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What changed in TELA Bio, Inc.'s 10-K — 2022 vs 2023

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

+381 added−372 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-23)

Top changes in TELA Bio, Inc.'s 2023 10-K

381 paragraphs added · 372 removed · 318 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

116 edited+25 added−15 removed254 unchanged
Biggest changeAt the state level, legislatures have increasingly passed legislation and implemented regulations designed to control healthcare costs, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. 35 Table of Contents We expect that additional federal, state and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
Biggest changeAt the state level, legislatures have increasingly passed legislation and implemented regulations designed to control healthcare costs, including price or patient reimbursement constraints, discounts, restrictions on certain product access 36 Table of Contents and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
This expertise has been utilized in the development of our OviTex and OviTex PRS products and is currently being leveraged in the development of our additional OviTex product pipeline seeking to enhance product features for various applications within our indications.
This expertise has been utilized in the development of our OviTex and OviTex PRS products and is currently being leveraged in the development of our additional OviTex and OviTex PRS product pipeline seeking to enhance product features for various applications within our indications.
OviTex Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OviTex OviTex 1S OviTex 2S OviTex LPR ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Size and Shape ​ 4 × 8 cm to 25 × 40 cm* (Rectangle or Square) ​ 4 × 8 cm to 25 × 40 cm* (Rectangle or Square) ​ 4 × 8 cm to 25 × 40 cm* (Rectangle or Square) ​ 12 × 18 cm to 15 x 25 cm ˄ (Ellipse); 9 cm to 15 cm (Round) Strength ​ + ​ ++ ​ +++ ​ + Layers of Ovine Rumen ​ Four ​ Six ​ Eight ​ Four Common Procedures ​ Moderate ventral hernia (pre-peritoneal placement), inguinal hernia, hiatal hernia ​ Moderate to complex ventral hernia, can be placed intraperitoneally ​ Complex ventral hernia and abdominal wall reconstruction and can be used for bridging, can be placed intraperitoneally ​ Laparoscopic or Robotic-assisted surgery Polymer ​ Resorbable (PGA) or Permanent (Polypropylene) ​ Resorbable (PGA) or Permanent (Polypropylene) ​ Resorbable (PGA) or Permanent (Polypropylene) ​ Permanent (Polypropylene) Shelf Life ​ Resorbable-18 months Permanent-36 months ​ Resorbable-18 months Permanent-36 months ​ Resorbable-18 months Permanent-36 months ​ 36 months Configuration ​ Exposed polymer on both sides ​ Exposed polymer on one side, and one smooth side ​ Two smooth sides ​ Exposed polymer on one side, and one smooth side Commercial Availability ​ · U.S. · Europe ​ · U.S. · Europe ​ · U.S. · Europe ​ · U.S. · Europe * 25 x 30 cm and 25 x 40 cm sizes currently only available with permanent (polypropylene) polymer. ˄ 15 x 20 cm and 15 x 25 cm sizes currently only available in the U.S. + Denotes relative level of strength 19 Table of Contents OviTex Plastic and Reconstructive Surgery — OviTex PRS OviTex PRS, has received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is held by us, and is indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or reinforcement in plastic and reconstructive surgery.
OviTex Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OviTex OviTex 1S OviTex 2S OviTex LPR ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Size and Shape ​ 4 × 8 cm to 25 × 40 cm* (Rectangle or Square) ​ 4 × 8 cm to 25 × 40 cm* (Rectangle or Square) ​ 4 × 8 cm to 25 × 40 cm* (Rectangle or Square) ​ 12 × 18 cm to 15 x 25 cm (Ellipse); 9 cm to 15 cm (Round) Strength ​ + ​ ++ ​ +++ ​ + Layers of Ovine Rumen ​ Four ​ Six ​ Eight ​ Four Common Procedures ​ Moderate ventral hernia (pre-peritoneal placement), inguinal hernia, hiatal hernia ​ Moderate to complex ventral hernia, can be placed intraperitoneally ​ Complex ventral hernia and abdominal wall reconstruction and can be used for bridging, can be placed intraperitoneally ​ Laparoscopic or Robotic-assisted surgery Polymer ​ Resorbable (PGA) or Permanent (Polypropylene) ​ Resorbable (PGA) or Permanent (Polypropylene) ​ Resorbable (PGA) or Permanent (Polypropylene) ​ Permanent (Polypropylene) Shelf Life ​ Resorbable-18 months Permanent-36 months ​ Resorbable-18 months Permanent-36 months ​ Resorbable-18 months Permanent-36 months ​ 36 months Configuration ​ Exposed polymer on both sides ​ Exposed polymer on one side, and one smooth side ​ Two smooth sides ​ Exposed polymer on one side, and one smooth side Commercial Availability ​ · U.S. · Europe ​ · U.S. · Europe ​ · U.S. · Europe ​ · U.S. · Europe * 25 x 30 cm and 25 x 40 cm sizes currently only available with permanent (polypropylene) polymer. + Denotes relative level of strength. ​ 20 Table of Contents OviTex Plastic and Reconstructive Surgery — OviTex PRS OviTex PRS, has received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is held by us, and is indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or reinforcement in plastic and reconstructive surgery.
These include: ● the FDA’s Quality Systems Regulations (“QSR”), which requires manufacturers, including third party manufacturers, to follow stringent design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during all aspects of the manufacturing process; ● labeling and marketing regulations which require that promotion is truthful, not misleading, fairly balanced and provides adequate directions for use and that all claims are substantiated; ● complying with requirements for Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; ● advertising and promotion requirements, including FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses and FDA guidance on off-label dissemination of information and responding to unsolicited requests for information; ● restrictions on sale, distribution or use of a device; ● device establishment, registration and listing requirements and annual reporting requirements; ● approval or clearance of 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; ● medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; ● medical device 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; ● recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death; ● an order of repair, replacement or refund; ● device tracking requirements; and ● post-market surveillance activities and regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: ● the FDA’s Quality Systems Regulations (“QSR”), which requires manufacturers, including third party manufacturers, to follow stringent design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during all aspects of the manufacturing process; ● labeling and marketing regulations which require that promotion is truthful, not misleading, fairly balanced and provides adequate directions for use and that all claims are substantiated; ● complying with requirements for Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; ● advertising and promotion requirements, including FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses and FDA guidance on off-label dissemination of information and responding to unsolicited requests for information; ● restrictions on sale, distribution or use of a device; ● device establishment, registration and listing requirements and annual reporting requirements; 30 Table of Contents ● approval or clearance of 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; ● medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; ● medical device 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; ● recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death; ● an order of repair, replacement or refund; ● device tracking requirements; and ● post-market surveillance activities and regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
We strengthen these reinforced tissue matrix layers with interwoven polymers, that are either permanent (polypropylene), or resorbable (PGA). These polymers were selected because they are well characterized suture materials with a history of significant clinical use and recognized safety profiles. Polypropylene has a high tensile strength and a low inflammatory response in small quantities.
We strengthen these reinforced tissue matrix layers with interwoven polymers, that are either permanent (polypropylene), or resorbable (PGA or PLGA). These polymers were selected because they are well characterized suture materials with a history of significant clinical use and recognized safety profiles. Polypropylene has a high tensile strength and a low inflammatory response in small quantities.
The proprietary ovine rumen used in the manufacturing of our products is obtained from sheep raised for human consumption in New Zealand and is currently sourced by Aroa from two abattoirs, or slaughterhouses. Although only two abattoirs are currently used, there are more than 30 additional abattoirs in New Zealand that could be used to source the ovine rumen.
The proprietary ovine rumen used in the manufacturing of our products is obtained from sheep raised for human consumption in New Zealand and is currently sourced by Aroa from two abattoirs, or slaughterhouses. Although only two abattoirs are currently qualified, there are more than 30 additional abattoirs in New Zealand that could be used to source the ovine rumen.
One third-party payor’s decision to cover a particular product or procedure using the product does not ensure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate revenue levels.
One third-party payor’s decision to cover a particular product or procedure using the product does not ensure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize appropriate revenue levels.
Our portfolio of products, designed with over 95% biologic material, combines the benefits of both biologic and polymer materials while addressing their limitations by interweaving polymer fibers through layers of a minimally-processed biologic material.
Our portfolio of products, generally designed with over 95% biologic material, combines the benefits of both biologic and polymer materials while addressing their limitations by interweaving polymer fibers through layers of a minimally-processed biologic material.
In addition to our broad-based equity award programs, we have used targeted equity-based grants with vesting conditions to enhance retention of personnel. 36 Table of Contents Corporate Information We were incorporated on April 17, 2012. Our primary executive offices are located at 1 Great Valley Parkway, Suite 24, Malvern, Pennsylvania 19355 and our telephone number is (484) 320-2930.
In addition to our broad-based equity award programs, we have used targeted equity-based grants with vesting conditions to enhance retention of personnel. 37 Table of Contents Corporate Information We were incorporated on April 17, 2012. Our primary executive offices are located at 1 Great Valley Parkway, Suite 24, Malvern, Pennsylvania 19355 and our telephone number is (484) 320-2930.
To date, there have been thirty published or presented works relating to these clinical findings, either by us or a third-party evaluating the OviTex product. Recently in October 2022, the 24-month results of our single arm, multicenter post-market clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery .
To date, there have been over thirty published or presented works relating to these clinical findings, either by us or a third-party evaluating the OviTex product. In October 2022, the 24-month results of our single arm, multicenter post-market clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery .
We make available, free of charge and through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. ​ ​ ​ ​ 37 Table of Contents
We make available, free of charge and through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. ​ ​ ​ ​ 38 Table of Contents
We believe we can also enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs, leveraging support from our medical education and clinical development functions to drive physician awareness and education on our products, and utilizing engagement analytics to support product development. ● Promote awareness of our products to drive surgeon use.
We believe we can also enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs, leveraging support from our medical education and medical affairs functions to drive physician awareness and education on our products, and utilizing engagement analytics to support product development. ● Promote awareness of our products to drive surgeon use.
In addition, we paid Aroa $4.0 million in revenue-based milestone payments upon our achievement of certain net sales thresholds for sales of our products within the Licensed Territory. As of December 31, 2022, we have satisfied all milestone payment obligations under the Aroa License. We are responsible for commercializing the products manufactured for us by Aroa.
In addition, we paid Aroa $4.0 million in revenue-based milestone payments upon our achievement of certain net sales thresholds for sales of our products within the Licensed Territory. As of December 31, 2022, we had satisfied all milestone payment obligations under the Aroa License. We are responsible for commercializing the products manufactured for us by Aroa.
Each of our products is designed to exhibit a degree of compliance appropriate for its intended clinical application. The graphics below illustrate the key features of our OviTex and OviTex PRS products: OviTex ​ 13 Table of Contents OviTex PRS ​ We believe the principal benefits of our reinforced tissue matrices are: ● Reduced foreign body inflammatory response.
Each of our products is designed to exhibit a degree of compliance appropriate for its intended clinical application. The graphics below illustrate the key features of our OviTex and OviTex PRS products: OviTex ​ 14 Table of Contents OviTex PRS ​ We believe the principal benefits of our reinforced tissue matrices are: ● Reduced foreign body inflammatory response.
Pricing and Reimbursement In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third party payors. Third party payors include government health administrative authorities, managed care providers, private health insurers, and other organizations.
Coverage and Reimbursement In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third party payors. Third party payors include government health administrative authorities, managed care providers, private health insurers, and other organizations.
Limitations of permanent synthetic mesh products may include: ● significant persistent foreign body inflammatory response that can result in encapsulation of the implant by fibrotic tissue or contraction of the mesh; ● chronic post-operative pain; ● scar tissue formation and lack of regeneration of soft-tissue; ● permanent susceptibility to mesh infection; ● significant cost associated with subsequent repairs or failed and infected mesh; ● compromised abdominal wall anatomy due to damaged and eroded tissue rendering subsequent surgical repairs challenging; and ● migration of the permanent synthetic mesh which can result in organ erosion or perforation.
Limitations of permanent synthetic mesh products may include: ● significant persistent foreign body inflammatory response that can result in encapsulation of the implant by fibrotic tissue or contraction of the mesh; ● chronic post-operative pain; ● scar tissue formation and lack of regeneration of soft-tissue; ● permanent susceptibility to mesh infection; ● significant cost associated with subsequent repairs or failed and infected mesh; 11 Table of Contents ● compromised abdominal wall anatomy due to damaged and eroded tissue rendering subsequent surgical repairs challenging; and ● migration of the permanent synthetic mesh which can result in organ erosion or perforation.
Surgeons continue to use our OviTex PRS reinforced tissue matrices in their surgeries and, in addition to a potential IDE study, we have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products. ​ Intellectual Property Our success depends in part on our ability to obtain, maintain, protect and enforce our proprietary technology and intellectual property rights, in particular, our patent and trademark rights, preserving the confidentiality of our trade secrets, and operating without infringing the valid and enforceable patents and other proprietary rights of third parties.
Surgeons continue to use our OviTex PRS reinforced tissue matrices in their surgeries and, in addition to a potential IDE study, we have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products. ​ 22 Table of Contents Intellectual Property Our success depends in part on our ability to obtain, maintain, protect and enforce our proprietary technology and intellectual property rights, in particular, our patent and trademark rights, preserving the confidentiality of our trade secrets, and operating without infringing the valid and enforceable patents and other proprietary rights of third parties.
Of the enrolled patients, 78% 14 Table of Contents were characterized as high risk for experiencing an SSO based on at least one known risk factor, which included obesity, active smoking, COPD, diabetes mellitus, coronary artery disease, or advanced age (≥75 years).
Of the enrolled patients, 78% 15 Table of Contents were characterized as high risk for experiencing an SSO based on at least one known risk factor, which included obesity, active smoking, COPD, diabetes mellitus, coronary artery disease, or advanced age (≥75 years).
Despite these benefits, laparoscopic surgery presents surgeons with challenges, primarily due to restricted instrument dexterity that makes it difficult to achieve primary closure of the hernia defect, in which the connective tissue layer is sutured close, and leads to a bridged repair.
Despite these benefits, laparoscopic surgery presents surgeons with challenges, primarily due to restricted instrument dexterity that makes it difficult to achieve primary closure of the hernia defect, in which the connective tissue layer is sutured closed, and leads to a bridged repair.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the U.S. in July 2016, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. ​ Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million procedures annually.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the U.S. in July 2016 and in Europe in February 2019, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. ​ Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million procedures annually.
This preclinical data is 15 Table of Contents supported by our compelling clinical evidence showing the safety and efficacy of our OviTex products in published data on over 1,000 hernia patients. ● Long-term supply agreement that provides pricing flexibility.
This preclinical data is supported by our compelling clinical evidence showing the safety and efficacy of our OviTex products in published data on over 1,000 hernia patients. 16 Table of Contents ● Long-term supply agreement that provides pricing flexibility.
For example, several states have enacted legislation requiring manufacturers to, among other things, establish and implement commercial compliance programs, file periodic reports with the state, make periodic 33 Table of Contents public disclosures on sales, marketing, pricing, clinical trials and other activities and/or register their sales representatives. Certain state laws also regulate manufacturers’ use of physician and patient identifiable data.
For example, several states have enacted legislation requiring manufacturers to, among other things, establish and implement commercial compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities and/or register their sales representatives. Certain state laws also regulate manufacturers’ use of physician and patient identifiable data.
The amended Medical Devices Regulations 2002 have introduced several changes including (but not limited to) replacing the CE mark with a UKCA marking, requiring manufacturers outside of the United Kingdom to appoint a “UK Responsible Person” if they place devices on the market in the United Kingdom and more wide-ranging device registration requirements.
The 32 Table of Contents amended Medical Devices Regulations 2002 have introduced several changes including (but not limited to) replacing the CE mark with a UKCA marking, requiring manufacturers outside of the United Kingdom to appoint a “UK Responsible Person” if they place devices on the market in the United Kingdom and more wide-ranging device registration requirements.
The Food and Drug Administration Modernization Act of 1997, or FDAMA, established a new route to market for low to moderate risk medical devices that are automatically placed into 26 Table of Contents 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.
The Food and Drug Administration Modernization Act of 1997, or FDAMA, established a new 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.
In addition, we have engaged in discussions with the FDA regarding an IDE protocol to study the safety and effectiveness of our OviTex PRS portfolio for an indication in breast reconstruction surgery. The FDA has stated that a PMA, rather than 510(k) clearance, will be required for such an indication.
In addition, we have engaged in discussions with the FDA regarding an IDE protocol to study the safety and effectiveness of our OviTex PRS portfolio 24 Table of Contents for an indication in breast reconstruction surgery. The FDA has stated that a PMA, rather than 510(k) clearance, will be required for such an indication.
Long-term pain or discomfort at the hernia repair site is one of the most serious complications of hernia surgery and may, in some cases, persist for years. Given the limitations of and lack of innovation in existing hernia repair products, we believe a significant market opportunity exists for our portfolio of OviTex products.
Long-term pain or discomfort at the hernia repair site is one of the most serious complications of hernia surgery and may, in some cases, persist for years. 9 Table of Contents Given the limitations of and lack of innovation in existing hernia repair products, we believe a significant market opportunity exists for our portfolio of OviTex products.
Our OviTex PRS products are designed with a patented corner-lock stitch pattern designed to resist deformation and to control the degree and direction of stretching of the product. Our capabilities in polymer science, biologics, textile engineering and analytical testing enable us to quickly design innovative products for development and manufacture.
Our OviTex PRS products are designed with a patented corner-lock stitch pattern designed to resist deformation and to control the degree and direction of stretching of the product. 13 Table of Contents Our capabilities in polymer science, biologics, textile engineering and analytical testing enable us to quickly design innovative products for development and manufacture.
We are assessing additional strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing and future products in our distribution channel. ​ We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry.
We continue to assess additional strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing and future products in our distribution channel. ​ We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry.
The embroidering pattern varies between our OviTex and OviTex PRS portfolios to impart different biomechanical properties tailored for their respective intended clinical applications. Our OviTex products are designed with a lockstitch embroidery pattern that is sewn in a grid pattern to create a ripstop effect and minimize unraveling (when cut).
The embroidering pattern varies between our OviTex and OviTex PRS portfolios to impart different biomechanical properties tailored for their respective intended clinical applications. Our OviTex products are designed with a lockstitch embroidery pattern that is sewn in a grid pattern to minimize unraveling (when cut).
We believe this team is well-positioned to lead us through the commercial expansion of our products and development and launch of future products. 16 Table of Contents Our Growth Strategy Our goal is to become the leading provider of soft-tissue reconstruction products. The key elements of our strategy include: ● Expand our U.S. commercial organization to support our growth.
We believe this team is well-positioned to lead us through the commercial expansion of our products and development and launch of future products. Our Growth Strategy Our goal is to become the leading provider of soft-tissue reconstruction products. The key elements of our strategy include: ● Expand our U.S. commercial organization to support our growth.
The FDA has broad post-market and regulatory enforcement powers. Medical device manufacturers are subject to unannounced inspections by the FDA and other state, local and foreign regulatory authorities to assess compliance with 29 Table of Contents the QSR and other applicable regulations, and these inspections may include the manufacturing facilities of any suppliers.
The FDA has broad post-market and regulatory enforcement powers. Medical device manufacturers are subject to unannounced inspections by the FDA and other state, local and foreign regulatory authorities to assess compliance with the QSR and other applicable regulations, and these inspections may include the manufacturing facilities of any suppliers.
Despite improvements compared to the use of permanent synthetic mesh or biologic matrices, limitations of resorbable synthetic mesh may include: ● significant foreign body inflammatory response that can result in encapsulation or contraction of the mesh until resorbed; ● scar tissue formation and lack of remodeling of soft-tissue; ● mesh infection until resorbed; ● migration of the mesh until resorbed which can result in organ erosion or perforation; and ● lack of mid-term and long-term soft-tissue reinforcement as resorption progresses.
Despite improvements 12 Table of Contents compared to the use of permanent synthetic mesh or biologic matrices, current limitations of resorbable synthetic mesh may include: ● significant foreign body inflammatory response that can result in encapsulation or contraction of the mesh until resorbed; ● scar tissue formation and lack of remodeling of soft-tissue; ● mesh infection until resorbed; ● migration of the mesh until resorbed which can result in organ erosion or perforation; and ● lack of mid-term and long-term soft-tissue reinforcement as resorption progresses.
All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.
All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in 29 Table of Contents accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.
We expect our clinical evidence will provide surgeons with safety and efficacy data on 20 Table of Contents the appropriate use of our products and we plan to obtain further clinical evidence to support additional regulatory clearances or approvals of our reinforced tissue matrices for additional indications for use in the future.
We expect our clinical evidence will provide surgeons with safety and efficacy data on the appropriate use of our products and we plan to obtain further clinical evidence to support additional regulatory clearances or approvals of our reinforced tissue matrices for additional indications for use in the future.
In addition, an increasing emphasis on managed care in the U.S. has increased and will continue to increase the pressure on medical product and service pricing. Human Capital Resources As of December 31, 2022, we had 173 employees worldwide. None of our employees are represented by a collective bargaining agreement and we have never experienced a work stoppage.
In addition, an increasing emphasis on managed care in the U.S. has increased and will continue to increase the pressure on medical product and service pricing. Human Capital Resources As of December 31, 2023, we had 227 employees worldwide. None of our employees are represented by a collective bargaining agreement and we have never experienced a work stoppage.
Aroa License In August 2012, we entered into the Aroa License, which was amended and restated in July 2015, pursuant to which we obtained an exclusive license to certain patents and know-how to develop, commercialize and sell bovine and ovine extracellular matrix products for hernia repair, abdominal wall and breast reconstruction in North America and Europe, 21 Table of Contents which we refer to as the Licensed Territory.
Aroa License In August 2012, we entered into the Aroa License, which was amended and restated in July 2015, pursuant to which we obtained an exclusive license to certain patents and know-how to develop, commercialize and sell bovine and ovine extracellular matrix products for hernia repair, abdominal wall and breast reconstruction in North America and Europe, which we refer to as the Licensed Territory.
The statute prohibits many arrangements and practices that are otherwise lawful in 32 Table of Contents businesses outside of the healthcare industry. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The statute prohibits many arrangements and practices that are otherwise lawful in businesses outside of the healthcare industry. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Violations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business.
Violations could 35 Table of Contents result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business.
These products are priced competitively and designed for use with a range of surgical techniques, allowing the benefits 12 Table of Contents of an advanced biologic repair to be available to more patients for use in accordance with the products’ 510(k) clearances and instructions for use.
These products are priced competitively and designed for use with a range of surgical techniques, allowing the benefits of an advanced biologic repair to be available to more patients for use in accordance with the products’ 510(k) clearances and instructions for use.
The clinical investigators in the clinical study are also subject to FDA good clinical practice regulations and must obtain patient informed consent, rigorously follow the investigational plan and study 28 Table of Contents protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements.
The clinical investigators in the clinical study are also subject to FDA good clinical practice regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements.
As part of our commercial strategy, we plan to continue to invest in our commercial organization by hiring additional territory managers and administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction procedures.
As part of our commercial strategy, we plan to continue to invest in our commercial organization by hiring additional territory managers and administrative and field-based support 8 Table of Contents employees to support and service new accounts for soft-tissue reconstruction procedures.
Under the MDR, the system of regulating medical devices operates by way of a certification for each medical device, which confirms that the device meets the relevant general safety and performance requirements laid down in Annex I of 30 Table of Contents the MDR.
Under the MDR, the system of regulating medical devices operates by way of a certification for each medical device, which confirms that the device meets the relevant general safety and performance requirements laid down in Annex I of the MDR.
In chest wall 9 Table of Contents reconstruction, biologic matrices are used to repair defects from oncologic resections. In pelvic reconstruction, biologic matrices are utilized as an adjunct in the reconstruction of acquired pelvic defects caused by resections for colorectal, gynecologic and urologic malignancies.
In chest wall reconstruction, biologic matrices are used to repair defects from oncologic resections. In pelvic reconstruction, biologic matrices are utilized as an adjunct in the reconstruction of acquired pelvic defects caused by resections for colorectal, gynecologic and urologic malignancies.
We believe these technology enhancements will continue to bolster our portfolio and expand the successful use of our products. 17 Table of Contents ● Expand our service offerings and diversify our supplier base to create a broader soft tissue preservation and restoration portfolio.
We believe these technology enhancements will continue to bolster our portfolio and expand the successful use of our products. ● Expand our service offerings and diversify our supplier base to create a broader soft tissue preservation and restoration portfolio.
When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval 27 Table of Contents letter authorizing commercial marketing of the device, subject to the conditions of approval and the limitations established in the approval letter.
When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, subject to the conditions of approval and the limitations established in the approval letter.
Polymer fibers are interwoven through the layers of biologic material in unique embroidered patterns and contribute to approximately 5% of the overall device by mass. The interwoven polymer utilized can be either permanent, made from polypropylene, or resorbable, made from polyglycolic acid (“PGA”).
Polymer fibers are interwoven through the layers of biologic material in unique embroidered patterns and contribute to approximately 5% of the overall device by mass. The interwoven polymer utilized can be either permanent, made from polypropylene, or resorbable, made from polyglycolic acid (“PGA”) or polylactic-co-glycolic acid (“PLGA”).
In addition to our U.S. intellectual property, we also own three issued non-U.S. patents and four pending non-U.S. patent applications, which, subject to issuance, would be projected to expire between 2036 and 2037 and have exclusively licensed issued patents in Europe and Canada that will expire in 2029.
In addition to our U.S. intellectual property, we also own five issued non-U.S. patents and three pending non-U.S. patent applications, which, subject to issuance, would be projected to expire between 2036 and 2040 and have exclusively licensed issued patents in Europe and Canada that will expire in 2029.
We plan to continue to invest in our commercial organization by hiring additional territory managers and administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction procedures. 23 Table of Contents Manufacturing All our raw materials are sourced through and manufactured by Aroa in their Auckland, New Zealand facility under the terms of the Aroa License.
We plan to continue to invest in our commercial organization by hiring additional territory managers and administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction procedures. Manufacturing The majority of our raw materials are sourced through and manufactured by Aroa in their Auckland, New Zealand facility under the terms of the Aroa License.
Our OviTex PRS product is available in arced rectangle and half-moon shapes in a range of sizes (4 × 16 cm through 20 × 20 cm) to suit surgeon preference and nature of the soft-tissue repair in plastic and reconstructive surgery. The device may be trimmed to a desired shape to further accommodate individual anatomy.
Our OviTex PRS product is available in arced rectangle, contour and oval shapes in a range of sizes (4 × 16 cm through 20 × 25 cm) to suit surgeon preference and nature of the soft-tissue repair in plastic and reconstructive surgery. The device may be trimmed to a desired shape to further accommodate individual anatomy.
We believe we can enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs leveraging support from our medical education and clinical development functions to drive physician awareness and education on our products, and utilizing engagement analytics to support product development.
We believe we can enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs, leveraging support from our medical education and medical affairs functions to drive physician awareness, education and clinical understanding of our products, and utilizing engagement analytics to support further product development and enhancement opportunities.
Currently, the GDPR and UK GDPR remain largely aligned, but the United Kingdom has announced plans to reform the country’s data protection legal framework in its Data Reform Bill, which will introduce significant changes from the GDPR.
Currently, the GDPR and 33 Table of Contents UK GDPR remain largely aligned, but the United Kingdom has announced plans to reform the country’s data protection legal framework in its Data Reform Bill, which will introduce significant changes from the GDPR.
We are also actively enrolling patients in our BRAVO II study, a prospective study evaluating robot-assisted ventral and inguinal hernia repairs with OviTex, including our OviTex LPR, OviTex Core Permanent and OviTex 1S Permanent configurations.
We are also actively enrolling patients in our BRAVO II study, a prospective study evaluating robot-assisted ventral and inguinal hernia repairs with OviTex, including our OviTex LPR, OviTex Core Permanent and OviTex 1S Permanent configurations. ● Lower upfront cost products.
Robotic-assisted surgery is also performed using small incisions in the patient’s abdomen or groin and a trocar, but the surgeon sits at a console in the operating room and operates the robotic instruments remotely.
Robotic- 10 Table of Contents assisted surgery is also performed using small incisions in the patient’s abdomen or groin and a trocar, but the surgeon sits at a console in the operating room and operates the robotic instruments remotely.
We plan to continue to invest in our commercial organization by hiring additional territory managers and administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction procedures.
We plan to continue to invest 17 Table of Contents in our commercial organization by hiring additional territory managers and administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction procedures.
Resorbable Synthetic Mesh Resorbable synthetic mesh was introduced as a third category of hernia repair materials and as an alternative to permanent synthetic mesh and biologic matrices.
Resorbable Synthetic Mesh Resorbable synthetic mesh, including biologically-derived synthetic mesh, was introduced as a third category of hernia repair materials and as an alternative to permanent synthetic mesh and biologic matrices.
Food and Drug Administration (“FDA”), which clearance was obtained and is currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019, our OviTex PRS products received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is currently held by us.
Food and Drug Administration (“FDA”), which clearances were obtained and are currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019, our first OviTex PRS products received 510(k) clearance from the FDA, which clearance was initially obtained by Aroa and is currently held by us.
We have invested in our direct sales and marketing infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2022, we had 67 sales territories in the U.S.
We have invested in our direct sales and marketing infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2023, we had 91 sales territories in the U.S.
Synthetic mesh products have been the subject of an increasing number of lawsuits with over 24,000 cases filed in federal and state courts across the U.S. as of September 2022. Biologic Matrices The complications associated with permanent synthetic mesh prompted the development of biologic matrices as a second category of hernia repair materials.
Synthetic mesh products have been the subject of an increasing number of lawsuits with over 25,000 cases filed in federal and state courts across the U.S. as of March 2024. Biologic Matrices The complications associated with permanent synthetic mesh prompted the development of biologic matrices as a second category of hernia repair materials.
Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable market opportunity for our OviTex PRS products to be approximately $700 million. 7 Table of Contents Our OviTex products have received 510(k) clearance from the U.S.
Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable market opportunity for our OviTex PRS products to be approximately $700 million. ​ Our OviTex products have received 510(k) clearances from the U.S.
To be used in surgery our OviTex product is placed in a sterile dish, rehydrated with sterile saline for five minutes, trimmed to fit the site, if needed, and then positioned to achieve maximum contact between the device and the surrounding tissue.
To be used in surgery our OviTex product is placed in a sterile dish, rehydrated with sterile saline for five minutes, trimmed to fit the site, if needed, and then positioned to achieve maximum contact between the device and the surrounding tissue. The device may be sutured, stapled or tacked into place.
The 31 Table of Contents regulations also require business associates of covered entities to notify the covered entity of breaches by the business associate.
The regulations also require business associates of covered entities to notify the covered entity of breaches by the business associate.
If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device.
If the FDA determines that the device is “not substantially 27 Table of Contents equivalent” to a previously cleared device, the device is automatically designated as a Class III device.
Ovine rumen, the forestomach of a sheep, is the source of the biologic material used in our OviTex portfolio products. In manufacturing the product, we use biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen architecture that allows for rapid cellular infiltration.
Ovine rumen is the source of the biologic material used in our OviTex and OviTex PRS products. We use biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen architecture that allows for rapid cellular infiltration.
We sell our products through a single direct sales organization in the U.S. As of December 31, 2022, we had 67 sales territories in the U.S. which are supported by 123 employees in our U.S. based commercial organization.
We sell our products through a single direct sales organization in the U.S. As of December 31, 2023, we had 91 sales territories in the U.S. which are supported by 166 employees in our U.S. based commercial organization.
As of December 31, 2022, we had 123 employees in our U.S. based commercial organization in 67 sales territories, which includes sales management, territory managers, marketing and administrative and field-based support staff.
As of December 31, 2023, we had 166 employees in our U.S. based commercial organization in 91 sales territories, which includes sales management, territory managers, marketing and administrative and field-based support staff.
We have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products. ​ We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue restoration portfolio, including through the development of complimentary solutions targeting surgical wound management and infection control.
We have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products. ​ We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue preservation and restoration portfolio, including through the development of complimentary solutions in our indications such as atraumatic mesh fixation devices or surgical wound management and infection control.
Our revenue for the years ended December 31, 2022 and 2021 was $41.4 million and $29.5 million, respectively, which represents an increase of $12.0 million, or 41% for the year ended December 31, 2022.
Our revenue for the years ended December 31, 2023 and 2022 was $58.5 million and $41.4 million, respectively, which represents an increase of $17.0 million, or 41% for the year ended December 31, 2023.
We own fifteen U.S. issued or allowed patents which will expire between 2035 and 2038 and nine pending U.S. patent applications, which subject to issuance, are projected to expire between 2035 and 2042, without taking into account potential patent term extensions or adjustments.
We own seventeen U.S. issued or allowed patents which will expire between 2035 and 2041 and sixteen pending U.S. patent applications, which subject to issuance, are projected to expire between 2035 and 2044, without taking into account potential patent term extensions or adjustments.
Compared to permanent synthetic mesh, biologic matrices are less likely to induce this inflammatory response and become infected; however, they may have the following limitations: ● lack strength or durability as compared to synthetic mesh products; ● prone to laxity and stretching; ● difficult to handle, leading to longer operating times as compared to synthetic mesh products; ● inability to be placed in a patient through a trocar in laparoscopic or robotic-assisted surgery; and ● considerably more expensive upfront costs than permanent synthetic mesh, typically limiting their use to complex hernia repairs or abdominal wall reconstructions. 11 Table of Contents Though hernia recurrence occurs with the use of all types of soft-tissue reconstruction, biologic matrices have the highest rates of recurrence, partly due to common use in complex hernia repairs or abdominal wall reconstructions.
Compared to permanent synthetic mesh, biologic matrices are less likely to induce this inflammatory response and become infected; however, they may have the following limitations: ● lack strength or durability as compared to synthetic mesh products; ● prone to laxity and stretching; ● difficult to handle, leading to longer operating times as compared to synthetic mesh products; ● inability to be placed in a patient through a trocar in laparoscopic or robotic-assisted surgery; and ● considerably more expensive upfront costs than permanent synthetic mesh, typically limiting their use to complex hernia repairs or abdominal wall reconstructions.
We experienced volatility in demand for our products which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns, decreasing the volume of elective procedures using our products.
Our business was directly impacted by the COVID-19 pandemic. We experienced volatility in demand for our products which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns, decreasing the volume of elective procedures using our products.
Transparency Laws The federal Physician Payments Sunshine Act (“Sunshine Act”) which was enacted as part of the Patient Protection and Affordable Care Act (“PPACA”) generally requires certain manufacturers of a drug, device, biologic or other medical supply that is covered by Medicare, Medicaid or the Children’s Health Insurance Program and applicable GPOs to report on an annual basis: (i) certain payments and other transfers of value given to certain healthcare professionals and teaching hospitals and (ii) any ownership or investment interest that certain healthcare professionals, or their immediate family members, have in their company.
A determination of liability under such laws could result in fines and penalties and restrictions on a company’s ability to operate in these jurisdictions. 34 Table of Contents Transparency Laws The federal Physician Payments Sunshine Act (“Sunshine Act”) which was enacted as part of the Patient Protection and Affordable Care Act (“PPACA”) generally requires certain manufacturers of a drug, device, biologic or other medical supply that is covered by Medicare, Medicaid or the Children’s Health Insurance Program and applicable GPOs to report on an annual basis: (i) certain payments and other transfers of value given to certain healthcare professionals and teaching hospitals and (ii) any ownership or investment interest that U.S. physicians, or their immediate family members, have in their company.
OviTex LPR was designed for use with a trocar and requires the same rehydration and fixation as our other OviTex products. This product includes design elements to improve surgical handling, including two extra embroidered lines of blue colored polypropylene fibers to enhance endoscopic orientation and alignment. This product can be introduced into the patient’s body through various sized trocar ports.
OviTex LPR was designed for use with a trocar and requires the same rehydration and fixation as our other OviTex products. This product includes design elements to improve surgical handling, including two extra embroidered lines of blue colored polypropylene fibers (ellipse shapes) to enhance endoscopic orientation and alignment.
Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process. 25 Table of Contents Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed novel and not substantially equivalent to a medical device cleared through the 510(k) process.
Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed novel and not substantially equivalent to a medical device cleared through the 510(k) process.
The U.S. government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls and restrictions on reimbursement.
Healthcare Reform The U.S. and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system. The U.S. government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls and restrictions on reimbursement.
Our OviTex PRS product is a sterile reconstructive reinforced tissue matrix composed of three layers of ovine rumen joined by a patented corner-lock embroidered diamond patterned polymer (PGA or polypropylene) that allows the product to stretch while also maintaining its shape.
Our OviTex PRS portfolio is a sterile reconstructive reinforced tissue matrix that comes in three different options. The short-term resorbable and permanent PRS options are composed of two or three layers of ovine rumen joined by a patented corner-lock embroidered diamond patterned polymer (PGA or polypropylene) that allows the product to stretch uni-directionally while also maintaining its shape.
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the U.S. will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDCA also referred to as a 510(k) clearance, or approval from the FDA of a PMA application.
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the U.S. will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDCA also referred to as a 510(k) clearance, or approval from the FDA of a PMA application. 26 Table of Contents Both the 510(k) clearance and PMA processes can be resource intensive, expensive, and lengthy, and require payment of significant user fees, unless an exemption is available.
Our net loss for the same time periods was $44.3 million and $33.3 million, respectively, which represents an increase of $11.0 million, or 33% for the year ended December 31, 2022. As of December 31, 2022, we had an accumulated deficit of $274.2 million.
Our net loss for the same time periods was $46.7 million and $44.3 million, respectively, which represents an increase of $2.4 million, or 5% for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $320.9 million.
In addition, we have also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as OviTex LPR and began commercializing this product in November 2018.
In addition, we have also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as OviTex LPR and we began commercializing this product in November 2018. In February 2023, we launched two new, larger configurations of OviTex LPR, designed for ventral and incisional hernias.
Among other requirements, the GDPR regulates cross-border transfers of personal data and requires transferee countries to have protections equivalent to protections available in the EU.
Among other requirements, the GDPR regulates cross-border transfers of personal data and requires transferee countries to have protections equivalent to protections available in the EU. In July 2023, the EU adopted the EU-U.S. Data Privacy Framework (“DPF”) to facilitate cross-border transfers of data from the EU to the U.S.
Upon termination of the Aroa License, we have the right to purchase all or any part of the unsold portion of any completed products from Aroa and the right to continue to sell all products remaining in our inventory. The Aroa License also contains customary representations and warranties, confidentiality, insurance, audit, indemnification and non-competition provisions.
Upon termination of the Aroa License, we have the right to purchase all or any part of the unsold portion of any completed products from Aroa and the right to continue to sell all products remaining in our inventory.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese factors could include, but may not be limited to, the following: ● Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets; ● Loss of access to working capital sources and/or the inability to refund, roll over or extend the maturity of, or enter into new credit facilities or other working capital resources; ● Potential or actual breach of financial covenants in our credit agreements or credit arrangements; ● Potential or actual cross-defaults in other credit agreements, credit arrangements or operating or financing agreements; or 41 Table of Contents ● Termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management arrangements. ​ In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.
Biggest changeIn addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.
Our ability to accurately forecast demand for such products could be negatively affected by many factors, including: ● product introductions by competitors; 71 Table of Contents ● an increase or decrease in surgeon demand for our products or for products of our competitors; ● our failure to accurately manage our expansion strategy; ● our failure to accurately forecast surgeon acceptance of new products; ● our failure to obtain contracts with a significant number of GPOs and IDNs; ● unanticipated changes in general market conditions or regulatory matters; ● the severity and duration of market disruptions as a result of the COVID-19 outbreak; and ● weakening of economic conditions or consumer confidence.
Our ability to accurately forecast demand for such products could be negatively affected by many factors, including: ● product introductions by competitors; ● an increase or decrease in surgeon demand for our products or for products of our competitors; ● our failure to accurately manage our expansion strategy; ● our failure to accurately forecast surgeon acceptance of new products; ● our failure to obtain contracts with a significant number of GPOs and IDNs; ● unanticipated changes in general market conditions or regulatory matters; ● the severity and duration of market disruptions as a result of the COVID-19 outbreak; and 71 Table of Contents ● weakening of economic conditions or consumer confidence.
Accordingly, there is 77 Table of Contents uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. General Risk Factors Our ability to maintain our competitive position depends on our ability to attract and retain senior management and other highly qualified personnel.
Accordingly, there is uncertainty as to whether a 77 Table of Contents court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. General Risk Factors Our ability to maintain our competitive position depends on our ability to attract and retain senior management and other highly qualified personnel.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including: ● the volume and timing of sales of our products; ● the introduction of new products or product enhancements by us or others in our industry; ● disputes or other developments with respect to our or others’ intellectual property rights; ● our ability to develop, obtain regulatory clearance for, and market new and enhanced products on a timely basis; ● product liability claims or other litigation; ● quarterly variations in our results of operations or those of others in our industry; ● media exposure of our products or of those of others in our industry; ● changes in governmental regulations or in reimbursement; ● changes in earnings estimates or recommendations by securities analysts; ● broad trends impacting companies within the pharmaceutical, biotechnology and medical technology industries; and ● general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors, including any economic downturn as a result of the COVID-19 pandemic, or macroeconomic factors such as geopolitical tensions or the outbreak of hostilities or war.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including: ● the volume and timing of sales of our products; ● the introduction of new products or product enhancements by us or others in our industry; ● disputes or other developments with respect to our or others’ intellectual property rights; ● our ability to develop, obtain regulatory clearance for, and market new and enhanced products on a timely basis; ● product liability claims or other litigation; ● quarterly variations in our results of operations or those of others in our industry; ● media exposure of our products or of those of others in our industry; ● changes in governmental regulations or in reimbursement; ● changes in earnings estimates or recommendations by securities analysts; ● broad trends impacting companies within the pharmaceutical, biotechnology and medical technology industries; and ● general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors, including any economic downturn as a result of the COVID-19 pandemic, or macroeconomic factors such as geopolitical tensions or the outbreak or escalation of hostilities or war.
These provisions provide, among other things, that: ● our board of directors has the exclusive right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; ● our stockholders may not act by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; ● a special meeting of stockholders may be called only by the chair of our board of directors, our chief executive officer (or president, in the absence of a chief executive officer) or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; ● our fourth amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● our board of directors may alter certain provisions of our second amended and restated bylaws without obtaining stockholder approval; 76 Table of Contents ● the approval of the holders of at least two-thirds of our shares entitled to vote at an election of our board of directors is required to adopt, amend or repeal our second amended and restated bylaws or repeal the provisions of our fourth amended and restated certificate of incorporation regarding the election and removal of directors; ● stockholders must provide advance notice and additional disclosures to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain voting control of our shares; and ● our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
These provisions provide, among other things, that: ● our board of directors has the exclusive right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; ● our stockholders may not act by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; ● a special meeting of stockholders may be called only by the chair of our board of directors, our chief executive officer (or president, in the absence of a chief executive officer) or a majority of our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; ● our fourth amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● our board of directors may alter certain provisions of our third amended and restated bylaws without obtaining stockholder approval; 76 Table of Contents ● the approval of the holders of at least two-thirds of our shares entitled to vote at an election of our board of directors is required to adopt, amend or repeal our third amended and restated bylaws or repeal the provisions of our fourth amended and restated certificate of incorporation regarding the election and removal of directors; ● stockholders must provide advance notice and additional disclosures to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain voting control of our shares; and ● our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
For example: ● others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our 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; ● we may not be able to successfully commercialize our products before our relevant patents we may have, or to which we have ownership rights through licensing agreements, expire; ● others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; 55 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.
For example: ● others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our 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; ● we may not be able to successfully commercialize our products before our relevant patents we may have, or to which we have ownership rights through licensing agreements, expire; ● others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; 56 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.
The degree of market acceptance of any of our products will depend on a number of factors, including: ● whether surgeons and others in the medical community consider our products to be safe, effective and cost effective; ● the potential and perceived advantages of our products over alternative products; ● the effectiveness of our sales and marketing efforts for our products; ● the prevalence and severity of any complications associated with using our products; ● the convenience and ease of use of our products relative to competing products; ● product labeling or product insert requirements by regulatory authorities; 42 Table of Contents ● the competitive pricing of our products; ● the quality of our products meeting patient and surgeon expectations; ● the results of clinical trials and post-market clinical studies relating to the use of our products; ● pricing pressure, including from GPOs and government payors; ● the availability of coverage and adequate reimbursement for procedures using our products from third-party payors, including government authorities; ● the willingness of patients to pay out-of-pocket for our products in the absence of coverage and adequate reimbursement by third-party payors, including government authorities; and ● our ability to provide incremental clinical and economic data that show the safety, clinical efficacy and cost effectiveness, and patient benefits from, our products.
The degree of market acceptance of any of our products will depend on a number of factors, including: ● whether surgeons and others in the medical community consider our products to be safe, effective and cost effective; ● the potential and perceived advantages of our products over alternative products; ● the effectiveness of our sales and marketing efforts for our products; ● the prevalence and severity of any complications associated with using our products; ● the convenience and ease of use of our products relative to competing products; ● product labeling or product insert requirements by regulatory authorities; ● the competitive pricing of our products; ● the quality of our products meeting patient and surgeon expectations; ● the results of clinical trials and post-market clinical studies relating to the use of our products; ● pricing pressure, including from GPOs and government payors; ● the availability of coverage and adequate reimbursement for procedures using our products from third-party payors, including government authorities; 43 Table of Contents ● the willingness of patients to pay out-of-pocket for our products in the absence of coverage and adequate reimbursement by third-party payors, including government authorities; and ● our ability to provide incremental clinical and economic data that show the safety, clinical efficacy and cost effectiveness, and patient benefits from, our products.
Our fourth amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United State District Court for the District of Delaware) is the exclusive forum, to the fullest extent permitted by law, for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our fourth amended and restated certificate of incorporation or second amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine, except, in each case, (A) any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction, in all cases subject to the courts having jurisdiction over indispensable parties named as defendants.
Our fourth amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United State District Court for the District of Delaware) is the exclusive forum, to the fullest extent permitted by law, for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our fourth amended and restated certificate of incorporation or third amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine, except, in each case, (A) any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction, in all cases subject to the courts having jurisdiction over indispensable parties named as defendants.
The SCCs had to be in place by December 27, 2022, whereas the IDTA must be implemented in all existing contracts by March 21, 2024. Finalizing the implementation of the updated SCCs and UK IDTA, and conducting the required risk assessments, may continue to necessitate significant contractual overhaul of our data transfer arrangements with customers, sub-processors and vendors.
The SCCs had to be in place by December 27, 2022, whereas the IDTA had to be implemented in all existing contracts by March 21, 2024. Finalizing the implementation of the updated SCCs and UK IDTA, and conducting the required risk assessments, may continue to necessitate significant contractual overhaul of our data transfer arrangements with customers, sub-processors and vendors.
Even if surgeons or medical professionals use our OviTex products only for their approved indications, a failure by such surgeons and medical professionals to use our products in accordance with the processes and procedures established to properly utilize our OviTex products could result in product liability lawsuits, costly investigations and potentially affect our ability to achieve sufficient market penetration for our OviTex products.
Even if surgeons or medical professionals use our OviTex and OviTex PRS products only for their approved indications, a failure by such surgeons and medical professionals to use our products in accordance with the processes and procedures established to properly utilize our OviTex and OviTex PRS products could result in product liability lawsuits, costly investigations and potentially affect our ability to achieve sufficient market penetration for our OviTex and OviTex PRS products.
While there have been minimal disruptions to our supply chain to date, there is a risk that in the future supplies of our products could be disrupted or delayed based on competition within a tightening supply chain or otherwise affected by substantial inflationary pressures due to macroeconomic conditions.
While there have been minimal disruptions to our supply chain to date, there is a risk that in the future supplies of our products could be disrupted or delayed based on competition within the supply chain or otherwise affected by substantial inflationary pressures due to macroeconomic conditions.
Regulatory authorities are concerned about the potential for the transmission of disease, particularly progressive neurodegenerative disorders, from animals to humans via those materials. In addition, the COVID-19 pandemic has heightened public awareness of animals and animal products as a disease vector.
Regulatory authorities are concerned about the potential for the transmission of disease, particularly progressive neurodegenerative disorders, from animals to humans via those materials. In addition, the COVID-19 pandemic heightened public awareness of animals and animal products as a disease vector.
The failure to comply with applicable regulations could jeopardize our ability to sell our reinforced tissue matrix products and result in enforcement actions such as: ● warning letters, untitled letters or Form 483s; ● fines; ● injunctions; ● civil penalties; 57 Table of Contents ● termination of distribution; ● recalls or seizures of products; ● delays in the introduction of products into the market; ● total or partial suspension of production; ● refusal to grant future clearances or approvals; ● withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and ● in the most serious cases, criminal penalties.
The failure to comply with applicable regulations could jeopardize our ability to sell our reinforced tissue matrix products and result in enforcement actions such as: ● warning letters, untitled letters or Form 483s; ● fines; ● injunctions; 58 Table of Contents ● civil penalties; ● termination of distribution; ● recalls or seizures of products; ● delays in the introduction of products into the market; ● total or partial suspension of production; ● refusal to grant future clearances or approvals; ● withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and ● in the most serious cases, criminal penalties.
Any of these actions could significantly and negatively affect supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and experience reduced sales and increased costs.
Any of these actions could significantly and negatively affect the supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and experience reduced sales and increased costs.
If Aroa fails to comply with all applicable regulatory requirements and maintain the FDA clearances related to our OviTex and OviTex LPR products, we may be unable to commercialize our OviTex and OviTex LPR products on a timely basis, or at all.
If Aroa fails to comply with all applicable regulatory requirements and maintain the FDA clearances related to our OviTex products, we may be unable to commercialize our OviTex products on a timely basis, or at all.
If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture and sell products that are 49 Table of Contents covered by the licensed technology, having to negotiate new or reinstated licenses on less favorable terms, or enabling a competitor to gain access to the licensed technology.
If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture and sell products that are 50 Table of Contents covered by the licensed technology, having to negotiate new or reinstated licenses on less favorable terms, or enabling a competitor to gain access to the licensed technology.
The continuing uncertainty surrounding global economic conditions and financial markets, including the lingering economic impact of the COVID-19 pandemic on our customers, may adversely affect demand for our products and procedures and result in lower reimbursement rates or coverage for our products, resulting in lower sales volume and downward pricing pressure on our products and slower adoption of new products. ​ The full extent to which the global economic forces, including the COVID-19 pandemic, will further, directly or indirectly, impact our business, results of operations and financial condition, including our sales, expenses, manufacturing capability, supply chain integrity, research and development activities, and employee-related matters, will depend on future developments that are highly uncertain. ​ 40 Table of Contents Information pertaining to the impact of the COVID-19 pandemic and these macroeconomic pressures on our operations to date can be found in “Management's Discussion and Analysis of Financial Position and Results of Operations” in this Annual Report on Form 10-K. ​ Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our product or a decrease in consumer spending results in lower volumes of elective surgeries.
The continuing uncertainty surrounding global economic conditions and financial markets, including the lingering economic impact of the COVID-19 pandemic on our customers, may adversely affect demand for our products and procedures and result in lower reimbursement rates or coverage for our products, resulting in lower sales volume and downward pricing pressure on our products and slower adoption of new products. ​ The full extent to which these macroeconomic factors, will further, directly or indirectly, impact our business, results of operations and financial condition, including our sales, expenses, manufacturing capability, supply chain integrity, research and development activities, and employee-related matters, will depend on future developments that are highly uncertain. ​ 41 Table of Contents Information pertaining to the impact of these macroeconomic pressures on our operations to date can be found in “Management's Discussion and Analysis of Financial Position and Results of Operations” in this Annual Report on Form 10-K. ​ Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our product or a decrease in consumer spending results in lower volumes of elective surgeries.
If Aroa’s manufacturing activities are adversely impacted or if it is otherwise unable to keep up with demand for our OviTex portfolio products by successfully manufacturing, assembling, testing and shipping our OviTex portfolio products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products, which would have a material adverse effect on our business, financial condition and results of operations.
If Aroa’s manufacturing activities are adversely impacted or if it is otherwise unable to keep up with demand for our OviTex and OviTex PRS products by successfully manufacturing, assembling, testing and shipping our OviTex and OviTex PRS products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products, which would have a material adverse effect on our business, financial condition and results of operations.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability. 61 Table of Contents On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Devices Directive and the Active Implantable Medical Devices Directive.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability. 62 Table of Contents On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Devices Directive and the Active Implantable Medical Devices Directive.
If we are unable to establish redundant manufacturing facilities in a timely manner, any disruption in the manufacture of our OviTex portfolio products at Aroa’s manufacturing and warehouse facility, the continued commercialization of our OviTex portfolio products, the supply of our OviTex portfolio products to customers and the development of any new reinforced tissue matrix products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.
If we are unable to establish redundant manufacturing facilities in a timely manner, any disruption in the manufacture of our OviTex and OviTex PRS products at Aroa’s manufacturing and warehouse facility, the continued commercialization of our OviTex and OviTex PRS products, the supply of our OviTex and OviTex PRS products to customers and the development of any new reinforced tissue matrix products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.
If we or our licensors fail to maintain the patents and patent applications covering our product or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our products. 54 Table of Contents Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
If we or our licensors fail to maintain the patents and patent applications covering our product or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our products. 55 Table of Contents Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. 52 Table of Contents In addition, we generally indemnify our customers with respect to infringement by our products of the proprietary rights of third parties.
There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. 53 Table of Contents In addition, we generally indemnify our customers with respect to infringement by our products of the proprietary rights of third parties.
If Aroa fails to meet demand or notifies us that it believes it will fail to meet demand for our OviTex portfolio products, we are required under the Aroa License to work with Aroa to cure its supply failure and may, only in certain circumstances and on a temporary basis, engage a replacement contract manufacturer to mitigate a failure by Aroa to meet demand for our OviTex portfolio products.
If Aroa fails to meet demand or notifies us that it believes it will fail to meet demand for our OviTex and OviTex PRS products, we are required under the Aroa License to work with Aroa to cure its supply failure and may, only in certain circumstances and on a temporary basis, engage a replacement contract manufacturer to mitigate a failure by Aroa to meet demand for our OviTex and OviTex PRS products.
In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters, disease or other service interruptions affecting delivery services we use would adversely affect our ability to deliver our OviTex portfolio products (or any other products we commercialize in the future) on a timely basis.
In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters, disease or other service interruptions affecting delivery services we use would adversely affect our ability to deliver our OviTex and OviTex PRS products (or any other products we commercialize in the future) on a timely basis.
If there is a disruption in the supply of ovine rumen to our manufacturer and supplier, we may be unable to fulfill customer orders or delay the commercialization of new products. 48 Table of Contents We may also be prohibited from importing our products into the U.S. in the event of disease outbreak or other event impacting the sheep population in New Zealand.
If there is a disruption in the supply of ovine rumen to our manufacturer and supplier, we may be unable to fulfill customer orders or delay the commercialization of new products. 49 Table of Contents We may also be prohibited from importing our products into the U.S. in the event of disease outbreak or other event impacting the sheep population in New Zealand.
Our officers, directors and principal stockholders each holding more than 5% of our common stock, collectively, control approximately 56% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to significantly influence our management and affairs and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.
Our officers, directors and principal stockholders each holding more than 5% of our common stock, collectively, control approximately 46% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to significantly influence our management and affairs and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.
The production of all of our OviTex portfolio products in a single location exposes us to the risk of Aroa’s facility being harmed or rendered inoperable by natural or man-made disasters or pandemics, which may render it difficult or impossible for Aroa to perform its manufacturing and assembly activities for some time.
The production of all of our OviTex and OviTex PRS products in a single location exposes us to the risk of Aroa’s facility being harmed or rendered inoperable by natural or man-made disasters or pandemics, which may render it difficult or impossible for Aroa to perform its manufacturing and assembly activities for some time.
Increased inflation may result in decreased demand for our products, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation.
Increased inflation may result in decreased demand for our products, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may in the future raise, interest rates in response to concerns about inflation.
The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations. 38 Table of Contents We may require substantial additional capital to finance our planned operations, which may not be available to us on acceptable terms or at all.
The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations. 39 Table of Contents We may require substantial additional capital to finance our planned operations, which may not be available to us on acceptable terms or at all.
Conversely, if demand for our OviTex portfolio products shifts such that Aroa’s manufacturing facility is operated below its capacity for an extended period, it may adjust its manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period.
Conversely, if demand for our OviTex and OviTex PRS products shifts such that Aroa’s manufacturing facility is operated below its capacity for an extended period, it may adjust its manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period.
Additionally, in the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and 53 Table of Contents marketing new brands. Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks.
Additionally, in the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and 54 Table of Contents marketing new brands. Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks.
To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, 56 Table of Contents and either have the same technological characteristics as the predicate device or have different technological characteristics and the information in the premarket notification demonstrates that the device is as safe and effective and does not raise different questions of safety or effectiveness than the predicate device.
To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, 57 Table of Contents and either have the same technological characteristics as the predicate device or have different technological characteristics and the information in the premarket notification demonstrates that the device is as safe and effective and does not raise different questions of safety or effectiveness than the predicate device.
Other parties may have developed technologies that may be related or competitive to our OviTex portfolio products, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position.
Other parties may have developed technologies that may be related or competitive to our OviTex and OviTex PRS products, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position.
If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines 72 Table of Contents or other sanctions, including the imposition of civil, criminal and administrative penalties, additional integrity reporting and oversight obligations and possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, any of which could adversely affect our ability to operate our business and our results of operations.
If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, additional integrity reporting and oversight obligations and possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, any of which could adversely affect our ability to operate our business and our results of operations.
If Aroa is unable to supply the raw materials and components or to manufacture and assemble our OviTex portfolio products reliably and at the levels we anticipate or that are required by the market, we may be unable to acquire a substitute supply of raw materials and components on a timely basis, if at all.
If Aroa is unable to supply the raw materials and components or to manufacture and assemble our OviTex and OviTex PRS products reliably and at the levels we anticipate or that are required by the market, we may be unable to acquire a substitute supply of raw materials and components on a timely basis, if at all.
Provisions in our fourth amended and restated certificate of incorporation and our second amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares.
Provisions in our fourth amended and restated certificate of incorporation and our third amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares.
We, or our partners, may experience development or manufacturing problems, capacity constraints, or delays in the production of our products that could limit the potential growth of our revenue or increase our losses. We may encounter unforeseen situations in Aroa’s manufacturing and assembly of our OviTex portfolio products that would result in delays or shortfalls in its production.
We, or our partners, may experience development or manufacturing problems, capacity constraints, or delays in the production of our products that could limit the potential growth of our revenue or increase our losses. We may encounter unforeseen situations in Aroa’s manufacturing and assembly of our OviTex and OviTex PRS products that would result in delays or shortfalls in its production.
Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns.
Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, changing customer patterns and an evolving threat landscape.
Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and competitive position. As of December 31, 2022, we had $40.0 million of indebtedness outstanding under our credit facility with MidCap Financial Trust (“MidCap”) that matures in May 2027.
Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and competitive position. As of December 31, 2023, we had $40.0 million of indebtedness outstanding under our credit facility with MidCap Financial Trust (“MidCap”) that matures in May 2027.
Our fourth amended and restated certificate of incorporation and second amended and restated bylaws further provide that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Our fourth amended and restated certificate of incorporation and third amended and restated bylaws further provide that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Under the Aroa License Aroa also holds the FDA clearances under which we commercialize our OviTex and OviTex LPR products, and maintains ultimate responsibility for all regulatory interactions with FDA relating to our OviTex and OviTex LPR products and decisions made with respect to changing or updating those clearances.
Under the Aroa License Aroa also holds the FDA clearances under which we commercialize our OviTex and OviTex LPR products, and maintains ultimate responsibility for all regulatory interactions with FDA relating to our OviTex producst, including OviTex LPR and decisions made with respect to changing or updating those clearances.
The facility may be harmed or rendered inoperable by natural or man-made disasters, including, but not limited to, tornadoes, flooding, fire, public health emergencies such as pandemics and power outages, which may render it difficult or impossible for us to perform our customer service research, development and commercialization activities for some period of time.
The facility may be harmed or rendered inoperable by natural or man-made disasters, including, but not limited to, tornadoes, 72 Table of Contents flooding, fire, public health emergencies such as pandemics and power outages, which may render it difficult or impossible for us to perform our customer service research, development and commercialization activities for some period of time.
If the guidelines change so that different surgeries or products become desirable, the clinical utility of one or more of our OviTex portfolio products or other products we may commercialize in the future could be diminished and our business could be adversely affected.
If the guidelines change so that different surgeries or products become desirable, the clinical utility of one or more of our OviTex and OviTex PRS products or other products we may commercialize in the future could be diminished and our business could be adversely affected.
In the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the healthcare industry.
In the U.S., for example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the healthcare industry.
If we are not successful in introducing new product indications and developing and commercializing new products and product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on our business, financial condition and results of operations. 45 Table of Contents In the future our products may become obsolete, which would negatively affect operations and financial condition.
If we are not successful in introducing new product indications and developing and commercializing new products and product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on our business, financial condition and results of operations. In the future our products may become obsolete, which would negatively affect operations and financial condition.
Certain states have also adopted comparable privacy and security laws and regulations, 64 Table of Contents some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners.
Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners.
Our ability to supply our OviTex portfolio products commercially and to develop any future products depends, in part, on our ability to obtain these materials, components and products in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing.
Our ability to supply our OviTex and OviTex PRS products commercially and to develop any future products depends, in part, on our ability to obtain these materials, components and products in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing.
The laws of some non-U.S. 50 Table of Contents countries do not protect our proprietary rights to the same extent as the laws of the U.S., and we may encounter significant problems in protecting our proprietary rights in these countries.
The laws of some non-U.S. 51 Table of Contents countries do not protect our proprietary rights to the same extent as the laws of the U.S., and we may encounter significant problems in protecting our proprietary rights in these countries.
Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside our control. 67 Table of Contents Factors that may cause fluctuations in our quarterly and annual results include: ● surgeon and patient adoption of our products; ● timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors; ● changes in coverage policies by third-party payors that affect the reimbursement of procedures in which our products are used; ● unanticipated pricing pressure; ● our ability to obtain and maintain regulatory clearance or approval for any products in development or for our current products for additional indications or in additional jurisdictions; ● the hiring, retention and continued productivity of our sales representatives; ● our ability to expand the geographic reach of our sales and marketing efforts; ● results of clinical research and trials on our existing products and products in development; ● delays in, or failure of, component and raw material deliveries by Aroa; ● recalls or other field safety corrective actions by Aroa; ● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters such as earthquakes, floods or public health emergencies such as the COVID-19 pandemic; and ● positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry.
Factors that may cause fluctuations in our quarterly and annual results include: ● surgeon and patient adoption of our products; ● timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors; ● changes in coverage policies by third-party payors that affect the reimbursement of procedures in which our products are used; ● unanticipated pricing pressure; ● our ability to obtain and maintain regulatory clearance or approval for any products in development or for our current products for additional indications or in additional jurisdictions; 67 Table of Contents ● the hiring, retention and continued productivity of our sales representatives; ● our ability to expand the geographic reach of our sales and marketing efforts; ● results of clinical research and trials on our existing products and products in development; ● delays in, or failure of, component and raw material deliveries by Aroa; ● recalls or other field safety corrective actions by Aroa; ● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters such as earthquakes, floods or public health emergencies such as the COVID-19 pandemic; and ● positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry.
We cannot provide any assurances that any of our patents, or patents to which we have ownership rights through licensing agreements, have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our OviTex portfolio products, any additional features we develop for our OviTex portfolio products or any new products we seek to develop in the future.
We cannot provide any assurances that any of our patents, or patents to which we have ownership rights through licensing agreements, have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our OviTex and OviTex PRS products, any additional features we develop for our OviTex and OviTex PRS products or any new products we seek to develop in the future.
Our current and future operations with respect to the commercialization of our products are subject to various U.S. federal and state healthcare laws and regulations. These laws impact, among other things, our proposed sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with third-party 62 Table of Contents payors, surgeons and other healthcare professionals.
Our current and future operations with respect to the commercialization of our products are subject to various U.S. federal and state healthcare laws and regulations. These laws impact, among other things, our proposed sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with third-party payors, surgeons and other healthcare professionals.
If we become profitable in the future, our ability to use net operating loss carryforwards and other tax attributes to offset future taxable income or reduce taxes may be subject to limitations. 73 Table of Contents Risks Related to Our Securities The trading price of the shares of our common stock has been and could in the future be highly volatile.
If we become profitable in the future, our ability to use net operating loss carryforwards and other tax attributes to offset future taxable income or reduce taxes may be subject to limitations. Risks Related to Our Securities The trading price of the shares of our common stock has been and could in the future be highly volatile.
Our business processes personal data, including some data related to health. When conducting clinical trials, we face risks associated with collecting trial participants’ data, especially health data, in a manner consistent with applicable laws and regulations. We also face risks inherent in handling large volumes of data and in protecting the security of such data.
Our business processes personal data, including some data related to health. When conducting clinical trials, we face risks associated with collecting trial participants’ data, especially health data, in a manner consistent with applicable 64 Table of Contents laws and regulations. We also face risks inherent in handling large volumes of data and in protecting the security of such data.
If any of these events were to occur, our business and financial results could be adversely affected. Other jurisdictions outside the EU and the United Kingdom are similarly introducing or enhancing laws and regulations relating to privacy and data security, which enhances risks relating to compliance with such laws.
If any of these events were to occur, our business and financial results could be adversely affected. Other jurisdictions outside the EU and the United 65 Table of Contents Kingdom are similarly introducing or enhancing laws and regulations relating to privacy and data security, which enhances risks relating to compliance with such laws.
Such recalls and withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by patients as a safety risk when considering the use of our products, either of which could have a material adverse effect on our business, financial condition and results of operations.
Such recalls and withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by 69 Table of Contents patients as a safety risk when considering the use of our products, either of which could have a material adverse effect on our business, financial condition and results of operations.
If any of the patents covering our OviTex portfolio products are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
If any of the patents covering our OviTex and OviTex PRS products are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
If we fail to comply with our reporting obligations, the FDA could take action, including untitled letters, warning letters, administrative actions, criminal 60 Table of Contents prosecution, imposition of civil monetary penalties, revocation of related approvals, seizure of our products or delay in clearance or approval of future products.
If we fail to comply with our reporting obligations, the FDA could take action, including untitled letters, warning letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of related approvals, seizure of our products or delay in clearance or approval of future products.
As such, we are highly dependent upon Aroa’s continued ability to 47 Table of Contents supply our OviTex portfolio products at the levels we require and any production shortfall that impairs the supply of our OviTex portfolio products could have a material adverse effect on our business, financial condition and results of operations and adversely affect our ability to satisfy demand for our OviTex portfolio products, which could adversely affect our product sales and operating results materially.
As such, we are highly dependent upon Aroa’s continued ability to supply our OviTex and OviTex PRS products at the levels we require and any production shortfall that impairs the supply of our 48 Table of Contents OviTex and OviTex PRS products could have a material adverse effect on our business, financial condition and results of operations and adversely affect our ability to satisfy demand for our OviTex and OviTex PRS products, which could adversely affect our product sales and operating results materially.
The legal threshold for initiating litigation or contested proceedings may be low, so that even lawsuits or proceedings with a low probability of success might be 51 Table of Contents initiated.
The legal threshold for initiating litigation or contested proceedings may be low, so that even lawsuits or proceedings with a low probability of success might be 52 Table of Contents initiated.
Third-party payors, whether U.S. or non-U.S., or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs, including examining the cost effectiveness of procedures, in addition to their safety and efficacy, when making coverage and payment decisions.
Third-party payors, whether U.S. or non-U.S., or governmental or commercial, are developing increasingly 45 Table of Contents sophisticated methods of controlling healthcare costs, including examining the cost effectiveness of procedures, in addition to their safety and efficacy, when making coverage and payment decisions.
We may be subject to product liability claims if our products cause, or merely appear to have caused, patient injury or death. In addition, an injury that is caused by the activities of Aroa may be the basis for a claim 69 Table of Contents against us.
We may be subject to product liability claims if our products cause, or merely appear to have caused, patient injury or death. In addition, an injury that is caused by the activities of Aroa may be the basis for a claim against us.
Aroa is required under the Aroa License to manufacture all of our OviTex portfolio products at its manufacturing and warehousing facility in Auckland, New Zealand.
Aroa is required under the Aroa License to manufacture all of our OviTex and OviTex PRS products at its manufacturing and warehousing facility in Auckland, New Zealand.
We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product.
We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse 61 Table of Contents event that is unexpected or removed in time from the use of the product.
Under the Aroa License, Aroa is responsible for supplying all of the raw materials and components used in the manufacture and assembly of our OviTex portfolio products.
Under the Aroa License, Aroa is responsible for supplying all of the raw materials and components used in the manufacture and assembly of our OviTex and OviTex PRS products.
As a result, the interim results that we report may differ from future results of the same trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated.
As a result, the interim results that we report may differ from future results of the same trials, 70 Table of Contents or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated.
For example, disruptions to transportation infrastructure as a result of macroeconomic conditions, including COVID-19 pandemic, may impact our ability to provide our products to our customers. Risks Related to Intellectual Property Matters We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
For example, disruptions to transportation infrastructure as a result of macroeconomic conditions may impact our ability to provide our products to our customers. Risks Related to Intellectual Property Matters We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
While some third-party payors currently cover and provide reimbursement for procedures using our currently cleared or approved products, we can give 44 Table of Contents no assurance that these third-party payors will continue to provide coverage and adequate reimbursement for the procedures using our products, to permit hospitals and surgeons to offer procedures using our products to patients requiring treatment, or that current reimbursement levels for procedures using our products will continue.
While some third-party payors currently cover and provide reimbursement for procedures using our currently cleared or approved products, we can give no assurance that these third-party payors will continue to provide coverage and adequate reimbursement for the procedures using our products, to permit hospitals and surgeons to offer procedures using our products to patients requiring treatment, or that current reimbursement levels for procedures using our products will continue.
If the FDA disagrees and requires new clearances or approvals for these modifications, we may be required to recall and to stop selling or marketing such products as modified until we obtain clearance or approval, which could harm our operating results and require us to redesign such products.
If the FDA disagrees and requires new clearances or approvals for these modifications, we may be required to recall and to stop selling or marketing such products as modified until we obtain clearance or approval, which could harm our operating results and require us to 59 Table of Contents redesign such products.
Under both the GDPR and the UK GDPR, exporters are also required to assess the risk of the data transfer on a case-by-case basis, 65 Table of Contents including conducting an analysis of the laws in the destination country.
Under both the GDPR and the UK GDPR, exporters are also required to assess the risk of the data transfer on a case-by-case basis, including conducting an analysis of the laws in the destination country.
A full allowance for the value of the NOLs is provided for in our audited financial statements for the year of December 31, 2022 included in this Annual Report on Form 10-K. We cannot guarantee what the ultimate outcome or amount of the benefit we may receive from the NOLs, if any, will be.
A full allowance for the value of the NOLs is provided for in our audited financial statements for the year of December 31, 2023 included in this 73 Table of Contents Annual Report on Form 10-K. We cannot guarantee what the ultimate outcome or amount of the benefit we may receive from the NOLs, if any, will be.
Under the Aroa License, Aroa is our exclusive manufacturer and supplier of our OviTex portfolio products, consisting of OviTex, OviTex LPR and OviTex PRS. We are reliant upon the intellectual property we license from Aroa for the development and commercialization of our products.
Under the Aroa License, Aroa is our exclusive manufacturer and supplier of our OviTex and OviTex PRS products. We are reliant upon the intellectual property we license from Aroa for the development and commercialization of our products.
In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate 70 Table of Contents results in later clinical trials.
In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate results in later clinical trials.
This statement applies to our OviTex PRS products as they are not cleared or approved for use in breast surgery and thus, we are prohibited from marketing them for that use.
This statement applies to our OviTex PRS products as they are not cleared or approved for use in breast surgery and thus, we are prohibited from 44 Table of Contents marketing them for that use.
In these circumstances, we may be subject to significant enforcement actions, including significant fines or penalties. 58 Table of Contents International regulatory approval processes may take more or less time than the FDA clearance or approval process.
In these circumstances, we may be subject to significant enforcement actions, including significant fines or penalties. International regulatory approval processes may take more or less time than the FDA clearance or approval process.
Sales of our OviTex products accounted for 70%, 78% and 83% of total revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
Sales of our OviTex products accounted for 67%, 70% and 78% of total revenue for the years ended December 31, 2023, 2022 and 2021, respectively.
If we experience significant disruption or a breach in our information technology systems, our business could be adversely affected. We rely extensively on information technology systems to conduct our business.
If we or our vendors experience a cybersecurity incident, significant disruption or a breach of our information technology systems, our business could be adversely affected. We rely extensively on information technology systems to conduct our business.
We rely on our own direct sales force, which as of December 31, 2022 consisted of 61 representatives in the U.S. and 7 representatives in Europe, to market and sell our products.
We rely on our own direct sales force, which as of December 31, 2023 consisted of 94 representatives in the U.S. and 10 representatives in Europe, to market and sell our products.
Most of the other soft-tissue reconstruction surgery products currently have a greater penetration into the soft tissue reconstruction surgery market. Often, other soft-tissue reconstruction surgery products with which our products compete are marketed as part of a bundled product line, which may provide our potential customers a better price-per-product than we could offer.
Often, other soft-tissue reconstruction surgery products with which our products compete are marketed as part of a bundled product line, which may provide our potential customers a better price-per-product than we could offer.
As of December 31, 2022, our commercial organization consisted of 123 employees in the U.S. and 9 employees in Europe. To generate future revenue growth, we plan to expand the size and geographic scope of our direct sales 39 Table of Contents organization.
As of December 31, 2023, our commercial organization consisted of 166 employees in the U.S. and 14 employees in Europe. To generate future revenue growth, we plan to expand the size and geographic scope of our direct sales 40 Table of Contents organization.
European sales are subject to a number of risks, including: ● difficulties in staffing and managing international operations; ● increased competition as a result of more products and procedures receiving regulatory approval in international markets; ● longer accounts receivable payment cycles and difficulties in collecting accounts receivable; ● fluctuations in currency exchange rates; ● non-U.S. certification and regulatory clearance or approval requirements; ● difficulties in developing effective marketing campaigns in unfamiliar countries; ● customs clearance and shipping delays; ● complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems; ● political, social, and economic instability abroad, terrorist attacks, and security concerns in general; ● the impact of the macroeconomic factors, including COVID-19 pandemic, inflationary pressures and geopolitical conflicts like the war in Ukraine; ● natural disasters and global pandemics like COVID-19, which result in lock-downs, travel restrictions and other restrictions on our ability to operate internationally; ● preference for locally produced products; ● potentially adverse tax consequences, including the complexities of non-U.S. value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings; ● the burdens of complying with a wide variety of non-U.S. laws and different legal standards; and ● increased financial accounting and reporting burdens and complexities. 46 Table of Contents If one or more of these risks are realized, our business, financial condition and results of operations could be adversely affected.
European sales are subject to a number of risks, including: ● difficulties in staffing and managing international operations; ● increased competition as a result of more products and procedures receiving regulatory approval in international markets; ● longer accounts receivable payment cycles and difficulties in collecting accounts receivable; ● fluctuations in currency exchange rates; ● non-U.S. certification and regulatory clearance or approval requirements; ● difficulties in developing effective marketing campaigns in unfamiliar countries; ● customs clearance and shipping delays; ● complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems; ● political, social, and economic instability abroad, terrorist attacks, and security concerns in general; ● the impact of the macroeconomic factors, including pandemics, epidemics and other public health outbreaks, inflationary pressures and geopolitical conflicts, such as the ongoing Russia-Ukraine conflict and the current conflict in Israel and Gaza (including any escalation or expansion); ● natural disasters and pandemics, epidemics or public health outbreaks, which result in lock-downs, travel restrictions and other restrictions on our ability to operate internationally; ● preference for locally produced products; ● potentially adverse tax consequences, including the complexities of non-U.S. value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings; ● the burdens of complying with a wide variety of non-U.S. laws and different legal standards; and ● increased financial accounting and reporting burdens and complexities.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our current facilities meet our current and future anticipated needs, although we may seek to negotiate new leases or evaluate additional or alternate space for our operations. We believe appropriate office space will be readily available on commercially reasonable terms. 78 Table of Contents
Biggest changeWe believe that our current facilities meet our current and future anticipated needs, although we may seek to negotiate new leases or evaluate additional or alternate space for our operations. We believe appropriate office space will be readily available on commercially reasonable terms.
ITEM 2. PROPERTIES Our products are manufactured by our exclusive manufacturer and supplier of our products, Aroa, at their facility in Auckland, New Zealand which currently totals approximately 40,000 square feet. We lease our corporate headquarters in Malvern, Pennsylvania, which houses our research and development operations, controlled environment room, and office space, and currently totals approximately 25,000 square feet.
ITEM 2. PROPERTIES Our products are manufactured by our exclusive manufacturer and supplier of our products, Aroa, at their facility in Auckland, New Zealand which currently totals approximately 40,000 square feet. We lease our corporate headquarters in Malvern, Pennsylvania, which houses our research and development operations, controlled environment room, and office space, and currently totals approximately 41,000 square feet.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on us due to diversion of management time and attention as well as the financial costs related to resolving such disputes. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeWe cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on us due to diversion of management time and attention as well as the financial costs related to resolving such disputes. 79 Table of Contents ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “TELA” since November 8, 2019. Holders As of March 16, 2023, the Company had approximately 65 record holders of its common stock.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “TELA” since November 8, 2019. Holders As of March 14, 2024, the Company had approximately 64 record holders of its common stock.
Securities Authorized for Issuance Under Equity Compensation Plans The information under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” will be filed in the Company’s definitive proxy statement for the 2023 annual meeting of stockholders and is incorporated herein by reference. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. ITEM 6.
Securities Authorized for Issuance Under Equity Compensation Plans The information under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” will be filed in the Company’s definitive proxy statement for the 2024 annual meeting of stockholders and is incorporated herein by reference. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. ITEM 6.

Item 7. Management's Discussion & Analysis

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

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Biggest changeOther Expense Other expense consists primarily of miscellaneous tax expenses and foreign currency exchange gains and losses offset by income earned on our cash and cash equivalents. ​ 84 Table of Contents Results of Operations Comparison of the Year Ended December 31, 2022 and 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change ​ 2022 2021 ​ Dollar Percentage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue $ 41,418 ​ $ 29,463 ​ $ 11,955 41 % Cost of revenue (excluding amortization of intangible assets) 13,570 ​ 10,346 ​ 3,224 31 ​ Amortization of intangible assets 804 ​ 304 ​ 500 164 ​ Gross profit 27,044 ​ 18,813 ​ 8,231 44 ​ Gross margin 65 % 64 % ​ ​ ​ Operating expenses: ​ ​ ​ Sales and marketing 43,252 ​ 29,062 ​ 14,190 49 ​ General and administrative 13,862 ​ 12,459 ​ 1,403 11 ​ Research and development 8,937 ​ 6,743 ​ 2,194 33 ​ Total operating expenses 66,051 ​ 48,264 ​ 17,787 37 ​ Loss from operations (39,007) ​ (29,451) ​ (9,556) 32 ​ Other expense: ​ ​ ​ ​ Interest expense (4,051) ​ (3,597) ​ (454) 13 ​ Loss on extinguishment of debt ​ (1,228) ​ ​ — ​ ​ (1,228) — ​ Other expense (10) ​ (228) ​ 218 (96) ​ Total other expense (5,289) ​ (3,825) ​ (1,464) 38 ​ Net loss $ (44,296) ​ $ (33,276) ​ $ (11,020) 33 % Revenue Revenue increased by $12.0 million, or 41%, to $41.4 million for the year ended December 31, 2022 from $29.5 million for the year ended December 31, 2021.
Biggest changeOther Income (Expense) Other income (expense) consists primarily of income earned on our cash and cash equivalents offset by miscellaneous tax expenses and foreign currency exchange gains and losses. ​ 85 Table of Contents Results of Operations Comparison of the Year Ended December 31, 2023 and 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change ​ 2023 2022 ​ Dollar Percentage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ $ 58,453 ​ $ 41,418 ​ $ 17,035 41 % Cost of revenue (excluding amortization of intangible assets) ​ 17,961 ​ 13,570 ​ 4,391 32 ​ Amortization of intangible assets ​ 380 ​ 804 ​ (424) (53) ​ Gross profit ​ 40,112 ​ 27,044 ​ 13,068 48 ​ Gross margin ​ 69 % 65 % ​ ​ ​ Operating expenses: ​ ​ ​ ​ Sales and marketing ​ 59,681 ​ 43,252 ​ 16,429 38 ​ General and administrative ​ 14,887 ​ 13,862 ​ 1,025 7 ​ Research and development ​ 9,619 ​ 8,937 ​ 682 8 ​ Total operating expenses ​ 84,187 ​ 66,051 ​ 18,136 27 ​ Loss from operations ​ (44,075) ​ (39,007) ​ (5,068) 13 ​ Other expense: ​ ​ ​ ​ ​ Interest expense ​ (5,223) ​ (4,051) ​ (1,172) 29 ​ Loss on extinguishment of debt ​ ​ — ​ ​ (1,228) ​ ​ 1,228 ​ (100) ​ Other income (expense) ​ 2,634 ​ (10) ​ 2,644 NA ​ Total other expense ​ (2,589) ​ (5,289) ​ 2,700 (51) ​ Net loss ​ $ (46,664) ​ $ (44,296) ​ $ (2,368) 5 % Revenue Revenue increased by $17.0 million, or 41%, to $58.5 million for the year ended December 31, 2023 from $41.4 million for the year ended December 31, 2022.
Depending on the terms of our agreements with our customers, we recognize revenue related to product sales either when control transfers, which generally occurs when the product is shipped to the customer, or when the product is utilized in a surgical procedure in the case of consignment agreements. Fees charged to customers for shipping are recognized as revenue.
Depending on the terms of our agreements with our customers, we recognize revenue related to product sales when control transfers, which generally occurs when the product is shipped to the customer, or when the product is utilized in a surgical procedure in the case of consignment agreements. Fees charged to customers for shipping are recognized as revenue.
In June 2022, we determined that our final milestone target under our licensing agreement with Aroa was probable of being met and recorded the payment obligation as an intangible asset, resulting in an additional cumulative amortization charge of $0.5 million.
In June 2022, we determined that our final milestone target under our licensing agreement with Aroa was probable of being met and recorded the payment obligation as an intangible asset, resulting in an additional amortization charge of $0.5 million.
To date, there have been thirty published or presented works relating to these clinical findings, either by us or a third-party evaluating the OviTex product. Recently in October 2022, the 24-month results of our single arm, multicenter post-market clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery .
To date, there have been over thirty published or presented works relating to these clinical findings, either by us or a third-party evaluating the OviTex product. In October 2022, the 24-month results of our single arm, multicenter post-market clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery .
Loss on Extinguishment of Debt We recorded a loss on the extinguishment of debt of $1.2 million during the year ended December 31, 2022 related to the repayment of borrowings of our credit facilities with OrbiMed in May. The losses were primarily comprised of the write-off of unamortized debt discounts and prepayment penalties at the time of extinguishment.
Loss on Extinguishment of Debt We recorded a loss on the extinguishment of debt of $1.2 million during the year ended December 31, 2022 related to the repayment of borrowings of our credit facilities with OrbiMed. The losses were primarily comprised of the write-off of unamortized debt discounts and prepayment penalties at the time of extinguishment.
Business Update Regarding Macroeconomic Conditions and COVID-19 Our business, results of operations and commercial operations have been impacted by macroeconomic conditions, including the COVID-19 pandemic, as well as, to a lesser extent, inflationary pressures, fluctuations in foreign currency in the jurisdictions in which we operate, and geopolitical conflicts.
Business Update Regarding Macroeconomic Conditions Our business, results of operations and commercial operations have been impacted by macroeconomic conditions, including the COVID-19 pandemic, as well as, to a lesser extent, inflationary pressures, fluctuations in foreign currency in the jurisdictions in which we operate, banking instability and geopolitical conflicts.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the U.S. in July 2016, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. ​ Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million procedures annually.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the U.S. in July 2016 and in Europe in February 2019, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. ​ Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million procedures annually.
In addition to the BRAVO study and other current clinical initiatives, we also commenced enrollment in May 2021 for our BRAVO II study, a prospective study evaluating the use of OviTex in robot-assisted ventral and inguinal hernia repairs. ​ Our second portfolio of products, the OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which we first commercialized in the U.S. in May 2019, addresses unmet needs in plastic and reconstructive surgery.
In addition to the BRAVO study and other current clinical initiatives, we also commenced enrollment in May 2021 for our BRAVO II study, a prospective study evaluating the use of OviTex in robot-assisted ventral and inguinal hernia repairs. 81 Table of Contents ​ Our second portfolio of products, the OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which we first commercialized in the U.S. in May 2019, addresses unmet needs in plastic and reconstructive surgery.
Financial Strain and Inflationary Pressures : Market acceptance of our medical products in the U.S. and other countries is dependent upon the procurement practices of our customers, patient need for our products and procedures and the reimbursement of patients’ medical expenses by government healthcare programs and third-party payors.
Financial Strain : Market acceptance of our medical products in the U.S. and other countries is dependent upon the procurement practices of our customers, patient need for our products and procedures and the reimbursement of patients’ medical expenses by government healthcare programs and third-party payors.
Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable market opportunity for our OviTex PRS products to be approximately $700 million. ​ Our OviTex products have received 510(k) clearance from the U.S.
Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable market opportunity for our OviTex PRS products to be approximately $700 million. ​ Our OviTex products have received 510(k) clearances from the U.S.
Investing Activities During the year ended December 31, 2022, cash used in investing activities was $1.9 million consisting of a $1.0 million payment made for our intangible asset and purchases of property and equipment. During the year ended December 31, 2021, cash used in investing activities was $0.6 million consisting of purchases of property and equipment.
Investing Activities During the year ended December 31, 2023, cash used in investing activities was $0.6 million consisting of purchases of property and equipment. During the year ended December 31, 2022, cash used in investing activities was $1.9 million consisting of a $1.0 million payment made for our intangible asset and purchases of property and equipment.
As of December 31, 2022, we had $40.0 million of borrowings outstanding under our Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent and certain lender parties thereto.
As of December 31, 2023, we had $40.0 million of borrowings outstanding under our Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent and certain lender parties thereto.
We are also assessing strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for products complimentary to, or related to, existing and future products in our distribution channel, which could result in the payment of single digit royalties or other product acquisition costs.
We are also assessing strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for products complimentary to, or related to, existing and future products in our distribution channel, which could result in the payment by us of single digit percentage royalties or other product acquisition costs.
We are assessing additional strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing and future products in our distribution channel. ​ We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry.
We continue to assess additional strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing and future products in our distribution channel. ​ We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry.
Upon closing, we borrowed $40.0 million of Tranche 1 and used a portion of the proceeds to fully repay borrowings under the OrbiMed Credit Facility and intend to 88 Table of Contents use the remaining proceeds to fund operations and other general corporate purposes.
Upon closing, we borrowed $40.0 million of Tranche 1 and used a portion of the proceeds to fully repay borrowings under the OrbiMed Credit Facility and intend to use the remaining proceeds to fund operations and other general corporate purposes.
Ovine rumen, the forestomach of a sheep, is the source of the biologic material used in our OviTex portfolio products. In manufacturing the product, we use biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen architecture that allows for rapid cellular infiltration.
Ovine rumen, the forestomach of a sheep, is the source of the biologic material used in our OviTex and OviTex PRS products. We use biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen architecture that allows for rapid cellular infiltration.
The change in our operating assets and liabilities was primarily related to an increase in our inventory and prepaid expenses and other assets, partially offset by increases in accrued expenses and other current and long-term liabilities.
The change in our operating assets and liabilities was primarily related to an increase in our inventory, accounts receivable and prepaid expenses and other assets, partially offset by increases in accounts payable and accrued expenses and other current and long-term liabilities.
We believe we can enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs, leveraging support from our medical education and clinical development functions to drive physician awareness and education on our products, and utilizing engagement analytics to support product development.
We believe we can enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs, leveraging support from our medical education and medical affairs functions to drive physician awareness, education and clinical understanding of our products, and utilizing engagement analytics to support further product development and enhancement opportunities.
The continuing uncertainty surrounding global economic conditions and financial markets, including the financial strain suffered by hospital customers during the COVID-19 pandemic, may adversely affect demand for our products and procedures and 82 Table of Contents result in lower reimbursement rates or coverage for our products, resulting in lower sales volume and downward pricing pressure on our products and slower adoption of new products.
The continuing uncertainty surrounding macroeconomic conditions and financial markets, including the financial strain suffered by hospital customers during the COVID-19 pandemic, may adversely affect demand for our products and procedures and result in lower reimbursement rates or coverage for our products, resulting in lower sales volume and downward pricing pressure on our products and slower adoption of new products.
Food and Drug Administration (“FDA”), which clearance was obtained and is currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019, our OviTex PRS products received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is currently held by us.
Food and Drug Administration (“FDA”), which clearances were obtained and are currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019, our first OviTex PRS products received 510(k) clearance from the FDA, which clearance was initially obtained by Aroa and is currently held by us.
We have invested in our direct sales and marketing infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2022, we had 67 sales territories in the U.S.
We have invested in our direct sales and marketing infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2023, we had 91 sales territories in the U.S.
Our non-cash charges were comprised of stock-based compensation expense of $2.1 million, our excess and obsolete inventory charge of $1.3 million, interest expense of $0.6 million and depreciation and amortization expense of $0.5 million.
Our non-cash charges were comprised of stock-based compensation expense of $5.0 million, our excess and obsolete inventory charge of $1.4 million, depreciation and amortization expense of $0.8 million and interest expense of $0.6 million.
We intend to continue to make investments in research and development efforts to develop improvements and enhancements.
We intend to continue to make investments in research and development efforts to develop improvements and enhancements to our product portfolio.
We have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products. ​ We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue restoration portfolio, including through the development of complimentary solutions targeting surgical wound management and infection control.
We have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products. ​ We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue preservation and restoration portfolio, including through the development of complimentary solutions in our indications such as atraumatic mesh fixation devices or surgical wound management and infection control.
Additionally, we have contracted with three national GPOs covering our OviTex product and plan to continue to contract with additional GPOs and other integrated delivery networks (“IDNs”) to increase access to and penetration of hospital accounts.
Additionally, we have contracted with three national group purchasing organizations (“GPOs”) covering our OviTex and OviTex PRS products and plan to continue to contract with additional GPOs and other integrated delivery networks (“IDNs”) to increase access to and penetration of hospital accounts.
Our revenue for the years ended December 31, 2022 and 2021 was $41.4 million and $29.5 million, respectively, which represents an increase of $12.0 million, or 41% for the year ended December 31, 2022.
Our revenue for the years ended December 31, 2023 and 2022 was $58.5 million and $41.4 million, respectively, which represents an increase of $17.0 million, or 41% for the year ended December 31, 2023.
Our gross margin has been, and we expect it will continue to be, affected by a variety of factors, including sales volume, royalties and inventory excess and obsolescence costs. Our gross profit may increase to the extent our revenue grows.
Our gross margin has been, and we expect it will continue to be, affected by a variety of factors, including sales volume, royalties and inventory excess and obsolescence costs.
Over time we expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our commercial organization to both drive and support our planned growth in revenue.
Over time we expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our commercial organization to both drive and support our planned growth in revenue. We expect our sales and marketing expenses to continue to decrease as a percentage of revenue, as and to the extent, our revenue grows.
The increase in revenue was primarily driven by an increase in unit sales of our products due to the expansion of our commercial organization, increased penetration within existing customer accounts and stronger international sales.
The increase in revenue was primarily driven by an increase in unit sales of our products due to the ongoing expansion of our commercial organization, which resulted in the addition of new customers, increased penetration within existing customer accounts and growing international sales.
The increase was primarily due to higher salaries, benefits and commission costs as a result of our expanded commercial organization, higher travel and consulting expenses and additional employee-related costs due to an increase in headcount.
The increase was primarily due to higher compensation costs as a result of the expansion of our commercial organization, increased travel, consulting and marketing expenses and additional employee-related costs due to an increase in headcount.
Sales and Marketing Expenses Sales and marketing expenses consist of commercial activities related to the sale of our products, along with the salaries and related benefits, including sales commissions and stock-based compensation for employees focused on these efforts.
Our gross profit may increase to the extent our revenue grows. 84 Table of Contents Sales and Marketing Expenses Sales and marketing expenses consist of commercial activities related to the sale of our products, along with the salaries and related benefits, including sales commissions and stock-based compensation for employees focused on these efforts.
In December 2020, we entered into an Equity Distribution Agreement (the “Equity Agreement”) with Piper Sandler & Co (the “Agent”) in connection with the establishment of an at-the-market offering program under which we may sell up to an aggregate of $50.0 million of shares of our common stock, from time to time through the Agent as sales agent.
In November 2023, we entered into a new Equity Distribution Agreement (the “2023 Equity Agreement”) with Piper Sandler & Co, (“Piper”) in connection with the establishment of an at-the-market offering program under which we may sell shares of our common stock, from time to time through Piper as sales agent, in an initial amount of up to $50 million.
This revenue sharing arrangement allows us to competitively price our products and pass along cost-savings to our customers. Our business was directly impacted by the COVID-19 pandemic. We experienced volatility in demand for our products which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns, decreasing the volume of elective procedures using our products.
Our business was directly impacted by the COVID-19 pandemic. We experienced volatility in demand for our products which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns, decreasing the volume of elective procedures using our products.
Our net loss for the same time periods was $44.3 million and $33.3 million, respectively, which represents an increase of $11.0 million, or 33% for the year ended December 31, 2022. As of December 31, 2022, we had an accumulated deficit of $274.2 million.
Our net loss for the same time periods was $46.7 million and $44.3 million, respectively, which represents an increase of $2.4 million, or 5% for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $320.9 million.
In addition, we have also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as OviTex LPR and began commercializing this product in November 2018.
In addition, we have also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as OviTex LPR and began commercializing this product in November 2018. In February 2023, we launched two new, larger configurations of OviTex LPR, designed for ventral and incisional hernias.
During the year ended December 31, 2020, we used $24.5 million of cash in operating activities, resulting from our net loss of $28.8 million and the change in operating assets and liabilities of $0.2 million offset by non-cash charges of $4.5 million.
During the year ended December 31, 2022, we used $40.7 million of cash in operating activities, resulting from our net loss of $44.3 million and the change in operating assets and liabilities of $5.3 million, offset by non-cash charges of $8.9 million.
General and Administrative General and administrative expenses increased by $1.4 million, or 11%, to $13.9 million for the year ended December 31, 2022 from $12.5 million for the year ended December 31, 2021.
General and Administrative General and administrative expenses increased by $1.0 million, or 7%, to $14.9 million for the year ended December 31, 2023 from $13.9 million for the year ended December 31, 2022.
Financing Activities During the year ended December 31, 2022, cash provided by financing activities was $40.9 million, consisting primarily of $34.4 million in proceeds from an underwritten public offering, $40.0 million in proceeds received from the issuance of long-term debt, partially offset by $30.0 million in repayments of long-term debt and $3.5 million in payments of issuance costs.
Financing Activities During the year ended December 31, 2023, cash provided by financing activities was $46.3 million, consisting primarily of $46.3 million in proceeds received from the sale of our common stock and $0.1 million of proceeds received from the exercise of stock options partially offset by the payment of withholding taxes related to stock-based compensation to employees. 89 Table of Contents During the year ended December 31, 2022, cash provided by financing activities was $40.9 million, consisting primarily of $34.4 million in proceeds from an underwritten public offering, $40.0 million in proceeds received from the issuance of long-term debt, partially offset by $30.0 million in repayments of long-term debt and $3.5 million in payments of issuance costs.
The initial term of our Aroa License terminates on the expiration of the last patent covering bovine and ovine products, with an option to extend for an additional ten-year period.
The initial term of our Aroa License terminates on the expiration of the last patent covering bovine and ovine products, with an option to extend for an additional ten-year period. We expect our cost of revenue to increase in absolute dollars as, and to the extent, our sales volume grows.
Amortization of Intangible Assets Amortization of intangible assets increased by $0.5 million, or 164%, to $0.8 million for the year ended December 31, 2022 from $0.3 million for the year ended December 31, 2021.
Amortization of Intangible Assets Amortization of intangible assets decreased by $0.4 million, or 53%, to $0.4 million for the year ended December 31, 2023 from $0.8 million for the year ended December 31, 2022.
During the year ended December 31, 2022, we sold 10,083 units of OviTex compared to 7,516 units of OviTex during the year ended December 31, 2021, a 34% increase in unit sales volume. Additionally, we sold 2,385 units of OviTex PRS compared to 1,260 units during the year ended December 31, 2021, an 89% increase in unit sales volume.
During the year ended December 31, 2023, we sold 13,675 units of OviTex compared to 10,083 units of OviTex during the year ended December 31, 2022, a 36% increase in unit sales volume. Additionally, we sold 3,544 units of OviTex PRS compared to 2,385 units during the year ended December 31, 2022, a 49% increase in unit sales volume.
We cannot be assured that additional equity, equity-linked or debt financing will be available on terms favorable to us or our stockholders, or at all, including as a result of market volatility resulting from the COVID-19 pandemic, inflationary pressures, geopolitical conflict or other factors.
We cannot be assured that additional equity, equity-linked or debt financing will be available on terms favorable to us or our stockholders, or at all, including as a result of market volatility stemming from macroeconomic conditions, including those related to banking instability, increasing interest rates or other factors.
Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2022 ​ 2021 2020 Cash used in operating activities $ (40,748) ​ $ (30,432) ​ $ (24,456) Cash (used in) provided by investing activities (1,872) ​ (627) ​ 9,122 Cash provided by financing activities 40,852 ​ 585 ​ 44,409 Effect of exchange rate change on cash and cash equivalents (144) ​ 11 ​ 17 Net (decrease) increase in cash and cash equivalents $ (1,912) ​ $ (30,463) ​ $ 29,092 87 Table of Contents Operating Activities During the year ended December 31, 2022, we used $40.7 million of cash in operating activities, resulting from our net loss of $44.3 million and the change in operating assets and liabilities of $5.3 million offset by non-cash charges of $8.9 million.
If we are unable to obtain adequate financing, we may be required to delay or reduce the current development, commercialization and marketing plans for our products. ​ 88 Table of Contents Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2023 ​ 2022 2021 Cash used in operating activities $ (40,857) ​ $ (40,748) ​ $ (30,432) Cash used in investing activities (599) ​ (1,872) ​ (627) Cash provided by financing activities 46,267 ​ 40,852 ​ 585 Effect of exchange rate changes on cash and cash equivalents 164 ​ (144) ​ 11 Net increase (decrease) in cash and cash equivalents and restricted cash $ 4,975 ​ $ (1,912) ​ $ (30,463) Operating Activities During the year ended December 31, 2023, we used $40.9 million of cash in operating activities, resulting from our net loss of $46.7 million and the change in operating assets and liabilities of $2.0 million, offset by non-cash charges of $7.8 million.
Other Expense Other expense decreased by $0.2 million, or 96%, primarily due to foreign currency translation adjustments offset by increased interest income. 86 Table of Contents Liquidity and Capital Resources Overview As of December 31, 2022, we had cash and cash equivalents of $42.0 million, working capital of $50.0 million and an accumulated deficit of $274.2 million.
Other Income (Expense) Other income (expense) increased by $2.6 million primarily due to higher interest income on increased cash balances and foreign currency translation adjustments. 87 Table of Contents Liquidity and Capital Resources Overview As of December 31, 2023, we had cash and cash equivalents of $46.7 million, working capital of $54.8 million and an accumulated deficit of $320.9 million.
Cost of Revenue Cost of revenue primarily consists of the costs of licensed products, charges related to excess and obsolete inventory adjustments, royalties and costs related to shipping. We purchase product from Aroa at a fixed cost equal to 27% of our net sales of licensed products.
Cost of Revenue Cost of revenue primarily consists of the costs of licensed products, charges related to excess and obsolete inventory adjustments, royalties and costs related to shipping.
These factors have and may continue to impact us in the following ways: COVID-19 : In the first quarter of 2022, regional surges of the COVID-19 Omicron variant resulted in some government restrictions on elective procedures and surgical staffing challenges leading to the deferral of elective surgeries and lower surgical procedural volumes overall.
These factors have and may continue to impact us in the following ways: COVID-19 : Our business was directly impacted by the COVID-19 pandemic, including due to government restrictions on elective procedures and surgical staffing challenges that lead to the deferral of elective surgeries and lower surgical procedural volumes overall.
We have also engaged in discussions with the FDA regarding an Investigational Device Exemption (“IDE”) protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery. The FDA has stated that a PMA, rather than 510(k) clearance will be required for such an indication.
In March 2023, we received an additional 510(k) clearance for our OviTex PRS Long-Term Resorbable device, which is currently held by us. We have also engaged in discussions with the FDA regarding an Investigational Device Exemption (“IDE”) protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery.
In January 2023, we announced an exclusive development and distribution partnership with Collagen Matrix, Inc. (“CMI”), pursuant to which we launched the commercialization of our NIVIS Fibrillar Collagen Pack, an absorbent matrix of Type I and Type III bovine collagen designed to manage moderately to heavily exudating wounds and to control minor bleeding.
We previously co-developed and commercialized our NIVIS Fibrillar Collagen Pack (“NIVIS”), an absorbent matrix of Type I and Type III bovine collagen designed to manage moderately to heavily exudating wounds and to control minor bleeding, in partnership with Regenity Biosciences.
Amortization of Intangible Assets Amortization of intangible assets relates to the amortization of capitalized milestone amounts paid or probable to be paid to Aroa related to license fees or commercialization rights after future economic benefit has been established for a product.
Any delay in volume growth, whether due to macroeconomic pressures or otherwise, could lead to additional charges to excess and obsolete inventory. Amortization of Intangible Assets Amortization of intangible assets relates to the amortization of capitalized milestone amounts paid to Aroa related to license fees or commercialization rights after future economic benefit has been established for a product.
The increase was primarily due to a lower expense recognized for excess and obsolete inventory adjustments as a percentage of revenue which resulted from improved inventory management processes during the year ended December 31, 2022 as compared to the prior year partially offset by higher amortization of intangible assets. 85 Table of Contents Sales and Marketing Sales and marketing expenses increased by $14.2 million, or 49%, to $43.3 million for the year ended December 31, 2022 from $29.1 million for the year ended December 31, 2021.
Gross Margin Gross margin increased to 69% for the year ended December 31, 2023 from 65% for the year ended December 31, 2022. The increase was primarily due to lower expense recognized for excess and obsolete inventory adjustments as a 86 Table of Contents percentage of revenue which resulted from improved inventory management processes and lower amortization of intangible assets.
Indebtedness On May 26, 2022, we entered into the MidCap Credit Agreement with MidCap Financial Trust, as agent and certain lender parties thereto. The MidCap Credit Agreement provides for up to $50.0 million in MidCap Term Loans, consisting of a $40.0 million Tranche 1 and a $10.0 million Tranche 2.
The MidCap Credit Agreement provides for up to $50.0 million in MidCap Term Loans, consisting of a $40.0 million Tranche 1 and a $10.0 million Tranche 2.
We received net proceeds of $34.4 million after deducting underwriting discounts, commissions and other offering expenses. ​ We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to invest in our sales and marketing initiatives to support our growth in existing and new markets and in additional research and development activities.
We received net proceeds of approximately $46.3 million after deducting underwriting discounts, commissions and other offering expenses. ​ In March 2024, we sold our distribution rights to MiMedx Group, Inc. in exchange for an initial $5.0 million payment and additional future payments aggregating between a minimum of $3.0 million and a maximum of $7.0 million based on net sales of NIVIS over the next two years. ​ We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to invest in our sales and marketing initiatives to support our growth in existing and new markets and in additional research and development activities.
The increase was primarily due to higher salaries and benefits due to an increase in headcount, higher software related expenses and additional bad debt expense which offset lower insurance expense and recruiting fees.
The increase was primarily due to higher compensation costs and employee-related expenses due to an increase in headcount and increases in professional fees and bad debt expense, offset by a decrease in insurance expense.
No sales were made under the Equity Agreement during the years ended December 31, 2022, 2021 or 2020. If we raise additional funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock.
If we raise additional funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt.
Our OviTex products are manufactured by Aroa at their FDA registered and ISO 13485 compliant facility in Auckland, New Zealand. We maintain our Aroa License for the exclusive supply of ovine rumen and manufacture of our reinforced tissue matrices under which we purchase product from Aroa at a fixed cost equal to 27% of our net sales of licensed products.
Our OviTex products are manufactured by Aroa at their FDA registered and ISO 13485 compliant facility in Auckland, New Zealand. We purchase product from Aroa at a fixed transfer cost as a percentage of Aroa’s cost of goods sold, and, with the exception of our recent IHR-dedicated products equals 27% of our net sales of licensed products.
We are also required to pay an exit fee at the time of maturity or prepayment event equal to 5% of all principal borrowings (or in the event of a prepayment event, the amount of principal being prepaid). ​ Contractual Obligations and Commitments The following table summarizes our contractual obligations as of December 31, 2022 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments due by Period ​ ​ ​ ​ ​ Less than ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Total 1 year 1 to 3 years 3 to 5 years Thereafter Principal payments on long-term debt ​ $ 40,000 ​ $ — ​ $ — ​ $ 40,000 ​ $ — Interest and end of term charge on long-term debt (1) ​ 20,147 ​ 4,190 ​ 8,379 ​ 7,578 ​ — Operating lease commitments (2) ​ 2,039 ​ 358 ​ 741 ​ 775 ​ 165 Purchase commitments ​ 21,655 ​ 2,275 ​ 3,315 ​ 4,335 ​ 11,730 Total ​ $ 83,841 ​ $ 6,823 ​ $ 12,435 ​ $ 52,688 ​ $ 11,895 (1) Interest payable reflects the rate in effect as of December 31, 2022.
We are also required to pay an exit fee at the time of maturity or prepayment event equal to 5% of all principal borrowings (or in the event of a prepayment event, the amount of principal being prepaid). ​ ​ 90 Table of Contents Contractual Obligations and Commitments The following table summarizes our contractual obligations as of December 31, 2023 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments due by Period ​ ​ ​ ​ ​ Less than ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Total 1 year 1 to 3 years 3 to 5 years Thereafter Principal payments on long-term debt (1) ​ $ 40,000 ​ $ — ​ $ — ​ $ 40,000 ​ $ — Interest and end of term charge on long-term debt (2) ​ 17,581 ​ 4,677 ​ 9,354 ​ 3,550 ​ — Operating lease commitments (3) ​ 3,736 ​ 601 ​ 1,137 ​ 1,153 ​ 845 Purchase commitments ​ 7,080 ​ 2,250 ​ ​ 4,830 ​ ​ — ​ ​ — Total ​ $ 68,397 ​ $ 7,528 ​ $ 15,321 ​ $ 44,703 ​ $ 845 (1) Assumes extension of Interest-Only Period to 48 months under the MidCap Credit Facilty.
Research and Development Research and development expenses increased by $2.2 million, or 33%, to $8.9 million for the year ended December 31, 2022 from $6.7 million for the year ended December 31, 2021.
Research and Development Research and development expenses increased by $0.7 million, or 8%, to $9.6 million for the year ended December 31, 2023 from $8.9 million for the year ended December 31, 2022. The increase was primarily due to higher compensation costs due to an increase in headcount, offset by lower study costs.
We purchase product from Aroa at a fixed cost equal to 27% of our net sales of licensed products. We market our products through a single direct sales force, predominantly in the U.S., as augmented by a smaller number of sales representatives and distributors in certain European countries.
This revenue sharing arrangement allows us to competitively price our products and pass along cost-savings to our customers. 82 Table of Contents We market our products through a single direct sales force, predominantly in the U.S., as augmented by a smaller number of sales representatives and distributors in certain European countries.
Continued uncertainty and perception of worsening market conditions could result in a decline in our stock price, high inflation, increase our cost of capital and adversely affect our ability to access the capital markets in the future.
Continued uncertainty, perception of worsening market conditions and the introduction of new products which may, or may be perceived to, negatively impact the demand for our products now or in the future could result in a decline in our stock price, high inflation, an increase in our cost of capital and an adverse effect on our ability to access the capital markets in the future on terms acceptable to us or at all.
Recent revenue growth has been driven by increasing revenue from product sales due to our expanding customer base, although it is unclear at this point what long-term effect the COVID-19 pandemic and related macroeconomic pressures will have on our ability to continue to generate revenue and expand our customer base.
Recent revenue growth has been driven by increasing revenue from product sales due to our expanding customer base, although macroeconomic pressures described in this Annual Report may impair our ability to continue to generate revenue and expand our customer base at historic rates.
Additionally, we are exploring new packaging technology to increase the shelf life of our OviTex and OviTex PRS products. We are also exploring additional 81 Table of Contents technologies that may complement our existing products, or expand the number of our product lines, in each case within the hernia, plastic and reconstruction, and broader soft-tissue reconstruction and preservation market.
In addition, we also continue to explore the development of lower-cost, higher-margin resorbable polymer-based devices targeting our current indications. We are also exploring additional technologies that may complement our existing products, or expand the number of our product lines, in each case within the hernia, plastic and reconstruction, and broader soft-tissue reconstruction and preservation markets.
The interest rate on borrowings under the MidCap Credit Facility is variable and resets monthly. End of term fee reflects final payment fee due at maturity. (2) Reflects payments due for our lease of office and laboratory space in Malvern, Pennsylvania under an operating lease agreement that expires in 2028. 89 Table of Contents
(2) Interest payable reflects the rate in effect as of December 31, 2023. The interest rate on borrowings under the MidCap Credit Facility is variable and resets monthly. End of term fee reflects final payment fee due at maturity.
We will be eligible to borrow Tranche 2 at our option upon meeting certain conditions, including, but not limited to, reaching $65.0 million of net product revenue over the preceding four quarters by fiscal year end 2023. ​ Based on our current business plan, we believe that our existing cash resources will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months from the issuance of this Annual Report.
As of December 31, 2023, no additional borrowings were made and our ability to draw from Tranche 2 has since expired. ​ Based on our current business plan, we believe that our existing cash resources will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months from the issuance of this Annual Report.
OviTex PRS is 80 Table of Contents indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or reinforcement in plastic and reconstructive surgery. Our OviTex PRS portfolio is supported by non-human primate data that demonstrated more rapid tissue integration and tissue remodeling compared to the market leading biologic matrix used in this indication.
OviTex PRS is indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or reinforcement in plastic and reconstructive surgery.
Cost of Revenue Cost of revenue (excluding amortization of intangible assets) increased by $3.2 million to $13.6 million for the year ended December 31, 2022 from $10.3 million for the year ended December 31, 2021. The increase in cost of revenue was primarily the result of an increase in products purchased to support demand from our higher unit sales.
Cost of Revenue Cost of revenue (excluding amortization of intangible assets) increased by $4.4 million, or 32%, to $18.0 million for the year ended December 31, 2023 from $13.6 million for the year ended December 31, 2022.
During the year ended December 31, 2021, cash provided by financing activities was $0.6 million, consisting primarily of the proceeds received from the exercise of stock options. During the year ended December 31, 2020, cash provided by financing activities was $44.4 million, consisting primarily of the net proceeds received from a follow-on public offering of our common stock.
During the year ended December 31, 2021, cash provided by financing activities was $0.6 million, consisting primarily of the proceeds received from the exercise of stock options. Indebtedness On May 26, 2022, we entered into the MidCap Credit Agreement with MidCap Financial Trust, as agent and certain lender parties thereto.
We expect our general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows. Research and Development Expenses Research and development expenses consist primarily of product research, engineering, product development, regulatory compliance and clinical development.
Research and Development Expenses Research and development expenses consist primarily of product research, engineering, product development, regulatory compliance and clinical development.
General and administrative expenses also include professional service fees for legal, accounting, consulting, investor and public relations, insurance costs and direct and allocated facility-related costs. We expect that our general and administrative expenses will increase in absolute dollars as we execute our growth initiatives and expand our business and headcount to support these initiatives.
We expect that our general and administrative expenses will increase in absolute dollars as we execute our growth initiatives and expand our business and headcount to support these initiatives. We expect our general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.
We are currently devoting research and development resources to develop additional versions of our OviTex hernia product lines, including self-adhering technology to further enhance product compatibility in robotic procedures, as well as additional versions of our OviTex PRS product lines. We are also working to develop new product features and designs for both our existing OviTex and OviTex PRS products.
We are currently devoting research and development resources to develop additional variations of our OviTex and OviTex PRS product lines, including the additional IHR configurations to further enhance product compatibility in robotic procedures, larger versions of our current product configurations, the development of configurations with longer-acting resorbable polymers and other potential product and packaging enhancements to extend the shelf life of our products.
Interest Expense Interest expense increased by $0.5 million, or 13%, to $4.1 million for the year ended December 31, 2022 from $3.6 million for the year ended December 31, 2021 as our borrowings increased under our MidCap Credit Agreement at higher interest rates.
Interest Expense Interest expense increased by $1.2 million, or 29%, to $5.2 million for the year ended December 31, 2023 from $4.1 million for the year ended December 31, 2022 due to the increased levels of borrowings under our Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent and certain lender parties thereto, and an increase to the variable component of our interest rate.
We saw improvement in our business during the second half of 2022 and anticipate that procedure volumes will continue to normalize to pre-pandemic levels; we continue to monitor the potential impact of the COVID-19 pandemic on labor and hospital staffing levels, procedural volumes and ultimately on our results.
While procedure volumes have continued to normalize to pre-pandemic levels, we continue to monitor any lingering economic effects on labor and hospital staffing levels, procedural volumes and ultimately on our results.
We recently launched two new, larger configurations of OviTex LPR, designed for ventral and incisional hernias. ​ We have also focused on evaluating and publishing clinical data on the effectiveness and safety of our OviTex products.
More recently, we have designed a set of OviTex products specifically for use in the inguinal hernia repair (“IHR”), which we expect to launch in the second quarter of 2024. ​ We have also focused on evaluating and publishing clinical data on the effectiveness and safety of our OviTex products.
We will be eligible to borrow Tranche 2 at our option upon meeting certain conditions, including, but not limited to, reaching $65.0 million of net product revenue over the preceding four quarters by fiscal year end 2023. ​ Pursuant to the MidCap Credit Agreement, we provided a first priority security interest in all existing and future acquired assets, including intellectual property, owned by us.
As of December 31, 2023, no additional borrowings were made and our ability to draw from Tranche 2 has since expired. ​ Pursuant to the MidCap Credit Agreement, we provided a first priority security interest in all existing and future acquired assets, including intellectual property, owned by us.
During the year ended December 31, 2020, cash provided by investing activities was $9.1 million consisting primarily of the proceeds from the sale and maturity of short-term investments.
During the year ended December 31, 2021, cash used in investing activities was $0.6 million consisting of purchases of property and equipment.
We expect our sales and marketing expenses to continue to decrease as a percentage of revenue, as and to the extent, our revenue grows. 83 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for personnel in executive, finance, information technology and administrative functions.
General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for personnel in executive, finance, information technology and administrative functions. General and administrative expenses also include professional service fees for legal, accounting, consulting, investor and public relations, insurance costs and direct and allocated facility-related costs.
As of December 31, 2021, we had cash and cash equivalents of $43.9 million, working capital of $48.5 million and an accumulated deficit of $229.9 million. In August 2022, we completed an underwritten public offering in which we issued and sold 4,600,000 shares of common stock at a public offering price of $8.00 per share.
In April 2023, we completed an underwritten public offering in which we issued and sold 5,219,190 shares of our common stock (including 469,190 shares sold pursuant to the underwriters’ overallotment option in May 2023) at a public offering price of $9.50 per share.
Removed
We also previously commercialized through a distribution agreement with Next Science Technologies Pty Limited (“Next Science”), a proprietary antimicrobial surgical wash in the U.S. plastic reconstructive market.
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Our OviTex PRS portfolio consists of three product configurations with two or three layers of high-quality tissue derived from ovine rumen, which is reinforced with either permanent or resorbable polymer for added strength, stabilization, and controlled stretch. These products are designed to improve outcomes by facilitating functional tissue remodeling while controlling the degree and direction of stretch.
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While we anticipate the normalization of surgical procedures to pre-pandemic levels, the pace of increased procedural volume remains unknown as hospitals allocate to address staffing shortages to prioritize any backlog of non-elective procedures. Additionally, other labor and financial strains on healthcare systems may continue to reduce procedural volumes.
Added
In August 2023, we announced the launch of our OviTex PRS Long-Term Resorbable product configuration, which was designed to enhance the OviTex PRS portfolio with specific design features including bi-directional stretch and a fully resorbable, long-term polymer for reinforcement. ​ Our OviTex PRS portfolio is supported by non-human primate data that demonstrated more rapid tissue integration and tissue remodeling compared to the market leading biologic matrix used in this indication.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−4 removed15 unchanged
Biggest changeOur actual results may differ from these estimates under different assumptions or conditions. 90 Table of Contents While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Biggest changeWhile our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
We do not currently have any material exposure to foreign currency fluctuations and do not engage in any hedging activities as part of our normal course of business. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
We do not currently have any material exposure to foreign currency fluctuations and do not engage in any hedging activities as part of our normal course of business. 91 Table of Contents Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
Inventory Valuation Inventory is stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method. Inventory, which consists of our OviTex portfolio products held on consignment or held in our warehouse, is considered finished goods and is purchased from a third party.
Inventory Valuation Inventory is stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method. Inventory, which consists primarily of our OviTex and OviTex PRS products held on consignment or held in our warehouse, is considered finished goods and is purchased from a third party.
We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. ITEM 8.
We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 92 Table of Contents ITEM 8.
A 1% increase in interest rates would have resulted in a $0.2 million increase to our interest expense for the year ended December 31, 2022. Inflationary factors, such as increases in our cost of revenue and operating expenses, may adversely affect our operating results.
A 1% increase in interest rates would have resulted in a $0.4 million increase to our interest expense for the year ended December 31, 2023. Inflationary factors, such as increases in our cost of revenue and operating expenses, may adversely affect our operating results.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth on pages F-1 through F-25 hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 91 Table of Contents
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth on pages F-1 through F-24 hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
We have recently established additional redundant accounts with another high-credit-quality financial institution to mitigate liquidity risk to our cash and cash equivalents from any further instability in the financial industry.
Following the events relating to Silicon Valley Bank in 2023, we established redundant accounts at high-credit-quality financial institution to mitigate liquidity risk to our cash and cash equivalents from any further instability in the financial industry.
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On March 10, 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (“SVB”) and appointed the FDIC as receiver. On March 12, 2023, the U.S.
Added
Our actual results may differ from these estimates under different assumptions or conditions.
Removed
Department of the Treasury, the Federal Reserve and the FDIC released a joint statement confirming that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.
Removed
In addition, on March 10, 2023, the Bank of England (the “BOE”) announced that it intended to seek the placement of Silicon Valley Bank UK Limited (“SVBUK”), an affiliate of SVB, into a Bank Insolvency Procedure, which ultimately results in the acquisition of SVBUK by HSBC UK Bank Plc (“HSBC") on March 13, 2023.
Removed
The BOE confirmed that all depositors’ money with SVBUK is safe and secure as a result of the transaction, and that operations at SVBUK would continue as normal. During the course of these events, a portion of our cash was held in accounts at SVB and SVBUK, with the remainder at another high-credit-quality financial institution.

Other TELA 10-K year-over-year comparisons