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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-38546
NEURONETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
33-1051425
(I.R.S. Employer Identification No.)
3222 Phoenixville Pike, Malvern, Pennsylvania 19355
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (610) 640-4202
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
STIM
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
☐
Smaller reporting company☒
Emerging growth company☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2022) was
approximately $67.7 million.
The number of shares of Registrant’s Common Stock outstanding as of March 1, 2023 was 28,363,420.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the 2023 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant’s fiscal year ended December 31, 2022, are incorporated by reference into Part III of this Report.
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NEURONETICS, INC.
Annual Report on Form 10-K for the year ended December 31, 2022
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
Business.
Item 1.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Item 3.
Item 4. Mine Safety Disclosures.
Properties.
Legal Proceedings.
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
[Reserved]
Item 5.
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data.
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10-K Summary
PART IV
EXHIBIT INDEX
SIGNATURES
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained
herein, including statements regarding our future results of operations and financial position, business strategy,
current and prospective products, product approvals, research and development costs, current and prospective
collaborations, timing and likelihood of success, plans and objectives of management for future operations and
future results of current and anticipated products, are forward-looking statements. These statements involve
known and unknown risks, uncertainties and other important factors that may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,”
“plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,”
“potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking
statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking
statements largely on our current expectations and projections about future events and financial trends that we
believe may affect our business, financial condition and results of operations. These forward-looking statements
speak only as of the date of this Annual Report on Form 10-K and are subject to a number of risks,
uncertainties and assumptions described under the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein. The events
and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results
could differ materially from those projected in the forward-looking statements. Moreover, we operate in an
evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible
for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to
publicly update or revise any forward-looking statements contained in this Annual Report on Form 10-K,
whether as a result of any new information, future events, changed circumstances or otherwise.
Disclosure Channels to Disseminate Information
The Company announces material information to the public about the Company, its products and services and
other matters through a variety of means, including filings with the U.S. Securities and Exchange Commission,
or SEC, press releases, public conference calls, the Company’s website (https://neurostar.com/neuronetics/),
including the Investors section thereof, and/or social media, including its Facebook page
(https://www.facebook.com/NeuroStarAdvancedTMS/), Twitter account (@TMSTherapy), Instagram account
(@NeurostarAdvancedTMS), YouTube account (https://www.youtube.com/user/NeuroStarTMSTherapy) and/or
LinkedIn account (https://www.linkedin.com/company/neuronetics-inc./), in order to achieve broad, non-
exclusionary distribution of information to the public. The Company encourages investors and others to review
the information it makes public in these locations, as such information could be deemed to be material
information. Please note that this list may be updated from time to time. Our internet website, Facebook page,
Instagram account, YouTube account and LinkedIn account, and the information contained therein or connected
thereto, shall not be and is not intended to be incorporated by reference into this Annual Report on Form 10-K
or our other filings with the SEC unless otherwise expressly provided.
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Item 1. Business.
Overview
PART I
We are a commercial stage medical technology company focused on designing, developing and marketing
products that improve the quality of life for patients who suffer from neurohealth disorders. Our first commercial
product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment
that uses transcranial magnetic stimulation (“TMS”) to create a pulsed, MRI-strength magnetic field that induces
electrical currents designed to stimulate specific areas of the brain associated with mood. The system is cleared
by the United States Food and Drug Administration (the “FDA”) to treat adult patients with major depressive
disorder (“MDD”) that have failed to achieve satisfactory improvement from at least one prior antidepressant
medication in the current MDD episode. It is also cleared by the FDA as an adjunct for adults with obsessive-
compulsive disorder (“OCD”), and to decrease anxiety symptoms in adult patients with MDD that may exhibit
comorbid anxiety symptoms (anxious depression). NeuroStar Advanced Therapy is safe, clinically effective,
reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS
system. We believe we are the market leader in TMS therapy based on the estimated 147,400 global patients
treated with over 5.3 million of our treatment sessions through December 31, 2022. We generated revenues of
$65.2 million for the year ended December 31, 2022.
MDD is a mood disorder characterized by the presence of one or both of two major diagnostic criteria: a
depressed mood or loss of interest in pleasure that continues for at least two weeks. The presence of at least
one of these diagnostic symptoms must be accompanied by several of the following additional symptoms: sleep
disturbance, changes in appetite, sexual dysfunction, anxiety, fatigue, difficulty concentrating and suicidal
thinking. MDD is a recurrent disease and follows a fluctuating course over an individual’s lifetime. It can be
characterized by periods of remission and relapse.
The World Health Organization (the “WHO”) ranks MDD as the single largest contributor to global disability and
a major contributor to suicide worldwide. According to a study published in the Journal of PharmacoEconomics
in 2021, the economic burden of MDD was estimated to be $326.2 billion, an increase of 37.9% relative to
2010. WHO estimates indicate the proportion of the global population with depression to be 4.4% and that there
are over 300 million people in the world living with depression. Based on U.S. Census Bureau data and a study
published in the Journal of the American Medical Association, we estimate that approximately 21 million people
between the ages of 22 and 70 years in the United States suffer from MDD annually, of whom an estimated
13.9 million, based on data from the Journal of the American Medical Association, are being treated by a
psychiatrist. We estimate, based on data from the Sequenced Treatment Alternatives to Relieve Depression
study (the “STAR*D Study”) that approximately 6.4 million of these patients have failed to achieve remission of
their MDD from their prior antidepressant medication therapy and that approximately 3.8 million of those
patients have commercial insurance or Medicare coverage for NeuroStar Advanced Therapy. As a result, based
on our expected revenues for a standard course of treatment, we believe our total annual addressable market
opportunity for treatment sessions in the United States is approximately $8.9 billion.
Initial treatment options for MDD often consist of antidepressant medication prescribed by a primary care
physician. Although a variety of antidepressant medications are available, drug therapy has at least two primary
limitations: limited effectiveness and treatment-emergent side effects. These limitations were demonstrated in
the STAR*D Study, a large clinical trial funded by the U.S. National Institute of Mental Health that enrolled more
than 4,000 adult MDD patients at 41 clinical sites to examine the outcomes to a sequenced series of
antidepressant medication attempts that mimicked best practices. In the study, only approximately 28% and
21% of patients achieved remission in their first and second medication attempts, respectively. Many patients
taking antidepressant medications experience intolerable or troubling side effects that contribute to a delay or
failure in attaining an effective or optimal antidepressant dose, poor patient treatment
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adherence or discontinuation of treatment therapy. The likelihood of achieving remission is limited and declines
with each successive medication attempt.
TMS is considered an appropriate therapy for the treatment of MDD patients who have failed to achieve
satisfactory improvement from at least one prior antidepressant medication. TMS is typically performed as an
office-based procedure using a capital equipment system designed to deliver the magnetic pulses necessary to
stimulate the areas of the brain associated with mood. A course of treatment typically requires treatment
sessions five times a week for up to six weeks that can last from as low as three to as long as forty-five minutes
per session. We believe the effectiveness of TMS depends on the psychiatrist’s ability to deliver a precise
amount of magnetic pulses to a specific area of the brain in a manner that can be consistently repeated during
each treatment session.
We designed the NeuroStar Advanced Therapy as a non-invasive therapeutic alternative to treat patients who
suffer from MDD and to address many of the key limitations of existing treatment options. We believe our
NeuroStar Advanced Therapy provides our psychiatrist customers and their patients with several benefits,
including clinically demonstrated response and remission with durable results, a demonstrated safety profile
with limited treatment-emergent side effects and high patient adherence. Additionally, NeuroStar Advanced
Therapy was designed to provide a precise and reproducible office-based therapy that is efficient and
convenient. Our therapy is delivered without general anesthesia or sedation, enabling the patient to drive and
resume normal activities immediately following each treatment session. We couple our product’s clinical
benefits with significant practice development resources, on-site clinical training and reimbursement and service
support to help our psychiatrist customers develop a successful NeuroStar Advanced Therapy practice. We
also provide cloud-based practice management solutions that enhance convenience for both psychiatrists and
patients. Based on our commercial data, we believe psychiatrists can recoup their initial capital investment in
our system by providing a standard course of treatment to approximately 12 patients, assuming these patients
receive reimbursement from Medicare or commercial insurance at rates that are similar to what our customers
have observed for existing and prior patients. We believe psychiatrists can generate approximately $8,500 of
average revenue per patient for a standard course of treatment, which may provide meaningful incremental
income to their practices. We believe that the NeuroStar Advanced Therapy coupled with these advantages
offer significant improvement over competing TMS, which lack the ability to reproduce consistent treatments,
significant clinical data from randomized outcome trials, practice development resources, and a cloud-based
practice management system.
The safety, effectiveness and durability of NeuroStar Advanced Therapy is supported by a large clinical data set
published in 28 articles in peer-reviewed medical journals, including from 15 clinical studies that have
collectively enrolled more than 1,000 adult patients suffering from MDD. Dunner, et. al. published results of a
naturalistic, prospective, observational trial conducted at 42 U.S. clinical sites in 257 patients who had tried and
failed to receive relief from one or more medication trials in their current MDD episode who were treated with an
acute course of NeuroStar Advanced Therapy. Response and remission rates at 12 months were 68% and 45%
respectively as measured by CGI-S.
Our growth strategy includes expanding our commercialization efforts in the United States, expanding
international opportunities and pursuing pipeline development of our therapy for additional indications. Outside
the United States, our products have received marketing authorizations in the European Union and Japan. Our
initial international commercial focus is Japan, which has the third largest healthcare spend globally. We have
entered into an exclusive distribution agreement with Teijin Pharma Limited (“Teijin”) a leading Japanese
healthcare company, to further expand our commercialization efforts in this market. We are also evaluating the
use of enhancements to our NeuroStar Advanced Therapy System to treat additional indications related to
neurological disorders.
As of December 31, 2022, we had 1,101 active sites utilizing our NeuroStar Advanced Therapy Systems in the
United States. We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in
the United States with the collaborative support of our 195 employees as of December 31, 2022. Our sales
force targets an estimated 50,000 psychiatrists across 26,000 psychiatric practices in the United
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States, based on a 2020 dataset from Symphony Health and our own internal estimates with those practices
treating approximately 42% of the total MDD patients in the United States who meet our labeled indication and
are insured. Patients are reimbursed by Medicare and commercial payors in the United States for treatment
sessions utilizing our NeuroStar Advanced Therapy System.
We generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and
from service and repair and extended warranty contracts. We derive the majority of our revenues from recurring
treatment sessions. For the year ended December 31, 2022, we generated revenues of $65.2 million and had a
net loss of $37.2 million. Our revenues increased 18% during the year ended December 31, 2022 compared to
the year ended December 31, 2021. For the year ended December 31, 2022, our U.S. revenues were $63.4
million, compared to $53.4 million for the year ended December 31, 2021, which represented an increase of
19% compared to the prior period. Revenues from treatment sessions represented 71% of our U.S. revenues
for the year ended December 31, 2022 compared to 73% of our U.S. revenues for the prior year.
Our Strategy
Our goal is to maintain and extend our leadership position in TMS therapy for patients with neurohealth
disorders. The key elements of our strategy include:
● Improve customer targeting and expand our direct sales and customer support team to
accelerate growth. To capture new psychiatrist customers, we plan to expand our specialized, direct
sales organization that targets MDD treating psychiatric practices that accept reimbursement from
private insurance and Medicare. Symphony Health estimates that there are approximately 26,300
group and solo practice sites in the United States with psychiatrists that prescribe antidepressant
medications. Our direct sales force primarily targets 50,000 psychiatrists at 26,000 psychiatric practices
that we estimate, based on a 2020 dataset from Symphony Health and our own internal estimates,
treat approximately 2.5 million patients, representing 42% of the total MDD patients in the United
States who meet our labeled indication and are insured. We estimate that approximately 1.2 million of
these patients have failed prior antidepressant medication attempts in the current MDD episode and
are covered by insurance that will provide reimbursement based on this medical status, resulting in a
targeted total addressable market of approximately $2.8 billion. We intend to continue to expand our
team of business development managers that are responsible for driving new customer acquisitions. To
reach our target practices, we also plan to expand our advertising efforts, both online and through more
traditional approaches, such as targeting leading psychiatric journals, practice outreach and education
through monthly webcasts, attendance at key psychiatric trade shows and sponsoring clinical
symposiums and product theaters.
● Increase utilization of our new and existing active customer sites of NeuroStar Advanced
Therapy Systems. We plan to expand our sales and customer support team to increase the number of
patients treated at new and existing active customer sites using our NeuroStar Advanced Therapy
Systems in the United States. We currently have 1,101 active customer sites in the United States. We
currently have 39 NeuroStar practice development managers in 2022 (“PDMs”), to focus exclusively on
helping increase patient utilization of NeuroStar Advanced Therapy in a practice. We intend to add to
this team to support our revenue growth. Our NeuroStar practice consultants focus their efforts on
helping psychiatrist customers implement our 5 Stars Solution for Practice Success. We intend to make
further investments in marketing resources, such as our marketing portal, which consists of
customizable practice development and advertising materials, and digital patient outreach tools all of
which are designed to drive patient awareness and help identify patients who can benefit from
NeuroStar TMS within an existing practice and in the local community. We also plan to invest further in
our direct to consumer marketing programs, which is comprised of paid search, display advertising,
social media, radio, health portals and public relations.
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● Expand our international market opportunities. We primarily sell our products within the United
States and also sell our products through distributors in countries where we have received regulatory
approval, including Japan, Saudi Arabia, The United Arab Emirates, Singapore, and the Republic of
Korea. We primarily focus our commercial efforts outside of the United States on Japan. We worked
with Teijin to obtain reimbursement approval for the NeuroStar Advanced Therapy System in
June 2019 and will continue to provide sales, marketing and clinical support to ensure our commercial
success. We will continue to opportunistically evaluate additional markets outside the United States
and Japan for commercial expansion.
●
Pursue enhancements of our NeuroStar Advanced Therapy System and pipeline development
for additional indications. We plan to continue our research and development efforts to enhance the
hardware and software components of our NeuroStar Advanced Therapy System for the treatment of
MDD and other neurohealth disorders.
Research and Development
We invest in research and development for the use of the NeuroStar Advanced Therapy System in neurohealth
disorders. Throughout our history, we have provided material support to more than 65 investigator-initiated trials
of such prospective additional indications. We are currently considering a number of potential new indications
for the use of the NeuroStar Advanced Therapy System related to neurohealth disorders.
Sales and Customer Support Team and Customer Training
As of December 31, 2022, our sales and customer support team consisted of 84 employees working
collaboratively across the following departments: sales, marketing, field service and customer support, and
reimbursement. In 2023, we plan to continue to expand our sales and customer support teams to have the
largest direct sales and customer support team in the industry, including 47 NeuroStar practice development
managers, 19 area sales managers, 7 clinical training managers, 18 field service and technical support
specialists, 15 sales leaders, 8 customer service representatives, 3 inside sales managers and 10
reimbursement specialists and managers.
Key Customers, Sales and Marketing—United States
We primarily market and sell the NeuroStar Advanced Therapy System and recurring treatment sessions to
psychiatrists, with primary care physicians and pain management specialists representing a small percentage of
our customer base. We are dependent upon a small number of customers, as the market for neurohealth
disorder equipment is highly concentrated. In 2022, our largest customer acquired our second-largest customer.
The combined entity accounted for over 17% of our revenue in 2022. We executed a new long-term, exclusive
agreement with the customer in January 2023, which covers sales to the combined organization on what we
believe are mutually beneficial terms.
We target approximately 50,000 psychiatrists across 26,000 psychiatric practices, who we estimate, based on a
2020 dataset from Symphony Health and our own internal estimates, treat approximately 42% of MDD patients
who meet our labeled indication and are insured. We target these practices by the number of psychiatrists
within their practices, the number of patients they treat and their acceptance of commercial insurance and
Medicare. We believe that our psychiatrist targeting strategy makes for a well-defined customer base that is
accessible by our direct sales organization.
We have structured our sales and customer support team with specialized roles to sell our NeuroStar Advanced
Therapy Systems and recurring treatment sessions, while delivering customer service at each stage of the
implementation process. Our area sales managers are responsible for identifying key customer prospects,
educating them on the value of NeuroStar Advanced Therapy System, gaining their commitment for capital
placement and introducing them to our PDMs. Our PDMs enhance the operational experience for
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providers and drive implementation of the NeuroStar Advanced Therapy System into our customers’ practices.
We created the role of clinical training manager to partner with our customers to conduct initial and ongoing on-
site clinical training to ensure clinical and practice success.
Practice Management Support and Psychiatrist Training—United States
Our PDMs play a pivotal role in ensuring the success of our customers as they implement a new service line
into their practice. In the early stages of implementation, they help the practice set goals, educate on the types
of patients that can benefit from our therapy and train the office staff on how to talk with patients about TMS and
how to use patient educational tools such as presentations, videos and starter kits. Once the practice begins
treating patients, our PDMs will educate the psychiatrist on how to track clinical outcomes, interpret data and
effectively convey results to existing and potential patients and referring physicians. Our PDMs also work with
our customers to increase awareness with referring physicians and develop external marketing tactics. Our
dedicated reimbursement managers help each practice navigate all issues regarding the reimbursement
process including investigation of benefits, prior authorizations and claims documentation. This group has
assisted our customers to conduct over 31,000 benefit investigations.
Psychiatrists and staff training on the NeuroStar Advanced Therapy System is a key to success within each
practice. Our clinical training consultants take the burden of clinical training off our NeuroStar practice
consultants and provide a dedicated training resource to each customer. Clinical training consultants conduct at
least a day, hands-on training course that is scheduled after system installation at each practice and also
provide ongoing advanced on-site clinical training.
Field Support—United States
Our field service engineers are responsible for maintenance, repairs and installation of upgrades. We provide a
24/7 support hotline to respond to medical information inquiries and technical questions that arise in all time
zones. We pledge to have a field service engineer on-site within 24 hours of a service call. Because of the size
and geographical coverage of our field service engineers and our standard 24-hour response time, NeuroStar
Advanced Therapy Systems experience over 99% uptime, helping to ensure uninterrupted patient treatments.
International
We market our products in a few select markets outside the United States through independent distributors. In
Japan, we have an exclusive distribution agreement with Teijin, for the commercialization of our products. The
current term of this distribution agreement expires March 31, 2025, subject to automatic renewal unless
terminated by either party.
Competition
We have competitors that sell other forms of TMS therapy, including Brainsway, Magstim, MagVenture,
CloudTMS and Nexstim, that compete directly with the NeuroStar Advanced Therapy System. We also face
competition from pharmaceutical and other companies that develop products, such as antidepressant
medications, for the treatment of neurohealth disorders.
For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors –
Risks Related to Our Business and Industry.”
Intellectual Property
Our patent estate includes patents and applications with claims directed to our NeuroStar Advanced Therapy
Systems and broader claims for potential future products and developments. On a worldwide basis, as of
December 31, 2022, our patent estate included over 100 issued or allowed patents and pending patent
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applications for our products and novel design methods, manufacturing processes, novel TMS devices and
systems and future combination products that are mainly designed to treat psychiatric conditions or perform
diagnostic procedures. In the United States, as of December 31, 2022, we owned or licensed 41 issued or
allowed patents and 7 patent applications filed that are directed to our TMS technology. Outside the United
States, as of December 31, 2022, we owned or licensed 58 issued or allowed patents, 7 pending patent
applications and zero pending Patent Cooperation Treaty applications.
These U.S. issued patents are expected to remain in effect until between 2023 and 2035. Our core patents in
the United States will not expire before 2024. Our non-U.S. patents are expected to remain in effect until
between 2024 and 2035. Our worldwide intellectual property portfolio includes multiple pending patent
applications relating to methods and apparatuses for the treatment of psychiatric health conditions in Australia,
Canada, the European Union, Japan and the United States. Our patents and patent applications mainly relate
to iron core technology, including materials, manufacturing methods, geometries, applications, and open core
technologies, TMS design patents, including coil position, motor threshold level determination, contact sensing,
and articulation arm designs, patient comfort, TMS support technologies and pulse monitoring, and potential
next generation technologies.
We own trade secrets relating to our technology, and we maintain the confidentiality of proprietary information to
protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent
protection. We seek to protect our trade secrets and know-how by entering into confidentiality agreements with
third-parties, consultants and employees who have access to such trade secrets and know-how.
For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors
—Risks Related to Intellectual Property.”
Manufacturing and Supply
We manage all aspects of product supply through our operations team based in Malvern, Pennsylvania. We
outsource the manufacturing of components and high-level assemblies, which are produced and tested to our
specifications. We rely on third parties to provide components used in existing products and we expect to
continue to do so for future products.
We establish our relationships with our third-party manufacturers and suppliers through supplier contracts and
purchase orders. In most cases, these supplier relationships may be terminated by either party upon short
notice. As of December 31, 2022, we engaged with Spartronics to supply our console; Gharieni Group GmbH to
supply our chair, Molex Incorporated to supply our SenStar Treatment Link; Paragon Micro to supply our
computer systems and other companies to supply components of our chairs and treatment packs.
We closely monitor our supply chains in light of the ongoing disruptions caused by the COVID-19 pandemic,
shipping challenges and global conflict. We have not experienced material delays in obtaining any of our
components, nor has the ready supply of finished products to our customers or clinicians been adversely
affected by component supply issues.
Reimbursement, Payor Relations and Customer Support
Based on our estimates, over 65 major private insurers in the United States, including the top 25 largest private
insurers and Medicare, have coverage policies for reimbursement of TMS, including NeuroStar Advanced
Therapy, representing over 300 million covered lives or about 95% of the total payor covered lives in the United
States.
Government Regulation
Our products and our operations are subject to extensive regulation by the FDA and other federal and state
authorities in the United States, as well as comparable authorities in foreign jurisdictions.
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FDA
Our products are subject to regulation as medical devices under the U.S Federal Food, Drug, and Cosmetic
Act, as amended (the “FDCA”), as implemented and enforced by the FDA. The FDA regulates the development,
design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage,
installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting,
advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that
medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the
requirements of the FDCA.
In addition to U.S. regulations, we are subject to a variety of regulations in other jurisdictions governing clinical
trials and commercial sales and distribution of our products. Whether or not we obtain FDA clearance or
approval for a product, we must obtain authorization before commencing clinical trials or obtain marketing
authorization or approval of our products under the comparable regulatory authorities of countries outside of the
United States. The marketing authorization process varies from country to country and the time may be longer
or shorter than that required for FDA clearance or approval.
FDA Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device commercially distributed in the United States requires either
FDA clearance of a 510(k) premarket notification or premarket approval (“PMA”). Under the FDCA, medical
devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk
associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its
safety and efficacy. Class I includes devices with the lowest risk to the patient and are those for which safety
and efficacy can be assured by adherence to the FDA’s General Controls for medical devices, which include
compliance with the applicable portions of the quality systems regulation (“QSR”), facility registration and
product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and
promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as
deemed necessary by the FDA to ensure the safety and efficacy of the device. These special controls can
include performance standards, post-market surveillance, patient registries, special labeling requirements,
premarket data requirements, and FDA guidance documents. While most Class I devices are exempt from the
510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the
FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially
distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket
notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks,
such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use,
or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed
in Class III, generally requiring approval of a PMA.
Our NeuroStar Advanced Therapy System is classified as a Class II medical device. We initially received
marketing authorization of this device through the de novo classification process. Subsequently, we have
cleared any changes made to our system through the 510(k) clearance process.
510(k) Marketing Clearance Pathway
To obtain 510(k) clearance, we must submit to the FDA a premarket notification submission demonstrating that
the proposed device is “substantially equivalent” to a predicate device already on the market. A predicate
device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally
marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that
has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through
the 510(k) process. The FDA’s 510(k) clearance process usually takes from 30 to 90 days but may take
significantly longer if the FDA requires additional information and places the submission on hold for up to an
additional 180 days. The FDA may require additional information, including clinical data, to make a
determination regarding substantial equivalence. If the FDA agrees that the device is substantially equivalent
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to a predicate device currently on the market, it will issue a “substantially equivalent” letter, which serves as the
clearance to commercially market the device.
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. The device sponsor must then fulfill more rigorous PMA
requirements, or can request a risk-based classification determination for the device in accordance with the “de
novo” classification process, which is a route to market for novel medical devices that are low to moderate risk
and are not substantially equivalent to a predicate device.
Pre-Market Approval Process
A PMA application must be submitted if the medical device is in Class III (although the FDA has the discretion
to continue to allow certain pre-amendment Class III devices to use the 510(k) process) or cannot be cleared
through the 510(k) process. A PMA application must be supported by, among other things, extensive technical,
preclinical, clinical trials, manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety
and effectiveness of the device.
After a PMA application is submitted and filed, the FDA begins an in-depth review of the submitted information,
which typically takes 180 days, but may take longer if the FDA requests additional information and places the
submission on hold for up to an additional 180 days. During this review period, the FDA may request additional
information (e.g., clinical or non-clinical data) or clarification of information already provided. Also, during the
review period, an advisory panel of experts from outside the FDA will usually be convened to review and
evaluate the application and provide recommendations to the FDA as to the approvability of the device. In
addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with
the QSR, which imposes elaborate design development, testing, control, documentation and other quality
assurance procedures in the design and manufacturing process. The FDA may approve a PMA application with
post-approval conditions intended to ensure the safety and effectiveness of the device including, among other
things, restrictions on labeling, promotion, sale, distribution and collection of long-term follow-up data from
patients in the clinical study that supported approval. Failure to comply with the conditions of approval can result
in materially adverse enforcement action, including the loss or withdrawal of the approval. New PMA
applications or supplements are required for significant modifications to the manufacturing process, labeling of
the product and design of a device that is approved through the PMA process. PMA supplements often require
submission of the same type of information as an original PMA application, except that the supplement is limited
to information needed to support any changes from the device covered by the original PMA application, and
may not require as extensive clinical data or the convening of an advisory panel.
De Novo Classification Process
Medical device types that the FDA has not previously classified as Class I, II, or III are automatically classified
as Class III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of
1997 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 substantially equivalent predicate device, called the “Request for
Evaluation of Automatic Class III Designation,” or the de novo classification process. This process allows a
manufacturer whose novel device is automatically classified as Class III to request down-classification of its
medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than
requiring the submission and approval of a PMA application. Prior to the enactment of the Food and Drug
Administration Safety and Innovation Act, (the “FDASIA”), in July 2012, a medical device could only be eligible
for de novo classification if the manufacturer first submitted a 510(k) premarket notification and received a
determination from the FDA that the device was not substantially equivalent to a predicate device. The FDASIA
streamlined the de novo classification pathway by permitting manufacturers to request de novo classification
directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially
equivalent determination. We were granted marketing authorization for our system using the de novo
classification process after receiving a not substantially equivalent determination following the
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submission of a 510(k) premarket notification. We have subsequently used the 510(k) clearance process to
obtain authorization from the FDA for changes to our system, including for our TouchStar® treatment, a three-
minute intermittent theta burst protocol delivered by our NeuroStar Advanced Therapy System, which was
cleared by the FDA on November 23, 2020.
Clinical Trials
A clinical trial is typically required to support a PMA application or de novo classification and is sometimes
required for a 510(k) pre-market notification, particularly in the case of changes to indications. Clinical trials for
significant risk devices generally require submission of an application for an Investigational Device Exemption
(“IDE”) to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory
testing results, showing that it is safe to test the device in humans and that the investigational protocol is
scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of
patients, unless the product is deemed a non-significant risk device and eligible for more abbreviated IDE
requirements. Clinical trials for a significant risk device may begin once the IDE application is approved by the
FDA as well as the appropriate institutional review boards at the clinical trial sites, and the informed consent of
the patients participating in the clinical trial is obtained. After a trial begins, the FDA may place it on hold or
terminate it if, among other reasons, it concludes that the clinical subjects are exposed to an unacceptable
health risk. Any trials we conduct must be conducted in accordance with FDA regulations as well as other
federal regulations and state laws concerning human subject protection and privacy. Moreover, the results of a
clinical trial may not be sufficient to obtain clearance or approval of the product.
Changes to Marketed Devices
After a device receives 510(k) marketing clearance, or de novo classification, any modification that could
significantly affect its safety or efficacy, or that would constitute a major change or modification in its intended
use, will typically require a new 510(k) marketing clearance but may, depending on the modification, require a
de novo classification or PMA approval. Depending on the scope of the change, a traditional, special, or
abbreviated 510(k) application may be submitted. Compared to a traditional 510(k), a special 510(k) application
may be used in special cases where: 1) the manufacturer makes a change to their own device; 2) performance
data is unnecessary or well-established methods are available to evaluate the change; and 3) performance data
necessary to demonstrate substantial equivalence can be presented in a summary or risk analysis format. In
this case, the review time is shorter (approximately 30 days), compared to the review time of approximately 90
days for the traditional 510(k) pathway. Alternatively, the abbreviated 510(k) pathway may be used when the
submission relies on FDA guidance documents, demonstration of compliance with special controls for the
device type, and voluntary consensus standards. This pathway has a review time of approximately 90 days.
The FDA requires each manufacturer to determine which pathway is most appropriate; however, in the event
that the FDA disagrees with a manufacturer’s determination, it may ask the manufacturer to convert its
application to another type (e.g., if the FDA determines that it requires additional information about the
performance testing beyond the summary data, it may ask the manufacturer to convert a special 510(k) to a
traditional 510(k)).
Many minor modifications today are accomplished by a manufacturer documenting the change in an internal
letter-to-file (a “LTF”). The LTF is documented in lieu of submitting a new 510(k) or PMA to obtain clearance or
approval for every change and includes the rationale for why a submission was not filed. The changes
contained in the LTFs are then summarized and included within the following 510(k) or PMA submission. The
FDA will review these changes during the submission process or during an inspection. If the FDA disagrees
with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request
the recall of the modified device until 510(k) marketing clearance or PMA approval is obtained. Also, in these
circumstances, we may be subject to significant regulatory fines or penalties.
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Post-Market Regulation
After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue
to apply. These include:
● establishment registration and device listing with the FDA;
● QSR requirements, which require manufacturers, including third-party manufacturers and contract
manufacturers, to follow stringent design, testing, control, documentation and other quality assurance
procedures during all aspects of the design and, manufacturing , and distribution process;
● labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly
balanced and provide adequate directions for use and that all claims are substantiated, and also
prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on
labeling; FDA guidance on off-label dissemination of information and responding to unsolicited requests
for information;
● clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect
safety or efficacy or that would constitute a major change in intended use of one of our cleared devices;
● medical device reporting regulations, which require that a manufacturer report to the FDA if a device it
markets may have caused or contributed to a death or serious injury, or has malfunctioned and the
device or a similar device that it markets would be likely to cause or contribute to a death or serious
injury or serious adverse events, if the malfunction were to recur;
● correction, removal and recall reporting regulations, which require that manufacturers report to the FDA
field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the
device or to remedy a violation of the FDCA that may present a risk to health;
● complying with regulations requiring 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;
● the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the
market a product that is in violation of governing laws and regulations; and
● post-market surveillance activities and regulations, which apply when deemed by the FDA to be
necessary to protect the public health or to provide additional safety and efficacy data for the device.
We may be subject to similar foreign laws that may include applicable post-marketing requirements, such as
ongoing safety/ malfunction surveillance and risk management. Our manufacturing processes are required to
comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the
design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging,
distribution, installation and servicing of finished devices intended for human use. The QSR also requires,
among other things, maintenance of a device master file, device history file, and complaint files. As a
manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. Our failure to
maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, our
manufacturing operations and the recall or seizure of our products. The discovery of previously unknown
problems with any of our products, including unanticipated adverse events or adverse events of increasing
severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label
by a physician in the practice of medicine, could result in restrictions on the device, including voluntary or
mandatory device corrections or removals.
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The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to
comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions,
which may result in any of the following sanctions:
● warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
● recalls, withdrawals, or administrative detention or seizure of our products;
● operating restrictions or partial suspension or total shutdown of production;
● refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or
modified products;
● withdrawing 510(k) clearances or PMA approvals that have already been authorized;
● refusal to authorize export or import approvals for our products; or
● criminal prosecution.
U.S. and Foreign Healthcare Laws and Compliance Requirements
Healthcare providers, physicians and third-party payors play a primary role in the recommendation, prescription
and payment for medical treatments. A medical device manufacturer’s arrangements with third-party payors,
providers and patients may expose it to broadly applicable fraud and abuse and other healthcare laws and
regulations that may affect its business or the financial arrangements and relationships through which it
markets, sells and distributes its products. Even if a medical device manufacturer does not control referrals of
healthcare services or bill directly to Medicare, Medicaid, other federal healthcare programs, or other third-party
payors, federal and state healthcare laws and regulations are applicable to its business. In addition, a portion of
our business is subject to the Health Insurance Portability and Accountability Act of 1996, (“HIPAA”), as a
business associate of our covered entity customers. To provide our covered entity customers with services that
involve the use or disclosure of protected health information (“PHI”), we are required to enter into business
associate agreements. As a business associate, we are also directly liable for compliance with HIPAA. The laws
that may affect a medical device manufacturer’s ability to operate include, but are not limited to:
● the federal Anti-Kickback Statute, which prohibits any person or entity from, among other things,
knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the
purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a
federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration”
has been broadly interpreted to include anything of value. The government can establish a violation of
the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a
specific intent to violate. Moreover, the government may assert that a claim for reimbursement that
includes items resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act (“FCA”). Although there are a
number of statutory exceptions and regulatory safe harbors to the federal healthcare Anti-Kickback
Statute protecting certain common business arrangements and activities from prosecution or regulatory
sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to
those who prescribe, purchase, or recommend medical device products, including discounts, or
engaging individuals as speakers, consultants, or advisors, may be subject to scrutiny if they do not fit
squarely within an exception or a safe harbor. Our practices may not in all cases meet all of the criteria
for safe harbor protection from anti-kickback liability. Moreover, there are no safe
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harbors for many common practices, such as reimbursement support programs, educational or
research grants, or charitable donations;
● the federal civil and criminal false claims laws and civil monetary penalty laws, such as the FCA, which
can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from,
among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent
claims for payment of federal funds, and knowingly making, using or causing to be made or used a
false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an
obligation to pay money to the federal government. The Social Security Act also has a provision that
provides for the imposition of civil monetary penalties against any person who offers or transfers
remuneration to a Medicare or Medicaid beneficiary that such person knows or should know is likely to
influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or
receipt of any item or service payable by a federal health care program. Private individuals, commonly
known as “whistleblowers,” can bring FCA qui tam actions on behalf of the government and
themselves, and may share in amounts paid by the entity to the government in recovery or settlement.
False Claims Act liability is potentially significant in the healthcare industry because the statute
provides for treble damages and mandatory penalties of $13,508 to $27,018 (as of January 2023) per
false or fraudulent claim or statement. Many pharmaceutical and medical device manufacturers have
been investigated and have reached substantial settlements under the FCA in connection with alleged
off label promotion of their products and allegedly providing free products to customers with the
expectation that the customers would bill federal health care programs for the product. In addition, a
claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the FCA. As a result of a modification made by
the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money
or property presented to the U.S. government. In addition, manufacturers can be held liable under the
FCA even when they do not submit claims directly to government payors if they are deemed to “cause”
the submission of false or fraudulent claims. There are also criminal penalties, including imprisonment
and criminal fines, for making or presenting false, fictitious or fraudulent claims to the federal
government;
● HIPAA, among other things, established various criminal health care fraud laws, which impose criminal
liability for executing or attempting to execute a scheme to defraud any healthcare benefit program,
including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare
benefit program, willfully obstructing a criminal investigation of a healthcare offense, and creates
federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement or representation, or making or
using any false writing or document knowing the same to contain any materially false, fictitious or
fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits,
items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not
need to have actual knowledge of the applicable statute or specific intent to violate it or to have
committed a violation;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act
(“HITECH”), and their implementing regulations, which imposes privacy, security, transmission and
breach reporting obligations with respect to individually identifiable health information upon “covered
entities” subject to the law, including health plans, healthcare clearinghouses and certain healthcare
providers and their respective business associates that perform services on their behalf that involve
individually identifiable health information. HITECH also created new tiers of civil monetary penalties,
amended HIPAA to make civil and criminal penalties directly applicable to business associates, and
gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil
actions. On December 10, 2020, and later on January 21, 2021, the U.S. Department of Health and
Human Services Office for Civil Rights issued a Notice of Proposed Rulemaking, which if
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finalized, would make changes to some of HIPAA’s regulatory requirements, which would apply to
business associates;
● the federal physician payment transparency requirements, sometimes referred to as the “Physician
Payments Sunshine Act,” created under the Patient Protection and Affordable Care Act (“PPACA”),
which requires, among other things, certain manufacturers of drugs, devices, biologics and medical
supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program (with
certain exceptions) to report annually to the United States Department of Health and Human Services,
Centers for Medicare and Medicare Services,(“CMS”), information related to payments or other
transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians
and their immediate family members. Beginning in 2022, applicable manufacturers are required to
report information regarding payments and transfers of value provided to physician assistants, nurse
practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives; and
● foreign and state law equivalents of each of the above federal laws, such as anti-kickback and false
claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or
services reimbursed by any non-governmental third-party payors, including private insurers; state laws
that require device manufacturers to comply with the industry’s voluntary compliance guidelines and
the applicable compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws
that require device manufacturers to report information related to payments and other transfers of value
to physicians and other healthcare providers or marketing expenditures and pricing information; and
other federal and state laws that govern the privacy and security of health information or personally
identifiable information in certain circumstances, including state health information privacy and data
breach notification laws which govern the collection, use, disclosure, and protection of health-related
and other personal information, many of which differ from each other in significant ways and often are
not pre-empted by HIPAA, thus requiring additional compliance efforts and data privacy and security
laws and regulations in foreign jurisdictions that may be more stringent than those in the United States
(such as the European Union, which adopted the General Data Protection Regulation (the “GDPR”),
which became effective in May 2018).
Because of the breadth of these laws and the narrowness of their statutory exceptions and regulatory safe
harbors, it is possible that some of a medical device manufacturer’s business activities could be subject to
challenge under one or more of these laws. The scope and enforcement of each of these laws is uncertain and
subject to rapid change in the current environment of healthcare reform, especially in light of the lack of
applicable precedent and regulations. Federal and state enforcement bodies have recently increased their
scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of
investigations, prosecutions, convictions and settlements in the healthcare industry.
Ensuring that business arrangements with third parties comply with applicable healthcare laws and regulations
is costly and time consuming. If a medical device manufacturer’s operations are found to be in violation of any
of the laws described above or any other governmental regulations that apply to it, it may be subject to
penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, substantial
monetary penalties, individual imprisonment, exclusion from governmental funded healthcare programs, such
as Medicare and Medicaid, additional reporting obligations and oversight if it becomes subject to a corporate
integrity agreement or other agreement to resolve allegations of non-compliance with these laws, reputational
harm, diminished profits and future earnings, and the curtailment or restructuring of operations, any of which
could adversely affect the ability of a medical device manufacturer to operate its business and the results of its
operations.
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United States Healthcare Reform
In the United States, a number of legislative and regulatory proposals have been considered or enacted to
change the healthcare system in ways that could affect a medical device manufacturer’s business. Among
policy makers and governmental and private insurers in the United States, there is significant interest in
promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality
or expanding access. For example, in 2010, the PPACA was enacted, which include measures to significantly
change the way health care is financed by both governmental and private insurers, and significantly impacts the
medical device industry. Among other ways in which it may impact a medical device manufacturer’s business,
the PPACA:
● established a Patient-Centered Outcomes Research Institute to oversee and identify priorities in
comparative clinical efficacy research in an effort to coordinate and develop such research;
● implemented payment system reforms including a national pilot program on payment bundling to
encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency
of certain healthcare services through bundled payment models; and
● expanded the eligibility criteria for Medicaid programs.
Some of the provisions of the PPACA have yet to be implemented, and there were judicial and Congressional
challenges to certain aspects of the PPACA, as well as efforts by the Trump administration to repeal or replace
certain aspects of the PPACA. Most recently, under President Biden, the Department of Justice dropped support
of two Supreme Court cases challenging PPACA in addition to a case before the U.S. Court of Appeals for the
Fifth Circuit. On January 28, 2021, President Biden signed an executive order to expand access to PPACA
coverage, stating that it is the “policy” of the Biden administration to protect and strengthen the PPACA and
directing agencies to consider suspending, revising, or rescinding actions related to President Trump’s
executive orders that are inconsistent with this policy position. In the past, Congress has considered legislation
that would repeal or repeal and replace all or part of the PPACA; however, this is not the policy of the Biden
administration. There is no way to know whether, and to what extent, if any, the PPACA will remain in-effect in
the future, and it is unclear how judicial decisions, subsequent appeals, or other efforts to repeal and replace or,
possibly, to restore the PPACA will impact the U.S. healthcare industry or our business.
Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices
for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed federal
legislation designed to, among other things, bring more transparency to product pricing, reduce the cost of
certain products under Medicare, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies. At the state level, individual states in the
United States are also increasingly passing legislation and implementing regulations designed to control
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product
access and marketing cost disclosure and transparency measures.
It is likely that additional state and federal 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 reduced demand for a medical device manufacturer’s products or additional pricing
pressure.
We cannot predict the impact that health care reform under the Biden administration will have on our business,
and there is uncertainty as to what healthcare programs and regulations may be implemented or changed at the
federal and/or state level in the United States, or the effect of any future legislation or regulation. However, it is
possible that such initiatives could have an adverse effect on our ability to obtain approval and/or successfully
commercialize products in the United States in the future. For example, U.S. federal government and state
legislatures have continued to implement cost containment programs, including
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price controls and restrictions on coverage and reimbursement. To contain costs, governmental healthcare
programs and third-party payers are increasingly challenging the price, scrutinizing the medical necessity, and
reviewing the cost-effectiveness of medical treatments. Any changes that reduce, or impede the ability to
obtain, reimbursement for the type of products we intend to commercialize in the United States (or our products
more specifically, if approved) or reduce medical procedure volumes could adversely affect our business plan to
introduce our products in the United States.
Japanese Regulation
In Japan, medical devices are regulated mainly under the Pharmaceutical and Medical Device Act. This act was
implemented on November 25, 2014 and served as a revision to the original Pharmaceutical Affairs Law of
2005. Under this regulation, medical devices must be approved prior to importation and commercial sale by the
Pharmaceutical Medical Device Agency (“PMDA”) and Ministry of Health and Welfare (“MHLW”). The PMDA is
the MHLW-created, quasi-independent agency that was established to review and approve pharmaceutics and
medical devices for marketing in Japan. They are also responsible for Japan Good Manufacturing Practices
audits, clinical studies oversight, and facility licensing. The approval process identifies a Marketing Authorization
Holder (“MAH”), who is designated as the only authorized seller of products. Manufacturers of medical devices
outside of Japan who do not operate through a Japanese entity are able to designate a MAH, known as a
designated MAH (“D-MAH”), who will apply for product approval and take responsibility for the medical device
within Japan. After receiving PMDA’s recommendations for marketing approval, the MHLW will ultimately
evaluate and approve those pharmaceutics and medical devices deemed to be safe and effective. As part of its
approval process, the MHLW may require that the product be tested in Japanese laboratories. The approval
process ranges in length between two and twelve months, depending on the submission type (e.g., Todokede –
for Class I devices, Ninsho – for Class II and III devices, or Shonin for Class II through IV devices). Since the
NeuroStar Advanced Therapy System is classified as a Class III device by Japan’s definition, Neuronetics has
followed the Shonin process for pre-market approval. After approval is received, the MHLW issues a Shonin
approval to Neuronetics’ D-MAH, thereby permitting such entity to import the device into Japan for sale. The
MHLW is also responsible for creating policies, regulations, guidance documents, and laws, and governs safe
use of medical products as well as for social insurance, reimbursement policies, and pricing.
After a device is approved for importation and commercial sale in Japan, the MHLW continues to monitor sales
of approved products for compliance with labeling regulations, which prohibit promotion of devices for
unapproved uses, and reporting regulations, which require reporting of product malfunctions, including serious
injury or death caused by any approved device. Failure to comply with applicable regulatory requirements can
result in enforcement action by the MHLW, which may include fines, injunctions, and civil penalties, recall or
seizure of our products, operating restrictions, partial suspension or total shutdown of sales in Japan, or criminal
prosecution.
European Union Regulation
Neuronetics has received European Conformity (“CE”) certification under the European Union (“EU” or “E.U.”)
Medical Device Regulation (“MDR”) (2017/745). This CE mark provides market authorization within the EU and
European Economic Area (“EEA”). In the EU, a single regulatory approval process exists, in which a Notified
Body assesses the conformity of the medical device intended to be marketed with the legal requirements set
forth in the EU MDR. To obtain a CE mark, medical devices and their accessories must meet minimum
standards of performance, safety, and quality (i.e., the essential requirements), and then, according to their
classification, comply with one or more of a selection of conformity assessment routes. After conformity is
confirmed, the CE mark is affixed to the medical device itself or on its packaging, thus indicating its conformity
status. The competent authorities of the EU countries separately regulate the clinical research for medical
devices and the market surveillance of products once they are placed on the market.
Other International Regulation
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Sales and marketing of medical devices outside of the United States are subject to foreign regulatory
requirements that vary widely from country to country. The global regulatory environment is increasingly
stringent and unpredictable. Several countries that did not have regulatory requirements for medical devices
have established such requirements in recent years, and other countries have expanded, or plan to expand,
their existing regulations. While harmonization of global regulations has been pursued, requirements continue to
differ significantly among countries. We expect this global regulatory environment will continue to evolve, which
could impact the cost, the time needed to approve, and ultimately, our ability to maintain existing approvals or
obtain future approvals for our products. The time required to obtain appropriate marketing authorizations from
other foreign authorities may be substantially longer or shorter than required for FDA approval. Some countries
may not require any special registration process prior to importing and marketing the device. Whether or not we
have obtained FDA approval, our NeuroStar Advanced Therapy System may be subject to different regulatory
requirements in other jurisdictions. The foreign regulatory approval process includes all the risks associated
with FDA regulation, as well as country-specific regulations.
Other Regulations
Import-export. Our international operations enable us to be subjected to laws regarding sanctioned countries,
entities and persons, customs, and import-export. Among other things, these laws restrict, and in some cases
can prevent, U.S. companies from directly or indirectly selling goods, technology or services to people or
entities in certain countries. In addition, these laws require that we exercise care in our business dealings with
entities in and from foreign countries.
Data Privacy and Cybersecurity Laws and Regulations. As a business with a significant global footprint,
compliance with evolving regulations and standards in data privacy and cybersecurity (relating to the
confidentiality and security of our information technology systems, products such as medical devices, and other
services provided by us) may result in increased costs, lower revenue, new complexities in compliance, new
challenges for competition, and the threat of increased regulatory enforcement activity. Our business relies on
the secure electronic transmission, storage and hosting of sensitive information, including personal information,
financial information, intellectual property, and other sensitive information related to our customers and
workforce.
For example, in the U.S. the collection, maintenance, protection, use, transmission, disclosure and disposal of
certain personal information and the security of medical devices are regulated at the U.S. federal and state, and
industry levels. U.S. federal and state laws protect the confidentiality of certain patient health information,
including patient medical records, and restrict the use and disclosure of patient health information by health
care providers. In addition, the FDA has issued guidance advising manufacturers to take cybersecurity risks into
account in product design for connected medical devices and systems, to assure that appropriate safeguards
are in place to reduce the risk of unauthorized access or modification to medical devices that contain software
and reduce the risk of introducing threats into hospital systems that are connected to such devices. The FDA
also issued guidance on the post market management of cybersecurity in medical devices.
Outside the U.S., we are impacted by the privacy and data security requirements at the international, national
and regional level, and on an industry specific basis. Legal requirements in these countries relating to the
collection, storage, handling and transfer of personal data and, potentially, intellectual property continue to
evolve with increasingly strict enforcement regimes.
Human Capital
Employees
As of December 31, 2022, we had 194 full time employees working collaboratively across our sales and
customer support team, in research and development, including clinical, regulatory and certain quality functions,
operations and in general and administrative. All of our employees are employed full time. We have
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never had a work stoppage and none of our employees are covered by collective bargaining agreements or
represented by a labor union. We believe that our employee relations are strong.
We recruit employees with the skills and training relevant to functional responsibilities. We believe that cultural
fit and energy are important considerations. We assess the likelihood that a particular candidate will contribute
to the Company’s overall goals, and beyond their specifically assigned tasks. We aim to provide market-based
compensation and work to retain our employees for many years. During 2022, the Company continued to offer
a two-day work from home policy to provide personal flexibility and support employees in managing family
priorities.
Development
Developing employees contributes to growing our business. The Company has leadership development
programs which bring a consistent approach to leadership development that all managers and directors are
required to attend. The Company also provides learning opportunities for all employees to continue to progress
their development and career at the Company.
Diversity, Equity and Inclusion
A diverse and inclusive culture that provides fair and equitable opportunities helps the Company remain
competitive, advance its innovation culture, and serve customers. The Company focuses on attracting and
advancing top talent as well as advancing diversity, equity, and inclusion initiatives.
Compensation and Benefits
In addition to a professional work environment that promotes innovation and rewards performance, our total
compensation for employees includes a variety of components that support sustainable employment and the
ability to build a strong financial future, including competitive market-based pay, share-based compensation
awards, and comprehensive benefits. In addition to earning a base salary, eligible employees are compensated
for their contributions to the Company’s goals with cash incentives and long-term equity-based incentives. The
Company is committed to providing fair and equitable pay for employees. Eligible full-time employees also have
access to medical, dental, and vision plans; savings and retirement plans; and other benefits.
Corporate Information
We were incorporated in Delaware in April of 2003. Our principal executive offices are located at 3222
Phoenixville Pike, Malvern, Pennsylvania 19355, and our telephone number is (610) 640-4202. Our website
address is www.neurostar.com. We make available, free of charge on our website, our annual report on Form
10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”), as soon as reasonably practicable after we electronically file those reports with, or furnish
them to, the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC, which can be found at www.sec.gov. The information contained on, or accessible through, our website
is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider any
information contained in, or that can be accessed through, our website as part of this Annual Report on
Form 10-K.
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Summary Risk Factors
An investment in shares of our common stock involves significant risks. See the “Risk Factors” section of this
Annual Report on Form 10-K. These risks include, among others:
● We have incurred losses in the past and may be unable to achieve or sustain profitability in the future.
● If insurance coverage is unavailable or reimbursement from third-party payors for treatments using our
products significantly declines, psychiatrists may be reluctant to use our products.
● Our revenue has been concentrated among a small number of customers, and if we lose any of these
customers and fail to replace them, or if any of these customers fail to perform their obligations to us,
our revenue may decrease substantially.
● Our success depends upon patient satisfaction with the effectiveness of our NeuroStar Advanced
Therapy System.
● We operate in a very competitive environment and if we are unable to compete successfully against
our existing or potential competitors, our sales and operating results may be negatively affected.
● The loss of certain members of our senior management or our inability to attract and retain highly
skilled executives, salespeople, product development and other personnel could negatively impact our
business.
● We rely on single-source suppliers for some components used in our NeuroStar Advanced Therapy
System and on a single manufacturer for the assembly of our NeuroStar Advanced Therapy System,
and we may be unable to find replacements or immediately transition to alternative parties for these
components.
● We rely on a network of third-party distributors to market and distribute our products internationally, and
if we are unable to maintain and expand this network, we may be unable to generate anticipated sales.
● If we are not able to obtain and enforce patent protection for our technologies, products, or product
candidates, development and commercialization of our products and product candidates may be
adversely affected.
● Our products and operations are subject to extensive government regulation and oversight both in the
United States and abroad, and our failure to comply with applicable requirements could harm our
business.
● Modifications to our products may require new 510(k) clearances or PMA approvals, and may require
us to cease marketing or recall the modified products until clearances are obtained.
● Our products must be manufactured in accordance with federal and state regulations, and we could be
forced to recall our installed systems or terminate production if we fail to comply with these regulations.
● Our products may cause or contribute to adverse medical events that we are required to report to the
FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business,
financial condition and results of operations. The discovery of serious safety issues with our
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products, or a recall of our products either voluntarily or at the direction of the FDA or another
governmental authority, could have a negative impact on us.
● We are subject to certain federal, state and foreign fraud and abuse laws, health information privacy
and security laws and transparency laws, which, if violated, could subject us to substantial penalties.
Additionally, any challenge to or investigation into our practices under these laws could cause adverse
publicity and be costly to respond to, and thus could harm our business.
● Our operating results are directly dependent upon the sales and marketing efforts of our sales and
customer support team as well as our field sales personnel in the United States and our independent
third-party distributors outside of the United States. If our employees or our independent distributors fail
to adequately promote, market and sell our products, our sales could significantly decrease.
● We may need to raise additional capital to fund our existing commercial operations, develop and
commercialize new products and expand our operations.
● The terms of our credit facility place restrictions on our operating and financial flexibility. If we raise
additional capital through debt financing, the terms of any new debt could further restrict our ability to
operate our business.
● We are an “emerging growth company” and the reduced disclosure requirements applicable to
emerging growth companies could make our common stock less attractive to investors.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and
uncertainties described below and the other information contained in this Annual Report on Form 10-K before
deciding whether to invest in our common stock. The occurrence of any of the events or developments
described below could harm our business, financial condition, results of operations and prospects. As a result,
the market price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
We have incurred losses in the past and may be unable to achieve or sustain profitability in the future.
We have incurred net losses since inception, including net losses of $37.2 million and $31.2 million for the years
ended December 31, 2022 and 2021, respectively. As a result of ongoing losses, as of December 31, 2022, we
had an accumulated deficit of $345.9 million. We expect to continue to incur significant sales and marketing,
product development, regulatory and other expenses as we continue to expand our marketing efforts to
increase adoption of our products and expand existing relationships with our customers, to obtain regulatory
clearances or approvals for our products in additional countries and for additional indications, and to develop
new products or add new features to our existing products. The net losses we incur may fluctuate significantly
from quarter to quarter. We will need to generate significant additional revenues to achieve and sustain
profitability, and even if we achieve profitability, we cannot be sure that we will remain profitable for any
substantial period of time. Our failure to achieve or maintain profitability could negatively impact the value of our
common stock.
We rely on the sale of our NeuroStar Advanced Therapy System and treatment sessions to generate
revenues.
We rely on the sale of our NeuroStar Advanced Therapy System and treatment sessions to generate revenues,
and we expect to generate substantially all of our revenues in the foreseeable future from sales of these and
any related products and services. Because the market for TMS therapy is still developing and
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contains a limited number of market participants, sales of our products could be negatively impacted by
unfavorable market reactions to our or other TMS devices. If the use of our or other TMS therapies results in
serious adverse events, or such products malfunction or are misused, patients and psychiatrists may attribute
such negative events to TMS therapy generally, which may adversely affect market adoption of our products.
Additionally, if patients undergoing treatment with a NeuroStar Advanced Therapy System perceive the benefits
to be inadequate or adverse events too numerous or severe compared to the relevant rates of alternative TMS
therapies or pharmaceutical options, it will be difficult to demonstrate the value of our NeuroStar Advanced
Therapy System to patients and psychiatrists. As a result, demand for and the use of our NeuroStar Advanced
Therapy System may decline or may not increase at the pace or to the levels we expect.
Our business may be disrupted and our results of operations and liquidity may be adversely affected by
a global pandemic.
Our operations and interactions with healthcare systems, providers and patients expose us to risks associated
with public health crises, including epidemics and pandemics. The global impact of COVID-19, or other global
pandemic including corresponding preventative and precautionary measures that we and other businesses,
communities and governments may take to mitigate the spread of such disease, may lead to restrictions on,
disruptions in, and other related impacts on business and personal activities, which may adversely impact our
business and liquidity.
In early 2022 and throughout the year ended 2021, we experienced a material impact to revenue particularly
with regards to U.S. treatment session revenues as a result of the COVID-19 pandemic. Capital equipment
sales and treatment session revenues may continue to be materially impacted by the pandemic as customers
defer capital purchase decisions and delay new patient treatment starts.
The significance of the impact of a global pandemic on our operations depends on numerous evolving factors
that we may not be able to accurately predict or effectively respond to, including, among others:
● the effect on global economic activity and the resulting impact on our customer’s businesses, their
credit and liquidity, and their demand for our solutions and services, as well as their ability to pay;
● our ability to deliver and implement our solutions in a timely manner, including as a result of supply
chain disruptions and related cost increases; and
● actions taken by U.S., foreign, state, and local governments, suppliers, and individuals in response to
the outbreak.
If insurance coverage is unavailable or reimbursement from third-party payors for treatments using our
products significantly declines, psychiatrists may be reluctant to use our products.
In the United States, sales of our products will depend, in part, on the extent to which the treatment sessions
using our products are covered and reimbursed by third-party payors, including private insurers and
government healthcare programs. Even if a third-party payor covers a particular treatment that uses our
products, the resulting reimbursement rate may not be adequate to cover a provider’s cost to purchase our
products or ensure such purchase is profitable for the provider. Further, patients who are treated in-office for a
medical condition generally rely on third-party payors to reimburse all or part of the costs associated with the
treatment and may be unwilling to undergo such treatment in the absence of coverage and adequate
reimbursement, or due to large annual deductibles associated with certain health insurance plans.
Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s
determination that a treatment is neither experimental nor investigational, safe, effective, and medically
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necessary, appropriate for the specific patient, cost-effective, supported by peer-reviewed medical journals and
included in clinical practice guidelines.
In the United States, there is no uniform policy of coverage and reimbursement among third-party payors. Third-
party payors often rely upon Medicare coverage policies and payment limitations in setting their own
reimbursement policies, but also have their own methods and approval process apart from Medicare coverage
and reimbursement determinations. Therefore, coverage and reimbursement for treatments can differ
significantly from payor to payor. Decisions regarding the extent of coverage and amount of reimbursement to
be provided for an in-office treatment is made on a plan-by-plan basis. One payor’s determination to provide
coverage for a specific treatment does not assure that other payors will also provide coverage, and adequate
reimbursement.
In addition, the federal government and state legislatures have continued to implement cost containment
programs, including price controls and restrictions on coverage and reimbursement. To contain costs,
governmental healthcare programs and third-party payors are increasingly challenging the price, scrutinizing the
medical necessity and reviewing the cost-effectiveness of medical treatments.
Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets,
including Japan, have government-managed healthcare systems that govern reimbursement for psychiatric
treatments and procedures. Additionally, some foreign reimbursement systems provide for limited payments in a
given period and therefore result in extended payment periods. If adequate levels of reimbursement from third-
party payors outside of the United States are not obtained, international sales of our products may not
materialize or grow significantly.
The marketability of our products may suffer if the government and third-party payors fail to provide adequate
coverage and reimbursement. Even if favorable coverage and reimbursement status is attained, less favorable
coverage policies and reimbursement rates may be implemented in the future.
If we are unable to adequately train psychiatrists and other treatment providers on the safe and
appropriate use of our products, we may be unable to achieve our expected growth.
There is a learning process involved for treatment providers to become proficient in the use of our products,
which requires us to spend considerable time and resources for training. It is critical to the success of our
commercialization efforts to train a sufficient number of psychiatrists and to provide them with adequate,
ongoing instruction and training in the use of our products. This training process generally requires psychiatrists
to review and study product materials, engage in multi-day, hands-on training sessions for up to four hours a
day and participate in a multi-day observational period prior to treating patients independently. This training
process may also take longer than expected or be more complicated than the psychiatrists or their personnel
are comfortable with and may therefore affect our ability to increase sales. Convincing psychiatrists to dedicate
the time and energy necessary for adequate training is challenging, and we may not be successful in these
efforts.
Our revenue has been concentrated among a small number of customers, and if we lose any of these
customers and fail to replace them, our revenue may decrease substantially.
A significant amount of our revenue is derived from a limited number of customers. Any material non-payment
or non-performance by one of these customers, a significant downturn or deterioration in the business or
financial condition of any of these customers, or any other event significantly negatively impacting a contractual
relationship with one of these customers could adversely affect our financial condition and results of operations.
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Customers and their patients may be slow to adopt and use TMS therapies.
TMS therapy is an emerging treatment option for patients suffering from MDD. As a result, customer and patient
awareness of TMS therapy as a treatment option for MDD, and experience with TMS therapies, is limited. Our
success depends in large part on our ability to educate and train customers and patients, and successfully
demonstrate the safety, tolerability, ease of use, efficacy, cost effectiveness and other merits of our NeuroStar
Advanced Therapy System. We have been engaging in an active marketing campaign to raise awareness of
our NeuroStar Advanced Therapy System and its benefits among customers, but we cannot assure you that
these efforts will be successful or that they will not prove to be cost-prohibitive. Some customers may also find
the initial patient set up and the subsequent procedures for future treatment sessions to be difficult or
complicated, or could be wary of the initial investment required for the purchase of the NeuroStar Advanced
Therapy System, which may impact their decision to purchase or use the NeuroStar Advanced Therapy System
as part of their practice. Similarly, customers may find it difficult to hire additional staff, allocate sufficient space
or operationalize our NeuroStar Advanced Therapy System, which could slow its adoption.
In addition, customers may not derive sufficient cash flow from using the NeuroStar Advanced Therapy Systems
due to their own practice economics or otherwise. Failure to achieve economic benefits from the purchase or
use of the NeuroStar Advanced Therapy System would adversely affect our customers’ purchase of treatment
sessions. These factors could also reduce the number of procedures performed using our NeuroStar Advanced
Therapy System, and if we do not facilitate the utilization of our products by our customers, our revenues and
results of operations could be harmed.
Our success depends upon patient satisfaction with the effectiveness of our NeuroStar Advanced
Therapy System.
In order to generate repeat and referral business, patients must be satisfied with the effectiveness of our
NeuroStar Advanced Therapy System. Clinical studies demonstrate that, in order to be effective, our products
must be used for a period of four to six weeks, and require a patient to return to a psychiatrist’s office five days
a week during that period in order to receive the recommended course of treatment. Since patients who achieve
response or remission using our therapy will obtain these results gradually over this treatment period, their
perception of their results may vary depending on their compliance with the prescribed treatment course.
We train our customers to select the appropriate patient candidates for treatment using the NeuroStar
Advanced Therapy System, explain to their patients the time-period over which the results from a treatment
course can be expected to occur, and measure the success of treatments using medical guidelines. However,
our customers may not select appropriate patient candidates for NeuroStar Advanced Therapy treatment, which
may produce results that may not meet patients’ expectations. In addition, the efficacy of treatment is
dependent on proper patient set up at the initial treatment session and duplication of that set up at future
treatment sessions. To the extent customers do not make the proper measurements for a specific patient or use
the same procedures at each treatment session, it could result in variability of the treatment efficacy and results
for the patient. If patients are not satisfied with the results of our NeuroStar Advanced Therapy System, our
reputation and future sales will suffer.
We operate in a very competitive environment and if we are unable to compete successfully against our
existing or potential competitors, our sales and operating results may be negatively affected.
Our currently marketed products are, and any future products we develop and commercialize will be, subject to
intense competition. The industry in which we operate is subject to rapid change and is highly sensitive to the
introduction of new products or other market activities of current or new industry participants. Our ability to
compete successfully will depend on our ability to develop products that reach the market in a timely manner, to
receive adequate coverage and reimbursement from third-party payors, and to successfully demonstrate to
psychiatrists and patients the merits of our products compared to those of our competitors. If we are not
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successful in convincing others of the merits of our products, including in comparison to those of our
competitors, or educating them on the use of our products, they may not use our products or use them
effectively and we may be unable to increase our sales.
We have competitors that sell other forms of TMS therapy, including Brainsway, Magstim, MagVenture,
CloudTMS and Nexstim, that compete directly with the NeuroStar Advanced Therapy System. Competing TMS
therapy companies have developed and may develop additional treatments that can be administered for shorter
time periods or for indications outside of MDD, or may develop treatments that have improved efficacy when
compared to our products or that require a less significant investment of resources from psychiatrists. We also
face competition from pharmaceutical and other companies that develop competitive products, such as
antidepressant medications. Our commercial opportunity could be reduced or eliminated if these competitors
develop and commercialize antidepressant medications or other treatments that are safer, more convenient or
more effective than the NeuroStar Advanced Therapy System. At any time, these and other potential market
entrants may develop treatment alternatives that may render our products uncompetitive.
In addition, our competitors may have more established distribution networks than we do, or may be acquired
by enterprises that have more established distribution networks than we do. Our competitors may also develop
and patent processes or products earlier than we can or obtain domestic or international regulatory clearances
or approvals for competing products more rapidly than we can, which could impair our ability to develop and
commercialize similar products. We also compete with our competitors in acquiring technologies and technology
licenses complementary to our products or advantageous to our business. In addition, we compete with our
competitors to engage the services of independent distributors outside the United States, both those presently
working with us and those with whom we hope to work as we expand.
We may face difficulties encountered by companies in new and evolving markets.
In assessing our prospects, you must consider the risks and difficulties frequently encountered by companies in
new and evolving markets. These risks include our ability to:
● manage rapidly changing and expanding operations;
● increase awareness of our brand and strengthen customer loyalty;
● successfully execute our business and marketing strategy;
● respond effectively to competitive pressures and developments;
● continue to develop and enhance our products and products in development;
● obtain regulatory clearance or approval to commercialize new products and enhance our existing
products;
● refrain from infringing on the intellectual property rights of others, and maintaining appropriate legal
policies and procedures;
● expand our presence in existing and commence operations in new international markets; and
●
attract, retain and motivate qualified personnel.
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If we are unable to adequately address our customers’ needs, it could negatively impact sales and
market acceptance of our products and we may never generate sufficient revenues to achieve or
sustain profitability.
Our operating results are directly dependent upon the sales and marketing efforts of our sales and customer
support team as well as our field sales personnel in the United States and our independent third-party
distributors outside of the United States. If our employees or our independent distributors fail to adequately
promote, market and sell our products, our sales could significantly decrease.
If we launch new products, expand our product offerings to new indications or increase our marketing efforts
with respect to existing products, we will need to expand the reach of our marketing and sales networks. Our
future success will depend largely on our ability to continue to hire, train, retain and motivate skilled employees,
and distributors with significant technical knowledge in various areas. Further, most of the salespersons we
recently hired have technical expertise from other industries but no experience within our specific industry. New
hires require training and take time to achieve full productivity. If we fail to train new hires adequately, new hires
fail to successfully transition to our industry, or we experience high turnover in our sales force in the future, new
hires may not become as productive as may be necessary to maintain or increase our sales. If we are unable to
expand our sales and marketing capabilities domestically and internationally, we may be unable to effectively
commercialize our products.
The loss of any member of our senior management or our inability to attract and retain highly skilled
executives, salespeople, product development and other personnel could negatively impact our
business.
Our success depends on the skills, experience and performance of the members of our senior management
team. The individual and collective efforts of these employees will be important as we continue to develop our
products and as we expand our commercial activities. We believe that it is challenging to identify individuals
with the requisite skills to serve in many of our key positions, and the loss or incapacity of existing members of
our executive management team could negatively impact our operations. We did not maintain key man life
insurance on any of our employees in 2022 and do not expect in the future. Our Chief Executive Officer’s
employment agreement does not guarantee our retention of our Chief Executive Officer for any period of time.
Our commercial, supply chain and research and development programs and operations depend on our ability to
attract and retain highly skilled managers, salespeople and product development and customer training
personnel. We may be unable to attract or retain qualified managers, salespeople or product development and
customer training personnel in the future due to the competition for qualified personnel in the medical treatment
and device fields, as well as other fields. We also face competition from universities and public and private
research institutions in recruiting and retaining highly qualified scientific personnel. Recruiting and retention
difficulties can limit our ability to support our commercial, supply chain and research and development
programs. The loss of key employees, the failure of any key employee to perform or our inability to attract and
retain skilled employees, as needed, or an inability to effectively plan for and implement a succession plan for
key employees could harm our business.
Our long-term growth depends on our ability to commercialize our approved products for current and
future indications and to develop and commercialize additional products through our research and
development efforts. If we fail to do so we may be unable to compete effectively.
In order to increase our future revenues, we must successfully enhance our existing product offerings and
introduce new products in response to changing customer demands and competitive pressures and
technologies. Our industry is characterized by intense competition, including from lower-cost competitors, rapid
technological changes, new product introductions and enhancements and evolving industry standards. We also
face competition from pharmaceutical companies, including large pharmaceutical companies with greater
capital. Our business prospects depend in part on our ability to develop and commercialize new products and
applications for our technology, including in new markets that develop as a result of
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technological, pharmaceutical and scientific advances, while improving the performance and cost-effectiveness
of our products. New pharmaceutical products, technologies, techniques or other products could emerge that
might offer better combinations of price and performance than our products. It is important that we anticipate
changes in technology and market demand, as well as psychiatrist practices to successfully develop, obtain
clearance or approval, if required, and successfully introduce new, enhanced and competitive technologies to
meet our prospective customers’ needs on a timely and cost-effective basis.
We might be unable to successfully further commercialize or develop or obtain regulatory clearances or
approvals to market new products or our existing products for additional indications. Future products, even if
cleared, might not be accepted by psychiatrists or the third-party payors who reimburse for the procedures
performed with our products. The success of any new product offering or enhancement to an existing product
will depend on numerous additional factors, including our ability to:
● properly identify and anticipate clinician and patient needs;
● demonstrate the benefits associated with the use or our products when compared to the products and
devices of our competitors;
● develop and introduce new products or product enhancements in a timely manner;
● adequately protect our intellectual property and avoid infringing upon the intellectual property rights of
third parties;
● demonstrate the safety and efficacy of new products; and
● obtain the necessary regulatory clearances or approvals for new products or product enhancements.
If we do not develop and obtain regulatory clearances or approvals for new products or indications or product
enhancements in time to meet market demand, or if there is insufficient demand for these products or
enhancements, our results of operations will suffer. Our research and development efforts may require a
substantial investment of time and resources before we are adequately able to determine the commercial
viability of a new product, technology, material or other innovation. In addition, even if we are able to develop
enhancements or new generations of our products successfully, these enhancements or new generations of
products may not produce sales in excess of the costs of development and they may be quickly rendered
obsolete by changing customer preferences or the introduction by our competitors of products embodying new
technologies or features.
Nevertheless, we must carefully manage our introduction of new products. If potential customers believe such
products will offer enhanced features or be sold for a more attractive price, they may delay purchases until such
products are available. We may also have excess or obsolete inventory as we transition to new products, and
we have limited experience in managing product transitions.
We rely on single-source suppliers for some components used in our NeuroStar Advanced Therapy
System and on a single manufacturer for the assembly of our NeuroStar Advanced Therapy System,
and we may be unable to find replacements or immediately transition to alternative parties for these
components.
We rely on single-source suppliers for some components used in our NeuroStar Advanced Therapy System,
and we do not have long-term supply contracts with these suppliers. Furthermore, we rely on a single
manufacturer for the assembly of the mobile console and patient positioning system used in our NeuroStar
Advanced Therapy System. For us to be successful, our suppliers and contract manufacturer must be able to
provide us with components in substantial quantities, in compliance with regulatory requirements, in accordance
with agreed upon specifications, at acceptable costs and on a timely basis. While these suppliers
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have generally met our demand requirements on a timely basis in the past, their ability and willingness to
continue to do so going forward may be limited for several reasons, including our lack of long-term agreements
with those suppliers, our relative importance as a customer of those suppliers, or, as applicable, their ability to
produce the components for or provide assembly services to manufacture our NeuroStar Advanced Therapy
System. An interruption in our commercial operations could occur if we encounter delays or difficulties in
securing these components or manufactured products, if we cannot obtain an acceptable substitute.
Any transition to a new supplier or contract manufacturer could be time-consuming and expensive, may result in
interruptions in our operations and product delivery, could affect the performance specifications of our
NeuroStar Advanced Therapy System or could require that we modify its design. If we are required to change
our contract manufacturer, we will be required to verify that the new manufacturer maintains facilities,
procedures and operations that comply with our quality and applicable regulatory requirements, which could
further impede our ability to manufacture our products in a timely manner. If the change in manufacturer results
in a significant change to any product, a new 510(k) clearance from the FDA or similar non-U.S. regulatory
authorization may be necessary before we implement the change, which could cause a substantial delay. We
cannot assure you that we will be able to identify and engage alternative suppliers or contract manufacturers on
similar terms or without delay. Furthermore, our contract manufacturer could require us to move to a different
production facility. The occurrence of any of these events could harm our ability to meet the demand for our
NeuroStar Advanced Therapy System in a timely and cost-effective manner.
We may be unable to achieve or manage our anticipated growth effectively, which could make it difficult
to execute our business strategy.
We have a relatively short history of operating as a commercial company and our growth rate may be volatile.
For example, our revenues decreased from $62.6 million for the year ended December 31, 2019 to $49.2
million for the year ended December 31, 2020, and our revenues increased from $55.3 million for the year
ended December 31, 2021 to $65.2 million for the year ended December 31, 2022. We intend to grow our
business operations and may experience periods of rapid growth and expansion. This anticipated growth could
create a strain on our organizational, administrative and operational infrastructure, including our supply chain
operations, quality control, technical support and customer service, sales force management and general and
financial administration. We may be unable to maintain the quality, or delivery timelines, of our products or
customer service or satisfy customer demand if our business grows too rapidly. Our ability to manage our
growth properly will require us to continue to improve our operational, financial and management controls, and
our reporting systems and procedures. We may implement new enterprise software systems in a number of
areas affecting a broad range of business processes and functional areas. The time and resources required to
implement these new systems is uncertain and failure to complete this in a timely and efficient manner could
harm our business.
As our commercial operations and sales volume grow, we will need to continue to increase our workflow
capacity for our supply chain, customer service, training and education personnel, billing, accounting reporting
and general process improvements and expand our internal quality assurance program, among other things.
Because our products require us to devote significant resources to training our customers on the use, and
educating our customers on the benefits, of our products, we will be required to expand these personnel as we
increase our sales efforts. We may not successfully implement these increases in scale or the expansion of our
personnel, which could harm our business.
We rely on a network of third-party distributors to market and distribute our products internationally,
and if we are unable to maintain and expand this network, we may be unable to generate anticipated
sales.
We rely on a network of third-party distributors to market and distribute our products in international markets.
We currently sell our products in five countries outside of the United States and plan to market and sell our
products through our exclusive distribution agreement in Japan once we attain reimbursement approval. We
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are assessing the opportunity to continue expanding into other international markets. We may face significant
challenges and risks in managing a geographically dispersed distribution network. We have limited ability to
control any third-party distributors. Our distributors may be unable to successfully market and sell our products
and may not devote sufficient time and resources to support the marketing, sales, education and training efforts
that we believe enable the products to develop, achieve or sustain market acceptance. Additionally, in some
international jurisdictions, we rely on our distributors to manage the regulatory process, while complying with all
applicable rules and regulations, and we are dependent on their ability to do so effectively. In addition, if a
dispute arises with a distributor or if a distributor is terminated by us or goes out of business, it may take time to
locate an alternative distributor, to seek appropriate regulatory approvals and to train new personnel to market
our products, and our ability to sell those systems in the region formerly serviced by such terminated distributor
could be harmed. Any of these factors could reduce our revenues from affected markets, increase our costs in
those markets or damage our reputation. In addition, if an independent distributor were to depart and be
retained by one of our competitors, we may be unable to prevent that distributor from helping competitors solicit
business from our existing customers, which could further adversely affect our sales. As a result of our reliance
on third-party distributors, we may be subject to disruptions and increased costs due to factors beyond our
control, including labor strikes, third-party error and other issues. If the services of any of these third-party
distributors become unsatisfactory, we may experience delays in meeting our customers’ demands and we may
be unable to find a suitable replacement on a timely basis or on commercially reasonable terms. Any failure to
deliver products in a timely manner may damage our reputation and could cause us to lose potential customers.
We face risks associated with our international business.
We currently market and sell our products outside of the United States, including in Japan, and plan to market
and sell our products through our exclusive distribution agreement in Japan. Once we attain satisfactory
reimbursement approval, we expect that sales of our NeuroStar Advanced Therapy System in Japan will
increase.
The sale and shipment of our products across international borders, as well as the purchase of components and
products from international sources, subjects us to extensive U.S. and other foreign governmental trade, import
and export and customs regulations and laws. Compliance with these regulations and laws is costly and
exposes us to penalties for non-compliance. We expect our international activities will be dynamic over the
foreseeable future as we continue to pursue opportunities in international markets. Our international business
operations are subject to a variety of risks, including:
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difficulties in staffing and managing foreign and geographically dispersed operations, to the extent
we establish non-U.S. operations;
attaining reimbursement under differing and multiple payor reimbursement regimes, government
payors or patient self-pay systems;
difficulties in determining and creating the proper sales pathway in new, international markets;
compliance with various U.S. and international laws, including export control laws and the U.S.
Foreign Corrupt Practices Act of 1977, (the “FCPA”), and anti-money laundering laws;
differing regulatory requirements for obtaining clearances or approvals to market our products;
changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to
sell our products, perform services or repatriate profits to the United States;
tariffs and trade barriers, export regulations, sanctions and other regulatory and contractual
limitations on our ability to sell our products in certain foreign markets;
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potential adverse tax consequences, including imposition of limitations on or increases of
withholding and other taxes on remittances and other payments by foreign subsidiaries or joint
ventures;
imposition of differing labor laws and standards;
armed conflicts or economic, political, health (including pandemic diseases such as COVID-19 from
coronavirus) or social instability in foreign countries and regions;
fluctuations in foreign currency exchange rates;
an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory
licensing imposed by government action;
availability of government subsidies or other incentives that benefit competitors in their local markets
that are not available to us; and
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conducting post-market surveillance on product performance.
We are assessing the opportunity to expand into other international markets. However, our expansion plans
may not be realized, or if realized, may not be successful. We expect each market to have particular regulatory
hurdles to overcome, and future developments in these markets, including the uncertainty relating to
governmental policies and regulations, could harm our business.
Our employees, consultants, distributors and other commercial partners may engage in misconduct or
other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, consultants, distributors and other commercial partners may
engage in inappropriate, fraudulent or illegal activity. Misconduct by these parties could include intentional,
reckless or negligent conduct or other unauthorized activities that violate the regulations of the FDA and other
U.S. healthcare regulators, as well as non-U.S. regulators, including by violating laws requiring the reporting of
true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and
abuse laws and regulations in the United States and abroad or laws that require the true, complete and
accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in
the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales
commission, customer incentive programs and other business arrangements. It is not always possible to identify
and deter misconduct by our employees, distributors and other third parties, and the precautions we take to
detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply
with these laws or regulations. These risks may be more pronounced, and we may find that the processes and
policies we have implemented are not effective at preventing misconduct. If any actions are instituted against us
and we are not successful in defending ourselves or asserting our rights, those actions could result in the
imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative
penalties, damages, monetary fines, individual imprisonment, disgorgement, possible exclusion from
participation in government healthcare programs, additional reporting obligations and oversight if we become
subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with
these laws, contractual damages, reputational harm, diminished profits and future earnings and the curtailment
of our operations. Whether or not we are successful in defending against such actions or investigations, we
could incur substantial costs, including legal fees, and divert the attention of management in defending
ourselves against any of these claims or investigations.
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We rely in part on third parties to conduct our clinical trials. If these third parties fail to perform their
duties on time or as expected, we may not be able to obtain regulatory approval for additional
indications that we may seek for the NeuroStar Advanced Therapy System.
Our clinical trials are managed by our own staff and personnel, but we rely in part upon certain third parties,
including clinical trial sites, medical institutions, clinical research organizations, (“CRO”s), and private practices,
for, among other things, site monitoring, statistical work and electronic data capture in our clinical trials.
Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with
applicable protocols, and legal, regulatory and scientific standards, including current good clinical practices,
(“cGCP”s), which are regulations and guidelines enforced by the FDA and comparable foreign regulatory
authorities for clinical trials. If we or any such third parties fail to comply with applicable cGCPs, the clinical data
generated in such trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities
may require us to perform additional clinical trials before approving a marketing application for any particular
indication. In addition, if such third parties do not devote sufficient time and resources to our clinical trials or
otherwise carry out their contractual duties or obligations or meet expected deadlines, if they need to be
replaced or if the quality or accuracy of the clinical data they assist in obtaining is compromised due to the
failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be
extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully
commercialize our product candidates in a specified indication.
If product liability lawsuits are brought against us, our business may be harmed, and we may be
required to pay damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the testing, manufacture and
sale of medical devices for the treatment of MDD. Our treatments are designed for patients who suffer from
significant neurohealth disorders, and these patients are more likely to experience significant adverse health
outcomes, which could increase the risk of product liability lawsuits. Furthermore, if psychiatrists are not
sufficiently trained in the use of our products, they may misuse or ineffectively use our products, which may
result in unsatisfactory patient outcomes. We could become the subject of product liability lawsuits alleging that
component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-
related risks or product-related information resulted in an unsafe condition or injury to patients.
Regardless of the merit or eventual outcome, product liability claims may result in:
● decreased demand for our products;
● injury to our reputation;
● significant litigation costs;
● substantial monetary awards to or costly settlements with patients;
● product recalls;
● material defense costs;
● loss of revenues;
● the inability to commercialize new products or product candidates; and
● diversion of management attention from pursuing our business strategy.
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Our existing product liability insurance coverage may be inadequate to protect us from any liabilities we might
incur. If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of
our insurance coverage, our business could suffer. Any product liability claim brought against us, with or without
merit, could result in the increase of our product liability insurance rates or the inability to secure coverage in the
future. In addition, a recall of some of our products, whether or not the result of a product liability claim, could
result in significant costs and loss of customers.
Our insurance policies protect us only from some business risks, which will leave us exposed to
significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we
currently maintain include general liability, cybersecurity liability, employee benefits liability, property, umbrella,
workers’ compensation, products and clinical trial liability and directors’ and officers’ insurance. We do not know,
however, if these policies will provide us with adequate levels of coverage. Any significant uninsured liability
may require us to pay substantial amounts, which would adversely affect our cash position and results of
operations.
We bear the risk of warranty claims on our products.
We bear the risk of warranty claims on the products we supply for one year from the date of delivery. There can
be no assurance that we will not face increased claims in the future. We may not be successful in claiming
recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a
successful warranty claim against us by a customer or that any recovery from such vendor or supplier would be
adequate. In addition, warranty claims brought by our customers related to third-party components may arise
after our ability to bring corresponding warranty claims against such suppliers expires, which could result in
costs to us.
We could be negatively impacted by violations of applicable anti-corruption laws or violations of our
internal policies designed to ensure ethical business practices.
We operate in a number of countries throughout the world, including in countries that do not have as strong a
commitment to anti-corruption and ethical behavior as is required by U.S. laws and by our corporate policies.
We are subject to the risk that we, our U.S. employees or any future employees or consultants located in other
jurisdictions or any third parties such as our distributors that we engage to do work on our behalf in foreign
countries may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we
conduct business, including the FCPA. The FCPA generally prohibits covered entities and their intermediaries
from engaging in bribery or making other prohibited payments, offers or promises to foreign officials for the
purpose of obtaining or retaining business or other advantages. In addition, the FCPA imposes recordkeeping
and internal controls requirements on publicly traded corporations and their foreign affiliates, which are intended
to, among other things, prevent the diversion of corporate funds to the payment of bribes and other improper
payments, and to prevent the establishment of “off books” slush funds from which such improper payments can
be made.
We will face significant risks if we fail to comply with the FCPA and other laws that prohibit improper payments,
offers or promises of payment to foreign governments and their officials and political parties by us and other
business entities for the purpose of obtaining or retaining business or other advantages. In many foreign
countries, particularly in countries with developing economies, it may be a local custom that businesses
operating in such countries engage in business practices that are prohibited by the FCPA or other laws and
regulations. We have implemented company policies relating to compliance with the FCPA and similar laws.
However, such policies may not be effective at preventing all potential FCPA or other violations. Although our
agreements with our international distributors state our expectations for our distributors’ compliance with U.S.
laws, including the FCPA, and provide us with various remedies upon any non-compliance, including the ability
to terminate the agreement, our distributors may not comply with U.S. laws, including the FCPA.
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Any violation of the FCPA or any similar anti-corruption law or regulation could result in substantial fines,
sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might harm
our business, financial condition or results of operations.
If we experience significant disruptions in our information technology systems, our business may be
adversely affected.
We depend on our information technology systems for the efficient functioning of our business, including for our
TrakStar system and accounting, data storage, compliance, purchasing and inventory management. We do not
have redundant systems at this time. While we will attempt to mitigate interruptions, we may experience
difficulties in implementing upgrades to our information technology systems, which would impact our business
operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt
our operations, including our ability to provide customers with data on patient outcomes, track the usage of our
products, timely ship and track product orders, project inventory requirements, manage our supply chain and
otherwise adequately service our customers or disrupt our customers’ ability to access patient data or use our
products for treatments. In the event we experience significant disruptions as a result of the current
implementation of our information technology systems, we may be unable to repair our systems in an efficient
and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and
have a material adverse effect on our results of operations and cash flows. Currently we carry business
interruption coverage to mitigate any potential losses, but we cannot be certain that such potential losses will
not exceed our policy limits.
We are increasingly dependent on sophisticated information technology for our infrastructure. Our information
systems require an ongoing commitment of significant resources to maintain, protect and enhance existing
systems. Failure to maintain or protect our information systems and data integrity effectively could have a
materially adverse effect on our business.
Performance issues, service interruptions or price increases by our shipping carriers could adversely
affect our business and harm our reputation and ability to provide our services on a timely basis.
Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for
reliable and secure point-to-point transport of our products to our customers and for tracking of these
shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any
systems, it would be costly to replace such systems in a timely manner and such occurrences may damage our
reputation and lead to decreased demand for our products and increased cost and expense to our business. In
addition, any significant increase in shipping rates could adversely affect our operating margins and results of
operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery
services we use would adversely affect our ability to process orders for our products on a timely basis.
Security and privacy breaches may expose us to liability and harm our reputation and business.
As part of our business we receive and process information about our customers, partners and their patients,
including PHI, and we may store or contract with third parties to store our customers’ data, including PHI. PHI, a
subset of individually identifiable information, is regulated at the federal level by HIPAA, as amended by
HITECH, and by various laws at the state level, as more fully described below. We are required to safeguard
PHI in accordance with HIPAA and, as a business associate, we are also directly liable for compliance with
HIPAA.
The security measures we have implemented relating to our NeuroStar Advanced Therapy System and
TrakStar database, specifically, and our operations, generally, may not prevent security breaches that could
harm our business. Advances in computer capabilities, inadequate technology or facility security measures or
other factors may result in a compromise or breach of our systems and the data and PHI we store and process.
Our security measures may be breached as a result of actions by third parties or employee error or
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malfeasance. A party who is able to circumvent our security measures or exploit inadequacies in our security
measures, could, among other things, misappropriate proprietary information, including information about our
customers and their patients, cause the loss or disclosure of some or all of this information, cause interruptions
in our or our customers’ operations or expose our customers to computer viruses or other disruptions or
vulnerabilities. Any compromise of our systems or the data we store or process could implicate reporting
requirements under HIPAA, result in a loss of confidence in the security of our software, damage our reputation,
disrupt our business, lead to legal liability and adversely affect our results of operations. Moreover, a
compromise of our systems could remain undetected for an extended period of time, exacerbating the impact of
that compromise. Actual or perceived vulnerabilities may lead to claims against us by our customers, their
patients or other third parties, including the federal and state governments. While our customer agreements
typically contain provisions that seek to limit our liability, there is no assurance these provisions will be
enforceable and effective under applicable law. In addition, the cost and operational consequences of
implementing further data protection measures could be significant.
Employment litigation and unfavorable publicity could negatively affect our future business.
Employees may, from time to time, bring lawsuits against us or make public claims about us regarding injury,
creating a hostile workplace, discrimination, wage and hour, sexual harassment and other employment issues.
In recent years there has been an increase in the number of discrimination and harassment claims generally.
Coupled with the expansion of social media platforms and similar devices that allow individuals access to a
broad audience, these claims have had a significant negative impact on some businesses. Companies that
have faced employment or harassment related lawsuits have had to terminate management or other key
personnel and have suffered reputational harm that has negatively impacted their sales. If we were to face any
employment related claims or allegations, our business could be negatively affected.
The 2017 comprehensive tax reform law could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new legislation, (Pub. L. 115-97), commonly referred
to as the Tax Cuts and Jobs Act of 2017, (the “TCJA”), which significantly revised the Internal Revenue Code of
1986, as amended. The TCJA, among other things, contained significant changes to corporate taxation,
including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation
of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses),
limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net
operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they
are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate
deductions for certain new investments instead of deductions for depreciation expense over time, and modifying
or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax
rate, the overall impact of the federal tax law is uncertain and our business and financial condition could be
adversely affected. In addition, it is uncertain how various states will respond to the TCJA. The impact of this tax
reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to
consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of
investing in or holding our common stock.
Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of
accrued amounts.
We are subject to taxation in numerous U.S. states and territories. As a result, our effective tax rate is derived
from a combination of applicable tax rates in the various places that we operate. In preparing our financial
statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our
effective tax rate may be different than experienced in the past due to numerous factors, including passage of
the newly enacted federal income tax law, changes in the mix of our profitability from state to state, the results
of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax
authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause
us to experience an effective tax rate significantly different from previous periods or
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our current expectations and may result in tax obligations in excess of amounts accrued in our financial
statements.
Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss,
strikes and other events beyond our control.
A major earthquake, fire or other disaster, such as a major flood, seasonal storms, global pandemic (such as
COVID-19), or terrorist attack affecting our facilities, or those of our third-party manufacturers or suppliers, could
significantly disrupt our or their operations, and delay or prevent product shipment or installation during the time
required to repair, rebuild or replace our third-party manufacturers or suppliers’ damaged manufacturing
facilities. These delays could be lengthy and costly. If any of our manufacturers’, suppliers’ or customers’
facilities are negatively impacted by a disaster, shipments of our products could be delayed. Additionally,
customers may delay purchases of our products until operations return to normal. Even if we are able to quickly
respond to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our
business. In addition, our or their facilities may be subject to a shortage of available electrical power and other
energy supplies. Any shortages may increase our costs for power and energy supplies or could result in
blackouts, which could disrupt the operations of our affected facilities and harm our business. In addition,
concerns about terrorism, the effects of a terrorist attack, political turmoil or an outbreak a pandemic (such as
COVID-19) could have a negative effect on our operations.
Epidemic diseases could negatively affect various aspects of our business, make it more difficult to
meet our obligations to our customers, and could result in reduced demand from our customers. These
could have a material adverse effect on our business, financial condition, results of operations, or cash
flows.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease,
including the recent outbreak of a respiratory illness known as COVID 19 caused by coronavirus. In an effort to
halt the outbreak of COVID 19, the Chinese government and the governments of other impacted countries,
such as Italy and the Republic of Korea, have placed significant restrictions on travel within their respective
borders, leading to extended business closures in some instances. These travel restrictions and business
closures could adversely impact our operations in Japan, including our ability to sell or distribute our products,
as well as cause temporary or long-term closures of the offices and facilities of our suppliers and customers.
Any disruption of our suppliers in China or customers in Japan could impact our global sales and operating
results. We cannot at this time accurately predict what effects these conditions will have on our operations due
to uncertainties relating to the ultimate geographic spread of the virus, the incidence and severity of the
disease, the duration of the outbreak, and the length of the travel restrictions and business closures imposed by
governments of impacted countries. In addition, a significant outbreak of contagious diseases in the human
population could result in a widespread health crisis that could adversely affect the economies and financial
markets of many countries, resulting in an economic downturn that could affect demand for our products and
likely impact our operating results.
We may seek to grow our business through acquisitions or investments in new or complementary
businesses, products or technologies, through the licensing of products or technologies from third
parties. The failure to manage acquisitions, investments, licenses or other strategic alliances, or the
failure to integrate them with our existing business, could harm our business.
Our success depends in part on our ability to continually enhance and broaden our product offerings in
response to changing customer demands, competitive pressures, technologies and market pressures.
Accordingly, from time to time we may consider opportunities to acquire, make investments in or license other
technologies, products and businesses that may enhance our capabilities, complement our current products
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or expand the breadth of our markets or customer base. Potential and completed acquisitions, strategic
investments, licenses and other alliances involve numerous risks, including:
● difficulty assimilating or integrating acquired or licensed technologies, products or business operations;
● issues maintaining uniform standards, procedures, controls and policies;
● unanticipated costs associated with acquisitions or strategic alliances, including the assumption of
unknown or contingent liabilities and the incurrence of debt or future write-offs of intangible assets or
goodwill;
● diversion of management’s attention from our core business and disruption of ongoing operations;
● adverse effects on existing business relationships with suppliers, distributors and customers;
● risks associated with entering new markets in which we have limited or no experience;
● potential losses related to investments in other companies;
● potential loss of key employees of the acquired businesses; and
● increased legal and accounting compliance costs.
We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether
we will be able to successfully complete any such transactions on favorable terms or at all or whether we will be
able to successfully integrate any acquired business, product or technology into our business or retain any key
personnel, suppliers or distributors.
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to
integration of operations across different cultures, languages and legal and regulatory environments, currency
risks and the particular economic, political and regulatory risks associated with specific countries.
To finance any acquisitions, investments or strategic alliances, we may choose to issue shares of our common
stock or other equity-linked securities as consideration, which could dilute the ownership of our stockholders.
Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common
stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances
using our stock as consideration.
Our reported financial results may be adversely affected by changes in accounting principles generally
accepted in the United States.
Generally accepted accounting principles in the United States, (“U.S. GAAP”), are subject to interpretation by
the Financial Accounting Standards Board, (“FASB”), or SEC, and various bodies formed to promulgate and
interpret appropriate accounting principles. A change in these principles or interpretations could have a
significant effect on our reported financial results and could affect the reporting of transactions completed before
the announcement of a change.
Refer to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related notes
thereto included elsewhere in this Annual Report on Form 10-K.
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Our sales volumes and our results of operations may fluctuate over the course of the year.
We have experienced and may continue to experience meaningful variability in our sales and gross profit
among fiscal quarters. In the first quarter, our results can be impacted by the resetting of annual U.S. patient
healthcare insurance plan deductibles, which may cause delays in patients seeking NeuroStar Advanced
Therapy treatments. Historically, we have seen a sequential decline in third quarter revenues, which we believe
is attributable to summer vacation plans of psychiatrists and patients. In addition, the fourth quarter has
consistently been a strong revenue quarter on a sequential basis primarily due to U.S. psychiatrists’ historical
timing for capital expenditures and patients’ needs to exhaust remaining balances in flexible spending accounts.
Additional factors that we expect may contribute to variability in our sales and gross profit over the course of
the year include:
● the growth or decline of our installed system base;
● the unpredictability of future sales by our international distributors, including through our exclusive
distributor in Japan;
● the demand for, and pricing of, our products and the products of our competitors;
● the timing of or failure to obtain regulatory clearances or approvals for other products, indications or
treatments; or
● the costs, benefits and timing of new product introductions.
Risks Related to Intellectual Property
If we are not able to obtain and enforce patent protection for our technologies, products, or product
candidates, development and commercialization of our products and product candidates may be
adversely affected.
Our commercial success will depend in part on our success in obtaining and maintaining issued patents and
other intellectual property rights in the United States and elsewhere and protecting our proprietary technology. If
we do not adequately protect our intellectual property and proprietary technology, competitors may be able to
use our technologies and erode or negate any competitive advantage we may have, which could harm our
business and ability to achieve profitability. We have applied, and we intend to continue applying, for patents
covering aspects of our technologies that we deem appropriate. However, the patent process is expensive and
time consuming, and we may not be able to apply for patents on certain aspects of our current or future
products and other technologies in a timely fashion, at a reasonable cost, in all jurisdictions, or at all, and any
potential patent coverage we obtain may not be sufficient to prevent substantial competition.
We cannot offer any assurances about which, if any, of our patent applications will issue or whether any of our
issued patents will be found invalid and unenforceable or will be threatened by third parties. Any patent
applications we file may be challenged and may not result in issued patents or may be invalidated or narrowed
in scope after they are issued. We also cannot provide any assurances that any of our patents have, or that any
of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to
protect and provide exclusivity for our products, any additional features we develop for our products or any new
products. Other parties may have designed around our claims or developed technologies that may be related or
competitive to our platform, 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. Any successful opposition to
these patents or any other patents owned by or, if applicable in the future,
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licensed to us could deprive us of rights necessary for the practice of our technologies or the successful
commercialization of any products or product candidates that we may develop. Since patent applications in the
US and most other countries are confidential for a period of time after filing, we cannot be certain that we or our
licensors were the first to file any patent application related to our technologies, products, or product
candidates. Furthermore, an interference proceeding can be provoked by a third party or instituted by the
United States Patent and Trademark Office, (the “USPTO”), to determine who was the first to invent any of the
subject matter covered by the patent claims of our applications for any application with an effective filing date
before March 16, 2013.
The patent positions of medical device companies, including our patent position, may involve complex legal and
factual questions, and, therefore, the scope, validity and enforceability of any patent claims that we may obtain
cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated or
circumvented. Once granted, patents may remain open to opposition, interference, re-examination, post-grant
review, inter partes review, nullification or derivation action in court or before patent offices or similar
proceedings for a given period after allowance or grant, during which time third parties can raise objections
against such initial grant. Proceedings challenging our patents, which may continue for a protracted period of
time, could result in either loss of the patent or denial of the patent application or loss or reduction in the scope
of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly.
Thus, any patents that we may own may not provide any protection against competitors. Furthermore, an
adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us,
which in turn could affect our ability to commercialize our products.
Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its
validity or its enforceability and it may not provide us with adequate proprietary protection or competitive
advantages against competitors with similar products. Competitors may also be able to design around our
patents. Other parties may develop and obtain patent protection for alternative and possibly more effective
technologies, designs or methods. We may be unable to prevent the unauthorized disclosure or use of our
technical knowledge or trade secrets by consultants, suppliers, vendors, former employees and current
employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the
laws of the United States, and we may encounter significant problems in protecting our proprietary rights in
these countries.
Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect
infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or
impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not
prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may
not be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held
unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims
against us, including that some or all of the claims in one or more of our patents are invalid or otherwise
unenforceable. If any of our patents covering our 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 initiate lawsuits to protect or enforce our patents, or litigate against third party claims, such proceedings
would be expensive and would divert the attention of our management and technical personnel.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
● any of our patents, or any of our pending patent applications, if issued, or those of our licensors, will
include claims having a scope sufficient to protect our products;
● any of our pending patent applications or those of our licensors may issue as patents;
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● others will not or may not be able to make, use, offer to sell, or sell products that are the same as or
similar to our own but that are not covered by the claims of the patents that we own or license;
● we will be able to successfully commercialize our products on a substantial scale, if approved, before
the relevant patents that we own or license expire;
● we were the first to make the inventions covered by each of the patents and pending patent
applications that we own or license;
● we or our licensors were the first to file patent applications for these inventions;
● others will not develop similar or alternative technologies that do not infringe the patents we own or
license;
● any of the patents we own or license will be found to ultimately be valid and enforceable;
● any patents issued to us or our licensors will provide a basis for an exclusive market for our
commercially viable products or will provide us with any competitive advantages;
● a third party may not challenge the patents we own or license and, if challenged, a court would hold
that such patents are valid, enforceable and infringed;
● we may develop or in-license additional proprietary technologies that are patentable;
● the patents of others will not have an adverse effect on our business;
● our competitors do not conduct research and development activities in countries where we do not have
enforceable patent rights and then use the information learned from such activities to develop
competitive products for sale in our major commercial markets;
● we will develop additional proprietary technologies or products that are separately patentable; or
● our commercial activities or products will not infringe upon the patents of others.
Where we obtain licenses from or collaborate with third parties, in some circumstances, we may not have the
right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology that we license from third parties, or such activities, if controlled by us, may require the input of such
third parties. We may also require the cooperation of our licensors and collaborators to enforce any licensed
patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be
prosecuted and enforced in a manner consistent with the best interests of our business. Moreover, if we do
obtain necessary licenses, we will likely have obligations under those licenses, and any failure to satisfy those
obligations could give our licensor the right to terminate the license. Termination of a necessary license, or
expiration of licensed patents or patent applications, could have a material adverse impact on our business.
Our inability to effectively protect our proprietary technologies could harm our competitive position.
Although our competitors have utilized and are expected to continue utilizing technologies similar to ours, our
success will depend upon our ability to protect and continue to develop proprietary technologies and products
and to defend any advantages afforded to us relative to our competitors. If we do not protect our intellectual
property adequately, competitors may be able to use our technologies and thereby erode any competitive
advantages we may have. For example, patents for our core technology will begin to expire in the United States
in 2024, and our patents outside of the United States are expected to remain in effect until between
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2024 and 2035. We will be able to protect our proprietary rights from unauthorized use by third parties only to
the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. We have agreements with our employees and selected consultants that obligate
them to assign their inventions to us. If the employees and consultants who are parties to these agreements
breach or violate the terms of these agreements, including by refusing or being unavailable to sign
assignments, oaths, declarations or other documents, we may not have adequate remedies for any such breach
or violation, and we could lose our rights in inventions through such breaches or violations. Furthermore, it is
possible that technology relevant to our business will be independently developed by a person that is not a
party to such an agreement.
The lives of our patents may not be sufficient to effectively protect our products and business.
Patents have a limited lifespan. In the US, the natural expiration of a patent is generally 20 years after its first
effective non-provisional filing date. Although various extensions may be available, the life of a patent, and the
protection it affords, is limited. Even if patents covering our technologies, products, or product candidates are
obtained, once the patent life has expired, we may be open to competition. Patents covering some of our core
technology have expired or will expire within the next five years. In addition, although upon issuance in the
United States a patent’s life can be increased based on certain delays caused by the USPTO, this increase can
be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. If
we do not have sufficient patent life to protect our technologies, products, and product candidates, our business
and results of operations will be adversely affected.
Litigation or other proceedings or third-party claims of intellectual property infringement could require
us to spend significant time and money and could prevent us from selling our products.
Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights
of others. We cannot assure you that our operations do not, or will not in the future, infringe existing or future
patents. Our activities may be subject to claims that we infringe or otherwise violate patents owned or controlled
by third parties.
Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third
parties. Our competitors in both the United States and abroad, many of which have substantially greater
resources and have made substantial investments in patent portfolios and competing technologies, may have
applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise
interfere with our ability to make, use and sell our products. We do not always conduct independent reviews of
pending patent applications of and patents issued to third parties. Patent applications in the United States and
elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed,
with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will
not be filed outside the U.S. can remain confidential until patents issue. In addition, patent applications in the
United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned
patents or applications can be revived. Furthermore, pending patent applications that have been published can,
subject to certain limitations, be later amended in a manner that could cover our technologies, our products or
the use of our products. As such, there may be applications of others now pending or recently revived patents
of which we are unaware. These applications may later result in issued patents, or the revival of previously
abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our
products.
The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and
the patent’s prosecution history and can involve other factors such as expert opinion. Our interpretation of the
relevance or the scope of claims in a patent or a pending application may be incorrect, which may negatively
impact our ability to market our products. Further, we may incorrectly determine that our technologies, products,
or product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s
pending patent application will issue with claims of relevant scope. Our determination of the expiration date of
any patent in the United States or abroad that we consider relevant
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may be incorrect, which may negatively impact our ability to develop and market our products or product
candidates.
Significant litigation regarding patent rights occurs in our industry. Third parties may, in the future, assert claims
that we are employing their proprietary technology without authorization, including claims from competitors or
from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio
may have no deterrent effect. As we continue to commercialize our products in their current or updated forms,
launch new products and enter new markets, we expect competitors may claim that one or more of our products
infringe their intellectual property rights as part of business strategies designed to impede our successful
commercialization and entry into new markets. The large number of patents, the rapid rate of new patent
applications and issuances, the complexities of the technology involved, and the uncertainty of litigation may
increase the risk of business resources and management’s attention being diverted to patent litigation.
We may become party to future adversarial proceedings regarding our patent portfolio or the patents of third
parties. Such proceedings could include supplemental examination or contested post-grant proceedings such
as review, reexamination, interference or derivation proceedings before the U.S. Patent and Trademark Office
and challenges in U.S. District Court. Patents may be subjected to opposition, post-grant review or comparable
proceedings lodged in various foreign, both national and regional, patent offices. 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 initiated. Litigation and contested proceedings can also be expensive and time-
consuming, regardless of the merit of the claims, and our adversaries in these proceedings may have the ability
to dedicate substantially greater resources to prosecuting these legal actions than we can.
Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate
our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the
following:
● stop making, selling or using products or technologies that allegedly infringe the asserted intellectual
property;
● lose the opportunity to license our technology to others or to collect royalty payments based upon
successful protection and assertion of our intellectual property rights against others;
● incur significant legal expenses;
● pay substantial damages or royalties to the party whose intellectual property rights we may be found to
be infringing, including enhanced damages if we are found to have willfully infringed or misappropriated
such rights;
● pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be
found to be infringing;
● redesign those products that contain the allegedly infringing intellectual property, which could be costly,
disruptive and infeasible; and
● attempt to obtain a license to the relevant intellectual property from third parties, which may not be
available on reasonable terms or at all, or from third parties who may attempt to license rights that they
do not have.
Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could
place a significant strain on our financial resources, divert the attention of management from our core
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business and harm our reputation. If we are found to infringe the intellectual property rights of third parties, we
could be required to pay substantial damages (which may be increased up to three times of awarded damages)
and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are
able to redesign our products to avoid infringement. Any such license may not be available on reasonable
terms, if at all, and there can be no assurance that we would be able to redesign our products in a way that
would not infringe the intellectual property rights of others. Even if such licenses are available, we could incur
substantial costs related to royalty payments for licenses obtained from third parties, which could negatively
affect our gross margins, and the rights may be non-exclusive, which could give our competitors access to the
same technology or intellectual property rights licensed to us. We could encounter delays in product
introductions while we attempt to develop alternative methods or products. If we fail to obtain any required
licenses or make any necessary changes to our products or technologies, we may have to withdraw existing
products from the market or may be unable to commercialize one or more of our products.
If we collaborate with third parties in the development of technology in the future, our collaborators may not
properly maintain or defend our intellectual property rights or may use our proprietary information in such a way
as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or
expose us to litigation or potential liability. Further, collaborators may infringe the intellectual property rights of
third parties, which may expose us to litigation and potential liability. Also, we may be obligated under our
agreements with our collaborators, licensors, suppliers and others to indemnify and hold them harmless for
damages arising from intellectual property infringement by us.
In addition, we generally indemnify our customers and international distributors with respect to infringement by
our products of the proprietary rights of third parties. Third parties may assert infringement claims against our
customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on
behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed
or settle, we may be forced to pay damages or settlement payments on behalf of our customers or distributors
or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on
commercially reasonable terms, our customers may be forced to stop using our products.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive
position could be harmed.
In addition to patent protection, we also rely upon copyright and trade secret protection, unpatented know-how
and continuing technological innovation to develop and maintain our competitive position, which we seek to
protect through non-disclosure agreements and invention assignment agreements with our employees,
consultants and third parties, to protect our confidential and proprietary information. In addition to contractual
measures, we try to protect the confidential nature of our proprietary information using commonly accepted
physical and technological security measures. Such measures may not provide adequate protection for our
proprietary information, for example, in the case of misappropriation of a trade secret by an employee,
consultant, customer or third party with authorized access. Our security measures may not prevent an
employee, consultant or customer from misappropriating our trade secrets and providing them to a competitor,
and recourse we take against such misconduct may not provide an adequate remedy to protect our interests
fully. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have
taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or
reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the
outcome is unpredictable. Even though we use commonly accepted security measures, the criteria for
protection of trade secrets can vary among different jurisdictions.
In addition, trade secrets may be independently developed by others in a manner that could prevent legal
recourse by us. Trade secrets will over time be disseminated within the industry through independent
development, the publication of journal articles and the movement of personnel skilled in the art from company
to company or academic to industry scientific positions. Though our agreements with third parties typically
restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party
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contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain
certain limited publication rights. If any of our trade secrets were to be lawfully obtained or independently
developed by a competitor, we would have no right to prevent such competitor from using that technology or
information to compete with us, which could harm our competitive position. Because from time to time we
expect to rely on third parties in the development, manufacture, and distribution of our products and provision of
our services, we must, at times, share trade secrets with them. Despite employing the contractual and other
security precautions described above, the need to share trade secrets increases the risk that such trade secrets
become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed
or used in violation of these agreements. If any of our confidential or proprietary information, such as our trade
secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a
competitor, our business and competitive position could be harmed.
We may be unable to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of
the United States. Many companies have encountered significant problems in protecting and defending
intellectual property rights in certain foreign jurisdictions. These challenges can be caused by the absence or
inconsistency of the application of rules and methods for the establishment and enforcement of intellectual
property rights outside of the United States. In addition, the legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and other intellectual property protection,
especially those relating to healthcare. This could make it difficult for us to stop infringement of our foreign
patents, or the misappropriation of our other intellectual property rights. For example, some foreign countries
have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition,
some countries limit the enforceability of patents against third parties, including government agencies or
government contractors. In these countries, patents may provide limited or no benefit. Patent protection must
ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with
uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will
not have the benefit of patent protection in such countries.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual
property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by
courts in the United States and foreign countries may affect our ability to obtain adequate protection for our
technology and the enforcement of our intellectual property.
Further, the standards applied by the USPTO and foreign patent offices in granting patents are not always
applied uniformly or predictably. As such, we do not know the degree of future protection that we will have on
our technologies, products, and product candidates. While we will endeavor to try to protect our technologies,
products, and product candidates with intellectual property rights such as patents, as appropriate, the process
of obtaining patents is time-consuming, expensive and sometimes unpredictable.
Third parties may assert ownership or commercial rights to inventions we develop.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual
property, including studies we commission or reports on the efficacy of our products. In addition, we may face
claims by third parties that our agreements with employees, contractors or consultants obligating them to assign
intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of
assignment, which could result in ownership disputes regarding intellectual property we have developed or will
develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation
may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from
using certain intellectual property or may lose our exclusive rights in that intellectual property. Either outcome
could harm our business and competitive position.
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Third parties may assert that our employees or consultants have wrongfully used or disclosed
confidential information or misappropriated trade secrets.
We employ individuals who previously worked with other companies, including our competitors or potential
competitors. Although we try to ensure that our employees and consultants do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or our employees,
consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of a former employer or other third party. Litigation may
be necessary to defend against these claims. If we fail in defending any such claims or settling those claims, in
addition to paying monetary damages or a settlement payment, we may lose valuable intellectual property rights
or personnel. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability
to protect our products.
Our patent rights may be affected by developments or uncertainty in the patent statute, patent case law or
USPTO rules and regulations. There are a number of recent changes to the patent laws that may have a
significant impact on our ability to protect our technology and enforce our intellectual property rights. For
example, the United States has enacted and is currently implementing the America Invents Act of 2011, a wide-
ranging patent reform legislation. These changes include provisions that affect the way patent applications will
be prosecuted and may also affect patent litigation. As an example, the first to file provisions, which became
effective March 2013, mean that the party that is first to file in the United States generally is awarded the patent
rights, regardless of who invented first. This could have a negative impact on some of our IP and could increase
uncertainties surrounding obtaining and enforcement or defense of our issued patents. Further, the U.S.
Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent
protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events
has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S.
Congress, the federal courts and the U.S. Patent and Trademark Office, the laws and regulations governing
patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce
our existing patents or future patents.
Obtaining and maintaining patent protection depends on compliance with various procedural,
document submission, fee payment and other requirements imposed by governmental patent agencies,
and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other provisions during the patent process. Periodic maintenance
fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due
to be paid to the USPTO and various governmental patent agencies outside of the US in several stages over
the lifetime of the patents and/or applications. We employ reputable professionals and rely on such third parties
to help us comply with these requirements and effect payment of these fees with respect to the patents and
patent applications that we own, and if we in-license intellectual property we may have to rely upon our
licensors to comply with these requirements and effect payment of these fees with respect to any patents and
patent applications that we license. In many cases, an inadvertent lapse can be cured by payment of a late fee
or by other means in accordance with the applicable rules. However, there are situations in which
noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the case.
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If we fail to comply with our obligations under license or technology agreements with third parties, we
may be required to pay damages and we could lose license rights that are critical to our business.
We license certain intellectual property, and in the future, we may enter into additional agreements that provide
us with licenses to valuable intellectual property or technology. These licenses impose various payment
obligations on us. If we fail to comply with any of these obligations, we may be required to pay damages and the
licensor may have the right to terminate the license. Termination by the licensor could cause us to lose valuable
rights, and could prevent us from distributing our products, or inhibit our ability to commercialize future products.
Our business could suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents
or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on
acceptable terms.
Any collaboration arrangements that we may enter into in the future may not be successful, which
could adversely affect our ability to develop and commercialize our products.
Any future collaborations that we enter into may not be successful. The success of our collaboration
arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to
numerous risks, which may include that:
● collaborators have significant discretion in determining the efforts and resources that they will apply to
collaborations;
● collaborators may not pursue development and commercialization of our products or may elect not to
continue or renew development or commercialization programs based on trial or test results, changes
in their strategic focus due to the acquisition of competitive products, availability of funding or other
external factors, such as a business combination that diverts resources or creates competing priorities;
● collaborators could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates;
● a collaborator with marketing, manufacturing and distribution rights to one or more products may not
commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;
● we could grant exclusive rights to our collaborators that would prevent us from collaborating with
others;
● collaborators may not properly maintain or defend our intellectual property rights or may use our
intellectual property or proprietary information in a way that gives rise to actual or threatened litigation
that could jeopardize or invalidate our intellectual property or proprietary information or expose us to
potential liability;
● disputes may arise between us and a collaborator that causes the delay or termination of the research,
development or commercialization of our current or future products or that results in costly litigation or
arbitration that diverts management attention and resources;
● collaborations may be terminated, and, if terminated, may result in a need for additional capital to
pursue further development or commercialization of the applicable current or future products;
● collaborators may own or co-own intellectual property covering our products that results from our
collaborating with them, and in such cases, we would not have the exclusive right to develop or
commercialize such intellectual property; and
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● a collaborator’s sales and marketing activities or other operations may not be in compliance with
applicable laws resulting in civil or criminal proceedings.
If our trademarks and trade names are not adequately protected, then we may not be able to build name
recognition in our markets of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or descriptive.
Our trademarks or trade names may be determined to be infringing on other marks. We may not be able to
protect our rights to these trademarks and trade names or may be forced to stop using these names, which we
need for name recognition by potential partners or customers in our markets of interest. During trademark
registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to
those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable
agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark
applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed
against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish
name recognition based on our trademarks and trade names, we may not be able to compete effectively and
our business may be adversely affected. We may license our trademarks and trade names to third parties, such
as distributors. Though these license agreements may provide guidelines for how our trademarks and trade
names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our
licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade
names.
Risks Related to Government Regulation
Our products and operations are subject to extensive government regulation and oversight both in the
United States and abroad, and our failure to comply with applicable requirements could harm our
business.
We and our products are subject to extensive regulation in the United States and elsewhere, including by the
FDA, FTC, and their foreign counterparts. The FDA and foreign regulatory agencies regulate, among other
things, with respect to medical devices: design, development and manufacturing; testing, labeling, content and
language of instructions for use and storage; clinical trials; product safety; marketing, sales and distribution;
premarket clearance and approval; record keeping procedures; advertising and promotion; recalls and field
safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and
malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval studies; and
product import and export.
The regulations to which we are subject are complex and have tended to become more stringent over time.
Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than
anticipated costs or lower than anticipated sales. The FDA enforces these regulatory requirements through,
among other means, periodic unannounced inspections. We do not know whether we will pass any future FDA
inspections. Failure to comply with applicable regulations could jeopardize our ability to sell our products and
result in enforcement actions such as: warning letters; fines; injunctions; 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.
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We may not receive the necessary regulatory clearances or approvals to market our future products or
other proposed indications for our products in the future, and failure to timely obtain necessary
clearances or approvals for such future products or indications would adversely affect our ability to
grow our business.
An element of our strategy is to continue to upgrade our products, add new enhancements and features and
expand clearance or approval of our current products to include new indications. In the United States, before we
can market a new medical device, or a new use of, new claim for or significant modification to an existing
product, we must first receive either clearance under Section 510(k) of the Federal Food, Drug and Cosmetic
Act or approval of a premarket approval application (PMA) from the FDA, unless an exemption applies. In the
510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is
“substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been
previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-
amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later
down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the
same intended use as the predicate device, and either have the same technological characteristics as the
predicate device or have different technological characteristics and not raise different questions of safety or
effectiveness than the predicate device. Clinical data are sometimes required to support substantial
equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective for its
intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial,
manufacturing and labeling data. Our ability to successfully obtain clearance for any new indications will be
dependent on us submitting data as to the successful completion of clinical trials evidencing safety and efficacy.
The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-
sustaining, life-supporting or implantable devices. However, some devices are automatically subject to the PMA
pathway regardless of the level of risk they pose because they have not previously been classified into a lower
risk class by the FDA. Manufacturers of these devices may request that FDA review such devices in
accordance with the de novo classification procedure, which allows a manufacturer whose novel device would
otherwise require the submission and approval of a PMA prior to marketing to request down-classification of the
device on the basis that the device presents low or moderate risk. If the FDA agrees with the down-
classification request, the applicant will then receive authorization to market the device. This device type can
then be used as a predicate device for future 510(k) submissions. We initially received marketing authorization
of our device through the de novo classification process, and we have made changes to our system through
subsequent 510(k) clearances. Competitors may seek 510(k) clearance of similar products with similar
indications and use our de novo classification as a predicate device in their submission. The process of
obtaining regulatory clearances or approvals, or completing the de novo classification process, to market a
medical device can be costly and time consuming, and we may not be able to successfully obtain pre-market
reviews on a timely basis, if at all.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: we may be
unable to demonstrate to the FDA’s satisfaction that the product or modification is substantially equivalent to the
proposed predicate device or safe and effective for its intended use; the data from our pre-clinical studies and
clinical trials may be insufficient to support clearance or approval, where required; and the manufacturing
process or facilities we use may not meet applicable requirements. The FDA may also, instead of accepting a
510(k) submission, require us to submit a PMA, which is typically a much more complex, lengthy, and
burdensome application than a 510(k) submission. To support a PMA, the FDA would likely require that we
conduct one or more clinical studies to demonstrate that the device is safe and effective. In some cases, such
studies may be requested for a 510(k) as well. We may not be able to meet the requirements to obtain 510(k)
clearance or PMA approval (or a de novo classification request), in which case the FDA may not grant any
necessary clearances or approvals. In addition, the FDA may place significant limitations upon the intended
uses of our products as a condition to a 510(k) clearance or PMA approval. Product applications can also be
denied or withdrawn due to failure to comply with regulatory requirements or the occurrence of unforeseen
problems following clearance or approval. Any delays or failure to obtain FDA clearance or approval of new
products we develop, any limitations imposed by the FDA on new product use or the costs of obtaining FDA
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clearance or approvals could have a material adverse effect on our business, financial condition, and results of
operations.
Even if granted, a 510(k) clearance, de novo classification, or PMA approval imposes substantial restrictions on
how our devices may be marketed or sold, and the FDA continues to place considerable restrictions on our
products and operations. For example, the manufacture of medical devices must comply with the FDA’s Quality
System Regulation (QSR). In addition, manufacturers must register their manufacturing facilities, list the
products with the FDA, and comply with requirements relating to labeling, marketing, complaint handling,
adverse event and medical device reporting, reporting of corrections and removals, and import and export
restrictions. The FDA monitors compliance with the QSR and these other requirements through periodic
inspections. If our facilities or those of our manufacturers or suppliers are found to be in violation of applicable
laws and regulations, or if we or our manufacturers or suppliers fail to take satisfactory corrective action in
response to an adverse inspection, the regulatory authority could take enforcement action, including any of the
following sanctions: untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notifications or repair, replacement, refunds, recalls, detention or seizure of our products; operating
restrictions or partial suspension or total shutdown of production; refusing or delaying requests for
510(k) marketing clearance or PMA approvals of new products or modified products; withdrawing
510(k) marketing clearances or PMA approvals that have already been granted; refusing to provide Certificates
for Foreign Government; refusing to grant export approval for our products; or pursuing criminal prosecution.
Any of these sanctions could impair our ability to produce or commercialize our products in a cost-effective and
timely manner in order to meet our customers’ demands and could have a material adverse effect on our
reputation, business, results of operations and financial condition. We may also be required to bear other
regulatory compliance costs or take other actions that may have a negative impact on our sales and our ability
to generate profits.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise
existing regulations, or take other actions, which may prevent or delay approval or clearance of our future
products under development or impact our ability to modify our currently marketed products on a timely basis.
Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to
obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current
clearances. We also cannot predict the likelihood, nature or extent of government regulation that may arise from
future legislation or administrative or executive action, either in the United States or abroad, especially with a
new administration that may have different policy priorities than the previous one.
In order to sell our products in member countries of the European Economic Area, or (EEA) or in countries that
also rely on the CE Mark outside the EEA, our products must comply with the essential requirements of the EU
Medical Devices Directive (Council Directive 93/42/EEC), and with the Medical Device Regulation (Regulation
2017/745). Compliance with these requirements is a prerequisite to be able to affix the CE Mark to our
products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the
essential requirements we must undergo a conformity assessment procedure, which varies according to the
type of medical device and its classification. Except for low-risk medical devices (Class I non-sterile, non-
measuring devices), where the manufacturer can issue an EC Declaration of Conformity based on a self-
assessment of the conformity of its products with the essential requirements of the EU Medical Devices
Directive, a conformity assessment procedure requires the intervention of an organization accredited by a
Member State of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant
conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the
quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a
certificate of conformity following successful completion of a conformity assessment procedure conducted in
relation to the medical device and its manufacturer and their conformity with the essential requirements. This
certificate entitles the manufacturer to affix the CE Mark to its medical devices after having prepared and signed
a related EC Declaration of Conformity.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential
requirements must be based, among other things, on the evaluation of clinical data supporting the safety and
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performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate
that the device achieves its intended performance during normal conditions of use, that the known and
foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of
its intended performance, and that any claims made about the performance and safety of the device are
supported by suitable evidence. If we fail to remain in compliance with applicable European laws and directives,
we would be unable to continue to affix the CE Mark to our surgical systems, which would prevent us from
selling them within the EEA and may have an impact on our marketing authorization in other countries.
We or our distributors will also need to obtain or retain regulatory approval in other foreign jurisdictions in which
we plan to or currently do market and sell our products, and we or they may not obtain such approvals as
necessary to commercialize our products in those territories. Regulatory marketing authorizations in these
foreign jurisdictions typically require device testing, conformance to classification requirements, pre-market
requests to authorize commercialization, and in some cases inspections.
Modifications to our products may require new 510(k) clearances. de novo classification, or PMA
approvals, and may require us to cease marketing or recall the modified products until clearances or
approvals are obtained.
Any modification to a 510(k)-cleared product that could significantly affect its safety or effectiveness, or that
would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or
de novo classification, or, possibly, approval of a PMA. Modifications to products that have been approved
through the PMA process generally require premarket FDA approval. Similarly, certain modifications made to
products cleared through a 510(k) or authorized through the de novo classification process may require a new
510(k) clearance. Each of the PMA, de novo classification, and the 510(k) clearance processes can be
expensive, lengthy, and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months,
but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k)
clearance process and generally takes from one to three years, or even longer, from the time the application is
filed with the FDA. In addition, a PMA generally requires the performance of one or more clinical trials.
Despite the time, effort, and cost, a device may not be approved or cleared by the FDA. Any delay or failure to
obtain necessary regulatory authorizations could harm our business. Furthermore, even if we are granted
regulatory authorizations, they may include significant limitations on the indicated uses for the device, which
may limit the market for the device.
Any modifications to our existing products may require new 510(k) clearance; however, future modifications
may be subject to the substantially more costly, time-consuming, and uncertain PMA process. If the FDA
requires us to go through a lengthier, more rigorous examination for future products or modifications to existing
products than we had expected, product introductions or modifications could be delayed or canceled, which
could cause our sales to decline.
The FDA requires every manufacturer to make this modification determination in the first instance, but the FDA
may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new
clearances or approvals are necessary. We have made modifications to our products in the past and have
determined based on our review of the applicable FDA regulations and guidance that in certain instances new
510(k) clearances were not required. We may make similar modifications or add additional enhancements or
features in the future that we believe do not require a new 510(k) clearance or approval of a PMA. If the FDA
disagrees with our determination and requires us to submit new 510(k) notifications, de novo classifications, or
PMAs for modifications to our previously authorized products for which we have concluded that new clearances
or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we
obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. In addition, the
FDA may not approve or clear our products for the indications that are necessary or desirable for successful
commercialization or could require clinical trials to support any modifications. Any
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delay or failure in obtaining required clearances or approvals would adversely affect our ability to introduce new
or enhanced products in a timely manner, which in turn would harm our future growth.
Our products must be manufactured in accordance with federal and state regulations, and we could be
forced to recall our installed systems or terminate production if we fail to comply with these
regulations.
The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s
Quality System Regulation (QSR) which is a complex regulatory scheme that covers the procedures and
documentation of the design, testing, production, process controls, quality assurance, labeling, packaging,
handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we are
required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality
standards and applicable regulatory requirements. Compliance with the QSR is necessary to receive FDA
clearance or approval to market new products and is necessary for a manufacturer to be able to continue to
market cleared or approved devices in the United States. The FDA enforces the QSR through periodic
announced or unannounced inspections of medical device manufacturing facilities, which may include the
facilities of subcontractors. Our products are also subject to similar state regulations and various laws and
regulations of foreign countries governing manufacturing. Foreign regulatory authorities also impose
manufacturing quality requirements, which may differ from the FDA requirements, with which we must comply.
We or our third-party suppliers and manufacturers may not take the necessary steps to comply with applicable
regulations, which could cause delays in the delivery of our products. In addition, failure to comply with
applicable FDA or foreign jurisdiction requirements or later discovery of previously unknown problems with our
products or manufacturing processes could result in, among other things: warning letters or untitled letters;
fines, injunctions or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of
our products; total or partial suspension of production or distribution; administrative or judicially imposed
sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products; clinical holds;
refusal to permit the import or export of our products; and criminal prosecution of us or our employees.
Any of these actions could significantly and negatively impact 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 suffer reduced revenues and increased costs.
If treatment guidelines for the clinical conditions we are targeting change or the standard of care
evolves, we may need to redesign and seek new marketing authorization from the FDA for one or more
of our products.
If treatment guidelines for the clinical conditions we are targeting or the standard of care for such conditions
evolves, we may need to redesign the applicable product and seek new clearances or approvals from the FDA.
Our existing 510(k) and de novo clearances from the FDA are based on current treatment guidelines. If
treatment guidelines change so that different treatments become desirable, the clinical utility of one or more of
our products could be diminished and our business could suffer.
The misuse or off-label use of our products may harm our reputation in the marketplace, result in
injuries that lead to product liability suits or result in costly investigations, fines or sanctions by
regulatory bodies, particularly if we are deemed to have engaged in the promotion of these uses, any of
which could be costly to our business.
Our product has been authorized for marketing by the FDA for a specific indication. We train our commercial
organization and distributors inside and outside the United States to not promote our products for uses outside
of the FDA-cleared indications for use, known as “off-label uses.” However, we cannot guarantee that all of our
employees, representatives, and agents will abide by our marketing policies.
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If the FDA or any foreign regulatory body determines that our promotional materials, training, or other marketing
activities constitute promotion of an off-label or unapproved use, it could request that we modify our training or
promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of
an untitled letter, which is used for violations that do not necessitate a warning letter, injunction, seizure, civil
fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might
take action under other regulatory authority, such as laws prohibiting false claims for reimbursement.
Moreover, even if we, and all our employees, contractors, and agents, market our products in compliance with
applicable FDA regulations, such regulations do not apply to the practice of medicine, and we cannot prevent a
physician from prescribing and/or using our products off-label when, in the physician’s independent professional
medical judgment, he or she deems it appropriate. Similarly, we cannot prevent patients from using our
products off-label. There may be increased risk of injury to patients if physicians attempt to prescribe, or
patients attempt to use, our products off-label. Furthermore, the use of our products for indications other than
those authorized by the FDA may not effectively treat such conditions, which could harm our reputation in the
marketplace among physicians and patients. There are similar risks if our products are used off-label with
respect to non-U.S. regulatory approvals.
Our products may cause or contribute to adverse medical events that we are required to report to the
FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business,
financial condition and results of operations. The discovery of serious safety issues with our products,
or a recall of our products either voluntarily or at the direction of the FDA or another governmental
authority, could have a negative impact on us.
We are subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require
us to report to the FDA when we receive or become aware of information that reasonably suggests that one or
more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way
that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our
obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the
event. We may fail to report adverse events of which we become aware within the prescribed timeframe. 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. If we fail to comply with our reporting obligations, the FDA could take action, including
warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary
penalties, revocation of our device clearance, seizure of our products or delay in clearance of future products.
The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the
event of material deficiencies or defects in design or manufacture of a product or in the event that a product
poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that
there is reasonable probability that the device could cause serious injury or death. We may also choose to
voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us
could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing
defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with
applicable regulations. Product defects or other errors may occur in the future. If we initiate a correction or
removal for one of our devices to reduce a risk to health posed by the device, we would be required to submit a
publicly available Correction and Removal report or Safety Alert to the FDA and, in many cases, similar reports
to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to
increased scrutiny by the FDA, other international regulatory agencies, and our customers regarding the quality
and safety of our devices. Furthermore, the submission of these reports could be used by competitors against
us in competitive situations and cause customers to delay purchase decisions or cancel orders and would harm
our reputation.
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Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require,
or we may decide, that we will need to obtain new approvals or clearances for the device before we may market
or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the
recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our
devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure,
injunctions, administrative penalties or civil or criminal fines.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to
the FDA. We may initiate voluntary withdrawals or corrections for our products in the future that we determine
do not require notification to the FDA. If the FDA disagrees with our determinations, it could require us to report
those actions as recalls and we may be subject to enforcement action. A future recall announcement could
harm our reputation with customers, potentially lead to product liability claims against us and negatively affect
our sales.
Any adverse event involving our products could result in voluntary corrective actions, such as recalls or
customer notifications, or agency action, such as inspection, mandatory recall or other enforcement action. Any
corrective action, whether voluntary or involuntary, as well as exposing us to private litigation, would require the
dedication of our time and capital, distract management from operating our business and may harm our
reputation and financial results.
If we or our distributors do not obtain and maintain international regulatory registrations or approvals
for our products, we will be unable to market and sell our products outside of the United States.
Sales of our products outside of the United States are subject to foreign regulatory requirements that vary
widely from country to country. In addition, the FDA regulates exports of medical devices from the United
States. While the regulations of some countries may not impose barriers to marketing and selling our products
or only require notification, others require that we or our distributors obtain the approval of a specified regulatory
body. Complying with foreign regulatory requirements, including obtaining registrations or approvals, can be
expensive and time-consuming, and we or our distributors may not receive regulatory approvals in each country
in which we plan to market our products or we may be unable to do so on a timely basis. The time required to
obtain registrations or approvals, if required by other countries, may be longer than that required for FDA
clearance or approval, and requirements for such registrations, clearances or approvals may significantly differ
from FDA requirements. If we modify our products, we or our distributors may need to apply for additional
regulatory approvals before we are permitted to sell the modified product. In addition, we may not continue to
meet the quality and safety standards required to maintain the authorizations that we or our distributors have
received. If we or our distributors are unable to maintain our authorizations in a particular country, we will no
longer be able to sell the applicable product in that country.
Regulatory clearance or approval by the FDA and/or the permission to affix the CE Mark does not ensure
clearance or approval by regulatory authorities in other countries, and clearance or approval by one or more
foreign regulatory authorities does not ensure clearance or approval by regulatory authorities in other foreign
countries or by the FDA. However, a failure or delay in obtaining regulatory clearance or approval in one country
may have a negative effect on the regulatory process in others.
We are subject to certain federal, state and foreign fraud and abuse laws, health information privacy
and security laws and transparency laws, which, if violated, could subject us to substantial penalties.
Additionally, any challenge to or investigation into our practices under these laws could cause adverse
publicity and be costly to respond to, and thus could harm our business.
There are numerous U.S. federal and state, as well as foreign, laws pertaining to healthcare fraud and abuse,
including anti-kickback, false claims and physician transparency laws. Our business practices and relationships
with providers, patients and third-party payors are subject to scrutiny under these laws. We may also be subject
to patient information privacy and security regulation by both the federal government in
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addition to the states and foreign jurisdictions in which we conduct our business. The healthcare laws and
regulations that may affect our ability to operate include:
● the federal Anti-Kickback Statute, which prohibits any person or entity from, among other things,
knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the
purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a
federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration”
has been broadly interpreted to include anything of value. The government can establish a violation of
the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a
specific intent to violate. Moreover, the government may assert that a claim for reimbursement that
includes items resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act (“FCA”), as described in
more detail below. Although there are a number of statutory exceptions and regulatory safe harbors to
the federal healthcare Anti-Kickback Statute protecting certain common business arrangements and
activities from prosecution or regulatory sanctions, the exceptions and safe harbors are drawn narrowly
and in order to obtain protection from a safe harbor the entities involved must meet every element.
Accordingly, industry practices that involve providing remuneration to those who prescribe, purchase,
or recommend medical device products, including discounts, or engaging individuals as speakers,
consultants, or advisors, may be subject to scrutiny if they do not fit squarely within an exception or a
safe harbor. It is possible that not all our practices may not meet all of the criteria for safe harbor
protection from anti-kickback liability. Moreover, there are no safe harbors for many common practices,
such as reimbursement support programs, educational or research grants, or charitable donations;
● the federal civil and criminal false claims laws and civil monetary penalty laws, such as the FCA, which
can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from,
among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent
claims for payment of federal funds, and knowingly making, using or causing to be made or used a
false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an
obligation to pay money to the federal government. The Social Security Act also has a provision that
provides for the imposition of civil monetary penalties against any person who offers or transfers
remuneration to a Medicare or Medicaid beneficiary that such person knows or should know is likely to
influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or
receipt of any item or service payable by a federal health care program, known as beneficiary
inducement. Whistleblowers can bring FCA qui tam actions on behalf of the government and
themselves, and may share in amounts paid by the entity to the government in recovery or settlement.
FCA liability can be potentially significant in the healthcare industry because the statute provides for
treble damages and mandatory penalties of $11,803 to $23,607 per false or fraudulent claim or
statement. Many pharmaceutical and medical device manufacturers have been investigated and have
reached substantial settlements under the FCA in connection with alleged off label promotion of their
products, providing improper renumeration to healthcare providers or other personnel involved in
recommending products, and allegedly providing free products to customers with the expectation that
the customers would bill federal health care programs for the product. In addition, a claim including
items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the FCA. As a result of a modification made by the Fraud Enforcement
and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented
to the U.S. government. Thus, medical device manufacturers can be held liable under the FCA even
when they do not submit claims directly to government payors if they are deemed to “cause” the
submission of false or fraudulent claims. There are also criminal penalties, including imprisonment and
criminal fines, for making or presenting false, fictitious or fraudulent claims to the federal government;
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● The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), among other regulatory
requirements described below, also imposes criminal liability for executing or attempting to execute a
scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and
willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal
investigation of a healthcare offense, and creates federal criminal laws that prohibit knowingly and
willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or
fraudulent statement or representation, or making or using any false writing or document knowing the
same to contain any materially false, fictitious or fraudulent statement or entry in connection with the
delivery of or payment for healthcare benefits, items or services. Similar to the federal healthcare Anti-
Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific
intent to violate it or to have committed a violation;
● HIPAA, as amended by HITECH, and their implementing regulations, which imposes privacy, security,
transmission and breach reporting obligations with respect to individually identifiable health information
upon “covered entities” subject to the law, including health plans, healthcare clearinghouses and
certain healthcare providers and their respective business associates that perform services on their
behalf that involve individually identifiable health information. HITECH also created new tiers of civil
monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business
associates, and gave state attorneys general new authority to file civil actions for damages or
injunctions in federal courts to enforce HIPAA laws and seek attorneys’ fees and costs associated with
pursuing federal civil actions. On December 10, 2020, the U.S. Department of Health and Human
Services Office for Civil Rights issued a Notice of Proposed Rulemaking, which if finalized, would make
changes to some of HIPAA’s regulatory requirements, which would apply to business associates;
● the federal Physician Payments Sunshine Act created under the PPACA, which requires, among other
things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under
Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report
annually to the United States Department of Health and Human Services, Centers for Medicare and
Medicare Services, or CMS, information related to payments or other transfers of value made to
physicians (defined to include doctors, dentists, optometrists, podiatrists, chiropractors, physician
assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified
nurse-midwives) and teaching hospitals, as well as ownership and investment interests held by
physicians and their immediate family members; and
● foreign and state law equivalents of each of the above federal laws, such as anti-kickback and false
claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or
services reimbursed by any non-governmental third-party payors, including private insurers; state laws
that require device manufacturers to comply with the industry’s voluntary compliance guidelines and
the applicable compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws
that require device manufacturers to report information related to payments and other transfers of value
to physicians and other healthcare providers or marketing expenditures and pricing information; and
other federal and state laws that govern the privacy and security of health information or personally
identifiable information in certain circumstances, including state health information privacy and data
breach notification laws which govern the collection, use, disclosure, and protection of health-related
and other personal information, many of which differ from each other in significant ways and often are
not pre-empted by HIPAA, thus requiring additional compliance efforts and data privacy and security
laws and regulations in foreign jurisdictions that may be more stringent than those in the United States
(such as the European Union, which adopted the General Data Protection Regulation, which became
effective in May 2018).
These laws and regulations, among other impacts, constrain our business, marketing and other promotional
activities by limiting the kinds of financial arrangements, including sales programs, we may have with
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psychiatrists, other healthcare provides, or other potential purchasers of our products. We have also entered
into consulting agreements with physicians, which are subject to these laws. Further, while we do not submit
claims to any payor and our customers make the ultimate decision on how to submit claims, we may provide
reimbursement guidance and support regarding our products. Due to the breadth of these laws, the narrowness
of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are
subject, it is possible that some of our current or future practices might be challenged under one or more of
these laws.
To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased
their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a
number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to
investigations can be time-and resource-consuming and can divert management’s attention from the business.
Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our
business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and
be costly to respond to.
If our operations are found to be in violation of any of the healthcare laws or regulations described above or any
other healthcare regulations that apply to us, we may be subject to penalties, including administrative, civil and
criminal penalties, damages, fines, disgorgement, exclusion from participation in government healthcare
programs, such as Medicare and Medicaid, imprisonment, additional reporting obligations and oversight if we
becomes subject to a corporate integrity agreement or other agreement to resolve allegations of non-
compliance with these laws, reputational harm, diminished profits and future earnings, and the curtailment or
restructuring of our operations, any of which could adversely affect our ability to operate our business and
pursue our strategy.
Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system,
could harm our cash flows, financial condition and results of operations.
From time to time, Congress drafts legislation that could significantly change the statutory provisions governing
the regulation of medical devices. In addition, FDA regulations and guidance are often revised or reinterpreted
by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations,
revisions, or reinterpretations of existing regulations may impose additional costs, lengthen review times of any
future products, or make it more difficult to manufacture, market or distribute our products. We cannot determine
what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted
or adopted may have on our business in the future.
For example, in March 2010, the PPACA was enacted in the United States, which made a number of substantial
changes in the way healthcare is financed by both governmental and private insurers. Among other ways in
which it may impact our business, the PPACA:
● establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in
comparative clinical effectiveness research in an effort to coordinate and develop such research;
● implements payment system reforms including a national pilot program on payment bundling to
encourage hospitals, psychiatrists and other providers to improve the coordination, quality and
efficiency of certain healthcare services through bundled payment models; and
● expands the eligibility criteria for Medicaid programs.
We expect additional state and federal healthcare reform measures to 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 reduced demand for our products or additional pricing pressure.
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Our employees, distributors, and other third parties may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, distributors, and other third parties may engage in
inappropriate, fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless or
negligent conduct or other unauthorized activities that violate the regulations of the FDA and other U.S.
healthcare regulators, as well as non-U.S. regulators, including by violating laws requiring the reporting of true,
complete and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse
laws and regulations in the United States and abroad or laws that require the true, complete, and accurate
reporting of financial information or data. In particular, sales, marketing, and business arrangements in the
healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices, as described herein.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer incentive programs, and other business arrangements. It is not always
possible to identify and deter misconduct by our employees, distributors, and other third parties, and the
precautions we take to detect and prevent this activity may not be effective in controlling unknown or
unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to comply with these laws or regulations. Efforts to ensure that the activities of these
parties will comply with applicable healthcare laws and regulations involve substantial costs. These risks may
be more pronounced, and we may find that the processes and policies we have implemented are not effective
at preventing misconduct. If any actions are instituted against us and we are not successful in defending
ourselves or asserting our rights, those actions could result in the imposition of significant fines or other
sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines,
individual imprisonment, disgorgement, possible exclusion from participation in government healthcare
programs, additional reporting obligations and oversight if we becomes subject to a corporate integrity
agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages,
reputational harm, diminished profits and future earnings and the curtailment of our operations. Whether or not
we are successful in defending against such actions or investigations, we could incur substantial costs,
including legal fees, and divert the attention of management in defending ourselves against any of these claims
or investigations.
Risks Related to Our Capital Structure
We may need to raise additional capital to fund our existing commercial operations, develop and
commercialize new products and expand our operations.
If our available cash balances, potential future borrowing capacity, and anticipated cash flow from operations
are insufficient to satisfy our liquidity requirements, including because of lower demand for our products as a
result of the risks described in this Annual Report on Form 10-K, we may seek to sell common or preferred
equity or debt securities, enter into an additional credit facility or another form of third-party funding or seek
other debt financing. Our present and future funding requirements will depend on many other factors, including:
● our ability to achieve revenue growth and improve operating margins;
● our ability to improve or maintain coverage and reimbursement arrangements with domestic third-party
and government payors;
● our rate of progress in establishing coverage and reimbursement arrangements from international
commercial third-party and government payors, particularly in Japan;
● the cost of expanding our operations and offerings, including our sales and marketing efforts;
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● our rate of progress in, and cost of the sales and marketing activities associated with, establishing
adoption of our products and maintaining or improving our sales to our current customers;
● the cost of research and development activities, including research and development relating to
additional indications;
● the effect of competing technological and market developments;
● costs related to international expansion; and
● the potential cost of and delays in product development as a result of any regulatory oversight
applicable to our products.
We may also consider raising additional capital in the future to expand our business, to pursue strategic
investments, to take advantage of financing opportunities or for other reasons, including to:
● expand our sales and marketing efforts to increase market adoption of our products and address
competitive developments;
● fund development and marketing efforts of any future products or additional features to then-current
products;
● acquire, license or invest in new technologies;
● provide for supply and inventory costs associated with plans to accommodate potential increases in
demand for our products
● acquire or invest in complementary businesses or assets; and
● finance capital expenditures and general and administrative expenses.
Additional capital may not be available to us at such times or in the amounts we need. Even if capital is
available, it might be available only on unfavorable terms. Any issuance of additional equity or equity-linked
securities could be dilutive to our existing stockholders, and any new equity securities could have rights,
preferences and privileges superior to those of holders of our common stock, including the shares of common
stock sold in this offering. Debt financing, if available, may involve covenants restricting our operations or our
ability to incur additional debt, pay dividends, repurchase our stock, make investments and engage in merger,
consolidation or asset sale transactions. If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to relinquish or license some rights to our technologies or
products, on terms that are not favorable to us. If access to sufficient capital is not available as and when
needed, our business will be materially impaired and we may be required to cease operations, curtail one or
more product development or commercialization programs, significantly reduce expenses, sell assets, seek a
merger or joint venture partner, file for protection from creditors or liquidate all our assets.
Our ability to use net operating losses to offset future taxable income may be subject to limitations.
As of December 31, 2022, we had federal and state net operating loss carryforwards of $312.7 million and
$197.2 million, respectively. The federal and state net operating loss carryforwards will begin to expire, if not
utilized, beginning in 2023, respectively. These net operating loss carryforwards could expire unused and be
unavailable to offset future income tax liabilities. Under the newly enacted federal income tax law, federal net
operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of
such federal net operating losses is limited. It is uncertain how various states will respond to the newly enacted
federal tax law. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended,
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and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally
defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the
corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes
to offset its post-change income or taxes may be limited. We have not done an analysis to determine whether or
not ownership changes have occurred since inception and we may experience ownership changes in the future
as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an
ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it
would harm our future operating results by effectively increasing our future tax obligations.
The terms of our credit facility place restrictions on our operating and financial flexibility. If we raise
additional capital through debt financing, the terms of any new debt could further restrict our ability to
operate our business.
In March 2020, we entered into a $50.0 million credit facility with SLR Investment Corp. (formerly known as
Solar Capital Ltd.), or (“Solar”), that is secured by a lien covering substantially all of our assets. The credit
facility contains customary covenants and events of default applicable to us. The affirmative covenants include,
among others, a covenant that requires us to achieve agreed amounts of trailing twelve month net product
revenue (“net product revenue covenant”), measured monthly through the term of the credit facility. The
negative covenants include, among others, restrictions on us transferring collateral, changing businesses,
engaging in mergers or acquisitions, incurring additional indebtedness and encumbering collateral. If we default
under the credit facility, Solar may accelerate all of our repayment obligations and take control of our pledged
assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately
cease operations. Further, if we are liquidated, Solar’s right to repayment would be senior to the rights of the
holders of our common stock to receive any proceeds from the liquidation. Solar could declare a default upon
the occurrence of any event that it interprets as a material adverse effect as defined under the credit facility,
thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default through
negotiation or litigation. Any declaration by Solar of an event of default could significantly harm our business
and prospects and could cause the price of our common stock to decline. If we raise any additional debt
financing, the terms of such additional debt could further restrict our operating and financial flexibility.
In 2020 and 2021, we did not achieve the required revenue under the net product revenue covenant, but we
obtained waivers from Solar to cure the breach of the net product revenue covenant. In 2022 we achieved the
required revenue under the net product revenue covenant. If we fail to achieve the specified level of product net
revenue in the future, Solar is under no obligation to provide us with relief for future specified defaults.
Risks Related to Ownership of Our Common Stock
The price of our common stock has been and may continue to be volatile.
The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control. Factors that could cause volatility in the
market price of our common stock include, but are not limited to:
● the actual or anticipated fluctuations in our financial condition and operating results;
● the actual or anticipated changes in our growth rate;
● the commercial success and market acceptance of our products;
● the success of our competitors in developing or commercializing products;
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● media exposure of our products or of those of others in our industry;
● our ability to commercialize or obtain regulatory approvals for our products, or delays in
commercializing or obtaining regulatory approvals;
● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures, collaborations or capital commitments;
● the addition or departure of key personnel;
● product liability claims;
● general prevailing economic, industry and market conditions, including factors unrelated to our
operating performance or the operating performance of our competitors;
● business disruptions caused by earthquakes, fires, pandemic diseases (such as from coronavirus), or
other natural disasters;
● disputes or other developments concerning our intellectual property or other proprietary rights,
including litigation;
● the FDA or other U.S. or foreign regulatory actions affecting us or the healthcare or medical device
industry;
● healthcare reform measures in the United States;
● third-party payor developments in the United States and other countries;
● sales of our common stock by our directors, officers, or stockholders;
● the timing and amount of our investments in the growth of our business;
● inability to obtain additional funding;
● future sales or issuances of equity or debt securities by us;
● failure to meet or exceed financial estimates and projections of the investment community or that we
provide to the public; and
● the issuance of new or changed securities analysts’ reports or recommendations regarding us.
In addition, the stock markets in general, and the markets for companies like ours in particular, have from time
to time experienced extreme volatility that has been often unrelated to the operating performance of the
company. These broad market and industry fluctuations may negatively impact the price or liquidity of our
common stock, regardless of our operating performance.
Moreover, because of these fluctuations, comparing our operating results on a period-to-period basis may not
be meaningful. You should not rely on our past results as an indication of our future performance. This variability
and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or
investors for any period. If our revenues or operating results fall below the expectations of analysts or investors
or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the
expectations of analysts or investors, the price of our common stock could decline
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substantially. Such a stock price decline could occur even when we have met any previously publicly stated
revenues or earnings forecasts that we may provide.
Future sales of our common stock or securities convertible or exchangeable for our common stock may
cause our stock price to decline.
If our stockholders or option holders sell, or indicate an intention to sell, substantial amounts of our common
stock in the public market, the price of our common stock could decline. The perception in the market that these
sales may occur could also cause the price of our common stock to decline.
Shares of common stock that are either subject to outstanding options, or are outstanding but subject to vesting
or reserved for future issuance under our 2018 Equity Incentive Plan, or the 2018 Plan, will become eligible for
sale in the public market to the extent permitted by the provisions of various vesting schedules, Rule 144 and
Rule 701 under the Securities Act. We have also filed a registration statement permitting certain shares of
common stock issued under our 2003 Stock Incentive Plan, or the 2003 Plan, and shares of common stock
issued pursuant to the 2018 Plan or our 2018 Employee Stock Purchase Plan, or the 2018 ESPP, to be freely
resold by plan participants in the public market, subject to applicable vesting schedules and, for shares held by
directors, executive officers and other affiliates, volume limitations under Rule 144 under the Securities Act.
Both the 2018 Plan and the 2018 ESPP contain provisions for the annual increase of the number of shares
reserved for issuance under such plans, which shares we also intend to register. If the shares we may issue
from time to time under the 2003 Plan, the 2018 Plan or the 2018 ESPP are sold, or if it is perceived that they
will be sold, by the award recipients in the public market, the price of our common stock could decline.
Certain shares of common stock are entitled to rights with respect to registration under the Securities Act. Such
registration would result in these shares becoming fully tradable without restriction under the Securities Act
when the applicable registration statement is declared effective. Sales of such shares could cause the price of
our common stock to decline.
Our principal stockholders and management own a significant percentage of our stock and are able to
exert control over matters subject to stockholder approval.
As of February 27, 2023, our officers and directors, together with holders of 5% or more of our outstanding
common stock and their respective affiliates, beneficially owned approximately 20.7% of our outstanding
common stock. Accordingly, these stockholders have a material influence over the outcome of corporate actions
requiring stockholder approval, including the election of directors, mergers, consolidation or sale of all or
substantially all of our assets or any other significant corporate transaction. The interests of these stockholders
may not be the same as or may even conflict with your interests. For example, these stockholders could attempt
to delay or prevent a change in control of the company, even if such a change in control would benefit our other
stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common
stock as part of a sale of the company or our assets and might affect the prevailing price of our common stock.
The significant concentration of stock ownership may negatively impact the price of our common stock due to
investors’ perception that conflicts of interest may exist or arise.
Provisions of our amended and restated charter documents or Delaware law could delay or prevent an
acquisition of the company, even if the acquisition would be beneficial to our stockholders, which could
make it more difficult for you to change management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may
discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider
favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In
addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or
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remove our current management by making it more difficult to replace or remove our board of directors. These
provisions include:
● a prohibition on stockholder action through written consent;
● no cumulative voting in the election of directors;
● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion
of the board of directors or the resignation, death or removal of a director;
● a requirement that special meetings of stockholders be called only by the board of directors, the
chairman of the board of directors, the chief executive officer or, in the absence of a chief executive
officer, the president;
● an advance notice requirement for stockholder proposals and nominations;
● the authority of our board of directors to issue blank-check preferred stock with such terms as our
board of directors may determine; and
● a requirement of approval of not less than 66 2/3% of all outstanding shares of our capital stock entitled
to vote to amend any bylaws by stockholder action, or to amend specific provisions of our amended
and restated certificate of incorporation.
In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder, generally a person who, together with its affiliates, owns, or within
the last three years has owned, 15% or more of our voting stock, for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the business combination is approved
in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of our
company.
Provisions in our charter documents and other provisions of Delaware law could limit the price that investors are
willing to pay in the future for shares of our common stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State
of Delaware and the federal district courts of the United States of America will be the exclusive forums
for substantially all disputes between us and our stockholders, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, the
Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding
brought on our behalf, other than an action or suit to enforce a duty or liability created by the Exchange Act or
any other claim for which the federal courts have exclusive jurisdiction, (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 amended
and restated certificate of incorporation or amended and restated bylaws, (iv) any action to interpret, apply,
enforce or determine the validity of our amended and restated certificate of incorporation or amended and
restated bylaws or (v) any action asserting a claim governed by the internal affairs doctrine. Our amended and
restated certificate of incorporation further provides that the federal district courts of the United States of
America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the
Securities Act. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with us or our directors, officers or other employees, which may
discourage such lawsuits against us and our directors, officers and other employees.
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Some companies that adopted a similar federal district court forum selection provision are currently subject to a
suit in the Chancery Court of Delaware by stockholders who assert that the provision is not enforceable. If a
court were to find either choice of forum provision contained in our amended and restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could harm our business.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future;
therefore, capital appreciation, if any, of our common stock will be your sole source of gain for the
foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to do so in the
foreseeable future. We currently intend to retain all available funds and any future earnings to finance the
growth and development of our business. In addition, the terms of our credit agreements contain, and the terms
of any future credit agreements we may enter into may contain, terms prohibiting or limiting the amount of
dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our
common stock will be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research or reports about our business, or publish
inaccurate or unfavorable research or reports about our business, our stock price and trading volume
could decline.
The trading market for our common stock depends, to some extent, on the research and reports that securities
or industry analysts publish about us and our business. We do not have any control over these analysts. If one
or more of the analysts who cover us downgrade our common stock or change their opinion of our common
stock, our stock price would likely decline. If one or more of these analysts cease to cover us or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or
trading volume to decline.
General Risk Factors
We may be subject to securities litigation, which is expensive and could divert our management’s
attention.
In the past, companies that have experienced volatility in the market price of their securities have been subject
to securities class action litigation. We may be the target of this type of litigation in the future. Regardless of the
merits or the ultimate results of such litigation, securities litigation brought against us could result in substantial
costs and divert our management’s attention from other business concerns.
We are an “emerging growth company” and the reduced disclosure requirements applicable to
emerging growth companies could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or
JOBS Act. We may remain an emerging growth company until as late as December 31, 2023, though we may
cease to be an emerging growth company earlier under certain circumstances, including (i) if the market value
of our common stock that is held by non-affiliates exceeds $700 million as of any June 30, in which case we
would cease to be an emerging growth company as of the following December 31, or (ii) if our gross revenues
exceeds $1.07 billion in any fiscal year. “Emerging growth companies” may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies, including not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. Investors could find our
common stock less attractive because we may rely on these exemptions. If
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some investors find our common stock less attractive as a result, there may be a less active trading market for
our common stock and our stock price may be more volatile.
In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage
of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or
the Securities Act, for complying with new or revised accounting standards. An emerging growth company can
therefore delay the adoption of certain accounting standards until those standards would otherwise apply to
private companies. We are choosing not to “opt out” of such extended transition period, and as a result, we will
not comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies.
We are obligated to develop and maintain proper and effective internal controls over financial reporting
and any failure to maintain the adequacy of these internal controls may adversely affect investor
confidence in our company and the value of our common stock.
As a public company, the Sarbanes-Oxley Act requires that we maintain effective disclosure controls and
procedures and internal control over financial reporting. We have developed disclosure controls and other
procedures that are designed to ensure that information required to be disclosed by us in the reports that we file
with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC
rules and regulations, and that information required to be disclosed in reports under the Exchange Act, is
communicated to our principal executive and financial officers. Our current controls and any new controls that
we develop may become inadequate and weaknesses in our internal control over financial reporting may be
discovered in the future. We believe that any disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. These inherent limitations reflect the reality that judgments can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly,
because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not
be detected.
Any failure to maintain effective controls could negatively impact the results of periodic management
evaluations and annual independent registered public accounting firm attestation reports regarding the
effectiveness of our internal control over financial reporting that we will be required to include in periodic reports
we file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm our operating results, cause us to fail
to meet our reporting obligations or result in a restatement of our prior period financial statements. In the event
that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over
financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial
statements, investors may lose confidence in our operating results and the price of our common stock could
decline. In addition, if we are unable to continue to meet these requirements, we may be unable to remain listed
on the Nasdaq Global Market.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our
internal control over financial reporting due to our status as a smaller reporting company (“SRC”).
Pursuant to the Exchange Act Continuous Disclosure Accommodations, the auditor attestation requirement of
section 404(b) of the Sarbanes Oxley Act of 2002 is not required by SRCs, with public common equity float
between $75 million and $700 million and annual revenues of less than $100 million.
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Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We occupy an approximately 42,500 square foot facility in Malvern, Pennsylvania, under a lease that ends in
February 2028, for our corporate headquarters, which includes office and warehouse space. We have an option
to extend the lease for an additional five-year term. We also occupy an approximately 9,600 square foot facility
in Charlotte, North Carolina, under a lease that ends in 2027, to be used as a training facility for our NeuroStar
Advanced Therapy Systems. We have an option to extend the lease for an additional one-year term. We believe
that our existing facilities are adequate to meet our needs for the foreseeable future.
Item 3. Legal Proceedings.
The Company is subject from time to time to various claims and legal actions arising during the ordinary course
of its business. Management believes that there are currently no claims or legal actions that would reasonably
be expected to have a material adverse effect on the Company’s results of operations, financial condition, or
cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 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 “STIM” since
June 28, 2018. Prior to that time, there was no public market for our common stock. The shares of our common
stock sold in our IPO on June 27, 2018 were priced at $17.00 per share. The shares of our common stock sold
in our secondary public offering and sale of our common stock on February 2, 2021 were priced at $15.50 per
share.
Holders of Record
As of February 27, 2023, there were approximately 54 holders of record of our common stock, solely based
upon the count our transfer agent provided to us as of that date.
Sales of Unregistered Securities
None.
Equity Compensation Plans
The following table details information regarding our existing equity compensation plans as of December 31,
2022:
Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
(in thousands)
(a)
1,301
$
—
$
1,301
Weighted
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
(b)
4.07
—
4.07
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
reflected
in Column (a)
(in thousands)
(c)
2,203
435
2,637
(1)
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(1) This number includes 426.8 thousand shares available for issuance under the 2020 Inducement Incentive
Plan as of December 31, 2022.
See “Item 15. Exhibits and Financial Statement Schedules — Notes to Financial Statements — Note 13.
Stockholders’ Equity, Note 15. Share-Based Compensation and Note 16. Employee Benefit Plans” for additional
information on compensation plans under which equity securities of the registrant are authorized for issuance
without the approval of stockholders.
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Issuer Purchases of Equity Securities
None
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our audited financial statements and related notes thereto and other financial information
included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, some of
the information contained in the following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. You should review the ‘‘Risk Factors’’ section of this Annual
Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially
from the results described in or implied by the forward-looking statements contained in the following discussion
and analysis.
Overview
We are a commercial stage medical technology company focused on designing, developing and marketing
products that improve the quality of life for patients who suffer from neurohealth disorders. Our first commercial
product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment
that uses transcranial magnetic stimulation, (“TMS”), to create a pulsed, MRI-strength magnetic field that
induces electrical currents designed to stimulate specific areas of the brain associated with mood. The system
is cleared by the United States Food and Drug Administration, (“FDA”), to treat adult patients with major
depressive disorder, (“MDD”), that have failed to achieve satisfactory improvement from prior antidepressant
medication in the current MDD episode. NeuroStar Advanced Therapy is safe, clinically effective, reproducible
and precise and we believe is supported by the largest clinical data set of any competing TMS system. We
believe we are the market leader in TMS therapy based on the estimated 147,431 global patients treated with
over 5.3 million of our treatment sessions through December 31, 2022. We generated revenues of $65.2 million
and $55.3 million for the years ended December 31, 2022 and 2021, respectively.
We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat
patients who suffer from MDD and to address many of the key limitations of existing treatment options. We
generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and from
service and repair and extended warranty contracts. We derive the majority of our revenues from recurring
treatment sessions. For the year ended December 31, 2022, revenues from sales of our treatment sessions and
NeuroStar Advanced Therapy Systems represented 71% and 26% of our U.S. revenues, respectively. For
the year ended December 31, 2021, revenues from sales of our treatment sessions and NeuroStar Advanced
Therapy Systems represented 78% and 18% of our U.S. revenues, respectively.
We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the United
States through our sales and customer support team. Our sales force targets an estimated 50,000 psychiatrists
across 26,000 practices that we estimate, based on a 2020 dataset from Symphony Health and our own internal
estimates, treat approximately 42% of the total MDD patients in the United States who meet our labeled
indication and are insured. We expect to continue to expand our direct sales and customer support team to
further penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy to psychiatrists
and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced
Therapy System. Based on our commercial data, we believe psychiatrists can
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recoup their initial capital investment in our system by providing a standard course of treatment to
approximately 12 patients. We believe psychiatrists can generate approximately $8,500 of average revenue per
patient for a standard course of treatment, which may provide meaningful incremental income to their practices.
We have a diverse customer base of psychiatrists in group psychiatric practices in the United States. One
customer accounted for more than 10% of our revenues for the years ended December 31, 2022 and 2021.
Patients are reimbursed by Medicare and the vast majority of commercial payors in the United States for
treatment sessions utilizing our NeuroStar Advanced Therapy System.
We market our products in a few select markets outside the United States through independent distributors.
International revenues represented 3% and 3% of our total revenues for the years ended December 31, 2022
and 2021, respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin Pharma
Limited, (“Teijin”), for the distribution of our NeuroStar Advanced Therapy Systems and treatment sessions to
customers who will treat patients with MDD in Japan. We received regulatory approval for our system in Japan
in September 2017. We obtained reimbursement coverage for NeuroStar Advanced Therapy in Japan, which
went into effect on June 1, 2019 and covers patients who are treated in the largest inpatient and outpatient
psychiatric facilities in Japan. We expect our international revenues to increase as a percentage of our total
revenues as we grow our presence in Japan.
Our research and development efforts are focused on the following: hardware and software product
developments and enhancements of our NeuroStar Advanced Therapy System and clinical development
relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced
Therapy Systems that are produced to our specifications, and individual components are either shipped directly
from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern,
Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.
Our total revenues increased by $9.9 million, or 18%, from $55.3 million for the year ended December 31, 2021
to $65.2 million for the year ended December 31, 2022. For the year ended December 31, 2022, our U.S.
revenues were $63.4 million, compared to $53.4 million for the year ended December 31, 2021, which
represented an increase of 19% period over period. We expect to continue to incur losses for the next
several years as we expand our commercial organization to support our planned sales growth and while
continuing to invest in our pipeline indications. As of December 31, 2022, we had an accumulated deficit of
$345.9 million.
Recent Developments
COVID-19
We have monitored the impact of the COVID-19 pandemic on all aspects of our business and geographies,
including how it has and will continue to impact the Company’s customers, supply chain, employees and other
business partners. We experienced significant disruptions, in the first quarter of 2022 and in the years ended
2021 and 2020 from the COVID-19 pandemic. Although business conditions during the rest of 2022 were
largely not impacted by the COVID-19 pandemic, we are unable to predict whether the COVID-19 pandemic
may have a material impact on our financial condition, results of operations and cash flows in the future due to
numerous uncertainties. These uncertainties include the potential resurgence of COVID-19 due to new variants
or otherwise, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect
economic effects of the pandemic, vaccination rates and containment measures, among others. The outbreak
of COVID-19 in many countries, including the United States, has significantly adversely impacted global
economic activity.
The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in
collaboration with business partners and assessing potential impacts to our financial position and operating
results, as well as potential adverse developments in our business. For further information, refer to “Risk
Factors” in “Item 1A” of this Annual Report on Form 10-K.
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Components of Our Results of Operations
Revenues
To date, we have generated revenues primarily from the capital portion of our business and related sales and
rentals of the NeuroStar Advanced Therapy System and the recurring revenues from our sale of treatment
sessions in the United States.
NeuroStar Advanced Therapy System Revenues. NeuroStar Advanced Therapy System revenues consist
primarily of sales or rentals of a capital component, including upgrades to the equipment attributable to the
initial sale of the system. NeuroStar Advanced Therapy Systems can be purchased outright or on a rent-to-own
basis by certain customers.
Treatment Session Revenues. Treatment session revenues primarily include sales of NeuroStar Treatment
Sessions and SenStar treatment links. The NeuroStar Treatment Sessions are access codes that are delivered
electronically in the United States. The SenStar treatment links are disposable units containing single-use
access codes that are sold and used outside the United States. Access codes are purchased separately by our
customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in
order to deliver treatment sessions.
Other Revenues. Other revenues are derived primarily from service and repair extended warranty contracts
with our existing customers.
We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition”
appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account
for revenues.
Sales in the United States represented 97% of our total revenues for the years ending December 31, 2022 and
2021, respectively, and have been generated by our direct sales force. Outside the United States, our sales are
made through local third-party distributors. International revenues were 3% for the years ended December 31,
2022 and 2021, respectively. We expect that both our United States and international revenues will increase in
the near term as we continue to expand active customer sites utilizing our NeuroStar Advanced Therapy
Systems and increase the related patient utilization in the United States, as well as grow our presence in Japan.
We expect our revenues to be positively impacted to the extent our direct sales force is successful in increasing
the rate of adoption and utilization of treatment with TMS Therapy as an alternative to other MDD treatments.
Cost of Revenues and Gross Margin
Cost of revenues primarily consists of the costs of components and products purchased from our third-party
contract manufacturers of our NeuroStar Advanced Therapy Systems as well as the cost of treatment packs for
individual treatment sessions. We use third-party contract manufacturing partners to produce the components
for and assemble the completed NeuroStar Advanced Therapy Systems. Cost of revenues also includes costs
related to personnel, royalties, warranty, shipping, and our operations and field service departments. We expect
our cost of revenues to increase to the extent our revenues grow.
Our gross profit is calculated by subtracting our cost of revenues from our revenues. We calculate our gross
margin as our gross profit divided by our revenues. Our gross margin has been and will continue to be affected
by a variety of factors, primarily product sales mix, pricing and third-party contract manufacturing costs. Our
gross margins on revenues from sales of NeuroStar Advanced Therapy Systems are lower than our gross
margins on revenues from sales of treatment sessions and, as a result, the sales mix between NeuroStar
Advanced Therapy Systems and treatment sessions can affect the gross margin in any reporting period.
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Sales and Marketing Expenses
Sales and marketing expenses consist of market research and commercial activities related to the sale of our
NeuroStar Advanced Therapy Systems and treatment sessions and salaries and related benefits, sales
commissions and share-based compensation for employees focused on these efforts. Other significant sales
and marketing costs include conferences and trade shows, promotional and marketing activities, including direct
and online marketing, practice support programs, television and radio media campaigns, travel and training
expenses.
We anticipate that our sales and marketing expenses will decrease in 2023 compared to 2022 expenses due in-
part to the termination of the one-time 2022 sales equity match incentive.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses, including salaries and related
benefits, share-based compensation and travel expenses, for employees in executive, finance, information
technology, legal and human resource functions. General and administrative expenses also include the cost of
insurance, outside legal fees, accounting and other consulting services, audit fees from our independent
registered public accounting firm, board of directors’ fees and other administrative costs, such as corporate
facility costs, including rent, utilities, depreciation and maintenance not otherwise included in cost of revenues.
We anticipate that our general and administrative expenses will remain materially consistent during 2023
compared to our 2022 expenses.
Research and Development Expenses
Research and development expenses consist primarily of personnel expenses, including salaries and related
benefits and share-based compensation for employees in clinical development, product development,
regulatory and quality assurance functions, as well as expenses associated with outsourced professional
scientific development services and costs of investigative sites and consultants that conduct our preclinical and
clinical development programs. We typically use our employee, consultant and infrastructure resources across
our research and development programs.
We plan to incur research and development expenses for the near future as we expect to continue our
development of TMS Therapy for the treatment of additional patient populations and new indications related to
neurohealth disorders, as well as for various hardware and software development projects. As a result, we
expect our research and development expenses to increase during 2023 compared to our 2022 expenses.
Interest Expense
Interest expense consists of cash interest payable under our credit facility and non-cash interest attributable to
the accrual of final payment fees and the amortization of deferred financing costs related to our indebtedness.
Other Income, Net
Other income, net consists primarily of interest income earned on our money market account balances and note
receivables.
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Results of Operations
Comparison of the Years ended December 31, 2022 and 2021
Years ended December 31,
2021
2022
Increase / (Decrease)
Dollars
Percentage
Revenues
Cost of revenues
Gross Profit
Gross Margin
Operating expenses:
Sales and marketing
General and administrative
Research and development
Total operating expenses
Loss from Operations
Other (income) expense:
Interest expense
Other income, net
Net Loss
$
$
United States
International
Total revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total U.S. revenues
(in thousands, except percentages)
$
$
65,206
15,483
49,723
55,312
11,653
43,659
9,894
3,830
6,064
76.3 %
78.9 %
49,982
25,516
9,336
84,834
(35,111)
4,251
(2,203)
(37,159)
$
37,746
25,554
7,923
71,223
(27,564)
4,019
(390)
(31,193)
$
12,236
(38)
1,413
13,611
(7,547)
232
(1,813)
(5,966)
18 %
33 %
14 %
32 %
(0)%
18 %
19 %
(27)%
6 %
(465)%
(19)%
Revenues by Geography
Years ended December 31,
2022
2021
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 63,406
1,800
$ 65,206
97 % $ 53,447
3 %
1,865
100 % $ 55,312
97 %
3 %
100 %
U.S. Revenues by Product Category
Years ended December 31,
2022
2021
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 16,575
45,077
1,754
$ 63,406
26 % $ 9,760
71 % 41,933
1,754
100 % $ 53,447
3 %
18 %
78 %
4 %
100 %
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NeuroStar Capital
Operating lease
Other
United States NeuroStar Advanced Therapy System
Revenues by Type
Years ended December 31,
2022
2021
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 15,792
95 % $ 8,820
222
561
2 %
3 %
279
661
90 %
3 %
7 %
Total United States NeuroStar Advanced Therapy System
revenues
16,575
100 % $ 9,760
100 %
Revenues
Total revenues increased by $9.9 million, or 18%, from $55.3 million for the year ended December 31, 2021 to
$65.2 million for the year ended December 31, 2022. For the period ended December 31, 2022, U.S. revenue
increased by 19% and international revenue marginally decreased by 3% over the comparative prior year
period. The U.S. revenue growth was primarily due to an increase in NeuroStar Advanced Therapy System
revenues.
Revenues in the United States increased by $10.0 million, or 19%, from $53.4 million for the year ended
December 31, 2021 to $63.4 million for the year ended December 31, 2022. NeuroStar Advanced Therapy
System revenue in the United States increased by $6.8 million, or 70%, for the year ended December 31, 2022
compared to the year ended December 31, 2021. The increase was primarily driven by a 79% increase in
NeuroStar Advanced Therapy System capital revenue, which includes capital sales and sales-type leases. The
increase in NeuroStar capital revenue was primarily driven by an increase of 84 units in NeuroStar Advanced
Therapy Systems sold from 129 units for the year ended December 31, 2021 to 213 units for the year ended
December 31, 2022. The Company expects to recognize future recurring treatment session revenue related to
the sale of 213 NeuroStar Advanced Therapy systems, for the year ended December 31, 2022 compared to
147 units including 18 units recognized as operating leases for the December 31, 2021 period.
Treatment sessions revenues represented 71% and 78% of total revenues in the United States for the years
ended December 31, 2022 and 2021, respectively, and increased by 7% from $41.9 million for the year ended
December 31, 2021 to $45.1 million for the year ended December 31, 2022. The increase in U.S. treatment
session revenue was primarily the result of an increase in 50,608 treatment sessions sold from 521,979 units
for the year ended December 31, 2021 to 572,587 for the year ended December 31, 2022. We believe the
increase in overall volume of treatment session revenue between these two periods was primarily due to the
growth in active customer sites of 142 from 959 as of December 31, 2021 to 1,101 as of December 31, 2022.
Due to the time it takes for the customer sites to become fully operational, treatment session revenue will lag in
the growth of our active customer sites.
Cost of Revenues and Gross Margin
Future Issuance
Cost of revenues increased by $3.8 million, or 33%, from $11.7 million for the year ended December 31, 2021
to $15.5 million for the year ended December 31, 2022. Gross margin was 76.3% for the year ended
December 31, 2022 compared to 78.9% for the year ended December 31, 2021. The decrease in gross margin
was the result of a change in the product mix of revenue versus the prior year.
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Sales and Marketing Expenses
Sales and marketing expenses increased by $12.2 million, or 32%, from $37.7 million for the year ended
December 31, 2021 to $50.0 million for the year ended December 31, 2022. The change was primarily due to
an increase of $9.4 million in personnel costs related to salary, share-based compensation, bonus,
commissions (this includes a one-time commission retention benefit of $3.7 million), and payroll taxes. $0.7
million in marketing related to a new campaign launch and focus on in person customer sales summits, and
$0.9 million related to the opening of Charlotte facility for NeuroStar University and other sales training
programs. Travel expense increased by $0.9 million driven by inflation and additional head count.
General and Administrative Expenses
General and administrative expenses remained relatively consistent at $25.5 million for the year ended
December 31, 2022 compared with $25.6 million for the year ended December 31, 2021.
Research and Development Expenses
Research and development expenses increased by $1.4 million, or 18%, from $7.9 million for the year ended
December 31, 2021 to $9.3 million for the year ended December 31, 2022. The change was primarily due to an
increase of $0.9 million in personnel costs related to salary and share-based compensation expense due to an
increase in headcount, $0.3 million increase in professional fees related to consulting expense as the Company
continued to incur research and development costs to pursue additional indications and NeuroStar Advanced
Therapy System upgrades.
Interest Expense
Interest expense increased by $0.2 million, or 6%, from $4.0 million for the year ended December 31, 2021 to
$4.2 million for the year ended December 31, 2022.
Other Income, Net
Other income, net increased by $1.8 million from $0.4 million for the year ended December 31, 2021 to $2.2
million for the year ended December 31, 2022, primarily as a result of increased interest income earned on the
Company’s money market accounts and note receivables.
Comparison of the Years ended December 31, 2021 and 2020
The information required within this section is incorporated by reference to the information set forth in the
section titled “Comparison of the Years ended December 31, 2021 and 2020” in “Management’s Discussion and
Analysis of our Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K filed on
March 8, 2022.
Liquidity and Capital Resources
Overview
As of December 31, 2022, we had cash and cash equivalents of $70.3 million and an accumulated deficit of
$345.9 million, compared to cash and cash equivalents of $94.1 million and an accumulated deficit of $308.7
million as of December 31, 2021. We incurred negative cash flows from operating activities of $30.7 million and
$28.0 million for the years ended December 31, 2022 and 2021, respectively. 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 expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in
additional research and development activities and utilize cash for other corporate purposes.
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Our primary sources of capital to date have been from our IPO, private placements of our convertible preferred
securities, borrowings under our credit facility, sales of our products and a secondary public offering of our
common stock. As of December 31, 2022, we had $35.0 million of borrowings outstanding under our credit
facility, which has a final maturity in February 2025. Management believes that the Company’s cash and cash
equivalents as of December 31, 2022 and anticipated revenues from sales of its products are sufficient to fund
the Company’s operations for at least 12 months from the issuance of these financial statements.
If our cash and cash equivalents and anticipated revenues from sales or our products are insufficient to satisfy
our liquidity requirements, we may seek to sell additional common or preferred equity or debt securities or enter
into a new credit facility or another form of third-party funding or seek other debt financing. 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. 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. It is also possible that we may allocate significant amounts of
capital towards products or technologies for which market demand is lower than expected and, as a result,
abandon such efforts. If we are unable to maintain our current financing or obtain adequate additional financing
when we require it, or if we obtain financing on terms which are not favorable to us, or if we expend capital on
products or technologies that are unsuccessful, our ability to continue to support our business growth and to
respond to business challenges could be significantly limited, or we may be required to delay the development,
commercialization and marketing of our products.
Our current and future funding requirements will depend on many factors, including:
● the impact of COVID-19 and related governmental responses;
● our ability to achieve revenue growth and improve operating margins;
● compliance with the terms and conditions, including covenants, set forth in our credit facility;
● the cost of expanding our operations and offerings, including our sales and marketing efforts;
● our ability to improve or maintain coverage and reimbursement arrangements with domestic third-party
and government payors, particularly in Japan;
● our rate of progress in establishing coverage and reimbursement arrangements from international
commercial third-party and government payors;
● our rate of progress in, and cost of the sales and marketing activities associated with, establishing
adoption of our products and maintaining or improving our sales to our current customers;
● the cost of research and development activities, including research and development relating to
additional indications of neurohealth disorders;
● the effect of competing technological and market developments;
● costs related to international expansion; and
● the potential cost of and delays in product development as a result of any regulatory oversight
applicable to our products.
The Company’s material cash requirements include the following contractual and other obligations.
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Debt
As of December 31, 2022, the Company had $35.0 million of borrowings outstanding under the Solar credit
facility, which has a final maturity in February 2025 (“maturity”). The interest rate on borrowings under the credit
facility is variable and resets monthly. Prior to the Company commencing principal payments on the facility in
March 2023 with total borrowings of $35.0 million coming due in monthly installments, the Company and Solar
agreed to delay the first principal payment while negotiating a refinanced credit facility. Under the current facility,
the Company will be required to make a final payment fee of $1.9 million at maturity. Future interest payments
related to the current facility total $5.4 million, including $3.7 million due within the next twelve months as of
December 31, 2022.
Leases
The Company has lease arrangements for equipment and certain facilities, including corporate headquarters
and our warehouse in Malvern, Pennsylvania and a training facility in Charlotte, North Carolina. As of December
31, 2022, the Company had fixed lease payment obligations of $4.5 million, including $0.9 million due within the
next twelve months.
Cash Flows
The following table sets forth a summary of our cash flows for the years ended December 31, 2022, 2021, and
2020:
2022
December 31,
2021
2020
Net Cash Used in Operating Activities
Net Cash Provided by (Used in) Investing Activities
Net Cash Provided by Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
$ (30,739)
6,731
207
$ (23,801)
$ (27,983)
(9,839)
83,006
45,184
$
$
$
(28,390)
(730)
2,369
(26,751)
Net Cash Used in Operating Activities
Net cash used in operating activities for 2022 was $30.7 million, consisting primarily of a net loss of $37.2
million and an increase in net operating assets of $4.8 million, partially offset by non-cash charges of $11.2
million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory
and prepaid commission expense, which were offset by increases in accrued expenses as a result of timing and
accrued 2022 compensation and commissions as of December 31, 2022. Non-cash charges consisted of
depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental
units purchased by customers.
Net cash used in operating activities for 2021 was $28.0 million, consisting primarily of a net loss of $31.2
million and an increase in net operating assets of $6.6 million, partially offset by non-cash charges of $9.8
million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory
and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses
as a result of timing and accrued 2021 compensation and commissions as of December 31, 2021. Non-cash
charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation,
and the cost of rental units purchased by customers.
Net cash used in operating activities for 2020 was $28.4 million, consisting primarily of a net loss of $27.5
million and an increase in net operating assets of $8.3 million, partially offset by non-cash charges of $7.3
million. The increase in net operating assets was primarily due to an increase in net investment in sales-type
leases and prepaid commission expense, which were offset by a decrease in accrued expense due to timing
and the 2020 payments of 2019 incentive compensation and commission accrued as of December 31, 2019.
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Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based
compensation, and the cost of rental units purchased by customers, and the loss on debt extinguishment.
Net Cash Provided by (Used in) Investing Activities
Net cash provided by (used in) investing activities for the year ended December 31, 2022, 2021 and 2020 was
$6.7 million, $(9.8) million and $(0.7) million, respectively. Net cash provided by investing activities for the year
ended December 31, 2022 was due to the repayment of our promissory note offset partially by purchases of
property and equipment and capitalized software costs. Net cash used in investing activities for the year ended
December 31, 2021 was attributable to issuance of our promissory note and purchases of property and
equipment and capitalized software costs. Net cash used in investing activities for the year ended December
31, 2020 was attributable to purchases of property and equipment and capitalized software costs.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31 2022 was $0.2 million attributable
primarily to proceeds related to stock option exercises.
Net cash provided by financing activities for the year ended December 31, 2021 was $83.0 million and primarily
consisted of additional proceeds from our secondary public offering and sale of our common stock on February
2, 2021 and cash proceeds related to stock option exercises.
Net cash provided by financing activities for the year ended December 31, 2020 was $2.4 million and
attributable primarily to proceeds from the exercise of stock options.
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Indebtedness
Refer to “Note 12. Debt” in our audited financial statements and related notes thereto appearing elsewhere in
this Annual Report on Form 10-K for information regarding our current Solar credit facility and extinguished
Oxford credit facility.
Solar Credit Facility
The following table sets forth by year our required future principal payments under the term loan portion of the
Solar Facility (as discussed in “Note 12. Debt”) (in thousands):
Year:
2023
2024
2025
2026
2027
Total principal payments
Common Stock Offering
Principal
Payments
13,125
17,500
4,375
—
—
35,000
$
$
On February 2, 2021, we closed a secondary public offering of our common stock in which we issued and sold
5,566,000 shares of our common stock, which included shares pursuant to an option granted to underwriters to
purchase additional shares, at a public offering price of $15.50 per share. We received net proceeds of
approximately $80.6 million after deducting underwriting discounts, commissions and estimated offering
expenses. The Company intends to use the net proceeds of the offering for general corporate purposes,
including working capital, research and development, marketing and evaluating new clinical indications.
Critical Accounting Policies and Use of Estimates
The preparation of our financial statements in accordance with accounting principles generally accepted in the
United States, or GAAP, and the rules and regulations of the SEC requires us to make estimates and
assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. We base our estimates and
assumptions on historical experience, known trends and events and various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Although we believe our
estimates and assumptions are reasonable when made, they are based upon information available to us at the
time they are made. We evaluate our estimates and assumptions on an ongoing basis and, if necessary, make
adjustments. Due to the risks and uncertainties involved in our business and evolving market conditions and
given the subjective element of the estimates and assumptions made, actual results may differ from estimated
results.
We define our critical accounting policies as those accounting policies that are most important to the portrayal of
our financial condition and results of operations and require our most difficult and subjective judgments. While
our significant accounting policies are more fully described in “Note 3. Summary of Significant Accounting
Policies” in our audited financial statements and related notes thereto appearing elsewhere in this Annual
Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies.
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Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from
Contracts with Customers. Under ASC 606, we recognize revenue when control of the promised good or
service is transferred to our customers in an amount that reflects the consideration to which we expect to be
entitled in exchange for those good or services. Accordingly, we determine revenue recognition by applying the
following steps:
● identification of the contract, or contracts, with a customer;
● identification of the performance obligations in the contract;
● determination of the transaction price;
● allocation of the transaction price to the performance obligations in the contract; and
● recognition of revenue when, or as, we satisfy a performance obligation.
We primarily earn revenues from the sale of NeuroStar Advanced Therapy Systems, consumable use treatment
sessions, and accessory products. A contract’s transaction price is allocated to each performance obligation
and recognized as revenue when, or as, the performance obligation is satisfied, which generally is the point in
time when the product is shipped or control is transferred. We sell to end users in the United States and to third-
party distributors outside the United States and do not provide return rights. Sales to distributors outside the
United States are made in U.S. dollars.
Revenue attributable to the NeuroStar Advanced Therapy Systems purchased on a rent-to-own basis are
accounted for either (1) as operating leases and revenue is recognized on a straight-line basis over the term of
the lease; or (2) as a sales-type lease and revenue is recognized upon installation.
Our NeuroStar Advanced Therapy System sales in the United States typically have a post-sale training
obligation. This obligation is fulfilled after product shipment, and we defer recognizing revenue until training
occurs. We defer the fair value attributable to the post shipment training and recognize such revenue when the
obligation is fulfilled. We base the fair value of the training using stand-alone service rates. Our sales to our
third-party distributors outside the United States do not have these post-sale obligations.
In addition, we provide a one year warranty for systems sold in the United States. Terms of product warranty
differ amongst our third-party distributors outside the United States, but are generally one year. We provide for
the estimated cost to repair or replace products under any warranty at the time of sale. We also offer our
customers in the United States annual service contracts. Revenue from the sale of annual service contracts is
recognized on a straight-line basis over the period of the applicable contract. We also earn revenue from
customers from services outside of their warranty term or annual service contracts. Such service revenue is
recognized as the services are provided.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the JOBS Act, and are eligible to take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company can
take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933,
(the “Securities Act”), for complying with new or revised accounting standards issued subsequent to the
enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the
JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is
irrevocable. We have elected to avail ourselves of this exemption from complying with new or revised
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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.
Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and
reduced reporting requirements under the JOBS Act, including without limitation (i) providing an auditor’s
attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements, known as the auditor discussion
and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year
in which we have total annual gross revenue of $1.07 billion or more; (b) the last day of the fiscal year following
the fifth anniversary of the date of the completion of our IPO; (c) the date on which we have issued more than
$1.0 billion in nonconvertible debt during the previous six years; or (d) the date on which we are deemed to be a
large accelerated filer under the rules of the SEC.
Recent Accounting Pronouncements
We refer you to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related
notes thereto included elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our cash is held on deposit in demand accounts at a large financial institution in amounts in excess of the
Federal Deposit Insurance Corporation, (“FDIC”), insurance coverage limit of $250,000 per depositor, per FDIC-
insured bank, per ownership category. We have reviewed the financial statements of this institution and believe
it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no
credit risk to us.
Financial instruments that potentially subject us to concentrations of credit risk principally consist of cash
equivalents and accounts receivable. We limit our credit risk associated with cash equivalents by placing
investments in highly-rated money market funds. We limit our credit risk with respect to accounts receivable by
performing credit evaluations when deemed necessary, but we do not require collateral to secure amounts
owed to us by our customers.
As discussed in “Note 12. Debt” in our audited financial statements and related notes thereto appearing
elsewhere in of this Annual Report on Form 10-K, our credit facility bears interest at 7.65% plus the greater of
(a) 1.66% or (b) the rate per annum rate published by the Intercontinental Exchange Benchmark
Administration Ltd. As a result, we are exposed to risks from changes in interest rates. We believe that a one-
point increase in interest rates would result in an approximate $0.4 million increase to our interest expense for
the year ended December 31, 2022.
Inflationary factors, such as increases in our cost of revenues and operating expenses, may adversely affect
our operating results. Although we do not believe inflation has had a material impact on our financial condition,
results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on
our ability to maintain and increase our gross margin or decrease our operating expenses as a percentage of
our revenues if our selling prices of our products do not increase as much or more than our costs increase.
We do not currently have any exposure to foreign currency fluctuations and do not engage in any hedging
activities as part of our normal course of business.
77
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Item 8. Financial Statements and Supplementary Data.
The financial statements listed in the Index to Financial Statements beginning on page F-1 are filed as part of
this Annual Report on Form 10-K and incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-
15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and
our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
December 31, 2022 at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles, and
includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets
that could have a material effect on the financial statements.
Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are achieved. Further, the design of a control system must be balanced against
resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the
inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all
control issues and instances of fraud, if any, within a company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty and that breakdowns can occur because of
a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of
controls is also based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions or the degree of compliance with
policies or procedures may deteriorate. Accordingly, given the inherent
78
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limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud
may occur and may not be detected. Our disclosure controls and procedures are designed to provide
reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations of our
systems of controls to enhance, where necessary, our control policies and procedures.
Management is responsible for establishing and maintaining adequate internal control over our financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.
Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework
(2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of our internal control over financial reporting. Based on its evaluation, management has
concluded that our internal control over financial reporting was effective as of December 31, 2022 at the
reasonable assurance level.
This Annual Report on Form 10-K does not include an attestation report of internal control over financial
reporting from our independent registered public accounting firm due to our status as an emerging growth
company under the JOBS Act.
Changes in Internal Control over Financial Reporting
During the fourth quarter ended December 31, 2022, there were no changes in our internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item will be included in the information set forth in the sections titled “Proposal
1 - Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance” and
“Executive Officers of the Company” contained in “Delinquent Section 16(a) Reports” in our 2023 Proxy
Statement.
Item 11. Executive Compensation.
The information required by this item will be included in information set forth in the section titled “Executive
Compensation” in our 2023 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this item will be included in information set forth in the section titled “Security
Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” in our 2023 Proxy
Statement.
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included in information set forth in the section titled “Transactions
with Related Persons” and “Information regarding the Board of Directors and Corporate Governance” in our
2023 Proxy Statement.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be included in information set forth in the section titled “Principal
Accountant Fees and Services” contained in “Proposal 2 – Ratification of Selection of Independent Registered
Public Accounting Firm” in our 2023 Proxy Statement.
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
PART IV
The financial statements listed in the Index to Financial Statements beginning on page F-1 are filed as part of
this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are not required or because the required information is given in
the Financial Statements or Notes listed in the Index to Financial Statements beginning on page F-1.
(b) Exhibits
The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual
Report.
Exhibit
Number
3.1
3.2
3.3
3.5
4.1
4.2
Exhibit Index
Description of Exhibit
Ninth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 to the Form 8-K filed July 6, 2018)
Certificate of Amendment to the Registrant’s Ninth Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Form 8-K filed May 30, 2019)
Fourth Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to
the Form 8-K filed December 29, 2022)
Certificate of Elimination of Series A Junior Participating Preferred Stock of the Registrant
(incorporated by reference to Exhibit 3.1 to the Form 8-K filed April 9, 2021)
Specimen Stock Certificate evidencing shares of common stock of the Registrant (incorporated by
reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-225307))
Form of Warrant to Purchase Stock, by and between the Registrant and Oxford Finance LLC
(incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 (File No. 333-
225307))
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4.3
4.4
10.1◊
10.2◊
10.3
10.4
10.5
10.6
10.7
10.8
10.9+
Warrant to Purchase Stock, by and between the Registrant and Comerica Bank, dated December 20,
2012 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 (File No.
333-225307))
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934 (incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report on
Form 10-K filed on March 3, 2020)
Distribution Agreement, by and between the Registrant and Teijin Pharma Limited, dated October 12,
2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-
1 (File No. 333-225307))
Amendment No. 1 to Distribution Agreement, by and between the Registrant and Teijin Pharma
Limited, dated May 31, 2019 (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed August
6, 2019)
Sixth Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of
its stockholders, dated June 1, 2017 (incorporated by reference to Exhibit 10.2 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
Sixth Amended and Restated Stockholders’ Agreement by and among the Registrant and certain of its
stockholders, dated June 1, 2017 (incorporated by reference to Exhibit 10.3 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
Form of Indemnification Agreement between the Registrant and its non-employee directors and
officers (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-225307))
Loan and Security Agreement by and between Solar Capital Ltd., the lenders identified therein and the
Registrant, dated March 2, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on March 3, 2020)
Second Amendment to Loan and Security Agreement, by and among Solar Capital Ltd., as collateral
agent, the lenders listed on the signature pages thereto, and the Registrant, dated December 2, 2020
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
December 8, 2020)
Third Amendment to Loan and Security Agreement, by and among SLR Investment Corp. (formerly
known as Solar Capital Ltd.), as collateral agent, the lenders listed on the signature pages thereto, and
the Registrant, dated February 15, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed on February 22, 2022)
Amended and Restated 2003 Stock Incentive Plan of the Registrant, as amended (incorporated by
reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
225307))
10.10+ 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-38546) filed on November 6, 2018)
10.11+ 2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.11 to the Registrant’s
10.12
Quarterly Report on Form 10-Q (File No. 001-38546) filed on November 6, 2018)
Lease Agreement by and between Exeter 3222 Phoenixville, L.P., and the Registrant, dated January
3, 2013 (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (File
No. 333-225307))
10.13+ Form of Non-Qualified Stock Option Agreement for the Amended and Restated 2003 Stock Incentive
Plan, as amended, of the Registrant (incorporated by reference to Exhibit 10.13 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
10.14+ Form of Incentive Stock Option Agreement for the Amended and Restated 2003 Stock Incentive Plan,
as amended, of the Registrant (incorporated by reference to Exhibit 10.14 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
10.15+ Forms of Grant Notice, Stock Option Agreement and Notice of Exercise under the 2018 Equity
Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-225307))
10.16+ Forms of Restricted Stock Unit Grant Notice and Award Agreement under the 2018 Equity Incentive
Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-
1 (File No. 333-225307))
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Table of Contents
10.17+ Form of Severance Agreement (incorporated by reference to Exhibit 10.17 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
10.18+ Form of Restrictive Covenant and Invention Assignment Agreement (incorporated by reference to
Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No. 333-225307))
Non-Employee Director Compensation Policy
10.19
10.20+ Employment Offer Letter Agreement between the Registrant and Stephen Furlong dated July 1, 2019
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed July 2, 2019)
10.21+ Employment Agreement, dated July 14, 2020, by and between the Registrant and Keith J. Sullivan,
dated July 14, 2020, (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
on July 17, 2020)
10.22+ Form of Neuronetics, Inc. Performance Restricted Stock Unit Grant Notice and Award Agreement
under Nasdaq Listing RuIe 5635(c)(4) (incorporated by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.23+ Form of Neuronetics, Inc. Performance Restricted Stock Unit Grant Notice and Award Agreement
under the 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.24+ Form of Neuronetics, Inc. Restricted Stock Unit Grant Notice and Award Agreement under Nasdaq
Listing Rule 5635(c)(4) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report
on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.25+ Form of Neuronetics, Inc. Stock Option Grant Notice and Agreement (Nonstatutory Stock Option)
under Nasdaq Listing Rule 5635(c)(4) (incorporated by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.26+ Performance Restricted Stock Unit Grant Notice and Award Agreement, dated July 14, 2020, by and
between the Registrant and Keith J. Sullivan (incorporated by reference to Exhibit 10.6 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
Restricted Stock Unit Grant Notice and Award Agreement, dated July 14, 2020, by and between the
Registrant and Keith J. Sullivan (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.27+ Stock Option Grant Notice and Agreement (Nonstatutory Stock Option), dated July 14, 2020, by and
between the Registrant and Keith J. Sullivan (incorporated by reference to Exhibit 10.8 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.28+ Restricted Stock Unit Grant Notice and Award Agreement, dated October 5, 2020, by and between the
Registrant and Sara Grubbs (incorporated by reference to Exhibit 10.4 to the Registration Statement
on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.29+ Neuronetics, Inc. 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.30+ Form of Neuronetics, Inc. Performance Restricted Stock Unit Grant Notice and Award Agreement
under the 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.31+ Form of Neuronetics, Inc. Restricted Stock Unit Grant Notice and Award Agreement under the 2020
Inducement Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-8 (File No. 333-252233) filed January 19, 2020)
10.32+ Form of Neuronetics, Inc. Stock Option Grant Notice and Agreement (Nonstatutory Stock Option)
under the 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.33+ Secured Promissory Note, by and between Check Five LLC d/b/a Success TMS and the Registrant,
dated September 29, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed October 5,
2021)
Secured Promissory Note, by and between Check Five LLC d/b/a Success TMS and the Registrant,
dated September 29, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed October 5,
2021)
Subordination Agreement, by and between ZW Partners, LLC and the Registrant, dated April 29, 2022
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed May 5, 2022)
Consent of KPMG LLP, independent registered public accounting firm
10.34
10.35
23.1*
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Table of Contents
31.1*
31.2*
32.1*
101*
104*
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-
14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. section 1350.
The following materials from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, were formatted in Inline XBRL (Extensible Business Reporting Language): (i)
Balance Sheets, (ii) Statements of Operations, (iii) Statements of Changes in Stockholders’ Equity, (iv)
Statements of Cash Flows, and (v) Notes to Financial Statements. The instance document does not
appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed herewith
+ Indicates management contract or compensatory plan.
◊ Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential
treatment and have been separately filed with the Securities and Exchange Commission.
Item 16. Form 10-K Summary
Not applicable.
83
Table of Contents
NEURONETICS, INC.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185)
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Neuronetics, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Neuronetics, Inc. (the Company) as of December 31,
2022 and 2021, the related statements of operations, changes in stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally
accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2003.
Philadelphia, Pennsylvania
March 7, 2023
F-2
Table of Contents
NEURONETICS, INC.
Balance Sheets
(In thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory
Current portion of net investments in sales-type leases
Current portion of prepaid commission expense
Current portion of note receivables
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Net investments in sales-type leases
Prepaid commission expense
Long-term note receivable
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Current portion of operating lease liabilities
Current portion of long-term debt, net
Total current liabilities
Long-term debt, net
Deferred revenue
Operating lease liabilities
Total Liabilities
Commitments and contingencies (Note 18)
Stockholders’ Equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or
outstanding on December 31, 2022, and December 31, 2021
Common stock, $0.01 par value: 200,000 shares authorized; 27,268 and 26,395
shares issued and outstanding on December 31, 2022, and December 31, 2021,
respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders' Equity
Total Liabilities and Stockholders’ Equity
December 31,
2022
2021
$
70,340
13,591
8,899
1,538
1,997
230
2,174
98,769
1,991
3,327
1,222
7,568
362
3,645
$ 116,884
$
94,141
7,706
6,563
2,198
1,559
74
3,090
115,331
1,220
3,884
1,697
6,763
10,110
2,218
$ 141,223
$
$
2,433
14,837
1,980
824
13,125
33,199
22,829
829
2,967
59,824
—
4,299
8,233
2,501
670
—
15,703
35,335
1,471
3,539
56,048
—
—
—
273
402,679
(345,892)
57,060
$ 116,884
264
393,644
(308,733)
85,175
$ 141,223
The accompanying notes are an integral part of these financial statements.
F-3
Table of Contents
Revenues
Cost of revenues
Gross Profit
Operating expenses:
Sales and marketing
General and administrative
Research and development
Total operating expenses
Loss from operations
Other (income) expense:
Interest expense
Loss on extinguishment of debt
Other income, net
Net Loss
NEURONETICS, INC.
Statements of Operations
(In thousands, except per share data)
$
Years ended December 31,
2021
55,312 $
11,653
43,659
2022
65,206 $
15,483
49,723
2020
49,244
11,554
37,690
49,982
25,516
9,336
84,834
(35,111)
4,251
—
37,746
25,554
7,923
71,223
(27,564)
4,019
—
(2,203)
$ (37,159)
(1.38)
$
26,900
(390)
$ (31,193)
(1.22)
$
25,479
32,562
18,236
9,201
59,999
(22,309)
4,522
924
(302)
$ (27,453)
(1.46)
$
18,835
Net loss per share of common stock outstanding, basic and diluted
Weighted-average common shares outstanding, basic and diluted
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
NEURONETICS, INC.
Statements of Changes in Stockholders’ Equity
(In thousands)
Additional
Balance at December 31, 2019
Share-based awards and options exercises
Share-based compensation expense
Net loss
Balance at December 31, 2020
Share-based awards and options exercises
Issuance of common stock, net of issuance
costs of $401
Share-based compensation expense
Net loss
Balance at December 31, 2021
Share-based awards and options exercises
Share-based compensation expense
Net loss
Balance at December 31, 2022
Common Stock
$
18,645
469
Shares Amount
186
5
—
—
—
—
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
$ 297,753
685
4,404
$ (250,087) $
—
—
—
(27,453)
(277,540)
19,114
1,715
5,566
—
—
26,395
873
—
—
$
27,268
191
17
302,842
2,418
80,515
7,869
393,644
289
8,746
56
—
—
264
9
—
—
—
—
—
—
—
—
(31,193)
(308,733)
273
$ 402,679
—
(37,159)
$ (345,892) $
47,852
690
4,404
(27,453)
25,493
2,435
80,571
7,869
(31,193)
85,175
298
8,746
(37,159)
57,060
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
NEURONETICS, INC.
Statements of Cash Flows
(In thousands)
Years ended December 31,
2021
2020
2022
Cash Flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
$ (37,159)
$ (31,193)
$ (27,453)
Depreciation and amortization
Share-based compensation
Non-cash interest expense
Cost of rental units purchased by customers
Loss on extinguishment of debt
Changes in certain assets and liabilities:
Accounts receivable, net
Inventory
Net investments in sales-type leases
Leasehold reimbursement
Prepaid commission expense
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Deferred revenue
Net Cash Used in Operating Activities
Cash Flows from Investing Activities:
Purchases of property and equipment and capitalized software
Repayment (Issuance) of promissory note
Net Cash provided by (used in) Investing Activities
Cash Flows from Financing Activities:
Payments of debt issuance costs
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from exercises of stock options
Proceeds from the issuance of common stock
Payments of common stock offering issuance costs
Net Cash Provided by Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental disclosure of cash flow information:
Cash paid for interest
Transfer of inventory to property and equipment
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment and capitalized software in accounts
payable and accrued expenses
Reduction of accounts receivable in current and long-term note receivable
1,648
8,746
709
92
—
(6,317)
(2,587)
1,114
—
(1,243)
786
(1,968)
6,604
(1,164)
(30,739)
(3,269)
10,000
6,731
1,060
7,869
715
203
—
(3,054)
(3,444)
324
—
(1,926)
62
276
910
215
(27,983)
(2,353)
(7,486)
(9,839)
941
4,404
1,192
179
622
(597)
(945)
(1,609)
836
(1,928)
(641)
(1,085)
(1,733)
(573)
(28,390)
(730)
—
(730)
(91)
—
—
298
—
—
207
(23,801)
94,141
70,340
3,543
250
103
432
$
$
$
$
$
$
—
—
—
2,435
80,972
(401)
83,006
45,184
48,957
94,141
$
(821)
41,360
(38,860)
690
—
—
2,369
(26,751)
75,708
48,957
3,304
601
273
2,514
$
$
3,892
—
208
—
The accompanying notes are an integral part of these financial statements.
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1. DESCRIPTION OF BUSINESS
Neuronetics, Inc., or the Company, is a commercial stage medical technology company focused on designing,
developing and marketing products that improve the quality of life for patients who suffer from neurohealth
disorders. The Company’s first commercial product, the NeuroStar Advanced Therapy System, is a non-
invasive and non-systemic office-based treatment that uses transcranial magnetic stimulation, (“TMS”), to
create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific
areas of the brain associated with mood. The system was cleared in 2008 by the United States Food and Drug
Administration, (the “FDA”), to treat adult patients with major depressive disorder, (“MDD”), who have failed to
achieve satisfactory improvement from prior antidepressant medication in the current episode. The Company
intends to continue to pursue development of its NeuroStar Advanced Therapy System for additional
indications.
COVID-19
The Company is monitoring the impact of the COVID-19 pandemic on all aspects of its business and
geographies, including how it will impact the Company’s customers, supply chain, employees and other
business partners. While the Company experienced significant disruptions in the first quarter of 2022 and
through the end of December 2021, from the COVID-19 pandemic, it is unable to predict the full impact that the
COVID-19 pandemic may have on its financial condition, results of operations and cash flows due to numerous
uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to
contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and
containment measures, among others. The outbreak of COVID-19 in many countries, including the United
States, has significantly adversely impacted global economic activity and has contributed to significant volatility
and negative pressure in financial markets.
The Company applied for and received a $6.4 million loan in April 2020 under the Paycheck Protection Program
(the “PPP”) established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27,
2020. Due to questions concerning the eligibility of public companies similarly situated to the Company, on
May 7, 2020, the Company repaid the loan in full, including interest accrued to date.
Liquidity
As of December 31, 2022, the Company had cash and cash equivalents of $70.3 million and an accumulated
deficit of $345.9 million. The Company incurred negative cash flows from operating activities of $30.7 million,
$28.0 million and $28.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. The
Company has incurred operating losses since its inception, and management anticipates that its operating
losses will continue in the near term as the Company seeks to expand its sales and marketing initiatives to
support its growth into existing and new markets and invest in additional research and development activities.
The Company’s primary sources of capital to date have been from its initial public offering, private placements
of its convertible preferred securities, borrowings under its credit facility, proceeds from its secondary public
offering of common stock, and revenues from sales of its products. As of December 31, 2022, the Company
had $35.0 million of borrowings outstanding under its credit facility, which matures in February 2025.
Management believes that the Company’s cash and cash equivalents as of December 31, 2022 and anticipated
revenues from sales of our products are sufficient to fund the Company’s operations for at least the next
12 months from the issuance of these financial statements.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with United States generally
accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer
to GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Updates
(“ASUs”), promulgated by the Financial Accounting Standards Board (“FASB”).
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Use of Estimates
The preparation of financial statements in accordance with GAAP and the rules and regulations of the United
States Securities and Exchange Commission (“SEC”), requires the use of estimates and assumptions, based
on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The Company bases its estimates and assumptions on historical
experience, known trends and events and various other factors that management believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Although management believes its
estimates and assumptions are reasonable when made, they are based upon information available at the time
they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary,
makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market
conditions and given the subjective element of the estimates and assumptions made, actual results may differ
from estimated results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less
to be cash equivalents. As of December 31, 2022 and 2021, cash equivalents consisted of money market
funds.
Concentrations of Credit Risk
The Company’s cash is held on deposit in demand accounts at a large financial institution in amounts in excess
of the Federal Deposit Insurance Corporation (“FDIC”), insurance coverage limit of $250,000 per depositor, per
FDIC-insured bank, per ownership category.
Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of
cash equivalents and accounts receivable. The Company limits its credit risk associated with cash equivalents
by placing investments in highly-rated money market funds. The Company limits its credit risk with respect to
accounts receivable by performing credit evaluations when deemed necessary, but it does not require collateral
to secure amounts owed by its customers.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from amounts deemed
to be uncollectible from its customers. These allowances are for specific amounts on certain customer accounts
based on facts and circumstances determined on a case-by-case basis.
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases. (“Topic 842”). The Company
determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the
customer the right to control the use of identified property, plant, or equipment for a period of time in exchange
for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the
contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the
right to control the use of the identified asset.
The Company leases warehouse, office space, a training facility and office equipment pursuant to net operating
leases. Operating leases where the Company is the lessor are included in revenue on the Statements of
Operations.
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From time to time the Company enters into sales-type lease arrangements that include a lessee obligation to
purchase the leased equipment at the end of the lease term, automatic transfer of ownership of the leased
equipment at the end of the lease, a lessee purchase option reasonably certain to be exercised, or provides for
minimum lease payments with a present value equal to or exceeding substantially all of the fair value of the
underlying leased equipment at the date of lease inception. Sales-type leases where the Company is the lessor
are included in revenue on the Statements of Operations.
Operating leases where the Company is the lessee are included in operating lease right-of-use assets and
operating lease liabilities on the Balance Sheets. The lease liabilities are initially measured at the present value
of the unpaid lease payments at the lease commencement date.
The Company uses the following inputs in its lease calculations under Topic 842: (1) the discount rate the
Company uses to discount the unpaid lease payments to present value, (2) lease term, and (3) lease payments.
(1) Topic 842 requires a lessor to discount its unpaid lease payments using the interest rate implicit in the
lease and a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or,
if that rate cannot be readily determined, its incremental borrowing rate. As most leases where the
Company is the lessee do not provide an implicit rate, the Company uses the incremental borrowing
rate based on the information available at commencement date in determining the present value of
lease payments. The incremental borrowing rate for a lease is the rate of interest the Company would
have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar
terms. The Company uses the implicit rate when readily determinable.
(2) The lease term for all leases includes the noncancelable period of the lease plus any additional periods
covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably
certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
(3) Lease payments included in the measurement of the lease asset or liability comprise the following:
fixed payments (including in-substance fixed payments), and the exercise price of a lessee option to
purchase the underlying asset if the lessee is reasonably certain to exercise.
For operating leases where the Company is the lessor, the Company continues recognizing the underlying
asset and depreciating it over its estimated useful life. Lease income from lessees is recognized on a straight-
line basis over the terms of the relevant lease agreement in revenue. Operating leases for equipment with fixed
rentals and step rentals are recognized on a straight-line basis over the term of the lease, assuming no
renewals, in revenue. Revenue is not recognized when collection is not reasonably assured. When collectability
is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash
payments are received.
The lease asset for sales-type leases is initially measured as the total net investment in the lease, which
comprises the initial amount of the lease receivable plus the deferred initial direct costs.
The lease asset for sales-type leases is subsequently measured throughout the lease term at the carrying
amount of the net investment in the lease which is increased by interest income and reduced by lease
payments collected. The lease payments are segregated into principal and interest components similar to a
loan. Equipment leasing revenues are recognized on an effective interest method over the lease term. The
principal component of the lease payment is reflected as a reduction to the net investment in the lease.
For operating leases where the Company is the lessee, the right-of-use (“ROU”), asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the
lease commencement date, plus any initial direct costs incurred less any lease incentives received. The ROU
asset is subsequently measured throughout the lease term at the carrying amount of the lease liability,
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plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of
lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the
lease term.
Lease assets for sales-type leases where the Company is the lessor and ROU assets for operating leases
where the Company is the lessee are periodically reduced by impairment losses. The Company uses the loans
impairment guidance in ASC Subtopic 330-10, Receivables, and the long-lived assets impairment guidance in
ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether a lease asset or a ROU
asset, respectively, is impaired, and if so, the amount of the impairment loss to recognize. For the years ended
December 31, 2022, and 2020 the Company did not recognize any impairment losses. The Company
recognized $0.1 million in impairment losses which is included within Sales and marketing expense on the
statement of operations for the year ended December 31, 2021.
The Company monitors for events or changes in circumstances that require a reassessment of its leases. When
a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the
carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the
ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a
negative ROU asset balance is recorded in profit or loss.
The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a
lease term of 12 months or less. The Company recognizes the lease payments associated with the short-term
leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with
these leases are recognized and presented in the same manner as for all other leases. The Company has
elected to exclude sales and other similar taxes from lease payments in arrangements where the Company is a
lessor.
Inventory
Inventory is stated at the lower of cost and net realizable value, with cost being determined on a first in, first out
basis. The Company’s inventory is primarily comprised of finished goods.
Property and Equipment and Capitalized Software
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and
costs of improvements and renewals are capitalized. Depreciation and amortization are recognized using the
straight-line method based on the estimated useful lives of the related assets. The Company uses an estimated
useful life of three years for computers and software, five years for laboratory and office equipment, six years
for devices in the rental agreement program and the lesser of five years or the remaining life of the underlying
facility lease for leasehold improvements.
Software development costs relating to assets to be sold in the normal course of business are included in
research and development and are expensed as incurred until technological feasibility is established. After
technological feasibility is established, software development costs are capitalized. The Company uses an
estimated useful life of two years for capitalized software and amortizes these costs beginning at the product
release.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are tested for impairment when events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable. Impairment testing requires
management to estimate the future net undiscounted cash flows of an asset using assumptions believed to be
reasonable. Actual cash flows may differ from the estimates used in the impairment testing. If such assets are
considered to be impaired, the Company recognizes an impairment loss when and to the
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extent that the estimated fair value of an asset is less than its carrying value. The Company has not recorded
any impairment of its long-lived assets for the years ended December 31, 2022, 2021 and 2020.
Note Receivables
Note receivables are reported on the Company’s balance sheet at amortized cost basis. The Company
recognizes interest income within other income, net within the statements of operations.
Note receivables are periodically reviewed to determine whether a note receivable is impaired, and if so, the
amount of the impairment loss to recognize. For the year ended December 31, 2021, the Company recognized
$0.1 million in impairment charges which is included within “Sales and marketing expense” on the statements of
operations. For the year ended December 31, 2022 there were no impairment charges.
Deferred Debt Issuance Costs
The Company capitalizes direct costs incurred to obtain debt financing and amortizes these costs to interest
expense over the term of the debt using the effective interest method. These costs are recorded as a debt
discount and are netted against the related debt on the Company’s balance sheets.
Revenue Recognition
ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) is principles-based and provides a five-
step model to determine when and how revenue is recognized. The core principle is that an entity should
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services.
Sales and usage-based taxes are excluded from revenues.
Contract Formation
The Company accounts for a contract with a customer when there is a legally enforceable contract between the
Company and the customer, the rights of the parties are identified, the contract has commercial substance, and
collectability of the contract consideration is probable. For all sales, the Company uses either a signed
agreement or a binding purchase order as evidence of an arrangement.
Performance Obligations
The unit of account for Topic 606 is the performance obligation. A performance obligation is a promise in a
contract to transfer a distinct good or service to the customer or a series of distinct goods or services that are
substantially the same and have the same pattern of transfer. A contract’s transaction price is allocated to each
performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The
majority of the Company’s contracts are comprised of the following performance obligations:
(1) The NeuroStar TMS Therapy System (the “System”) which includes a chair, an electromagnet coil, a
monitoring console and accessories. The various components are inputs that function together to
deliver a combined output and together form one performance obligation (a NeuroStar Advanced
Therapy System). Revenues from the sale of the System are satisfied at the point-in-time when
shipped from our premises.
(2) NeuroStar Treatment Session (the “Treatment Session”) is a single use consumable that is delivered
via an encrypted activation code and is required in order for a clinician to perform TMS therapy.
Revenues from the sale of the Treatment Sessions are satisfied at the point-in-time when delivered to
the customer. The Company determined that sales of Treatment Sessions are not part of the
enforceable rights and obligations of the System sales, except when sold with System sales.
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(3) Separately priced extended warranties and when-and-if-available upgrade rights are considered
service-type warranties. Warranty services are considered stand-ready obligations satisfied over-time
and recognized using a straight-line time-based measurement toward completion.
(4) The System clinical and reimbursement training enable the clinician to provide patient treatment. The
trainings are not required in order to operate the System but are required in order to receive a
certification from the Company and accordingly are not essential to the functionality of other
performance obligations. Training services are recognized at a point-in-time when training is complete,
typically simultaneous to or near the time of delivery of the System.
In addition, the Company has determined that there are various perfunctory deliverables such as installation of
the System, the technical support hotline and marketing materials which the Company does not separately
recognize as revenue nor does the Company accrue the estimated cost of providing these goods and services
because they are not material. The Company provides a one-year warranty on all new System sales which
were determined to be assurance-type warranties and thus not considered a separate performance obligation.
The Company accrues the cost of providing these warranties.
There is no right of return or refund for any of the Company’s products or services and the Company has
elected to treat shipping and handling as a fulfillment activity and expenses the costs as incurred.
Rent-to-Own
The System is typically purchased but the Company does offer certain customers the option to lease instead.
The Company accounts for these leases under Topic 842, Leases. Under Topic 842 the leases are typically
accounted for as a sales-type lease which results in the derecognition of the underlying asset, the recognition of
profit or loss on the sale, and the recognition of an investment in sales-type lease. The investment is
periodically increased for interest earned and reduced as lease payments are received.
Distribution Agreement
The Company has an exclusive distribution agreement that began in October 2017 with a foreign entity for a
period of 7 ½ years with two 2 year renewal options. As consideration for the right to be the sole distributor of
the Company’s products and use of the Company’s intellectual property in the foreign territory, the distributor is
required to make certain fixed milestone payments upon contract execution and regulatory approval. In addition,
the distributor is required to make variable milestone payments depending upon regulatory reimbursement
rates. Furthermore, the distributor is required to make certain minimum purchases based upon sales history and
forecasts subject to a ceiling and floor. The Company assessed the potential performance obligations in this
contract and concluded that the contract contained the following performance obligations:
● Exclusive distribution and intellectual property license
● NeuroStar TMS Therapy System
● NeuroStar Treatment Session
The distribution agreement contains pricing for the Company’s products and services. The contractual purchase
prices were determined to be at the standalone selling prices based on the expected sales volumes of this
customer type and thus the Company concluded that this agreement did not contain a separate performance
obligation for the material right to discounted Systems and Treatments Sessions. The Company allocated the
transaction price through a combination of the cost plus a margin approach and the residual method. For the
System and Treatment Sessions the Company maximized the use of observable inputs by beginning with
average historical contractual selling prices and adjusting on a consistent and rational basis for pricing trends,
the customer type and expected sales volumes and the Company’s changing cost and
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margins. Since it was determined that the contractual selling prices for the Company’s products and services in
the distribution agreement were at the standalone selling prices, the residual consideration which is made up of
the fixed and variable milestone payments was allocated to the exclusive distribution and intellectual property
license. The exclusive distribution and intellectual property rights were determined to be symbolic IP and thus
recognized over time. The System and Treatment Sessions were determined to be performance obligations
recognized at a point-in-time when delivered to the distributor.
Contract Estimates
Accounting for the Company’s contracts involves the use of significant judgments and estimates including
determining the separate performance obligations, allocating the transaction price to the different performance
obligations and determining the method to measure the entity’s performance toward satisfaction of performance
obligations that most faithfully depicts when control is transferred to the customer. The Company allocates the
contract’s transaction price to each performance obligation using the Company’s best estimate of the
standalone selling price for each distinct good or service in the contract. The Company maximizes the use of
observable inputs by beginning with average historical contractual selling prices and adjusting as necessary
and on a consistent and rational basis for other inputs such as pricing trends, customer types, volumes and
changing cost and margins.
Contract Balances
Payment terms typically require payment upon shipment of the System and additional payments as access
codes are delivered, which can span several years after the System is first delivered and installed. The timing of
revenue recognition compared to billings and cash collections typically results in accounts receivable. However,
sometimes customer advances and deposits might be required for certain customers and are recorded as
contract liabilities. Changes in the contract asset and liability balances during the years ended December 31,
2022 and 2021 were not materially impacted by any other factors.
As of December 31, 2022, the Company expects to recognize approximately the following percentages of
deferred revenue by year:
Year:
2023
2024
2025
2026
2027
Thereafter
Total
Revenue
Recognition
67 %
25 %
8 %
— %
— %
— %
100 %
Revenue recognized for the years ended December 31, 2022 and 2021 that was included in the contract liability
balance at the beginning of the year was $2.5 million and $1.9 million, respectively, and primarily represented
revenue earned from separately priced extended warranties, rent-to-own revenue, milestone revenue, and
clinical training.
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Customers
Significant customers are those which represent more than 10% of the Company’s total revenue. For the years
ended December 31, 2022, 2021 and 2020, one customer accounted for 17%, 20% and 22% respectively, of
the Company’s revenue.
Accounts receivable outstanding related to the customer was $5.2 million and $2.5 million as of December 31,
2022 and 2021, respectively.
Geographical Information
The following geographic data includes revenue generated from the Company’s third-party distributors. The
Company’s revenue was generated in the following geographic regions and by product line for the periods
indicated (in thousands):
United States
International
Total revenues
Revenues by Geography
Year Ended December 31,
2022
2021
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 63,406
97 % $ 53,447
1,800
$ 65,206
3 %
1,865
100 % $ 55,312
97 %
3 %
100 %
U.S. Revenues by Product Category
Year Ended December 31,
2022
% of
Amount
Revenues Amount
2021
% of
Revenues
(in thousands, except percentages)
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total U.S. revenues
$ 16,575
45,077
1,754
$ 63,406
9,760
26 %$
71 % 41,933
1,754
100 %$ 53,447
3 %
18 %
78 %
4 %
100 %
International Revenues by Product Category
Year Ended December 31,
2022
2021
Amount
% of
Revenues
Amount
% of
Revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total International revenues
$
$
(in thousands, except percentages)
45 % $
20 %
35 %
100 % $
1,108
264
493
1,865
811
354
635
1,800
59 %
14 %
27 %
100 %
United States
International
Total revenues
Revenues by Geography
Year ended December 31,
2021
2020
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 53,447
1,865
$ 55,312
97 % $ 47,519
1,725
100 % $ 49,244
3 %
96 %
4 %
100 %
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NeuroStar Advanced Therapy System
Treatment sessions
Other
Total U.S. revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total International revenues
Research and Development Expenses
U.S. Revenues by Product Category
Year ended December 31,
2021
% of
2020
% of
Amount
Revenues
Amount
Revenues
(in thousands, except percentages)
$ 9,760
41,933
1,754
$ 53,447
18 % $ 11,094
78 % 34,852
1,573
100 % $ 47,519
4 %
23 %
73 %
4 %
100 %
International Revenues by Product Category
Year ended December 31,
2021
% of
Amount
Revenues Amount
2020
% of
Revenues
$ 1,108
(in thousands, except percentages)
856
59 % $
449
14 %
420
27 %
100 % $ 1,725
264
493
$ 1,865
50 %
26 %
24 %
100 %
Research and development activities are expensed as incurred. Costs incurred in obtaining technology licenses
are charged immediately to research and development expense if the technology licensed has not reached
technological feasibility and has no alternative future uses.
Share-based Compensation
The Company recognizes the grant-date fair value of share-based awards issued as compensation as expense
on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The
fair value of restricted stock awards and restricted stock units is estimated at the time of grant, based on the
grant date fair value of the Company’s common stock. The fair value of performance restricted stock units is
estimated at the time of grant and is determined using a risk neutral Monte Carlo simulation valuation model,
which requires the use of inputs and assumptions such as the fair value of the underlying common stock, risk
free interest rate, and expected volatility. The performance restricted stock units generally vest based on
appreciation of the Company’s common stock to a certain price as determined by the Company’s board of
directors measured using a trailing 30-day volume weighted average price of a share of the Company’s
common stock. The fair value of stock options is estimated at the time of grant using the Black-Scholes option
pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying
common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and
dividend yield.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in
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the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not
been recognized in the financial statements. The Company recognizes the benefit of an income tax position
only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination,
based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits
recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement. The Company accrues interest and related penalties are classified as income tax
expense in the statements of operations. The Company does not anticipate significant changes in the amount of
unrecognized income tax benefits over the next year.
4. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Not Yet Adopted by the Company
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments (“Topic 326”). This ASU provides guidance for recognizing credit
losses on financial instruments based on an estimate of current expected credit losses model. The FASB
subsequently issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit
Losses, Topic 815, Derivatives and Hedging (Topic 815), and Topic 825, Financial Instruments and ASU 2019-
11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify and address certain
items related to the amendments in Topic 326.
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, was issued to
provide entities that have certain instruments within the scope of ASC 326 with an option to irrevocably elect the
fair value option under ASC 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument
basis for eligible instruments. ASU 2019-10, Topic 326, Topic 815, and Topic 842 amends the mandatory
effective date for Topic 326.
The ASUs are effective for fiscal years beginning after December 15, 2022 for entities that are eligible to be
defined by the SEC as a smaller reporting company. The Company is a smaller reporting company. The
Company does not anticipate a material impact on its financial statements based on the instruments currently
held and its historical trend of bad debt expense relating to trade accounts receivable.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or
adopted in the current year that we believe have a material impact, or potential material impact, to our financial
statements.
5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, prepaids and other current assets, and accounts
payable on the Company’s balance sheets approximated their fair values as of December 31, 2022 and 2021
due to their short-term nature. The carrying values of the Company’s current credit facility approximated its fair
value as of December 31, 2022 and 2021 due to its variable interest rate. The carrying value of the Company’s
note receivable approximated its fair value as of December 31, 2022 and 2021 due to its variable interest rate.
Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that
prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and
minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1:
Inputs are quoted prices for identical instruments in active markets.
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Level 2: Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; or model-derived valuations whose inputs are observable
or whose significant value drivers are observable.
Level 3:
Inputs are unobservable and reflect the Company’s own assumptions, based on the best information
available, including the Company’s own data.
The following tables set forth the carrying amounts and fair values of the Company’s financial instruments as
December 31, 2022 and 2021 (in thousands):
December 31, 2022
Carrying
Amount
Fair Value
Fair Value Measurement Based on
Significant
other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Quoted
Prices In
Active
Markets
(Level 1)
Assets
Money market funds (cash equivalents)
$ 68,002
$ 68,002
$ 68,002
$
— $
—
December 31, 2021
Fair Value Measurement Based on
Quoted
Prices In
Active
Markets
(Level 1)
Significant
other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
Fair Value
$ 91,236
$ 91,236
$ 91,236
$
— $
—
Assets
Money market funds (cash equivalents)
6. ACCOUNTS RECEIVABLE
The following table presents the composition of accounts receivable, net as of December 31, 2022 and 2021 (in
thousands):
Gross accounts receivable - trade
Less: Allowances for doubtful accounts
Accounts receivable, net
December 31,
2022
15,239
(1,648)
13,591
$
$
2021
9,168
(1,462)
7,706
$
$
The following table presents a rollforward of the allowance for doubtful accounts (in thousands):
Year ended December 31, 2020
Year ended December 31, 2021
Year ended December 31, 2022
Balance at
Beginning of
Period
Bad Debt
Expense
Write-offs of
Uncollectible
Recognized Balances
$
$
$
(548)
(1,012)
(1,462)
(897)
(763)
(341)
433
313
155
Balance at
End of
Period
$
$
$
(1,012)
(1,462)
(1,648)
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Table of Contents
7. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE
The following table presents the composition of property and equipment, net as of December 31, 2022 and
2021 (in thousands):
Laboratory equipment
Office equipment
Computer equipment and software
Manufacturing equipment
Leasehold improvements
Rental equipment
Property and equipment, gross
Less: Accumulated depreciation
Property and equipment, net
December 31,
2022
2021
462
508
1,758
343
1,435
542
5,048
(3,057)
1,991
$
$
249
497
1,598
341
471
601
3,757
(2,537)
1,220
$
$
As of December 31, 2022 and 2021, the Company had capitalized software costs, net of $3.6 million and $2.5
million, respectively, which are included in “Other assets” on the balance sheet.
Depreciation and amortization expense was $1.6 million, $1.1 million, and $0.9 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
8. NOTE RECEIVABLES
On September 29, 2021, the Company entered into an exclusive, five-year master sales agreement with Check
Five, LLC d/b/a Success TMS (“Success TMS”). In connection with the Commercial Agreement, the Company
agreed to loan Success TMS the principal amount of $10.0 million for a period of five years pursuant to a
secured promissory note (the “Note”). The Note included interest at a floating rate equal to the prime rate plus
6.00% per annum and interest-only period through October 1, 2022, after which time Success TMS was
required to make monthly payments of principal and interest.
On July 14, 2022, Success TMS repaid in full the Note with a cash payment of $10.5 million, which included all
outstanding principal, prepayment premium and accrued but unpaid interest. The repayment extinguished the
Note in its entirety and terminated the Subordination Agreement entered into by the Company.
Interest income recognized by the Company was $1.0 million and $0.2 million for the years ended December
31, 2022 and 2021, respectively, and included within other income, net on the statement of operations.
9. LEASES
Lessee:
The Company has operating leases for its corporate headquarters, a training facility and office equipment,
including copiers. The Company leases an approximately 32,000 square foot facility in Malvern, Pennsylvania
for its corporate headquarters, which includes office and warehouse space. In the first quarter of 2019, the
Company signed a lease modification for its Malvern facility that extended the lease through February 2028 and
included approximately 10,000 square foot of additional premises. The Company has an option to extend the
lease on its combined 42,000 square foot facility for an additional five-year term; however, the Company has
determined it is not reasonably certain to exercise the option at this time after assessing contract, asset, entity
and market conditions present upon lease commencement.
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The Company leases an approximately 9,600 square foot facility in Charlotte, North Carolina as a training
facility for its NeuroStar Advanced Therapy Systems. The lease ends in September 2027. The Company has an
option to extend the lease on its training facility for an additional one-year term; however, the Company has
determined it is not reasonably certain to exercise the option at this time after assessing contract, asset, entity
and market conditions present upon lease commencement.
Operating lease rent expense was $0.8 million, $0.7 million, and $0.6 million for the years ended December 31,
2022, 2021 and 2020, respectively. As of December 31, 2022, the weighted-average remaining lease term of
operating leases was 5.0 years and the weighted-average discount rate was 7.2%.
The following table presents the supplemental cash flow information as a lessee related to leases for the years
ended December 31, 2022 and 2021 (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Year ended
Year ended
December 31, 2022 December 31, 2021
$
$
892
$
— $
822
866
The following table sets forth by year the required future payments of operating lease liabilities as of
December 31, 2022 (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less imputed interest
Present value of operating lease liabilities
Lessor sales-type leases:
Year ended
December 31, 2022
853
875
898
921
882
116
4,545
(754)
3,791
$
$
Certain costumers have purchased NeuroStar Advanced Therapy Systems on a rent-to-own basis. The lease
term is three or four years with a customer option to purchase the NeuroStar Advanced Therapy System at the
end of the lease or automatic transfer of ownership of the NeuroStar Advanced Therapy System at the end of
the lease.
The following table sets forth the profit recognized on sales-type leases (in thousands):
Year ended December 31,
2021
2022
Profit recognized at commencement, net
Interest income
Total sales-type lease income
$
$
F-19
478
$
—
$
478
807
—
807
Table of Contents
The following table sets forth a maturity analysis of the undiscounted lease receivables related to sales-type
leases as of December 31, 2022 (in thousands):
2023
2024
2025
2026
2027
Total sales-type lease receivables
December 31,
2022
1,538
824
358
40
—
2,760
$
$
As of December 31, 2022 and 2021, the carrying amount of the lease receivables is $2.8 million and $3.9
million, respectively. The Company does not have any unguaranteed residual assets.
Lessor operating leases:
NeuroStar Advanced Therapy Systems sold on a rent-to-own basis prior to January 1, 2019 are accounted for
as operating leases. NeuroStar Advanced Therapy Systems sold subsequent to January 1, 2019 for which
collection is not probable are also accounted for as operating leases. For the years ended December 31, 2022,
2021 and 2020, the Company recognized operating lease income of $0.2 million, $0.3 million and $0.4 million,
respectively.
The Company maintained Rental Equipment, net of $0.5 million and $0.6 million, as of December 31, 2022 and
2021, respectively, which are included in “Property and equipment, net” on the balance sheet. Rental equipment
depreciation expense was $0.10 million, $0.05 million and $0.1 million for the years ended December 31, 2022,
2021 and 2020, respectively.
10. PREPAID COMMISSION EXPENSE
The Company pays a commission on both NeuroStar Advanced Therapy System sales and Treatment Session
sales. Since the commission paid for NeuroStar Advanced Therapy System sales is not commensurate with the
commission paid for Treatment Sessions, the Company capitalizes commission expense associated with
NeuroStar Advanced Therapy System commissions paid that is incremental to specifically anticipated future
Treatment Session orders. In developing this estimate, the Company considered its historical Treatment
Session sales and customer retention rates, as well as technology development life cycles and other industry
factors. These costs are periodically reviewed for impairment.
NeuroStar Advanced Therapy System commissions are deferred and amortized on a straight-line basis over a
seven year period equal to the average customer term, which the Company deems to be the expected period of
benefit for these costs.
On the Company’s balance sheets, the current portion of capitalized contract costs is represented by the
current portion of prepaid commission expense, while the long-term portion is included in prepaid commission
expense. Amortization expense was $1.8 million and $1.3 million for the years ended December 31, 2022 and
December 31, 2021, respectively, and presented within sales and marketing in the statements of operations.
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11. ACCRUED EXPENSES
The following table presents the composition of accrued expenses as of December 31, 2022 and 2021 (in
thousands):
Compensation and related benefits
Consulting and professional fees
Research and development expenses
Sales and marketing expenses
Warranty
Sales and other taxes payable
Other
Accrued expenses
12. DEBT
December 31, December 31,
2022
2021
$
$
11,201
761
678
410
328
659
800
14,837
$
$
5,090
537
388
268
306
664
980
8,233
The following table presents the composition of debt as of December 31, 2022 and 2021 (in thousands):
Outstanding principal
Accrued final payment fees
Less debt discounts
Total debt, net
Less current portion
Long-term debt, net
$
December 31,
2022
35,000
1,925
(971)
35,954
(13,125)
22,829
$
$
December 31,
2021
35,000
1,925
(1,590)
35,335
—
35,335
$
For the year ended December 31, 2022, the Company recognized interest expense of $4.3 million, of which
$3.6 million was cash and $0.7 million was non-cash interest expense related to the amortization of deferred
debt issuance costs and accrual of final payment fees.
For the year ended December 31, 2021, the Company recognized interest expense of $4.0 million, of which
$3.3 million was cash and $0.7 million was non-cash interest expense related to the amortization of deferred
debt issuance costs and accrual of final payment fees.
For the year ended December 31, 2020, the Company recognized interest expense of $4.5 million, of which
$3.9 million was cash and $0.6 million was non-cash interest expense related to the amortization of deferred
debt issuance costs and accrual of final payment fees.
The following table sets forth by year our required future principal payments under the term loan portion of the
Solar Facility:
Year:
2023
2024
2025
2026
2027
Total principal payments
F-21
Principal
Payments
13,125
17,500
4,375
—
—
35,000
$
$
Table of Contents
Solar Credit Facility
On March 2, 2020, the Company entered into a loan and security agreement with SLR Investment Corp.
(formerly known as Solar Capital Ltd.), or (“Solar”), as collateral agent, and other lenders defined in the
agreement, for a credit facility, or the Solar Facility, that replaced the Company’s previous $35.0 million credit
facility with Oxford Finance LLC, or Oxford, and such facility, the Oxford Facility.
On March 2, 2020, the Company borrowed an aggregate amount of $35.0 million, which was the aggregate
amount available under the term loan portion of the Solar Facility. The term loan portion of the Solar Facility
matures, and all amounts borrowed thereunder are due, on February 28, 2025.
The term loan accrues interest from the date of borrowing through the date of repayment at a floating per
annum rate of interest, which resets monthly and is equal to 7.65% plus the greater of (a) 1.66% or (b) the rate
per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd but was amended on
February 15, 2022. The 2022 Solar Amendment (i) waived any default under the Solar Facility and Solar
Amendment that resulted from the Company’s failure to comply with the minimum monthly trailing twelve
months net product revenue financial covenant, beginning with the testing period for the calendar month ending
December 31, 2021 and continuing to the execution date of the 2022 Solar Amendment; (ii) decreased the
amount of trailing twelve months net product revenue that the Company is required to achieve for testing
periods on and from the calendar month ending January 31, 2022 and (iii) modified the definition of interest only
extension conditions to allow commencement of loan principal amortization under the Solar Facility to be
extended to March 1, 2023.
In addition to the principal and interest payments due under the Solar Facility, the Company is required to pay a
final payment fee to Solar due upon the earlier of prepayment, acceleration or the maturity date of the loan
portion of the Solar Facility equal to 5.50% of the principal amount of the term loan actually funded. The
Company is accruing the final payment fees using the effective interest rate, with a charge to non-cash interest
expense, over the term of borrowing. If the Company prepays the loan prior to its scheduled maturity, the
Company will also be required to pay prepayment fees to Solar equal to 1% of the principal amount of such
term loan then-prepaid if prepaid after the second anniversary of funding of the principal amounts borrowed.
The Company is also required to pay Solar an exit fee upon the occurrence, prior to March 2, 2030, of (a) any
liquidation, dissolution or winding up of the Company, (b) transaction that results in a person obtaining control
over the Company, (c) the Company achieving $100 million in trailing twelve month net product revenue or
(d) the Company achieving $125 million in trailing twelve month net product revenue. The exit fee for liquidation,
dissolution, winding up or change of control of the Company is equal to 4.50% of the principal amount of the
term loans actually funded. The exit fee for achieving either $100 million or $125 million in trailing twelve-month
net product revenue is equal to 2.25% of the principal amount of the term loans actually funded or, if both net
product revenue milestones are achieved, 4.50% of the principal amount of the term loans actually funded. The
exit fee is capped at 4.50% of the principal amount of the term loans actually funded.
The Company’s obligations under the Solar Facility are secured by a first priority security interest in
substantially all of its assets, including its intellectual property. The loan and security agreement requires the
Company to comply with certain financial covenants as well as customary affirmative and negative covenants.
The Solar Facility contains events of default, including, without limitation, events of default upon: (i) failure to
make payment pursuant to the terms of the agreement; (ii) violation of covenants; (iii) material adverse changes
to the Company’s business; (iv) attachment or levy on the Company’s assets or judicial restraint on its business;
(v) insolvency; (vi) material cross-defaults; (vii) significant judgments, orders or decrees for payments by the
Company not covered by insurance; (viii) incorrectness of representations and warranties; (ix) incurrence of
subordinated debt; (x) a termination or breach of a guaranty; (xi) revocation of governmental
F-22
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approvals necessary for the Company to conduct its business; and (xii) failure by the Company to maintain a
valid and perfected lien on the collateral securing the borrowing.
As of December 31, 2022, the Company is in compliance with all covenants in the Solar Facility.
Oxford Credit Facility
Prior to March 2020, the Company had a $35.0 million credit facility in place with Oxford, which it entered into in
March 2017 and that allowed it to borrow up to $35.0 million in three tranches of term loans: a Term A Loan in
the amount of $25 million, which was drawn immediately upon closing in March 2017, a Term B Loan in the
amount of $5.0 million, which was drawn down in December 2017, and a Term C Loan in the amount of $5.0
million which was never drawn down. Each term loan accrued interest from the date of borrowing through the
date of repayment at a floating per annum rate of interest, which reset monthly and was equal to the greater of
(a) 8.15% or (b) the 30 day U.S. LIBOR on the last business day of the month plus 7.38%. This facility featured
an interest-only period on all tranches through March 2019.
The Company evaluated whether the Solar Facility entered into in March 2020 represented a debt modification
or extinguishment in accordance with ASC 470-50, Debt—Modifications and Extinguishments and determined
that the existing debt was extinguished as a result of the full repayment of the existing facility and concurrent
issuance of a new credit facility with a new lender. The unamortized balance of the Company’s combined debt
discount and deferred issuance costs of $0.6 million related to the Oxford facility were accounted for as a loss
on extinguishment of debt in March 2020.
13. STOCKHOLDERS’ EQUITY
Common Stock Offering
On February 2, 2021, the Company closed on their secondary public offering and sale (the “Offering) of their
common stock in which the Company issued and sold 5,566,000 shares of our common stock, which included
shares pursuant to an option granted to underwriters to purchase additional shares, at a public offering price of
$15.50 per share. The Company received net proceeds of $80.6 million after deducting underwriting discounts,
commissions and offering expenses.
Common Stock
The Company’s amended and restated certificate of incorporation as of December 31, 2020 authorized the
issuance of 200.0 million shares of common stock, $0.01 par value per share, of which 27.3 million were issued
and outstanding as of December 31, 2022.
The following table summarizes the total number of shares of the Company’s common stock issued and
reserved for issuance as of December 31, 2022 and 2021 (in thousands):
Shares of common stock issued
Shares of common stock reserved for issuance for:
Common stock warrants outstanding
Stock options outstanding
Restricted stock units outstanding
Shares available for grant under stock incentive plan
Shares available for sale under employee stock purchase plan
Total shares of common stock issued and reserved for issuance
December 31, 2022 December 31, 2021
26,395
27,268
61
1,301
3,901
1,140
1,063
34,734
75
1,499
2,124
2,037
799
32,929
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s
stockholders. Holders of common stock are entitled to receive any dividends that the Company’s
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Table of Contents
board of directors may declare out of funds legally available for that purpose on a non-cumulative basis. The
Company has never paid, and for the foreseeable future does not expect to pay, a dividend on its common
stock.
Common Stock Warrants
The following table summarizes the Company’s outstanding common stock warrants as of December 31, 2022
and 2021 (in thousands):
December 31, 2022
Warrants
Outstanding
(in thousands)
December 31, 2021
Warrants
Outstanding
(in thousands)
Exercise Price
9.73
9.73
9.73
Expiration Date
Aug-2023
Mar-2024
Dec-2024
$
$
$
20
20
21
61
Exercise Price
19.55
9.73
9.73
9.73
Expiration Date
Dec-2022
Aug-2023
Mar-2024
Dec-2024
$
$
$
$
14
20
20
21
75
14. LOSS PER SHARE
The Company’s basic loss per common share is computed by dividing the net loss by the weighted-average
number of shares of common stock outstanding during the period. The Company’s restricted stock awards
(non-vested shares) are issued and outstanding at the time of grant but are excluded from the Company’s
computation of weighted-average shares outstanding in the determination of basic loss per share until vesting
occurs.
A net loss cannot be diluted, so when the Company is in a net loss position, basic and diluted loss per common
share are the same. If in the future the Company achieves profitability, the denominator of a diluted earnings
per common share calculation will include both the weighted-average number of shares outstanding and the
number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive.
Dilutive common stock equivalents potentially include warrants, stock options, non-vested restricted stock
awards and non-vested performance restricted stock units using the treasury stock method, along with the
effect, if any, from the potential conversion of outstanding securities, such as convertible preferred stock.
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Table of Contents
The following potentially dilutive securities outstanding as of December 31, 2022, 2021 and 2020 have been
excluded from the denominator of the diluted loss per share of common stock outstanding calculation (in
thousands):
Stock options
Non-vested performance restricted stock units
Non-vested restricted stock units
Common stock warrants
15. SHARE-BASED COMPENSATION
2022
1,301
395
3,506
61
December 31,
2021
1,499
395
1,729
75
2020
2,365
—
1,860
105
The amount of share-based compensation expense recognized by the Company by location in its statements of
operations for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands):
Cost of revenues
Sales and marketing
General and administrative
Research and development
Total
2018 Equity Incentive Plan
Years ended December 31,
2021
2020
2022
$
$
130
4,286
3,868
462
8,746
$
$
79
2,096
5,496
198
7,869
$
$
66
1,813
2,076
449
4,404
In June 2018, the Company adopted the 2018 Equity Incentive Plan, or 2018 Plan, which authorized the
issuance of up to 1.4 million shares, subject to an annual 4% increase based on the number of shares of
common stock outstanding, in the form of restricted stock, stock appreciation rights and stock options to the
Company’s directors, employees and consultants. The amount and terms of grants are determined by the
Company’s board of directors. All stock options granted to date have had exercise prices equal to the fair value,
as determined by the closing price as reported by the Nasdaq Global Market, of the underlying common stock
on the date of grant. The contractual term of stock options is up to 10 years, and stock options are exercisable
in cash or as otherwise determined by the board of directors. Generally, stock options vest 25% upon the first
anniversary of the date of grant and the remainder ratably monthly thereafter for 36 months. Restricted stock
units generally vest ratably in three equal installments on the first, second and third anniversaries of the grant
date. Performance restricted stock units (“PRSUs”) generally vest based on appreciation of the Company’s
common stock to a certain price as determined by the Company’s board of directors measured using a trailing
30-day volume weighted average price of a share of the Company’s common stock. The fair value of the PRSU
awards are determined using a risk neutral Monte Carlo simulation valuation model. As of December 31, 2022,
there were 0.7 million shares available for future issuance under the 2018 Plan.
2020 Inducement Incentive Plan
In December 2020, the Company adopted the 2020 Inducement Incentive Plan, which authorized the issuance
of up to 0.4 million shares in the form of stock options, stock appreciation rights, restricted stock awards,
restricted stock unit awards, performance stock awards and other stock awards to eligible employees who
satisfy the standards for inducement grants under Nasdaq global market rules. In March 2022, the Company’s
board of directors approved an additional 0.5 million shares for issuance under the plan. An individual who
previously served as an employee or director of the Company is not eligible to receive awards under this plan.
The amount and terms of grants are determined by the Company’s board of directors. As of December 31,
2022, there were 0.4 million shares available for future issuance under the 2020 Inducement Incentive Plan.
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Table of Contents
Stock Options
The following table summarizes the Company’s stock option activity for the years ended December 31, 2022,
2021 and 2020:
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Outstanding at December 31, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
Granted
Exercised
Forfeited
Outstanding at December 31, 2022
Exercisable at December 31, 2022
Vested and expected to vest at December 31, 2022
Number of
Shares under
Option
(in thousands)
2,415
1,028
(371)
(707)
2,365
$
—
(698)
(168)
1,499
$
— $
(168) $
(30) $
$
$
$
1,301
869
1,301
Aggregate
Weighted-
average
Exercise Price
per Option
Weighted-
Remaining
Contractual
Life (in years)
average
Intrinsic
Value
(in thousands)
7.11
2.01
1.86
10.76
4.62
—
4.01
14.32
4.01
—
1.77
13.81
4.07
4.82
4.07
7.0 $
6.7 $
7.0 $
5,001
3,022
5,001
The Company recognized share-based compensation expense related to stock options of $0.7 million, $0.8
million and $1.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of
December 31, 2022, there was $0.6 million of total unrecognized compensation cost related to non-vested stock
options which the Company expects to recognize over a weighted-average period of 1.3 years. The weighted-
average grant-date fair value of stock options granted during the year ended December 31, 2020 was estimated
at $1.09 per option. The Company did not grant stock options during the years ended December 31, 2022 and
2021. The total intrinsic value of stock options exercised during the years ended December 31, 2022, 2021 and
2020 was $0.2 million, $8.2 million, and $1.4 million, respectively.
For the year ended December 31, 2020 the grant-date fair value of stock options was estimated at the time of
grant using the following weighted-average inputs and assumptions in the Black-Scholes option pricing model:
Estimated fair value of common stock
Exercise price
Expected term (in years)
Risk-free interest rate
Expected volatility
Dividend yield
F-26
$
$
2020
2.01
2.01
6.1
0.4 %
59.5 %
— %
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Restricted Stock Awards and Restricted Stock Units
The following table summarizes the Company’s restricted stock award, restricted stock unit and performance
restricted stock unit activity for the years ended December 31, 2022, 2021 and 2020:
Non-vested Weighted-
Non-vested Weighted-
Non-vested at December 31, 2019
Granted
Vested
Forfeited
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Granted
Vested
Forfeited
Non-vested at December 31, 2022
Restricted
average
$
Stock Units
(in thousands)
245
2,307
(98)
(594)
1,860
1,008
(780)
(359)
1,729
$
$
2,902
(705) $
(420) $
3,506
$
Grant-date
Fair Value
15.23
3.18
13.24
5.24
3.58
11.51
3.63
7.86
7.29
3.36
7.32
5.35
4.29
Performance
Restricted
Stock Units
(in thousands)
average
Grant-date
Fair Value
— $
500
—
—
500
145
(250)
395
—
$
— $
— $
— $
$
395
—
1.71
—
1.71
15.59
1.77
—
6.77
—
—
—
6.77
The Company recognized share-based compensation expense related to restricted stock awards, restricted
stock units and performance restricted stock units of $8.1 million, $7.1 million, and $2.7 million during the years
ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, there was $8.7 million of
unrecognized compensation cost related to non-vested restricted stock units and performance restricted stock
units that the Company expects to recognize over a weighted-average period of 1.8 years. The total fair value at
the vesting date of restricted stock awards, restricted stock units and performance restricted stock units vested
during the years ended December 31, 2022, 2021 and 2020 was $2.5 million, $14.1 million, and $0.3 million,
respectively.
The Company did not grant performance restricted stock units during the year ended December 31, 2022. For
the years ended December 31, 2021 and 2020, the grant-date fair value of the performance restricted stock
units was estimated at the time of grant using the following inputs and assumptions in the Monte Carlo
simulation valuation model:
Closing price of common stock
Risk-free interest rate
Expected volatility
16. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
2021
2020
$
15.92
$
1.15 %
99.7 %
1.98
0.63 %
87.4 %
The Company maintains a 401(k) defined contribution retirement plan which covers all of its employees.
Employees are eligible to participate on the first of the month following their date of hire. Under the 401(k) plan,
participating employees may defer up to 100% of their pre-tax salary but not more than statutory
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limits. As of December 31, 2022, the Company contributes 3% of employee salary to the participant’s defined
contribution plan, which vests immediately. Employee contributions also vest immediately.
2018 Employee Stock Purchase Plan
In July 2018, the Company adopted the 2018 Employee Stock Purchase Plan, or 2018 ESPP, with an initial 0.2
million share reserve, subject to automatic annual increases on January 1st of each year for a period of up to
ten years, as defined in the plan document. The purpose of the 2018 ESPP is to enhance employee interest in
the success and progress of the Company by encouraging employee ownership of common stock of the
Company. The 2018 ESPP provides the opportunity to purchase the Company’s common stock at a 15%
discount to the market price through payroll deductions or lump sum cash investments. As of December 31,
2022, the Company had not yet approved any offering under the plan and 1.1 million shares were reserved for
issuance.
17. INCOME TAXES
The Company’s loss before income taxes was $37.2 million, $31.2 million, $27.5 million for the years ended
December 31, 2022, 2021, and 2020, respectively, and was generated entirely in the United States. The
Company did not record current or deferred income tax expense or benefit during the years ended December
31, 2022, 2021, and 2020.
A reconciliation of the statutory United States federal income tax rate to the Company’s effective tax rate is as
follows:
Tax Year ended December 31,
2021
2020
2022
U.S. federal statutory income tax rate
State and local taxes, net of federal benefit
Nondeductible expenses
Research and development credits
Tax rate change and true-up
Change in valuation allowance
Effective income tax rate
21.0 %
(0.9)%
(2.3)%
- %
(1.5)%
(16.3)%
— %
21.0 %
5.5 %
10.6 %
— %
0.8 %
(37.9)%
— %
21.0 %
3.5 %
(0.8)%
— %
(1.6)%
(22.1)%
— %
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The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as
follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Research and development credits
Share-based compensation
Accruals
Interest expense
Lease Liability
Capitalized start-up costs
Capitalized R&D costs
Other temporary differences
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Capitalized software
Right-of-use asset
Prepaid commission
Gross deferred tax liabilities
Net deferred taxes
December 31,
2022
2021
$ 76,013
3,008
2,273
1,379
3,807
929
215
2,165
1,000
90,789
(86,733)
4,056
$
$ 72,620
3,008
2,111
786
3,308
1,024
479
—
1,050
84,386
(80,663)
3,723
$
$
$
$
(894)
(816)
(2,346)
(4,056)
— $
(753)
(945)
(2,025)
(3,723)
—
In assessing the realizability of the net deferred tax asset, the Company considers all relevant positive and
negative evidence in determining whether it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several
factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss
carryforwards. The Company believes that it is more likely than not that the Company’s deferred income tax
asset associated with its net operating losses will not be realized in the immediate future. As such, there is a full
valuation allowance against the net deferred tax assets as of December 31, 2022 and 2021. The valuation
allowance increased by $6.1 million and $11.8 million during the years ended December 31, 2022 and 2021,
respectively, due primarily to the generation of net operating losses and the federal tax rate reduction during the
periods. The changes in the valuation allowance were as follows (in thousands):
Balance at the beginning of the year
Amounts charged to expense
Balance at the end of the year
Year ended December 31,
2022
80,663
6,070
86,733
$
$
2021
68,856
11,807
80,663
$
$
The following table summarizes carryforwards of federal net operating losses and tax credits as of
December 31, 2022 (in thousands):
Federal net operating losses
State net operating losses
Research and development credits
Expiration
Amount
$ 312,721
$ 197,281
3,008
$
Beginning in
2023
2023
2023
Under the Tax Reform Act of 1986 (the “Act”), the net operating loss and tax credit carryforwards are subject to
review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating
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loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative
changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent,
as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state
provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable
income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company
immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in
future years. The Company has not done an analysis to determine whether or not ownership changes, as
defined by the Act, have occurred since inception.
The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As
of December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions and
no amounts have been recognized in the Company’s statements of operations. Due to net operating loss and
tax credit carry forwards that remain unutilized, income tax returns for tax years from inception through 2021
remain subject to examination by the taxing jurisdictions.
18. COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
The Company has entered into an employment agreement and offer letters with certain key executives,
providing for compensation and severance in certain circumstances, as defined in the agreements.
Legal Matters
The Company is subject from time to time to various claims and legal actions arising during the ordinary course
of its business. Management believes that there are currently no claims or legal actions that would reasonably
be expected to have a material adverse effect on the Company’s results of operations, financial condition or
cash flows.
19. DISTRIBUTION AGREEMENT WITH TEIJIN PHARMA LIMITED
In October 2017, the Company entered into a seven-and-a-half-year distribution agreement with Teijin Pharma
Limited, or Teijin, for the exclusive distribution of its NeuroStar Advanced Therapy System to customers who will
treat patients with MDD in Japan. Under the distribution agreement, Teijin is generally restricted from selling
competing products in Japan. The distribution agreement provides that the Company will have primary
responsibility for obtaining reimbursement approval for use of NeuroStar Advanced Therapy System for the
treatment of MDD in Japan, and Teijin will promote the sales of NeuroStar Advanced Therapy System for
treatment of MDD in Japan. The Company has agreed to provide sales and technical support training to Teijin
for its NeuroStar Advanced Therapy Systems. Teijin is required to purchase minimum dollar values of
NeuroStar Advanced Therapy Systems and treatment sessions from the Company.
In 2017, under the distribution agreement with Teijin, the Company received an upfront payment of $0.75 million
and a milestone payment of $2.0 million following the Japanese Ministry of Health, Labour and Welfare’s, or
JMHLW, approval of marketing the NeuroStar Advanced Therapy System for the treatment of MDD in Japan. In
the second quarter of 2019, under the distribution agreement with Teijin, the Company earned a second
milestone payment of $0.7 million, following Japan’s Central Social Insurance Medical Council (Chuikyo)
approval of the recommendation by JMHLW’s expert review panel to provide reimbursement for NeuroStar
Advanced Therapy for the treatment of MDD in adults. The reimbursement went into effect on June 1, 2019 and
covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in Japan at the rate of
JPY12,000 per treatment session. These upfront and subsequent milestone payments have been deferred and
are being recognized as revenue over the seven-and one-half year term of the agreement.
F-30
Table of Contents
In May 2019, the Company and Teijin entered into an amendment to the distribution agreement, which among
other things finalized transfer prices, forecasting and minimum purchases, and made certain clarifications to the
agreement.
The distribution agreement is scheduled to expire on March 31, 2025, subject to earlier termination if the
Company or Teijin breach the agreement, Teijin fails to maintain distributor-level permits and approvals, Teijin
fails to purchase from the Company specified dollar values of its sales forecasts, reimbursement for treatment
of MDD using the NeuroStar Advanced Therapy System is not obtained from JMHLW by specified dates or such
reimbursement is below specified minimums, Teijin reasonably believes that it is not commercially reasonable to
continue distributing the NeuroStar Advanced Therapy System in Japan or bankruptcy related events occur.
The term of the distribution agreement will be automatically extended for two years unless either party gives the
other party at least two years’ prior written of notice of non-renewal, except that the Company cannot decline to
renew the agreement if Teijin has purchased 100% of its sales forecasts over the term of the agreement.
20. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate discrete information is
available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company currently operates in one business segment
as it is managed and operated as one business. A single management team that reports to the chief operating
decision maker comprehensively manages the entire business. The Company does not operate any material
separate lines of business or separate business entities with respect to its products or product development.
21. SEVERANCE
On April 8, 2020, the Company took action to reduce expenses through a reduction in force (“RIF”). As part of
this action the Company terminated 95 employees who received separation benefits upon their termination.
During the second quarter of 2020, the Company recorded a separation-related charge for the RIF equal to the
fair value of the terminated employees benefits as of the communication date in the amount of $2.1 million. This
amount was paid out during the quarter with the final payoff occurring on June 15, 2020.
The Company entered into transition agreements outlining the separation with its former chief executive officer
in March 2020, the vice president of medical operations in September 2020, and the chief commercial officer,
vice president of commercial access and director of medical operations in December 2020, the VP of sales and
five business development managers in January 2021, the director of strategic clinical development in February
2021, and the vice president of marketing in August 2021 and vice president of marketing in December 2022. In
connection with these agreements, the Company recorded $0.6 million and $0.5 million of charges in salary,
payroll tax and bonus expenses for the years ended December 31, 2022 and 2021, respectively. For the year
ended December 31, 2022 and 2021, $0.5 million and $1.3 million of termination benefits were paid associated
with the termination of the employees and charged against this liability. As of December 31, 2022 and
December 31, 2021, $0.3 million and $0.1 million, respectively, remain in accrued liabilities for the unpaid
portion of the separation benefits.
F-31
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NEURONETICS, INC.
By:
/s/ Keith J. Sullivan
Keith J. Sullivan
President, Chief Executive Officer and Director
Date:March 7, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Keith J. Sullivan
Keith J. Sullivan
/s/ Stephen Furlong
Stephen Furlong
/s/ Robert Cascella
Robert Cascella
/s/ John Bakewell
John Bakewell
/s/ Sheryl Conley
Sheryl Conley
/s/ Megan Rosengarten
Megan Rosengarten
/s/ Wilfred Jaeger, M.D.
Wilfred Jaeger, M.D.
/s/ Glenn Muir
Glenn Muir
/s/ Joseph H. Capper
Joseph H. Capper
President, Chief Executive Officer and Director
(Principal Executive Officer)
Executive VP, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Date
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
March 7, 2023
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the registration statements (Nos. 333-226343, 333-252233 and 333-
266606) on Form S-8 and (No. 333-266617) on Form S-3 of our report dated March 7, 2023, with respect to the financial
statements of Neuronetics, Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 7, 2023
Exhibit 31.1
I, Keith J. Sullivan, certify that:
1. I have reviewed this Annual Report on Form 10-K of Neuronetics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report, any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 7, 2023
/s/ Keith J. Sullivan
By:
Name: Keith J. Sullivan
Title: President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Stephen Furlong, certify that:
1. I have reviewed this Annual Report on Form 10-K of Neuronetics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report, any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 7, 2023
/s/ Stephen Furlong
By:
Name: Stephen Furlong
Title: EVP, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Keith J. Sullivan,
President and Chief Executive Officer of Neuronetics, Inc. (the “Company”), and Stephen Furlong, Senior Vice President,
Chief Financial Officer and Treasurer of the Company, each hereby certifies that, to the best of his or her knowledge:
1. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, to which this
Certification is attached as Exhibit 32.1 (the “Annual Report”), fully complies with the requirements of Section 13(a)
or Section 15(d) of the Exchange Act; and
2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 7, 2023
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 7th day of March, 2023.
/s/ Keith J. Sullivan
By:
Name:Keith J. Sullivan
Title: President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Stephen Furlong
Name: Stephen Furlong
Title: EVP, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of Neuronetics, Inc. under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-
K), irrespective of any general incorporation language contained in such filing.”