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

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

+344 added−408 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in PROCEPT BioRobotics Corp's 2023 10-K

344 paragraphs added · 408 removed · 298 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

103 edited+11 added−55 removed234 unchanged
Biggest changeThe Food and Drug Administration Modernization Act of 1997 established a route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure.
Biggest changeThe Food and Drug Administration Modernization Act of 1997 established a route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure. 19 Table of Contents This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application.
We estimate that approximately 50% of BPH patients who are on drug therapy as well as 50% who have failed drug therapy are under the care of a urologist, equating to approximately 3.9 million men.
We estimate that approximately 50% of BPH patients who are on drug therapy as well as 50% who have failed drug therapy are under the care of a urologist, equating to approximately 3.9 million men.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; FDA guidance on off-label dissemination of information and responding to unsolicited requests for information; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; 23 Table of Contents • complying with the new federal law and regulations requiring Unique Device Identifiers, or UDI, on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; FDA guidance on off-label dissemination of information and responding to unsolicited requests for information; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices; 21 Table of Contents • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • complying with the new federal law and regulations requiring Unique Device Identifiers, or UDI, on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Aquablation therapy has demonstrated low rates of irreversible complications, including urinary incontinence, erectile dysfunction and ejaculatory dysfunction, compared to published rates observed for other resective surgeries. In our WATER study, patients who underwent Aquablation therapy maintained a higher level of sexual function compared to those who underwent TURP. • Resection independent of prostate size and shape and surgeon experience.
Aquablation therapy has demonstrated low rates of irreversible complications, including urinary incontinence, erectile dysfunction and ejaculatory dysfunction, compared to published rates observed for other resective surgeries. In our WATER study, patients who underwent Aquablation therapy maintained a significantly higher level of sexual function compared to those who underwent TURP. • Resection independent of prostate size and shape and surgeon experience.
On the effective date, May 26, 2021, the new regulations, among other things: • strengthened the rules on placing devices on the market and reinforce surveillance once they are available; • established explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; 25 Table of Contents • improved the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; • set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; • strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.
On the effective date, May 26, 2021, the new regulations, among other things: • strengthened the rules on placing devices on the market and reinforce surveillance once they are available; 23 Table of Contents • established explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; • improved the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; • set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and • strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.
Our total addressable patient population in the United States includes approximately 8.2 million patients, comprising 6.7 million receiving drug therapy, 1.1 million who have tried but failed drug therapy and 400,000 undergoing surgical intervention each year.
Our total addressable patient population in the United States includes approximately 8.2 million patients, comprising of 6.7 million receiving drug therapy, 1.1 million who have tried but failed drug therapy and 400,000 undergoing surgical intervention each year.
A key study published in April 2021 of 2,089 men undergoing Aquablation therapy with prostates ranging in size from 20 ml to 363 ml observed a transfusion rate of only 0.8%. 13 Table of Contents The AquaBeam Robotic System combines the following highly differentiated features that are intended to deliver effective, safe and durable outcomes for males suffering from LUTS due to BPH that are consistent across all prostate sizes and shapes and resection independent of surgeon experience: • Real-time image guidance.
A key study published in April 2021 of 2,089 men undergoing Aquablation therapy with prostates ranging in size from 20 ml to 363 ml observed a transfusion rate of only 0.8%. 11 Table of Contents The AquaBeam Robotic System combines the following highly differentiated features that are intended to deliver effective, safe and durable outcomes for males suffering from LUTS due to BPH that are consistent across all prostate sizes and shapes and resection independent of surgeon experience: • Real-time image guidance.
In the WATER and WATER II studies, surgical retreatment rates were only 5.2% at five years and 3.0% at four years, respectively. In the OPEN WATER study, there were no surgical retreatments at one year. The retreatment rates in the WATER and WATER II studies compare favorably to surgical retreatment rates observed for alternative treatments for BPH.
In the WATER and WATER II studies, surgical retreatment rates were only 5.2% at five years and 3.0% at five years, respectively. In the OPEN WATER study, there were no surgical retreatments at one year. The retreatment rates in the WATER and WATER II studies compare favorably to surgical retreatment rates observed for alternative treatments for BPH.
We plan to leverage these recent successes in our active discussions with commercial payors to establish additional positive national and regional coverage policies, although we cannot provide any assurances that we will be successful in doing so.
We plan to leverage these successes in our active discussions with commercial payors to establish additional positive national and regional coverage policies, although we cannot provide any assurances that we will be successful in doing so.
Laser enucleation is prostate size-independent; however, this procedure is more commonly used in larger prostates, and adoption has been limited due to the high degree of skill and experience required.
Laser enucleation is prostate size-independent; however, this procedure is more commonly used in larger prostates, and adoption has been limited due to the high degree of skill, training and experience required.
The federal Physician Payments Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS, information related to payments or and other “transfers of value” made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives) and teaching hospitals, and requires applicable manufacturers to report annually to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “transfers of value” to such physician owners.
The federal Physician Payments Sunshine Act requires 25 Table of Contents manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS, information related to payments or and other “transfers of value” made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives) and teaching hospitals, and requires applicable manufacturers to report annually to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “transfers of value” to such physician owners.
HIPAA created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare 27 Table of Contents benefits, items or services.
HIPAA created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
We have developed a significant and growing body of clinical data that demonstrate the efficacy, safety and durability of Aquablation therapy, with resection that is independent of prostate size and shape and surgeon experience. Our robust body of clinical evidence includes nine clinical studies and nearly 150 peer-reviewed publications.
We have developed a significant and growing body of clinical data that demonstrate the efficacy, safety and durability of Aquablation therapy, with resection that is independent of prostate size and shape and surgeon experience. Our robust body of clinical evidence includes nine clinical studies and over 150 peer-reviewed publications.
We believe that these favorable coverage decisions have been a catalyst for hospital adoption of our AquaBeam Robotic System. Our strong body of clinical evidence and support from key societies, supplemented by the momentum from Medicare coverage, have led to favorable coverage decisions from many large private payors.
We believe that these favorable coverage decisions have been a catalyst for hospital adoption of our AquaBeam Robotic System. Our strong body of clinical evidence and support from key societies, supplemented by the momentum from Medicare coverage, have led to favorable coverage decisions from most large private payors.
This robust body of evidence includes more than 150 peer-reviewed publications in premier journals, such as the Journal of Urology, European Urology and BJU International, as well as nine clinical studies, including our three core studies: WATER, WATER II and OPEN WATER. • WATER.
This robust body of evidence includes more than 150 peer-reviewed publications in premier journals, such as the Journal of Urology, European Urology and BJU International, as well as nine clinical studies, including our three core studies: WATER, WATER II and OPEN WATER. Prostate Therapy • WATER.
Coverage and reimbursement by governmental and third-party payors may depend upon a number of factors, including the determination that the product or service and its use or administration for a particular patient is: • a covered benefit; 16 Table of Contents • safe, effective and medically necessary; • appropriate for the specific patient; • supported by guidelines established by the relevant professional societies; • cost-effective; and • neither experimental nor investigational.
Coverage and reimbursement by governmental and third-party payors may depend upon a number of factors, including the determination that the product or service and its use or administration for a particular patient is: • a covered benefit; • safe, effective and medically necessary; • appropriate for the specific patient; • supported by guidelines established by the relevant professional societies; • cost-effective; and • neither experimental nor investigational.
The console is activated by a foot pedal and has a small screen that displays the pump level and procedure mode. 14 Table of Contents The motorpack is connected to the console with a flexible cable that provides power and control instructions to the motorpack.
The console is activated by a foot pedal and has a small screen that displays the pump level and procedure mode. 12 Table of Contents The motorpack is connected to the console with a flexible cable that provides power and control instructions to the motorpack.
We believe Medicare accounts for approximately 50% of all hospital-based resective BPH procedures performed in the United States. 17 Table of Contents Prior Authorization Approval Process For certain customers, our reimbursement strategy includes leveraging our market access team as advisors when needed to support in obtaining appropriate prior authorization approvals in advance of treatment.
We believe Medicare accounts for approximately 50% of all hospital-based resective BPH procedures performed in the United States. Prior Authorization Approval Process For certain customers, our reimbursement strategy includes leveraging our market access team as advisors when needed to support in obtaining appropriate prior authorization approvals in advance of treatment.
We estimate that there are approximately 12,000 urologists who manage approximately 4.3 million BPH patients, comprised of 400,000 undergoing BPH surgery annually, 3.3 million who are on drug therapy and 600,000 who have tried but failed drug therapy. We are first focused on driving adoption of Aquablation therapy among urologists who perform hospital-based 15 Table of Contents BPH resective surgery.
We estimate that there are approximately 12,000 urologists who manage approximately 4.3 million BPH patients, comprised of 400,000 undergoing BPH surgery annually, 3.3 million who are on drug therapy and 600,000 who have tried but failed drug therapy. We are first focused on driving adoption of Aquablation therapy among urologists who perform hospital-based BPH resective surgery.
Once we place a system within a hospital, our objective is to establish Aquablation therapy as the surgical treatment of choice for BPH. Within each hospital, we are initially focused on targeting urologists who perform 8 Table of Contents medium-to-high volumes of resective procedures and converting their resective cases to Aquablation therapy.
Once we place a system within a hospital, our objective is to establish Aquablation therapy as the surgical treatment of choice for BPH. Within each hospital, we are initially focused on targeting urologists who perform medium-to-high volumes of resective procedures and converting their resective cases to Aquablation therapy.
FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) pre-market notification to the FDA and receiving a not substantially equivalent determination. Under FDASIA, the FDA is required to classify the 21 Table of Contents device within 120 days following receipt of the de novo request.
FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) pre-market notification to the FDA and receiving a not substantially equivalent determination. Under FDASIA, the FDA is required to classify the device within 120 days following receipt of the de novo request.
In 2022, we published our Environmental, Social, and Governance or ESG Report which is available on our website at and includes more detailed information on our human capital programs and initiatives. Nothing contained on or accessible through our website, including our ESG Report or sections thereof, shall be deemed incorporated by reference into this Annual Report.
In 2023, we published our Environmental, Social, and Governance or ESG Report which is available on our website and includes more detailed information on our human capital programs and initiatives. Nothing contained on or accessible through our website, including our ESG Report or sections thereof, shall be deemed incorporated by reference into this Annual Report.
We are initially targeting 860 high-volume hospitals that perform, on average, more than 200 resective procedures annually and account for approximately 70% of all hospital-based resective procedures. Additionally, there are approximately 1,840 6 Table of Contents additional U.S. hospitals that perform the remaining 30% of resective BPH procedures we are also targeting.
We are initially targeting 860 high-volume hospitals that perform, on average, more than 200 resective procedures annually and account for approximately 70% of all hospital-based resective procedures. Additionally, there are approximately 1,840 additional U.S. hospitals that perform the remaining 30% of resective BPH procedures we are also targeting.
Over the next ten years, we expect that the number of men over 65 years old in the United States will double and include a corresponding increase in the number of men with enlarged prostates. Of these men, approximately 12 million are being managed by a physician for symptoms related to their disease.
By 2060, we expect that the number of men over 65 years old in the United States will double and include a corresponding increase in the number of men with enlarged prostates. Of these men, approximately 12 million are being managed by a physician for symptoms related to their disease.
A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing 22 Table of Contents impairment of human health, or otherwise presents a potential for serious risk to a subject.
A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.
See the section titled “Risk Factors—Risks Related to Intellectual Property Matters” for additional information regarding these and other risks related to our intellectual property portfolio and their potential effect on us.
See the section titled “Risk Factors—Risks Related to Our Intellectual Property” for additional information regarding these and other risks related to our intellectual property portfolio and their potential effect on us.
The current presidential administration and Congress may continue to pursue significant changes to the current healthcare laws. 28 Table of Contents Data Privacy and Security Laws Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information.
The current presidential administration and Congress may continue to pursue significant changes to the current healthcare laws. Data Privacy and Security Laws Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information.
In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, and consumer protection laws and regulations that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners.
In the United States, numerous federal and state laws and regulations, including data breach notification laws, health 26 Table of Contents information privacy and security laws, and consumer protection laws and regulations that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners.
We plan to strategically 9 Table of Contents invest in new markets based on our assessment of market size and opportunity and prospects for compelling reimbursement. Market Overview Our Addressable Market Opportunity in BPH In the United States, BPH is the number one reason men visit a urologist.
We plan to strategically invest in new markets based on our assessment of market size and opportunity and prospects for compelling reimbursement. Market Overview Our Addressable Market Opportunity in BPH In the United States, BPH is the number one reason men visit a urologist.
HydroCision also granted us a non-exclusive license to patents allowing us to make, sell, import, export, or otherwise dispose of products made using the Fluid Jet Technology Patents. In exchange for the license from HyrdoCision, we paid HydroCision $2,500,000. No further payments have been made or are otherwise required under the HydoCision License Agreement.
HydroCision also granted us a non-exclusive license to patents allowing us to make, sell, import, export, or otherwise dispose of products made using the Fluid Jet Technology Patents. 18 Table of Contents In exchange for the license from HyrdoCision, we paid HydroCision $2,500,000 in 2019. No further payments have been made or are otherwise required under the HydoCision License Agreement.
Employees and Human Capital Resources Our growing and skilled employee base drives our success and helps us progress towards our vision of restoring patient lives by delivering the BPH treatment of choice. As of December 31, 2022, we had 428 employees. Our future success depends on our ability to attract, retain, engage and further develop top talent.
Employees and Human Capital Resources Our growing and skilled employee base drives our success and helps us progress towards our vision of restoring patient lives by delivering the BPH treatment of choice. As of December 31, 2023, we had 626 employees. Our future success depends on our ability to attract, retain, engage and further develop top talent.
This team is supported by clinical specialists and professional education employees, who are responsible for training and supporting surgeons, reimbursement specialists, who are responsible for customer and physician education on coding, coverage and payment, and field service employees, who provide preventative maintenance and support for our customers.
This team is supported by clinical specialists who are responsible for training and supporting surgeons, reimbursement specialists, who are responsible for customer and physician education on coding, coverage and payment, and field support employees, who provide preventative maintenance and technical support for our customers.
Resective Procedures Resective prostate procedures generally provide more significant and longer-lasting symptom relief than non-resective procedures, but may result in a higher incidence of irreversible complications, including urinary incontinence, erectile dysfunction and ejaculatory dysfunction.
Resective Procedures 9 Table of Contents Resective prostate procedures generally provide more significant and longer-lasting symptom relief than non-resective procedures, but may result in a higher incidence of irreversible complications, including urinary incontinence, erectile dysfunction and ejaculatory dysfunction.
Failure to obtain regulatory approval in a timely manner and meet all the local requirements (including language and specific safety 24 Table of Contents standards) in any foreign country in which we plan to market our products could prevent us from marketing products in such countries or subject us to fines.
Failure to obtain regulatory approval in a timely manner and meet all the local requirements (including language and specific safety standards) in any foreign country in which we plan to market our products could prevent us from marketing products in such countries or subject us to fines.
Furthermore, minimal intraoperative visualization, which is generally limited to a cystoscope, provides limited visibility of the prostate and makes it difficult for the surgeon to see and preserve critical parts of the prostate during tissue resection.
Furthermore, minimal intraoperative visualization, which is generally limited to a cystoscope, provides limited visibility of the prostate and makes it difficult for the surgeon to see and preserve 10 Table of Contents critical parts of the prostate during tissue resection.
Additionally, from a governance perspective, we maintain a mix of skills, backgrounds and experience in our executive team and in our board to serve the needs of our diverse stakeholders. Health, Safety and Wellness The health, safety and wellness of our employees is an area where we continued to invest and expand throughout 2022.
Additionally, from a governance perspective, we maintain a mix of skills, backgrounds and experience on our executive team and on our board to serve the needs of our diverse stakeholders. Health, Safety and Wellness The health, safety and wellness of our employees is an area where we continued to invest and expand throughout 2023.
The SEC maintains a website that contains the materials we file with the SEC at www.sec.gov. 30 Table of Contents
The SEC maintains a website that contains the materials we file with the SEC at www.sec.gov. 28 Table of Contents
These regulations, such as requirements for approvals or clearance and the time required for regulatory review, will vary from country to country. Some countries have regulatory review processes that are significantly longer than United States regulatory approval.
These regulations, such as requirements 22 Table of Contents for approvals or clearance and the time required for regulatory review, will vary from country to country. Some countries have regulatory review processes that are significantly longer than United States regulatory approval.
Limitations of a simple prostatectomy include: • Surgical safety concerns. Even when performed robotically, a simple prostatectomy still requires incisions to be made in the patient’s abdomen in order to access the prostate gland. Bleeding events are a key risk in these types of procedures, with transfusion rates as high as 25%. • High rates of irreversible complications.
Even when performed robotically, a simple prostatectomy still requires incisions to be made in the patient’s abdomen in order to access the prostate gland. Bleeding events are a key risk in these types of procedures, with transfusion rates as high as 25%. • High rates of irreversible complications.
Over the next ten years, it is expected that the number of men over 65 years old in the United States will double and include a corresponding increase in the number of men with enlarged prostates.
By 2060, it is expected that the number of men over 65 years old in the United States will double and include a corresponding increase in the number of men with enlarged prostates.
We provide a comprehensive suite of compensation and benefits programs including annual bonuses, equity awards, an Employee Stock Purchase Plan, retirement savings plans, healthcare, income protection benefits, paid time off, leave of absence benefits, flexible work arrangements, and numerous well-being benefits.
We provide a comprehensive suite of compensation and benefits programs including annual bonuses, equity awards, an Employee Stock Purchase Plan, retirement savings plans with a company match, 27 Table of Contents healthcare, income protection benefits, paid time off, leave of absence benefits, flexible work arrangements, and numerous well-being benefits.
Based on the average selling price of our single-use handpiece, we estimate that our total U.S. addressable market opportunity is in excess of $20 billion.
Based on the average selling price of our single-use handpiece, we estimate that our total addressable market opportunity is in excess of $20 billion in the United States.
Overview of the Prostate The prostate is a small gland in the male reproductive system. The prostate sits underneath the bladder and surrounds the top part of the urethra, which carries urine from the bladder. The prostate is approximately the size of a walnut in men younger than 30 years old; as men age, the prostate grows larger.
The prostate sits underneath the bladder and surrounds the top part of the urethra, which carries urine from the bladder. The prostate is approximately the size of a walnut in men younger than 30 years old; as men age, the prostate grows larger.
We have developed a significant and growing body of clinical evidence, which includes nine clinical studies and nearly 150 peer-reviewed publications, supporting the benefits and clinical advantages of Aquablation therapy. As of December 31, 2022, we had an install base of 243 AquaBeam Robotic Systems globally, including 167 in the United States.
We have developed a significant and growing body of clinical evidence, which includes nine clinical studies and over 150 peer-reviewed publications, supporting the benefits and clinical advantages of Aquablation therapy. As of December 31, 2023, we had an install base of 418 AquaBeam Robotic Systems globally, including 315 in the United States.
While the United States remains our primary focus in the near-term, we are growing our existing presence in other markets, including Germany, France, Italy, Spain, United Kingdom, Korea and Japan, by continuing to promote the clinical benefits of Aquablation therapy, supporting investments in clinical studies to improve coverage and reimbursement and fostering relationships with KOLs.
While the United States remains our primary focus in the near-term, we are growing our existing presence in other markets by continuing to promote the clinical benefits of Aquablation therapy, supporting investments in clinical studies to improve coverage and reimbursement and fostering relationships with KOLs.
We believe we can reach these patients by continuing to educate our network of urologists of the clinical benefits of Aquablation therapy, provide comprehensive training programs and deepen our relationships with key urologists and various medical societies. Furthermore, we believe that additional coverage by private payors will continue to drive increased utilization. • Continue to broaden private payor coverage.
We believe we can reach these patients by continuing to educate our network of urologists of the clinical benefits of Aquablation therapy, provide comprehensive training programs and deepen our relationships with key urologists and various medical societies. • Continue to broaden private payor coverage.
HydroCision is responsible for all patent prosecution and maintenance costs related to the Fluid Jet Technology Patents. The HydoCision License Agreement will remain in full force and effect until the last to expire of the Fluid Jet Technology Patents.
HydroCision is responsible for all patent prosecution and maintenance costs related to the Fluid Jet Technology Patents. The HydoCision License Agreement will remain in full force and effect until the last to expire of the Fluid Jet Technology Patents. The expiration date of the last-to-expire of the Fluid Jet Technology Patents will not be earlier than 2039.
In the United States it is estimated that approximately 40 million men are impacted by BPH, with aging demographics expected to drive future growth. Of these men, approximately 12 million are being managed by a physician for symptoms related to their disease.
In the United States it is estimated that approximately 40 million men are impacted by BPH. Of these men, approximately 12 million are being managed by a physician for symptoms related to their disease.
According to the AUA guidelines, it is estimated that 90% of men between the ages of 45 and 80 will experience LUTS, and 50% of them will experience moderate-to-severe symptoms by the time they are 85 years old, which we believe are predominantly caused by BPH. Furthermore, 50% of men between the ages of 51-60 have pathological BPH.
According to the AUA guidelines, it is estimated that 90% of men between the ages of 45 and 80 will experience LUTS, and 50% of them will experience moderate-to-severe symptoms by the eighth decade of life, which we believe are predominantly caused by BPH. Furthermore, 50% of men between the ages of 51-60 have BPH pathology.
Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.
Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. 20 Table of Contents Clinical Trials Clinical trials are almost always required to support a PMA or de novo request and are sometimes required to support a 510(k) submission.
Reimbursement is obtained from a variety of sources, including government sponsors, hospital budgets or private health insurance plans, or combinations thereof. Obtaining reimbursement is a key part of our market development strategy outside of the United States. We currently have established reimbursement in Germany, the United Kingdom, and France.
Reimbursement is obtained from a variety of sources, including government sponsors, hospital budgets or private health insurance plans, or combinations thereof. Obtaining reimbursement is a key part of our market development strategy outside of the United States.
Limitations of Alternative Surgical Interventions Two factors that surgeons and patients commonly consider when evaluating surgical intervention are efficacy and safety. Efficacy is generally measured by symptom relief as well as durability of relief, and safety by the occurrence of irreversible complications such as urinary incontinence, erectile dysfunction and ejaculatory dysfunction.
Non-resective procedures are generally approved for small- to average-sized prostates. Limitations of Alternative Surgical Interventions Two factors that surgeons and patients commonly consider when evaluating surgical intervention are efficacy and safety. Efficacy is generally measured by the degree and durability of symptom relief, and safety by the occurrence of irreversible complications such as urinary incontinence, erectile dysfunction and ejaculatory dysfunction.
These include among others, those manufacturers producing devices for the TURP procedure and laser-based therapies marketed by Boston Scientific Corporation. We also believe we will eventually compete with non-resective and non-surgical treatments. The non-resective treatments include, among others, UroLift marketed by Teleflex Incorporated and Rezum marketed by Boston Scientific Corporation. Non-surgical treatments for BPH are primarily pharmaceuticals.
We also believe we will eventually compete with non-resective and non-surgical treatments. The non-resective treatments include, among others, UroLift marketed by Teleflex Incorporated and Rezum marketed by Boston Scientific Corporation. Non-surgical treatments for BPH are primarily pharmaceuticals.
We generated revenue of $75.0 million and $34.5 million for the years ended December 31, 2022 and 2021, respectively, and incurred a net loss of $87.2 million and $59.9 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $348.7 million.
We generated revenue of $136.2 million and $75.0 million for the years ended December 31, 2023 and 2022, respectively, and incurred a net loss of $105.9 million and $87.2 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $454.6 million.
On the other hand, surgical intervention is proven to provide effective and durable symptom relief compared to drug therapy, but the use of surgery is significantly underpenetrated, largely due to the compromise patients must make between the incidence of irreversible side effects associated with alternative resective surgical interventions, where obstructive tissue is removed at the time of intervention, or the lower rates of efficacy and durability associated with non-resective surgical interventions, where obstructive tissue is not removed, but rather the prostatic urethra is re-shaped.
This is largely due to the compromise patients must make between the incidence of irreversible side effects associated with alternative resective surgical interventions, where obstructive tissue is removed at the time of intervention, or the lower rates of efficacy and durability associated with non-resective surgical interventions, where obstructive tissue is not removed, but rather the prostatic urethra is re-shaped.
This surgery may be done manually, or with the assistance of a robot, but in either case is a procedure that requires a high degree of surgeon skill. Non-Resective Procedures 11 Table of Contents In non-resective procedures, prostate tissue is not removed at the time of surgery.
This surgery may be done manually, or with the assistance of a robot, but in either case is a procedure that requires a high degree of surgeon skill. Non-Resective Procedures In non-resective procedures, prostate tissue is not removed at the time of surgery. By not removing tissue, symptom relief is generally less significant and durable compared to resective procedures.
The HOPPS and IPPS provide bundled amounts generally intended to reimburse the hospital for all facility costs related to procedures performed in the hospital outpatient setting and inpatient setting, respectively. Medicare also provides reimbursement for procedures performed in ASCs. Reimbursement rates from commercial payors vary depending on the commercial payor, contract terms, and other factors.
The HOPPS and IPPS provide bundled amounts generally intended to reimburse the hospital for all facility costs related to procedures performed in the hospital outpatient setting and inpatient setting, respectively. Medicare also provides reimbursement for procedures performed in ASCs.
We expect this revised regulation to include further controls and requirements on the following activities: • high level of request for premarket clinical evidence for high risk devices; • increased scrutiny of technical files for implantable devices; • monitoring of notified bodies, by independent auditors; • increased requirements regarding vigilance and product traceability (specifically related to labeling requirements); and • increased regulation for non-traditional roles such as importer and distributor. 26 Table of Contents Other Regions Most medical devices must undergo thorough safety examinations and demonstrate medical efficacy before they receive regulatory approval to be sold in Japan.
We expect this revised regulation to include further controls and requirements on the following activities: • high level of request for premarket clinical evidence for high risk devices; • increased scrutiny of technical files for implantable devices; • monitoring of notified bodies, by independent auditors; • increased requirements regarding vigilance and product traceability (specifically related to labeling requirements); and 24 Table of Contents • increased regulation for non-traditional roles such as importer and distributor.
The 18 issued U.S. patents, expiring between 2028 and 2038, include machine and process claims, with twelve issued patents directed to the handpiece and six issued patents directed to the system. The 37 foreign issued patents, expiring between 2028 and 2038, include machine claims, with 24 issued patents directed to the handpiece and 13 issued patents directed to the system.
The 19 issued U.S. patents, expiring between 2028 and 2038, include machine and process claims, with twelve issued patents directed to the handpiece and seven issued patents directed to the system. The 48 foreign issued patents, expiring between 2028 and 2038, include machine claims, with 29 issued patents directed to the handpiece and 19 issued patents directed to the system.
The study was designed with 80% power for safety and 99% power for efficacy against an objective performance criteria, or OPC, based upon TURP data, even though TURP procedures are typically performed in smaller prostates.
The WATER II study was a prospective, multicenter study of Aquablation therapy in patients with prostate sizes between 80 ml and 150 ml. The study was designed with 80% power for safety and 99% power for efficacy against an objective performance criteria, or OPC, based upon TURP data, even though TURP procedures are typically performed in smaller prostates.
Our competitors may also have more extensive customer bases and broader customer relationships than we do, including relationships with our potential customers. In addition, many of these companies have longer operating histories and greater brand recognition than we do.
Our competitors may also have more extensive customer bases and broader customer relationships than we do, including relationships with our potential customers. In addition, many of these companies have longer operating histories and greater brand recognition than we do. Additionally, many of these companies have overcome reimbursement barriers and their procedures are covered by nearly all major insurance carriers.
BPH Treatment Options The main goal of BPH treatment is to alleviate the symptoms associated with the disease and improve the patient’s quality of life.
BPH Treatment Options The main goal of BPH treatment is to alleviate the symptoms associated with the disease and improve the patient’s quality of life. As such, a patient’s recommended course of treatment is largely based on the patient’s degree of symptoms.
On the other hand, surgical intervention is proven to provide effective and durable symptom relief compared to drug therapy, but the use of surgery is significantly underpenetrated, largely due to the compromise and limitations associated with alternative surgical interventions.
On the other hand, surgical intervention is proven to provide effective and durable symptom relief compared to drug therapy, but the use of surgery is significantly under-penetrated.
Federal, State and Foreign Fraud and Abuse and Physician Payment Transparency Laws In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices.
These countries typically require regulatory approvals and compliance with extensive safety and quality system regulations. Federal, State and Foreign Fraud and Abuse and Physician Payment Transparency Laws In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices.
Our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act, or FDCA, as implemented and enforced by the FDA.
Government Regulation Our products and our operations are subject to extensive regulation by the FDA and other federal and state authorities in the United States, as well as comparable authorities outside the United States. Our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act, or FDCA, as implemented and enforced by the FDA.
The 37 foreign issued patents include one Brazilian patent, six Chinese patents, eight Japanese patents, four German patents, three Spanish patents, four French patents, four United Kingdom patents, three Irish patents, three Italian patents, and one Indian patent.
The 48 foreign issued patents include one European patent with unitary effect, one Brazilian patent, six Chinese patents, nine Japanese patents, five German patents, five Spanish patents, five French patents, six United Kingdom patents, four Irish patents, four Italian patents, one Swiss patent, and one Indian patent.
As of December 31, 2022, our rights to foreign issued patents include 15 granted Chinese patents, 21 granted Japanese patents, five Brazilian patents, one Indian patent, and ten granted European patents, of which nine have been validated in Germany, eight in Spain, ten in France, ten in the United Kingdom, five in Ireland, and eight in Italy.
As of December 31, 2023, our rights to foreign issued patents include 17 granted Chinese patents, 22 granted Japanese patents, seven Brazilian patents, two Indian patents, and 12 granted European patents, of which 11 have been validated in Germany, 10 in Spain, 11 in France, 12 in the United Kingdom, six in Ireland, nine in Italy, one in Switzerland, and one European patent with unitary effect.
Drug therapy is also often associated with negative side effects, including headaches, dizziness, nausea, erectile dysfunction, ejaculatory dysfunction, loss of libido, cardiac failure and dementia. These side effects often contribute to poor treatment compliance, with drug therapy failing in up to 30% of men within two years. Furthermore, drug therapy may be costly, particularly in light of limited symptom relief.
These side effects often contribute to poor treatment compliance, with drug therapy failing in up to 30% of men within two years. Furthermore, drug therapy may be costly, particularly in light of limited symptom relief.
We estimate that approximately 290,000 of the 400,000 annual BPH surgeries are resective procedures performed across approximately 2,700 hospitals. We are initially targeting 860 high-volume hospitals that we estimate perform, on average, more than 200 resective procedures annually and account for approximately 70% of all hospital-based resective procedures. .
We are initially targeting 860 high-volume hospitals that we estimate perform, on average, more than 200 resective procedures annually and account for approximately 70% of all hospital-based resective procedures. Additionally, there are approximately 1,840 U.S. hospitals that perform the remaining 30% of resective BPH procedures we are also targeting.
As of December 31, 2022, we had rights to 42 issued U.S. patents, expiring between 2028 and 2040, 93 issued foreign patents, expiring between 2028 and 2038, 35 pending U.S. patent applications, four pending PCT applications, and 55 foreign patent applications.
As of December 31, 2023, we had rights to 47 issued U.S. patents, expiring between 2028 and 2040, 120 issued foreign patents, expiring between 2028 and 2041, 39 pending U.S. patent applications, three pending PCT applications, and 64 foreign patent applications.
This manual process contributes to highly inconsistent and lengthy resection times that are strongly correlated with prostate size. 12 Table of Contents Limitations of a Simple Prostatectomy While a simple prostatectomy typically provides maximum symptom relief by removing part or all of the prostate gland, this procedure is generally considered a treatment of last resort reserved for patients with large prostates.
Limitations of a Simple Prostatectomy While a simple prostatectomy typically provides maximum symptom relief by removing part or all of the prostate gland, this procedure is generally considered a treatment of last resort reserved for patients with large prostates. Limitations of a simple prostatectomy include: • Surgical safety concerns.
Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors.
We are not presently a party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors.
As of December 31, 2022, we employed 16 personnel to support sales and marketing activities in EMEA. We will opportunistically choose distribution partners with clinical and marketing expertise to enter new markets. We are focused on distribution partners that have the capability to assist with surgeon training and, when required, obtaining regulatory approvals.
We engage distribution partners to assist us with market development and sales activities. As of December 31, 2023, we employed 16 personnel to support sales and marketing activities in EMEA. We will opportunistically choose distribution partners with clinical and marketing expertise to enter new markets.
The results of our WATER study served as the basis for FDA grant of our De Novo request and were first published in the Journal of Urology in 2018. • WATER II. The WATER II study was a prospective, multicenter study of Aquablation therapy in patients with prostate sizes between 80 ml and 150 ml.
The results of our WATER study served as the basis for FDA grant of our De Novo request and were first published in the Journal of Urology in 2018. The study has concluded with five-year data. • WATER II.
We primarily sell our products through our direct sales organization in the United States, which targets urologists across the United States, who we believe represent the primary physician specialty managing the care of patients with BPH.
Outside of the United States, we have ongoing efforts in key markets to expand established coverage and improve payment which we believe will expand patient access to Aquablation therapy. 6 Table of Contents We primarily sell our products through our direct sales organization in the United States, which targets urologists across the United States, who we believe represent the primary physician specialty managing the care of patients with BPH.
(which manufactures our pump cartridge), and Medical Targeting Technologies GmbH (which manufactures our articulating arms). Our suppliers manufacture the components they produce for us and test our components and devices to our specifications. We have entered into manufacturing and supply agreements with several of our single-source suppliers pursuant to which they supply the components we need.
We have entered into manufacturing and supply agreements with several of our single-source suppliers pursuant to which they supply the components we need.
As of December 31, 2022, we have the rights to issued patents and pending patent applications directed to our current AquaBeam Robotic System, including 18 issued U.S. patents and 37 foreign issued or granted patents.
As of December 31, 2023, our rights to foreign patent applications include 16 pending European applications, 19 pending Chinese applications, 16 pending Japanese applications, two pending Brazilian applications, five pending Indian applications and two pending Hong Kong applications. 17 Table of Contents As of December 31, 2023, we have the rights to issued patents and pending patent applications directed to our current AquaBeam Robotic System, including 19 issued U.S. patents and 48 foreign issued or granted patents.
While we believe Aquablation therapy and the AquaBeam Robotic System provide us with a competitive advantage against other competing BPH treatment modalities, our currently marketed products are, and any future products we commercialize will be, subject to intense competition.
While we believe Aquablation therapy and the AquaBeam Robotic System provide us with a competitive advantage against other competing BPH treatment modalities, our currently marketed products are, and any future products we commercialize will be, subject to intense competition. 16 Table of Contents Certain of our current and potential competitors may have significantly greater financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, regulatory approval, promotion, sale and support of their products.
We continuously work on improving manager effectiveness by providing just-in-time training on people processes and build our leadership bench via a coaching program that focuses on feedback and leadership development. We have an annual global performance review process for reviewing all employees’ performance as well as an annual compensation process to review pay.
We continuously work on improving manager effectiveness by providing just-in-time training on people processes and a program that focuses on building connection and trust, high performing teams, and fostering a growth mindset. We have an annual global performance review process for reviewing all employees’ performance and encourage ongoing conversations and a mid-year review as well.
Manufacturing and Supply We directly manufacture the AquaBeam Robotic System, the handpiece and other accessories at our facility in Redwood City, California. This includes supporting the supply chain distribution and logistics of the various components. Components, sub-assemblies and services required to manufacture our products are purchased from numerous global suppliers.
This includes supporting the supply chain distribution and logistics of the various components. Components, sub-assemblies and services required to manufacture our products are purchased from numerous global suppliers. Each AquaBeam Robotic System is shipped to our customers with a third-party manufactured ultrasound system and probes.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur dependence on third-parties subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including: • interruption of supply or sterilization resulting from modifications to, or discontinuation of, a third party’s operations; • delays in product shipments resulting from uncorrected defects, reliability issues or a third party’s failure to produce components or complete sterilizations that consistently meet our quality specifications; • price fluctuations due to a lack of long-term supply arrangements with our third parties for key components or sterilization requirements; • inability to obtain adequate supply or services in a timely manner or on commercially reasonable terms; • difficulty identifying and qualifying alternative third parties for the supply of components or for sterilization of our products in a timely manner; • inability of third parties to comply with applicable provisions of the FDA’s Quality System Regulations, or QSR, or other applicable laws or regulations enforced by the FDA, state and global regulatory authorities; • inability to ensure the quality of products manufactured or sterilization conducted by third parties; • production delays related to the evaluation and testing of products and services from alternative third parties and corresponding regulatory qualifications; • trends towards consolidation within the medical device manufacturing supplier industry; and • delays in delivery by our suppliers and service providers.
Biggest changeOur dependence on third-parties subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including: • interruption of supply or sterilization resulting from modifications to, or discontinuation of, a third party’s operations; • delays in product shipments resulting from uncorrected defects, reliability issues or a third party’s failure to produce components or complete sterilizations that consistently meet our quality specifications; • price fluctuations due to a lack of long-term supply arrangements with our third parties for key components or sterilization requirements; • inability to obtain adequate supply or services in a timely manner or on commercially reasonable terms; • difficulty identifying and qualifying alternative third parties for the supply of components or for sterilization of our products in a timely manner; • inability of third parties to comply with applicable provisions of the FDA’s Quality System Regulations, or QSR, or other applicable laws or regulations enforced by the FDA, state and global regulatory authorities; • inability to ensure the quality of products manufactured or sterilization conducted by third parties; • production delays related to the evaluation and testing of products and services from alternative third parties and corresponding regulatory qualifications; • trends towards consolidation within the medical device manufacturing supplier industry; and • delays in delivery by our suppliers and service providers. 37 Table of Contents Although we require our third-party suppliers and providers to supply us with components and services that meet our specifications and other applicable legal and regulatory requirements in our agreements and contracts, and we perform incoming inspection, testing or other acceptance activities to ensure the components meet our requirements, there is a risk that these third parties will not always act consistent with our best interests, and may not always supply components or provide services that meet our requirements or in a timely manner.
We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future.
We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future.
We may experience delays in our ongoing clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following: • we may be required to submit an investigational device exemption application, or IDE, to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject our IDE and notify us that we may not begin clinical trials; • regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials; • regulators and/or an Institutional Review Board, or IRB, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site; • we may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; • the number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate; • our third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • we might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to unacceptable health risks; • we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB and/or regulatory authorities for re-examination; 60 Table of Contents • regulators, IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements; • the cost of clinical trials may be greater than we anticipate; • clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial; • we may be unable to recruit a sufficient number of clinical trial sites; • regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; • approval policies or regulations of the FDA or applicable foreign regulatory agencies may change in a manner rendering our clinical data insufficient for approval; and • our current or future products may have undesirable side effects or other unexpected characteristics.
We may experience delays in our ongoing clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following: 56 Table of Contents • we may be required to submit an investigational device exemption application, or IDE, to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject our IDE and notify us that we may not begin clinical trials; • regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials; • regulators and/or an Institutional Review Board, or IRB, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site; • we may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; • the number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate; • our third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • we might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to unacceptable health risks; • we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB and/or regulatory authorities for re-examination; • regulators, IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements; • the cost of clinical trials may be greater than we anticipate; • clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial; • we may be unable to recruit a sufficient number of clinical trial sites; • regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; • approval policies or regulations of the FDA or applicable foreign regulatory agencies may change in a manner rendering our clinical data insufficient for approval; and • our current or future products may have undesirable side effects or other unexpected characteristics.
The market price of our common stock may be highly volatile and fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • variations between our actual operating results, or those of companies that are perceived to be similar to us, and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • hedging activities by market participants; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our competitors; • changes in third-party payor reimbursement policies; • an inability to obtain additional funding; • general economic, industry and market conditions, including price and volume fluctuations in the overall stock market; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from political conditions, election cycles, war or incidents of terrorism, or responses to these events, many of which are outside of our control. 75 Table of Contents In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many life sciences and technology companies’ stock prices.
The market price of our common stock may be highly volatile and fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • variations between our actual operating results, or those of companies that are perceived to be similar to us, and the expectations of securities analysts, investors and the financial community; • any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information or our failure to meet expectations based on this information; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company or our failure to meet these estimates or the expectations of investors; • additional shares of our common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales; • hedging activities by market participants; • announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of companies in our industry, including our competitors; • changes in third-party payor reimbursement policies; • an inability to obtain additional funding; • general economic, industry and market conditions, including price and volume fluctuations in the overall stock market; • lawsuits threatened or filed against us; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and • other events or factors, including those resulting from political conditions, election cycles, war or incidents of terrorism, or responses to these events, many of which are outside of our control. 72 Table of Contents In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many life sciences and technology companies’ stock prices.
Even if we can prove the effectiveness of Aquablation therapy through clinical trials, there may not be broad adoption and use of our products and surgeons may elect not to use our products for any number of other reasons, including: • lack of experience with our products and concerns that we are relatively new to market; • perceived liability risk generally associated with the use of new products and treatment options; • lack or perceived lack of sufficient clinical evidence, including long-term data, supporting clinical benefits or the cost-effectiveness of our products over existing treatment alternatives; • the failure of key opinion leaders to provide recommendations regarding our products, or to assure surgeons, patients and healthcare payors of the benefits of our products as an attractive alternative to other treatment options; • perception that our products are unproven; 34 Table of Contents • long-standing relationships with companies and distributors that sell other products or treatment options for BPH; • concerns over the capital investment required to purchase our AquaBeam Robotic System and perform Aquablation therapy procedures; • lack of availability of adequate third-party payor coverage or reimbursement; • pricing pressure, including from Group Purchasing Organizations, or GPOs, and Integrated Delivery Networks, or IDNs, seeking to obtain discounts on our AquaBeam Robotic System based on the collective buying power of the GPO and IDN members; • competitive response and negative selling efforts from providers of alternative treatments; • limitations or warnings contained in the labeling cleared or approved by the FDA or other authorities.
Even if we can prove the effectiveness of Aquablation therapy through clinical trials, there may not be broad adoption and use of our products and surgeons may elect not to use our products for any number of other reasons, including: • lack of experience with our products and concerns that we are relatively new to market; • perceived liability risk generally associated with the use of new products and treatment options; • lack or perceived lack of sufficient clinical evidence, including long-term data, supporting clinical benefits or the cost-effectiveness of our products over existing treatment alternatives; • the failure of key opinion leaders to provide recommendations regarding our products, or to assure surgeons, patients and healthcare payors of the benefits of our products as an attractive alternative to other treatment options; • perception that our products are unproven; • long-standing relationships with companies and distributors that sell other products or treatment options for BPH; • concerns over the capital investment required to purchase our AquaBeam Robotic System and perform Aquablation therapy procedures; • lack of availability of adequate third-party payor coverage or reimbursement; 32 Table of Contents • pricing pressure, including from Group Purchasing Organizations, or GPOs, and Integrated Delivery Networks, or IDNs, seeking to obtain discounts on our AquaBeam Robotic System based on the collective buying power of the GPO and IDN members; • competitive response and negative selling efforts from providers of alternative treatments; • limitations or warnings contained in the labeling cleared or approved by the FDA or other authorities.
There are also criminal penalties, including imprisonment and criminal fines, for making or presenting a false or fictitious or fraudulent claim or statement to the federal government; • criminal healthcare statutes that were added by HIPAA, and its implementing regulations, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate them in order to have committed a violation; • the Physician Payments Sunshine Act, or Sunshine Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments made in the preceding calendar year and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and • foreign and state laws and regulations, including state payment reporting, anti-kickback and false claims laws, that may apply to items or services reimbursed by any third-party payor, including private insurers; foreign and state laws that require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government and other national governments, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and foreign and state laws and regulations that require drug and device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
There are also criminal penalties, including imprisonment and criminal fines, for making or presenting a false or fictitious or fraudulent claim or statement to the federal government; • criminal healthcare statutes that were added by HIPAA, and its implementing regulations, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate them in order to have committed a violation; 48 Table of Contents • the Physician Payments Sunshine Act, or Sunshine Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments made in the preceding calendar year and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and • foreign and state laws and regulations, including state payment reporting, anti-kickback and false claims laws, that may apply to items or services reimbursed by any third-party payor, including private insurers; foreign and state laws that require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government and other national governments, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and foreign and state laws and regulations that require drug and device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
These provisions include the following: • establishing a classified board of directors so that not all members of our board of directors are elected at one time; 76 Table of Contents • permitting our board of directors to establish the number of directors and fill any vacancies and newly-created directorships; • providing that directors may only be removed for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of our capital stock; • requiring the approval of holders of two-thirds of our outstanding common stock to amend some provisions in our amended and restated certificate of incorporation and bylaws; • authorizing the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • prohibiting stockholders from calling special meetings of stockholders; • prohibiting stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of our stockholders; • providing that the board of directors is expressly authorized to make, alter or repeal our bylaws; • restricting the forum for certain litigation involving us to Delaware or federal courts, as applicable; and • establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
These provisions include the following: • establishing a classified board of directors so that not all members of our board of directors are elected at one time; 73 Table of Contents • permitting our board of directors to establish the number of directors and fill any vacancies and newly-created directorships; • providing that directors may only be removed for cause and only by the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of our capital stock; • requiring the approval of holders of two-thirds of our outstanding common stock to amend some provisions in our amended and restated certificate of incorporation and bylaws; • authorizing the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • prohibiting stockholders from calling special meetings of stockholders; • prohibiting stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of our stockholders; • providing that the board of directors is expressly authorized to make, alter or repeal our bylaws; • restricting the forum for certain litigation involving us to Delaware or federal courts, as applicable; and • establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
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 surgeon and hospital adoption and demand for our products and Aquablation therapy; • changes in reimbursement rates by government or commercial payors; • positive or negative coverage in the media or clinical publications, or changes in public, patient and/or physician perception, of our products or competing products and treatments, including our brand reputation; • the degree of competition in our industry and any change in the competitive landscape, including consolidation among competitors or future partners; • any safety, reliability or effectiveness concerns that arise regarding our products or other procedures to treat BPH; • unanticipated pricing pressures in connection with the sale of our products and downward pressure on healthcare costs in general; • the effectiveness of our sales and marketing efforts, including our ability to deploy a sufficient number of qualified sales representatives to sell and market our products; • 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; • unanticipated delays in product development or product launches; • 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; • our ability to raise additional capital on acceptable terms, or at all, if needed to support the commercialization of our products; • our ability to achieve and maintain compliance with all regulatory requirements applicable to our products and services; • our ability to obtain, maintain and enforce our intellectual property rights; • our ability and our third-party suppliers’ ability to supply the components of our products in a timely manner, in accordance with our specifications, and in compliance with applicable regulatory requirements; and • introduction of new products, technologies or alternative treatments for BPH that compete with our products.
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 surgeon and hospital adoption and demand for our products and Aquablation therapy; 29 Table of Contents • changes in reimbursement rates by government or commercial payors; • positive or negative coverage in the media or clinical publications, or changes in public, patient and/or physician perception, of our products or competing products and treatments, including our brand reputation; • the degree of competition in our industry and any change in the competitive landscape, including consolidation among competitors or future partners; • any safety, reliability or effectiveness concerns that arise regarding our products or other procedures to treat BPH; • unanticipated pricing pressures in connection with the sale of our products and downward pressure on healthcare costs in general; • the effectiveness of our sales and marketing efforts, including our ability to deploy a sufficient number of qualified sales representatives to sell and market our products; • 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; • unanticipated delays in product development or product launches; • 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; • our ability to raise additional capital on acceptable terms, or at all, if needed to support the commercialization of our products; • our ability to achieve and maintain compliance with all regulatory requirements applicable to our products and services; • our ability to obtain, maintain and enforce our intellectual property rights; • our ability and our third-party suppliers’ ability to supply the components of our products in a timely manner, in accordance with our specifications, and in compliance with applicable regulatory requirements; and • introduction of new products, technologies or alternative treatments for BPH that compete with our products.
See the section of this Annual Report on 32 Table of Contents Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” The loan and security agreement contains customary representations and warranties and affirmative covenants and also contains certain restrictive covenants, including, among others, limitations on: the incurrence of additional debt, liens or other encumbrances on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, prepayments of certain debt, transactions with affiliates and changes to our type of business, management of the business, control of the business or business locations.
See the section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” The loan and security agreement contains customary representations and warranties and affirmative covenants and also contains certain restrictive covenants, including, among others, limitations on: the incurrence of additional debt, liens or 30 Table of Contents other encumbrances on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, prepayments of certain debt, transactions with affiliates and changes to our type of business, management of the business, control of the business or business locations.
We may not be able to obtain or maintain adequate levels of third-party coverage and reimbursement, and third parties may rescind or modify their coverage or delay payments related to our products. We derive the majority of our revenue from sales of our AquaBeam Robotic System and single-use disposable handpieces to hospitals.
We may not be able to maintain adequate levels of third-party coverage and reimbursement, and third parties may rescind or modify their coverage or delay payments related to our products. We derive the majority of our revenue from sales of our AquaBeam Robotic System and single-use disposable handpieces to hospitals.
For example: • others may be able to make products that are similar to our AquaBeam Robotic System and our other current or future products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our AquaBeam Robotic System and our other current and future products that is in the public domain; • we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; • we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our current or future pending patent applications will not lead to issued patents; • issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; • our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop additional proprietary technologies that are patentable; • the patents of others may harm our business; and • we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
For example: • others may be able to make products that are similar to our AquaBeam Robotic System and our other current or future products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our AquaBeam Robotic System and our other current and future products that is in the public domain; • we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; • we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; 69 Table of Contents • it is possible that our current or future pending patent applications will not lead to issued patents; • issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; • our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop additional proprietary technologies that are patentable; • the patents of others may harm our business; and • we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
There can be no assurance that third-party payor policies will provide coverage for procedures in which our products are used. Many third-party payors do not currently cover our products and the related procedures because they have determined that our products and the related procedures are experimental or investigational.
There can be no assurance that third-party payor policies will provide or maintain coverage for procedures in which our products are used. Many third-party payors do not currently cover our products and the related procedures because they have determined that our products and the related procedures are experimental or investigational.
Our continued success depends on our ability to: • improve outcomes for patients; • maintain product safety, efficacy, reliability and durability; • expand the quality and volume of our clinical data; • effectively market to and educate patients, physicians and hospitals; 37 Table of Contents • maintain company, product and brand recognition; • broaden our sales force experience and access; • maintain product support and service; • maintain and widen our technology lead over competitors by continuing to innovate and deliver new product enhancements on a continuous basis; • develop successful pricing and revenue strategies; • continue to maintain and expand reimbursement coverage for procedures using our products; • achieve desired regulatory status and speed to market; and • maintain dedicated clinical representatives.
Our continued success depends on our ability to: • improve outcomes for patients; • maintain product safety, efficacy, reliability and durability; • expand the quality and volume of our clinical data; • effectively market to and educate patients, physicians and hospitals; • maintain company, product and brand recognition; • broaden our sales force experience and access; • maintain product support and service; • maintain and widen our technology lead over competitors by continuing to innovate and deliver new product enhancements on a continuous basis; • develop successful pricing and revenue strategies; • continue to maintain and expand reimbursement coverage for procedures using our products; • achieve desired regulatory status and speed to market; and 35 Table of Contents • maintain dedicated clinical representatives.
The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions; • customer notifications for repair, replacement, refunds; • recall, detention or seizure of our products; 56 Table of Contents • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying our requests for 510(k) clearance or PMA of new products or modified products; • operating restrictions; • withdrawal of 510(k) clearances on PMA approvals that have already been granted; • refusal to grant export approval for our products; or • criminal prosecution.
The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • unanticipated expenditures to address or defend such actions; • customer notifications for repair, replacement, refunds; • recall, detention or seizure of our products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying our requests for 510(k) clearance or PMA of new products or modified products; • operating restrictions; • withdrawal of 510(k) clearances on PMA approvals that have already been granted; • refusal to grant export approval for our products; or • criminal prosecution.
The FDA or other regulators can delay, limit, or deny clearance or approval of a device for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our AquaBeam Robotic System, or any other future device, and any accessories are substantially equivalent to a legally marketed predicate device or safe or effective for their proposed intended uses; • the disagreement of the FDA with the design or implementation of any clinical trials or the interpretation of data from preclinical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in our clinical trials; • the insufficiency of the data from preclinical studies or clinical trials to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the failure of our manufacturing process or facilities to meet applicable requirements; and • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
The FDA or other regulators can delay, limit, or deny clearance or approval of a device for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our AquaBeam Robotic System, or any other future device, and any accessories are substantially equivalent to a legally marketed predicate device or safe or effective for their proposed intended uses; • the disagreement of the FDA with the design or implementation of any clinical trials or the interpretation of data from preclinical studies or clinical trials; • serious and unexpected adverse device effects experienced by participants in our clinical trials; • the insufficiency of the data from preclinical studies or clinical trials to support clearance or approval, where required; • our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; • the failure of our manufacturing process or facilities to meet applicable requirements; and 51 Table of Contents • the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for clearance or approval.
Moreover, if we fail to comply with our obligations under such licenses, or if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected technology or products. 74 Table of Contents Certain provisions in our intellectual property agreements with third parties may also be susceptible to multiple interpretations.
Moreover, if we fail to comply with our obligations under such licenses, or if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected technology or products. 71 Table of Contents Certain provisions in our intellectual property agreements with third parties may also be susceptible to multiple interpretations.
The success of any new product offering or enhancement to an existing product will depend on a number of factors, including our ability to, among others: • identify and anticipate physician and patient needs properly; • develop and introduce new products or product enhancements in a timely manner; • avoid infringing upon the intellectual property rights of third parties; • demonstrate, if required, the safety and efficacy of new products with data from clinical studies; • obtain the necessary regulatory clearances or approvals for new products or product enhancements; • comply fully with the FDA and foreign regulations on marketing of new products or modified products; and 55 Table of Contents • provide adequate training to potential users of our AquaBeam Robotic System.
The success of any new product offering or enhancement to an existing product will depend on a number of factors, including our ability to, among others: • identify and anticipate physician and patient needs properly; • develop and introduce new products or product enhancements in a timely manner; • avoid infringing upon the intellectual property rights of third parties; • demonstrate, if required, the safety and efficacy of new products with data from clinical studies; • obtain the necessary regulatory clearances or approvals for new products or product enhancements; • comply fully with the FDA and foreign regulations on marketing of new products or modified products; and • provide adequate training to potential users of our AquaBeam Robotic System.
Our international business operations are subject to a variety of risks, including: • difficulties in staffing and managing foreign and geographically dispersed operations, to the extent we establish non-U.S. operations; • differing and multiple payor reimbursement regimes, government payors or patient self-pay systems; • difficulties in determining and creating the proper sales pathway in new, international markets; • to the extent we utilize third-party distributors in foreign markets, our ability to effectively screen, recruit and retain qualified third-party distributors and training them in our technology and product offering and business; • compliance with various U.S. and international laws, including export control laws and the U.S.
Our international business operations are subject to a variety of risks, including: • difficulties in staffing and managing foreign and geographically dispersed operations, to the extent we establish non-U.S. operations; • differing and multiple payor reimbursement regimes, government payors or patient self-pay systems; • difficulties in determining and creating the proper sales pathway in new, international markets; • to the extent we utilize third-party distributors in foreign markets, our ability to effectively screen, recruit and retain qualified third-party distributors and training them in our technology and product offering and business; 43 Table of Contents • compliance with various U.S. and international laws, including export control laws and the U.S.
As a result, access to adequate coverage and reimbursement for our products by third-party payors is essential to the acceptance and adoption of our products.
As a result, maintaining access to adequate coverage and reimbursement for our products by third-party payors is essential to the acceptance and adoption of our products.
If a prolonged government shutdown occurs, or if global health concerns continue to hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
If a prolonged government shutdown occurs, or if any global health concerns hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Moreover, there are no safe harbors for many common practices, such as reimbursement support programs, educational or research grants, or charitable donations; 51 Table of Contents • the U.S. federal civil False Claims Act, which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds; knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government.
Moreover, there are no safe harbors for many common practices, such as reimbursement support programs, educational or research grants, or charitable donations; • the U.S. federal civil False Claims Act, which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds; knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government.
In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things: warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals; seizures or recalls of our products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products; clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us, our suppliers, or our employees.
In addition, failure to comply with applicable FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things: warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals; seizures or recalls of our products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or 54 Table of Contents approvals for our products; clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us, our suppliers, or our employees.
Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for our products; • harm to our reputation; • initiation of investigations by regulators, which could result in enforcement action against us or our contract manufacturers; 45 Table of Contents • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to trial participants or patients; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • exhaustion of any available insurance and our capital resources.
Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for our products; • harm to our reputation; • initiation of investigations by regulators, which could result in enforcement action against us or our contract manufacturers; • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to trial participants or patients; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue; and • exhaustion of any available insurance and our capital resources.
As of December 31, 2022, our executive officers, directors and 5% stockholders beneficially own a substantial amount of our common stock. Therefore these stockholders will have the ability to influence us through this ownership position. The interests of these stockholders may not be the same as or may even conflict with your interests.
As of December 31, 2023, our executive officers, directors and 5% stockholders beneficially own a substantial amount of our common stock. Therefore these stockholders will have the ability to influence us through this ownership position. The interests of these stockholders may not be the same as or may even conflict with your interests.
Government regulations specific to medical devices are wide ranging and govern, among other things: • product design, development, manufacture, and release; • laboratory and clinical testing, labeling, packaging, storage and distribution; • product safety and efficacy; • premarketing clearance or approval; • service operations, including relationships with healthcare providers; • record keeping; • product marketing, promotion and advertising, registration, 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.
Government regulations specific to medical devices are wide ranging and govern, among other things: • product design, development, manufacture, and release; • laboratory and clinical testing, labeling, packaging, storage and distribution; • product safety and efficacy; • premarketing clearance or approval; • service operations, including relationships with healthcare providers; • record keeping; • product marketing, promotion and advertising, registration, sales and distribution; • post-marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals; 49 Table of Contents • post-market approval studies; and • product import and export.
Consequently, we may not be able to prevent third parties from practicing our inventions or trademarks in all jurisdictions outside the United States to the same extent as the United States, or from developing, manufacturing, selling or importing products or services 73 Table of Contents using or incorporating our inventions or trademarks in and into the United States or other jurisdictions.
Consequently, we may not be able to prevent third parties from practicing our inventions or trademarks in all jurisdictions outside the United States to the same extent as 70 Table of Contents the United States, or from developing, manufacturing, selling or importing products or services using or incorporating our inventions or trademarks in and into the United States or other jurisdictions.
If we or our third-party partners, consultants, contractors, suppliers, or service providers were to suffer an attack or breach, for example, that resulted in the unauthorized access to or use or disclosure of health-related or other 42 Table of Contents personal information, we may have to notify consumers, partners, collaborators, government authorities, and the media, and may be subject to investigations, civil penalties, administrative and enforcement actions, and litigation, any of which could harm our business and reputation.
If we or our third-party partners, consultants, contractors, suppliers, or service providers were to suffer an attack or breach, for example, that resulted in the unauthorized access to or use or disclosure of health-related or other personal information, we may have to notify consumers, partners, collaborators, government authorities, and the media, and may be subject to investigations, civil penalties, administrative and enforcement actions, and litigation, any of which could harm our business and reputation.
Changes in funding or disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
Changes in funding or disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, or otherwise 58 Table of Contents prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
We are also subject to numerous other risks relating to our manufacturing capabilities, including: • quality and reliability of components, sub-assemblies and materials that we source from third-party suppliers, who are required to meet our quality specifications, almost all of whom are single source suppliers for the items and materials that they supply; • our inability to secure components, sub-assemblies and materials in a timely manner, in sufficient quantities or on commercially reasonable terms; • our inability to maintain compliance with quality system requirements or pass regulatory quality inspections; 38 Table of Contents • our failure to increase production capacity or volumes to meet demand; • potential risks associated with disruptions in our supply chain, such as on account of the COVID-19 pandemic or other geopolitical or macroeconomic events; • lead times associated with securing key components; • our inability to design or modify production processes to enable us to produce future products efficiently or implement changes in current products in response to design or regulatory requirements; and • difficulty identifying and qualifying, and obtaining new regulatory approvals, for alternative suppliers for components in a timely manner.
We are also subject to numerous other risks relating to our manufacturing capabilities, including: • quality and reliability of components, sub-assemblies and materials that we source from third-party suppliers, who are required to meet our quality specifications, almost all of whom are single source suppliers for the items and materials that they supply; • our inability to secure components, sub-assemblies and materials in a timely manner, in sufficient quantities or on commercially reasonable terms; • our inability to maintain compliance with quality system requirements or pass regulatory quality inspections; • our failure to increase production capacity or volumes to meet demand; • potential risks associated with disruptions in our supply chain, such as on account of geopolitical or macroeconomic events; • lead times associated with securing key components; • our inability to design or modify production processes to enable us to produce future products efficiently or implement changes in current products in response to design or regulatory requirements; and • difficulty identifying and qualifying, and obtaining new regulatory approvals, for alternative suppliers for components in a timely manner.
Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites and able to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance.
Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, 57 Table of Contents including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites and able to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance.
Any claims we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe, misappropriate or otherwise violate their intellectual property rights. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of patentable subject matter, novelty, obviousness, or non-enablement.
Any claims we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe, misappropriate or otherwise violate their intellectual property rights. Grounds for a validity challenge could be an 62 Table of Contents alleged failure to meet any of several statutory requirements, including lack of patentable subject matter, novelty, obviousness, or non-enablement.
Further, if we encounter delays in any future regulatory approvals, the 64 Table of Contents period of time during which we could market a product or a service under patent protection could be reduced, and, given the amount of time required for the development, testing and regulatory review of planned or future products or services, patents protecting such products or services might expire before or shortly after such products or services are commercialized.
Further, if we encounter delays in any future regulatory approvals, the period of time during which we could market a product or a service under patent protection could be reduced, and, given the amount of time required for the development, testing and regulatory review of planned or future products or services, patents protecting such products or services might expire before or shortly after such products or services are commercialized.
If our defense to those claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or features that are essential to our AquaBeam Robotic System or our other current and future products or services, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers.
If our defense to those claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or features that are essential to our AquaBeam Robotic System or our other current and future products or services, if such 65 Table of Contents technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers.
If product returns or warranty claims are significant or exceed our 40 Table of Contents expectations, we could incur unanticipated reductions in sales or additional operating expenditures for parts and service. In addition, our reputation could be damaged and our products may not achieve the level of market acceptance that we are targeting in order to achieve and maintain profitability.
If product returns or warranty claims are significant or exceed our expectations, we could incur unanticipated reductions in sales or additional operating expenditures for parts and service. In addition, our reputation could be damaged and our products may not achieve the level of market acceptance that we are targeting in order to achieve and maintain profitability.
We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results. 49 Table of Contents Risks Related to Governmental Regulation Changes to the reimbursement rates for BPH treatments and measures to reduce healthcare costs may adversely impact our business.
We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results. Risks Related to Governmental Regulation Changes to the reimbursement rates for BPH treatments and measures to reduce healthcare costs may adversely impact our business.
Our current and future operations are subject to various federal and state healthcare laws and regulations. These laws affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, physicians or other potential purchasers or users, including patients, of medical devices and services.
Our current and future operations are subject to various federal and state healthcare laws and regulations. These laws affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, physicians or other potential purchasers or users, including patients, of medical 47 Table of Contents devices and services.
Misconduct by these persons could include intentional, reckless and/or negligent conduct or unauthorized activity that violates: 62 Table of Contents • FDA requirements, including those laws requiring the reporting of true, complete and accurate information to the FDA authorities; • manufacturing standards; • federal and state healthcare fraud and abuse laws and regulations; or • laws that require the true, complete and accurate reporting of financial information or data.
Misconduct by these persons could include intentional, reckless and/or negligent conduct or unauthorized activity that violates: • FDA requirements, including those laws requiring the reporting of true, complete and accurate information to the FDA authorities; • manufacturing standards; • federal and state healthcare fraud and abuse laws and regulations; or • laws that require the true, complete and accurate reporting of financial information or data.
If a third party were to prevail on a legal assertion of invalidity and/or unenforceability, we may lose at least part, and perhaps all, of the patent protection on our products or services. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations, and prospects.
If a third party were to prevail on a legal assertion of invalidity and/or unenforceability, we may lose at least part, and perhaps all, of 68 Table of Contents the patent protection on our products or services. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations, and prospects.
An inability to incorporate technologies, features or other intellectual property rights that are important or essential to our products or services could have a material adverse effect on our business, financial condition, results of operations, and competitive position, and may prevent us from developing, 67 Table of Contents manufacturing and/or selling our products or services.
An inability to incorporate technologies, features or other intellectual property rights that are important or essential to our products or services could have a material adverse effect on our business, financial condition, results of operations, and competitive position, and may prevent us from developing, manufacturing and/or selling our products or services.
Our facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. Any disruptions in our operations could adversely affect our business and results of operations and harm our reputation. 44 Table of Contents Moreover, although we have disaster recovery plans, they may prove inadequate.
Our facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. Any disruptions in our operations could adversely affect our business and results of operations and harm our reputation. Moreover, although we have disaster recovery plans, they may prove inadequate.
Our facility may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, wildfires, floods, nuclear disasters, riots, acts of terrorism or other criminal activities, public health emergencies such as infectious disease outbreaks, including the COVID-19 pandemic, power outages and other infrastructure failures, which may render it difficult or impossible for us to operate our business for some period of time.
Our facility may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, wildfires, floods, nuclear disasters, riots, acts of terrorism or other criminal activities, public health emergencies such as infectious disease outbreaks, power outages and other infrastructure failures, which may render it difficult or impossible for us to operate our business for some period of time.
Such fluctuations in quarterly and annual operating results may decrease the value of our common stock. Because our quarterly operating results may fluctuate, period-to-period comparisons may not be the best indication of the underlying results of our business and should only be 31 Table of Contents relied upon as one factor in determining how our business is performing.
Such fluctuations in quarterly and annual operating results may decrease the value of our common stock. Because our quarterly operating results may fluctuate, period-to-period comparisons may not be the best indication of the underlying results of our business and should only be relied upon as one factor in determining how our business is performing.
Due to our limited financial resources, we may not be able to manage the expansion of our operations or recruit and train additional qualified personnel in an effective manner. In addition, the physical expansion of our operations may lead to significant costs and may divert our 41 Table of Contents management and business development resources.
Due to our limited financial resources, we may not be able to manage the expansion of our operations or recruit and train additional qualified personnel in an effective manner. In addition, the physical expansion of our operations may lead to significant costs and may divert our management and business development resources.
In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws and regulations that govern the collection, processing, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners.
In the United States, numerous federal and state laws and regulations, including state data breach 39 Table of Contents notification laws, state health information privacy laws, and federal and state consumer protection laws and regulations that govern the collection, processing, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners.
Although we generally require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed.
Although we generally require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, 64 Table of Contents information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed.
Conversely, in the United States, the patent owner need only prove infringement by a preponderance of the evidence, which is a lower burden of proof. We will have similar burdens to overcome in foreign courts in order to successfully challenge a third party claim of patent infringement.
Conversely, in the United States, the patent owner need only prove infringement by a 67 Table of Contents preponderance of the evidence, which is a lower burden of proof. We will have similar burdens to overcome in foreign courts in order to successfully challenge a third party claim of patent infringement.
To be substantially equivalent, the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence.
To be substantially equivalent, the proposed device must have the same intended use 50 Table of Contents as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence.
Any termination of 46 Table of Contents collaborations we enter into in the future, or delays in entering into new strategic partnership agreements could delay tour sales and marketing efforts, which would harm our business prospects, financial condition and results of operations.
Any termination of collaborations we enter into in the future, or delays in entering into new strategic partnership agreements could delay tour sales and marketing efforts, which would harm our business prospects, financial condition and results of operations.
In March 2022, the US and EU announced a new regulatory regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy Framework has not been implemented beyond an executive order signed by President Biden on October 7, 2022 on Enhancing Safeguards for United States Signals Intelligence Activities.
In March 2022, 40 Table of Contents the US and EU announced a new regulatory regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy Framework has not been implemented beyond an executive order signed by President Biden on October 7, 2022 on Enhancing Safeguards for United States Signals Intelligence Activities.
Nevertheless, we are responsible for ensuring that each of our studies is conducted in 61 Table of Contents accordance with applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.
Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.
Third-party coverage and reimbursement for procedures using our products or any of our products in development for which we may receive regulatory clearance or approval may not be available or adequate in either the United States or international markets.
Third-party coverage and reimbursement for procedures using our products or any of our 34 Table of Contents products in development for which we may receive regulatory clearance or approval may not be available or adequate in either the United States or international markets.
The executive order also instructed certain 50 Table of Contents governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our AquaBeam Robotic System or our other current or future products, services or technology.
For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our AquaBeam Robotic System or our other current or future products, services or 63 Table of Contents technology.
While we take steps to ensure that we do not infringe upon, 70 Table of Contents misappropriate or otherwise violate the intellectual property rights of others, there may be other more pertinent rights of which we are presently unaware.
While we take steps to ensure that we do not infringe upon, misappropriate or otherwise violate the intellectual property rights of others, there may be other more pertinent rights of which we are presently unaware.
To ensure adequate inventory supply, we must forecast inventory needs and manufacture our AquaBeam Robotic System console and the single-use disposable handpieces based on our estimates of future demand for, and utilization of, our AquaBeam Robotic System.
To ensure adequate inventory supply, we must forecast inventory needs and manufacture our AquaBeam Robotic System console and the single-use disposable handpieces based on our estimates of future demand for, and utilization of, 38 Table of Contents our AquaBeam Robotic System.
NOLs incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs in taxable years beginning after December 31, 48 Table of Contents 2020, is limited to 80% of current year taxable income.
NOLs incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs in taxable years beginning after December 31, 2020, is limited to 80% of current year taxable income.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement 55 Table of Contents thereof.
In the event such claims were successful, we could be subject to significant damages or be enjoined from the distribution of our AquaBeam Robotic 72 Table of Contents System and our other current and future products.
In the event such claims were successful, we could be subject to significant damages or be enjoined from the distribution of our AquaBeam Robotic System and our other current and future products.
We may not be able to provide data sufficient to satisfy governmental and third-party payors that procedures using our products should be covered and reimbursed. 36 Table of Contents Payors continually review new and existing technologies for possible coverage and can, without notice, deny or reverse coverage for new or existing products and procedures.
We may not be able to provide data sufficient to satisfy governmental and third-party payors that procedures using our products should be covered and reimbursed. Payors continually review new and existing technologies for possible coverage and can, without notice, deny or reverse coverage for new or existing products and procedures.
Any modification to these systems that has not been previously cleared may require us to submit a new 510(k) premarket notification and obtain clearance, or 54 Table of Contents depending on the change, we may be required to submit a PMA and obtain FDA approval before implementing the change.
Any modification to these systems that has not been previously cleared may require us to submit a new 510(k) premarket notification and obtain clearance, or depending on the change, we may be required to submit a PMA and obtain FDA approval before implementing the change.
If, in the future, we own, co-own or license in technology that is critical to our business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected.
If, in the future, we own, co-own or 61 Table of Contents license in technology that is critical to our business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected.
To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, including on account of the outbreak of infectious disease, such as the COVID-19 pandemic, or otherwise, we may be affected by increased costs, program delays or both, any resulting data may be unreliable or unusable for regulatory purposes, and we may be subject to enforcement action.
To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, including on account of the outbreak of infectious disease, we may be affected by increased costs, program delays or both, any resulting data may be unreliable or unusable for regulatory purposes, and we may be subject to enforcement action.
Currently, we have a sole manufacturing facility located in Redwood City, California, where we manufacture, assemble, inspect, test, package and ship our products. We currently assemble all of our AquaBeam Robotic System and single-use disposable handpieces at this one facility, and we do not have additional facilities.
Currently, we have a sole manufacturing facility located in San Jose, California, where we manufacture, assemble, inspect, test, package and ship our products. We currently assemble all of our AquaBeam Robotic System and single-use disposable handpieces at this one facility, and we do not have additional facilities.
If we determine that modifications to our AquaBeam Robotic System require a new 510(k) clearance or PMA application, we may not be able to obtain those additional clearances or approvals for the modifications or additional indications in a timely manner, or at all.
If we determine that modifications to our AquaBeam Robotic System require a new 510(k) clearance or PMA application, we may not be able to obtain those additional clearances or approvals for the 52 Table of Contents modifications or additional indications in a timely manner, or at all.
Depending on actions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we own or that we might obtain or 69 Table of Contents license in the future.
Depending on actions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we own or that we might obtain or license in the future.
The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on us.
The discovery of serious safety issues with our products, or a 53 Table of Contents recall of our products either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on us.
We may seek to raise additional capital through equity offerings or debt financings and such additional financing may not be available to us on acceptable terms, or at all. In addition, any additional equity or debt financing that we raise may contain terms that are not favorable to us or our stockholders.
We may seek to raise additional capital through equity offerings or debt financings and such additional financing may not be available to us on acceptable terms, or at all. In addition, any additional equity or debt financing that we raise may 31 Table of Contents contain terms that are not favorable to us or our stockholders.
If we fail to increase our production capacity efficiently, we may not be able to fill customer orders on a timely basis, our sales may not increase in line with our expectations and our operating margins could fluctuate or decline.
If we fail to increase our 36 Table of Contents production capacity efficiently, we may not be able to fill customer orders on a timely basis, our sales may not increase in line with our expectations and our operating margins could fluctuate or decline.
In addition, any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation in the industry, significantly increase our expenses and reduce product sales.
In addition, any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or 42 Table of Contents prevent us from securing continuing coverage, harm our reputation in the industry, significantly increase our expenses and reduce product sales.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, or challenging the validity, enforceability or scope of our patents, the outcome of which would be uncertain and could have a negative impact on the success of our business.
If we fail to comply with such covenants, payments or other terms of the agreement, our lender could declare an event of default, which would give it the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
The loan and security agreement also contains customary events of default. If we fail to comply with such covenants, payments or other terms of the agreement, our lender could declare an event of default, which would give it the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
Our future funding requirements will depend on many factors, including: • the degree and rate of market acceptance of our current and future products and Aquablation therapy; • the scope and timing of investment in our sales force and expansion of our commercial organization; • the impact on our business from the COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease; • the scope, rate of progress and cost of our current or future clinical trials and registries; • the cost of our research and development activities; • the cost and timing of additional regulatory clearances or approvals; • the costs associated with any product recall that may occur; • the costs associated with the manufacturing of our products at increased production levels; • the costs of attaining, defending and enforcing our intellectual property rights; • whether we acquire third-party companies, products or technologies; 33 Table of Contents • the terms and timing of any other collaborative, licensing and other arrangements that we may establish; • the emergence of competing technologies or other adverse market developments; and • the rate at which we expand internationally.
Our future funding requirements will depend on many factors, including: • the degree and rate of market acceptance of our current and future products and Aquablation therapy; • the scope and timing of investment in our sales force and expansion of our commercial organization; • the scope, rate of progress and cost of our current or future clinical trials and registries; • the cost of our research and development activities; • the cost and timing of additional regulatory clearances or approvals; • the costs associated with any product recall that may occur; • the costs associated with the manufacturing of our products at increased production levels; • the costs of attaining, defending and enforcing our intellectual property rights; • whether we acquire third-party companies, products or technologies; • the terms and timing of any other collaborative, licensing and other arrangements that we may establish; • the emergence of competing technologies or other adverse market developments; and • the rate at which we expand internationally.
Foreign Corrupt Practices Act of 1977, or the FCPA, and anti-money laundering laws; • differing regulatory requirements for obtaining clearances or approvals to market our products; • changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States; • tariffs and trade barriers, export regulations, sanctions and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; • potential adverse tax consequences, including imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; • imposition of differing labor laws and standards; • armed conflicts or economic, political or social instability in foreign countries and regions; • fluctuations in foreign currency exchange rates; • an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action; and • availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.
Foreign Corrupt Practices Act of 1977, or the FCPA, and anti-money laundering laws; • differing regulatory requirements for obtaining clearances or approvals to market our products; • changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States; • tariffs and trade barriers, export regulations, sanctions and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; • potential adverse tax consequences, including imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; • imposition of differing labor laws and standards; • armed conflicts or economic, political or social instability in foreign countries and regions, such as the conflicts between Russia and Ukraine, tensions across the Taiwan Strait, the Israel-Hamas conflict and other hostilities in the Middle East; • fluctuations in foreign currency exchange rates; • an inability, or reduced ability, to protect our intellectual property in various countries around the world, including any effect of compulsory licensing imposed by government action; and • availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.
If either of these facilities, or any of our future manufacturing facilities, suffers damage, or a force majeure event, such damage or event could materially impact our ability to operate, which could materially and adversely affect our business and financial performance.
If this facility, or any of our future manufacturing facilities, suffers damage, or a force majeure event were to occur, such damage or event could materially impact our ability to operate, which could materially and adversely affect our business and financial performance.
If we fail to successfully promote Aquablation therapy in a cost-effective manner, we may fail to attract or retain the market acceptance necessary to realize a sufficient return on our promotional and educational efforts, or to achieve broad adoption of our products.
If we fail to successfully promote Aquablation therapy in a cost-effective manner, we may fail to attract or retain the market acceptance necessary to realize a sufficient return on our promotional and educational efforts, or to achieve broad adoption of our products. We rely on third-party distributors to effectively distribute our products in certain markets.
Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. We currently market and sell our products in 12 countries outside of the United States, including Germany, France, Italy, Spain, the United Kingdom, and Portugal.
Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. We currently market and sell our products in countries outside of the United States.
We cannot guarantee that they will in the future be able to meet our demand for such products, either because of acts of nature, the nature of our agreements with those suppliers or our relative importance to them as a customer, and our suppliers may decide in the future to discontinue or reduce the level of business they conduct with us.
While our suppliers have generally met our demand for their products and services on a timely basis in the past, we cannot guarantee that they will in the future be able to meet our demand for such products, either because of acts of nature, the nature of our agreements with those suppliers or our relative importance to them as a customer, and our suppliers may decide in the future to discontinue or reduce the level of business they conduct with us.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system in ways that may harm our future revenues and profitability and the demand for our AquaBeam Robotic System.
Healthcare reform measures could hinder or prevent the commercial success of our AquaBeam Robotic System. In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system in ways that may harm our future revenues and profitability and the demand for our AquaBeam Robotic System.
As of December 31, 2022, we had $221.9 million in cash and cash equivalents, and an accumulated deficit of $348.7 million. Based on our current operating plan, we currently believe that our cash and cash equivalents and anticipated revenue will be sufficient to meet our capital requirements and fund our operations through at least the next 12 months.
As of December 31, 2023, we had $257.2 million in cash and cash equivalents, and an accumulated deficit of $454.6 million. Based on our current operating plan, we currently believe that our cash and cash equivalents and anticipated revenue will be sufficient to meet our capital requirements and fund our operations through at least the next 12 months.
For the years ended December 31, 2022 and 2021, we had a net loss of and $87.2 million and $59.9 million, respectively. We expect to continue to incur additional losses in the future. As of December 31, 2022, we had an accumulated deficit of $348.7 million.
For the years ended December 31, 2023 and 2022, we had a net loss of and $105.9 million and $87.2 million, respectively. We expect to continue to incur additional losses in the future. As of December 31, 2023, we had an accumulated deficit of $454.6 million.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOn December 31, 2021, we entered into a lease for two existing buildings, comprising approximately 158,221 square feet of space, located in San Jose, California . The lease commenced in July 2022, and will continue for 122 months following thereafter, with two five year options to extend the term of the lease.
Biggest changeItem 2. Properties Our principal office is located at 150 Baytech Drive, San Jose, California, where we lease approximately 158,221 square feet of office space. The lease commenced in July 2022, and will continue for 122 months following thereafter, with two five year options to extend the term of the lease.
Removed
Item 2. Properties Our principal office is located at 900 Island Drive, Redwood City, California, where we lease approximately 43,485 square feet of office space.
Added
We exited our previous principal office in Redwood City, California in September 2023.
Removed
In January 2023, we entered into an amendment to this lease that lease of 19,807 square feet of office space terminated on October 29, 2023, and lease of remaining 23,638 square feet is extended to terminate no later than January 31, 2024.
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We intend to relocate our operations to the facility in San Jose prior to the end of the term of the lease for our facility in Redwood City, California.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors. Item 4. Mine Safety Disclosures None. 80 Table of Contents Part II
Biggest changeRegardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors. Item 4. Mine Safety Disclosures None. 78 Table of Contents Part II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 80 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 81 Item 6. [Reserved] 82 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 83 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 93 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 78 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 79 Item 6. [Reserved] 80 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 81 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 90 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Common Stock As of February 23, 2022, there were 176 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Biggest changeHolders of Common Stock As of February 23, 2024, there were 196 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issue Purchases of Equity Securities Market Information Our common stock has been listed on the Nasdaq Global Select Market under the symbol “PRCT” since September 14, 2021. Prior to that date, there was no public trading market for our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issue Purchases of Equity Securities Market Information Our common stock has been listed on the Nasdaq Global Market under the symbol “PRCT” since September 14, 2021. Prior to that date, there was no public trading market for our common stock.
Note that historic stock price performance is not necessarily indicative of future stock price performance. 81 Table of Contents
Note that historic stock price performance is not necessarily indicative of future stock price performance. 79 Table of Contents

Item 7. Management's Discussion & Analysis

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

50 edited+5 added−9 removed73 unchanged
Biggest changeLoss on loan extinguishment Loss on loan extinguishment was a result of our acquisition price of our new debt exceeded the carrying amount of our existing debt. 86 Table of Contents Results of Operations Comparison of Years Ended December 31, 2022 and 2021 The following table shows our results of operations for the years ended December 31, 2022 and 2021: Year Ended December 31, Change 2022 2021 $ % (in thousands, except percentages) Revenue $ 75,014 $ 34,473 $ 40,541 118 % Cost of sales 37,929 18,608 19,321 104 Gross profit 37,085 15,865 21,220 134 Gross margin 49 % 46 % Operating expenses: Research and development 28,981 18,993 9,988 53 Selling, general and administrative 88,828 51,036 37,792 74 Total operating expenses 117,809 70,029 47,780 68 Loss from operations (80,724) (54,164) (26,560) (49) Interest expense (5,183) (5,810) 627 11 Interest and other income, net 2,011 121 1,890 1562 Loss on loan extinguishment (3,258) — (3,258) N/M Net loss $ (87,154) $ (59,853) (27,301) (46) N/M - Not meaningful.
Biggest changeLoss on loan extinguishment Loss on loan extinguishment was a result of our acquisition price of our new debt exceeded the carrying amount of our existing debt. 84 Table of Contents Results of Operations Comparison of Years Ended December 31, 2023 and 2022 The following table shows our results of operations for the years ended December 31, 2023 and 2022: Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Revenue $ 136,191 $ 75,014 $ 61,177 82 % Cost of sales 65,142 37,929 27,213 72 Gross profit 71,049 37,085 33,964 92 Gross margin 52 % 49 % Operating expenses: Research and development 48,446 28,981 19,465 67 Selling, general and administrative 131,773 88,828 42,945 48 Total operating expenses 180,219 117,809 62,410 53 Loss from operations (109,170) (80,724) (28,446) (35) Interest expense (3,995) (5,183) 1,188 23 Interest and other income, net 7,268 2,011 5,257 261 Loss on loan extinguishment — (3,258) 3,258 N/M Net loss $ (105,897) $ (87,154) (18,743) (22) N/M - Not meaningful.
Net Cash Provided by Financing Activities During the year ended December 31, 2022, net cash provided by financing activities was $3.6 million, consisting primarily of proceeds from the issuance of long-term debt of $51.2 million, net of issuance costs, proceeds and from the exercise of stock options of $4.0 million, partially offset by the payment of principal of long-term debt of $50.0 million, and prepayment fees associated with our previous loan facility.
During the year ended December 31, 2022, net cash provided by financing activities was $3.6 million, consisting primarily of proceeds from the issuance of long-term debt of $51.2 million, net of issuance costs, proceeds of $4.0 million from the exercise of stock options, partially offset by the payment of principal of long-term debt of $50.0 million and prepayment fees associated with our previous loan facility.
The contracts are typically in the form of a master service agreement and a purchase order from the customer. Our AquaBeam Robotic System sales generally contain multiple products and services and can include a combination of the following performance obligations: robotic system, handpieces and consumables, and service.
The contracts are typically in the form of a master agreement and a purchase order from the customer. Our AquaBeam Robotic System sales generally contain multiple products and services and can include a combination of the following performance obligations: robotic system, handpieces and consumables, and service.
We determined that certain promises in the multiple-element arrangements, such as installation, training and certain ancillary products, are immaterial, and/or do not represent separate performance obligations for which transaction price is allocated. We must make significant assumptions regarding the future collectability of amounts receivable from customers to determine whether revenue recognition criteria have been met.
We determined that certain promises in the multiple-element arrangements, such as installation, training and certain ancillary products, are immaterial, and do not represent separate performance obligations for which transaction price is allocated. We must make significant assumptions regarding the future collectability of amounts receivable from customers to determine whether revenue recognition criteria have been met.
The increase in SG&A expenses was primarily due to employee-related expenses of our sales and marketing organization and reimbursement and administrative organizations as we expanded our infrastructure to drive and support our growth in revenue.
The increase in SG&A expenses was primarily due to employee-related expenses of our sales and marketing organization and administrative organizations as we expanded our infrastructure to drive and support our growth in revenue.
See Note 7 to our consolidated financial statements included elsewhere in this Annual Report Form 10-K for information concerning certain of the specific assumption we used in applying the Black-Scholes option pricing model to determine the fair value of our stock options granted in the years ended December 31, 2022 and 2021.
See Note 7 to our consolidated financial statements included elsewhere in this Annual Report Form 10-K for information concerning certain of the specific assumption we used in applying the Black-Scholes option pricing model to determine the fair value of our stock options granted in the years ended December 31, 2023 and 2022.
We are obligated to maintain in deposit accounts held at the lender equal to at least the lesser of (i) $150.0 million or (ii) all of our non-operating cash. The loan and security agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default.
We are obligated to maintain in deposit accounts held at the lender equal to at least the lesser of (i) $90.0 million or (ii) all of our non-operating cash. The loan and security agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default.
Indebtedness In October 2022, we entered into a loan and security agreement with a new lender, Canadian Imperial Bank of Commerce. The Agreement provides for a senior secured term loan facility in the aggregate principal amount of $52.0 million, which was borrowed in full.
Indebtedness In October 2022, we entered into a loan and security agreement with Canadian Imperial Bank of Commerce. The Agreement provides for a senior secured term loan facility in the aggregate principal amount of $52.0 million, which was borrowed in full.
Loan Facility Derivative Liability We have determined that our obligation to pay success fees to a lender upon a successful liquidation event or achieving a revenue target represents freestanding financial instruments. The instrument is classified as a long-term liability in the consolidated balance sheets and is subject to remeasurement at each consolidated balance sheet date.
Loan Facility Derivative Liability We have determined that our obligation to pay success fees to a lender upon a successful liquidation event or achieving a revenue target represents freestanding financial instruments. The instrument is classified as a current liability in the consolidated balance sheets and is subject to remeasurement at each consolidated balance sheet date.
Operating Expenses Research and Development Research and development, or R&D, expenses consist primarily of engineering, product development, regulatory affairs, consulting services, materials, depreciation and other costs associated with products and technologies being developed. These expenses include employee and non-employee compensation, including stock-based compensation, 85 Table of Contents supplies, materials, quality assurance expenses, consulting, related travel expenses and facilities expenses.
Operating Expenses Research and Development Research and development, or R&D, expenses consist primarily of engineering, product development, regulatory affairs, consulting services, materials, depreciation and other costs associated with products and technologies being developed. These expenses include employee and non-employee compensation, including stock-based compensation, supplies, materials, quality assurance expenses, consulting, related travel expenses and facilities expenses.
The assumptions used in determining the fair value of the obligation require significant judgment. 92 Table of Contents Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our financial statements contained in this Annual Report on Form 10-K.
The assumptions used in determining the fair value of the obligation require significant judgment. Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 2 to our financial statements contained in this Annual Report on Form 10-K.
We manufacture the AquaBeam Robotic System, the handpiece, integrated scope and other accessories at our facility in Redwood City, California. This includes supporting the supply chain distribution and logistics of the various components. Components, sub-assemblies and services required to manufacture our products are purchased from numerous global suppliers.
We manufacture the AquaBeam Robotic System, the handpiece, integrated scope and other accessories at our facility in San Jose, California. This includes supporting the supply chain distribution and logistics of the various components. Components, sub-assemblies and services required to manufacture our products are purchased from numerous global suppliers.
The following table presents revenue by significant geographical locations for the periods indicated: Year Ended December 31, 2022 2021 United States 90 % 84 % Outside the United States 10 % 16 % We expect that both our U.S. and international revenue will increase in the near term as we continue to expand the install base of AquaBeam Robotic Systems and increase the related customer utilization.
The following table presents revenue by significant geographical locations for the periods indicated: Year Ended December 31, 2023 2022 United States 91 % 90 % Outside the United States 9 % 10 % We expect that both our U.S. and international revenue will increase in the near term as we continue to expand the install base of AquaBeam Robotic Systems and increase the related customer utilization.
These factors include: • Grow our install base of AquaBeam Robotic Systems: As of December 31, 2022, we had an install base of 243 AquaBeam Robotic Systems globally, including 167 in the United States. In the United States, we are initially focused on driving adoption of Aquablation therapy among urologists that perform hospital-based resective BPH surgery.
These factors include: • Grow our install base of AquaBeam Robotic Systems: As of December 31, 2023, we had an install base of 418 AquaBeam Robotic Systems globally, including 315 in the United States. In the United States, we are initially focused on driving adoption of Aquablation therapy among urologists that perform hospital-based resective BPH surgery.
We have developed a significant and growing body of clinical evidence, which includes 150 peer-reviewed publications, supporting the benefits and clinical advantages of Aquablation therapy. As of December 31, 2022, we had an install base of 243 AquaBeam Robotic Systems globally, including 167 in the United States.
We have developed a significant and growing body of clinical evidence, which includes over 150 peer-reviewed publications, supporting the benefits and clinical advantages of Aquablation therapy. As of December 31, 2023, we had an install base of 418 AquaBeam Robotic Systems globally, including 315 in the United States.
Our future funding requirements will depend on many factors, including: • the degree and rate of market acceptance of our products and Aquablation therapy; • the scope and timing of investment in our sales force and expansion of our commercial organization; • the impact on our business from the ongoing and global COVID-19 pandemic and the end of the COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease; • the scope, rate of progress and cost of our current or future clinical trials and registries; • the cost of our research and development activities; • the cost and timing of additional regulatory clearances or approvals; • the costs associated with any product recall that may occur; 88 Table of Contents • the costs associated with the manufacturing of our products at increased production levels; • the costs of attaining, defending and enforcing our intellectual property rights; • whether we acquire third-party companies, products or technologies; • the terms and timing of any other collaborative, licensing and other arrangements that we may establish; • the emergence of competing technologies or other adverse market developments; and • the rate at which we expand internationally.
Our future funding requirements will depend on many factors, including: • the degree and rate of market acceptance of our products and Aquablation therapy; • the scope and timing of investment in our sales force and expansion of our commercial organization; • the scope, rate of progress and cost of our current or future clinical trials and registries; • the cost of our research and development activities; • the cost and timing of additional regulatory clearances or approvals; • the costs associated with any product recall that may occur; • the costs associated with the manufacturing of our products at increased production levels; • the costs of attaining, defending and enforcing our intellectual property rights; • whether we acquire third-party companies, products or technologies; 86 Table of Contents • the terms and timing of any other collaborative, licensing and other arrangements that we may establish; • the emergence of competing technologies or other adverse market developments; and • the rate at which we expand internationally.
Loss on loan extinguishment Loss on loan extinguishment increased $3.3 million during the year ended December 31, 2022 compared to zero during the year ended December 31, 2021. The increase in loss on loan extinguishment was due to our reacquisition price of our new debt exceeded the carrying amount of our existing debt in the current year.
Loss on loan extinguishment Loss on loan extinguishment decreased to zero during the year ended December 31, 2023 compared to $3.3 million during the year ended December 31, 2022. The increase in loss on loan extinguishment was due to our reacquisition price of our new debt exceeded the carrying amount of our existing debt in the prior year.
Net Cash Used in Investing Activities During the year ended December 31, 2022, net cash used in investing activities was $2.7 million, consisting of purchases of property and equipment. During the year ended December 31, 2021, net cash used in investing activities was $0.6 million, consisting of purchases of property and equipment.
Net Cash Used in Investing Activities During the year ended December 31, 2023, net cash used in investing activities was $25.2 million, consisting of purchases of property and equipment. During the year ended December 31, 2022, net cash used in investing activities was $2.7 million, consisting of purchases of property and equipment.
Interest and Other Income, Net Interest and other income, net, increased $1.9 million to $2.0 million during the year ended December 31, 2022 compared to $0.1 million during the year ended December 31, 2021. The increase in interest and other income, net was primarily due to higher interest rates earned on our money market funds.
Interest and Other Income, Net Interest and other income, net, increased $5.3 million to $7.3 million during the year ended December 31, 2023 compared to $2.0 million during the year ended December 31, 2022. The increase in interest and other income, net was primarily due to higher interest rates earned on our money market funds.
If we maintain at least $100.0 million in available cash, then it is not required to meet such financial covenants. 89 Table of Contents Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (in thousands) Net cash (used in) provided by: Operating activities $ (80,382) $ (57,334) Investing activities (2,653) (592) Financing activities 3,612 262,116 Net (decrease) increase in cash, cash equivalents and restricted cash $ (79,423) $ 204,190 Net Cash Used in Operating Activities During the year ended December 31, 2022, net cash used in operating activities was $80.4 million, consisting primarily of a net loss of $87.2 million and an increase in net operating assets of $11.5 million, partially offset by non-cash charges of $18.3 million.
If we maintain at least $100.0 million in available cash, then it is not required to meet such financial covenants. 87 Table of Contents Cash Flows The following table summarizes our cash flows for the years ended December 31, 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash provided by (used in): Operating activities $ (108,003) $ (80,382) $ (57,334) Investing activities (25,206) (2,653) (592) Financing activities 167,795 3,612 262,116 Net increase (decrease) in cash, cash equivalents and restricted cash $ 34,586 $ (79,423) $ 204,190 Net Cash Used in Operating Activities During the year ended December 31, 2023, net cash used in operating activities was $108.0 million, consisting primarily of a net loss of $105.9 million and an increase in net operating assets of $26.2 million, partially offset by non-cash charges of $24.1 million.
As of December 31, 2022, we had an accumulated deficit of 348.7 million. 83 Table of Contents Factors Affecting Our Performance We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations for the foreseeable future.
As of December 31, 2023, we had an accumulated deficit of $454.6 million. Factors Affecting Our Performance We believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations for the foreseeable future.
As of December 31, 2022, we had cash and cash equivalents of $221.9 million, an accumulated deficit of $348.7 million, and $52.0 million outstanding on our loan facility. We expect our expenses will increase for the foreseeable future, in particular as we continue to make substantial investments in sales and marketing, operations and research and development.
As of December 31, 2023, we had cash and cash equivalents of $257.2 million, an accumulated deficit of $454.6 million, and $52.0 million outstanding on our loan facility. We expect our expenses will increase for the foreseeable future, as we continue to make substantial investments in sales and marketing, operations and research and development.
Interest and Other Income, Net Interest and other income, net, consists primarily of interest income from our cash and cash equivalents balances, and fair value adjustments from our redeemable convertible preferred stock warrant liabilities and our loan facility derivative liability.
Interest and Other Income, Net Interest and other income, net, consists primarily of interest income from our cash and cash equivalents balances, and fair value adjustments from our loan facility derivative liability.
The increase in R&D expenses was primarily due to employee-related expenses from increased headcount of our R&D organization. These expenses support ongoing product improvements and the development of additional and next generation technologies.
The increase in R&D expenses was primarily due to employee- 85 Table of Contents related expenses from increased headcount of our R&D organization, as well as increases in third-party product development costs. These expenses support ongoing product improvements and the development of additional and next generation technologies.
SG&A expenses also include commissions, training, travel expenses, promotional activities, conferences, trade shows, professional services fees, audit fees, legal fees, insurance costs and general corporate expenses including allocated facilities-related expenses. Post-market study expenses include trial design, site reimbursement, data management and travel expenses.
SG&A expenses also include commissions, training, travel expenses, promotional activities, conferences, trade shows, professional services fees, audit fees, legal fees, insurance costs and general corporate expenses including allocated facilities-related expenses.
During the year ended December 31, 2021, net cash used in operating activities was $57.3 million, consisting primarily of a net loss of $59.9 million and an increase in net operating assets of $4.7 million, partially offset by non-cash charges of $7.2 million.
During the year ended December 31, 2022, net cash used in operating activities was $80.4 million, consisting primarily of a net loss of $87.2 million and an increase in net operating assets of $11.5 million, partially offset by non-cash charges of $18.3 million.
Interest Expense Interest expense decreased $0.6 million to $5.2 million during the year ended December 31, 2022, compared to $5.8 million during the year ended December 31, 2021. The decrease in interest expense was due to entering into a new loan agreement with a lower interest rate compared to our previous loan agreement during the year ended December 31, 2022.
The decrease in interest expense was due to entering into a new loan agreement with a lower interest rate compared to our previous loan agreement which occurred during the year ended December 31, 2022.
Cost of Sales and Gross Margin Cost of sales increased $19.3 million, or 104%, to $37.9 million during the year ended December 31, 2022, compared to $18.6 million during the year ended December 31, 2021. The increase in cost of sales was primarily attributable to the growth in the number of units sold.
Cost of Sales and Gross Margin Cost of sales increased $27.2 million, or 72%, to $65.1 million during the year ended December 31, 2023, compared to $37.9 million during the year ended December 31, 2022. The increase in cost of sales was primarily attributable to the growth in the number of units sold.
The Company determines the transaction price it expects to be entitled to in exchange for transferring the promised product to the customer, which is based on the invoiced price for the products.
The Company determines the transaction price it expects to be entitled to in exchange for transferring the promised product to the customer, which is based on the invoiced price for the products. All prices are at fixed amounts per the sales agreement with the customer.
The growth in revenue was primarily attributable to an increase of $17.9 million and $20.3 million in revenues from higher sales volumes and increases in our average sale prices of both our AquaBeam Robotic System and our single-use disposable handpieces.
The growth in revenue was primarily attributable to an increase of $19.2 million and $37.7 million in revenues from higher sales volumes of both our AquaBeam Robotic System and our single-use disposable handpieces.
The AquaBeam Robotic System employs a single-use disposable handpiece to deliver our proprietary Aquablation therapy, which combines real-time, multi-dimensional imaging, personalized treatment planning, automated robotics and heat-free waterjet ablation for targeted and rapid removal of prostate tissue. We designed our AquaBeam Robotic System to enable consistent and reproducible BPH surgery outcomes.
BPH is the most common prostate disease and impacts approximately 40 million men in the United States. The AquaBeam Robotic System employs a single-use disposable handpiece to deliver our proprietary Aquablation therapy, which combines real-time, multi-dimensional imaging, personalized treatment planning, automated robotics and heat-free waterjet ablation for targeted and rapid removal of prostate tissue.
Selling, General and Administrative Expenses SG&A expenses increased $37.8 million, or 74%, to $88.8 million during the year ended December 31, 2022, compared to $51.0 million during the year ended December 31, 2021.
Selling, General and Administrative Expenses SG&A expenses increased $42.9 million, or 48%, to $131.8 million during the year ended December 31, 2023, compared to $88.8 million during the year ended December 31, 2022.
We believe that Aquablation therapy represents a paradigm shift in the surgical treatment of BPH by addressing compromises associated with alternative surgical interventions.
We designed our AquaBeam Robotic System to enable consistent and reproducible BPH surgery outcomes. We believe that Aquablation therapy represents a paradigm shift in the surgical treatment of BPH by addressing compromises associated with alternative surgical interventions.
Liquidity and Capital Resources Overview We completed our IPO in September 2021, which raised $172.4 million, net of issuance costs. Previously, our primary sources of capital have been from private placements of redeemable convertible preferred securities and debt financing agreements.
Liquidity and Capital Resources Overview We completed a follow-on offering of common stock in August 2023, which raised $161.7 million, net of issuance costs. Previously, our primary sources of capital have been from our initial public offering, private placements of redeemable convertible preferred securities and debt financing agreements.
The cash used in operations was primarily due to the increase in net loss primarily due to the increase in operating expenses and interest expense to service the loan payable all of which support the commercialization and development.
The cash used in operations was primarily due to our net loss due to the increase in operating expenses to support our commercialization and development activities.
All prices are at fixed amounts per the sales agreement with the customer and there are generally no discounts, rebates or other price concessions or a right of return, once the agreement is signed. For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price.
The Company generally issues no discounts or other price concessions or a right of return, once the agreement is signed. The Company has granted rebates on a limited basis, and those rebates have been historically immaterial. For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price.
The systems are generally covered by a one-year service agreement. The service agreements have a stand alone selling price and are typically recognized as deferred revenue and amortized over the one-year service period.
For systems sold through distributors, revenue is recognized generally at the time of delivery. Our system arrangements generally do not provide a right of return. The systems are generally covered by a one-year service agreement. The service agreements have a stand alone selling price and are typically recognized as deferred revenue and amortized over the one-year service period.
We also plan to leverage our treatment data and software development capabilities to integrate artificial intelligence and machine learning to enable computer-assisted anatomy recognition and improved treatment planning and personalization.
We also plan to leverage our treatment data and software development capabilities to integrate artificial intelligence and machine learning to enable computer-assisted anatomy 82 Table of Contents recognition and improved treatment planning and personalization. Our future growth is dependent on these continuous improvements which require significant resources and investment.
Gross margin increased to 49% during the year ended December 31, 2022, compared to 46% for the year ended December 31, 2021. The increase in gross margin was primarily attributable to the growth in unit sales, which allowed us to spread the fixed portion of our manufacturing overhead costs over more production units.
The increase in gross margin was primarily attributable to the growth in unit sales, which allowed us to spread the fixed portion of our manufacturing overhead costs over more production units, partially offset by increases in scrap and warranty costs.
Hand pieces and other consumables - Revenue from sales of handpieces and other consumables is recognized when control is transferred to the customers, which generally occurs at the time of shipment but also occurs at the time of delivery.
Hand pieces and other consumables - Revenue from sales of handpieces and other consumables is recognized when control is transferred to the customers, which generally occurs at the time of shipment but also occurs at the time of delivery. 89 Table of Contents Service - Service revenue, inclusive of the amounts associated with the AquaBeam Robotic System warranties, is recognized over the term of the service period, as the customer benefits from the services throughout the service period.
Selling, General and Administrative Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling, marketing, clinical affairs, professional education, finance, information technology, and human resource functions.
However, we expect our R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts. 83 Table of Contents Selling, General and Administrative Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling, marketing, clinical affairs, professional education, finance, information technology, and human resource functions.
We develop, manufacture and sell the AquaBeam Robotic System, an advanced, image-guided, surgical robotic system for use in minimally invasive urologic surgery, with an initial focus on treating benign prostatic hyperplasia, or BPH. BPH is the most common prostate disease and impacts approximately 40 million men in the United States.
Overview We are a surgical robotics company focused on advancing patient care by developing transformative solutions in urology. We develop, manufacture and sell the AquaBeam Robotic System, an advanced, image-guided, surgical robotic system for use in minimally invasive urologic surgery, with an initial focus on treating benign prostatic hyperplasia, or BPH.
The expansion of our commercialization and development activities resulted in an increase in inventory, partially offset by an increase in accrued compensation and interest. Non-cash charges consisted primarily of depreciation and stock-based compensation.
The expansion of our commercialization resulted in an increases in inventory, accounts receivable, and long-term assets, a decrease in other accrued liabilities, partially offset by a decrease in prepaid expenses and other current assets, and increases in accounts payable, deferred revenue, lease liabilities, accrued compensation and accrued interest expense. Non-cash charges consisted primarily of stock-based compensation, and depreciation.
Each AquaBeam Robotic System is shipped to our customers with a third-party manufactured ultrasound system and probe. We utilize a well-known third-party logistics provider located in the United States and the Netherlands to ship our products to our customers globally.
Each AquaBeam Robotic System is shipped to our customers with a third-party manufactured ultrasound system and probe.
Contractual Commitments and Contingencies The information included in Note 9 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference. 90 Table of Contents Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have any off-balance sheet arrangements, such as structured finance, special purpose entities or variable interest entities.
Contractual Commitments and Contingencies The information included in Note 11 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.
During the year ended December 31, 2021, net cash provided by financing activities was $262.1 million, consisting primarily of net proceeds from our IPO of $172.4 million and the issuance of shares of our Series F redeemable convertible preferred stock of $84.7 million.
Net Cash Provided by Financing Activities During the year ended December 31, 2023, net cash provided by financing activities was $167.8 million, consisting primarily of proceeds from the issuance of common stock of $161.7 million, net o f issuance costs, and proceeds of $2.5 million from the exercise of stock options.
Revenue Year Ended December 31, Change 2022 2021 $ % (in thousands, except percentages) System sales and rentals $ 39,728 $ 21,868 $ 17,860 82 % Hand pieces and other consumables 31,816 11,527 20,289 176 Service 3,470 1,078 2,392 222 Total revenue $ 75,014 $ 34,473 40,541 118 Revenue increased $40.5 million, or 118%, to $75.0 million during the year ended December 31, 2022, compared to $34.5 million during the year ended December 31, 2021.
Revenue Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) System sales and rentals $ 58,920 $ 39,728 $ 19,192 48 % Hand pieces and other consumables 69,522 31,816 37,706 119 Service 7,749 3,470 4,279 123 Total revenue $ 136,191 $ 75,014 61,177 82 Revenue increased $61.2 million, or 82%, to $136.2 million during the year ended December 31, 2023, compared to $75.0 million during the year ended December 31, 2022.
Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of the financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures.
The preparation of the financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures.
We generated revenue of $75.0 million and $34.5 million, for the years ended December 31, 2022 and 2021, respectively, and incurred a net loss of $87.2 million and $59.9 million for the years ended December 31, 2022 and 2021, respectively.
We utilize a well-known third-party logistics provider located in the United States and the Netherlands to ship our products to our customers globally. 81 Table of Contents We generated revenue of $136.2 million and $75.0 million, for the years ended December 31, 2023 and 2022, respectively, and incurred a net loss of $105.9 million and $87.2 million for the years ended December 31, 2023 and 2022, respectively.
Additionally, we realized higher average selling prices in the United States on both our AquaBeam Robotic System and our single-use disposable handpieces. 87 Table of Contents Research and Development Expenses R&D expenses increased $10.0 million, or 53%, to $29.0 million during the year ended December 31, 2022, compared to $19.0 million during the year ended December 31, 2021.
Research and Development Expenses R&D expenses increased $19.5 million, or 67%, to $48.4 million during the year ended December 31, 2023, compared to $29.0 million during the year ended December 31, 2022.
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Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.” Overview We are a surgical robotics company focused on advancing patient care by developing transformative solutions in urology.
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Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.” The following generally compares our results of operations for the years ended December 31, 2023 and 2022.
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Our future growth is dependent on these continuous improvements which require significant resources and investment. 84 Table of Contents Impact of the COVID-19 Pandemic At the height of the COVID-19 pandemic, governmental authorities had recommended, and in certain cases required, that elective, specialty and other procedures and appointments be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19.
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A detailed discussion comparing our results of operations for the years ended December 31, 2022 and 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022.
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These measures and challenges had decreased the number of BPH procedures generally, and consequently could have slowed adoption of our AquaBeam therapy and may have impacted our ability to sell our AquaBeam Robotic System.
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Gross margin increased to 52% during the year ended December 31, 2023, compared to 49% for the year ended December 31, 2022.
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While many restrictions associated with COVID-19 have more recently been relaxed, the longevity and extent of the various COVID-19 pandemic remains uncertain, including due to the emergence and impact of the COVID-19 variants and continued economic disruptions. These measures and challenges may continue for the duration of the pandemic and may negatively impact our revenue growth while the pandemic continues.
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Interest Expense Interest expense decreased $1.2 million to $4.0 million during the year ended December 31, 2023, compared to $5.2 million during the year ended December 31, 2022.
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However, we expect our R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts.
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Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have any off-balance sheet arrangements, such as structured finance, special purpose entities or variable interest entities. 88 Table of Contents Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
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We adjust the carrying values of the loan facility derivative liability for changes in fair value and recognize those changes in interest and other income, net.
Removed
Systems rented for a fixed monthly fee during an evaluation period, typically three to 12 months, are recognized as revenue straight-line during the lease term, in accordance with ASC 842, and are not material.
Removed
For systems sold following an evaluation period, revenue is recognized generally once sales terms are mutually agreed (as the system is already installed at the customer site). For systems sold through distributors, revenue is recognized generally at the time of delivery. Our 91 Table of Contents system arrangements generally do not provide a right of return.
Removed
Service - Service revenue, inclusive of the amounts associated with the AquaBeam Robotic System warranties, is recognized over the term of the service period, as the customer benefits from the services throughout the service period.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures Interest Rate Risk Cash and cash equivalents of $221.9 million as of December 31, 2022, consisted of securities carried at quoted market prices with an original maturity of three months or less and therefore there is minimal risk associated with fluctuating interest rates.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures 90 Table of Contents Interest Rate Risk Cash and cash equivalents of $257.2 million as of December 31, 2023, consisted of securities carried at quoted market prices with an original maturity of three months or less and therefore there is minimal risk associated with fluctuating interest rates.
No customers accounted for greater than 10% of accounts receivable at December 31, 2022. We believe that credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms and diversity of our customer base. Foreign Currency Risk A portion of our net sales and expenses are denominated in foreign currencies, most notably the Euro.
No customers accounted for greater than 10% of accounts receivable at December 31, 2023. We believe that credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms and diversity of our customer base. Foreign Currency Risk A portion of our net sales and expenses are denominated in foreign currencies, most notably the Euro.
Effects of Inflation Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe that inflation had a material effect on our financial statements included elsewhere in this Annual Report on Form 10-K. 93 Table of Contents
Effects of Inflation Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe that inflation had a material effect on our financial statements included elsewhere in this Annual Report on Form 10-K. 91 Table of Contents

Other PRCT 10-K year-over-year comparisons