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What changed in Pulmonx Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Pulmonx Corp's 2023 and 2024 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 2024 report.

+475 added−447 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-27)

Top changes in Pulmonx Corp's 2024 10-K

475 paragraphs added · 447 removed · 390 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

110 edited+21 added−26 removed149 unchanged
Biggest changeWe 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.
Biggest changePrior Authorization Approval Process A key element of our reimbursement strategy includes leveraging our patient reimbursement support team and knowledge of the published clinical data and global treatment recommendations for the management of COPD and emphysema to assist patients and physicians in obtaining appropriate prior authorization approvals in advance of treatment for payors that require it.
The results of our LIBERATE study, which served as the basis for the FDA approval of our PMA application, were published in the American Journal of Respiratory and Critical Care Medicine in 2018 and met all its primary and secondary effectiveness endpoints.
The LIBERATE study which served as the basis for the FDA approval of our PMA application, met all its primary and secondary effectiveness endpoints, and the results were published in the American Journal of Respiratory and Critical Care Medicine in 2018.
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.
The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment 21 Table of Contents procedure conducted in relation to the medical device and its manufacturer and their conformity with the GSPRs.
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.
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.
Manufacturers 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.
Manufacturers 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 MDR, (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.
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.
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 System assessment, valve deliverability and reduce procedure time and the use of the AeriSeal System for addressing the needs of severe emphysema patients who are not eligible for Zephyr Valves due to collateral ventilation.
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.
We have successfully undertaken the conformity assessment procedure in the EU with a Notified Body and CE marked AeriSeal System 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.
The national average payment for this procedure is sufficient to cover costs of the procedure. If a patient receives the Zephyr Valve, there is no separate reimbursement for the Chartis System procedure; rather, the provider receives payment for the endobronchial valve procedures as described above.
The national average payment for this procedure is sufficient to cover costs of the procedure. If a patient receives Zephyr Valves, there is no separate reimbursement for the Chartis System procedure; rather, the provider receives payment for the endobronchial valve procedures as described above.
In addition, CE Certificates of Conformity issued by Notified Bodies in accordance with the MDD or the AIMD from May 25, 2017, which were valid on May 26, 2021 and have not been withdraw since but which expired before March 20, 2023, will only continue to be valid in accordance with the extended transitional deadlines above if either (i) the manufacturer signed a written agreement with a Notified Body for the conformity assessment of the device covered by the expired CE Certificate of Conformity, or the device intended to substitute that device, in accordance with the Medical Device Regulation before the date of expiry of the CE Certificate of Conformity, or (ii) a competent authority of an EU Member State has granted a derogation from the application conformity assessment procedure in accordance with Article 59(1) or Article 97(1) of the Medical Device Regulation.
In addition, CE Certificates of Conformity issued by Notified Bodies in accordance with the MDD or the AIMD from May 25, 2017, which were valid on May 26, 2021 and have not been withdraw since but which expired before March 20, 2023, will only continue to be valid in accordance with the extended transitional deadlines above if either (i) the manufacturer signed a written agreement with a Notified Body for the conformity assessment of the device covered by the expired CE Certificate of Conformity, or the device intended to substitute that device, in accordance with the MDR before the date of expiry of the CE Certificate of Conformity, or (ii) a competent authority of an EU Member State has granted a derogation from the application conformity assessment procedure in accordance with Article 59(1) or Article 97(1) of the MDR.
Over 100 scientific articles have been published regarding the clinical benefits of Zephyr Valves, including multiple meta-analyses, review articles, cost-effectiveness analyses and risk-benefit analyses. The Zephyr Valve showed statistically significant improvements in lung function, exercise capacity and quality of life when compared to medical management alone in multiple randomized controlled clinical trials.
Over 150 scientific articles have been published regarding the clinical benefits of Zephyr Valves, including multiple meta-analyses, review articles, cost-effectiveness analyses and risk-benefit analyses. The Zephyr Valve showed statistically significant improvements in lung function, exercise capacity and quality of life when compared to medical management alone in multiple randomized controlled clinical trials.
If our operations are found to be in violation of any of the federal, state and foreign laws described below 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 below 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 24 Table of Contents Medicaid, imprisonment, contractual damages, reputation harm and disgorgement and we could be required to curtail or cease our operations.
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
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 offer an in-depth training program developed in conjunction with leading global thought leaders and the largest pulmonary society in the United States. Our sales personnel work with hospitals to leverage their existing resources to efficiently establish and market Zephyr Valves as a service line.
We offer an in-depth training program developed in conjunction with leading global thought leaders and the largest pulmonary society in the United States. Our sales personnel educate hospitals to leverage their existing resources to efficiently establish and market Zephyr Valves as a service line.
Our Solution Our solution, which is comprised of the Zephyr Valve, Chartis System and StratX Platform, is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches.
Our Solution Our solution, which is comprised of the Zephyr Valve, Chartis System and LungTraX Platform, is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches.
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.
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 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.
Patients with severe emphysema generally experience a worse quality of life than patients with lung cancer, and we believe there is both an urgent clinical need and a strong market opportunity for a solution that is safe, effective and minimally invasive. In June 2018, we received pre-market approval (“PMA”) by the U.S. Food and Drug Administration (“FDA”).
Patients with severe emphysema generally experience a worse quality of life than patients with lung cancer, and we believe there is both an urgent clinical need and a strong market opportunity for a solution that is safe, effective and minimally invasive. In 2018, we received pre-market approval (“PMA”) from the U.S. Food and Drug Administration (“FDA”).
Commercial payors typically base coverage decisions on reviews of clinical evidence presented in published peer-reviewed medical literature. A majority of our patients are Medicare-eligible beneficiaries. Without a national coverage determination (“NCD”) or a local coverage determination (“LCD”), Medicare claims are processed by Medicare Administrative Contractors (“MACs”), which assess coverage under Medicare’s reasonable and necessary standard.
Commercial payors typically base coverage decisions on reviews of clinical evidence presented in published peer-reviewed medical literature. A majority of our patients are Medicare-eligible beneficiaries. Without a national coverage determination (“NCD”) or a local coverage determination (“LCD”), Medicare claims are processed by Medicare Administrative Contractors 15 Table of Contents (“MACs”), which assess coverage under Medicare’s reasonable and necessary standard.
These treatments include medical management, other minimally invasive treatments, LVRS and lung transplantations. The major competitive products include the Spiration Valve System (Olympus Corporation) and the InterVapor System (Broncus Medical, Inc.; not approved for use in the United States).
These treatments include medical management, other minimally invasive treatments, LVRS and lung transplantations. The primary competitive products include the Spiration Valve System (Olympus Corporation) and the InterVapor System (Broncus Medical, Inc.; not approved for use in the United States).
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.
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.
In addition, the advertising and promotion of medical devices in the EU is subject to the national laws of the individual EU Member States that implemented the MDD, the AIMD and that apply the MDR, Directive 2006/114/ 23 Table of Contents EC concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation of individual EU Member States governing the advertising and promotion of medical devices.
In addition, the advertising and promotion of medical devices in the EU is subject to the national laws of the individual EU Member States that implemented the MDD, the AIMD and that apply the MDR, Directive 2006/114/EC concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation of individual EU Member States governing the advertising and promotion of medical devices.
Patients who are evaluated require a comprehensive workup that may unveil other health conditions such as heart disease or cancer, which also may require treatment. • For physicians, the Zephyr Valve enables treatment for a patient population with few alternatives, and the combination of using the StratX Platform and Chartis System are designed to enable a simple, predictable and efficient patient selection process. 8 Table of Contents • For payors, treatment with the Zephyr Valve has been demonstrated to result in fewer complications and quicker recovery than invasive surgical alternatives and may reduce hospital stays for COPD and incidence of respiratory failure.
Patients who are evaluated require a comprehensive workup that may unveil other health conditions such as heart disease or cancer, which also may require treatment. • For physicians, the Zephyr Valve enables treatment for a patient population with few alternatives, and the combination of using the LungTraX Platform and Chartis System are designed to enable a simple, predictable and efficient patient selection process. • For payors, treatment with the Zephyr Valve has been demonstrated to result in fewer complications and quicker recovery than invasive surgical alternatives and may reduce hospital stays for COPD and incidence of respiratory failure.
LVRS was studied extensively in the National Emphysema Treatment Trial (“NETT”), which showed that while a broad group of patients gained quality of life and exercise capacity from the surgery, it also involved substantial risks of complications, prolonged hospital stays and even death.
LVRS was studied extensively in the National Emphysema Treatment Trial (“NETT”), which 7 Table of Contents showed that while a broad group of patients gained quality of life and exercise capacity from the surgery, it also involved substantial risks of complications, prolonged hospital stays and even death.
Under the agreement, each company non-exclusively licensed the other party to make, have made (solely for such other party), sell, offer for sale, import and export specific products under their respective patent portfolio at that time that covers such products or a method of use thereof.
Under the agreement, each company non-exclusively licensed the other party to make, have made (solely for such 17 Table of Contents other party), sell, offer for sale, import and export specific products under their respective patent portfolio at that time that covers such products or a method of use thereof.
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.
Several components used in our devices rely on single source suppliers and we routinely prioritize, evaluate and qualify backup sources. The manufacture of the AeriSeal System, which is still in development, is completely outsourced to a contract manufacturer. The LungTraX Platform’s QCT service is currently outsourced as well.
If the patient meets medical eligibility criteria for Zephyr Valves, their CT scan data will be uploaded to our secure cloud-based CT analysis service, the StratX Platform.
If the patient meets medical eligibility criteria for Zephyr Valves, their CT scan data will be uploaded to our secure cloud-based CT analysis service, the LungTraX Platform.
Privacy and Information Security Laws In the ordinary course of our business, we may process personal data, including health data collected through the clinical trial process, our research collaborations, and directly from individuals or their healthcare providers under our patient reimbursement support programs.
Privacy and Information Security Laws In the ordinary course of our business, we process personal data, including health data collected through the clinical trial process, our research collaborations, our LungTraX Platform, and directly from individuals or their healthcare providers under our patient reimbursement support programs.
The processing of personal health data of patients in the EU and the UK is subject to further stringent requirements. For example, such processing requires both a lawful basis under Article 6 GDPR and at least one separate condition 24 Table of Contents for processing under Article 9 GDPR.
The processing of personal health data of patients in the EU and the UK is subject to further stringent requirements. For example, such processing requires both a lawful basis under Article 6 GDPR and at least one separate condition for processing under Article 9 GDPR.
For example, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025.
For example, on August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025.
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.
In addition, companies that would not otherwise be subject to HIPAA may become 23 Table of Contents 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.
Bribery of foreign public officials also falls within the scope of the Bribery Act. An individual found in violation of the Bribery Act, faces imprisonment of up to ten years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.
Bribery of foreign public officials also falls within the scope of the Bribery Act. An individual found in violation of the Bribery Act, faces 26 Table of Contents imprisonment of up to ten years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.
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.
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 began to apply on January 12, 2025.
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.
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.
Without assessment by the Chartis System, physicians may treat a lobe that has collateral ventilation, which will likely not respond to valve treatment, or unnecessarily rule out a patient who could have potentially benefitted from valve treatment.
Without assessment by the Chartis System, physicians may treat a lobe that has collateral ventilation, which will likely not respond to valve treatment, or unnecessarily rule out a patient who could potentially benefit from valve treatment.
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.
Our patents cover aspects of our current Zephyr Valve, loading system, airway sizing, EDC, Chartis System, AeriSeal System, LungTraX Platform, and future product concepts. The term of individual patents depends on the legal term for patents in the countries in which they are granted.
We believe the combination of using the StratX Platform and Chartis System enables selection and treatment of patients most likely to benefit from our solution.
We believe the combination of using the LungTraX Platform and Chartis System enables selection and treatment of patients most likely to benefit from our solution.
If successfully developed and approved, AeriSeal could further expand the addressable market of our solution. Competition Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and other activities of industry participants. We are positioning our solution as an alternative to existing treatments of severe emphysema.
If successfully developed and approved, the AeriSeal System could further expand the addressable market of our solution. 16 Table of Contents Competition Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and other activities of industry participants. We are positioning our solution as an alternative to existing treatments of severe emphysema.
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.
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 educate these stakeholders to ensure quality outcomes.
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.
We provide exclusive access to physicians to their LungTraX accounts and cases and monitor this CT scan upload and analysis process to ensure quality control.
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.
As of December 31, 2024, we had 10 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.
We believe that we have good relations with our employees. We believe that our employees are the foundation of our business and we are committed to the development and retention of our workforce. Code of Business Conduct and Business Ethics Pulmonx is dedicated to conducting its business consistent with the highest standard of business ethics.
We believe that we have good relations with our employees. We believe that our employees are the foundation of our business and we are committed to the development and retention of our workforce. Code of Business Conduct and Business Ethics We are dedicated to conducting our business consistent with the highest standard of business ethics.
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.
The LungTraX Platform is designed to enable physicians to screen treatment 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 LungTraX Platform available to physicians, we contract with a third-party cloud service provider.
Clinical Trials and Results The safety, effectiveness and clinical benefits of the Zephyr Valve in patients selected using the Chartis System have been evaluated in multiple randomized controlled clinical trials that have collectively evaluated approximately 450 patients in Austria, Belgium, Brazil, France, Germany, the Netherlands, Sweden, the United Kingdom (“UK”) and the United States.
Clinical Trials and Results The safety, effectiveness and clinical benefits of the Zephyr Valve in patients selected using the Chartis System have been evaluated in multiple randomized controlled clinical trials that have collectively evaluated over 650 patients in Austria, Belgium, Brazil, France, Germany, the Netherlands, Sweden, the United Kingdom (“UK”) and the United States.
The most common side effect of Zephyr Valve placement is a pneumothorax, which is the collapse of a lung due to an air leak inside the lung and is believed to be a direct result of rapid shifts in air volume in the chest as the target lobe deflates and the neighboring lobe expands.
The most common side effect of Zephyr Valve placement is a pneumothorax, which is the collapse of a lung due to an air leak in the lung and is believed to be a direct result of rapid shifts in the lobar volumes in the chest as the target lobe deflates and the neighboring lobe expands.
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”).
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 UK law (the “UK GDPR”) (collectively, the “GDPR”).
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.
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, 2024, we had 34 patent families in force worldwide.
The laws and regulations govern, among other things, product design and development, pre-clinical and clinical testing, manufacturing, packaging, labeling, storage, record keeping and 18 Table of Contents reporting, clearance or approval, marketing, distribution, promotion, import and export and post-marketing surveillance.
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.
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 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 2025 and 2042.
Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate IRBs at the clinical trial sites.
Generally, clinical trials for a 19 Table of Contents significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate IRBs at the clinical trial sites.
The StratX Platform, while used to identify patients eligible for treatment with Zephyr Valves, does not independently generate any revenue for us. Our Market Opportunity Overview of COPD and Emphysema COPD refers to a group of lung diseases characterized by obstruction of airflow that interferes with normal breathing.
The LungTraX Platform, while used to identify patients eligible for treatment with Zephyr Valves, has not independently generated any revenue for us. Our Market Opportunity Overview of COPD and Emphysema COPD refers to a group of lung diseases characterized by obstruction of airflow that interferes with normal breathing.
It is unclear how such challenges and the healthcare reform measures of the Biden administration will impact the Affordable Care Act and our business. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
It is unclear how such challenges and such healthcare reform measures will impact the Affordable Care Act and our business. 27 Table of Contents In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
Emphysema, a form of COPD, which accounts for approximately 25% of all COPD patients, is a debilitating and life-threatening disease that progressively destroys lung tissue, resulting in a diminishing ability to breathe and engage in the most basic daily activities such as climbing a flight of stairs, walking, or showering, leading to a high mortality rate.
Emphysema, a form of COPD, is a debilitating and life-threatening disease that progressively destroys lung tissue, resulting in a diminishing ability to breathe and engage in the most basic daily activities such as climbing a flight of stairs, walking, or showering, leading to a high mortality rate.
In addition, the federal government has prosecuted companies under the FCA in connection with off-label promotion of products.
In addition, the federal government has prosecuted companies under the FCA in connection with off-label promotion of 25 Table of Contents products.
Securities and Exchange Commission, or SEC, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
We file electronically with the U.S. Securities and Exchange Commission, or SEC, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
We also ship from our Redwood City facilities to distributors in Asia Pacific and other international markets. The FDA monitors compliance with the QSR through periodic inspections of our facilities, which may include inspection of our suppliers’ facilities as well.
We also ship from our Redwood City facilities to distributors in Asia Pacific and other international markets. The FDA monitors compliance with the Quality Management Systems Regulations (“QMSR”) through periodic inspections of our facilities, which may include inspection of our suppliers’ facilities as well.
Our solution, which is comprised of the Zephyr Endobronchial Valve (“Zephyr Valve”), the Chartis Pulmonary Assessment System (“Chartis System”) and the StratX Lung Analysis Platform (“StratX Platform”), is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches.
Our solution, which is comprised of the Zephyr Endobronchial Valve (“Zephyr Valve”), the Chartis Pulmonary Assessment System (“Chartis System”) and the LungTraX Platform (which is called the StratX Platform in international markets), is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches.
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.
We host the customer-facing web portal for the LungTraX Platform while using a third-party cloud service provider to direct CT scan uploads from customers to third-party 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.
Government Regulation United States Food and Drug Administration (“FDA”) Our products and operations are subject to extensive and ongoing regulation by the FDA under the Federal Food, Drug, and Cosmetic Act of 1938 and its implementing regulations (“FDCA”), as well as other federal and state regulatory bodies in the United States.
Our manufacturing facility is an FDA-registered medical device establishment. Government Regulation United States Food and Drug Administration (“FDA”) Our products and operations are subject to extensive and ongoing regulation by the FDA under the Federal Food, Drug, and Cosmetic Act of 1938 and its implementing regulations (“FDCA”), as well as other federal and state regulatory bodies in the United States.
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.
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, which, among other conditions, requires continuous compliance with the requirements of the MDD, as applicable to our products, and the guidance of the European Commission’s Medical Devices Coordination Group.
United States Centers for Medicare and Medicaid Services (“CMS”) Medicare is a federal program administered by CMS through MACs.
United States Centers for Medicare and Medicaid Services (“CMS”) Medicare is a federal program administered by CMS through Medicare Administrative Contractors (“MACs”).
We have an equity-based incentive plan that provides for the grant of stock options and awards to eligible employees. Additionally, we implemented an Employee Stock Purchase Plan that enables eligible employees to purchase our common stock at a discount through payroll contributions. Health and Safety The health and safety of our employees is a key focus at our Company.
We have an equity-based incentive plan that provides for the grant of stock options and awards to eligible employees. Additionally, we offer an employee stock purchase plan that enables eligible employees to purchase our common stock at a discount through payroll contributions.
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.
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.
Our sales territory managers are focused on promoting awareness and increasing adoption of our solution primarily among the pulmonologists performing interventional pulmonary procedures across the United States. We are expanding our commercial operations in the United States while continuing to foster our international growth.
Our sales territory managers are focused on promoting awareness and increasing adoption of our solution primarily among the pulmonologists performing interventional pulmonary procedures across the United States. We are expanding our commercial operations in the United States while continuing to foster our international growth. In international 6 Table of Contents markets, we employ both direct and distributor-based sales models.
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.
Human Capital Management Employees, Talent Management & Development As of December 31, 2024, we had a total of 291 full time employees, with 226 employees in the U.S., 54 in Europe, and 11 in Asia Pacific. None of our employees are represented by a labor union or are a party to a collective bargaining agreement.
Compensation Philosophy To ensure we are able to attract, retain and develop high performing teams, we engage external compensation advisors to guide our efforts in developing cash and equity rewards programs that are competitive with our peer companies. Total rewards We offer competitive health and welfare programs to support our employees and their families’ physical, mental, and financial well-being.
We engage external compensation advisors to guide our efforts in developing cash and equity rewards programs that are competitive with our peer companies. We offer competitive health and welfare programs to support our employees and their families’ physical, mental, and financial well-being.
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.
As of December 31, 2024, we had rights to 71 issued United States patents, 11 pending United States patent applications, 114 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.
StratX Platform The StratX Platform is a cloud-based quantitative CT analysis service that provides physicians with an easy-to-read report that we designed for our solution that includes information on emphysema destruction, fissure completeness and lobar volume to help identify target lobes for treatment with Zephyr Valves.
LungTraX Platform The LungTraX Platform is a cloud-based quantitative CT (“QCT”) analysis service that provides physicians with multiple products – LungTraX Connect, to improve workup efficiency, LungTraX Detect, to enable patient identification and an easy-to-read StratX Lung report that we designed for our solution that includes information on emphysema destruction, fissure completeness and lobar volume to help identify target lobes for treatment with Zephyr Valves.
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.
We generated revenue of $83.8 million, with a gross margin of 74.0% and a net loss of $56.4 million, for the year ended December 31, 2024 compared to 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.
“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.
“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.
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.
We have also established three separate patient registries to collect additional real-world data on the safety and effectiveness (FEV 1 ) of the Zephyr Valve in the United States, France and Japan.
In clinical trials, pneumothoraces occurred in 18-34% of patients treated with the Zephyr Valve, and in the LIBERATE Study, 17% of the pneumothorax events required no intervention and resolved on their own.
In clinical trials, in the incidence rate of pneumothorax in patients treated with the Zephyr 13 Table of Contents Valve is between 18% and 34%. In the LIBERATE Study, 17% of the pneumothorax events required no intervention and resolved on their own.
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.
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.
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.
For those devices we are placing on the market in accordance 22 Table of Contents with the transitional provisions of the MDR (the Zephyr System, the AeriSeal System and the Chartis Console (for which we have received a CE certificate under the MDR and are transitioning to 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, in accordance with the transitional provisions of the MDR.
Additionally, independent studies have demonstrated that Zephyr Valves deliver increases in the BODE Index (a multi-dimensional health status scoring system for patients with COPD) that have been associated with long-term survival benefits. We market and sell our products in the United States through a direct sales organization.
Additionally, independent studies have demonstrated that Zephyr Valves deliver increases in the BODE Index (a multi-dimensional health status scoring system for patients with COPD) that have been associated with long-term survival benefits.
We currently generate most of our revenue from the sales of Zephyr Valves and delivery catheters. 6 Table of Contents We also generate a smaller amount of our revenue from our Chartis System, which is comprised of sales of the balloon catheters, usage fees and sales of the Chartis console.
As of December 31, 2024, we had an accumulated deficit of $467.6 million. We currently generate most of our revenue from the sales of Zephyr Valves and delivery catheters. We also generate a smaller amount of our revenue from our Chartis System, which is comprised of sales of the balloon catheters, usage fees and sales of the Chartis console.
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.
In addition, states within the United States and other jurisdictions where we do business have enacted or are considering enacting similar data privacy laws. 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.
We believe our solution provides the following important benefits: • Significant, durable improvements in lung function, exercise capacity and quality of life , demonstrated in a substantial body of clinical data; • Well-characterized safety profile , evidenced by the inclusion in global treatment recommendations and more than 25,000 patients treated globally with Zephyr Valves; • High procedural success driven by innovative and effective patient assessment tools; and • Minimally invasive procedure typically lasting less than an hour.
We believe our solution provides the following important benefits: • Significant, durable improvements in lung function, exercise capacity and quality of life , demonstrated in a substantial body of clinical data; • Well-characterized safety profile , evidenced by the inclusion in global treatment recommendations and more than 40,000 patients treated globally with Zephyr Valves; • High procedural success driven by innovative and effective patient assessment tools; and • Minimally invasive procedure typically lasting approximately one hour. 8 Table of Contents In addition, we believe our solution provides several benefits to other key stakeholders: • For hospitals, the Zephyr Valve represents a new service line with potential economic benefits, driving additional patients to their facilities.
The Zephyr Valve is now commercially available in more than 25 countries, with over 100,000 valves used to treat more than 25,000 patients. We have established reimbursement in major markets in North America, Europe and Asia Pacific and the Zephyr Valve has been included in treatment guidelines for COPD worldwide.
The Zephyr Valve is now commercially available in numerous countries globally. We have established reimbursement in major markets in North America, Europe and Asia Pacific and the Zephyr Valve has been included in treatment guidelines for COPD worldwide.
According to the World Health Organization, COPD is the third leading cause of death worldwide, causing 3.23 million deaths in 2019.
According to the World Health Organization, COPD is the fourth leading cause of death worldwide, causing 3.5 million deaths in 2021, approximately 5% of all global deaths.
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.
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. 18 Table of Contents Our quality management system in our Redwood City manufacturing facility is currently ISO 13485:2016 certified and licensed by the California Department of Public Health (“CDPH”) Food and Drug Branch.
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.
European Union Our portfolio of products is regulated in the European Union as a medical device per the European Union MDD and the MDR. 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.

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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; • 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.
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, 62 Table of Contents 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; • 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.
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.
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, the United Kingdom (the “UK”), Scotland, Switzerland and South Korea, and other countries.
Our products may also contain hazardous substances, and they are subject laws and regulations relating to labeling requirements and to their sale, collection, recycling, treatment, storage and disposal. Compliance with these laws and regulations may be expensive and noncompliance could result in substantial fines and penalties.
Our products may also contain hazardous substances, and they are subject to laws and regulations relating to labeling requirements and to their sale, collection, recycling, treatment, storage and disposal. Compliance with these laws and regulations may be expensive and noncompliance could result in substantial fines and penalties.
Moreover, a disruption in access to the system that controls the StratX Platform would prevent physicians using our solution from receiving the StratX Lung Report indicating whether their patients are good candidates for the Zephyr Valve. In the event we experience significant disruptions, we may be unable to repair our systems in an efficient and timely manner.
Moreover, a disruption in access to the system that controls the LungTraX Platform would prevent physicians using our solution from receiving the StratX Lung Report indicating whether their patients are good candidates for the Zephyr Valve. In the event we experience significant disruptions, we may be unable to repair our systems in an efficient and timely manner.
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and security. For example, the GDPR governs the processing (which can include any action, such as collection, use, storage adaptation or alteration, disclosure or transfer) of personal data relating to individuals located in Europe (including the UK).
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and information security. For example, the GDPR governs the processing (which can include any action, such as collection, use, storage adaptation or alteration, disclosure or transfer) of personal data relating to individuals located in Europe (including the UK).
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.
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; 47 Table of Contents • 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.
The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries.
The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. In the ordinary course of business, we transfer personal data from Europe and other jurisdictions to the United States or other countries.
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.
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 72 Table of Contents (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.
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.
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 security incidents 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, however, that our efforts will prevent breakdowns or breaches to our or our third-party providers’ databases or systems, and such breakdowns and breaches could negatively affect our business, financial condition and results of operations and our reputation.
We cannot assure you that our efforts will prevent breakdowns or breaches to our or our third-party providers’ databases or systems, and such breakdowns and breaches could negatively affect our business, financial condition and results of operations and our reputation.
A public health crises could significantly disrupt economic activity globally and have a material adverse impact our ability to access capital and on our business, financial condition and results of operations as a result of hospitals reducing capital and overall spend and other potential changes in healthcare organizations’ prioritizing of patient treatment, significant job losses and unemployment, including the inability of patients to obtain or maintain health insurance policies, inflation, and reductions in disposable income.
A public health crisis could significantly disrupt economic activity globally and have a material adverse impact our ability to access capital and on our business, financial condition and results of operations as a result of hospitals reducing capital and overall spend and other potential changes in healthcare organizations’ prioritizing of patient treatment, significant job losses and unemployment, including the inability of patients to obtain or maintain health insurance policies, inflation, and reductions in disposable income.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: • the level of demand for our products and any future products, which may vary significantly; • expenditures that we may incur to acquire, develop or commercialize additional products and technologies; • the timing and cost of obtaining regulatory approvals, certification or clearances for planned or future products or indications; • unanticipated pricing pressures; • the rate at which we grow our sales force and the speed at which newly hired salespeople become effective, and the cost and level of investment therein; • our ability to expand the geographic reach of our sales force; • the rate at which treating centers expand procedural capacity as they build a bronchoscopic lung volume reduction program; • the degree of competition in our industry and any change in the competitive landscape of our industry, including consolidation among our competitors or future partners; • coverage and reimbursement policies with respect to our products, and potential future products that compete with our products; • the timing and success or failure of pre-clinical studies or clinical trials for our products or any future products we develop or competing products; • positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry; • the timing of customer orders or medical procedures using our products and the number of available selling days in any quarterly period, which can be impacted by holidays, the mix of products sold and the geographic mix of where products are sold, including any related foreign currency impact; • seasonality, including possible seasonal slowing of demand for our products in the beginning and end of the year and summer months based on the elective nature of procedures performed using our products, and which may become more pronounced in the future as our business grows; 42 Table of Contents • the impact of a public health crisis, such as a resurgence of COVID-19 infections, on our business, financial condition and results of operations; • the timing and cost of, and level of investment in, research, development, licenses, regulatory approval, commercialization activities, acquisitions and other strategic transactions, or other significant events relating to our products, which may change from time to time; • the cost of manufacturing our products, which may vary depending on the quantity of production and the terms of our agreements with third-party suppliers and manufacturers which are subject to macroeconomic factors including inflation; • the number of patients treated with Zephyr Valves, including the average number of Zephyr Valves used for a patient, pricing, discounts and incentives; and • future accounting pronouncements or changes in our accounting policies.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: • the level of demand for our products and any future products, which may vary significantly; • expenditures that we may incur to acquire, develop or commercialize additional products and technologies; • the timing and cost of obtaining regulatory approvals, certification or clearances for planned or future products or indications; • unanticipated pricing pressures; • the rate at which we grow our sales force and the speed at which newly hired salespeople become effective, and the cost and level of investment therein; • our ability to expand the geographic reach of our sales force; • the rate at which treating centers expand procedural capacity as they build a bronchoscopic lung volume reduction program; • the degree of competition in our industry and any change in the competitive landscape of our industry, including consolidation among our competitors or future partners; • coverage and reimbursement policies with respect to our products, and potential future products that compete with our products; • the timing and success or failure of pre-clinical studies or clinical trials for our products or any future products we develop or competing products; • positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry; 43 Table of Contents • the timing of customer orders or medical procedures using our products and the number of available selling days in any quarterly period, which can be impacted by holidays, the mix of products sold and the geographic mix of where products are sold, including any related foreign currency impact; • seasonality, including possible seasonal slowing of demand for our products in the beginning and end of the year and summer months based on the elective nature of procedures performed using our products, and which may become more pronounced in the future as our business grows; • the impact of a public health crisis on our business, financial condition and results of operations; • the timing and cost of, and level of investment in, research, development, licenses, regulatory approval, commercialization activities, acquisitions and other strategic transactions, or other significant events relating to our products, which may change from time to time; • the cost of manufacturing our products, which may vary depending on the quantity of production and the terms of our agreements with third-party suppliers and manufacturers which are subject to macroeconomic factors including inflation; • the number of patients treated with Zephyr Valves, including the average number of Zephyr Valves used for a patient, pricing, discounts and incentives; and • future accounting pronouncements or changes in our accounting policies.
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.
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: • 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.
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.
Any potential intellectual property litigation also could force us to do one or more of the following: 76 Table of Contents • 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 will require additional financing to fund working capital and pay our obligations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings or debt financings.
We may require additional financing to fund working capital and pay our obligations. We may seek to raise any necessary additional capital through a combination of public or private equity offerings or debt financings.
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.
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.
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.
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; 59 Table of Contents • 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.
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.
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.
Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition, and results of operations.
Claims that we have violated individuals’ privacy rights, failed to comply with privacy laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition, and results of operations.
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.
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; • 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, high 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.
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.
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, or comparable foreign programs, imprisonment, contractual damages, reputation harm and disgorgement and we could be required to curtail or cease our 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 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 operations, any of which could adversely affect our ability to operate our business and our results of operations.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) is the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law for: • any derivative action or proceeding brought on our behalf; • any action asserting a breach of fiduciary duty; • any action asserting a claim against us arising under the Delaware General Corporation Law; • our amended and restated certificate of incorporation or our amended and restated bylaws; and • any action asserting a claim against us that is governed by the internal-affairs doctrine.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within 86 Table of Contents the State of Delaware or, if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) is the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law for: • any derivative action or proceeding brought on our behalf; • any action asserting a breach of fiduciary duty; • any action asserting a claim against us arising under the Delaware General Corporation Law; • our amended and restated certificate of incorporation or our amended and restated bylaws; and • any action asserting a claim against us that is governed by the internal-affairs doctrine.
If we fail to identify, acquire and develop other products, we may be unable to grow our business. It is important to our business that we continue to enhance the Zephyr Valve, Chartis System and StratX Platform and develop and introduce new products. Developing products is expensive and time-consuming and could divert management’s attention away from our core business.
If we fail to identify, acquire and develop other products, we may be unable to grow our business. It is important to our business that we continue to enhance the Zephyr Valve, Chartis System and LungTraX Platform and develop and introduce new products. Developing products is expensive and time-consuming and could divert management’s attention away from our core business.
Additional information regarding the laws impacting our relationships with physicians and other healthcare professionals can be found below under “Risks Related to Government Regulation and Our Industry.” We rely on third parties to perform certain aspects of the CT scan analysis within the StratX Platform.
Additional information regarding the laws impacting our relationships with physicians and other healthcare professionals can be found below under “Risks Related to Government Regulation and Our Industry.” We rely on third parties to perform certain aspects of the CT scan analysis within the LungTraX Platform.
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.
Sales of Zephyr Valves and delivery catheters accounted for most of our revenue for the years ended December 31, 2024 and December 31, 2023 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.
It is unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the Affordable Care Act and our business, financial condition and results of operations. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
It is unclear how any such challenges and the healthcare reform measures of the current administration will impact the Affordable Care Act and our business, financial condition and results of operations. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
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; 58 Table of Contents • 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.
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.
As of December 31, 2024, 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.
In March 2021, we entered into an Amended and Restated Loan and Security Agreement (as amended, the “CIBC Agreement”) with Canadian Imperial Bank of Commerce (“CIBC”), under which we have borrowed $37.0 million in debt financing as of December 31, 2023.
In March 2021, we entered into an Amended and Restated Loan and Security Agreement (as amended, the “CIBC Agreement”) with Canadian Imperial Bank of Commerce (“CIBC”), under which we have borrowed $37.0 million in debt financing as of December 31, 2024.
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 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.
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 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 on our business, financial condition and results of operations; 30 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.
The changes to the regulatory system implemented in the EU by the MDR include stricter requirements for clinical evidence and pre-market assessment of safety and performance, new classifications to indicate risk levels, requirements for third party testing by Notified Bodies, tightened and streamlined quality management system assessment procedures and additional requirements for the quality management system, additional requirements for traceability of products and transparency as well a refined responsibility of economic operators.
The changes to the regulatory system implemented in the EU by the MDR include stricter requirements 60 Table of Contents for clinical evidence and pre-market assessment of safety and performance, new classifications to indicate risk levels, requirements for third party testing by Notified Bodies, tightened and streamlined quality management system assessment procedures and additional requirements for the quality management system, additional requirements for traceability of products and transparency as well a refined responsibility of economic operators.
Physicians could experience difficulty with the technique necessary to successfully implant the valve and may not achieve the technical competency necessary to complete the training program, or they could fail to properly learn how to interpret our StratX Platform or Chartis System.
Physicians could experience difficulty with the technique necessary to successfully implant the valve and may not achieve the technical competency necessary to complete the training program, or they could fail to properly learn how to interpret our LungTraX Platform or Chartis System.
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.
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.
Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property or disclosed the alleged trade secrets or other proprietary information, of these former employers or competitors.
Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their 81 Table of Contents work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property or disclosed the alleged trade secrets or other proprietary information, of these former employers or competitors.
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.
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.
International sales are subject to a number of risks, including: • difficulties in staffing and managing our international operations; • increased competition as a result of more products and procedures receiving regulatory approval or otherwise free to market in international markets; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • reduced or varied protection for intellectual property rights in some countries; • export restrictions, trade regulations and foreign tax laws; • fluctuations in currency exchange rates; • foreign certification and regulatory clearance or approval requirements; • difficulties in developing effective marketing campaigns in unfamiliar foreign countries; • customs clearance and shipping delays; • political, social, and economic instability abroad, including as a result of armed conflict, war or the threat of war, terrorist activity and other security concerns in general; • the impact of public health crises, such as a resurgence of COVID-19 infections; • preference for locally produced products; • potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings; • differing payment and reimbursement regimes; • the burdens of complying with a wide variety of foreign laws and different legal standards; and • increased financial accounting and reporting burdens and complexities.
International sales are subject to a number of risks, including: • difficulties in staffing and managing our international operations; • increased competition as a result of more products and procedures receiving regulatory approval or otherwise free to market in international markets; • longer accounts receivable payment cycles and difficulties in collecting accounts receivable; • reduced or varied protection for intellectual property rights in some countries; • export restrictions, trade regulations and foreign tax laws; • fluctuations in currency exchange rates; • foreign certification and regulatory clearance or approval requirements; • difficulties in developing effective marketing campaigns in unfamiliar foreign countries; • customs clearance and shipping delays; • political, social, and economic instability abroad, including as a result of armed conflict, war or the threat of war, terrorist activity and other security concerns in general; • the impact of public health crises; • preference for locally produced products; • potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings; 52 Table of Contents • differing payment and reimbursement regimes; • the burdens of complying with a wide variety of foreign laws and different legal standards; and • increased financial accounting and reporting burdens and complexities.
We have applied for such an extension however, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to any patents we obtain, or may grant more limited extensions than we request.
We have applied for such an extension 83 Table of Contents however, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to any patents we obtain, or may grant more limited extensions than we request.
If we are required to change suppliers due to any change in or termination of our relationships with these third parties, or if our suppliers are unable to obtain the materials they need to produce our products at consistent prices or at all, we may lose sales, experience manufacturing or other delays, incur increased costs or otherwise experience impairment to our customer relationships.
If we are required to change suppliers due to any change in or termination of our relationships with these third parties, or if our suppliers are unable to obtain the materials they need to produce our products at consistent prices or at all, we may lose sales, experience manufacturing or other delays, incur increased costs or otherwise experience impairment 38 Table of Contents to our customer relationships.
In addition to the need to scale our organization, future growth will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Rapid expansion in personnel could mean that less experienced people manufacture, market and sell our solution, which could result in inefficiencies and unanticipated costs, reduced quality and disruptions to our operations.
Future growth will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Rapid expansion in personnel could mean that less experienced people manufacture, market and sell our solution, which could result in inefficiencies and unanticipated costs, reduced quality and disruptions to our 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.
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. 53 Table of Contents Unfavorable global economic conditions, including as a result of geopolitical conflict, could negatively affect our business, financial condition or results of operations.
For example, European regulators have proposed a stringent AI regulation, and we expect other jurisdictions will adopt similar laws. Additionally, certain privacy laws extend rights to consumers (such as the right to delete certain personal data) and regulate automated decision making, which may be incompatible with our use of AI/ML.
For example, European regulators enacted a stringent AI regulation, and we expect other jurisdictions will adopt similar laws. Additionally, certain privacy laws extend rights to consumers (such as the right to delete certain personal data) and regulate automated decision making, which may be incompatible with our use of AI/ML.
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.
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.
Additionally, the FDA or comparable foreign regulatory authorities may disagree with our interpretation of the data from our pre-clinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the clearance, certification or approval of our products.
Additionally, the FDA or comparable foreign regulatory authorities may disagree with our interpretation of the data from our pre-clinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the clearance, certification or 67 Table of Contents approval of our products.
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.
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.
For these reasons, in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs, research and development credit carryforwards or disallowed interest expense carryovers, even if we attain profitability. We may not be able to achieve or maintain satisfactory pricing and margins for our products.
For these reasons, 56 Table of Contents in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs, research and development credit carryforwards or disallowed interest expense carryovers, even if we attain profitability. We may not be able to achieve or maintain satisfactory pricing and margins for our products.
Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise negatively affect our business, financial condition and results of operations.
Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement 63 Table of Contents could increase our costs or otherwise negatively affect our business, financial condition and results of operations.
We are also subject to similar state requirements and licenses, and comply with ongoing International Organization for Standardization (“ISO”) in all operations, including design, manufacturing, and service, to maintain our CE Mark.
We are also subject to similar state requirements and licenses, and comply with ongoing International Organization for Standardization (“ISO”) in all operations, including design, manufacturing, and service, to maintain our CE Marks.
Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. In addition, the issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties.
Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. In addition, the issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against 78 Table of Contents third parties.
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.
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.
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.
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.
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.
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.
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.
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.
In addition, the CPRA, which became effective on January 1, 2023, expands the compliance requirements and rights available to consumers under the CCPA. The CPRA also establishes a new California Privacy Protection Agency to implement and enforce the CCPA (as amended), which could increase the risk of an enforcement action.
In addition, the California Privacy Rights Act of 2020 (“CPRA”), which became effective on January 1, 2023, expands the compliance requirements and rights available to consumers under the CCPA. The CPRA also establishes a new California Privacy Protection Agency to implement and enforce the CCPA (as amended), which could increase the risk of an enforcement action.
Any litigation involving us may result in substantial costs, operationally restrict our business, and may divert management’s attention and resources, which may negatively affect our business, financial condition and results of operations. We face the risk of product liability claims that would be expensive, divert management’s attention and harm our reputation and business.
Any litigation involving us may result in substantial costs, operationally restrict our business, and may divert management’s attention and resources, which may negatively affect our business, financial condition and results of operations. 45 Table of Contents We face the risk of product liability claims that would be expensive, divert management’s attention and harm our reputation and business.
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.
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.
In addition, if we make any substantial changes to medical devices for which we have obtained a CE Certificate of Conformity on the basis of the MDD and which we continue to place on the EU market on the basis of the transitional provisions of the MDR, we will no longer be able to benefit from the transitional provisions of the MDR.
In addition, if we make any substantial changes to medical devices for which we have obtained a CE Certificate of Conformity on the basis of the MDD and which we continue to place on the EU market on the basis of the transitional provisions of the MDR, we will no 64 Table of Contents longer be able to benefit from the transitional provisions of the MDR.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of 80 Table of Contents the patent.
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.
We cannot 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 began commercializing our solution and the Zephyr Valve in the United States in 2018 and, through our predecessors, in the EU and other European countries in 2003. Our limited commercialization experience and limited number of approved or cleared products make it difficult to evaluate our current business and predict our future prospects.
We began commercializing our solution and the Zephyr Valve in the United States in 2018 and, through our predecessors, in the European Union (the “EU”) and other European countries in 2003. Our limited commercialization experience and limited number of approved or cleared products make it difficult to evaluate our current business and predict our future prospects.
Security incidents and vulnerabilities may cause some of our customers and users to stop using our services and our failure, or perceived failure, to meet expectations with regard to the security, integrity, availability and confidentiality of our systems and sensitive data could damage our reputation and affect our ability to retain customers, attract new customers and grow our business.
Security incidents and attendant consequences may cause some of our customers and users to stop using our services and our failure, or perceived failure, to meet expectations with regard to the security, integrity, availability and confidentiality of our systems and sensitive data could damage our reputation and affect our ability to retain customers, attract new customers and grow our business.
During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO and comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks.
Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO and comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks.
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.
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.
For example, we train physicians to ensure correct patient selection and treatment planning using the StratX Platform and Chartis System, and proper placement of the Zephyr Valve.
For example, we train physicians to ensure correct patient selection and treatment planning using the LungTraX Platform and Chartis System, and proper placement of the Zephyr Valve.
This result may negatively impact the perception of patient benefit and safety, and limit adoption of our solution as a treatment for severe emphysema and our products that facilitate the procedure, which will negatively affect our business, financial condition and results of operations.
This result may negatively impact 33 Table of Contents the perception of patient benefit and safety, and limit adoption of our solution as a treatment for severe emphysema and our products that facilitate the procedure, which will negatively affect our business, financial condition and results of operations.
Products in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials. The continuing development of our products depends upon our maintaining strong working relationships with physicians.
Products in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials. 37 Table of Contents The continuing development of our products depends upon our maintaining strong working relationships with physicians.
Any of these events will negatively affect our business, financial condition and results of operations and cause our stock price to decline. We may be subject to regulatory or enforcement actions if we engage in improper marketing or promotion of our products.
Any of these events will negatively affect our business, financial condition and results of operations and cause our stock price to decline. 66 Table of Contents We may be subject to regulatory or enforcement actions if we engage in improper marketing or promotion of our products.
In addition, clinical trials that are conducted in countries outside the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S.
In addition, clinical trials that are conducted in countries outside the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory 69 Table of Contents requirements and the engagement of non-U.S.
We also contract with additional third-party service providers to analyze the CT scan data using their proprietary software, and provide quantitative results via an easy-to-read StratX Lung Report. The StratX Lung Report is then made available to physicians in the third-party cloud service. 39 Table of Contents This service is critical and there are relatively few alternatives.
We also contract with additional third-party service providers to analyze the CT scan data using their proprietary software, and provide quantitative results via an easy-to-read StratX Lung Report. The StratX Lung Report is then made available to physicians in the third-party cloud service. This service is critical and there are relatively few alternatives.
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 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 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.
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.
If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could negatively affect our business, financial condition and results of operations.
If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial 55 Table of Contents measures and legal expenses, which could negatively affect our business, financial condition and results of operations.
This report could be classified by the FDA or comparable foreign regulatory 69 Table of Contents authorities as a device recall which could lead to increased scrutiny by the FDA, other foreign regulatory authorities and our customers regarding the quality and safety of our solutions.
This report could be classified by the FDA or comparable foreign regulatory authorities as a device recall which could lead to increased scrutiny by the FDA, other foreign regulatory authorities and our customers regarding the quality and safety of our solutions.
Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made 81 Table of Contents the invention earlier.
Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier.
Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete 53 Table of Contents with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all.
Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all.
Our manufacturing and design processes and those of our third-party suppliers are required to comply with the FDA’s QSR and the European Union MDR, including Quality Management System requirements, both of which cover procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of Zephyr Valves.
Our manufacturing and design processes and those of our third-party suppliers are required to comply with the FDA’s QSR and the European Union MDR, including Quality Management System requirements, both of which cover procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of Zephyr Valves, the AeriSeal System, the Chartis Catheter and the Chartis Console.
The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a 70 Table of Contents newly established manufacturer discount program.
The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program.
We have a facility located in Redwood City, California, where we assemble, inspect, package, release and ship our products. We currently produce the Zephyr Valve and Chartis System at this facility, and we do not have redundant facilities. We also store finished 40 Table of Contents goods at secondary facilities in Redwood City, California, Memphis, Tennessee and the Netherlands.
We have a facility located in Redwood City, California, where we assemble, inspect, package, release and ship our products. We currently produce the Zephyr Valve and Chartis System at this facility, and we do not have redundant facilities. We also store finished goods at secondary facilities in Redwood City, California, Memphis, Tennessee and the Netherlands.
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand.
Inventory levels in excess of customer demand may result in 42 Table of Contents inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe board of directors’ Audit Committee is responsible for overseeing the Company’s cybersecurity risk management processes, including the Company’s oversight and mitigation of risks from cybersecurity threats. 88 Table of Contents Our cybersecurity risk assessment and management processes are implemented and maintained by certain members of Company management, including the Senior Director of Information Technology, who has worked in various roles responsible for securing networks and application systems, the Chief Executive Officer, the General Counsel, the Interim Chief Financial Officer, and the VP of Finance and Administration.
Biggest changeOur cybersecurity risk assessment and management processes are implemented and maintained by certain members of Company management, including the Senior Director of Information Technology, who has worked in various roles responsible for securing networks and application systems, the Chief Executive Officer, the General Counsel, and the Chief Financial Officer.
See Part I, Item 1A, “Risk Factors” for a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, including the risk factor titled, If our information technology systems or data, or those third parties upon which we rely, are or were compromised, we could experience adverse impacts resulting from such compromise, including, but not limited to, interruptions to our operations such as our clinical trials, claims that we breached our data protection obligations, harm to our reputation, and a loss of customers or sales .
See Part I, Item 1A, “Risk Factors” for a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, including the risk factor titled, If our information technology systems or data, or those of third parties with whom we work, are or were compromised, we could experience adverse impacts resulting from such compromise, including, but not limited to, interruptions to our operations such as to our LungTraX Platform services or our clinical trials, claims that we breached our data protection obligations, harm to our reputation, business operations, and financial condition, as well as a loss of customers or sales. 88 Table of Contents Governance Our board of directors address the Company’s cybersecurity risk management as part of its general oversight function.
Removed
Governance Our board of directors address the Company’s cybersecurity risk management as part of its general oversight function.
Added
As of December 31, 2024, the Company has not identified any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including our business strategy, results of operations or financial condition, but there can be no assurance that any such risk will not materially affect the Company in the future.
Added
The board of directors’ Audit Committee is responsible for overseeing the Company’s cybersecurity risk management processes, including the Company’s oversight and mitigation of risks from cybersecurity threats.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders 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.
Biggest changeHolders of Common Stock As of February 14, 2025, there were approximately 126 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
Use 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.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchases None.

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 $58.9 million, an increase in inventory of $3.6 million due to continued production to build inventory to meet projected increase in sales and to protect against potential supply interruptions, an increase in accounts receivable of $2.2 million, and a decrease in lease liabilities of $2.2 million due to lease payments, partially offset by an increase in accounts payable of $0.2 million due to timing of payments to our vendors, and a decrease in prepaid expenses and other current assets of $0.8 million, stock-based compensation expense of $16.4 million, non-cash lease expense of $2.5 million, depreciation and amortization expense of $1.5 million and write-down of inventory of $0.5 million.
Biggest changeCash used in operating activities was primarily a result of the net loss of $56.4 million, net accretion of discounts on marketable securities of $1.6 million, a decrease in lease liabilities of $1.9 million due to lease payments, an increase in accounts receivable of $1.3 million due to revenue growth and the timing of payments from our customers, an increase in prepaid expenses and other current assets of $0.4 million primarily due to the timing of payments to our vendors, and an increase in other assets of $0.5 million primarily due to capitalized implementation costs of a hosting arrangement.
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.
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 of our revenue from the sale of our products to hospitals and distributors.
Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management and an allocation facilities overhead cost, including rent and utilities. Cost of goods sold also includes certain direct costs such as those incurred for shipping our products and costs related to providing analysis services for patient scans.
Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management and an allocation of facilities overhead cost, including rent and utilities. Cost of goods sold also includes certain direct costs such as those incurred for shipping our products and costs related to providing analysis services for patient scans.
Competition Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and other activities of industry participants. Our goal is to establish our solution as a standard of care for severe emphysema. Existing treatments include medical management, lung volume reduction surgery (“LVRS”), lung transplantation as well as other minimally invasive treatments.
Competition Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and other activities of industry participants. Our goal is to establish our solution as a standard of care for severe emphysema. Existing treatments include medical management, lung volume reduction surgery, lung transplantation as well as other minimally invasive treatments.
Our clinical trial expenses, such as those related to our AeriSeal clinical development program, include costs associated with clinical trial design, clinical trial site development and study costs, data management costs, related travel expenses and the cost of products used for clinical activities. We expense research and development costs as they are incurred.
Our clinical trial expenses, such as those related to the AeriSeal System clinical development program, include costs associated with clinical trial design, clinical trial site development and study costs, data management costs, related travel expenses and the cost of products used for clinical activities. We expense research and development costs as they are incurred.
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.
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.
Overview We are a commercial-stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema, a form of chronic obstructive pulmonary disease (“COPD”).
Overview We are a commercial-stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema, a form of chronic obstructive pulmonary disease.
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.
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.
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.
No single customer accounted for more than 10% of our revenue during the years ended December 31, 2024 and December 31, 2023. 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.
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 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.
We seek to maintain higher levels of inventory to protect ourselves from supply interruptions and have an established distribution system for both U.S. and international customers. To date, we have financed our operations primarily through the sale of equity securities, debt financing arrangements and sales of our products.
We seek to maintain higher levels of inventory to protect ourselves from supply interruptions and have an established distribution system for both U.S. and international customers. Table of Contents To date, we have financed our operations primarily through the sale of equity securities, debt financing arrangements and sales of our products.
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
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.
In March 2021, we entered into an Amended and Restated Loan and Security Agreement with CIBC (as amended, the “Amended and Restated CIBC Agreement”) which, among other things, extended the loan maturity date under the CIBC Agreement from March 15, 2022 to February 20, 2025, and modified certain financial covenants.
In March 2021, we entered into an Amended and Restated Loan and Security Agreement with CIBC (as amended, the “Amended and Restated CIBC Agreement”) which, among other things, extended the loan maturity date of the CIBC Loan from March 15, 2022 to February 20, 2025, and modified certain financial covenants.
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.
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, 2024.
Our revenue also fluctuates and in the future will continue to fluctuate from quarter-to-quarter due to a variety of factors, including the availability of reimbursement, the size and success of our sales force, the number of hospitals and physicians who are aware of and perform the procedures using our solution and seasonality.
Our revenue also fluctuates and will continue to fluctuate from quarter-to-quarter due to a variety of factors, including the availability of reimbursement, the size and success of our sales force, the number of hospitals and physicians who are aware of and perform the procedures using our solution and seasonality.
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.
We employ both direct and distributor-based sales models, with 96% of our revenue generated in markets where we sell directly for the year ended December 31, 2024. 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.
Research and Development Research and development expenses consist of costs incurred to further our research and development activities and include compensation costs, stock-based compensation, engineering and research expenses, clinical trials and related expenses, regulatory expenses, manufacturing expenses incurred to build products for testing, allocated facilities costs, consulting fees and other expenses incurred to sustain our overall research and development programs.
Table of Contents Research and Development Research and development expenses consist of costs incurred to further our research and development activities and include compensation costs, stock-based compensation, engineering and research expenses, clinical trials and related expenses, regulatory expenses, manufacturing expenses incurred to build products for testing, allocated facilities costs, consulting fees and other expenses incurred to sustain our overall research and development programs.
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.
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 our option through October 31, 2023, subject to Table of Contents 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.
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.
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 common stock options of $0.3 million, partially offset by repayment of debt under the Credit Agreement of $0.1 million.
Common Stock Valuation and Stock-Based Compensation We recognize compensation costs related to stock options and awards granted to employees and non-employees based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value of stock options, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model.
Stock-Based Compensation We recognize compensation costs related to stock options and awards granted to employees and non-employees based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value of stock options, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model.
Third-Party Reimbursement Since achieving regulatory approval in the United States in June 2018, we have launched the Zephyr Valve treatment and have made progress securing third-party payor reimbursement. The majority of our patients are Medicare beneficiaries.
Third-Party Reimbursement Since achieving regulatory approval in the United States in 2018, we have launched the Zephyr Valve treatment and have made progress securing third-party payor reimbursement. The majority of our patients are Medicare-eligible beneficiaries.
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.
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 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; • the emergence of competing technologies or other adverse market developments; and • the impact of any public health crises on our business, financial condition and results of operations.
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 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.
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.
Interest income is predominantly derived from investing surplus cash in money market funds and marketable securities. Other Income (Expense), Net Other income (expense), net primarily consists of foreign currency exchange gains and losses.
The Amended and Restated CIBC Agreement contains financial covenants that require the Company to maintain minimum cash and minimum revenue amounts, and the Amended and Restated CIBC Agreement contains other customary restrictive covenants, representations and warranties, events of default and other customary terms and conditions.
The Amended and Restated CIBC Agreement contains financial covenants that require us to maintain minimum cash and minimum revenue amounts, and the Amended and Restated CIBC Agreement contains other customary restrictive covenants, representations and warranties, events of default and other customary terms and conditions.
If we raise additional capital through collaborations agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses that may not be favorable to us.
If we raise additional capital through collaborations agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses that Table of Contents may not be favorable to us.
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.
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.
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.
During the years ended December 31, 2024 and December 31, 2023, we recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of $0.1 million and less than $0.1 million, respectively. Interest expense on the CIBC Loan amounted $3.5 million and $3.2 million during the years ended December 31, 2024 and December 31, 2023, respectively.
We also intend to continue to make investments in research and development efforts to develop our next generation products and support our future regulatory submissions to increase our addressable market and to expand indications and new markets.
We have made, and intend to continue to make, investments in research and development efforts to develop our next generation products and support our future regulatory submissions to increase our addressable market and to expand indications and new markets.
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.
Our cash outflows for capital expenditures were $1.4 million during the year ended December 31, 2024 and $0.8 million during the year ended December 31, 2023, and we expect to maintain the level of expenditures in the future in support of our commercial infrastructure, sales force and other commercialization efforts.
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.
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 74.0% during the year ended December 31, 2024, compared to 73.9% during the year ended December 31, 2023.
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.
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, 2024, we had cash, cash equivalents and marketable securities of $101.5 million.
The CIBC Agreement originally provided us with the ability to borrow up to $32.0 million in debt financing consisting of $17.0 million advanced at the closing of the agreement (“Tranche A”), with the option to draw up to an additional $8.0 million (“Tranche B”) on or before February 20, 2022 and an additional $7.0 million (“Tranche C”) on or before February 20, 2022.
The CIBC Agreement originally provided us with the ability to borrow up to $32.0 million in debt financing (“CIBC Loan”) consisting of $17.0 million advanced at the closing of the agreement (“Tranche A”), with the option to draw up to an additional $8.0 million (“Tranche B”) and an additional financing tranche (“Tranche C”) of up to $7.0 million on or prior to February 20, 2022.
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.
Cash Flows from Financing Activities Net cash provided by financing activities in the year ended December 31, 2024 of $1.4 million primarily relates to proceeds from issuance of common stock under the employee stock purchase plan of $1.2 million and proceeds from exercise of common stock options of $0.2 million, offset by repayment of debt under the Credit Agreement of $0.1 million.
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.
Through this program, 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. Outside of the United States, our solution is covered by major health systems across much of Europe, Australia, South Korea and Japan.
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.
Material Cash Requirements Our net cash operating expenditures were $31.5 million during the year ended December 31, 2024 and $37.6 million during the year ended December 31, 2023, and we intend to continue to make investments in the development of our products, including ongoing research and development programs.
We also generate a smaller amount of our revenue from our Chartis System, which is comprised of sales of the balloon catheters, usage fees and sales of the Chartis console. The StratX Platform, while used to identify patients eligible for treatment with Zephyr Valves, does not independently generate any revenue for us.
We also generate a smaller amount of our revenue from our Chartis System, which is comprised of sales of the balloon catheters, usage fees and sales of the Chartis console. The LungTraX Platform, which is used to identify patients eligible for treatment with Zephyr Valves, has not independently generated any revenue for us.
CIBC Loan On February 20, 2020, we executed a Loan and Security Agreement with Canadian Imperial Bank of Commerce (“CIBC”), which we subsequently amended on April 17, 2020 and December 28, 2020 (as amended, the “CIBC Agreement”).
CIBC Loan In February 2020, we executed a Loan and Security Agreement with Canadian Imperial Bank of Commerce (“CIBC”), which we subsequently amended in April 2020 and December 2020 (as amended, the “CIBC Agreement”).
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.
As of December 31, 2024, we had an accumulated deficit of $467.6 million, cash, cash equivalents and marketable securities of $101.5 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.
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.
Table of Contents As of December 31, 2024, there was $37.9 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 2.4 years. Income Taxes Our major tax jurisdictions are the United States and California, Switzerland and Neuchâtel.
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.
As of December 31, 2024, we had cash, cash equivalents and marketable securities of $101.5 million, an accumulated deficit of $467.6 million, and $37.2 million outstanding under the CIBC Loan and Credit Agreement, net of debt discount and debt issuance costs.
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.
The sale of products in international markets increased by $4.6 million to $27.3 million during the year ended December 31, 2024, compared to $22.8 million for the year ended December 31, 2023. The increase in revenue reflects continued growth of Zephyr Valve procedure volumes in the United States and in international markets.
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.
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, impairment charges associated with capitalized internally developed software, and an allocation of facility overhead costs.
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 decrease in research and development expenses was primarily due to a decrease of $1.8 million in professional services and other expenses in support of product development, a decrease of $0.2 million in personnel-related expenses including stock-based compensation, and a decrease of $0.1 million in costs associated with our clinical trials, including fees paid to contract research organizations and testing expenses.
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.
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.
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.
Recent and expected working and other capital requirements include Table of Contents amounts related to future lease payments for operating lease obligations, which totaled $31.3 million at December 31, 2024, with $2.6 million expected to be paid within the next 12 months, and amounts related to future short-term and long-term debt which totaled $43.2 million, with $6.3 million expected to be paid within the next 12 months.
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.
The sale of products in the United States increased by $10.5 million to $56.5 million during the year ended December 31, 2024, compared to $45.9 million for the year ended December 31, 2023.
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.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $7.5 million, or 8.0%, to $102.1 million during the year ended December 31, 2024 compared to $94.6 million during the year ended December 31, 2023.
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.
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, 2024 2023 (in thousands) Net cash (used in) provided by: Operating activities $ (31,537) $ (37,610) Investing activities 17,476 (2,007) Financing activities 1,363 21,400 Effect of exchange rate changes on cash and cash equivalents 76 34 Net decrease in cash, cash equivalents and restricted cash $ (12,622) $ (18,183) Table of Contents Cash Flows from Operating Activities Net cash used in operating activities was $31.5 million for the year ended December 31, 2024.
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.
Cost of Goods Sold and Gross Margin Cost of goods sold increased by $3.9 million, or 21.6%, to $21.8 million during the year ended December 31, 2024, compared to $17.9 million during the year ended December 31, 2023.
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.
We generated revenue of $83.8 million, with a gross margin of 74.0% and a net loss of $56.4 million, for the year ended December 31, 2024 compared to 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.
Net cash used in operating activities was $45.1 million for the year ended December 31, 2022.
Net cash used in operating activities was $37.6 million for the year ended December 31, 2023.
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.
The increase in selling, general and administrative expenses was primarily due to an increase of $3.9 million in advertising and marketing related expenses, an increase of $2.2 million in payroll and personnel-related expenses including stock-based compensation for our sales, marketing and administrative personnel, and an increase of $1.0 million in travel and conference related expenses.
These efforts require significant investment by our marketing and sales organization, and vary depending upon the physician’s practice specialization, and personal preferences and geographic location of physicians, pulmonary rehabilitation centers and patients.
We also intend to continue helping physicians in their outreach to patients and other healthcare providers. These efforts require significant investment by our marketing and sales organization, and vary depending upon the physician’s practice specialization, and personal preferences and geographic location of physicians, pulmonary rehabilitation Table of Contents centers and patients.
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.
Interest Expense and Income Interest expense increased by $0.3 million, or 8.5%, to $3.5 million during the year ended December 31, 2024, compared to $3.2 million during the year ended December 31, 2023, primarily due to higher interest 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.
Other Income (Expense), Net Other income (expense), net increased by $0.9 million to $0.3 million during the year ended December 31, 2024, compared to $(0.7) million during the year ended December 31, 2023, primarily due to foreign currency exchange gains.
We intend to continue to promote awareness of our solution through training and educating physicians, pulmonary rehabilitation centers, key opinion leaders and various medical societies on the proven clinical benefits of Zephyr Valves. In addition, we intend to continue to publish additional clinical data in various industry and scientific journals and online and to present at various industry conferences.
Physician, Patient and Hospital Awareness and Acceptance of Our Solution We intend to continue to promote awareness of our solution through training and educating physicians, pulmonary rehabilitation centers, key opinion leaders and various medical societies on the proven clinical benefits of Zephyr Valves.
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.
Research and Development Expenses Research and development expenses decreased by $0.5 million, or 2.8%, to $17.6 million during the year ended December 31, 2024, compared to $18.1 million during the year ended December 31, 2023.
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.
Cash Flows from Investing Activities Net cash provided by investing activities in the year ended December 31, 2024 was $17.5 million consisting of proceeds from maturities of marketable securities of $46.8 million, offset by purchases of marketable securities of $27.9 million and purchases of property and equipment of $1.4 million.
Neither Tranche B nor Tranche C was drawn before the February 2022 expiration date.
Neither Tranche B nor Tranche C was drawn before the option expired.
We intend to make significant investments building our sales and marketing organization by increasing the number of sales territory managers and continuing our marketing efforts in existing and new markets throughout the United States, Europe and Asia Pacific.
We intend to continue to make significant investments in our sales and marketing organization throughout the United States, Europe and Asia Pacific.
We have established reimbursement in major markets in North America, Europe and Asia Pacific and the Zephyr Valve has been included in treatment guidelines for COPD worldwide. We market and sell our products in the United States through a direct sales organization.
The Zephyr Valve is commercially available in numerous countries globally. We have established reimbursement in major markets in North America, Europe and Asia Pacific and the Zephyr Valve has been included in treatment guidelines for COPD worldwide.
We estimate that roughly 75% of the potential Zephyr Valve patient population are Medicare/Medicaid beneficiaries, of which approximately 30% have managed Medicare/Medicaid and the remaining 45% have traditional Medicare/Medicaid. Approximately 25% of the potential Zephyr Valve patient population is under third-party commercial payor policies. A key element of our strategy remains to broaden our coverage by private third-party payor policies.
We estimate that roughly 75% of the potential Zephyr Valve patient population are Medicare beneficiaries, 5% are Medicaid beneficiaries, and 20% of the potential Zephyr Valve patient population is under third-party commercial payor policies or other government programs. We continue to work to broaden our coverage by private third-party payor policies.
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.
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. The COVID-19 Credit Agreement currently bears interest at a rate of 1.5% per year, payable at the end of each calendar quarter.
Our solution, which is comprised of the Zephyr Endobronchial Valve (“Zephyr Valve”), the Chartis Pulmonary Assessment System (“Chartis System”) and the StratX Lung Analysis Platform (“StratX Platform”), is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches.
Our solution, which is comprised of the Zephyr Valve, the Chartis System and the LungTraX Platform, is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches. In 2018, we received pre-market approval from the FDA for the Zephyr Valve, following its “Breakthrough Technology” designation.
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.
Table of Contents Results of Operations: Comparison of the Years Ended December 31, 2024 and December 31, 2023 The following table summarizes our results of operations for the period indicated: Years Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Revenue $ 83,789 $ 68,675 $ 15,114 22.0 % Costs of goods sold 21,788 17,923 3,865 21.6 % Gross profit 62,001 50,752 11,249 22.2 % Operating expenses: Research and development 17,570 18,080 (510) (2.8) % Selling, general and administrative 102,135 94,607 7,528 8.0 % Total operating expenses 119,705 112,687 7,018 6.2 % Loss from operations (57,704) (61,935) 4,231 (6.8) % Interest income 5,061 5,568 (507) (9.1) % Interest expense (3,507) (3,232) (275) 8.5 % Other income (expense), net 256 (673) 929 (138.0) % Net loss before tax (55,894) (60,272) 4,378 (7.3) % Income tax expense 500 571 (71) (12.4) % Net loss $ (56,394) $ (60,843) $ 4,449 (7.3) % Revenue Revenue increased by $15.1 million, or 22.0%, to $83.8 million during the year ended December 31, 2024, compared to $68.7 million during the year ended December 31, 2023.
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.
Moreover, we continue to make progress with our CONVERT II pivotal trial of the AeriSeal System, 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.
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.
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 years ended December 31, 2024 and December 31, 2023. Pulmonx International Sàrl repaid $0.1 million and $0.1 million to the lender during the years ended December 31, 2024 and December 31, 2023, respectively.
We plan to continue building patient awareness through our direct-to-patient marketing initiatives, which include advertising, social media and online education. We also intend to continue helping physicians in their outreach to patients and other healthcare providers.
In addition, we intend to continue to publish additional clinical data in various industry and scientific journals and online and to present at various industry conferences. We plan to continue building patient awareness through our direct-to-patient marketing initiatives, which include advertising, social media and online education.
This has impacted our compensation expenses in the past and we expect it will do so in the future. Physician, Patient and Hospital Awareness and Acceptance of Our Solution Our goal is to establish our solution as a standard of care for severe emphysema.
This has impacted our compensation expenses in the past and we expect it will do so in the future.
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.
Principal repayment will begin in November 2025. There was no change to the loan interest rate, maturity date, or other terms of the loan. 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.
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.
In February 2023, we drew $20.0 million of the Amended Tranche B which has the same interest rate and repayment terms as Tranche A of the CIBC Loan. In May 2024, as a result of satisfying certain conditions set forth in the Third Amendment, we extended the interest-only period of the CIBC Loan from 24 months to 36 months.
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.
Interest income decreased by $0.5 million, or 9.1%, to $5.1 million during the year ended December 31, 2024 compared to $5.6 million during the year ended December 31, 2023. The decrease was primarily due to a lower balance of cash, cash equivalents, and marketable securities, which resulted in reduced returns on these assets.
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In June 2018, we received pre-market approval (“PMA”) by the U.S. Food and Drug Administration (“FDA”) as a result of our breakthrough technology designation. The Zephyr Valve is now commercially available in more than 25 countries, with over 100,000 valves used to treat more than 25,000 patients.
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We also manufacture the AeriSeal System, which is a synthetic polymer foam designed to occlude, or close, collateral air channels in a target lung lobe and convert the target lung lobe to having little to no collateral ventilation (CV-). The AeriSeal System has received a “Breakthrough Device” designation by the FDA and a Certificate of Conformity (“CE Mark”) in Europe.
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We also saw an increase in our stock-based compensation expense with the establishment of our 2020 Equity Incentive Plan and related grants either in the form of restricted stock units or stock options.
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The AeriSeal System is not approved by the FDA or approved for commercial sale in the United States. It is in a global clinical trial called CONVERT II to support a PMA application. We market and sell our products in the United States through a direct sales organization.
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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.
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Table of Contents In addition, we are continuing to invest in the accuracy and features of our patient assessment tools.
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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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeRevenue 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.
Biggest changeWe 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. Operating expenses related to these sales are largely denominated in the same respective currency, thereby limiting our transaction risk exposure.
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.
We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not significant. 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.
Interest-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.
Interest-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 $36.9 million under the CIBC Agreement with an annual effective interest rate of 9.0% as of December 31, 2024.
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.
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 $70.9 million as of December 31, 2024, which consist of cash and money market funds. We held cash in foreign banks of approximately $5.8 million at December 31, 2024 that was not federally insured.
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.
In the ordinary course of business, we may enter into contractual arrangements to reduce Table of Contents 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.
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Operating expenses related to these sales are largely denominated in the same respective currency, thereby limiting our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not significant.
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Foreign Currency Exchange Risk We operate in countries other than the United States and are exposed to foreign currency risks. Revenue from sales outside of the United States represented 32.6% and 33.1% of our total revenue for the year ended December 31, 2024 and 2023, respectively.
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A 10% change in weighted average foreign currency exchange rates would have changed our revenues and operating expenses for the year ended December 31, 2024 by approximately $2.7 million and $2.0 million, respectively, with a net impact of $0.7 million on our net income.

Other LUNG 10-K year-over-year comparisons