare, currently without a public coverage policy, covers our solution for patients when medically necessary on a case-by-case basis, and other commercial insurers not described above are approving pre-authorization requests on a case-by-case basis. The Centers for Medicare & Medicaid Services (“CMS”) have established guidelines for the coverage and reimbursement of certain products and procedures by Medicare.
Medicare, currently without a public coverage policy, covers our solution for patients when medically necessary on a case-by-case basis, and other commercial insurers not described above are approving prior authorization requests on a case-by-case basis. The Centers for Medicare & Medicaid Services (“CMS”) have established guidelines for the coverage and reimbursement of certain products and procedures by Medicare.
Using these third parties poses a number of risks, such as: (i) they may not perform to our standards or legal requirements; (ii) they may not produce reliable results; (iii) they may not perform in a timely manner; (iv) they may not maintain confidentiality of our proprietary information; (v) disputes may arise with respect to ownership of rights to 79 Table of Contents technology developed with our partners; and (vi) disagreements could cause delays in, or termination of, the research, development or commercialization of our products or result in litigation or arbitration.
Using these third parties poses a number of risks, such as: (i) they may not perform to our standards or legal requirements; (ii) they may not produce reliable results; (iii) they may not perform in a timely manner; (iv) they may not maintain confidentiality of our proprietary information; (v) disputes may arise with respect to ownership of rights to technology developed with our partners; and (vi) disagreements could cause delays in, or termination of, the research, development or commercialization of our products or result in litigation or arbitration.
Regulatory approval by the FDA does not ensure registration, clearance or approval by regulatory authorities in other countries, and registration, clearance or approval by one or more foreign regulatory authorities does not ensure registration, clearance or approval by regulatory authorities in other foreign countries or by the FDA.
Regulatory approval by the FDA does not ensure registration, clearance, certification or approval by regulatory authorities in other countries, and registration, clearance, certification or approval by one or more foreign regulatory authorities does not ensure registration, clearance or approval by regulatory authorities in other foreign countries or by the FDA.
Sales of Zephyr Valves and delivery catheters accounted for most of our revenue for the years ended December 31, 2022 and 2021 and we expect that sales of Zephyr Valves and delivery catheters will continue to account for most of our revenue going forward. We do not know if our solution will be successful over the long term.
Sales of Zephyr Valves and delivery catheters accounted for most of our revenue for the years ended December 31, 2023 and 2022 and we expect that sales of Zephyr Valves and delivery catheters will continue to account for most of our revenue going forward. We do not know if our solution will be successful over the long term.
When pre-authorization is not obtained or not allowed, and the procedure is performed and not covered by third-party payors, physicians or hospitals typically directly bill patients enrolled with these third-party payors for the costs and fees associated with the procedures in which our products are used.
When prior authorization is not obtained or not allowed, and the procedure is performed and not covered by third-party payors, physicians or hospitals typically directly bill patients enrolled with these third-party payors for the costs and fees associated with the procedures in which our products are used.
The success of any new product offering or product enhancements to our solution will depend on several factors, including our ability to: • assemble sufficient resources to acquire or discover additional products; • properly identify and anticipate physician and patient needs; • develop and introduce new products and product enhancements in a timely manner; • avoid infringing upon the intellectual property rights of third parties; • demonstrate, if required, the safety and efficacy of new products with data from pre-clinical studies and clinical trials; • obtain the necessary regulatory clearances or approvals for expanded indications, new products or product modifications; • be fully FDA-compliant with marketing of new devices or modified products; • produce new products in commercial quantities at an acceptable cost; • provide adequate training to potential users of our products; • receive adequate coverage and reimbursement for procedures performed with our products; and • develop an effective and dedicated sales and marketing team. 54 Table of Contents If we are not successful in expanding our indications and developing and commercializing new products and product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.
The success of any new product offering or product enhancements to our solution will depend on several factors, including our ability to: • assemble sufficient resources to acquire or discover additional products; • properly identify and anticipate physician and patient needs; • develop and introduce new products and product enhancements in a timely manner; • avoid infringing upon the intellectual property rights of third parties; • demonstrate, if required, the safety and efficacy of new products with data from pre-clinical studies and clinical trials; • obtain the necessary regulatory clearances or approvals for expanded indications, new products or product modifications; • be fully compliant with FDA and comparable foreign regulatory authorities’ requirements relating to the marketing of new devices or modified products; • produce new products in commercial quantities at an acceptable cost; • provide adequate training to potential users of our products; • receive adequate coverage and reimbursement for procedures performed with our products; and • develop an effective and dedicated sales and marketing team. 55 Table of Contents If we are not successful in expanding our indications and developing and commercializing new products and product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, if we experience a significant increase in demand, additional supplies of raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers or may not be able to allocate sufficient capacity in order to meet our increased requirements, which will negatively affect our business, financial condition and results of operations.
In addition, if we experience a significant increase in demand, additional supplies of raw materials or additional manufacturing capacity may not be available when required on terms that are 41 Table of Contents acceptable to us, or at all, or suppliers or may not be able to allocate sufficient capacity in order to meet our increased requirements, which will negatively affect our business, financial condition and results of operations.
In that event, our reputation could be damaged, and adoption of the products could be impaired. Although our policy is to refrain from statements that could be considered off-label promotion of our products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion.
In that event, our reputation could be damaged, and adoption of the products could be impaired. Although our policy is to refrain from statements that could be considered off-label promotion of our products, the FDA or another regulatory authority could disagree and conclude that we have engaged in off-label promotion.
If we initiate a correction or removal for the Zephyr Valve to reduce a risk to health posed by it, we would be required to submit a publicly available correction and removal report to the FDA and, in many cases, similar reports to other regulatory agencies.
If we initiate a correction or removal for the Zephyr Valve to reduce a risk to health posed by it, we would be required to submit a publicly available correction and removal report to the FDA and, in many cases, similar reports to other regulatory authorities.
If our operations are found to be in violation of any of the federal, state and foreign laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to significant penalties, including significant criminal, civil, and administrative penalties, damages, fines, imprisonment for individuals, additional oversight and reporting obligations, exclusion from participation in government programs, such as Medicare and Medicaid, imprisonment, contractual damages, reputation harm and disgorgement and we could be required to curtail or cease our operations.
If our operations are found to be in violation of any of the federal, state and foreign laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to significant penalties, including significant criminal, civil, and administrative penalties, damages, fines, imprisonment for individuals, additional oversight and reporting obligations, exclusion from participation in government programs, 63 Table of Contents such as Medicare and Medicaid, or comparable foreign programs, imprisonment, contractual damages, reputation harm and disgorgement and we could be required to curtail or cease our operations.
Congress may implement changes in laws and regulations governing healthcare service providers, including measures to control costs, or reductions in reimbursement levels, which may negatively affect our business, financial condition and results of operations. The federal government is considering ways to change, and has changed, the manner in which healthcare services are paid for in the United States.
Congress may implement changes in laws and regulations governing healthcare service providers, including measures to control costs, or reductions in reimbursement levels, which may negatively affect our business, financial condition and results of operations. 59 Table of Contents The federal government is considering ways to change, and has changed, the manner in which healthcare services are paid for in the United States.
A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a significant adverse impact on us.
A recall of our products, either voluntarily or at the direction of the FDA or another regulatory authority, or the discovery of serious safety issues with our products that leads to corrective actions, could have a significant adverse impact on us.
As more companies develop new intellectual property in our market, there is the possibility of a competitor acquiring patents or other rights that may limit our ability to update our technologies and products which may impact demand for our products. We have increased the size of our organization and expect to further increase it in the future.
As more companies develop new intellectual property in our market, there is the possibility of a competitor acquiring patents or other rights that may limit our ability to update our technologies and products which may impact demand for our products. 47 Table of Contents We have increased the size of our organization and expect to further increase it in the future.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health.
The FDA and similar foreign regulatory authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health.
There have been executive, judicial and congressional challenges to certain aspects of the Affordable Care Act. For example, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the 68 Table of Contents Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress.
There have been executive, judicial and congressional challenges to certain aspects of the Affordable Care Act. For example, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress.
While we have established positive coverage policies with major national private payors, such as Aetna, Anthem Blue Cross Blue Shield, Blue Cross Blue Shield of Michigan, Humana, Health Care Service Corporation, and Highmark, other commercial payors, including other plans in the Blue Cross Blue Shield family of plans, do not currently consider our solution medically necessary.
While we have established positive coverage policies with major national private payors, such as Aetna, Anthem Blue Cross Blue Shield, Blue Cross Blue Shield of Michigan, Humana, Health Care Service Corporation, and Highmark, other commercial payors, 32 Table of Contents including other plans in the Blue Cross Blue Shield family of plans, do not currently consider our solution medically necessary.
To enforce compliance with the healthcare regulatory laws, certain enforcement bodies have continued their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, 61 Table of Contents prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time and resource-consuming and can divert management’s attention from the business.
To enforce compliance with the healthcare regulatory laws, certain enforcement bodies have continued their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time and resource-consuming and can divert management’s attention from the business.
The facilities will be harmed or rendered inoperable by natural or man-made disasters, including, but not limited to, earthquakes, flooding, fire and power outages, which may render it difficult or impossible for us to perform our research, development and commercialization activities for some period of time.
The facilities will be harmed or rendered inoperable by natural or man-made disasters, including, but not limited to, earthquakes, flooding, fire and power outages, which may render it difficult or 49 Table of Contents impossible for us to perform our research, development and commercialization activities for some period of time.
Furthermore, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own products and practicing our own technology. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products.
Furthermore, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own products and practicing our own technology. Alternatively, third parties may seek approval to market their own products 78 Table of Contents similar to or otherwise competitive with our products.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control or are related in complex ways, including: • actual or anticipated fluctuations in our financial condition and results of operations; • variance in our financial performance from expectations of securities analysts or investors; • the degree to which securities or industry analysts publish research or reports about our business; • changes in the pricing we offer our customers; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our solution; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • publicity associated with issues related to our solution; • our involvement in litigation; • future sales of our common stock or other securities, by us or our stockholders, as well as the anticipation of lock-up releases; • changes in senior management or key personnel; • the trading volume of our common stock; • changes in the anticipated future size and growth rate of our market; • general economic, regulatory, and market conditions, including inflation, rising interest rates, economic recessions or economic slowdowns; • changes in the structure of healthcare payment systems; and • developments or disputes concerning our intellectual property or other proprietary rights.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control or are related in complex ways, including: • actual or anticipated fluctuations in our financial condition and results of operations; • variance in our financial performance from expectations of securities analysts or investors; • the degree to which securities or industry analysts publish research or reports about our business; • changes in the pricing we offer our customers; • changes in our projected operating and financial results; • changes in laws or regulations applicable to our solution; • announcements by us or our competitors of significant business developments, acquisitions, or new offerings; • publicity associated with issues related to our solution; • our involvement in litigation; 83 Table of Contents • future sales of our common stock or other securities, by us or our stockholders; • changes in senior management or key personnel; • the trading volume of our common stock; • changes in the anticipated future size and growth rate of our market; • general economic, regulatory, and market conditions, including inflation, rising interest rates, economic recessions or economic slowdowns; • changes in the structure of healthcare payment systems; and • developments or disputes concerning our intellectual property or other proprietary rights.
Among other things, the GDPR sets out extensive compliance requirements, including providing detailed disclosures about how personal data is collected and processed, demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting new rights for data subjects in regard to their personal data, as well as enhancing pre-existing rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; complying with the principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit; and expanding the definition of personal data to include coded data and requiring changes to informed consent practices, as well as more detailed notices for clinical trial subjects and investigators.
Among other things, the GDPR sets out extensive compliance requirements, including providing detailed disclosures about how personal data is collected and processed, demonstrating that an appropriate legal basis is in place to justify data processing activities; granting various rights for data subjects in regard to their personal data, such as the right to delete certain personal data, as well as enhancing pre-existing rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; complying with the principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit; and expanding the definition of personal data to include coded data and requiring changes to informed consent practices, as well as more detailed notices for clinical trial subjects and investigators.
Because we have not conducted a formal freedom to operate analysis for patents related to our products, we may not be aware of issued patents that a third party might assert are infringed by one of our current products or future product candidates, which could materially impair our ability to commercialize our products or product candidates.
Because we have not conducted a formal freedom to operate analysis for patents 75 Table of Contents related to our products, we may not be aware of issued patents that a third party might assert are infringed by one of our current products or future product candidates, which could materially impair our ability to commercialize our products or product candidates.
Proceedings to enforce our patent and trademarks rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents and trademarks at risk of being invalidated or interpreted narrowly and our patent or trademark applications at risk, and could provoke third parties to assert claims against us.
Proceedings to enforce our patent and trademarks rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents and trademarks at risk of being invalidated or interpreted narrowly and our patent or trademark applications 80 Table of Contents at risk, and could provoke third parties to assert claims against us.
Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets 56 Table of Contents or, in some cases, prevent the export of our products to some countries altogether.
Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets 57 Table of Contents or, in some cases, prevent the export of our products to some countries altogether.
Third-party coverage and reimbursement for procedures using our solution or any of our products in development for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which will negatively affect our business, financial condition and results of operations.
Third-party coverage and reimbursement for procedures using our solution or any of our products in development for which we 37 Table of Contents may receive regulatory approval may not be available or adequate in either the United States or international markets, which will negatively affect our business, financial condition and results of operations.
CMS establishes Medicare payment levels for hospitals and physicians on an 58 Table of Contents annual basis, which can increase or decrease payment to such entities. CMS, as well as insurers, have increased their efforts to control the cost, utilization and delivery of healthcare services. From time to time, the U.S.
CMS establishes Medicare payment levels for hospitals and physicians on an annual basis, which can increase or decrease payment to such entities. CMS, as well as insurers, have increased their efforts to control the cost, utilization and delivery of healthcare services. From time to time, the U.S.
In addition, we do not carry any key person insurance policies that could offset potential loss of service under applicable circumstances. 49 Table of Contents In addition, our research and development programs and clinical operations depend on our ability to attract and retain highly skilled engineers and medical researchers.
In addition, we do not carry any key person insurance policies that could offset potential loss of service under applicable circumstances. In addition, our research and development programs and clinical operations depend on our ability to attract and retain highly skilled engineers and medical researchers.
We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any particular target or obtain the expected benefits of any acquisition or investment. We may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition.
We may not be able to identify desirable acquisition targets or 54 Table of Contents be successful in entering into an agreement with any particular target or obtain the expected benefits of any acquisition or investment. We may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition.
Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend and could result in adverse publicity that could negatively affect our business, financial condition and results of 71 Table of Contents operations.
Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend and could result in adverse publicity that could negatively affect our business, financial condition and results of operations.
In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships or other arrangements to develop new products or product improvements and to pursue new markets. Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint 52 Table of Contents ventures, strategic alliances or partnerships may be a lengthy and complex process.
In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships or other arrangements to develop new products or product improvements and to pursue new markets. Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process.
Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information.
Consequently, depending on the facts and circumstances, we could 73 Table of Contents face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information.
If this occurs, our competitors may be able to launch their products earlier by taking advantage of our investment in development and 80 Table of Contents clinical trials along with our clinical and pre-clinical data. This could have a material adverse effect on our business and ability to achieve profitability.
If this occurs, our competitors may be able to launch their products earlier by taking advantage of our investment in development and clinical trials along with our clinical and pre-clinical data. This could have a material adverse effect on our business and ability to achieve profitability.
If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations.
If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, or comparable foreign programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of 74 Table of Contents operations, any of which could adversely affect our ability to operate our business and our results of operations.
If the quality of our solution does not meet the expectations of physicians or patients, then our business and reputation may be harmed. 48 Table of Contents In the course of conducting our business, we must adequately address quality issues that may arise with our solution, including defects in third-party components included in our solution.
If the quality of our solution does not meet the expectations of physicians or patients, then our business and reputation may be harmed. In the course of conducting our business, we must adequately address quality issues that may arise with our solution, including defects in third-party components included in our solution.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses; 57 Table of Contents • the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials or the interpretation of data from pre-clinical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in our clinical trials; • the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the manufacturing process or facilities we use may not meet applicable requirements; and • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
The FDA, comparable foreign regulatory authorities and Notified Bodies can delay, limit or deny clearance, certification or approval of a device for many reasons, including: 58 Table of Contents • our inability to demonstrate to the satisfaction of the FDA, the applicable regulatory authority or Notified Body that our products are safe or effective for their intended uses; • the disagreement of the FDA or the applicable foreign regulatory authority or Notified Body with the design or implementation of our clinical trials or the interpretation of data from pre-clinical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in our clinical trials; • the data from our pre-clinical studies and clinical trials may be insufficient to support clearance, certification or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the manufacturing process or facilities we use may not meet applicable requirements; and • the potential for approval policies or regulations of the FDA or applicable foreign regulatory authorities to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance, certification or approval.
Our failure to 38 Table of Contents comply with requirements governing the industry’s relationships with physicians or an investigation into our compliance by the OIG, the DOJ, state attorneys general and other government agencies, could negatively affect our business, financial condition and results of operations.
Our failure to comply with requirements governing the industry’s relationships with physicians or an investigation into our compliance by the OIG, the DOJ, state attorneys general and other government agencies, could negatively affect our business, financial condition and results of operations.
Taking corrective action may be expensive, time consuming and a distraction for management and if we experience a delay at our manufacturing facility, we may be unable to produce our solutions, which will negatively affect our business, financial condition and results of operations.
Taking corrective action may be expensive, 65 Table of Contents time consuming and a distraction for management and if we experience a delay at our manufacturing facility, we may be unable to produce our solutions, which will negatively affect our business, financial condition and results of operations.
Our commercialization efforts will depend on the efforts of our management and sales team, our third-party suppliers, physicians and hospitals, and general economic conditions, among other factors, including the following: • the effectiveness of our marketing and sales efforts in the United States and internationally; • our success in educating physicians and patients about the benefits, administration and use of the Zephyr Valves; • the acceptance by physicians, patients and payors of the safety and effectiveness of the Zephyr Valves, including the long-term data; • our third-party suppliers’ ability to supply the components of the Zephyr Valves in a timely manner, in accordance with our specifications and in compliance with applicable regulatory requirements, and to remain in good standing with regulatory agencies; • the impact of the COVID-19 pandemic on our business, financial condition and results of operations; • the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing therapies; 30 Table of Contents • our ability to obtain, maintain and enforce our intellectual property rights in and to the Zephyr Valves; • the emergence of competing technologies and other adverse market developments, and our need to enhance the Zephyr Valves or develop new products to maintain market share in response to such competing technologies or market developments; • our ability to raise additional capital on acceptable terms, or at all, if needed to support the commercialization of the Zephyr Valves; and • our ability to achieve and maintain compliance with all regulatory requirements applicable to the Zephyr Valves.
Our commercialization efforts will depend on the efforts of our management and sales team, our third-party suppliers, physicians and hospitals, and general economic conditions, among other factors, including the following: • the effectiveness of our marketing and sales efforts in the United States and internationally; • our success in educating physicians and patients about the benefits, administration and use of the Zephyr Valves; • the acceptance by physicians, patients and payors of the safety and effectiveness of the Zephyr Valves, including the long-term data; • our third-party suppliers’ ability to supply the components of the Zephyr Valves in a timely manner, in accordance with our specifications and in compliance with applicable regulatory requirements, and to remain in good standing with regulatory agencies; • the impact of any public health crisis, such as a resurgence of COVID-19 infections, on our business, financial condition and results of operations; 31 Table of Contents • the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing therapies; • our ability to obtain, maintain and enforce our intellectual property rights in and to the Zephyr Valves; • the emergence of competing technologies and other adverse market developments, and our need to enhance the Zephyr Valves or develop new products to maintain market share in response to such competing technologies or market developments; • our ability to raise additional capital on acceptable terms, or at all, if needed to support the commercialization of the Zephyr Valves; and • our ability to achieve and maintain compliance with all regulatory requirements applicable to the Zephyr Valves.
Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology. 75 Table of Contents The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that: • any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products; • any of our pending patent applications will issue as patents; • we will be able to successfully commercialize our products on a substantial scale, if approved, before our relevant patents we may have expire; • we were the first to make the inventions covered by each of our patents and pending patent applications; • we were the first to file patent applications for these inventions; • others will not develop similar or alternative technologies that do not infringe our patents; any of our patents will be found to ultimately be valid and enforceable; • any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; • we will develop additional proprietary technologies or products that are separately patentable; or • our commercial activities or products will not infringe upon the patents of others.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that: • any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products; • any of our pending patent applications will issue as patents; • we will be able to successfully commercialize our products on a substantial scale, if approved, before our relevant patents we may have expire; • we were the first to make the inventions covered by each of our patents and pending patent applications; • we were the first to file patent applications for these inventions; • others will not develop similar or alternative technologies that do not infringe our patents; any of our patents will be found to ultimately be valid and enforceable; • any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; • we will develop additional proprietary technologies or products that are separately patentable; or • our commercial activities or products will not infringe upon the patents of others.
As of December 31, 2022, commercial payors such as Aetna, Humana, and many of the largest Blue Cross Blue Shield plans including Anthem, Health Care Service Corporation, and BCBS Michigan have issued positive coverage policies for endobronchial valve procedures.
As of December 31, 2023, commercial payors such as Aetna, Humana, and many of the largest Blue Cross Blue Shield plans including Anthem, Health Care Service Corporation, BCBS Michigan, and Highmark have issued positive coverage policies for endobronchial valve procedures.
While most pneumothoraces can be readily managed with standard medical care, in rare cases they can be life-threatening, particularly if left 34 Table of Contents untreated. In the event the pneumothorax does not resolve with standard management, one or more valves can be removed to re-inflate the lung; these are typically replaced later when the pneumothorax has resolved.
While most pneumothoraces can be readily managed with standard medical care, in rare cases they can be life-threatening, particularly if left untreated. In the event the pneumothorax does not resolve with standard management, one or more valves can be removed to re-inflate the lung; these are typically replaced later when the pneumothorax has resolved.
No matter the level of coverage by the commercial payor, each patient is generally considered on a case-by-case basis. In addition, Medicare, currently without a public coverage policy, covers our solution for patients 31 Table of Contents when medically necessary on a case-by-case basis.
No matter the level of coverage by the commercial payor, each patient is generally considered on a case-by-case basis. In addition, Medicare, currently without a public coverage policy, covers our solution for patients when medically necessary on a case-by-case basis.
We can provide no assurance that we will be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future or that these efforts will have the intended effect of preventing product malfunctions and the accompanying product liability that 44 Table of Contents may result.
We can provide no assurance that we will be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future or that these efforts will have the intended effect of preventing product malfunctions and the accompanying product liability that may result.
We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is 67 Table of Contents an adverse event that is unexpected or removed in time from the use of the product.
We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product.
Despite the protections we do place on our intellectual property or other proprietary rights, monitoring unauthorized 76 Table of Contents use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property or other proprietary rights will be adequate.
Despite the protections we do place on our intellectual property or other proprietary rights, monitoring unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property or other proprietary rights will be adequate.
This will place us at a competitive disadvantage compared to our competitors that have less indebtedness. 45 Table of Contents In addition, the CIBC Agreement contains, and any agreements evidencing or governing other future indebtedness may contain, certain covenants that limit our ability to engage in certain transactions that may be in our long-term best interests.
This will place us at a competitive disadvantage compared to our competitors that have less indebtedness. In addition, the CIBC Agreement contains, and any agreements evidencing or governing other future indebtedness may contain, certain covenants that limit our ability to engage in certain transactions that may be in our long-term best interests.
Future licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects. Unfavorable global economic conditions, including as a result of the conflict in Ukraine, could negatively affect our business, financial condition or results of operations.
Future licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects. Unfavorable global economic conditions, including as a result of geopolitical conflict, could negatively affect our business, financial condition or results of operations.
Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays for our product and cause our revenue to decline. 63 Table of Contents We are registered with the FDA as a manufacturer. The FDA has broad post-market and regulatory enforcement powers.
Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays for our product and cause our revenue to decline. We are registered with the FDA as a manufacturer. The FDA has broad post-market and regulatory enforcement powers.
In order to more closely monitor patients, the study protocol was subsequently amended to keep patients in the hospital for five nights. Based on the full study data, current practice is to keep patients in the hospital for a minimum of three nights post-treatment.
In order to more closely 35 Table of Contents monitor patients, the study protocol was subsequently amended to keep patients in the hospital for five nights. Based on the full study data, current practice is to keep patients in the hospital for a minimum of three nights post-treatment.
In general, in order to be reimbursed by Medicare, a healthcare procedure furnished to a Medicare beneficiary must be reasonable and necessary for the diagnosis or treatment of an illness or injury, or to improve the functioning of a malformed body part.
In general, in order to be reimbursed by Medicare, a 36 Table of Contents healthcare procedure furnished to a Medicare beneficiary must be reasonable and necessary for the diagnosis or treatment of an illness or injury, or to improve the functioning of a malformed body part.
Our sales force may subject us to higher fixed costs than those of companies with competing techniques or products that utilize independent third 37 Table of Contents parties, which could place us at a competitive disadvantage.
Our sales force may subject us to higher fixed costs than those of companies with competing techniques or products that utilize independent third parties, which could place us at a competitive disadvantage.
Accordingly, although we have no current commitments with respect to any acquisition or investment, we may in the future pursue the acquisition of, or joint ventures relating to, complementary businesses, applications 53 Table of Contents or technologies instead of developing them ourselves.
Accordingly, although we have no current commitments with respect to any acquisition or investment, we may in the future pursue the acquisition of, or joint ventures relating to, complementary businesses, applications or technologies instead of developing them ourselves.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our corporate headquarters is located in Redwood City, California, where we lease and occupy approximately 50,000 square feet of office, manufacturing, and laboratory space. In addition, we lease various other office and warehouse spaces in Redwood City and Switzerland. We believe our existing facilities are sufficient for our needs for the foreseeable future.
Biggest changeITEM 2. PROPERTIES Our corporate headquarters are located in Redwood City, California, where we lease and occupy approximately 50,000 square feet of office, manufacturing, and laboratory space. In addition, we lease various other office and warehouse spaces in Redwood City and Switzerland. We believe our existing facilities are sufficient for our needs for the foreseeable future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUse of Proceeds from Initial Public Offering On September 30, 2020, our registration statement on Form S-1 (File No. 333-248635) relating to our initial public offering (“IPO”) of common stock became effective.
Biggest changeUse of Proceeds On September 30, 2020, our registration statement on Form S-1 (File No. 333-248635) relating to our initial public offering (“IPO”) of common stock became effective. As of December 31, 2023, we had used all the net proceeds from our IPO of approximately $201.4 million. Purchases of Equity Securities by the Issuer and Affiliated Purchases None.
Holders of Common Stock As of February 21, 2023, there were approximately 152 holders of record of our common stock. The actual number of stockholders is greater than this number of holders of record and includes stockholders who are beneficial owners but whose shares are held in the street name by brokers and other nominees.
Holders of Common Stock As of February 19, 2024, there were approximately 136 holders of record of our common stock. The actual number of stockholders is greater than this number of holders of record and includes stockholders who are beneficial owners but whose shares are held in the street name by brokers and other nominees.
Removed
There has been no material change in our planned use of the net proceeds from our IPO as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on October 1, 2020.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchases Period (a) Total Number of Shares (or Units) Purchased(1) (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs November 1 - November 30, 2022 14,459 $ 1.87 — — Total 14,459 $ 1.87 — — (1) Includes shares of unvested common stock that were repurchased by us from former employees upon termination of employment in accordance with the terms of the employees’ stock option agreements, which were purchased at the respective original exercise prices. 89 Table of Contents

Item 7. Management's Discussion & Analysis

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

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Biggest changeCash used in operating activities was primarily a result of the net loss of $48.7 million, an increase in accounts receivable of $2.4 million, an increase in inventory of $6.4 million primarily due to higher inventory levels required to support projected increase in sales, an increase in prepaid and other current assets of $1.2 million, an increase in other assets of $0.2 million, a decrease in lease liabilities of $2.5 million, offset by an increase in accrued liabilities of $4.8 million, stock based compensation expense of $7.9 million, employee stock purchase plan expense of $2.6 million, write-down of inventory due to obsolescence of $1.2 million, depreciation and amortization expense of $0.9 million, amortization of debt discount and debt issuance costs of $0.1 million, non-cash lease expense of $2.4 million, and decrease of deferred revenue of $0.1 million.
Biggest changeCash used in operating activities was primarily a result of the net loss of $60.8 million, a decrease in lease liabilities of $3.2 million due to lease payments, an increase in accounts receivable of $3.1 million due to revenue growth and the timing of payments from our customers, net accretion of discounts on marketable securities of $1.0 million, and a decrease in accounts payable of $0.3 million due to timing of payments to our vendors, partially offset by an increase in accrued liabilities of $3.2 million due to increased accrued incentive compensation expense associated with the achievement of performance objectives, a decrease in inventory of $0.9 million, stock-based compensation expense of $22.1 million, non-cash lease expense of $2.7 million, depreciation and amortization expense of $1.5 million and write-down of inventory of $0.5 million.
Actual results may materially differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Actual results may materially differ from these estimates under different assumptions or conditions. We believe that the accounting policies and estimates discussed below are critical to understanding our historical and future performance, as these relate to the more significant areas involving management’s judgments and estimates.
We continue to educate private insurers in the United States on our clinical data and patient selection tools in an effort to continue to expand the number of positive coverage policies, in order to increase our revenue. Outside the United States, our solution is covered by major health systems across much of Europe, Australia and South Korea.
We continue to educate private insurers in the United States on our clinical data and patient selection tools in an effort to continue to expand the number of positive coverage policies, in order to increase our revenue. Outside the United States, our solution is covered by major health systems across much of Europe, Australia, South Korea and Japan.
For more detail on our critical accounting policies, refer to Note 2 to the financial statements appearing elsewhere in this Annual Report on Form 10-K. Revenue Recognition Our revenue is generated from the sale of our products to hospitals and distributors in the U.S. and international markets.
For more detail on our critical accounting policies, refer to Note 2 to the financial statements appearing elsewhere in this Annual Report on Form 10-K. Revenue Recognition Our revenue is generated primarily from the sale of our products to hospitals and distributors in the U.S. and international markets.
Cash Flows from Investing Activities Net cash used in investing activities in the year ended December 31, 2022 was $4.2 million consisting of purchases of marketable securities of $47.2 million and purchases of property and equipment of $1.3 million partially offset by proceeds from maturities of marketable securities of $44.3 million.
Net cash used in investing activities in the year ended December 31, 2022 was $4.2 million consisting of purchases of marketable securities of $47.2 million and purchases of property and equipment of $1.3 million partially offset by proceeds from maturities of marketable securities of $44.3 million.
The expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term for the options.
The expected volatility is derived from our historical volatility and the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term for the options.
We are entitled to the total consideration for the products ordered by customers, net of early pay discounts, volume-based rebates and other transaction price adjustments. We exclude taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price. We accept product returns at our discretion or if the product is defective as manufactured.
We are entitled to the total consideration for the products ordered by customers, net of early pay discounts, volume-based rebates and other transaction price adjustments. We exclude taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price. We Table of Contents accept product returns at our discretion or if the product is defective as manufactured.
No single customer accounted for more than 10% of our revenue during the years ended December 31, 2022 and 2021. Revenue from sales of our products fluctuates based on volume of cases (procedures performed), the average number of Zephyr Valves used for a patient, pricing, discounts, incentives and mix of U.S. and international sales.
No single customer accounted for more than 10% of our revenue during the years ended December 31, 2023 and 2022. Revenue from sales of our products fluctuates based on volume of cases (procedures performed), the average number of Zephyr Valves used for a patient, pricing, discounts, incentives and mix of U.S. and international sales.
Our gross margin is typically higher on products we sell directly to hospitals as compared to products we sell through distributors. Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs.
Our gross margin is typically higher on products we sell directly to hospitals as compared to products we sell through distributors. Table of Contents Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs.
Cash Flows from Financing Activities Net cash provided by financing activities in the year ended December 31, 2022 of $2.4 million primarily relates to proceeds from the exercise of stock options of 0.6 million and proceeds from issuance of common stock under the employee stock purchase plan of $1.9 million, offset by repayment of Credit Agreement of $0.1 million.
Net cash provided by financing activities in the year ended December 31, 2022 of $2.4 million primarily relates to proceeds from the exercise of stock options of $0.6 million and proceeds from issuance of common stock under the employee stock purchase plan of $1.9 million, offset by repayment of debt under the Credit Agreement of $0.1 million.
Some commercial payors do not yet consider our solution medically necessary, but these same plans are approving pre-authorization requests on a case-by-case basis. Medicare, currently without a public coverage policy, covers our solution for patients when medically necessary on a case-by-case basis and other commercial insurers not described above are approving pre-authorization requests on a case-by-case basis.
Some commercial payors do not yet consider our solution medically necessary, but these same plans are approving prior authorization requests on a case-by-case basis. Medicare, currently without a public coverage policy, covers our solution for patients when medically necessary on a case-by-case basis and other commercial insurers not described above are approving prior authorization requests on a case-by-case basis.
In addition, we are continuing to invest in the accuracy and features of our patient assessment tools. Moreover, we are conducting clinical research of AeriSeal, a potential product in development for the treatment of severe emphysema patients who are not qualified for Zephyr Valve treatment due to excessive collateral ventilation.
Table of Contents In addition, we are continuing to invest in the accuracy and features of our patient assessment tools. Moreover, we are conducting clinical research of AeriSeal, a potential product in development for the treatment of severe emphysema patients who are not qualified for Zephyr Valve treatment due to excessive collateral ventilation.
The annual limitation may result in the expiration of net operating losses and credits before utilization. Recent Accounting Pronouncements See “Recent Accounting Pronouncements” in Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
The annual limitation may result in the expiration of net operating losses and credits before utilization. Recent Accounting Pronouncements See “Recent Accounting Pronouncements” in Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Table of Contents
Based on our current planned operations, we expect that our cash, cash equivalents and marketable securities will enable us to fund our operating expenses for at least 12 months from the issuance of our financial statements as of and for the year ended December 31, 2022.
Based on our current planned operations, we expect that our cash, cash equivalents and marketable securities will enable us to fund our operating expenses for at least 12 months from the issuance of our financial statements as of and for the year ended December 31, 2023.
We paid $0.4 million fees to the lender and third parties which is reflected as a discount on the loans provided under the Amended and Restated CIBC Agreement and is being accreted over the life of the loan using the effective interest method.
We paid $0.5 million fees to the lender and third parties which is reflected as a discount on the loans provided under the Amended and Restated CIBC Agreement and is being accreted over the life of the loan using the effective interest method.
Medicare covers our solution for patients when medically necessary, and other commercial insurers are approving pre-authorization requests on a case-by-case basis. Outside the United States, our solution is covered by major health systems across much of Europe, Australia and South Korea. We manufacture all our products at our headquarters located in Redwood City, California.
Medicare covers our solution for patients when medically necessary, and other commercial insurers are approving prior authorization requests on a case-by-case basis. Outside the United States, our solution is covered by major health systems across much of Europe, Australia, South Korea and Japan. We manufacture all our products at our headquarters located in Redwood City, California.
In order to grow our business, we will need to continue to make significant investments in training and educating hospitals, physicians and patients on the advantages of our solution for the treatment of severe emphysema.
In order to grow our business, we will need to continue to make significant investments in training and Table of Contents educating hospitals, physicians and patients on the advantages of our solution for the treatment of severe emphysema.
In addition, as our sales grow, we may experience further seasonality based on holidays, vacations and other factors because this is an elective procedure. 94 Table of Contents Components of Our Results of Operations Revenue We currently derive substantially all our revenue from the sale of our products to hospitals and distributors.
In addition, as our sales grow, we may experience further seasonality based on holidays, vacations and other factors because this is an elective procedure. Components of Our Results of Operations Revenue We currently derive substantially all our revenue from the sale of our products to hospitals and distributors.
For awards with multiple vesting-tranches, the periods from grant until the mid-point for each of the tranches are averaged to provide an overall expected term. • Expected Volatility.
For awards with Table of Contents multiple vesting-tranches, the periods from grant until the mid-point for each of the tranches are averaged to provide an overall expected term. • Expected Volatility.
All research and development costs are expensed as incurred. 102 Table of Contents Clinical trial costs are a significant component of our research and development expenses. We contract with third parties that perform various clinical trial activities on our behalf in the ongoing development of our product candidates.
All research and development costs are expensed as incurred. Clinical trial costs are a significant component of our research and development expenses. We contract with third parties that perform various clinical trial activities on our behalf in the ongoing development of our product candidates.
Commercial payors such as Aetna, Humana, and many of the largest Blue Cross Blue Shield plans including Anthem, Health Care Service Corporation, and BCBS Michigan have issued 93 Table of Contents positive coverage policies for the Zephyr Valve, and United Healthcare no longer considers the procedure unproven or experimental.
Commercial payors such as Aetna, Humana, and many of the largest Blue Cross Blue Shield plans including Anthem, Health Care Service Corporation, BCBS Michigan, and Highmark have issued positive coverage policies for the Zephyr Valve, and United Healthcare no longer considers the procedure unproven or experimental.
Research and development expenses 95 Table of Contents include payroll and personnel-related costs for our research and development employees, including expenses related to stock-based compensation, consulting services, clinical trial expenses, prototyping, testing, laboratory supplies, and an allocation of facility overhead costs.
Research and development expenses include payroll and personnel-related costs for our research and development employees, including expenses related to stock-based compensation, consulting services, clinical trial expenses, prototyping, testing, laboratory supplies, and an allocation of facility overhead costs.
Our future funding requirements will depend on many factors, including: • the costs of commercialization activities related to commercializing our products in the United States and elsewhere, including expanding territories, increasing sales and marketing personnel, actual and anticipated product sales, marketing programs, manufacturing and distribution costs; • the impact of the COVID-19 pandemic on our business; • the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; • the research and development activities we intend to undertake, product enhancements that we intend to pursue; • whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business; • the degree and rate of market acceptance of our products in the United States and elsewhere; • changes or fluctuations in our inventory supply needs and forecasts of our supply needs; • our need to implement additional infrastructure and internal systems; • our ability to hire additional personnel to support our operations as a public company; and • the emergence of competing technologies or other adverse market developments.
Our future funding requirements will depend on many factors, including: • the costs of commercialization activities related to commercializing our products in the United States and elsewhere, including expanding territories, increasing sales and marketing personnel, actual and anticipated product sales, marketing programs, manufacturing and distribution costs; • the impact of any public health crises, such as a resurgence of COVID-19 infections, on our business, financial condition and results of operations; • the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; • the research and development activities we intend to undertake, product enhancements that we intend to pursue; • whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business; • the degree and rate of market acceptance of our products in the United States and elsewhere; • changes or fluctuations in our inventory supply needs and forecasts of our supply needs; Table of Contents • our need to implement additional infrastructure and internal systems; • our ability to hire additional personnel to support our operations as a public company; and • the emergence of competing technologies or other adverse market developments.
The loans provided under the Amended and Restated CIBC Agreement bear interest at a floating rate equal to 1.0% above the Wall Street Journal Prime Rate at any time. The loan is collateralized by substantially all of our assets, including cash and cash equivalents, accounts receivable, intellectual property and equipment. We may prepay the loans without penalty.
The loans provided under the Amended and Restated CIBC Agreement bear interest at a floating rate equal to 1.0% above the Wall Street Journal Prime Rate at any time. The loan is collateralized by substantially all of our assets, including cash and cash equivalents, accounts receivable, intellectual property and equipment.
Liquidity and Capital Resources; Plan of Operation To date, we have financed our operations primarily through initial public offering, private placements of equity securities, debt financing arrangements and sales of our products.
Liquidity and Capital Resources; Plan of Operation To date, we have financed our operations primarily through our IPO, private placements of equity securities, debt financing arrangements and sales of our products.
We employ both direct and distributor-based sales models, with over 90% of our revenue generated in markets where we sell directly. In the United States, our solution is reimbursed based on established Category I Current Procedural Terminology (“CPT”) and ICD-10 Procedure Coding System (“PCS”) codes and associated APC and MS-DRG payment groupings.
We employ both direct and distributor-based sales models, with over 96% of our revenue generated in markets where we sell directly for the year ended December 31, 2023. In the United States, our solution is reimbursed based on established Category I Current Procedural Terminology (“CPT”) and ICD-10 Procedure Coding System (“PCS”) codes and associated APC and MS-DRG payment groupings.
There was no change to the loan interest rate or maturity date. 98 Table of Contents On October 31, 2022, we entered into a Third Amendment to the Amended and Restated CIBC Agreement (the “Third Amendment”), which, among other things, extended the maturity date to October 31, 2027; provided a commitment for a new $20.0 million tranche of term loans that may be drawn at the Company’s option through October 31, 2023, subject to the satisfaction of certain conditions; and provided for a new interest only period of 24 months from the signing date of the Third Amendment, with the possibility of an additional extension of such interest only period of up to 12 months, subject to satisfaction of certain conditions.
In October 2022, we entered into a Third Amendment to the Amended and Restated CIBC Agreement (the “Third Amendment”), which, among other things, extended the maturity date to October 31, 2027; provided a commitment for a new $20.0 million tranche of term loans that may be drawn at the Company’s option through October 31, 2023, subject to the satisfaction of certain conditions; and provided for a new interest only period of 24 months from the signing date of the Third Amendment, with the possibility of an additional extension of such interest only period of up to 12 months, subject to satisfaction of certain conditions.
Interest income increased by $1.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to higher returns on cash, cash equivalents and marketable securities balances.
Interest income increased by $4.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to higher returns on cash, cash equivalents and marketable securities balances.
Recent and expected working and other capital requirements include amounts related to future lease payments for operating lease obligations, which totaled $7.5 million at December 31, 2022, with $3.5 million expected to be paid within the next 12 months, and amounts related to future long-term debt which totaled $22.3 million, with $1.5 million expected to be paid within the next 12 months.
Recent and expected working and other capital requirements include amounts related to future lease payments for operating lease obligations, which totaled $4.3 million at December 31, 2023, with $3.2 million expected to be paid within the next 12 months, and amounts related to future short-term and long-term debt which totaled $45.7 million, with $5.7 million expected to be paid within the next 12 months.
Lastly, we may undertake additional expenses to further expand our commercial organization and efforts, enhance our research and development efforts and pursue product expansion opportunities. 100 Table of Contents As of December 31, 2022, we had cash, cash equivalents and marketable securities of $147.1 million.
Lastly, we may undertake additional expenses to further expand our commercial organization and efforts, enhance our research and development efforts and pursue product expansion opportunities. As of December 31, 2023, we had cash, cash equivalents and marketable securities of $131.5 million.
Other Income (Expense), Net Other income (expense), net increased by $0.2 million to ($0.4) million during the year ended December 31, 2022, compared to ($0.6) million during the year ended December 31, 2021, primarily due to foreign currency exchange losses driven by fluctuations in foreign exchange rates..
Other Income (Expense), Net Other income (expense), net decreased by $0.3 million to ($0.7) million during the year ended December 31, 2023, compared to ($0.4) million during the year ended December 31, 2022, primarily due to foreign currency exchange losses driven by fluctuations in foreign exchange rates.
During the years ended December 31, 2022 and December 31, 2021, we recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of $0.1 million and $0.1 million, respectively. Interest expense on the CIBC Loan amounted $1.1 million and $0.8 million during the year ended December 31, 2022 and December 31, 2021, respectively.
During the years ended December 31, 2023 and December 31, 2022, we recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of less than $0.1 million and $0.1 million, respectively. Interest expense on the CIBC Loan amounted $3.2 million and $1.1 million during the years ended December 31, 2023 and December 31, 2022, respectively.
We generated 91 Table of Contents revenue of $53.7 million, with a gross margin of 74.3% and a net loss of $58.9 million, for the year ended December 31, 2022 compared to revenue of $48.4 million, with a gross margin of 73.6% and a net loss of $48.7 million, for the year ended December 31, 2021.
We generated Table of Contents revenue of $68.7 million, with a gross margin of 73.9% and a net loss of $60.8 million, for the year ended December 31, 2023 compared to revenue of $53.7 million, with a gross margin of 74.3% and a net loss of $58.9 million, for the year ended December 31, 2022.
If we borrow any of the $20.0 million tranche made available under the Third Amendment, we may prepay the loans, subject to certain conditions, including a prepayment fee equal to 2.0% of the principal amount repaid during the first year after the effective date of the Third Amendment or 1.0% of the principal amount prepaid during the second year after the effective date of the Third Amendment.
We may prepay the loans, subject to certain conditions, including a prepayment fee equal to 2.0% of the principal amount prepaid during the first year after the effective date of the Third Amendment or 1.0% of the principal amount prepaid during the second year after the effective date of the Third Amendment.
The increase was mainly due to an increase in the number of products sold and increased manufacturing costs as we expanded headcount and invested in operational infratstructure to support anticipated growth. Gross margin increased by 0.7% to 74.3% during the year ended December 31, 2022, compared to 73.6% during the year ended December 31, 2021.
The increase was mainly due to an increase in the number of products sold and increased manufacturing costs as we invested to support anticipated growth. Gross margin was 73.9% during the year ended December 31, 2023, compared to 74.3% during the year ended December 31, 2022.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $1.0 million, or 7.9%, to $13.8 million during the year ended December 31, 2022, compared to $12.8 million during the year ended December 31, 2021.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $4.1 million, or 29.9%, to $17.9 million during the year ended December 31, 2023, compared to $13.8 million during the year ended December 31, 2022.
Our cash outflows for capital expenditures were $1.3 million in 2022 and $3.7 million in 2021, and we expect to maintain the level of expenditures in the future in support of our commercial infrastructure, sales force and other commercialization efforts.
Our cash outflows for capital expenditures were $0.8 million during the year ended December 31, 2023 and $1.3 million during the year ended December 31, 2022, and we expect to maintain the level of expenditures in the future in support of our commercial infrastructure, sales force and other commercialization efforts.
Summary Statement of Cash Flows The following table sets forth the primary sources and uses of cash and cash equivalents for the period presented below: Years Ended December 31, 2022 2021 (in thousands) Net cash (used in) provided by: Operating activities $ (45,083) $ (41,388) Investing activities (4,225) (46,255) Financing activities 2,419 4,456 Effect of exchange rate changes on cash and cash equivalents 145 106 Net decrease in cash, cash equivalents and restricted cash $ (46,744) $ (83,081) Cash Flows from Operating Activities 99 Table of Contents Net cash used in operating activities was $45.1 million for the year ended December 31, 2022.
Table of Contents Summary Statement of Cash Flows The following table sets forth the primary sources and uses of cash and cash equivalents for the period presented below: Years Ended December 31, 2023 2022 (in thousands) Net cash (used in) provided by: Operating activities $ (37,610) $ (45,083) Investing activities (2,007) (4,225) Financing activities 21,400 2,419 Effect of exchange rate changes on cash and cash equivalents 34 145 Net decrease in cash, cash equivalents and restricted cash $ (18,183) $ (46,744) Cash Flows from Operating Activities Net cash used in operating activities was $37.6 million for the year ended December 31, 2023.
Net cash used in investing activities in the year ended December 31, 2021 was $46.3 million consisting of purchases of marketable securities of $52.6 million and purchases of property and equipment of $3.7 million partially offset by proceeds from maturities of marketable securities of $10.0 million.
Cash Flows from Investing Activities Net cash used in investing activities in the year ended December 31, 2023 was $2.0 million consisting of purchases of marketable securities of $46.2 million and purchases of property and equipment of $0.8 million partially offset by proceeds from maturities of marketable securities of $45.0 million.
As of December 31, 2022, we had an accumulated deficit of $350.3 million, cash, cash equivalents and marketable securities of $147.1 million, and $17.3 million of outstanding term loans and credit agreements, net of debt discount and debt issuance costs. We have invested heavily in product development.
As of December 31, 2023, we had an accumulated deficit of $411.2 million, cash, cash equivalents and marketable securities of $131.5 million, and $37.2 million of outstanding term loans and credit agreements, net of debt discount and debt issuance costs. We have invested heavily in product development.
Material Cash Requirements Our net cash operating expenditures were $45.1 million in 2022 and $41.4 million in 2021, and we intend to continue to make investments in the development of our products, including ongoing research and development programs.
Material Cash Requirements Our net cash operating expenditures were $37.6 million during the year ended December 31, 2023 and $45.1 million during the year ended December 31, 2022, and we intend to continue to make investments in the development of our products, including ongoing research and development programs.
In June 2021, we entered into a First Amendment to the Amended and Restated CIBC Agreement that extended the compliance of certain post-close covenants to March 31, 2022. In October 2021, we entered into a Second Amendment to the Amended and Restated CIBC Agreement, which extended the interest only period of the loan from 24 months to 36 months.
In June 2021, we entered into a First Amendment to the Amended and Restated CIBC Agreement that extended the compliance of certain post-close covenants to March 31, 2022.
The sale of products in the United States increased by $7.5 million to $32.5 million during the year ended December 31, 2022, compared to $25.0 million for the year ended December 31, 2021.
The sale of products in the United States increased by $13.4 million to $45.9 million during the year ended December 31, 2023, compared to $32.5 million for the year ended December 31, 2022.
Net cash used in operating activities was $41.4 million for the year ended December 31, 2021.
Net cash used in operating activities was $45.1 million for the year ended December 31, 2022.
As of December 31, 2022, we had cash, cash equivalents and marketable securities of $147.1 million, an accumulated deficit of $350.3 million, and $17.3 million outstanding under the CIBC Loan and Credit Agreement, net of debt discount and debt issuance costs.
As of December 31, 2023, we had cash, cash equivalents and marketable securities of $131.5 million, an accumulated deficit of $411.2 million, and $37.2 million outstanding under the CIBC Loan and Credit Agreement, net of debt discount and debt issuance costs.
Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.
Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.
Interest Expense and Income Interest expense increased by $0.2 million, or 28.6%, to $1.1 million during the year ended December 31, 2022, compared to $0.8 million during the year ended December 31, 2021 due to higher interest rates on our debt.
Interest Expense and Income Interest expense increased by $2.2 million, or 203.2%, to $3.2 million during the year ended December 31, 2023, compared to $1.1 million during the year ended December 31, 2022 due to higher outstanding debt principal and higher interest rates.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $13.2 million, or 18.9%, to $83.1 million during the year ended December 31, 2022 compared to $69.9 million during the year ended December 31, 2021.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $11.5 million, or 13.8%, to $94.6 million during the year ended December 31, 2023 compared to $83.1 million during the year ended December 31, 2022.
If we are unable to raise capital when needed, we will need to delay, limit, reduce or terminate planned commercialization or product development activities, or grant rights to develop and commercialize products or product candidates that we would otherwise prefer to develop and market ourselves in order to reduce costs. 101 Table of Contents Critical Accounting Estimates Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles.
If we are unable to raise capital when needed, we will need to delay, limit, reduce or terminate planned commercialization or product development activities, or grant rights to develop and commercialize products or product candidates that we would otherwise prefer to develop and market ourselves in order to reduce costs.
Credit Agreemen t In April 2020, Pulmonx International Sàrl, our wholly-owned subsidiary, entered into a COVID-19 Credit Agreement with UBS Switzerland AG to receive up to 0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) under Swiss Federal Government program to mitigate the economic impact of the spread of the coronavirus.
Credit Agreemen t In May 2020, Pulmonx International Sàrl, our wholly-owned subsidiary, received 0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) from a COVID-19 Credit Agreement under a Swiss Federal Government program designed to mitigate the economic impact of the spread of the coronavirus. The COVID-19 Credit Agreement initially bore no interest through March 31, 2023.
As of December 31, 2022, Pulmonx International Sàrl repaid $0.1 million to the lender.
Pulmonx International Sàrl repaid $0.1 million and $0.1 million to the lender during the years ended December 31, 2023 and December 31, 2022, respectively.
Net cash provided by financing activities in the year ended December 31, 2021 of $4.5 million primarily relates to proceeds of $2.6 million from issuance of common stock under the employee stock purchase plan, and proceeds of $1.9 million from exercise of common stock options.
Cash Flows from Financing Activities Net cash provided by financing activities in the year ended December 31, 2023 of $21.4 million primarily relates to proceeds of $20.0 million from borrowing under the Amended and Restated CIBC Agreement, proceeds from issuance of common stock under the employee stock purchase plan of $1.2 million and proceeds from exercise of Table of Contents common stock options of $0.3 million, partially offset by repayment of debt under the Credit Agreement of $0.1 million.
The increase in selling, general and administrative expenses was primarily due to an increase of $8.6 million of payroll and personnel-related expenses including stock based compensation as we expanded our sales and marketing and administrative function, an increase of $2.1 million in advertising and marketing related expenses, an increase of $1.2 million in travel expenses, and an increase of $1.3 million in facility, consulting, software and other expenses.
The increase in selling, general and administrative expenses was primarily due to an increase of $11.4 million in payroll and personnel-related expenses including stock-based compensation for our sales, marketing and administrative personnel, and an increase of $1.3 million in legal and other professional expenses, offset by a decrease of $1.4 million in advertising and marketing related expenses.
Income Taxes Our major tax jurisdictions are the United States and California, Switzerland and Neuchâtel. 103 Table of Contents Significant judgment is required to determine our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles, complex tax laws, or variances between our actual and anticipated operating results.
Significant judgment is required to determine our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles, complex tax laws, or variances between our actual and anticipated operating results. Therefore, actual income taxes could materially vary from these estimates. We provide for income taxes under the asset and liability method.
Interest income is predominantly derived from investing surplus cash in money market funds and marketable securities.
Interest income is predominantly derived from investing surplus cash in money market funds and marketable securities. Table of Contents Other Income (Expense), Net Other income (expense), net primarily consists of foreign currency exchange gains and losses.
The increase was primarily due to improved production efficiencies and lower scrap and reserve expense during the year ended December 31, 2022. Research and Development Expenses Research and development expenses increased by $2.3 million, or 17.9%, to $15.4 million during the year ended December 31, 2022, compared to $13.1 million during the year ended December 31, 2021.
Research and Development Expenses Research and development expenses increased by $2.7 million, or 17.4%, to $18.1 million during the year ended December 31, 2023, compared to $15.4 million during the year ended December 31, 2022.
Other Income (Expense), Net Other income (expense), net primarily consists of foreign currency exchange gains and losses. 96 Table of Contents Results of Operations: Comparison of the Years Ended December 31, 2022 and December 31, 2021 The following table summarizes our results of operations for the period indicated: Year Ended December 31, 2022 2021 $ Change % Change (in thousands) Revenue $ 53,662 $ 48,416 $ 5,246 10.8 % Costs of goods sold 13,797 12,786 1,011 7.9 % Gross profit 39,865 35,630 4,235 11.9 % Operating expenses: Research and development 15,397 13,063 2,334 17.9 % Selling, general and administrative 83,105 69,871 13,234 18.9 % Total operating expenses 98,502 82,934 15,568 18.8 % Loss from operations (58,637) (47,304) (11,333) 24.0 % Interest income 1,529 400 1,129 282.3 % Interest expense (1,066) (829) (237) 28.6 % Other income (expense), net (396) (585) 189 (32.3) % Net loss before tax (58,570) (48,318) (10,252) 21.2 % Income tax expense 353 343 10 2.9 % Net loss $ (58,923) $ (48,661) $ (10,262) 21.1 % Revenue Revenue increased by $5.2 million, or 10.8%, to $53.7 million during the year ended December 31, 2022, compared to $48.4 million during the year ended December 31, 2021.
Results of Operations: Comparison of the Years Ended December 31, 2023 and December 31, 2022 The following table summarizes our results of operations for the period indicated: Years Ended December 31, 2023 2022 $ Change % Change (in thousands) Revenue $ 68,675 $ 53,662 $ 15,013 28.0 % Costs of goods sold 17,923 13,797 4,126 29.9 % Gross profit 50,752 39,865 10,887 27.3 % Operating expenses: Research and development 18,080 15,397 2,683 17.4 % Selling, general and administrative 94,607 83,105 11,502 13.8 % Total operating expenses 112,687 98,502 14,185 14.4 % Loss from operations (61,935) (58,637) (3,298) 5.6 % Interest income 5,568 1,529 4,039 264.2 % Interest expense (3,232) (1,066) (2,166) 203.2 % Other income (expense), net (673) (396) (277) 69.9 % Net loss before tax (60,272) (58,570) (1,702) 2.9 % Income tax expense 571 353 218 61.8 % Net loss $ (60,843) $ (58,923) $ (1,920) 3.3 % Revenue Revenue increased by $15.0 million, or 28.0%, to $68.7 million during the year ended December 31, 2023, compared to $53.7 million during the year ended December 31, 2022.
Deferred income tax assets and liabilities arise due to differences between when assets or liabilities are recognized for tax purposes and when they are recognized for financial reporting purposes. Net operating losses and credit carryforwards are also deferred tax assets.
Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities arise due to differences between when assets or liabilities are recognized for tax purposes and when they are recognized for financial reporting purposes.
As of December 31, 2022, there was $41.6 million of unrecognized compensation costs related to non-vested common stock options and restricted stock units, expected to be recognized over a weighted-average period of 2.73 years. Subsequent to our IPO, the fair value of our common stock is determined based on our closing market price.
As of December 31, 2023, there was $43.7 million of unrecognized compensation costs related to non-vested common stock options and restricted stock units, expected to be recognized over a weighted-average period of 2.5 years. Income Taxes Our major tax jurisdictions are the United States and California, Switzerland and Neuchâtel.
The increase in research and development expenses was primarily due to an increase of $1.7 million in personnel expenses including stock-based compensation as we expanded our research and development team and an increase of $1.1 million in 97 Table of Contents professional services, regulatory, facility and other expenses.
The increase in research Table of Contents and development expenses was primarily due to an increase of $0.9 million in costs associated with our clinical trials, including fees paid to contract research organizations and testing expenses, an increase of $0.8 million in payroll and personnel-related expenses including stock-based compensation, and an increase of $0.8 million in professional services and other expenses in support of product development.
The sale of products in international markets decreased by $2.2 million to $21.2 million during the year ended December 31, 2022, compared to $23.4 million for the year ended December 31, 2021.
The sale of products in international markets increased by $1.6 million to $22.8 million during the year ended December 31, 2023, compared to $21.2 million for the year ended December 31, 2022. The increase in revenue reflects continued growth of Zephyr Valve procedure volumes in the United States and in international markets.
Removed
Impact of the COVID-19 Pandemic The COVID-19 pandemic has delayed clinical trials and FDA operations and adversely impacted the number of procedures performed using our products.
Added
Table of Contents In October 2021, we entered into a Second Amendment to the Amended and Restated CIBC Agreement, which extended the interest only period of the loan from 24 months to 36 months. Under the amended terms, principal repayment would begin in February 2023. There was no change to the loan interest rate or maturity date.
Removed
As a result, the COVID-19 pandemic and the measures taken by many countries in response have materially adversely affected, and could in the future materially adversely affect, our business, financial condition and results of operations, as well as the price of our common stock, from a decrease and delay of procedures involving our products.
Added
In February 2023, we drew $20.0 million of the Amended Tranche B of the CIBC Loan. The Amended Tranche B bears interest at a floating rate equal to 1.0% above the Wall Street Journal Prime Rate and has the same repayment terms as Tranche A.
Removed
While the Company has seen a recovery in procedure volumes in the U.S. and some international markets, other international markets continue to be hampered by a slower recovery.
Added
Beginning April 1, 2023, the loan bears interest at a rate of 1.5% per year, payable at the end of each calendar quarter. The loan principal is being repaid in twelve equal installments, paid semi-annually, which began in March of 2022. Interest expense was immaterial during the year ended December 31, 2023.
Removed
We are encouraged for the longer term, and we believe the following key indicators are contributing to the stabilization of our business: • continued opening of new accounts; • strong physician participation in trainings; • a strong patient pipeline evidenced by StratX report activity, patient calls into hospitals inquiring about our procedure, and patient calls to our reimbursement support service; and • a resumption of elective procedures at hospitals and centers.
Added
Critical Accounting Estimates Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles.
Removed
Despite signs of recovery of our business, we cannot be certain that any recovery will be sustained, or that a further resurgence of COVID-19 or variants of the virus will not occur. Further, we cannot assure you that our recent volume of Zephyr Valves sold are indicative of future results.
Added
Net operating losses and credit carryforwards are also deferred tax assets. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse.
Removed
The number of Zephyr Valves sold in the future may decrease due to a resurgence of the COVID-19 pandemic. In addition, there may be limited provider capacity due to labor shortages, or for other reasons, which could limit the ability of patients to receive treatment with Zephyr Valves.
Removed
Limited provider and hospital capacity has had a material adverse effect on our business, financial condition and results of operations and may continue to materially adversely affect us even as the pandemic subsides.
Removed
The extent of the impact of COVID-19, including the macroeconomic conditions, on our future operational and financial performance will depend on certain developments, which are highly uncertain and cannot be predicted, 92 Table of Contents including impact on employees, clinical trials and procedure volumes, new information which may emerge concerning the severity and spread of COVID-19 and variant strains, governmental and societal response to contain and treat COVID-19 and variant strains, and the availability and distribution of vaccines and public acceptance of vaccines, among others.
Removed
For additional information about risks, uncertainties and potential impacts related to the COVID-19 pandemic that may impact our business, financial condition and results of operations, please refer to Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Removed
The increase in U.S. revenue reflects continued growth of Zephyr Valve procedure volumes in the United States, while the decrease in international revenue reflects the impact of foreign currency exchange rates.
Removed
These increases were offset by a decrease of $0.5 million in costs associated with our clinical trials, including fees paid to contract research organizations and testing expenses.
Removed
Under the amended terms, principal repayment would begin in February 2023.
Removed
In May 2020, Pulmonx International Sàrl received 0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) under the COVID-19 Credit Agreement. The COVID-19 Credit Agreement bears no interest and will be repaid within 60 months after receipt of funds, in twelve equal installments, paid semi-annually, beginning in March of 2022.
Removed
The increase in prepaid expenses, accrued liabilities and accounts payable is primarily due to increases in inventory and expenses related to operating as a public company and timing of payments to our vendors.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−1 removed3 unchanged
Biggest changeWe held cash in foreign banks of approximately $4.5 million at December 31, 2022 that was not federally insured. Interest-earning money market funds carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant.
Biggest changeInterest-earning money market funds carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant. We had outstanding debt of $36.8 million under the CIBC Agreement with an annual effective interest rate of 10.1% as of December 31, 2023.
Our inability or failure to do so could harm our business, financial condition, and results of operations. 105 Table of Contents
Our inability or failure to do so could harm our business, financial condition, and results of operations. Table of Contents
We do not currently hedge our exposure to foreign currency exchange rate fluctuations; however, we may choose to hedge our exposure in the future. Inflation Risk In recent months, high inflation rates in the U.S. and overseas have resulted in increased transportation, wages, and other costs.
We do not currently hedge our exposure to foreign currency exchange rate fluctuations; however, we may choose to hedge our exposure in the future. Inflation Risk High inflation rates in the U.S. and overseas have resulted in increased transportation, wages, and other costs.
The risk of a significant impact on our operating income from foreign currency 104 Table of Contents fluctuations will further diminish as revenue from sales to customers in the United States increases and represents a greater proportion of total revenues.
The risk of a significant impact on our operating income from foreign currency fluctuations will further diminish as revenue from sales to customers in the United States increases and represents a greater proportion of total revenues.
Revenue from sales outside of the United States represented 39.5%, and 48.4% of our total revenue for the year ended December 31, 2022, and 2021, respectively. We bill most direct sales outside of the United States in local currencies, which are mostly comprised of the Swiss franc, the Euro, the British pound, and the Australian dollar.
Revenue from sales outside of the United States represented 33.1% and 39.5% of our total revenue for the year ended December 31, 2023 and 2022, respectively. We bill most direct sales outside of the United States in local currencies, which are mostly comprised of the Swiss franc, the Euro, the British pound, and the Australian dollar.
A 10% change in weighted average foreign currency exchange rates would have changed our revenues and operating expenses for the year ended December 31, 2022 by approximately $2.1 million and $1.6 million, respectively, with a net impact of $0.5 million on our net income.
A 10% change in weighted average foreign currency exchange rates would have changed our revenues and operating expenses for the year ended December 31, 2023 by approximately $2.3 million and $1.9 million, respectively, with a net impact of $0.4 million on our net income.
We believe that a 10% change in interest rates would not have a significant impact on our consolidated financial statements. Foreign Currency Exchange Risk We operate in countries other than the United States and are exposed to foreign currency risks.
In the ordinary course of business, we may enter into contractual arrangements to reduce our exposure to interest rate risks. We believe that a 10% change in interest rates would not have a significant impact on our consolidated financial statements. Foreign Currency Exchange Risk We operate in countries other than the United States and are exposed to foreign currency risks.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We are exposed to interest rate risks related to our cash, cash equivalents and borrowings. We had cash and cash equivalents of $101.7 million as of December 31, 2022, which consist of cash and money market funds.
Interest Rate Risk We are exposed to interest rate risks related to our cash, cash equivalents and borrowings. We had cash and cash equivalents of $83.5 million as of December 31, 2023, which consist of cash and money market funds. We held cash in foreign banks of approximately $4.7 million at December 31, 2023 that was not federally insured.
Removed
We had outstanding debt of $16.9 million under the CIBC Agreement with an annual effective interest rate of 9.1% as of December 31, 2022. In the ordinary course of business, we may enter into contractual arrangements to reduce our exposure to interest rate risks.
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks in the ordinary course of our business. Our market risk exposure is primarily a result of exposure resulting from interest rates, currency exchange rates, and effects of inflation.

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