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
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019 .
OR
For the transition period from to
Commission File Number: 001-38847
SILK ROAD MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3841
(Primary Standard Industrial
Classification Code Number)
20-8777622
(I.R.S. Employer
Identification Number)
1213 Innsbruck Dr. Sunnyvale, CA 94089, (408) 720-9002
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
SILK
Name of each exchange on which registered
Nasdaq Global Market
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.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☒
☒
Accelerated filer
Smaller reporting 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 7(a)(2)(B) of the Securities Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $818.0 million as of
February 28, 2020 based on the closing sale price of the registrant’s common stock on
the NASDAQ Global Market on such date. Shares held by persons who may be deemed affiliates have been excluded. This determination of
affiliate status is not necessarily a conclusive determination for other purposes.
As of February 28, 2020, the number of outstanding shares of the registrant's common stock, par value $0.001 per share, was 31,353,906.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements concerning our business, operations and financial performance and
condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements
contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,”
“goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions
that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
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our plans to conduct further clinical trials;
our plans and expected timeline related to our products, or developing new products, to address additional indications or to obtain
regulatory approvals or clearances or otherwise;
the expected use of our products by physicians;
our expectations regarding the number of procedures that will be performed with our products, the number of physicians we expect to
train, and the number of our sales territories;
our ability to obtain, maintain and expand regulatory clearances for our current products and any new products we create;
the expected growth of our business and our organization;
our expected uses of the net proceeds from our initial public offering;
our expectations regarding government and third-party payer coverage and reimbursement;
our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;
our ability to obtain an adequate supply of materials and components for our products from our third-party suppliers, most of whom are
single-source suppliers;
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our ability to manufacture sufficient quantities of our products with sufficient quality;
our ability to obtain and maintain intellectual property protection for our products;
our ability to expand our business into new geographic markets;
our compliance with extensive Nasdaq requirements and government laws, rules and regulations both in the United States and
internationally;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional
financing;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;
our ability to identify and develop new and planned products and/or acquire new products; and
developments and projections relating to our competitors or our industry.
We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we
are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our
forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and
projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future
performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As
a result, any or all of our forward-looking statements in this Annual Report on Form 10-K may turn out to be inaccurate. Factors that may cause
actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this
Annual Report on Form 10-K.
These forward-looking statements speak only as of the date of this Annual Report on Form 10-K. We assume no obligation to update or revise
these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-
looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-
looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after
the date of this Annual Report on Form 10-K to conform these statements to actual results or to changes in our expectations.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed
with the SEC as exhibits to this Annual Report on Form 10-K with the understanding that our actual future results, levels of activity, performance
and events and circumstances may be materially different from what we expect.
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Item 1. Business
Overview
PART I
We are a medical device company focused on reducing the risk of stroke and its devastating impact. We believe a key to stroke prevention is
minimally-invasive and technologically advanced intervention to safely and effectively treat carotid artery disease, one of the leading causes of
stroke. We have pioneered a new approach for the treatment of carotid artery disease called transcarotid artery revascularization, or TCAR, which
we seek to establish as the standard of care.
TCAR relies on two novel concepts - minimally-invasive direct carotid access in the neck and high-rate blood flow reversal during the
procedure to protect the brain - and combines the benefits of innovative endovascular techniques with fundamental surgical principles. TCAR
using our portfolio of products has been clinically demonstrated to reduce the upfront morbidity and mortality risks commonly associated with
surgical procedures for carotid endarterectomy while maintaining a reduction in long-term stroke risk. We are the first and only company to obtain
FDA approvals, secure specific Medicare reimbursement coverage, and commercialize products engineered and indicated for use in patients who
require carotid revascularization, but are at high risk for adverse events from carotid endarterectomy and who meet certain treatment criteria. As
of December 31, 2019, more than 16,000 TCAR procedures have been performed globally, including more than 8,400 in the United States in
2019.
Carotid artery disease is the progressive buildup of plaque causing narrowing of the arteries in the front of the neck, which supply blood flow
to the brain. Plaque can embolize, or break away from the arterial wall, and travel toward the brain and interrupt critical blood supply, leading to an
ischemic stroke. Carotid artery disease is one of the leading causes of stroke, and stroke is one of the most catastrophic, debilitating, and costly
conditions worldwide. We believe the best way to mitigate the mortality, morbidity and cost burden of stroke is to prevent strokes in the first place.
Clinical evidence has demonstrated that with proper diagnosis and treatment, stroke due to carotid artery disease is mostly preventable. We
believe there were approximately 4.3 million people with carotid artery disease in the United States in 2018, with an estimated 427,000 new
diagnoses in 2018, and existing treatment options have substantial safety and effectiveness limitations.
The main goal of treating carotid artery disease is to prevent a future stroke. Unfortunately, one of the main complications of existing
treatments for carotid artery disease is causing a stroke, along with other procedure-related adverse events. When intervention beyond medical
management is warranted, the current standard of care for reduction in stroke risk is an invasive carotid revascularization procedure called carotid
endarterectomy, or CEA. To perform a CEA, a physician makes a large incision in the neck, cuts the carotid artery open, and then removes the
plaque from inside the vessel. CEA was first performed in 1953, and while generally effective at reducing stroke risk in the long term, large
randomized clinical trials have demonstrated that CEA is associated with a significant risk of adverse events, including cranial nerve injury, heart
attack, wound complications, and, in some cases, even stroke and death. These risks are elevated in certain patient populations.
To address the invasiveness of CEA, transfemoral carotid artery stenting, or CAS, was developed in the 1990s. The CAS procedure uses
minimally-invasive catheters traveling from a puncture site in the groin to place a stent in the carotid artery in the neck to restrain the plaque and
prevent embolization that could cause a stroke. While both CEA and CAS have been clinically demonstrated to reduce long-term stroke risk,
randomized clinical trials and other studies have shown that CAS, relative to CEA, often results in an almost two-fold increase in stroke within 30
days following treatment, which we believe is due to inadequate protection of the brain. We believe this represents an unacceptable trade-off
relative to the current standard of care of CEA. As such, after almost 30 years of development, CAS has achieved limited adoption and narrow
reimbursement coverage in the United States. CEA remains the standard of care and represented approximately 83% of the approximately
168,000 carotid revascularization
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procedures performed in the United States in 2018. Therefore, we believe reducing the rate of morbidity and mortality of CEA is an unmet clinical
need that continues to persist.
TCAR is a minimally-invasive procedure that addresses the morbidity of CEA and the 30-day stroke risk of CAS while maintaining a reduction
in long-term stroke risk beyond the first 30 days. TCAR starts with a small incision in the neck slightly above the collarbone, otherwise known as
transcarotid access, through which our ENROUTE Transcarotid Stent System, or ENROUTE stent, is placed during a period of temporary high-
rate blood flow reversal that is enabled by our ENROUTE Transcarotid Neuroprotection System, or ENROUTE NPS. Blood flow reversal directs
embolic debris that could cause a stroke away from the brain, while the stent braces the plaque and prevents embolization to afford a reduction in
long-term stoke risk. We believe that by meeting the standard of brain protection and reduction in 30-day and long-term stroke risk afforded by
CEA, while providing benefits commensurate with an endovascular, minimally-invasive approach, TCAR could become the preferred alternative
for carotid revascularization. Additionally, we believe that as our technology becomes more widely adopted, TCAR may become a compelling
alternative for patients who are treated with medical management alone each year.
Based on the estimated 427,000 new carotid artery disease diagnoses that occurred in the United States in 2018, we believe a total annual
U.S. market opportunity of approximately $2.6 billion exists for our portfolio of TCAR products. There were approximately 168,000 carotid
revascularization procedures performed in 2018, which we estimate to represent a market conversion opportunity greater than $1.0 billion. More
than 8,400 TCAR procedures were performed in 2019 in the United States using our products, representing less than 2% of annual diagnoses of
carotid artery disease in the United States.
The safety, effectiveness and clinical advantages of TCAR have been demonstrated in multiple clinical trials, post-market studies and
registries that have evaluated outcomes in more than 11,900 patients or patient pairs in propensity matched scoring analysis in the United States
and Europe to date. The results of our U.S. pivotal trial, ROADSTER, reflect the lowest reported 30-day stroke rate for any prospective,
multicenter clinical trial of carotid stenting of which we are aware. Our ROADSTER 2 post-approval study was completed in 2019 and showed a
thirty-day stroke rate of 0.6%. Additionally, data on real-world outcomes of TCAR relative to CEA and CAS have continued to accrue through the
ongoing TCAR Surveillance Project, which is an ongoing open-ended registry sponsored by the Society for Vascular Surgery through the Vascular
Quality Initiative, or VQI. In June 2019, updated outcomes from the TCAR Surveillance Project were presented at the 2019 Vascular Annual
Meeting, or VAM. In a propensity matched analysis of TCAR and CEA with 5,160 patients in each cohort, TCAR provided similar in-hospital stroke
rates as compared to CEA but had significantly lower odds of in-hospital myocardial infarction and 30-day death and composite stroke and death,
and TCAR patients were less likely to suffer a cranial nerve injury and remain in the hospital longer than one day. In a study published in the
Journal of the American Medical Association in December 2019, a propensity matched analysis of 3,286 patients in each cohort showed in-
hospital stroke or death was 1.6% for TCAR versus 3.1% for CAS. The differences favoring TCAR persisted through 30 days and 1 year.
We manufacture the ENROUTE NPS and distribute our portfolio of TCAR products from our facility in Sunnyvale, California. We market and
sell our products in the United States through a direct sales organization consisting of 35 sales representatives and 61 clinical support specialists
as of December 31, 2019, that are focused on driving adoption of TCAR among the approximately 2,750 physicians and 750 hospitals in the
United States that we believe are responsible for over 80% of carotid revascularization procedures each year. While our current commercial focus
is on the U.S. market, our ENROUTE NPS and ENROUTE stent have obtained CE Mark approval, allowing us to commercialize in Europe in the
future. We are also pursuing regulatory clearances in China and Japan.
TCAR is reimbursed based on established current procedural technology, or CPT, codes and International Classification of Diseases, or ICD-
10, codes related to carotid stenting that track to Medicare Severity Diagnosis Related Group, or MS‐DRG classifications. In September 2016, the
Centers for Medicare and Medicaid Services, or CMS, made coverage available for TCAR in symptomatic and asymptomatic patients at high risk
for adverse events from CEA, or high surgical risk, treated at facilities
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participating in the Society for Vascular Surgery’s TCAR Surveillance Project using FDA-cleared and approved transcarotid devices. Our
ENROUTE NPS and stent are currently the only FDA-cleared and approved transcarotid devices. Carotid artery disease is most often a disease
of the elderly and, as such, CMS is the primary payer for carotid revascularization procedures, and we estimate that the high surgical risk patient
population represents approximately two-thirds of the treated patient population. We plan to pursue expansion of FDA labeling for the ENROUTE
stent, currently indicated for use in certain patients at high risk for adverse events from CEA, and, upon FDA approval of broader indication(s),
pursue CMS coverage for our products in the remaining one-third of treated patients who qualify under such broader indication(s), including
patients who are deemed standard surgical risk.
We have experienced considerable growth since we began commercializing our products in the United States in late 2015. Our revenue
increased to $63.4 million for the year ended December 31, 2019 compared to $34.6 million for the year ended December 31, 2018, representing
growth of 83%, and our net losses were $52.4 million and $37.6 million for the years ended December 31, 2019 and 2018, respectively. As of
December 31, 2019 and 2018, our accumulated deficit was $191.5 million and $139.1 million, respectively.
Our Competitive Strengths
We believe the continued growth of our company will be driven by the following competitive strengths:
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Paradigm-shifting transcarotid access and flow reversal technologies. TCAR, as pioneered by our FDA-approved products,
presents an entirely new, minimally-invasive procedure in a disease state where conventional surgical treatment options have not
advanced significantly for over 60 years. TCAR combines two key concepts: minimally-invasive direct carotid access in the neck, and
high-rate blood flow reversal to protect the brain. Our technology combines the benefits of innovative endovascular techniques with
fundamental surgical principles. Our goal is to leverage our disruptive technology and growing body of clinical evidence to establish our
products as the part of an improved standard of care for treating qualifying patients who require carotid revascularization.
• Compelling body of clinical and economic evidence. The benefits of TCAR are supported by data from over 11,900 patients enrolled
across several multi-center clinical trials, post market studies and real-world registries that support favorable patient outcomes and value-
based care. In November 2015, the Journal of Vascular Surgery reported that TCAR demonstrated the lowest 30-day stroke rate of any
prospective, multicenter carotid stent trial. Data from the Society for Vascular Surgery’s TCAR Surveillance Project show that TCAR
compares favorably to CEA and CAS with a low in-hospital and 30-day stroke and death risk and low procedure-related adverse events.
TCAR has demonstrated shorter procedure times, a shorter length of hospital stay and reduced adverse event rates compared to the
standard of care, CEA. For hospitals seeking to improve quality metrics, drive throughput and increase profitability, we believe TCAR
results in higher efficiency and increased cost savings. In addition, by reducing the overall burden of stroke, we believe TCAR is beneficial
to payers. We believe our growing body of clinical evidence and favorable value proposition will continue to support increased adoption of
TCAR.
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Established reimbursement linked to our unique regulatory label. TCAR is reimbursed under established codes and payment levels.
CMS coverage for TCAR in certain high surgical risk patients treated at facilities participating in the Society for Vascular Surgery’s TCAR
Surveillance Project mandates the use of FDA-cleared transcarotid flow reversal neuroprotection devices and FDA-approved transcarotid
stents. We are currently the only company to have obtained transcarotid FDA labeling, thereby offering the only transcarotid devices
currently eligible for CMS reimbursement coverage through the Society for Vascular Surgery’s TCAR Surveillance Project.
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Procedure-focused approach to product innovation and service. Our product portfolio was developed to support the technical
aspects of TCAR and is currently the only suite of devices specifically designed for carotid access through the neck, or the transcarotid
approach. Our research and development strategy strives to optimize safety, effectiveness and ease-of-use through a family of integrated
products designed to minimize the learning curve and drive adoption by physicians. In addition, our commercial organization is clinically
consultative and trained in many aspects of carotid artery disease treatment, from patient selection and pre-operative planning to
procedural support and post-operative care. As a result, our commercial organization provides a level of service and support that we
believe is valued by our physician customers and drives customer loyalty.
Strong relationships and engagement with key medical societies and governmental agencies. We have developed strong working
relationships with key groups including the FDA, CMS, and the Society for Vascular Surgery. By listening and responding to the needs of
key stakeholders, we believe we have been able to achieve efficient regulatory approval timelines, coverage and alignment with key
medical societies in the vascular field regarding the benefits of TCAR. We believe our approach to engaging these key stakeholders will
continue to help drive our business success.
• Broad intellectual property portfolio. As of December 31, 2019 , we held 76 patents globally that include device, apparatus and method
claims surrounding TCAR and our suite of current and potential future products, as well as for treating other vascular diseases and
enabling other transcarotid procedures, primarily directed at acute ischemic stroke, other neurovascular procedures, repair of the aorta
and transcatheter aortic valve repair, or TAVR. In addition, we believe that our trade secrets, including manufacturing know-how, provide
additional barriers to entry.
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Industry-experienced senior management team. Our senior management team consists of seasoned medical device professionals
with deep industry experience. Our team has successfully lead and managed dynamic growth phases in organizations and
commercialized products in markets driven by converting open surgical procedures to endovascular alternatives and expanding access to
new procedures for patients. Members of our team have worked with well-regarded medical technology companies such as Boston
Scientific, Medtronic, Abbott, Johnson & Johnson, Stryker, Cardinal Health and Roche.
Our Market Opportunity
The Burden of Stroke
Stroke is a disease that affects the arteries leading to and within the brain. There are two key types of stroke: an ischemic stroke, which
occurs when a blood vessel that carries oxygen and nutrients to the brain is blocked by a clot, and a hemorrhagic stroke, which occurs when one
of these same blood vessels ruptures. If blood flow is stopped for more than a few seconds, the brain is deprived of oxygenated blood and brain
cells can die. Depending on where in the brain the stroke occurs, the consequences of stroke can include difficulty talking, memory loss, cognitive
issues, paralysis or loss of muscle movement, inability to attend to bodily needs or care, pain, emotional problems, and death.
Although stroke is often considered preventable, it remains one of the most catastrophic and common conditions worldwide. The American
Heart Association, or AHA, estimated that the global prevalence of stroke was 42.4 million in 2015, with ischemic strokes representing
approximately 87% of the total number of strokes in the U.S. and approximately two thirds of all strokes worldwide. According to a 2013 study
published in the Neuroepidemiology Journal, there are an estimated 6.9 million new or recurrent ischemic strokes globally each year. The AHA
expects the incidence of stroke to more than double between 2010 and 2050 as demographic trends contribute to an increase in the prevalence of
disease states that are commonly associated with strokes.
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In the United States, stroke is a major contributor to long-term disability and mortality and disproportionately affects women, the elderly and
certain ethnic populations. According to the AHA, stroke was the fifth leading cause of death in the United States in 2014, and results in the death
of approximately 140,000 people each year. Stroke ranked in the top 10 most expensive conditions for Medicare, Medicaid, and private insurers in
2013, and according to the AHA, direct medical stroke-related costs will more than double in the United States, from $36.7 billion in 2015 to $94.3
billion in 2035.
We believe the best way to mitigate the mortality, morbidity and cost burden of stroke is to prevent strokes in the first place. While strokes can
be caused by a wide variety of conditions, the Society for Vascular Surgery estimates that carotid artery disease is the primary cause of up to one-
third of strokes. Based on AHA’s estimated 690,000 ischemic strokes in the United States every year, carotid artery disease is the cause of up to
230,000 ischemic strokes annually. Clinical evidence has demonstrated that with proper diagnosis and treatment, stroke due to carotid artery
disease is mostly preventable.
Overview of Carotid Artery Disease
Carotid artery disease, also known as carotid artery stenosis, is the narrowing of the carotid arteries that reside in the neck, one on each side,
which are two of the four main blood vessels that supply oxygen to the brain. The narrowing of the carotid arteries is usually caused by
atherosclerosis, which is the buildup of cholesterol, fat, calcium and other substances on the walls of arteries. Over time and as people age, an
area of atherosclerotic plaque, also called a lesion, is formed. Plaque buildup can lead to narrowing or blockage in the carotid artery, often at the
bifurcation of the common carotid and internal carotid arteries.
Carotid plaques in particular are often unstable or crumbly, and a piece of plaque or a blood clot, known as emboli, can break away from the
wall of the carotid artery, travel through the bloodstream and get stuck in one of the brain’s smaller arteries. When these arteries experience an
interrupted or seriously reduced blood supply, the surrounding cells and tissue are deprived of oxygen leading to an ischemic stroke.
Diagnosis and Referral Pathways for Carotid Artery Disease
Based on data from Modus Health Group, carotid artery disease was prevalent in approximately 4.3 million people in the United States in
2018, which represented approximately 1.7% of the adult population in 2018, and reflects an increase in prevalence from approximately 4.1
million people in the
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United States in 2017. Prevalence generally increases with age. Unfortunately for many patients, carotid artery disease is frequently
asymptomatic, or silent, and the first symptom is often a stroke. In 2018, an estimated 427,000 patients in the United States were diagnosed with
carotid artery disease severe enough to warrant treatment, reflecting an increase from an estimated 403,000 patients in 2017. Patients are
diagnosed with carotid artery disease either because they have been non-invasively screened for the disease or they have experienced
symptoms ranging from a major or minor stroke to a transient ischemic attack, or TIA, in which neurologic symptoms resolve within 24 hours.
For asymptomatic patients, a primary care physician or a specialist such as a vascular surgeon or cardiologist may screen for carotid artery
disease based on the presence of risk factors, including age, family history, history of smoking, high cholesterol, high blood pressure, obesity,
diabetes or atherosclerosis in other areas like the heart and legs. When a potential carotid stenosis is detected, the physician will typically refer
the patient to a vascular laboratory for a non-invasive ultrasound to definitively diagnose the presence and degree of stenosis, or narrowing of the
artery. The degree of stenosis is reported as a percentage of the vessel diameter. There is a correlation between higher degrees of stenosis and
increased risk of stroke.
Symptomatic patients who have survived a stroke or experienced a TIA are typically referred to a neurologist for care and physiological
assessment. If the patient is found to have underlying carotid artery stenosis, the neurologist will typically refer the patient to a vascular surgeon
for urgent treatment to prevent a recurrent stroke. The majority of patients in the United States who are referred for a carotid revascularization
procedure receive care from a vascular surgeon.
Once a patient is diagnosed with carotid artery disease, the treatment paradigm is influenced by the patient’s symptom status, disease
progression and degree of stenosis, as well as factors that may place them at higher risk of adverse events, including their age, anatomic
characteristics, and co-morbidities such as cardiovascular and respiratory disease. Patients diagnosed with carotid artery disease are
recommended for treatment with medical management, which includes pharmaceutical treatments and lifestyle modifications such as smoking
cessation and control of diabetes, hypertension and lipid, or fatty acid, abnormalities. As the degree of stenosis increases, carotid
revascularization procedures may also be prescribed.
For example, published guidelines by the Society for Vascular Surgery recommend that symptomatic patients be treated with CEA if they
present with carotid artery stenosis greater than or equal to 50%. For asymptomatic patients, the guidelines recommend CEA for stenosis greater
than or equal to 60%, provided that the risk of stroke and death within 30 days of the procedure is below 3% and life expectancy is greater than
three years. The risk of stroke and death within 30 days is subjective and typically depends on the patient’s surgical risk factors as well as the skill
and experience of the treating physician. The guidelines for CAS procedures are more limiting than those for CEA procedures due primarily to the
increased stroke risk associated with CAS.
In 2018, of the estimated 4.3 million individuals in the United States with carotid artery disease, and of the approximately 427,000 patients that
were newly diagnosed, approximately 168,000 patients were treated with a revascularization procedure, representing an increase of
approximately 6% in newly diagnosed patients relative to 403,000 patients in 2017, and an increase of approximately 10% in revascularization
procedures relative to approximately 152,000 procedures in 2017. The remaining patients are managed medically and monitored to assess the
progression of stenosis and any new or recurrent neurologic symptoms.
Existing Alternatives for Carotid Revascularization and Their Limitations
Existing treatment options for carotid revascularization procedures include CEA and CAS. Both surgical removal of plaque with CEA and
stenting of plaque with CAS have demonstrated clinical effectiveness in reducing long-term stroke risk, which is stroke occurring more than 30
days after the procedure. This has been shown in multiple randomized trials across different surgical techniques and
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stent designs, including trials with multi-year follow up that, in some cases, extend out to 10 years. However, CEA and CAS have been associated
with adverse events within 30 days.
Carotid Endarterectomy, or CEA
CEA, which was first performed in 1953, is an invasive surgical procedure, typically performed under general anesthesia. The procedure
involves a ten- to fifteen-centimeter incision extending from the base of the neck towards the earlobe, followed by the meticulous dissection of
multiple tissue and muscle layers to open and expose the internal, external and common carotid arteries, collectively known as the carotid
bifurcation. During the surgical exposure of the carotid bifurcation, great care is required to avoid damaging the cranial nerves that travel in and
around the carotid arteries and related veins. Damage to these nerves, which control functions like speaking, swallowing, facial sensation, taste
and saliva production, is a potential side-effect of CEA and can result in transient and permanent quality of life issues and stroke-like symptoms.
Once the bifurcation is exposed, the carotid arteries are then clamped above and below the disease, temporarily halting blood flow to the
brain from that artery, so that the artery can be cut open to remove the plaque. Due to the length of the surgery, a shunt is sometimes placed to
allow blood flow to bypass the clamped arteries and reach the brain. After the plaque is removed, the artery is closed, and the vessels are
unclamped to restore blood flow. The long incisional wound is then sutured closed, though the resulting scar presents a cosmetic disadvantage.
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Data from large randomized clinical trials have demonstrated that CEA in addition to medical management is more effective at reducing long-
term stroke risk than medical management alone, which has established CEA as the standard of care. Importantly, many of these trials primarily
included standard surgical risk patients who were relatively young, free of co-morbidities and deemed reasonably able to withstand the stress of
an invasive surgery.
Data from these trials and other studies, including real world registries, have indicated that the surgical impact from a large incision combined
with factors such as procedure time, general anesthesia and patient-specific risk factors can result in known adverse events, including nerve
injury, heart attack and even stroke and death. CEA also presents a risk of wound complications, including bleeding and infection, and leaves
behind a significant scar. These adverse events can also lead to longer hospital stays that are costly to providers and payers. Further, patient
recovery times can be significant after a major vascular surgery like CEA.
Transfemoral Carotid Artery Stenting, or CAS
To address the invasiveness of CEA, in the 1990s physicians and medical device companies developed CAS, which uses minimally-invasive
techniques to place a stent in the carotid artery. The first carotid stents were approved by the FDA in 2004 for high surgical risk patients, marking
the beginning of the CAS market in the United States.
In a CAS procedure, a small puncture is made in the groin and a sheath is inserted through which a physician can navigate catheters. The
physician navigates the catheters inside the body through approximately three feet of vessels and arteries of the leg, abdomen, chest and neck,
up to and often beyond the lesion itself, in order to place a stent to brace the plaque and prevent it from embolizing. Significant technical skill is
required to maneuver catheters through these vessels and their twists and turns. Patients may also have significant atherosclerotic disease along
the navigation pathway, and the catheters can scrape the inner lining of the arteries and dislodge plaque and embolic debris, which can travel to
the brain and cause neurologic injury or stroke during or after the procedure. While embolic protection devices, which are designed to capture
debris dislodged during the procedure, may be used to reduce these risks, the brain is not protected while they are maneuvered into place, and
they do not always safely capture all debris once in position.
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While CAS is less invasive than CEA, multiple randomized clinical studies and real-world registries have consistently shown an almost two-
fold increase in the risk of stroke within 30 days relative to CEA. CAS has also been clinically demonstrated to result in showers of microemboli to
the brain, which can cause neurologic injuries including memory loss as well as cognitive decline and dementia while increasing the risk of future
stroke. The procedure-related stroke risks are further elevated in elderly, female, symptomatic and other at-risk patients who tend to have smaller
or more distended and diseased vessels. As a result, CAS is performed in a minority of carotid revascularization procedures, representing only
14% of the estimated 168,000 carotid procedures performed in the United States in 2018. By contrast, after multiple decades of technology
innovation and clinical development, minimally-invasive endovascular procedures targeted at arterial diseases in the legs, abdomen, heart and
brain have become the standard of care and represented approximately 70% to 85% of procedures in other areas of the vasculature in 2012 as
compared to open surgical alternatives.
Major Trials Comparing CEA and CAS
The principal clinical trial evaluating CEA and CAS is the Stenting versus Endarterectomy for Treatment of Carotid-Artery Stenosis trial,
known as CREST. CREST was a multi-center randomized controlled trial in the United States that compared CEA to CAS in symptomatic and
asymptomatic patients deemed to be at standard risk for adverse events from CEA, or standard surgical risk. This trial, which by protocol
excluded high surgical risk patients, was sponsored by the National Institutes of Health and is considered by many physicians to be the landmark
trial comparing CEA and CAS. A number of other randomized controlled trials have further established the basis of comparison between CEA and
CAS. In addition, post-market registries sponsored by the Society for Vascular Surgery have assessed CEA and CAS in real world practice.
Results comparing CEA and CAS from the CREST trial and the Society for Vascular Surgery registry are shown in tables below. In our
presentation of the results of the CREST trial, we have indicated incidence rates in percentage terms, regardless of sample size. Statistically
significant differences are demonstrated by p-values of less than 0.05, which is the commonly accepted threshold for statistical significance. This
follows the convention of standard clinical practice.
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CREST Trial Results
Patient Cohort
All Patients
Asymptomatic
Symptomatic
Male
Female
Age >75 years
Age <75 years
30-day Stroke
30-day Stroke/Death
4 Year Ipsilateral Stroke
Incidence
p-value
Incidence
p-value
Incidence
p-value
CEA
CAS
CEA
CAS
CEA
CAS
CEA
CAS
CEA
CAS
CEA
CAS
CEA
CAS
n=1,240
n=1,262
n=587
n=594
n=653
n=668
n=823
n=807
n=417
n=455
n=353
n=333
n=887
n=929
2.3%
4.1%
1.4%
2.5%
3.2%
5.5%
2.4%
3.3%
2.2%
5.5%
3.1%
6.9%
2.0%
3.1%
0.01
0.15
0.043
0.26
0.013
0.035
NR
2.3%
4.4%
1.4%
2.5%
3.2%
6.0%
2.4%
3.7%
2.2%
5.5%
3.7%
8.1%
2.1%
3.6%
0.005
0.15
0.019
0.13
0.013
NR
NR
1.7%
1.6%
0.9%
1.5%
2.5%
1.7%
1.3%
1.6%
2.4%
1.5%
1.4%
3.0%
1.8%
1.1%
NR
NR
NR
NR
NR
NR
NR
NR - p-values not reported; rates are manually calculated from data presented in the respective publications.
While there was a statistically significant difference in 30-day stroke and 30-day stroke/death favoring CEA, CAS had a significantly lower rate
of myocardial infarction of 1.1% compared to CEA at 2.3%, with a p-value equal to 0.03. We believe that this can be largely attributed to the more
invasive nature of CEA.
In the FDA analysis of CREST which led to FDA approval of a carotid stent for use in standard surgical risk patients, the rate of acute cranial
nerve injury was a secondary endpoint. Patients with an acute cranial nerve injury were evaluated again at the 6-month follow-up visit to
determine if the injury persisted. As shown in the table below, patients randomized to the CEA arm had a statistically significant higher rate of
acute cranial nerve injury, many of which persisted at the 6-month evaluation. Eighty percent of the cranial nerve injuries involved a motor deficit,
such as difficulty swallowing.
Cranial Nerve Injury
Cranial Nerve Injury (Acute)
Cranial Nerve Injury (Persisting at 6 months)
CEA
n=1,176
5.3%
2.1%
CAS
n=1,131
0.0%
0.0%
p-value
<0.0001
<0.0001
In an analysis of patients who received their randomized treatment assignment without crossover, CEA procedure time was more than twice
that of CAS. Additionally, CEA patients had a hospital length of stay of 3.0 days compared to 2.6 days for CAS patients. The difference in hospital
length of stay was statistically significant.
Procedural Information
Mean procedure time (mins)
Length of stay (days)
CEA
n=1,193
171
3.0
CAS
n=1,213
69
2.6
p-value
NR
0.011
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In a publication of the primary long-term endpoint of post-procedural ipsilateral stroke, or a stroke on the same side as the original carotid
revascularization procedure, over the 10-year follow-up period, ipsilateral stroke occurred in 6.9% of CAS patients and 5.6% of CEA patients. The
difference was not statistically significant. Furthermore, there was no statistical difference when outcomes were analyzed separately for
symptomatic and asymptomatic patients. There was also no statistical difference between CAS and CEA at any other year of follow-up from year
one through year nine. These data demonstrate that both CAS and CEA provide the same durable reduction of long-term stroke risk.
Society for Vascular Surgery Vascular Registry
In 2013, members of the Society for Vascular Surgery Vascular Registry, the precursor to the VQI, published outcomes for CEA and CAS in
high surgical risk patients using CMS high risk criteria per the National Coverage Determination. The objective of the analysis was to determine
objectively if the CMS high risk criteria demonstrated differential and biased outcomes in CEA and CAS due to the over-representation of high risk
patients for CAS. The authors also sought to determine if the rate of adverse events in high risk patients is lower in CAS than CEA as the surgical
high risk criteria would suggest. The primary endpoint was a composite of stroke, death and myocardial infarction at 30 days. In a risk adjusted
analysis, CAS had a significantly higher rate of stroke, death and myocardial infarction compared to CEA. For the high risk cohort, the rates of
stroke for CEA and CAS were 3.6% and 4.9%, respectively; the rates of stroke and death for CEA and CAS were 4.8% and 6.2%, respectively.
Symptomatic
Asymptomatic
CEA High Risk
n=936
7.3%
6.4%
4.9%
n=1,418
5.0%
3.7%
2.7%
All
n=2,354
5.9%
4.8%
3.6%
CAS High Risk
Symptomatic
Asymptomatic
n=1,538
n=1,844
9.1%
7.9%
6.7%
5.4%
4.8%
3.4%
All
n=3,382
7.1%
6.2%
4.9%
Stroke/death/myocardial
infarction
Stroke/death
Stroke
Our Solution
With our portfolio of TCAR products, we have pioneered a new approach for the treatment of patients who are at high risk for adverse events
from CEA and qualify for a TCAR procedure, and we are seeking to expand the indication for our TCAR products in an effort to improve the
standard of care for treating carotid artery diseases or conditions that require carotid revascularization. TCAR is a minimally-invasive solution that
addresses the risk of morbidity of CEA and the 30-day stroke risk of CAS, while providing the equivalent clinical benefit of these conventional
surgical procedures and a reduction in long-term stroke risk. We believe that by meeting the standard of brain protection and reduction in 30-day
and long-term stroke risks associated with CEA in a minimally-invasive manner, TCAR offers an attractive alternative for patients, providers and
payers and has the potential to successfully penetrate the entire carotid revascularization market. We plan to seek FDA approval for expanded
indication(s) to make our TCAR products and related procedures available to more patients who may benefit from such surgical procedures.
Transcarotid Artery Revascularization, or TCAR
TCAR relies on two novel concepts: minimally-invasive direct carotid access in the neck, and high-rate blood flow reversal during the
procedure to protect the brain.
The TCAR procedure begins with a two- to three-centimeter incision slightly above the collarbone, thereby obviating the need to maneuver
catheters from the groin. The incision is made just above the collarbone to expose a small section of the carotid artery well below the carotid
stenosis and most of the cranial nerves. A puncture is made into the carotid artery using our transcarotid access kit, and our
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proprietary sheath is placed inside the carotid artery. This sheath is connected to the rest of our flow reversal system, which lies outside the body,
and ends in a connection to our venous sheath in the patient’s groin. After the carotid artery is clamped just below the sheath, the pressure
gradient between the high-pressure arterial system in the neck and the low-pressure venous system in the groin creates the blood flow reversal,
which redirects dislodged plaque and debris away from the brain where it is captured in an external filter in our system.
While the brain is protected by flow reversal, our guidewire is navigated across the lesion and our transcarotid stent is delivered and placed in
the carotid artery to stabilize the plaque against the wall of the artery, trapping the lesion and reducing the risk of a future stroke. The short
distance enabled by our transcarotid access allows for accurate stent placement. Balloon catheters can also be used to pre-dilate the lesion or
further expand the stent when appropriate. Any debris released during these steps of the procedure is directed safely away from the brain by the
flow reversal. Clinical studies have shown that patients can tolerate this temporary redirection of blood flow, which usually lasts for approximately
ten minutes, due to the redundant network of arteries in the brain that enable it to receive blood flow and oxygen through multiple pathways. After
our transcarotid stent is implanted, the blood flow is returned to normal, the system is removed, and the artery and small wound are sutured
closed.
The following diagram depicts our portfolio of TCAR products:
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Key Clinical Advantages of TCAR
We believe the key advantages of TCAR relative to CEA and CAS include:
• Reduction in stroke risk. In our pivotal ROADSTER clinical trial, TCAR demonstrated a 30-day stroke rate of 1.4% in 141 high surgical
risk patients. In the study publication from the Journal of Vascular Surgery in November 2015, the authors reported that the 30-day stroke
rate of 1.4% was the lowest reported for any prospective, multicenter trial of carotid artery stenting. Our ROADSTER 2 post approval
study was completed in 2019 and showed a 30-day stroke rate of 0.6% in 632 patients. In separate propensity matched analyses from the
TCAR Surveillance Project, TCAR showed similarly low in-hospital strokes rates compared to CEA (odds ratio 0.80; 95%CI 0.58-1.11;
p=0.19) and statistically significant lower in-hospital stroke rates compared to CAS (1.3% for TCAR versus 2.4% for CAS; Relative Risk
0.54 95%CI 0.38 to 0.79; p=0.001).
•
Low surgical morbidity. The minimally-invasive nature of TCAR offers inherent advantages that can mitigate adverse events typically
associated with CEA, including cranial nerve injury and myocardial infarction. Propensity matched data from the Society for Vascular
Surgery’s TCAR Surveillance Project in 5,160 patients in each cohort showed TCAR provided a statistically significant reduction in the
rate of in-hospital cranial nerve injury, myocardial infarction and composite stroke, death and myocardial infarction as compared to CEA
patients. Similarly, data from our ROADSTER study indicated that TCAR had a heart attack rate of 0.7% in high surgical risk patients
within 30 days of the procedure. CREST data regarding standard surgical risk patients showed a 30-day heart attack rate of 2.3% and
1.1% for CEA and CAS, respectively.
• Minimal patient discomfort and rapid recovery. While the typical incision required for CEA is ten to fifteen centimeters long, the TCAR
incision is generally two to three centimeters long, leaving behind a much smaller wound and scar that often only requires non-opioid pain
medications and little more than a steri-strip to cover the operative wound. In our ROADSTER clinical study, 53% of TCAR procedures
were performed under local anesthesia. In addition, multiple analyses of real-world data from the Society for Vascular Surgery’s TCAR
Surveillance Project showed a statistically significant reduction in the likelihood that a TCAR patient would require a hospital stay in
excess of one day as compared to a CEA patient.
• Reduction in the risk of microembolic debris. While large emboli have dominated clinical focus and discussion due to the ability to
cause clinically diagnosed stroke or TIAs, there is a growing body of evidence that indicates that showers of micro emboli to the brain,
which, for example, may be caused by the CAS procedure, can cause neurologic injuries including memory loss, cognitive decline and
dementia, while increasing the risk of future stroke. Data from our PROOF clinical trial indicated that only 18% of studied TCAR patients
presented with new white lesions occurring on the same side of the brain, or ipsilateral, as the treated carotid artery, as shown on
diffusion-weighted magnetic resonance imaging studies. This rate of new white lesions, which indicate brain injury, was comparable to
published data for CEA procedures and significantly lower than published data for CAS procedures, which show a range of 45% to 87% of
patients with new white ipsilateral lesions.
•
Short adoption curve for physicians new to TCAR. In a publication from the TCAR Surveillance Project in January 2020, the authors
reviewed 3,456 TCAR procedures performed by 417 unique practitioners at 178 centers. Patients were grouped into four levels based
upon the physicians’ experience with TCAR at the time of procedure: novice (1-5 cases), intermediate (6-20 cases), advanced (20-30
cases) and expert (>30 cases). Of the patients analyzed, 41% of patients were treated by novice physicians, 40% of patients were treated
by intermediate physicians, 9% of patients were treated by advanced physicians and 10% of patients were treated by expert physicians.
The authors noted that TCAR novices can achieve the same clinical outcomes as expert practitioners, while in comparison CAS requires
more than 50 cases to
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achieve proficiency. The incidence of stroke and death was not statistically significantly different for novice practitioners (1.5%) compared
to expert practitioners (1.4%; p=0.90).
We believe the results of our clinical studies provide evidence that TCAR may offer significantly better reduction in stroke risk than CAS and
similar reduction in stroke risk compared to CEA, the current standard of care for carotid revascularization, allowing physicians to present the
minimally-invasive alternative of TCAR to patients without compromising the reduction in stroke risk they would expect in a CEA procedure. We
believe the growing clinical evidence base from our ongoing and future studies and the Society for Vascular Surgery’s TCAR Surveillance Project
will continue to drive confidence in the procedure and support continued adoption.
Benefits to Other Key Stakeholders
In addition to offering clinical benefits to patients, we believe that TCAR also offers valuable non-clinical benefits for providers and payers
relative to CEA and CAS.
Providers
We believe TCAR allows for improved hospital workflow given the simplicity, predictability, and efficiency of the procedure as compared to
CEA and CAS. By allowing direct access to the carotid artery rather than requiring the physician to navigate the vasculature as in CAS, and
allowing the physician to place a stent to trap plaque rather than requiring the time-consuming and physically burdensome surgical removal of
carotid plaque as in CEA, we believe TCAR is a more efficient and predictable procedure. Data from the Society of Vascular Surgery’s TCAR
Surveillance Project has shown that the average TCAR procedure time has been statistically significantly shorter and that there has been a
statistically significant reduction in the percent of hospital stays longer than one day, relative to CEA. These benefits can help hospitals to better
utilize their operating room capacity and fixed overhead and reduce the number of procedures associated with hospital stays longer than one day,
which could result in financial losses for hospitals. We believe the economic benefits are further aided by the reduction in expensive adverse
events that are borne by capitated providers or absorbed within 90-day global periods related to hospital reimbursement. Through third-party
consultants, we have performed economic analyses of TCAR using our own clinical data from the ROADSTER study and published data for CEA
surrounding cost inputs for both procedures and national weighted average reimbursement rates. We believe the results of these analyses show
that TCAR compares favorably to CEA in terms of hospital margins and economic value proposition for the procedure itself as well as the full
length of hospital stay.
Payers
Stroke is one of the costliest conditions for the healthcare system and ranked in the top ten most expensive conditions for Medicare,
Medicaid, and private insurers in 2013. By reducing the 30-day stroke risk from the procedure and the long-term stroke risk from the disease after
30 days, we believe that TCAR mitigates the significant cost burden associated with the morbidity of stroke victims. In addition to reducing costs
associated with stroke, we believe TCAR also helps to reduce downstream costs associated with cranial nerve injuries, myocardial infarction,
microembolization and other adverse events.
Our Product Portfolio
TCAR is enabled by our proprietary portfolio of TCAR products designed to provide direct access to the carotid artery, effective reduction in
stroke risk throughout the procedure, and long-term restraint of carotid plaque. In addition to enabling the safety and effectiveness of TCAR, our
proprietary products are specifically designed to enable a short learning curve, consistent ease of use and physician comfort. Our products are
also currently the only devices cleared and approved by the FDA specifically for transcarotid use.
Today, our product portfolio consists of the following four single use components. Based on our experience, the full product portfolio is used in
the majority of TCAR procedures. In the future we plan to
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continue to expand our product portfolio to include additional tools and devices to support the TCAR procedure.
ENROUTE Transcarotid
Neuroprotection System
•
• Used to directly access the common carotid artery and initiate
temporary blood flow reversal
Allows for flow modulation enabling lesion imaging and patient
tolerability
• Only FDA-cleared transcarotid neuroprotection system
ENROUTE Transcarotid Stent
System
ENHANCE Transcarotid
Peripheral Access Kit
ENROUTE 0.014” Guidewire
•
•
Self-expanding, self-tapering stent with clinical data regarding lasting
safety outcomes
Transcarotid delivery system improves the accuracy and the overall
ergonomics of the TCAR procedure
• Only FDA approved transcarotid stent system
• Used to gain initial access to the common carotid artery
• Only access kit specifically designed for use in the common carotid
artery
• Main conduit for navigating and crossing the target lesion for delivery
of interventional devices
Short working length and proprietary tip designed for TCAR
•
Our ENROUTE NPS and ENROUTE stent are FDA cleared and approved, respectively. The ENROUTE NPS is cleared for transcarotid
vascular access, introduction of diagnostic agents and therapeutic devices, and embolic protection during carotid artery angioplasty and stenting
procedures for patients diagnosed with carotid artery stenosis and who have appropriate anatomy, and the ENROUTE stent (PMA P140026) is
approved for use in conjunction with the ENROUTE NPS for the treatment of patients at high risk for adverse events from CEA who require
carotid revascularization and meet certain criteria.
Our Target Market
We are working to establish TCAR as the preferred alternative to both CEA and CAS for the treatment of patients with carotid artery disease.
Because TCAR offers clinically proven, minimally-invasive reduction in stroke risk, we believe that TCAR can offer a better solution for the
approximately 168,000 patients treated in the United States in 2018, most of whom were treated with either CEA or CAS, which we estimate to be
a near-term market conversion opportunity greater than $1.0 billion. Additionally, we believe that as our technology becomes more widely
adopted, TCAR may become a compelling alternative for patients that are treated with medical management alone each year. As a result, we
believe the potential addressable opportunity for TCAR includes the approximately 427,000 individuals in the United States who were diagnosed
with carotid artery disease in 2018, representing a total U.S. target market opportunity of approximately $2.6 billion in 2018.
Currently, our ENROUTE stent is indicated for use in patients who are considered high surgical risk, and either are symptomatic with greater
than or equal to 50% stenosis or are asymptomatic with greater than or equal to 80% stenosis. The labeled indications for use for our other
products, including the ENROUTE NPS, are agnostic to surgical risk status. Based on the FDA label of high surgical risk for our stent, CMS
provides reimbursement coverage for TCAR in patients who are considered a high surgical risk but not standard surgical risk. According to
published studies and primary research, we believe the high surgical risk population represents approximately two-thirds, or over 111,000, of the
approximately 168,000 patients treated for carotid artery disease in the United States in 2018, most of whom were treated with either CEA or
CAS. We are currently focused on clinical development activities to support
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label expansion for our ENROUTE stent to standard surgical risk patients. We would then seek an associated expansion in CMS reimbursement
coverage.
While our current commercial focus is on the U.S. market, our ENROUTE NPS and ENROUTE stent have obtained CE Mark approval,
allowing us to commercialize in Europe in the future. We intend to pursue regulatory clearances or approvals in China, Japan, and other select
international markets. Carotid artery disease and stroke are prevalent, devastating and costly conditions worldwide, and we estimate that a
significant opportunity exists for TCAR outside the United States, since the United States represents only 10% of the estimated global incidence of
ischemic stroke.
Our Growth Strategy
Our mission is to be the global leader in the treatment of carotid artery disease. We seek to improve the standard of care for carotid
revascularization by targeting the market for CEA and CAS procedures and expanding the application and regulatory authorization for our TCAR
products to include patients treated with medical management alone. Our growth strategies include:
•
•
•
Strategically expanding our U.S. sales force and marketing activities. As of December 31, 2019, we have approximately 640 hospital
accounts across 33 active sales territories. To date, we have taken a measured approach to account targeting and physician training.
Over time, we plan to selectively add highly qualified personnel to our commercial organization with a strategic mix of selling professionals
and clinical specialists to cover the concentrated group of approximately 2,750 physicians and 750 hospitals that we believe perform 80%
of carotid revascularization procedures. As we grow the size of our U.S. sales organization, we plan to remain focused on educating
hospitals and physicians regarding the benefits of TCAR and the expanding clinical evidence base, which we believe will increase the
adoption of TCAR in existing hospital accounts while expanding our new account and trained physician base.
Scaling professional education to drive physician use. As of December 31, 2019, we have trained approximately 1,440 physicians in
the United States. Our education and training courses are led by a highly regarded faculty of key opinion leaders in vascular surgery,
allowing for significant peer-to-peer interaction and influence from experienced TCAR practitioners. These courses have been fully
subscribed since inception. We believe these professional education initiatives are a key differentiator in driving successful outcomes
during the learning curve of TCAR and establishing the confidence physicians need to adopt TCAR. We plan to continue conducting these
courses while regionalizing the course locations, continuously improving the program, and expanding our physician faculty.
Increasing TCAR adoption. In our existing account and trained physician base, we have shown an ability to drive adoption in high
surgical risk patients where CEA might otherwise be riskier or technically challenging, as well as in patients with anatomy or risk factors
unfavorable for CAS. Our strategy is to continue educating physicians in the approved indications for our TCAR products, and to expand
the approved uses of our products across broader patient subgroups, as physicians’ experience and confidence with the procedure
accrues and our clinical evidence base expands through the Society for Vascular Surgery’s TCAR Surveillance Project and our ongoing
and future studies. We also plan to continue converting CEA or CAS procedures to TCAR in current hospital accounts by training
additional physicians in these accounts.
• Building our clinical evidence base. Vascular surgeons typically rely on clinical evidence to drive changes in their practice. Primary
care physicians and specialist referrers like neurologists and cardiologists also scrutinize clinical evidence. We completed the
ROADSTER 2 study in 2019 and the results were subsequently presented in June 2019 at the VAM in National Harbor, Maryland, and we
expect the data to be published in a peer-reviewed medical journal in the future. We plan to continue to build our clinical evidence base by
commencing new clinical studies intended to support marketing efforts and regulatory initiatives. We also expect the
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Society for Vascular Surgery’s ongoing TCAR Surveillance Project registry to continue to grow and produce valuable presentations and
published papers with comparative data and sub-group analyses that will further define the role of TCAR across patient populations.
• Broadening the indication for the ENROUTE stent and expanding reimbursement. We plan to continue to work to expand FDA
labeling for the ENROUTE stent to address the approximately one-third of treated patients who present standard surgical risk. If we obtain
approval of a label expansion, we intend to pursue Medicare coverage for TCAR in standard surgical risk patients.
•
Pursuing international markets. Carotid artery disease and stroke are prevalent, devastating and costly conditions worldwide, and we
estimate that a significant opportunity exists for TCAR outside the United States. We currently have CE Mark for the ENROUTE NPS and
ENROUTE stent, which would allow us to commercialize in Europe in the future. We are also actively working towards regulatory
clearances for our products in China and Japan.
• Continuing our history of innovation in and beyond TCAR. We are currently developing additional and next generation products to
support and improve TCAR to meet the evolving needs of physicians and their patients. We also have a broad intellectual property
platform and, in the future, we intend to leverage our expertise and the physiologic and engineering advantages made possible by our
transcarotid approach to develop new products targeting procedures and vascular disease states in the heart, aortic arch and brain.
Clinical Data
The safety, effectiveness and clinical advantages of TCAR have been observed in multiple clinical trials and post-market studies that have
collectively evaluated more than 11,900 patients in the United States and Europe to date. Our first-in-human trial, the PROOF Study, was initiated
as a feasibility study to assess the safety and performance of the ENROUTE NPS and later was expanded to support CE marking of the
ENROUTE NPS. Data from the PROOF Study were also used to support FDA approval of the investigational device exemption, or IDE, for the
ROADSTER Study. Data from the pivotal cohort of the ROADSTER Study supported FDA 510(k) clearance of the ENROUTE NPS, and a subset
of the data supported pre-market, or PMA, approval of the ENROUTE stent. The results of the pivotal phase of the ROADSTER study were
published in November 2015 in the Journal of Vascular Surgery. We have completed a post market approval study, ROADSTER 2, which was
designed to evaluate the outcomes in TCAR procedures using the ENROUTE stent used in conjunction with the ENROUTE NPS in broader,
“real‑world” use in 692 patients. Data on TCAR outcomes also continues to accrue through the Society for Vascular Surgery-sponsored TCAR
Surveillance Project, an ongoing real‑world, open-ended registry which includes over 8,100 patients treated with TCAR as of December 31, 2019.
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Summary of Key Clinical Trials
Study Type
Patients
Profile
Status/Publication
PROOF
ROADSTER
ROADSTER 2
TCAR Surveillance
Project
First in Human
CE Marking
DW-MRI Sub-Study
75 pivotal
56 DW-MRI Sub-
Study
High Surgical Risk and
Standard Surgical Risk
Complete
J Endovasc Ther. 2017
Apr;24(2):265-270
U.S. Pivotal IDE Study
U.S. Post-Approval Study
Real world observation
692
Open Ended
141 Pivotal
78 Continued
Access
52 Stent Sub-
Study
High Surgical Risk
High Surgical Risk
High Surgical Risk
Complete
J Vasc Surg. 2015
Nov;62(5):1227-34
(pivotal cohort only)
Complete
Enrolling >8,100 patients as
of December 31, 2019
Carotid Stent Systems Used
CE Marked Carotid Stents,
including the Cordis Precise
Stent
FDA Approved Carotid
Stents, including the Cordis
Precise Stent
ENROUTE Transcarotid
Stent System
ENROUTE Transcarotid
Stent System
Summary of TCAR Clinical Trial Outcomes
PROOF
ROADSTER - pivotal phase
ROADSTER - continued access
Pooled ROADSTER
ITT population
ITT population
Per-protocol
ITT population
Per-protocol
ITT population
Per-protocol
Stroke at 30 days
All stroke(1)
All stroke and death
Other adverse events at 30 days
Myocardial infarction
Cranial Nerve Injury
(Acute)
Cranial Nerve Injury
(persisting at 6 months)
Procedural information
Mean procedure time (mins)
Mean length of stay (days)
1.3 %
1.3 %
0.0 %
2.7 %
2.7 %
NR
NR
1.4 %
2.8 %
0.7 %
0.7 %
0.0 %
73.6
1.9
0.7 %
2.2 %
0.7 %
NR
NR
NR
NR
1.3 %
1.3 %
2.6 %
0.0 %
0.0 %
72.4
1.4
0.0 %
0.0 %
1.5 %
NR
NR
NR
NR
1.4 %
2.3 %
1.4 %
0.5 %
0.0 %
73.2
1.7
0.5 %
1.5 %
1.0 %
NR
NR
NR
NR
_________________
(1) All strokes observed have been minor strokes; No major strokes have been observed.
PROOF First-in-human Clinical Trial
Our first-in-human trial, the PROOF Study, was a single-arm trial conducted at one trial site in Europe from 2009 to 2012. The PROOF Study
was initiated as a feasibility study to assess the safety and performance of the ENROUTE NPS in a limited number of patients, initially enrolling 10
patients. The PROOF Study was later expanded to 75 patients to collect the clinical data necessary to support CE marking of the ENROUTE
NPS. Data from the PROOF Study were also used to support FDA approval of the IDE for the ROADSTER Study.
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The PROOF Study enrolled patients that were classified as high surgical risk, as well as patients classified as standard surgical risk. The
results from the PROOF Study demonstrated that TCAR was technically feasible and resulted in a stroke incidence of 1.3% within 30 days, which
was significantly lower than that reported for CAS in prior clinical trials.
Additionally, a sub-study of 56 patients underwent pre- and post-procedure diffusion-weighted magnetic resonance image scanning, or DW-
MRI, to detect new white lesions on the ipsilateral side of the brain as a sensitive surrogate marker of microemboli and brain injury. The analysis
resulted in only 18% of the treatment population presenting with ipsilateral new white lesions, which was also comparable to that reported for CEA
in prior clinical trials and significantly less than that reported in prior CAS trials.
Pivotal ROADSTER Clinical Trial
Our pivotal trial, the ROADSTER Study, was a single-arm trial conducted at 17 sites across the United States and one site in Europe from
2012 to 2014. The design of the ROADSTER Study, which was used to support FDA 510(k) clearance of the ENROUTE NPS, was largely based
upon predicate embolic prevention studies and followed the relevant FDA guidance published in 2008. In the pivotal phase, the ROADSTER study
enrolled 141 patients that were classified as being at high surgical risk.
The primary endpoint of the ROADSTER Study was a hierarchical composite of stroke, death or myocardial infarction within 30 days. Key
secondary endpoints included acute device, technical and procedural success at 30 days, as well as cranial nerve injury at six months. The
results of the ROADSTER Study were analyzed on an “intention to treat,” or ITT basis, as well as a “per protocol,” or PP basis. The ITT results
accounted for all patients enrolled in the clinical trial, including patients treated despite major protocol deviations. The PP results included only
patients that met all of the inclusion and none of the exclusion criteria and who were compliant with the protocol-mandated study medication
regimen. There were no patients lost to follow-up in either the ITT or PP cohorts.
On an ITT basis, the primary endpoint event rate in the pivotal phase of the ROADSTER Study was a 3.5% hierarchical composite rate of
stroke, death or myocardial infarction at 30 days, comprised of two strokes, or a 1.4% incidence, two deaths, or a 1.4% incidence, and one
myocardial infarction, or a 0.7% incidence. Both deaths were respiratory in nature and were independently adjudicated as not related to the
device. There were no site-reported cardiovascular or neurologic deaths, although our independent clinical events committee adjudicated one
death as cardiovascular. There were no major strokes. There was one report of an acute cranial nerve injury, representing a 0.7% incidence,
which resolved within six months. These data supported FDA 510(k) clearance of the ENROUTE NPS.
In the PP analysis, the primary endpoint event rate was 2.9%, comprised of one stroke, or a 0.7% incidence, two deaths, or a 1.5% incidence,
and one myocardial infarction, or a 0.7% incidence.
A continued access phase of the ROADSTER Study was conducted during the time that the 510(k) premarket notification for the ENROUTE
NPS was under review by FDA. This phase enrolled an additional 78 patients with the same primary and secondary endpoints as the pivotal
phase of the ROADSTER Study. The results of the continued access phase were similar to those reported in the pivotal phase of the ROADSTER
study. The ENROUTE NPS was 510(k) cleared by the FDA in February 2015.
Following a pre-submission interaction with the FDA, the FDA permitted data from a sub-analysis of 52 patients in the ROADSTER Study who
were treated with the Cordis Precise Pro RX Carotid Stent System to be used, in conjunction with existing data from Cordis on CAS clinical trials
performed with the Cordis Precise Pro RX, to support our pre-market approval application for the ENROUTE stent. The ENROUTE and Precise
stent systems share the same design for the stent implant itself, and differ only in the design of the delivery system. Based on this data, the PMA
for the ENROUTE stent was approved in May 2015.
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We also initiated a separate sub-study of patients treated PP in the ROADSTER pivotal and continued access cohorts to assess the longer-
term rate of ipsilateral stroke beyond 30 days. This sub-analysis, which consisted of 164 patients including 112 from the pivotal phase and 52 from
the continued access phase, provided insight into the ability of TCAR to limit stroke incidence in longer-term follow-up. At one-year follow-up, the
ipsilateral stroke rate was 0.6% and the mortality rate was 3.7% past 30 days in patients with a life expectancy of 1 year.
ROADSTER 2 U.S. Post Market Approval Study
The ROADSTER 2 Post Approval Study was a condition of PMA approval for the ENROUTE stent. The study evaluated the outcomes in
TCAR using the ENROUTE stent in conjunction with the ENROUTE NPS in broader, “real world” use. Like the sub-analysis from the ROADSTER
Study that led to PMA approval of the ENROUTE stent, the primary endpoint, which was assessed on a PP basis, is the rate of procedural
success at 30 days in high surgical risk patients with a three year minimum life expectancy.
The ROADSTER 2 post approval study enrolled 692 patients at 42 sites. 61.8% of the participating patients were treated by physicians that
did not participate in the ROADSTER Study. The FDA mandated that at least 70% of the sites be new sites. Enrollment commenced in 2015.
Enrollment and final 30-day follow-up assessments were completed in 2019.
In the ROADSTER 2 final report submitted to the FDA in October 2019, data on 632 patients treated PP were presented. The procedural
success rate in ROADSTER 2 was 97.9%. The lower bound of the 2-sided 95% exact binomial confidence intervals of the observed procedural
success rate significantly exceeds the a priori threshold of 85% (p<0.0001). The primary endpoint of ROADSTER 2 was met and, as a result the
rate of procedural success in ROADSTER 2 compares favorably to the rate of procedural success in the combined pivotal and continued access
cohorts of the initial ROADSTER study. Other key clinical endpoints include the rates of hierarchical ipsilateral stroke, death and myocardial
infarction, cardiac death, neurologic death and cranial nerve injury. These key clinical endpoints in ROADSTER 2 are summarized in the following
table:
ROADSTER 2: key clinical endpoints at 30 days
Stroke and death at 30 days
All stroke
All stroke and death
Other adverse events at 30 days
Ipsilateral Stroke
Rate of Death - Cardiac
Rate of Death - neurologic
Rate of Death - Other
Rate of Acute Cranial Nerve Injuries (ITT)
Myocardial infarction
Procedural information
Mean procedure time (mins)
Mean length of stay (days)
23
N=632
0.6 %
0.8 %
0.5 %
0.0 %
0.0 %
0.2 %
1.4 %
0.9 %
74.6
1.6
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Data from a subset of ROADSTER 2 subjects (n=155) is being analyzed to assess the incidence of ipsilateral stroke from day 31 through day
365 post-procedure. These data are expected to be published in the future.
The Society for Vascular Surgery’s TCAR Surveillance Project
The TCAR Surveillance Project was implemented in September 2016 as an initiative of the Society for Vascular Surgery Patient Safety
Organization. The TCAR Surveillance Project is an ongoing, open-ended registry that was designed to monitor the safety and effectiveness of
transcarotid stents placed directly into the carotid artery while reversing blood flow within the carotid artery. It is intended to compare TCAR with
CEA in centers that participate in the Society for Vascular Surgery Vascular Quality Initiative, or VQI. The TCAR Surveillance Project was
reviewed by the FDA and deemed to be a scientifically valid extension study of TCAR, thereby allowing CMS to provide coverage within the
parameters of the existing National Coverage Determination. The Society for Vascular Surgery VQI is designed to improve the quality, safety,
effectiveness and cost of vascular health care by collecting and exchanging information, and it is available to all providers of vascular health care
and their respective institutions. Because data from CAS procedures are also collected in the Society for Vascular Surgery VQI, comparisons of
TCAR to CAS can also be made.
Eligible patients must meet the inclusion criteria specified for the TCAR Surveillance Project. Generally, patients must be at high surgical risk
and must have had their TCAR procedure performed using any FDA-cleared transcarotid proximal embolic protection device utilizing flow
reversal, such as our ENROUTE NPS, and any FDA-approved transcarotid stent, such as our ENROUTE stent. To date, the ENROUTE stent and
the ENROUTE NPS are the only such devices cleared and approved by the FDA. TCAR procedures entered into the Society for Vascular Surgery
VQI carotid artery stenting registry for the TCAR Surveillance Project are eligible for reimbursement by Medicare if the patients meet the
requirements set forth above. We believe the TCAR Surveillance Project represents a unique collaboration between a physician specialty society,
the FDA and CMS. We believe it also marks the first time that CMS has granted broader reimbursement for a stent-based treatment paradigm for
carotid artery disease in a registry not managed by industry.
The TCAR Surveillance Project is intended to be a repository for TCAR procedures and outcomes data to broaden the clinical evidence base
for TCAR. TCAR is one of many surgical and endovascular procedures that is tracked by the Society for Vascular Surgery VQI. Over time, it is
expected that physicians and academic researchers will query the database and produce publications in peer review journals, and present data at
medical conferences, regarding the safety and effectiveness of TCAR in real world use.
The primary outcome measure of the TCAR Surveillance Project is one-year ipsilateral stroke or death. The TCAR Surveillance Project also
tracks in-hospital stroke, death and myocardial infarction. Other secondary outcomes, such as cranial nerve injury and re-intervention, are also
being reported. For the secondary outcome measures, any stroke will be counted and in-hospital stroke events are not limited to the ipsilateral
side.
In the Society for Vascular Surgery Vascular Quality Initiative 2019 Annual Report, it was reported that 292 centers have contributed more
than 8,100 TCAR cases to the CAS VQI registry. In an article for Endovascular Today, in August 2019, Marc Schermerhorn, M.D. reported that
TCAR accounted for more than 50% of the procedures entered into the CAS registry of the SVS VQI in the first four months of 2019. In an email
from the TCAR steering committee, they further projected that TCAR would account for more than 4,000 procedures during 2019 while CAS
would account for just over 3,000 procedures.
TCAR Surveillance Project: TCAR vs. CEA
Contemporaneous comparative outcomes from January 2016 to September 2018 were presented in November 2018 in both unadjusted
analyses as well as analyses adjusted for the baseline characteristics of the patient populations. In general, patients treated with TCAR were older
than patients treated with
24
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CEA, and were more likely to have coronary co-morbidities, renal dysfunction and a prior carotid intervention. Below is a summary of the
outcomes presented and the patient demographics in which there was a statistically significant difference between the populations.
Stroke and other adverse events
Major adverse events at 30 days
Stroke/Death
Stroke/Death/Myocardial infarction
Stroke
Death
30-day Death
Other adverse events at 30 days
Myocardial infarction
Cranial nerve injury
Bleeding
Other procedural information
Mean procedure time (mins)
Length of stay >1 day
Age
Female
Coronary artery disease
Prior congestive heart failure
Prior coronary artery bypass grafting
Prior percutaneous coronary intervention
Chronic obstructive pulmonary disease
Glomerular filtration rate<60
Current smoker
Prior carotid revascularization
Aspirin
Antiplatelet
Statin
Beta-blockers
Anticoagulants
Anesthesia
TCAR vs. CEA Unadjusted Outcomes (in hospital)
TCAR
(%)
N=2,545
CEA
(%)
N=43,114
P-value
1.8
2.1
1.4
0.5
0.9
0.4
0.2
1.4
1.4
1.8
1.2
0.3
0.6
0.4
2.7
1.0
75.0
29 %
116.0
32 %
0.09
0.17
0.27
0.04
0.08
0.71
<.001
0.05
<0.001
<0.01
TCAR vs. CEA Baseline Demographics (% of patients)
TCAR
N=2,545
CEA
N=43,114
P-value
73.1 + 9.4
36.2 %
51.3 %
18.8 %
23.7 %
28.2 %
29.2 %
40.6 %
23.5 %
30.7 %
89.8 %
84.7 %
88.3 %
55.1 %
13.4 %
82.7 %
70.6 + 9.6
39.4 %
26.9 %
11.2 %
19.8 %
22.1 %
23.2 %
34.3 %
25.3 %
15.0 %
83.9 %
34.5 %
83.4 %
51.0 %
10.4 %
92.3 %
<.001
<.01
<.001
<.001
<.001
<.001
<.001
<.001
0.05
<.001
<.001
<.001
<.001
<.001
<.001
<.001
The unadjusted results to date from the TCAR Surveillance Project show that TCAR has provided similar in-hospital reduction in stroke risk as
compared to CEA, despite treating sicker, older patients with TCAR, and TCAR showed significantly lower risk of cranial nerve injury. The
incidence of in-hospital
25
Table of Contents
death in the unadjusted outcomes was slightly higher for TCAR due to the co-morbidities in the TCAR patients. Patients treated with TCAR were
generally older and had more co-morbidities than the cohort of patients treated with CEA. As such, the odds ratio of in-hospital death between
TCAR and CEA is the same when adjusting for patient risk factors.
In the unadjusted analysis, cranial nerve injury and bleeding were significantly different between TCAR and CEA. TCAR patients had a ten-
fold reduction in risk of cranial nerve injury when compared to CEA, and TCAR had a significantly higher rate of bleeding. When adjusting for risk
and in a propensity matched analysis, the rate of bleeding was not significantly different between TCAR and CEA; however, the significantly lower
risk of cranial nerve injury with TCAR remained.
Average TCAR procedure time was significantly shorter and there was a significant reduction in the percentage of hospital stays longer than
one day, relative to CEA. These benefits can help hospitals to better utilize their operating room capacity and fixed overhead and reduce the
number of procedures associated with hospital stays longer than one day, which have been shown to result in financial losses for the hospital
facilities.
TCAR Surveillance Project: TCAR vs. CAS
In a similar analysis comparing TCAR to CAS, TCAR showed significantly lower rates of stroke and death; stroke, death and myocardial
infarction; in hospital death; and death within 30 days in both the adjusted and unadjusted analysis. When adjusted for baseline risk
characteristics associated with the patient population, the difference in bleeding events was no longer significant. Below is a summary of the
outcomes presented and patient demographics for patient characteristics with a statistically significant difference between the populations.
TCAR vs. CAS Unadjusted Outcomes (in hospital)
Stroke and other adverse events
Stroke/Death
Stroke/Death/Myocardial infarction
Stroke
In-hospital Death
30-day Death
Myocardial infarction
Bleeding
TCAR
(%)
N=2,545
CAS
(%)
N=9,460
P-Value
1.8
2.1
1.4
0.5
0.9
0.4
1.4
3.3
3.5
2.2
1.4
2.0
0.3
0.6
<.001
<.001
0.02
<.001
<.001
0.62
<.001
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Age
Black
Asymptomatic
Coronary artery disease
Prior congestive heart failure
Prior coronary artery bypass grafting
Prior percutaneous coronary intervention
Chronic obstructive pulmonary disease
Glomerular filtration rate<60
Current Smoker
Prior CEA
Prior CAS
Aspirin
Antiplatelet (other than aspirin)
Statin
Beta-blockers
Anticoagulants
Medical high risk
Anatomic high risk
General Anesthesia
TCAR vs CAS Baseline Demographics (% of patients)
TCAR
N=2,545
CAS
N=9,460
P-Value
73.1 + 9.4
4.5 %
52.3 %
51.3 %
18.8 %
23.7 %
28.2 %
29.2 %
40.6 %
23.5 %
25.1 %
8.0 %
89.8 %
84.7 %
88.3 %
55.1 %
13.4 %
59.4 %
50.6 %
82.7 %
69.6 + 3.7
6.1 %
38.1 %
38.9 %
16.6 %
20.8 %
25.7 %
27.0 %
34.5 %
28.5 %
28.2 %
19.3 %
85.1 %
74.7 %
81.6 %
52.6 %
11.7 %
36.0 %
43.8 %
20.0 %
<.001
<.01
<.001
<.001
<.01
<.01
0.01
0.03
<.001
<.001
<.01
<.001
<.001
<.001
<.001
0.03
0.02
<.001
<.001
<.001
Since November 2018, the TCAR Surveillance Project Steering Committee has presented and published updated comparisons of TCAR to
both CEA and CAS. In June 2019, updated outcomes from the TCAR Surveillance Project were presented at VAM. The outcomes featured data
from 5,716 patients treated with TCAR and 44,442 patients treated with CEA. In a propensity matched analysis of TCAR and CEA with 5,160
patients in each cohort, TCAR provided similar in-hospital stroke rates as compared to CEA, but had significantly lower odds of in-hospital
myocardial infarction and composite stroke, death and myocardial infarction. TCAR patients were also significantly less likely to suffer a cranial
nerve injury and to remain in the hospital longer than one day. TCAR had lower odds of 30-day death (34% lower), 30-day myocardial infarction
(64% lower), 30-day stroke and death (46% lower), and composite stroke, death and myocardial infarction (53% lower).
27
Table of Contents
In-Hospital Outcomes
Death
Ipsilateral Stroke
Stroke
MI
Stroke/Death
Stroke/Death/MI
Cranial Nerve Injury
Post-procedural Hypotension
Post-procedural Hypertension
Bleeding with intervention
Non-Home discharge
Hospital Stay for more than 1 day
30-Day Outcomes
Mortality
Stroke
MI
Stroke/Death
Stroke/Death/MI
Propensity Score Matching (N=5,160 in each cohort)
OR (95% CI)
0.86 (0.46-1.61)
0.92 (0.64-1.32)
0.80 (0.58-1.11)
0.41 (0.26-0.66)
0.77 (0.57-1.04)
0.65 (0.50-0.84)
0.13 (0.07-0.22)
1.66 (1.47-1.87)
0.64 (0.57-0.71)
1.17 (0.83-1.65)
0.75 (0.64-0.87)
0.74 (0.68-0.80)
P-value
0.63
0.64
0.19
<0.001
0.09
<0.01
<0.001
<0.001
<0.001
0.38
<0.001
<0.001
CEA
308 (0.70)
241 (1.4)
140 (0.80)
323 (1.8)
453 (2.6)
Unadjusted
TCAR
40 (0.70)
16 (1.1)
9 (0.6)
19 (1.4)
27 (1.9)
P-value
0.95
0.46
0.52
0.19
0.13
CEA
Ref.
Ref.
Ref.
Ref.
Ref.
Adjusted
TCAR
0.66 (0.46-0.95)
0.68 (0.39-1.20)
0.36 (0.16-0.83)
0.54 (0.33-0.89)
0.47 (0.30-0.74)
P-value
0.03
0.18
0.02
0.02
<0.01
In December 2019, the steering committee of the TCAR Surveillance Project published a comparison of outcomes for TCAR and CAS in the
Journal of the American Medical Association. During the study period (September 2016 through May 2019), 5,251 patients underwent TCAR and
6,640 patients underwent CAS. After propensity score matching, there were 3,286 pairs of patients available for analysis. As was the case in the
VAM presentation comparing TCAR and CEA, TCAR patients were older and had more medical co-morbidities. In-hospital stroke or death was
1.6% for TCAR versus 3.1% for CAS. TCAR was associated with significantly lower risks of in-hospital stroke alone (1.3% for TCAR versus 2.4%
for CAS) and in-hospital death alone (0.4% for TCAR versus 1.0% for CAS). The differences favoring TCAR persisted through 30 days and 1
year. Key clinical and procedural outcomes are summarized in the following table:
28
Table of Contents
Outcome
Stroke or death (in hospital)
Stroke or death (30 days)
Stroke or death (1 year)
Stroke (in hospital)
Stroke (30 days)
Death (in hospital)
Death (30 days)
Myocardial Infarction
Access site bleeding complication
Interventional treatment
Blood transfusion
Technical Failure
TCAR
(n=3,286)
CAS
(n=3,286)
1.6%
1.9%
5.1%
1.3%
1.3%
0.4%
0.8%
0.2%
3.5%
1.3%
1.8%
0.5%
3.1%
3.7%
9.6%
2.4%
2.5%
1.0%
1.5%
0.3%
3.8%
0.8%
2.2%
1.2%
Relative Risk
(95% CI)
0.51 (0.37 to 0.72)
0.54 (0.38 to 0.79)
0.52 (0.41 to 0.66)
0.54 (0.38 to 0.79)
0.53 (0.37 to 0.76)
0.44 (0.23 to 0.82)
0.52 (0.32 to 0.84)
0.70 (0.27 to 1.84)
0.93 (0.72 to 1.19)
1.63 (1.02 to 2.61)
0.85 (0.60 to 1.19)
0.37 (0.20 to 0.66)
P Value
<.001
<.001
<.001
0.001
<.001
0.008
0.007
0.47
0.55
0.04
0.33
<.001
In another publication from the SVS VQI published in the Journal of the American College of Surgeons in January 2020, Kashyap, et al,
examined the learning curve of TCAR performed by surgeons participating in the TCAR Surveillance Project. The authors reviewed 3,456 TCAR
procedures performed by 417 unique practitioners at 178 centers. Patients were grouped into four levels based upon the physicians’ experience
with TCAR at the time of procedure: novice (1-5 cases), intermediate (6-20 cases), advanced (20-30 cases) and expert (>30 cases). Of the
patients analyzed, 41% of patients were treated by novice physicians, 40% of patients were treated by intermediate physicians, 9% of patients
were treated by advanced physicians and 10% of patients were treated by expert physicians. There was no significant difference in the baseline
characteristics by surgeon case experience with three exceptions; expert physicians were more likely to treat patients with moderate or severe
congestive heart failure, novice and intermediate physicians were more likely to treat patients with prior CEA or CAS, and advanced and expert
physicians were more likely to treat patients with CMS medical high-risk criteria. There was a statistically significant reduction in operative time
(novice 81.7 mins, expert 59.6 mins; p<.001) and flow reversal time (novice 12.2 mins, expert 9.7 mins; p<.001) over the four levels. There was a
decrease in fluoroscopy time and contrast usage up to the advanced level. Bleeding complications were significantly less frequent in the
advanced and expert groups of physicians. There was no difference in the incidence of cranial nerve injury across the groups of physicians.
Expert physicians were more likely to use local anesthesia compared to the other three categories of physicians. There was no difference in the
technical failure rate across the four categories of physicians. The rate of composite stroke, stroke alone and death did not differ between the
categories. The authors noted that TCAR novices can achieve the same clinical outcomes as expert practitioners, while in comparison CAS
requires more than 50 cases to achieve proficiency. The following table summarizes unadjusted outcomes by surgeon case experience:
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Table of Contents
Outcome
Stroke/death
Stroke/death/MI
Stroke
TIA
Death
MI
Cranial nerve injury
Bleeding complications
Technical Failure
Novice
Cases 1-5
(n=1,426)
Intermediate
Cases 6-20
(n=1,375)
Advanced
Cases 20-30
(n=307)
Expert
Cases >30
(n=348)
1.5%
1.8%
1.2%
0.8%
0.3%
0.4%
0.2%
3.9%
0.5%
1.4%
1.6%
1.2%
1.0%
0.4%
0.2%
0.4%
3.4%
0.7%
2.0%
2.0%
1.0%
0.7%
1.0%
0.0%
0.0%
1.6%
0.3%
1.4%
2.3%
1.2%
0.3%
0.6%
0.9%
0.0%
1.2%
0.0%
P Value
0.9
0.84
0.99
0.65
0.39
0.2
0.51
0.03
0.45
In January 2020, the SVS VQI published data on the impact of age on in-hospital outcomes after TCAR, CAS and CEA in the Journal of
Vascular Surgery. Patients entered in the SVS VQI CAS and CEA registries between 2015 and November 2018 were included in the analysis.
The study cohort included 3,152 TCAR patients, 10,381 CAS patients and 61,650 CEA patients. Patients were divided into three age groups (≤70
years, 71-79 years and ≥80 years). As was the case in previous analyses from the SVS VQI, TCAR patients were older and more likely to have
major co-morbidities such as coronary artery disease, congestive heart disease, chronic kidney disease and a higher ASA classification. Over
25% of the TCAR patients were 80 years of age or older compared to 15.8% of CAS patients and 17.6% of CEA patients.
The rates of in-hospital stroke/death after TCAR were 1.4% in patients ≤70 years, 1.9% in patients 71-79 years and 1.5% in patients ≥80
years. The differences between age groups were not significant (p=0.55). The comparison of TCAR to CEA across different age groups showed
no differences in outcomes and no interaction between treatment and age in predicting in-hospital stroke/death (p=0.80). As with prior analyses,
TCAR had significantly lower odds of cranial nerve injury compared to CEA across the three age groups (84%, 79% and 95% respectively).
Conversely, in patients age >/+80, TCAR was associated with a 72% reduction in stroke risk (1.0% vs 4.7%; OR 0.28; 95%CI, 0.12-0.65;
p<0.01), a 65% reduction in the risk of stroke/death (1.5% vs 4.6%; OR 0.35; 95%CI 0.20-0.62; p<0.001) and a 76% reduction in
stroke/death/myocardial infarction (2.5% vs 5.3%; OR 0.24; 95%CI 0.12-0.47; p<0.001) when compared to CAS. The stroke risk for CAS doubled
at age 85 compared to TCAR; the stroke/death risk for CAS doubled at age 77 compared to TCAR. No significant differences were noted between
TCAR and CEA with age.
30
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Adjusted odds ratios (ORs) of in-hospital stroke (left) and stroke/death (right) after TCAR vs CAS for age-by-treatment interaction. In each
graph, the first dotted vertical line represents the age at which the odds of the outcomes in CAS compared with TCAR become significant. The
second dotted vertical line represents the age at which the odds in CAS become double that of TCAR.
Adjusted odds ratios of in-hospital stroke (left) and stroke/death (right) for age-by-treatment (CEA vs TCAR) interaction.
The authors attributed the significant increase in odds of adverse outcomes after CAS compared with TCAR in patients ≥80 years of age to
the increased prevalence of severe aortic arch disease and target lesion calcification and ulceration in the elderly. The authors concluded that
TCAR is relatively safe regardless of patient age independent of symptomatic status and other medical comorbidities.
Ongoing and Planned TCAR Studies
In addition to the Society for Vascular Surgery’s TCAR Surveillance Project, we have one ongoing study in the European Union enrolling up to
50 patients and evaluating the rate of sub-clinical embolization, or new white lesions, as detected on DW-MRI in recently symptomatic patients.
The primary endpoint is the rate of ipsilateral new white lesions as seen on DW-MRI at 30 days compared to pre-procedure baseline white
lesions. The evaluation of the presence of new white lesions is conducted in a blinded fashion by an independent neuroradiologist.
We are conducting a similar study at four hospitals in the United States and one in the European Union. We have obtained Institutional review
board and ethics committee approvals and enrollment began in the third quarter of 2019. The primary endpoint is the rate of ipsilateral new white
lesions at 30 days. Enrollment of up to 75 patients is planned in this study.
Our Commercial Strategy
We designed our commercial strategy and built our direct sales force to target primarily vascular surgeons across the United States, who we
believe represent the specialty most frequently responsible for managing the care of and receiving referrals for patients with carotid artery
disease. We believe there are approximately 2,750 physicians that perform an estimated 80% of annual carotid revascularization procedures in
the United States. Vascular surgeons are skilled in endovascular procedures and our sales, marketing, professional education and medical affairs
efforts are focused on driving adoption and supporting their practice development by offering them an innovative, safe, effective and minimally-
invasive alternative for treating carotid artery disease.
In the United States, we market and sell our portfolio of TCAR products for TCAR through a direct sales organization consisting of 35 sales
representatives, known as area managers, or AMs, and
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61 clinical support specialists, known as therapy development specialists, or TDSs, as of December 31, 2019. Our sales professionals have
substantial experience launching and establishing new disruptive therapies and converting open surgical procedures to minimally-invasive
alternatives. We primarily market our products directly to vascular surgeons, their staffs, operating room managers and hospital administrators.
We also market to other specialists with experience in CEA and/or CAS with the appropriate skill set for TCAR, including neurosurgeons,
cardiothoracic surgeons and non-surgical interventionalists in radiology, neuroradiology and cardiology. We do not currently sell our products in
markets outside the United States.
Our AMs are responsible for developing territory business plans, targeting and opening new accounts, promoting the benefits of TCAR and
our products, and driving adoption and penetration of TCAR. In addition, they help physicians and their staff to build TCAR programs, drive certain
referral initiatives, and provide resources to help with practice development, reimbursement and patient education. Together with the TDSs, they
also support the training and proper use of our TCAR portfolio of products and provide clinically consultative support for patient selection, pre-
procedure planning, procedure support, and post-procedure care. As we continue to grow the size of our U.S. sales organization, with a focus on
increasing adoption of TCAR by existing customers and expanding our current customer base, we expect to focus on adding a strategic mix of
area managers and therapy development specialists.
Additionally, we support our sales organization with marketing and market and practice development initiatives. We plan to continue to expand
and enhance our marketing and analytics capabilities to support our growing commercial organization and customer base.
Professional Education and Sales Training
We are focused on developing strong relationships with our customers and devote significant resources to training and educating physicians
in the use of TCAR and our associated products. Our Office of Medical Affairs leads our physician education and training programs in addition to
disseminating the scientific information and clinical data supporting TCAR. The Office of Medical Affairs also leads compliance activities.
Our practice is to require physicians to complete a training program before performing TCAR, which is also a regulatory requirement derived
from the PMA approval of the ENROUTE stent. To facilitate training, we have developed a robust training course including clinical and procedural
details as well as hands-on workshops designed to provide the highest potential for successful outcomes. We also selectively provide training
through physician proctors on an as needed basis. As of December 31, 2019, we have trained and certified over 1,440 physicians in the United
States.
Through the Office of Medical Affairs, our highly specialized area managers and therapy development specialists, along with other key
employees, receive in-depth training and develop a thorough understanding of carotid artery disease, patient selection, imaging interpretation,
procedure planning, reimbursement and regulatory policies to meaningfully support our customers and maintain compliance. Our extensive
training and continuous education program consists of in-person foundational training, procedure observation, and sales skills development. Our
personnel are selected based on their focus on patient outcomes and the entire customer experience in addition to their technical aptitude.
Coverage and Reimbursement
Since achieving regulatory clearances and approvals for our portfolio of TCAR products, we have successfully launched our products, driven
adoption of TCAR and made significant progress securing reimbursement codes and payer coverage.
During the ROADSTER trial, the Society for Vascular Surgery helped to guide modifications of existing reimbursement coding descriptions to
ensure their applicability to TCAR. In 2015, we also confirmed with CMS that TCAR, like CAS, was considered under the purview of the National
Coverage Determination 20.7, or NCD, for Percutaneous Transluminal Angioplasty.
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According to the Healthcare Utilization Project, Medicare is the primary payer for carotid revascularization procedures, representing
approximately 78% of the payer mix for CEA and CAS procedures in 2014. TCAR is currently covered by CMS in high surgical risk patients who
are symptomatic with greater than or equal to 70% stenosis. As of September 2016, TCAR is also covered by CMS in the TCAR Surveillance
Project for high surgical risk patients who are either symptomatic with greater than or equal to 50% stenosis or asymptomatic with greater than or
equal to 80% stenosis. We intend to seek FDA label expansion for our ENROUTE stent and CMS coverage for TCAR in standard surgical risk
patients, as well as seek new and expanded coverage for TCAR in commercial payer coverage policies.
TCAR, like CAS, is only reimbursed by Medicare as an inpatient procedure and therefore reimbursed to hospitals under the DRG system.
There are three key aspects of reimbursement in the United States: coding, coverage and payment.
• Coding refers to distinct numeric and alphanumeric billing codes that are used by healthcare providers to report the provision of medical
procedures and the use of supplies for specific patients to payers. CPT codes are published by the American Medical Association and are
used to report medical services and procedures performed by or under the direction of physicians. Medicare pays physicians for services
based on submission of a claim using one or more specific CPT codes. Physician payment for procedures may vary according to site of
service. Hospitals are reimbursed for inpatient procedures based on Medicare Severity Diagnosis Related Group, or MS-DRG
classifications derived from ICD-10-CM diagnosis and ICD-10-PCS codes that describe the patient’s diagnoses and procedure(s)
performed during the hospital stay. MS-DRGs closely calibrate payment for groups of services based on the severity of a patient’s illness.
One single MS-DRG payment is intended to cover all hospital costs associated with treating an individual during his or her hospital stay,
with the exception of physician charges associated with performing medical procedures, which are reimbursed through CPT codes and
payments.
•
Payment refers to the amount paid to providers for specific procedures and supplies. Payment is generally determined by the specific
CPT and billing code. In addition, there may be separate numeric codes, under which the billing code is classified, to establish a payment
amount.
• Coverage refers to decisions made by individual payers as to whether or not to pay for a specific procedure and related supplies and if
so, under what conditions, including specific diagnoses and clinical indications.
Coding for Physicians
In 2014, the Society for Vascular Surgery helped to guide an editorial change by the American Medical Association to CPT 37215 to be
inclusive of TCAR. The Category I CPT code for TCAR, effective January 1, 2015, is CPT 37215: Transcatheter placement of intravascular
stent(s), cervical carotid artery, open or percutaneous, including angioplasty, when performed, and radiological supervision and interpretation; with
distal embolic protection. Published CMS guidance confirms that reverse flow embolic protection systems, such as our ENROUTE NPS, qualify as
distal embolic protection under this code. This code has a 90-day global period. Coverage and payment for CPT code 37215 is only available from
CMS in the inpatient setting, subject to the terms of the National Coverage Determination Manual Section 20.7, and only available in facilities
certified to have met CMS’s minimum facility standards for performing carotid artery stenting, which include local credentialing requirements.
Hospitals participating in the VQI are considered to meet CMS’s minimum facility standards.
Coding for Hospitals
There are a number of appropriate ICD-10-CM diagnosis codes that describe occlusions and stenosis of carotid arteries for asymptomatic
patients as well as cerebral infarction due to embolus and thrombus of carotid arteries for symptomatic patients, which establish medical
necessity. The proper ICD-10-PCS
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procedure codes for TCAR are 037H3DZ, 037J3DZ, 037K3DZ and 037L3DZ, and the appropriate MS-DRGs for TCAR are 034 when the patient
presents with major complications or co-morbidities, 035 when the patient presents with a complication or co-morbidity, and 036 for patients
without complications or co-morbidities.
Payment for Physicians
The 2020 national average physician professional fee payment for CPT code 37215 is approximately $1,050. We believe physicians feel this
level of payment represents a reasonable amount for TCAR. CEA procedures are reimbursed under CPT code 35301, for which the 2020 national
average physician professional fee payment is $1,187.
Payment for Hospitals
The national unadjusted 2020 payment amounts for MS-DRGs 034, 035 and 036 are $23,512, $14,427 and $10,968 respectively. Based on
prior procedure volumes, we estimate that the average payment amount across these three codes is $13,850 in 2020. These single MS DRG
payments are intended to cover all hospital costs associated with treating an individual during his or her hospital stay, with the exception of
physician charges associated with performing medical procedures. We believe that facilities feel this level of payment represents a reasonable
amount for the treatment of patients with carotid artery disease. CEA procedures are reimbursed under MS-DRGs 037, 038 and 039. We expect
the national unadjusted 2020 payment amounts for MS-DRGs 037, 038 and 039 to be $20,315, $10,493 and $7,086 respectively. Based on prior
procedure volumes, we estimate that the average payment amount across these three codes to be $9,360. The base payment amounts for MS-
DRGs may vary greatly by individual acute-care hospital for a number of reasons including but not limited to geographic, teaching status, case-
mix index, and use of electronic health record systems.
Coverage
According to the Healthcare Utilization Project, the Center for Medicare and Medicaid Services, or CMS, was the primary payer for carotid
procedures, covering 78% of CEA procedures and 77% of CAS procedures in 2014. In 2015, we also confirmed with CMS that TCAR, like CAS,
was considered under the purview of the National Coverage Determination, or NCD, for Percutaneous Transluminal Angioplasty. Coverage of
TCAR by CMS, other government, and commercial payers is important for our commercial development. Currently, pursuant to the NCD for
Percutaneous Transluminal Angioplasty, TCAR is covered by CMS under certain circumstances for high surgical risk patients; as well as certain
other instances, including participation in certain trials and studies.
Patients at high risk for adverse events from CEA are defined as having significant comorbidities or anatomic risk factors and would be poor
candidates for CEA. Symptoms of carotid artery stenosis include carotid transient ischemic attack, focal cerebral ischemia producing a
nondisabling stroke, and transient monocular blindness. The determination that a patient is at high risk for adverse events from CEA and the
patient’s symptoms arising from carotid artery stenosis must be documented in the patient’s medical records.
CMS has created a list of minimum standards modeled in part on professional society statements on competency. All facilities must at least
meet CMS standards in order to receive coverage for CAS, inclusive of TCAR, for high surgical risk patients. Participation in the Society for
Vascular Surgery’s Vascular Quality Initiative can provide evidence of compliance to these standards to CMS.
The TCAR Surveillance Project is an FDA-approved extension study. We understand that Medicare has reimbursed hospitals and physicians
for symptomatic patients with greater than or equal to 50% carotid artery stenosis and asymptomatic high surgical risk patients with greater than
or equal to 80% carotid artery stenosis who participate in the TCAR Surveillance Project. For billing purposes, facilities and providers can submit
claims for the TCAR Surveillance Project using National Clinical Trial identifier NCT02850588.
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ROADSTER 2 is another FDA-approved Post Approval Study that was completed in 2019. Patients who met the inclusion/exclusion criteria
for ROADSTER 2 were eligible for CMS coverage under the NCD under certain circumstances. Providers billed the Pre-Market Approval number
assigned to the stent system by the FDA, P140026, to obtain reimbursement.
The ENROUTE NPS and the ENROUTE stent are also included in the CREST-2 Companion Registry, or C2R, but not in the CREST 2
randomized clinical trial itself. The objective of C2R is to promote the rapid initiation and completion of enrollment in the CREST-2 randomized
clinical trial (clinicaltrials.gov ID NCT02089217). Patient eligibility will include standard surgical risk and high surgical risk patients with
symptomatic or asymptomatic carotid artery disease. Patients will be followed for the occurrence of post-procedural complications. The primary
safety and quality endpoint for C2R is the occurrence of any stroke or death within the 30-day period following the stenting procedure. The safety
and quality results from C2R will guide selection of interventionists for participation in the CREST-2 randomized clinical trial. Enrollment into C2R
began in 2015 and will continue until publication of the primary results of the randomized trial. Providers can bill CMS for TCAR patients enrolled
in this registry using NCT02240862.
Research, Development and Clinical Programs
Our research and development activities encompass basic research, clinical research and product development. Our engineering team has
mechanical engineering, project management, materials science, and prototyping expertise. In addition, our clinical research organization has trial
design and management, data collection and biostatistics expertise.
Our research and development efforts are currently focused on improving and expanding our portfolio of TCAR products and their labeled
indications for use to further improve and simplify the treatment experience for a broad base of patients and physicians. We have worked together
with vascular surgeons such as Enrique Criado M.D., and David Chang M.D., the pioneers of TCAR, to develop our products. We believe our
research and development capabilities, clinical and regulatory organizations and unique insights will enable us to continue to lead this emerging
category.
Following the completion of our ROADSTER 2 Post Approval Study, our current clinical program consists of ongoing studies in the European
Union and United States to evaluate the rate of sub-clinical embolization as detected through DW-MRI in recently symptomatic patients. We
expect to utilize the results of these clinical studies to support our marketing efforts and encourage continued adoption of TCAR.
We also have a broad intellectual property platform addressing the transcarotid approach and, in the future, we intend to leverage our
expertise to develop new products targeting market opportunities and disease states that could benefit from the physiologic and engineering
advantages made possible by our transcarotid approach, including in the heart, aortic arch and brain.
For the fiscal years ended December 31, 2019 and 2018, our research, development and clinical expenses were $12.3 million and $10.3
million, respectively.
Competition
TCAR is a relatively new procedure category and as such the basis of competition for our products is with respect to alternative carotid
revascularization procedures. We are positioning TCAR as an alternative to the existing procedures CEA and CAS, and therefore compete
primarily with manufacturers of medical devices used in those procedures.
The major manufacturers of products, such as patches and shunts, used in connection with CEA include LeMaitre Vascular, Getinge / Maquet,
Baxter, Terumo, Gore and Edwards. Many of these companies are large public companies or divisions of publicly-traded companies and have
several competitive advantages, including established relationships with vascular surgeons who commonly
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perform the CEA procedure, significantly greater name recognition and significantly greater sales and marketing resources.
Companies with actively marketed FDA-approved stents and embolic protection devices for use with CAS procedures include Abbott,
Medtronic, Boston Scientific, and Cardinal. Other companies have approved devices not currently marketed in the United States, including Gore
and InspireMD. Additionally, some companies have stents and other products under development for use in CAS procedures, including Terumo.
Most of these companies have several competitive advantages including the following: more established sales and marketing programs and
networks, larger portfolio of products, longer operating histories, established relationships with healthcare professionals and greater name
recognition.
In addition to competing for market share for TCAR, we also compete against these companies for personnel, including qualified personnel
that are necessary to grow our business.
We believe the principal competitive factors in our market include the following:
•
•
•
•
•
•
•
•
•
Patient outcomes and adverse event rates;
Patient experience;
Acceptance by treating physicians and referral sources;
Physician learning curve;
Ease-of-use and reliability;
Patient recovery time and level of discomfort;
Economic benefits and cost savings;
Availability of reimbursement; and
Strength of clinical evidence.
We also compete against manufacturers of medications used for medical management of carotid artery disease, including aspirin and statins.
Many such companies are large public companies or divisions of publicly-traded companies and have several competitive advantages including
the following: established treatment patterns where drugs are generally first-line therapy and invasive procedures or surgery are considered later;
established relationships with general practitioners who commonly prescribe such medications; significantly greater name recognition; and
significantly greater sales and marketing resources, including direct-to-consumer advertising.
Finally, we may compete with medical device and pharmaceutical manufacturers outside the United States when we pursue plans to market
our products internationally. Among other competitive advantages, such companies may have more established sales and marketing programs
and networks, established relationships with healthcare professionals and greater name recognition in such markets.
Intellectual Property
We actively seek to protect the intellectual property and proprietary technology that we believe is important to our business, which includes
seeking and maintaining patents covering our technology and products, proprietary processes and any other inventions that are commercially or
strategically important to the development of our business. We also rely upon trademarks to build and maintain the integrity of our brand, and we
seek to protect the confidentiality of trade secrets that may be important to the development of our business.
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To protect our proprietary rights, we rely on a combination of trademark, copyright, patent, trade secret and other intellectual property laws,
employment, confidentiality and invention assignment agreements, and protective contractual provisions with our employees, contractors,
consultants, suppliers, partners and other third parties.
As of December 31, 2019, we owned 76 patents globally, of which 53 were issued U.S. patents and 23 were patents outside of the United
States. Our patents expire between November 2024 and December 2034. Our material patents, their jurisdiction, expiration date and the product
to which they relate, are listed in the table below:
Jurisdiction
US
US
US
US
US
US
US
Europe
France
Germany
Italy
Great Britain
Japan
Japan
Patent No.
8,002,728
8,343,089
8,157,760
8,784,355
8,740,834
9,011,364
9,833,555
2,173,425
2,173,425
2,173,425
2,173,425
2,173,425
5,290,290
5,693,661
Expiration Date
Related Product
12/2/2025
6/22/2025
9/3/2030
8/7/2029
3/6/2029
4/10/2031
10/26/2029
7/18/2028
7/18/2028
7/18/2028
7/18/2028
7/18/2028
7/18/2028
7/18/2028
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Stent System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
Transcarotid Neuroprotection System
As of December 31, 2019, we had 57 pending patent applications globally, including 29 in the United States and 28 outside the United States.
As of December 31, 2019, we had trademark registrations for “Silk Road Medical,” the “Silk Road Medical” logo, “Enroute” and the “Enroute”
logo and “Enhance” in the United States, and various other countries. Including these trademark registrations, our trademark portfolio contained
24 trademark registrations/ applications.
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The term of individual patents depends on the legal term for patents in the countries in which they are granted. In most countries, including
the United States, the patent term is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable
country. We cannot assure that patents will be issued from any of our pending applications or that, if patents are issued, they will be of sufficient
scope or strength to provide meaningful protection for our technology. Notwithstanding the scope of the patent protection available to us, a
competitor could develop treatment methods or devices that are not covered by our patents. Furthermore, numerous U.S. and foreign-issued
patents and patent applications owned by third parties exist in the fields in which we are developing products. Because patent applications can
take many years to issue, there may be applications unknown to us, which applications may later result in issued patents that our existing or
future products or technologies may be alleged to infringe.
There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. In the future, we
may need to engage in litigation to enforce patents issued or licensed to us, to protect our trade secrets or know-how, to defend against claims of
infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Litigation could be costly and could
divert our attention from other functions and responsibilities. Furthermore, even if our patents are found to be valid and infringed, a court may
refuse to grant injunctive relief against the infringer and instead grant us monetary damages and/or ongoing royalties. Such monetary
compensation may be insufficient to adequately offset the damage to our business caused by the infringer’s competition in the market.”
Adverse determinations in litigation could subject us to significant liabilities to third parties, could require us to seek licenses from third parties
and could prevent us from manufacturing, selling or using the product, any of which could severely harm our business.
We also seek to maintain certain intellectual property and proprietary know-how as trade secrets, and generally require our partners to
execute non-disclosure agreements prior to any substantive discussions or disclosures of our technology or business plans. Our trade secrets
include proprietary account analytics, user training methods, and operational processes. For more information, please see “Risk Factors—Risks
Related to Intellectual Property.”
Manufacturing and Supply
We currently manufacture the ENROUTE NPS at and distribute all of our products from our approximately 31,000 square foot facility in
Sunnyvale, California. This facility provides approximately 8,000 square feet of space for our production and distribution operations, including
manufacturing, quality control and storage. While we believe our existing facility will be sufficient to meet our manufacturing needs for at least the
next four years we intend to supplement our distribution operations with a third-party logistics and warehousing service and/or additional leased
facilities.
Our manufacturing and distribution operations are subject to regulatory requirements of the FDA’s Quality System Regulation, or QSR, for
medical devices sold in the United States, set forth in 21 CFR part 820, and the European Medical Device Directive 93/42/EEC and amendments,
or MDD, for medical devices marketed in the European Union. When the new EU Medical Regulations take effect in May 2020, our design
examination certificates under the MDD remain valid until their expiration. Compliance with the EU MDR will be executed prior to the expiration of
the current MDD certificates. We are also subject to applicable local regulations relating to the environment, waste management and health and
safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal, sale, labeling, collection,
recycling, treatment and remediation of hazardous substances.
The FDA monitors compliance with the QSR through periodic inspections of our facilities. Our suppliers’ facilities are also subject to FDA
regulations, including the QSR, and unannounced inspections by the FDA and other similar regulatory authorities. Our European Union Notified
Body, British Standards
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Institute, or BSI, monitors compliance with the MDD requirements through both annual scheduled audits and periodic unannounced audits of our
manufacturing facilities as well as our contract manufacturers’ facilities.
Our failure, or the failure of our suppliers, to maintain acceptable quality requirements and compliance with all applicable healthcare laws and
regulatory requirements could result in the shutdown or significant disruption of our manufacturing operations or the recall of our products, which
would harm our business. In the event that one of our suppliers fails to maintain acceptable quality requirements or regulatory compliance, we
may have to qualify a new supplier and could experience a material adverse effect to manufacturing and manufacturing delays as a result.
Our quality management system is ISO 13485 and MDD Certified. We have been an FDA registered medical device establishment and
California licensed medical device manufacturer since 2011. We moved to our current Sunnyvale, California facility in June 2018, which was
registered with the FDA in June 2018 and was issued a California device manufacturing license in August 2018. An ISO 13485 audit was
conducted in September 2018 and our facility was recommended for certification.
The FDA conducted a total of five establishment inspections of our manufacturing facility in Sunnyvale, California in 2014, 2015, 2016 and
2020. A one-observation Form 483 Notice of Observation was issued in April 2015 relating to a transcription error in patient line listings and no
additional follow up with the FDA was required. In February 2020, a one-observation Form 483 Notice of Observation was issued relating to the
calibration method used for a specific type of measurement tool. In response, we have initiated a Corrective and Preventive Action, or CAPA, that
we believe addresses the single FDA Observation. We believe that we are in compliance, in all material respects, with all applicable FDA
requirements, including the QSR.
Since obtaining ISO 13485 certification in 2011, BSI has conducted scheduled surveillance audits annually, recertification audits every third
year, and periodic unannounced audits since the initial certification period starting in 2011 for compliance with ISO 13485 and MDD. The most
recent recertification audit was conducted in September 2017, and no major non-conformities were identified. The most recent surveillance audit
was conducted in October 2019, and no major non-conformities were identified. The most recent unannounced audit was conducted in July 2014,
and no major non-conformities were identified. We believe that we are in compliance, in all material respects, with all ISO 13485 and MDD
requirements.
Manufacturing of the materials and components of the ENROUTE NPS are provided by approved suppliers, all of which are single source
suppliers of key components, sub-assemblies and materials. We purchase finished transcarotid access kit, guidewires and stents through contract
manufacturers. Cardinal is our contract manufacturer and currently the sole source supplier for the ENROUTE stent. We typically maintain several
months’ worth of ENROUTE stents in inventory, and we estimate that it would take between one and two years to qualify a second source supplier
for our ENROUTE stent. The suppliers for the ENROUTE NPS and our other product lines are evaluated, qualified and approved through a
stringent supplier management program, which includes various evaluations, assessments, qualifications, validations, testing and inspection to
ensure the supplier can meet acceptable quality requirements. We implement a strict change control policy with our key suppliers to ensure that
no component or process changes are made without our prior approval.
Order quantities and lead times for components purchased from suppliers are based on our forecasts derived from historical demand and
anticipated future demand. Lead times for components may vary depending on the size of the order, time required to fabricate and test the
components, specific supplier requirements and current market demand for the components, sub-assemblies and materials. We perform
assembly, testing, inspection and final product release activities for the ENROUTE NPS. Finished ENROUTE NPS devices are ethylene oxide
sterilized at a qualified supplier.
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Government Regulation
United States Food & Drug Administration
Our products and operations are subject to extensive and ongoing regulation by the FDA under the Federal Food, Drug, and Cosmetic Act, or
FDCA, and its implementing regulations, as well as other federal and state regulatory bodies in the United States. The laws and regulations
govern, among other things, product design and development, pre-clinical and clinical testing, manufacturing, packaging, labeling, storage, record
keeping and reporting, clearance or approval, marketing, distribution, promotion, import and export, and post-marketing surveillance.
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will
require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the Federal Food,
Drug and Cosmetic Act, or FDCA, also referred to as a 510(k) clearance, or approval from the FDA of a PMA application. Both the 510(k)
clearance and PMA processes can be resource intensive, expensive, and lengthy, and require payment of significant user fees, unless an
exemption is available.
Device classification
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 control needed to provide reasonable assurances with respect to safety and effectiveness.
Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by
adherence to a set of FDA regulations, referred to as the General Controls for Medical Devices, which require compliance with the applicable
portions of the QSR, facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful and non-
misleading labeling and promotional materials. Some Class I devices, also called Class I reserved devices, also require premarket clearance by
the FDA through the 510(k) premarket notification process described below. Most Class I products are exempt from the premarket notification
requirements.
Class II devices are those that are subject to the General Controls, and special controls as deemed necessary by the FDA to ensure the
safety and effectiveness of the device. These special controls can include performance standards, patient registries, FDA guidance documents
and post-market surveillance. Most Class II devices are subject to premarket review and clearance by the FDA. Premarket review and clearance
by the FDA for Class II devices is accomplished through the 510(k) premarket notification process.
Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or
implantable devices, in addition to those deemed novel and not substantially equivalent following the 510(k) process. The safety and effectiveness
of Class III devices cannot be reasonably assured solely by the General Controls and Special Controls described above. Therefore, these devices
are subject to the PMA application process, which is generally more costly and time consuming than the 510(k) process. Through the PMA
application process, the applicant must submit data and information demonstrating reasonable assurance of the safety and effectiveness of the
device for its intended use to the FDA’s satisfaction. Accordingly, a PMA application typically includes, but is not limited to, extensive technical
information regarding device design and development, pre-clinical and clinical trial data, manufacturing information, labeling and financial
disclosure information for the clinical investigators in device studies. The PMA application must provide valid scientific evidence that demonstrates
to the FDA’s satisfaction a reasonable assurance of the safety and effectiveness of the device for its intended use.
If a new medical device does not qualify for the 510(k) premarket notification process because no predicate device to which it is substantially
equivalent can be identified, the device is automatically
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classified into Class III. 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 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 into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or
moderate risk, rather than requiring the submission and approval of a PMA. If the manufacturer seeks reclassification into Class II, the
manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and
effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would
be appropriate for a 510(k) or determines that the device is not low to moderate risk and requires PMA or that general controls would be
inadequate to control the risks and special controls cannot be developed.
The investigational device process
In the United States, absent certain limited exceptions, human clinical trials intended to support medical device clearance or approval require
an IDE application. Some types of studies deemed to present “non-significant risk” are deemed to have an approved IDE once certain
requirements are addressed and IRB approval is obtained. If the device presents a “significant risk” to human health, as defined by the FDA, the
sponsor must submit an IDE application to the FDA and obtain IDE approval prior to commencing the human clinical trials. 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 testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of subjects.
Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and
informed consent are approved by appropriate institutional review boards at the clinical trial sites. There can be no assurance that submission of
an IDE will result in the ability to commence clinical trials, and although the FDA’s approval of an IDE allows clinical testing to go forward for a
specified number of subjects, it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness,
even if the trial meets its intended success criteria.
All clinical trials must be conducted in accordance with the FDA’s IDE regulations that govern investigational device labeling, prohibit
promotion and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials
must further comply with the FDA’s good clinical practice regulations for institutional review board approval and for informed consent and other
human subject protections. Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable,
or, even if the intended safety and effectiveness success criteria are achieved, may not be considered sufficient for the FDA to grant marketing
approval or clearance of a product. The commencement or completion of any clinical trial may be delayed or halted, or be inadequate to support
approval of a PMA application, for numerous reasons, including, but not limited to, the following:
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The FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;
Patients do not enroll in clinical trials at the rate expected;
Patients do not comply with trial protocols;
Patient follow-up is not at the rate expected;
Patients experience adverse events;
Patients die during a clinical trial, even though their death may not be related to the products that are part of the trial;
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• Device malfunctions occur with unexpected frequency or potential adverse consequences;
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Side effects or device malfunctions of similar products already in the market that change the FDA’s view toward approval of new or similar
PMAs or result in the imposition of new requirements or testing;
Institutional review boards and third-party clinical investigators may delay or reject the trial protocol;
Third-party clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with the
clinical trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other FDA or IRB
requirements;
Third-party investigators are disqualified by the FDA;
• We or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent with
the clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the IDE regulations governing
responsibilities, records, and reports of sponsors of clinical investigations;
•
Third-party clinical investigators have significant financial interests related to us or our study such that the FDA deems the study results
unreliable, or the company or investigators fail to disclose such interests;
• Regulatory inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective
action or suspend or terminate our clinical trials;
• Changes in government regulations or administrative actions;
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The interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or
The FDA concludes that our trial design is unreliable or inadequate to demonstrate safety and effectiveness.
The 510(k) approval process
Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device is “substantially
equivalent,” as defined in the statute, to a legally marketed predicate device.
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 previously found substantially equivalent through the 510(k) process. 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 is
sometimes required to support substantial equivalence.
After a 510(k) premarket notification is submitted, the FDA determines whether to accept it for substantive review. If it lacks necessary
information for substantive review, the FDA will refuse to accept the 510(k) notification. If it is accepted for filing, the FDA begins a substantive
review. The Medical Device User Fee Amendments sets a performance goal of 90 days for FDA review of a 510(k) submission, but the review
time can be delayed if FDA raises questions or requests addition information during the review process. As a practical matter, clearance often
takes longer, and clearance is never
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assured. Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical
data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the
device is substantially equivalent, it will grant clearance to commercially market the device.
If the FDA determines that the device is not “substantially equivalent” to a predicate device, or if the device is automatically classified into
Class III, the device sponsor must then fulfill the much more rigorous premarketing requirements of the PMA approval process, or seek
reclassification of the device through the de novo process. A manufacturer can also submit a petition for direct de novo review if the manufacturer
is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a
new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application or
de novo classification. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA
in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications are
accomplished by a letter-to-file in which the manufacture documents the change in an internal letter-to-file. The letter-to-file is in lieu of submitting
a new 510(k) to obtain clearance for such change. The FDA can always review these letters to file in an inspection. If the FDA disagrees with a
manufacturer’s determination regarding whether a new premarket submission is required for the modification of an existing device, the FDA can
require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA application is obtained.
Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased
requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process
for their products. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the
premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals
to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset
certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been
cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA
solicited public feedback on these proposals. The FDA requested public feedback on whether it should consider certain actions that might require
new authority, such as whether to sunset certain older devices that were used as predicates under the 510(k) clearance pathway. These
proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation.
More recently, in September 2019, the FDA finalized guidance describing an optional “safety and performance based” premarket review
pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway
by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for
manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA
intends to develop and maintain a list device types appropriate for the “safety and performance based” pathway and will continue to develop
product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods
recommended in the guidance documents, where feasible.
The PMA approval process
Following receipt of a PMA application, the FDA conducts an administrative review to determine whether the application is sufficiently
complete to permit a substantive review. If it is not, the agency will refuse to file the PMA. If it is, the FDA will accept the application for filing and
begin the review. The FDA,
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by statute and by regulation, has 180 days to review a filed PMA application, although the review of an application more often occurs over a
significantly longer period of time. During this review period, the FDA may request additional information or clarification of information already
provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated by
the FDA. The FDA considers a PMA or PMA supplement to have been voluntarily withdrawn if an applicant fails to respond to an FDA request for
information (e.g., major deficiency letter) within a total of 360 days. Before approving or denying a PMA, an FDA advisory committee may review
the PMA at a public meeting and provide the FDA with the committee’s recommendation on whether the FDA should approve the submission,
approve it with specific conditions, or not approve it. The FDA is not bound by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions.
Prior to approval of a PMA, the FDA may conduct inspections of the clinical trial data and clinical trial sites, as well as inspections of the
manufacturing facility and processes. Overall, the FDA review of a PMA application generally takes between one and three years, but may take
significantly longer. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:
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The device may not be shown safe or effective to the FDA’s satisfaction;
The data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval;
The manufacturing process or facilities may not meet applicable requirements; and
• Changes in FDA approval policies or adoption of new regulations may require additional data.
If the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which usually
contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to
the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, subject to the conditions
of approval and the limitations established in the approval letter. If the FDA’s evaluation of a PMA application or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may determine that additional tests or clinical
trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and data is
submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the data are available. The PMA process can be
expensive, uncertain and lengthy and a number of devices for which the FDA approval has been sought by other companies have never been
approved by the FDA for marketing.
New PMA applications or PMA supplements are required for modification to the manufacturing process, equipment or facility, quality control
procedures, sterilization, packaging, expiration date, labeling, device specifications, ingredients, materials or design of a device that has been
approved through the PMA process. PMA supplements often require submission of the same type of information as an initial PMA application,
except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application
and may or may not require as extensive technical or clinical data or the convening of an advisory panel, depending on the nature of the proposed
change.
In approving a PMA application, as a condition of approval, the FDA may also require some form of post-approval study or post-market
surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports
to the FDA on the clinical status of those patients when necessary to protect the public health or to provide additional or longer term safety and
effectiveness data for the device. The FDA may also require post-market surveillance for certain devices cleared under a 510(k) notification, such
as implants or life-supporting or life-sustaining devices used outside a device user facility. The FDA may also approve a PMA application with
other
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post-approval conditions intended to ensure the safety and effectiveness of the device, such as, among other things, restrictions on labeling,
promotion, sale, distribution and use.
Pervasive and Continuing Regulation
After a device is placed on the market, numerous regulatory requirements continue to apply. These include:
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The FDA’s QSR, which requires manufacturers, including their suppliers, to follow stringent design, testing, control, documentation and
other quality assurance procedures during all aspects of the manufacturing process;
Labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;
• Medical device reporting, or MDR, regulations, which require that manufacturers report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the
malfunction were to recur;
• Medical device recalls, which require that manufacturers report to the FDA any recall of a medical device, provided the recall was initiated
to either reduce a risk to health posed by the device, or to remedy a violation of the FDCA caused by the device that may present a risk to
health; and
•
Post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and
effectiveness data for the device.
We have registered with the FDA as a medical device manufacturer and a specification developer and have obtained a manufacturing license
from the California Department of Public Health, or CDPH. The FDA and CDPH have broad post-market and regulatory enforcement powers. We
are subject to unannounced inspections by the FDA and the Food and Drug Branch of CDPH to determine our compliance with the QSR and
other regulations, and these inspections may include the manufacturing facilities of our suppliers. Additionally, our Notified Body, the British
Standards Institution, or BSI, regularly inspects our manufacturing, design and operational facilities to ensure ongoing ISO 13485 compliance in
order to maintain our CE mark.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following
sanctions:
• Warning letters, fines, injunctions, consent decrees and civil penalties;
• Repair, replacement, refunds, recall or seizure of our products;
• Operating restrictions, partial suspension or total shutdown of production;
• Refusing our requests for 510 (k) clearance or premarket approval of new products, new intended uses or modifications to existing
products;
• Withdrawing 510 (k) clearance or premarket approvals that have already been granted; and
• Criminal prosecution.
European Union
Our portfolio of TCAR products is regulated in the European Union as a medical device per the European Union Directive 93/42/EEC, also
known as the Medical Device Directive, or MDD. The MDD sets out the basic regulatory framework for medical devices in the European Union.
The system of
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regulating medical devices operates by way of a certification for each medical device. Each certified device is marked with the CE mark which
shows that the device has a Certificat de Conformité. There are national bodies known as Competent Authorities in each member state which
oversee the implementation of the MDD within their jurisdiction. The means for achieving the requirements for the CE mark vary according to the
nature of the device. Devices are classified in accordance with their perceived risks, similarly to the U.S. system. The class of a product
determines the conformity assessment required before the CE mark can be placed on a product. Conformity assessments for our products are
carried out as required by the MDD. Each member state can appoint Notified Bodies within its jurisdiction. If a Notified Body of one member state
has issued a Certificat de Conformité, the device can be sold throughout the European Union without further conformance tests being required in
other member states. The CE mark is contingent upon continued compliance with the applicable regulations and the quality system requirements
of the ISO 13485 standard. Our current CE mark is issued by BSI. When the new EU Medical Regulations take effect in May 2020, our design
examination certificates under the MDD remain valid until their expiration. Compliance with the EU MDR will be executed prior to the expiration of
the current MDD certificates.
Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act, or HITECH, established federal protection for the privacy and security of health information. Under HIPAA, the
Department of Health and Human Services, or HHS, has issued regulations to protect the privacy and security of protected health information
used or disclosed by “Covered Entities,” including healthcare providers and their Business Associates. HIPAA also regulates standardization of
data content, codes and formats used in healthcare transactions and standardization of identifiers for health plans and providers. The privacy
regulations protect medical records and other protected health information by limiting their use and release, giving patients the right to access
their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose.
The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the adoption of written security
policies and procedures. HIPAA requires Covered Entities to execute Business Associate Agreements with their Business Associates and
subcontractors, who provide services to Covered Entities and who need access to protected health information. In addition, companies that would
not otherwise be subject to HIPAA may become contractually obligated to follow HIPAA requirements through agreements with Covered Entities
and Business Associates, and some of our customers may require us to agree to these provisions.
In addition, HIPAA and other federal privacy regulations, such as Section 5 of the Federal Trade Commission Act, there are a number of state
laws regarding the privacy and security of health information and personal data that apply to us. The compliance requirements of these laws,
including additional breach reporting requirements, and the penalties for violation vary widely, and new privacy and security laws in this area are
evolving. Requirements of these laws and penalties for violations vary widely.
If we or our operations are found to be in violation of HIPAA, HITECH, or their implementing regulations, we may be subject to penalties,
including civil and criminal penalties, fines, and exclusion from participation in federal or state healthcare programs, and the curtailment or
restructuring of our operations. HITECH increased the civil and criminal penalties that may be imposed against Covered Entities, their Business
Associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions.
U.S. Federal, State and Foreign Fraud and Abuse Laws
The federal and state governments have enacted, and actively enforce, a number of laws to address fraud and abuse in federal healthcare
programs. Our business is subject to compliance with these laws.
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Anti-Kickback Statutes
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration,
directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which
payment may be made under a federal healthcare program, such as Medicare or Medicaid. A person or entity does not need to have actual
knowledge of the statute or specific intent to violate it to have committed a violation.
The definition of “remuneration” has been broadly interpreted to include anything of value, including, for example, gifts, certain discounts, the
furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers of payments. Several courts have
interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of
federal healthcare covered businesses, the statute has been violated. Violations of the federal Anti-Kickback Statute may result in civil monetary
penalties up to $104,330 for each violation, plus up to three times the remuneration involved. Civil penalties for such conduct can further be
assessed under the federal False Claims Act. Violations can also result in criminal penalties, including criminal fines of up to $100,000 and
imprisonment of up to 10 years. Similarly, violations can result in exclusion from participation in government healthcare programs, including
Medicare and Medicaid. In addition, some kickback allegations have been claimed to violate the Federal False Claims Act.
The Office of Inspector General, or OIG, of the HHS has issued a series of regulations known as “safe harbors.” These safe harbors set forth
provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted
under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily
mean that it is per se illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an
applicable safe harbor may result in increased scrutiny by government enforcement authorities such as OIG.
Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of recipients for
healthcare products or services reimbursed by any source, not only government healthcare programs, and may apply to payments made directly
by the patient.
Government officials have focused their enforcement efforts on the marketing of healthcare services and products, among other activities, and
recently have brought cases against companies, and certain individual sales, marketing and executive personnel, for allegedly offering unlawful
inducements to potential or existing customers in an attempt to procure their business.
Federal False Claims Act
The federal False Claims Act, or FCA, imposes liability on any person or entity that, among other things, knowingly presents, or causes to be
presented, a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the FCA allow a private individual to
bring actions on behalf of the federal government alleging that the defendant has violated the FCA and to share in any monetary recovery. In
addition, various states have enacted false claims laws analogous to the FCA, and many of these state laws apply where a claim is submitted to
any third-party payer and not only a federal healthcare program.
When an entity is determined to have violated the FCA, it may be required to pay up to three times the actual damages sustained by the
government, plus civil fines and penalties ranging from $11,665 and $23,331 for each false claim, subject to adjustment for inflation. As part of
any settlement, the government may require the entity to enter into a corporate integrity agreement, which imposes certain compliance,
certification and reporting obligations. There are many potential bases for liability under the FCA. Liability arises, primarily, when an entity
knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The federal government has used the
FCA to assert liability on the basis of kickbacks, or in instances in which manufacturers have provided billing or coding advice to providers that the
government considered to be inaccurate. In these cases, the manufacturer
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faces liability for “causing” a false claim. In addition, the federal government has prosecuted companies under the FCA in connection with off-label
promotion of products. Our activities relating to the reporting of discount and rebate information and other information affecting federal, state and
third-party reimbursement of our products and the sale and marketing of our products may be subject to scrutiny under these laws.
We are exposed to the risk of fraud or other misconduct by our employees, collaborators, vendors, principal investigators, consultants,
independent contractors, and commercial partners. It is not always possible to identify and deter employee misconduct, 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. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on
our business, including the imposition of significant fines or other sanctions. While we are unaware of any current matters, we are unable to
predict whether we will be subject to actions under the FCA or a similar state law, or the impact of such actions. Whether or not we are successful
in defending against any 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, which could have a material adverse effect on our business
and financial condition.
Civil Monetary Penalties
The Civil Monetary Penalty Act of 1981 imposes penalties against any person or entity that, among other things, is determined to have
presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that
was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person
knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a
particular provider or supplier.
Open Payments
The Physician Payments Sunshine Act, known as “Open Payments” and enacted as part of the Affordable Care Act, requires all
pharmaceutical and medical device manufacturers of products covered by Medicare, Medicaid or the Children’s Health Insurance Program to
report annually to HHS: payments and transfers of value to physicians, certain other healthcare providers, and teaching hospitals, and ownership
and investment interests held by physicians and their immediate family members. Additionally, on October 24, 2018, President Trump signed into
law the “Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act” which in part
(under a provision entitled “Fighting the Opioid Epidemic with Sunshine”) extends the reporting and transparency requirements for physicians in
the Physician Payments Sunshine Act to physician assistants, nurse practitioners, and other mid-level practitioners (with reporting requirements
going into effect in 2022 for payments made in 2021). Applicable manufacturers are required to submit annual reports to CMS. Failure to submit
required information may result in civil monetary penalties of up to $176,495 per annual report for failing to report payments in a timely manner.
Knowingly failing to submit payment information may result in a civil money penalty of up to $1,176,638. We are subject to Open Payments and
the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs.
Additionally, similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries
worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals.
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering
of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the
foreign entity in order
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to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the
United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of
the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of internal accounting controls for
international operations.
International Laws
In Europe, various countries have adopted anti-bribery laws providing for severe consequences in the form of criminal penalties and
significant fines for individuals or companies committing a bribery offense. Violations of these anti-bribery laws, or allegations of such violations,
could have a negative impact on our business, results of operations and reputation.
For instance, in the United Kingdom, under the U.K. Bribery Act 2010, a bribery occurs when a person offers, gives or promises to give a
financial or other advantage to induce or reward another individual to improperly perform certain functions or activities, including any function of a
public nature. Bribery of foreign public officials also falls within the scope of the U.K. Bribery Act 2010. An individual found in violation of the U.K.
Bribery Act 2010, faces imprisonment of up to ten years. In addition, the individual can be subject to an unlimited fine, as can commercial
organizations for failure to prevent bribery.
There are also international privacy laws that impose restrictions on the access, use, and disclosure of health information. All of these laws
may impact our business. Our failure to comply with these privacy laws or significant changes in the laws restricting our ability to obtain required
patient information could significantly impact our business and our future business plans.
U.S. Centers for Medicare and Medicaid Services
Medicare is a federal program administered by CMS through fiscal intermediaries and carriers. Available to individuals age 65 or over, and
certain other individuals, the Medicare program provides, among other things, healthcare benefits that cover, within prescribed limits, the major
costs of most medically necessary care for such individuals, subject to certain deductibles and copayments.
CMS has established guidelines for the coverage and reimbursement of certain products and procedures by Medicare. In general, in order to
be reimbursed by Medicare, a healthcare procedure furnished to a Medicare beneficiary must be reasonable and necessary for the diagnosis or
treatment of an illness or injury, or to improve the functioning of a malformed body part. The methodology for determining coverage status and the
amount of Medicare reimbursement varies based upon, among other factors, the setting in which a Medicare beneficiary received healthcare
products and services. Any changes in federal legislation, regulations and policy affecting CMS coverage and reimbursement relative to the
procedure using our products could have a material effect on our performance.
CMS also administers the Medicaid program, a cooperative federal/state program that provides medical assistance benefits to qualifying low
income and medically needy persons. State participation in Medicaid is optional, and each state is given discretion in developing and
administering its own Medicaid program, subject to certain federal requirements pertaining to payment levels, eligibility criteria and minimum
categories of services. The coverage, method and level of reimbursement vary from state to state and is subject to each state’s budget restraints.
Changes to the availability of coverage, method or level of reimbursement for TCAR may affect future revenue negatively if reimbursement
amounts are decreased or discontinued.
All CMS programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings,
interpretations of policy, intermediary determinations, and government funding restrictions, all of which may materially increase or decrease the
rate of program payments to healthcare facilities and other healthcare providers, including those paid for TCAR.
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United States Health Reform
Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt
commercialization of our current and future solutions. Changes in healthcare policy could increase our costs, decrease our revenue and impact
sales of and reimbursement for our current and future products. The ACA substantially changes the way healthcare is financed by both
governmental and private insurers, and significantly impacts our industry. The United States and some foreign jurisdictions are considering or
have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our
products profitably. Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in
healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. Current and future legislative
proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated
with the use of our products. The cost containment measures that payers and providers are instituting and the effect of any healthcare reform
initiative implemented in the future could impact our revenue from the sale of our products.
The implementation of the Affordable Care Act in the United States, for example, has changed healthcare financing and delivery by both
governmental and private insurers substantially, and affected medical device manufacturers significantly. The Affordable Care Act imposed,
among other things, a 2.3% federal excise tax, with limited exceptions, on any entity that manufactures or imports Class I, II and III medical
devices offered for sale in the United States that began on January 1, 2013. Through a series of legislative amendments, the tax was suspended
for 2016 through 2019. In December 2019, this excise tax was permanently repealed for medical device sales, effective after December 31, 2019.
The Affordable Care Act also provided incentives to programs that increase the federal government’s comparative effectiveness research, and
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. Additionally, the
Affordable Care Act has expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to
oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. We do not yet know
the full impact that the Affordable Care Act will have on our business. There have been judicial and Congressional challenges to certain aspects of
the Affordable Care Act, and we expect additional challenges and amendments in the future. Moreover, the Trump Administration and the U.S.
Congress may take further action regarding the Affordable Care Act, including, but not limited to, repeal or replacement. On December 18, 2019,
the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the
case to the District Court to determine whether the remaining provisions of the ACA are invalid. It is unclear how this decision, subsequent
appeals, and other efforts to repeal and replace the ACA will impact the healthcare industry or our business operations.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, the Budget
Control Act of 2011, among other things, included reductions to CMS payments to providers of 2% per fiscal year, which went into effect on
April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2029 unless additional Congressional
action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced CMS payments to several providers,
including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five
years.
We believe that there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payers to
reduce costs while expanding individual healthcare benefits. Certain of these changes could impose additional limitations on the rates we will be
able to charge for our current and future products or the amounts of reimbursement available for our current and future products from
governmental agencies or third-party payers. Current and future healthcare reform legislation and policies could have a material adverse effect on
our business and financial condition.
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Employees
As of December 31, 2019, we had 224 full-time employees. We believe that the success of our business will depend, in part, on our ability to
attract and retain qualified personnel. None of our employees are represented by a labor union or are a party to a collective bargaining agreement
and we believe that our employee relations are good.
Corporate and other Information
We were incorporated in Delaware on March 21, 2007 as Silk Road Medical, Inc. Our principal executive offices are located at 1213 Innsbruck
Drive, Sunnyvale, CA 94089, and our telephone number is (408) 720-9002. Our website address is www.silkroadmed.com. Investors and others
should note that we announce material financial information to our investors using SEC filings, press releases, our investor relations website,
public conference calls and webcasts. We use these channels as well as social media to communicate with investors, customers and the public
about our company, our products and other issues. It is possible that information we post on social media channels could be deemed to be
material information. We encourage investors, our customers and others interested in our company to review the information we post on our
Facebook page (https://www.facebook.com/SilkRoadMed/) and Twitter feed (https://twitter.com/silkroadmed). The information on, or that may be
accessed through, our website and social media channels is not incorporated by reference into this Annual Report on Form 10-K and should not
be considered a part of this Annual Report on Form 10-K.
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Item 1A. Risk Factors
We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results of
operations and future growth prospects. Our business could be harmed by any of these risks. The risks and uncertainties described below are not
the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations and future
prospects. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In
assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our condensed
financial statements and related notes. Please also see “Cautionary Notes Regarding Forward-Looking Statements.”
Risks Related to Our Business
We are an early-stage company with a history of net losses, we expect to incur operating losses in the future and we may not be
able to achieve or sustain profitability. We have a limited history operating as a commercial company.
We have incurred net losses since our inception in March 2007. For the years ended December 31, 2019 and 2018, we had a net loss of
$52.4 million, and $37.6 million, respectively, and we expect to continue to incur additional losses in the future. As of December 31, 2019, we had
an accumulated deficit of $191.5 million. To date, we have financed our operations primarily through equity and debt financings and from sales of
our portfolio of TCAR products that enable transcarotid artery revascularization, or TCAR. The losses and accumulated deficit have primarily been
due to the substantial investments we have made to develop our products, as well as for costs related to general research and development,
including clinical and regulatory initiatives to obtain marketing approval, sales and marketing efforts and infrastructure improvements.
We fully commercialized our products in the United States in 2016 and therefore do not have a long history operating as a commercial
company. Over the next several years, we expect to continue to devote a substantial amount of our resources to expand commercialization efforts
and increase adoption of TCAR using our products, improve and expand reimbursement for TCAR, and develop additional products. In addition,
as a newly public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. Accordingly, we
expect to continue to incur operating losses for the foreseeable future and we cannot assure you that we will achieve profitability in the future or
that, if we do become profitable, we will sustain profitability. Our failure to achieve and sustain profitability in the future will make it more difficult to
finance our business and accomplish our strategic objectives, which would have a material adverse effect on our business, financial condition and
results of operations and cause the market price of our common stock to decline. In addition, failure of our products to significantly penetrate the
target markets would negatively affect our business, financial condition and results of operations.
We rely on, and currently sell products to enable, TCAR, a single and new procedure. We have limited commercial sales experience
regarding TCAR, which makes it difficult to evaluate our current business, predict our future prospects and forecast our financial
performance and growth.
To date, all of our revenue has been derived, and we expect it to continue to be derived in the near term, from sales of our products that
enable TCAR. TCAR is a new treatment option for certain patients diagnosed with carotid artery disease and, as a result, physician awareness of
TCAR and our products, and experience with TCAR and our products, is limited. As a result, our Company and products have limited brand
recognition and TCAR has limited recognition within the medical industry. The novelty of TCAR and our products that enable the procedure,
together with our limited commercialization experience, make it difficult to evaluate our current business and predict our future prospects. A
number of factors that are outside of our control may contribute to fluctuations in our financial results, including:
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•
•
•
Physician and hospital demand for our products and the extent of adoption of TCAR, including the rate at which physicians recommend
our products and TCAR to their patients;
Positive or negative media coverage, or public, patient and/or physician perception, of our products and TCAR or competing products and
procedures;
Any safety or effectiveness concerns that arise regarding our products or TCAR;
• Unanticipated delays in product development or product launches;
• Our ability to maintain our current or obtain further regulatory clearances or approvals;
• Delays in, or failure of, product and component deliveries by our third-party suppliers; and
•
Introduction of new products or procedures for treating carotid artery disease that compete with our products and the TCAR procedure.
It is therefore difficult to predict our future financial performance and growth, and such forecasts are inherently limited and subject to a number
of uncertainties. If our assumptions regarding the risks and uncertainties we face, which we use to plan our business, are incorrect or change due
to circumstances in our business or our markets, or if we do not address these risks successfully, our operating and financial results could differ
materially from our expectations and our business could suffer.
In addition, because we devote substantially all of our resources to our products that enable TCAR and rely on our products and the adoption
of TCAR as our sole source of revenue, any factors that negatively impact our products or TCAR, or result in a decrease in sales of products,
could have a material adverse effect on our business, financial condition and results of operations.
Our business is dependent upon the broad adoption of TCAR by hospitals and physicians.
To date, a substantial majority of our product sales and revenue have been derived from a limited number of hospitals and physicians who
have adopted TCAR. Our future growth and profitability largely depends on our ability to increase physician awareness of TCAR and on the
willingness of physicians to adopt our products and TCAR, and to recommend the procedure to their patients. Physicians may not adopt our
products unless they are able to determine, based on experience, clinical data, medical society recommendations and other analyses, that our
products provide a safe and effective treatment alternative for carotid artery disease. Even if we are able to raise awareness among physicians,
physicians tend to be slow in changing their medical treatment practices and may be hesitant to select our products or TCAR for recommendation
to patients for a variety of reasons, including:
•
Long-standing relationships with competing companies and distributors that sell other products, such as stents and embolic protection
devices for transfemoral carotid artery stenting, or CAS;
• Competitive response and negative selling efforts from providers of alternative carotid revascularization products;
•
•
•
Lack of experience with our products and concerns that we are relatively new to market;
Perceived liability risk generally associated with the use of new products and procedures;
Lack or perceived lack of sufficient clinical evidence, including long-term data, supporting clinical benefits;
• Reluctance to change to or use new products and procedures;
•
Perceptions that our products are unproven; and
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•
Time commitment and skill development that may be required to gain familiarity and proficiency with TCAR and our products.
Physicians play a significant role in determining the course of a patient’s treatment for carotid artery disease and, as a result, the type of
treatment that will be recommended or provided to a patient. We focus our sales, marketing and education efforts primarily on vascular surgeons,
and aim to educate referring physicians such as vascular surgeons, cardiologists, radiologists, neurologists, neurosurgeons and general
practitioners regarding the patient population that would benefit from TCAR. However, we cannot assure you that we will achieve broad education
or market acceptance among these practitioners. For example, if diagnosing physicians that serve as the primary point of contact for patients are
not made aware of TCAR, they may not refer patients to physicians for treatment using our products, and those patients may instead not seek
treatment at all or may be treated with alternative procedures. In addition, some physicians may choose to utilize TCAR on only a subset of their
total patient population or may not adopt TCAR at all. If a physician experiences an adverse event in one or more of their TCAR patients or elects
to convert TCAR to CEA mid-procedure, they may not continue offering and performing TCAR at the same rate or at all. Further, as TCAR is a
new procedure, it may not fit into the workstreams of certain physicians. If we are not able to effectively demonstrate that TCAR is beneficial in a
broad range of patients, adoption of TCAR will be limited and may not occur as rapidly as we anticipate or at all, which would have a material
adverse effect on our business, financial condition and results of operations. We cannot assure you that TCAR or our products will achieve broad
market acceptance among hospitals and physicians. Any failure of TCAR or our products to satisfy demand or to achieve meaningful market
acceptance and penetration will harm our future prospects and have a material adverse effect on our business, financial condition and results of
operations.
In addition, the medical device industry’s relationship with physicians is under increasing scrutiny by the Health and Human Services Office of
the Inspector General, or OIG, the Department of Justice, or DOJ, state attorneys general, and other foreign and domestic government agencies.
Our failure to comply with laws, rules and regulations governing our relationships with physicians, or an investigation into our compliance by the
OIG, DOJ, state attorneys general or other government agencies, could significantly harm our business.
In most cases, before physicians can use our products for the first time, our products must be approved for use by a hospital's new product or
value analysis committee, or the staff of a hospital or health system. Following such approval, we may be required to enter into a purchase
contract. Such approvals or requirements to enter into a purchase contract could deter or delay the use of our products by physicians. We cannot
provide assurance that our efforts to obtain such approvals, enter into purchase contracts, or generate adoption will be successful or increase the
use of our products, and if we are not successful, it could have a material adverse effect on our business, financial condition and results of
operations.
Adoption of TCAR depends upon positive clinical data and medical society recommendations, and negative clinical data or medical
society recommendations would adversely affect our business.
The rate of adoption of TCAR and sales of our products that facilitate the procedure is heavily influenced by clinical data. Although the Society
for Vascular Surgery’s TCAR Surveillance Project contains real world data comparing procedures, we have not conducted head-to-head clinical
trials to compare TCAR to the procedures historically available to patients, such as CEA or CAS, which may limit the adoption of TCAR.
Additionally, the Carotid Revascularization and Medical Management for Asymptomatic Carotid Stenosis 2 clinical trial is currently being
conducted by the National Institutes of Health, which compares the effectiveness of each of CEA and CAS with best medical management
solutions. Although we estimate that enrollment will not be completed until 2022, interim results have been released from time to time. At the
completion of the four-year follow-up, the trial could conclude that medical management alone achieves the same therapeutic results as CEA
and/or CAS, which could have an adverse impact on the adoption of TCAR. Finally, our competitors and third parties may also conduct
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clinical trials of our products without our participation. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by
us, our competitors or third parties, the interpretation of our or other clinical data or findings of new or more frequent adverse events, could have a
material adverse effect on our business, financial condition and results of operations.
As physicians are influenced by guidelines issued by physician organizations, such as the Society for Vascular Surgery, the rate of adoption of
TCAR and sales of our products that facilitate the procedure are also heavily influenced by medical society recommendations. We believe the
Society for Vascular Surgery’s Clinical Practice Guidelines, or SVS Guidelines, are of particular importance to the broader market acceptance of
TCAR. The most current SVS Guidelines on the management of carotid artery disease, published in 2011, do not specifically mention TCAR as a
treatment for carotid artery disease, but generally discuss CAS and embolic protection methods, including flow reversal. If the next version of the
SVS Guidelines do not recommend TCAR, or if the Society for Vascular Surgery issues a negative or limited statement regarding TCAR,
physicians may not adopt or continue to use TCAR or our products at the same rate or at all, which would have a material adverse effect on our
business, financial condition and results of operations. Additionally, if key opinion leaders who currently support TCAR cease to recommend
TCAR or our products, our business, financial condition and results of operations will be adversely affected.
Adoption of TCAR depends upon appropriate physician training, and inadequate training may lead to negative patient outcomes,
affect adoption of TCAR and adversely affect our business.
The success of TCAR depends in part on the skill of the physician performing the procedure and on our customers’ adherence to appropriate
patient selection and proper techniques provided in training sessions conducted by our training faculty. For example, we train our customers to
ensure correct use of our ENROUTE NPS and proper deployment of our ENROUTE stent. However, physicians rely on their previous medical
training and experience when performing TCAR, and we cannot guarantee that all such physicians will have the necessary surgical and
endovascular skills to perform the procedure. While we mandate physician attendance at our TCAR training program or training with proctors, we
do not control which physicians perform TCAR or how much training they receive. Physicians who have not completed our training sessions may
nonetheless attempt to perform TCAR. If physicians perform TCAR in a manner that is inconsistent with its labeled indications, with components
that are not our products or without adhering to or completing our training sessions, their patient outcomes may not be consistent with the
outcomes achieved in our and other clinical trials, studies or registries of TCAR. This result may negatively impact the perception of patient benefit
and safety and limit adoption of TCAR and our products that facilitate the procedure, which would have a material adverse effect on our business,
financial condition and results of operations. Additionally, physician organizations may adopt physician credentialing guidelines requiring TCAR
training more extensive than our training program. If physicians conclude that we do not provide adequate TCAR training, they may be less likely
to adopt TCAR and our products, which could have a material adverse effect on our business, financial condition and results of operations.
A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may adversely affect our business.
If a pandemic, epidemic or outbreak of an infectious disease occurs, our business may be adversely affected. In December 2019, a novel
strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of February 2020, has spread to
over 50 countries, including the United States. Such events may result in a period of business and manufacturing disruption, and in reduced sales
and operations, any of which could materially affect our business, financial condition and results of operations. For example, the spread of
COVID-19 in the United States may result in travel restrictions impacting our sales professionals and therapy development specialists who
support them. Travel restrictions may also reduce the number of physicians travelling to attend our training programs, which would result in fewer
physicians trained on the TCAR procedure. In addition, hospitals may reduce staffing and postpone certain procedures in response to COVID-19
or divert
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resources to treat those patients with an infectious disease. Hospitals may also limit access for non-patients, including our sales professionals and
therapy development specialists, which would negatively impact our access to physicians and their patients. Any of the foregoing actions could
adversely affect our sales and the revenue we derive as a result.
The outbreak and persistence of COVID-19 in international markets that we have targeted for our international expansion may also delay
preparation for and launch of such expansion efforts. The spread of an infectious disease, including COVID-19, could result in the inability of our
suppliers to deliver components or raw materials to us on a timely basis. If there were a shortage of supply, the cost of these materials or
components may increase and harm our ability to provide our products on a cost-effective basis. In connection with any supply shortages in the
future, reliable and cost-effective replacement sources may not be available on short notice or at all, and this may force us to increase prices and
face a corresponding decrease in demand for our products. In the event that any of our suppliers were to discontinue production of our key
product components, developing alternate sources of supply for these components would be time consuming, difficult and costly. The extent to
which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact,
among others.
We have limited long-term data regarding the safety and effectiveness of our products, including our ENROUTE stent and TCAR
generally.
Our products enable TCAR, which is a novel procedure, and our success depends on acceptance of our products and TCAR by the medical
industry, including physicians and hospitals. The FDA reviews our products for safety and effectiveness, prior to commercial launch of these
products. Thereafter, physicians, through their own use of the products and evaluation of clinical data, make their own decisions as to whether our
products are safe and effective for their patients and improve their clinical outcomes. Important factors upon which the effectiveness of our
products, including our ENROUTE stent, will be measured include but are not limited to long-term data regarding the risk of stroke and death and
the rates of restenosis and reintervention following TCAR. The long-term clinical benefits of procedures that use our products are not known. We
have limited data on the ENROUTE stent and TCAR up to one year. Any failure of our stent or in-stent restenosis of the carotid artery following
deployment of the stent could deter physicians from adopting our products and could have a material adverse effect on our business, financial
condition and results of operations.
The results of short-term clinical experience of our products do not necessarily predict long-term clinical benefit. We believe that physicians
will compare the rates of long-term risk of stroke and death, as well as restenosis and reintervention for procedures using our products, against
alternative procedures, such as CEA and CAS. If the long-term data do not meet physicians’ expectations, or if long-term data indicate that our
products are not as safe or effective as other treatment options or as current short-term data would suggest, our products may not become widely
adopted, physicians may recommend alternative treatments for their patients and our business could be harmed.
If we are not able to maintain adequate levels of third-party coverage and reimbursement for the procedures using our products, if
third parties rescind or modify their coverage or delay payments, or if patients are left with significant out-of-pocket costs, it would
have a material adverse effect on our business, financial condition and results of operations.
TCAR is currently covered under certain circumstances for certain patients by the Centers for Medicare and Medicaid Services, and has been
covered by some commercial payers, independent networks and other entities not governed by the National Coverage Determination. In the
United States, we derive our revenue from sales to hospitals and medical centers, which typically bill all or a portion of the costs and fees
associated with our products to various third-party payers, including Medicare, Medicaid, Veterans’ Administration, private commercial insurance
companies, health maintenance organizations and other healthcare-related organizations, and then bill patients for any applicable
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deductibles or co-payments. For example, our contracts are with the hospitals and medical centers that purchase our products for use with TCAR
and not with the commercial payers. As a result, access to adequate coverage and reimbursement for our products by third-party payers is
essential to the acceptance of our products by our customers.
However, in the United States, there is no uniform policy of coverage and reimbursement for medical device products and services among
third-party payers, so coverage and reimbursement can differ significantly from payer to payer, and each coverage decision and level of
reimbursement is independent. As a result, third-party reimbursement may not be available or adequate for our products, and there is no
guarantee that we will be able to maintain our current levels of coverage or reimbursement or be able to expand coverage to other insurance
carriers. Further, payers continually review new technologies for possible coverage and can, without notice, deny or limit coverage for products
and procedures or delay coverage approval until further clinical data are available. As a result, the coverage determination process is often a time-
consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payer separately,
with no assurance that coverage and adequate reimbursement will be obtained, or maintained if obtained. If third-party reimbursement is not
available or adequate for TCAR procedures using our products, or if there is any decline in the amount that payers are willing to reimburse our
customers for TCAR or our products, new customers may not adopt, or may reduce their rate of adoption of, our products and we could
experience additional pricing pressure, any of which could have a material adverse effect on our business, financial condition and results of
operations.
Our products are reimbursed primarily on a per-patient prior authorization basis for patients covered by commercial insurers and on a medical
necessity basis for certain patients covered by the Centers for Medicare and Medicaid Services. Based on reimbursement information regarding
CEA and CAS, we estimate that approximately 75% of carotid procedures are reimbursed by Medicare/Medicaid and approximately 25% are
reimbursed by commercial payers. Current Procedure Terminology, or CPT, codes are developed and issued by the American Medical
Association, or AMA. The U.S. Centers for Medicare & Medicaid Services, or CMS, determines Medicare physician payments based on formulas
within the Medicare Resource-Based Relative Value Scale, which uses Relative Value Units, or RVUs. The AMA/Specialty Society RVS Update
Committee, or RUC, provides periodic recommendations to CMS on the RVU values, but CMS makes the final decisions about Medicare
payments. In the future, Medicare physician payments for TCAR using our products may change based on a new RUC review recommendation.
CMS makes the final determination regarding Medicare hospital and physician payments. If the Society for Vascular Surgery recommended
changes to the RVUs or declined to support the use of TCAR or the Medicare National Coverage Determination no longer covers TCAR, there
would be a material adverse effect on our business, financial condition and results of operations. If this were to occur, commercial insurance
companies could also adjust payment rates at which they reimburse TCAR using our products. Other carotid artery disease treatments, such as
CEA, may be more widely covered or subject to different co-pay policies and requirements. If patients are required to cover all or a part of the cost
of TCAR or our products out-of-pocket, they may be less likely to elect to use our products and/or undergo the procedure. Additionally, patients
may elect to reduce or defer out-of-pocket costs during times of economic uncertainty or periods of legislative change. If hospital, physician and/or
patient demand for TCAR, and thus our products that facilitate the procedure, is adversely affected by third-party reimbursement policies and
decisions, it will have a material adverse effect on our business, financial condition and results of operations.
Internationally, reimbursement systems in foreign markets vary significantly by country and by region within some countries, and
reimbursement approvals must be obtained on a country-by-country basis. In certain international markets, a product must be approved for
reimbursement before it can be approved for sale in that country. Additionally, many international markets have government-managed healthcare
systems that control reimbursement for products and procedures. In most markets there are both private insurance systems and government-
managed systems. If sufficient levels of coverage and
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reimbursement are not available for TCAR or our current or future products, in either the United States or internationally, the demand for our
products and our revenues will be adversely affected.
Additionally, when payers combine their operations, the combined company may elect to reimburse for TCAR at the lowest rate paid by any of
the participants in the consolidation or use its increased size to negotiate reduced rates. If one of the payers participating in the consolidation does
not reimburse for TCAR at all, the combined company may elect not to reimburse for TCAR, which would adversely impact our business, financial
condition and results of operations.
If we fail to comply with our obligations in our intellectual property license from Cardinal Health, we could lose license rights that
are important to our business.
We are a party to a license agreement with Cordis Corporation, or Cordis, which was acquired by Cardinal Health, under which Cordis has
granted us a worldwide, non-exclusive, royalty-bearing license to certain of its intellectual property related to the PRECISE® carotid stent for
transcervical treatment of carotid artery disease with an intravascular stent for certain applications for accessing blood vessels through the neck
and cervical area. This license agreement imposes, and we expect that any future license agreements will impose, certain diligence, royalty, and
other obligations on us. If we fail to comply with these obligations, our licensors, including Cardinal Health, may have the right to reduce the scope
of our rights or terminate these agreements, in which event we may not be able to develop and market any product that is covered by these
agreements. Termination of this license for failure to comply with such obligations or for other reasons, or reduction or elimination of our licensed
rights under it or any other license, may result in our having to negotiate new or reinstated licenses on less favorable terms or our not having
sufficient intellectual property rights to operate our business or cause us to enter into a new license for a different stent. The occurrence of such
events could materially harm our business and financial condition.
The risks described elsewhere pertaining to our intellectual property rights also apply to the intellectual property rights that we in-license, and
any failure by us or our licensors, including Cordis, to obtain, maintain, defend and enforce these rights could have a material adverse effect on
our business. In some cases we do not have control over the prosecution, maintenance or enforcement of the patents that we license, and may
not have sufficient ability to provide input into the patent prosecution, maintenance and defense process with respect to such patents, and our
licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain, defend and enforce the licensed
patents.
We rely on Cardinal Health to supply the ENROUTE stent, and if Cardinal Health fails to supply the ENROUTE stent in sufficient
quantities or at all, it will have a material adverse effect on our business, financial condition and results of operations.
We rely on Cardinal Health to manufacture the ENROUTE stent pursuant to a supply agreement between us and Cordis Corporation, which
was acquired by Cardinal Health. We strive to maintain an inventory of several months’ worth of ENROUTE stents to guard against potential
shortfalls in supply, and we estimate that it would take one to two years to find an alternative supplier for our ENROUTE stent and multiple years
to identify and seek approval for another stent, and in each case qualify it for use with our other products. In addition, Cardinal Health currently
manufactures the ENROUTE stent at a facility in Juarez, Mexico. The current political and trade relationship between the United States and
Mexico is strained and may deteriorate. If Cardinal Health’s ability to manufacture the ENROUTE stent is interrupted as a result, or if Cardinal
Health breaches its supply agreement with us, we may not have a sufficient number of stents for delivery to support TCAR procedures. Any
shortfall in the supply of ENROUTE stents may result in lower adoption rates for TCAR, fewer TCAR procedures being performed generally, and a
material adverse effect on our business, financial condition and results of operations.
TCAR involves surgical risks and is contraindicated in certain patients, which may limit adoption.
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Risks of TCAR using our products include the risks that are common to surgical and endovascular procedures, including perforation,
dissection, embolization, bleeding, infection, nerve injury and restenosis. Endovascular procedures occurring in the carotid arteries also include
the additional risks of stroke, heart attack and death. We are aware of certain characteristics and features of TCAR that may prevent widespread
market adoption, including the fact that physicians would need to adopt a new procedure, and that training for physicians will be required to
enable them to effectively operate our products.
Our current products are contraindicated, and therefore should not be used, in certain patients. Our ENROUTE NPS is contraindicated in
patients in whom antiplatelet and/or anticoagulation therapy is contraindicated; patients with uncorrected bleeding disorders; patients with severe
disease of the ipsilateral common carotid artery; and patients with uncontrollable intolerance to flow reversal. Our ENROUTE stent is
contraindicated in patients in whom antiplatelet and/or anticoagulation therapy is contraindicated; patients in whom the ENROUTE NPS is unable
to be placed; patients with uncorrected bleeding disorders; patients with known allergies to nitinol; and patients with lesions in the ostium of the
common carotid artery. Our ENHANCE peripheral access kit is contraindicated in patients with a known or suspected obstruction in the vessel.
Our ENROUTE guidewire is contraindicated in patients judged not acceptable for percutaneous intervention. Additionally, patients that lack at
least five centimeters of common carotid artery free of significant disease are not indicated for our ENROUTE NPS.
We have limited experience manufacturing our products in commercial quantities and we face manufacturing risks that may
adversely affect our ability to manufacture products and could reduce our gross margins and negatively affect our business and
operating results.
Our business strategy depends on our ability to manufacture our current and future products in sufficient quantities and on a timely basis to
meet customer demand, while adhering to product quality standards, complying with regulatory quality system requirements and managing
manufacturing costs. We have a facility located in Sunnyvale, California, where we assemble and package certain of our products, and inspect,
release and ship all of our products. We currently produce our ENROUTE NPS at this facility, and we and the contract manufacturers of our other
products do not have redundant facilities. If our or our manufacturing partners’ facilities suffers damage, or a force majeure event, this could
materially impact our ability to operate.
We are also subject to numerous other risks relating to our manufacturing capabilities, including:
• Quality and reliability of components, sub-assemblies and materials that we source from third-party suppliers, who are required to meet
our quality specifications, the majority of which are our single source suppliers for the products they supply;
• Our or our manufacturing partners’ inability to secure components, sub-assemblies and materials in a timely manner, in sufficient
quantities or on commercially reasonable terms;
• Our or our manufacturing partners’ inability to maintain compliance with quality system requirements or pass regulatory quality
inspections;
• Our or our manufacturing partners’ failure to increase production capacity or volumes to meet demand;
• Our or our manufacturing partners’ inability to design or modify production processes to enable us to produce future products efficiently or
implement changes in current products in response to design or regulatory requirements; and
• Difficulty identifying and qualifying, and obtaining new regulatory approvals, for alternative suppliers for components in a timely manner.
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These risks are likely to be exacerbated by our limited experience with our current products and manufacturing processes. As demand for our
products increases, we will have to invest additional resources to purchase components, sub-assemblies and materials, hire and train employees
and enhance our manufacturing processes. If we fail to increase our production capacity efficiently, we may not be able to fill customer orders on
a timely basis, our sales may not increase in line with our expectations and our operating margins could fluctuate or decline. In addition, although
we expect some of our products in development to share product features, components, sub-assemblies and materials with our existing products,
the manufacture of these products may require modification of our or our manufacturing partners’ current production processes or unique
production processes, the hiring of specialized employees, the identification of new suppliers for specific components, sub-assemblies and
materials or the development of new manufacturing technologies. It may not be possible for us or our manufacturing partners’ to manufacture
these products at a cost or in quantities sufficient to make these products commercially viable or to maintain current operating margins, all of
which could have a material adverse effect on our business, financial condition and results of operations.
We depend on a limited number of single source suppliers to manufacture our components, sub-assemblies and materials, which
makes us vulnerable to supply shortages and price fluctuations that could have a material adverse effect on our business, financial
condition and results of operations.
We rely on single source suppliers for the components, sub-assemblies and materials for our ENROUTE NPS. These components, sub-
assemblies and materials are critical and there are relatively few alternative sources of supply. We have not qualified or obtained necessary
regulatory approvals for additional suppliers for most of these components, sub-assemblies and materials, and we do not carry a significant
inventory of these items. While we believe that alternative sources of supply may be available, we cannot be certain whether they will be available
if and when we need them, or that any alternative suppliers would be able to provide the quantity and quality of components and materials that we
would need to manufacture our products if our existing suppliers were unable to satisfy our supply requirements. To utilize other supply sources,
we would need to identify and qualify new suppliers to our quality standards and obtain any additional regulatory approvals required to change
suppliers, which could result in manufacturing delays and increase our expenses. Our manufacturing partners rely on single source suppliers as
well, and are subject to the foregoing risks.
Our and our manufacturing partners’ dependence on third-party suppliers subjects us to a number of risks that could impact our ability to
manufacture our products and harm our business, including:
•
Interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations;
• Delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to produce components that
consistently meet our quality specifications;
•
•
Price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components;
Inability to obtain adequate supply in a timely manner or on commercially reasonable terms;
• Difficulty identifying and qualifying alternative suppliers for components in a timely manner;
•
•
Inability of suppliers to comply with applicable provisions of the QSR or other applicable laws or regulations enforced by the FDA and
state regulatory authorities;
Inability to adequately ensure the quality of products and components manufactured by third parties;
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•
Production delays related to the evaluation and testing of products and components from alternative suppliers and corresponding
regulatory qualifications;
• Delays in delivery by our suppliers due to changes in demand from us or their other customers; and
•
An outbreak of disease or similar public health threat, such as the existing threat of coronavirus, particularly as it may impact our supply
chain should the slowdown in China persist.
Although we require our third-party suppliers to supply us with components that meet our specifications and comply with applicable provisions
of the QSR and other applicable legal and regulatory requirements in our agreements and contracts, and we perform incoming inspection, testing
or other acceptance activities to ensure the components meet our requirements, there is a risk that our suppliers will not always act consistent
with our best interests, and may not always supply components that meet our requirements or supply components in a timely manner.
Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for our products and
manage our inventory.
We seek to maintain sufficient levels of inventory in order to protect ourselves from supply interruptions, but keep limited components, sub-
assemblies, materials and finished products on hand. To ensure adequate inventory supply and manage our operations with our manufacturing
partners and suppliers, we forecast anticipated materials requirements and demand for our products in order to predict inventory needs and then
place orders with our suppliers based on these predictions. Our ability to accurately forecast demand for our products could be negatively affected
by many factors, including our limited historical commercial experience regarding TCAR, rapid growth, failure to accurately manage our expansion
strategy, product introductions by competitors, an increase or decrease in customer demand for our products, our failure to accurately forecast
customer acceptance of new products, unanticipated changes in general market conditions or regulatory matters and weakening of economic
conditions or consumer confidence in future economic conditions.
Inventory levels in excess of customer demand may result in a portion of our inventory becoming obsolete or expiring, as well as inventory
write-downs or write-offs, which would impair the strength of our brand. From time to time, we ship products with short shelf life to customers for
procedures, and to the extent those products are not used and expire, we may exchange them, and this may materially and adversely affect our
gross margin. Conversely, if we underestimate customer demand for our products or our own requirements for components, subassemblies and
materials, our manufacturing partners and suppliers may not be able to deliver components, sub-assemblies and materials to meet our
requirements, which could result in inadequate inventory levels or interruptions, delays or cancellations of deliveries to our customers, any of
which would damage our reputation, customer relationships and business. In addition, several components, sub-assemblies and materials
incorporated into our products require lengthy order lead times, and additional supplies or materials may not be available when required on terms
that are acceptable to us or our manufacturing partners, or at all, and our manufacturing partners and suppliers may not be able to allocate
sufficient capacity in order to meet our increased requirements, any of which could have an adverse effect on our ability to meet customer
demand for our products and our results of operations.
Our quarterly and annual results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly and annual results of operations, including our revenue, net income or net loss and cash flow, may vary significantly in the
future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter or period
should not be relied upon as an indication of future performance. Our quarterly and annual financial results may fluctuate as a result of a variety of
factors, many of which are outside our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuations in
quarterly and annual results may decrease the
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value of our common stock. Because our quarterly results may fluctuate, period-to-period comparisons may not be the best indication of the
underlying results of our business and should only be relied upon as one factor in determining how our business is performing.
We have a limited total addressable market based on our current labeling restrictions.
The total addressable market for TCAR is limited by a number of factors. Approximately 168,000 patients with carotid artery disease in the
United States received treatment in the form of surgical or endovascular intervention in 2018. Of this group, we estimate that approximately one-
third would be outside the scope of the FDA-approved labeling for the ENROUTE stent, as those patients are not deemed to be at high risk for
adverse events from CEA, or high surgical risk. The current FDA-approved labeling for the ENROUTE stent is limited to patients at high risk for
adverse events from CEA. Patients at high risk for adverse events from CEA are defined as having significant comorbidities and/or anatomic risk
factors, and/or advanced age, that would make them riskier candidates for CEA. Furthermore, the safety and effectiveness of TCAR has not been
established for certain patients. For example, the FDA-cleared labeling for the ENROUTE NPS states that patients should have at least five
centimeters of common carotid artery free of significant disease for initial access to the artery and positioning of the ENROUTE sheath. In
addition, per the FDA-approved labeling for the ENROUTE stent, TCAR is limited to asymptomatic patients with carotid artery stenosis of at least
80% and symptomatic patients with carotid artery stenosis of at least 50%, both of which must also be high surgical risk. In addition, physicians
may choose to perform CEA in patients with certain anatomical characteristics, including heavily calcified carotid arteries, calcified lesions and
severe vessel tortuosity. Finally, current labeling for our products includes contraindications for certain patients, thus further reducing our total
addressable market.
Expanding the addressable market for TCAR is dependent upon labeling and reimbursement expansion initiatives.
The ENROUTE stent is not currently indicated for use in standard surgical risk patients. To access a larger portion of the market for carotid
artery disease, we will need to obtain approval by the FDA for a label expansion of the ENROUTE stent in standard surgical risk patients and
obtain corresponding reimbursement coverage expansion for TCAR. FDA approval of an ENROUTE stent label expansion will require additional
data from clinical studies or registries, which we intend to pursue. However, there are no guarantees that we will be able to obtain such clinical
data or FDA approval of a label expansion for the ENROUTE stent, or that any label expansion or additional reimbursement coverage will be
sufficient to adequately access the standard risk portion of the market for carotid artery disease patients. If we are unable to obtain labeling and
reimbursement coverage expansion, it may have a material adverse effect on our business, financial condition and results of operations.
Changes in public health insurance coverage and government reimbursement rates for the TCAR procedures using our products
could affect the adoption of our products and our future revenue.
The federal government is considering ways to change, and has changed, the manner in which healthcare services are paid for in the United
States. Individual states may also enact legislation that impacts Medicaid payments to hospitals and physicians. In addition, CMS establishes
Medicare payment levels for hospitals and physicians on an annual basis, which can increase or decrease payment to such entities.
Internationally, medical reimbursement systems vary significantly from country to country, with some countries limiting medical centers’ spending
through fixed budgets, regardless of levels of patient treatment, and other countries requiring application for, and approval of, government or third-
party reimbursement. Even if we succeed in bringing our products to market in additional foreign countries, uncertainties regarding future
healthcare policy, legislation and regulation, as well as private market practices, could affect our ability to sell our products in commercially
acceptable quantities at acceptable prices.
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Cost-containment efforts of our customers, purchasing groups and governmental organizations could have a material adverse
effect on our sales and profitability.
In an effort to reduce costs, many hospitals in the United States have become members of Group Purchasing Organizations, or GPOs, and
Integrated Delivery Networks, or IDNs. GPOs and IDNs negotiate pricing arrangements with medical device companies and distributors and then
offer these negotiated prices to affiliated hospitals and other members. GPOs and IDNs typically award contracts on a category-by-category basis
through a competitive bidding process. Bids are generally solicited from multiple providers with the intention of driving down pricing or reducing
the number of vendors. Due to the highly competitive nature of the GPO and IDN contracting processes, we may not be able to obtain new, or
maintain existing, contract positions with major GPOs and IDNs. Furthermore, the increasing leverage of organized buying groups may reduce
market prices for our products and/or require administrative fees, thereby reducing our revenue and/or margins.
While having a contract with a GPO or IDN for a given product category can facilitate sales to members of that GPO or IDN, such contract
positions can offer no assurance that any level of sales will be achieved, as sales are typically made pursuant to individual purchase orders. Even
when a provider is the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN are generally free to
purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause by the GPO or IDN upon 60 to 90
days’ notice. Accordingly, the members of such groups may choose to purchase alternative products due to the price or quality offered by other
companies, which could result in a decline in our revenue.
We may not be able to achieve or maintain satisfactory pricing and margins for our products.
Manufacturers of medical devices have a history of price competition, and we can give no assurance that we will be able to achieve
satisfactory prices for our products or maintain prices at the levels we have historically achieved. Any decline in the amount that payers reimburse
our customers for TCAR could make it difficult for customers to continue using, or to adopt, our products and could create additional pricing
pressure for us. If we are forced to lower the price we charge for our products, our gross margins will decrease, which will adversely affect our
ability to invest in and grow our business. If we are unable to maintain our prices, or if our costs increase and we are unable to offset such
increase with an increase in our prices, our margins could erode. We will continue to be subject to significant pricing pressure, which could harm
our business and results of operations.
If we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.
Any growth that we experience in the future will require us to expand our sales, general and administrative personnel, manufacturing and
distribution operations, and facilities and information technology infrastructure. In addition to the need to scale our organization, future growth will
impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Rapid
expansion in personnel could mean that less experienced people manufacture, market and sell our products, which could result in inefficiencies
and unanticipated costs, reduced quality and disruptions to our operations. In addition, rapid and significant growth may strain our administrative
and operational infrastructure. Our ability to manage our business and growth will require us to continue to improve our operational, financial and
management controls, reporting systems and procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute
our business strategy and our business could be harmed.
As demand for our products or any of our future products increases, we will need to continue to scale our capacity, expand customer service,
billing and systems processes and enhance our internal quality assurance program. We cannot assure you that any increases in scale, related
improvements and quality assurance will be successfully implemented or that appropriate personnel will be available to facilitate the growth of our
business. Failure to implement necessary procedures, transition to new processes or hire
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the necessary personnel could result in higher costs or inability to meet increased demand. If we encounter difficulty meeting market demand,
quality standards or physician expectations, our reputation could be harmed and our business could suffer.
Due to our recent growth in our business, we are actively looking for additional facilities to store finished goods and to supplement the
shipping and receiving capacity of our main offices in Sunnyvale, California. We are also searching for additional space to provide offices for the
employees we expect to hire in California. Finally, we are in the process of determining whether to supplement our distribution operations with
third-party logistics and warehousing services and/or additional leased facilities in other parts of the country. There is competition for office,
shipping and warehousing space in the San Francisco Bay area and we can provide no assurance that we will find additional space or that such
space will be on reasonable terms or that we will be successful in our efforts to contract with third parties elsewhere to augment our logistics and
warehousing capabilities. If we are unable to obtain additional space or support on commercially reasonable terms our costs may go up or our
business operations may be adversely affected.
If our manufacturing facility becomes damaged or inoperable, or if we are required to vacate a facility, we may be unable to produce
the products we manufacture or we may experience delays in production or an increase in costs, which could adversely affect our
results of operations.
We currently maintain our research and development, manufacturing and non-field-based sales, general and administrative operations in a
building located in Sunnyvale, California, which is situated on or near earthquake fault lines, and we do not have redundant facilities. Should our
building be significantly damaged or destroyed by natural or man-made disasters, such as earthquakes, fires or other events, it could take months
to relocate or rebuild, during which time our employees may seek other positions, our research, development and manufacturing would cease or
be delayed and our products may be unavailable. Moreover, the use of a new facility or new manufacturing, quality control, or environmental
control equipment or systems generally requires FDA review and, with respect to certain products, approval of a PMA supplement. Because of the
time required to authorize manufacturing in a new facility under FDA, the State of California and non-U.S. regulatory requirements, we may not be
able to resume production on a timely basis even if we are able to replace production capacity in the event we lose manufacturing capacity. While
we maintain property and business interruption insurance, such insurance has limits and would only cover the cost of rebuilding and relocating
and lost revenue, but not general damage, losses caused by earthquakes, losses we may suffer due to our products being replaced by
competitors’ products or loss in value due to associated decreases in our stock price. The inability to perform our research, development and
manufacturing activities, combined with our limited inventory of materials and components and manufactured products, may cause physicians to
discontinue using our products or harm our reputation, and we may be unable to reestablish relationships with such physicians in the future.
Consequently, a catastrophic event at our facility could have a material adverse effect on our business, financial condition and results of
operations.
Furthermore, the current lease for our manufacturing facility expires in 2024, and our operations are growing at a pace that may require us to
find a replacement or expansion facility sooner. We may be unable to renew our lease or find a new facility on commercially reasonable terms. If
we were unable or unwilling to renew at the proposed rates, relocating our manufacturing facility would involve significant expense in connection
with the movement and installation of key manufacturing equipment and any necessary recertification with regulatory bodies, and we cannot
assure investors that such a move would not delay or otherwise adversely affect our manufacturing activities or operating results. If our
manufacturing capabilities were impaired by our move, we may not be able to manufacture and ship our products in a timely manner, which would
adversely impact our business.
In addition, we rely on our manufacturing partners to supply certain of our products, and our partners are subject to similar risks with respect
to their facilities. If our manufacturing partners’ facilities are damaged or destroyed and their ability to supply products to us is limited, it could
negatively affect our reputation, physician relationships and TCAR adoption, all of which could have a material adverse effect
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on our business, financial condition and results of operations. Several of our products are sterilized at a particular third party facility, with limited
alternate facilities. If an event occurs that results in damage to or closure of one or more of such facilities, we may be unable to sterilize such
products at the previous levels or at all. Because of the time required to approve and license a sterilization facility, a third party may not be
available on a timely basis to replace capacity in the event sterilization capacity is lost.
We have limited experience in training and marketing and selling our products, and if we fail in our training, to increase our sales
and marketing capabilities or to develop broad brand awareness, our growth will be impeded and our business will suffer.
We have limited experience marketing and selling our products. We currently rely on our direct sales force to sell our products in targeted
geographic regions in the U.S., and any failure to maintain and grow our direct sales force could harm our business. The members of our direct
sales force are highly trained and possess substantial technical and clinical expertise, which we believe is critical in driving adoption of TCAR. The
members of our U.S. sales force are at-will employees. The loss of these personnel to competitors, or otherwise, could materially harm our
business. If we are unable to retain our direct sales force personnel or replace them with individuals of equivalent technical and clinical expertise
and qualifications, or if we are unable to successfully instill such technical and clinical expertise in replacement personnel, our revenues and
results of operations could be materially harmed.
In order to generate future growth, we plan to continue to expand and leverage our sales, marketing, and medical affairs infrastructure to
increase our trained physician and hospital customer base and our business. Identifying and recruiting qualified sales, marketing and medical
affairs personnel and training them on TCAR, on applicable federal and state laws and regulations, and on our internal policies and procedures
requires significant time, expense and attention. It often takes several months or more before a sales representative is fully trained and
productive. Our sales force may subject us to higher fixed costs than those of companies with competing products, such as stents, that utilize
independent third parties, which could place us at a competitive disadvantage. Our business may be harmed if our efforts to expand and train our
sales force do not generate a corresponding increase in revenue, and our higher fixed costs may slow our ability to reduce costs in the face of a
sudden decline in demand for our products. Any failure to hire, develop and retain talented sales personnel, to achieve desired productivity levels
in a reasonable period of time or timely reduce fixed costs, could have a material adverse effect on our business, financial condition and results of
operations. Our ability to increase our customer base and achieve broader market acceptance of our products will depend to a significant extent
on our ability to expand our marketing efforts. We plan to dedicate significant resources to our marketing programs. Our business may be harmed
if our marketing efforts and expenditures do not generate a corresponding increase in revenue. In addition, we believe that developing and
maintaining broad awareness of our brand in a cost effective manner is critical to achieving broad acceptance of our products and penetrating
new accounts. Brand promotion activities may not generate patient or physician awareness or increase revenue, and even if they do, any increase
in revenue may not offset the costs and expenses we incur in building our brand. Our medical affairs department may not train physicians at a rate
sufficient to expand our physician base in a manner consistent with our business plan. If we fail to successfully promote, maintain and protect our
brand, we may fail to attract or retain the physician acceptance necessary to realize a sufficient return on our brand building efforts, or to achieve
the level of brand awareness that is critical for broad adoption of our products.
The market for our products is highly competitive. If our competitors are able to develop or market carotid artery disease treatments
that are safer, more effective or gain greater acceptance in the marketplace, than any products we develop, our commercial
opportunities will be reduced or eliminated.
Our industry is highly competitive, subject to change and significantly affected by new product introductions and other activities of industry
participants. We are initially positioning TCAR as an alternative to CEA and CAS in high surgical risk patients. CEA has historically been
performed by vascular surgeons as the primary surgical solution for carotid artery disease. The major manufacturers of
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products, such as patches and shunts, used in connection with CEA include LeMaitre Vascular, Getinge / Maquet, Baxter, Terumo, Gore and
Edwards. Some competitors market products for use in CAS, such as peripheral access kits, stents, distal and proximal embolic protection
devices, guidewires, balloons and sheaths. Such companies include Abbott, Boston Scientific, Cardinal Health, Medtronic, Terumo, Gore and
InspireMD. These technologies, other products that are in current clinical trials, new drugs or additional indications for existing drugs could
demonstrate better safety, effectiveness, clinical results, lower costs or greater physician and patient acceptance.
We compete, or may compete in the future, against other companies which have longer operating histories, more established products and
greater resources, which may prevent us from achieving significant market penetration or improved operating results. These companies enjoy
several competitive advantages, including:
• Greater financial and human capital resources;
•
•
•
•
Significantly greater name recognition;
Established relationships with vascular surgeons and other treating specialties, referring physicians, customers and third-party payers;
Additional lines of products, and the ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive
advantage; and
Established sales, marketing and worldwide distribution networks.
Because of the size of the market opportunity for the treatment of carotid artery disease, we believe potential competitors have historically
dedicated and will continue to dedicate significant resources to aggressively promote their products or develop new products. New treatment
options may be developed that could compete more effectively with our products due to the prevalence of carotid artery disease and the extensive
research efforts and technological progress that exist within the market.
Defects or failures associated with our products could lead to recalls, safety alerts or litigation, as well as significant costs and
negative publicity.
Our business is subject to significant risks associated with manufacture, distribution and use of medical devices that are placed inside the
human body, including the risk that patients may be severely injured by or even die from the misuse or malfunction of our products caused by
design flaws or manufacturing defects. In addition, component failures, design defects, off-label uses or inadequate disclosure of product-related
information could also result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall or market withdrawal
of, or issuance of a safety alert relating to, our products and could result in significant costs, negative publicity and adverse competitive pressure.
The circumstances giving rise to recalls are unpredictable, and any recalls of existing or future products could have a material adverse effect on
our business, financial condition and results of operations.
We provide a limited warranty that our products are free of material defects and conform to specifications, and offer to repair, replace or
refund the purchase price of defective products. As a result, we bear the risk of potential warranty claims on our products. In the event that we
attempt to recover some or all of the expenses associated with a warranty claim against us from our suppliers or vendors, we may not be
successful in claiming recovery under any warranty or indemnity provided to us by such suppliers or vendors and any recovery from such vendor
or supplier may not be adequate.
The medical device industry has historically been subject to extensive litigation over product liability claims. Operating in the area of the neck
with the brain as the end organ is dangerous and presents risks of adverse events such as bleeding, arterial dissection, cranial nerve injury,
myocardial infarction, stroke and death, which subject us to a greater risk of being involved in litigation than companies with products
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used in less critical areas of the body. We may be subject to product liability claims if our products cause, or merely appear to have caused, an
injury or death, even if due to physician error. In addition, an injury or death that is caused by the activities of our suppliers, such as those that
provide us with components and raw materials, or by an aspect of a treatment used in combination with our products, such as a complementary
drug or anesthesia, may be the basis for a claim against us by patients, hospitals, physicians or others purchasing or using our products, even if
our products were not the actual cause of such injury or death. We may choose to settle any claims to avoid fault and complication not due to
failure of our products. An adverse outcome involving one of our products could result in reduced market acceptance and demand for all of our
products, and could harm our reputation and our ability to market our products in the future. In some circumstances, adverse events arising from
or associated with the design, manufacture or marketing of our products could result in the suspension or delay of regulatory reviews of our
premarket notifications or applications for marketing. Any of the foregoing problems could disrupt our business and have a material adverse effect
on our business, financial condition and results of operations.
Although we carry product liability insurance in the United States and in other countries in which we conduct business, including for clinical
trials and product marketing, we can give no assurance that such coverage will be available or adequate to satisfy any claims. Product liability
insurance is expensive, subject to significant deductibles and exclusions, and may not be available on acceptable terms, if at all. If we are unable
to obtain or maintain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential
product liability claims, we could be exposed to significant liabilities. A product liability claim, recall or other claim with respect to uninsured
liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business, financial condition and results of
operations. Defending a suit, regardless of its merit or eventual outcome, could be costly, could divert management’s attention from our business
and might result in adverse publicity, which could result in reduced acceptance of our products in the market, product recalls or market
withdrawals.
We are required to file adverse event reports under Medical Device Reporting, or MDR, regulations with the FDA, which reports are publicly
available on the FDA’s website. We are required to file MDRs if our products may have caused or contributed to a serious injury or death or
malfunctioned in a way that could likely cause or contribute to a serious injury or death if it were to recur. Any such MDR that reports a significant
adverse event could result in negative publicity, which could harm our reputation and future sales.
Our ability to compete depends on our ability to innovate successfully and deliver any new products in a timely manner.
The market for our products is competitive, dynamic, and marked by rapid and substantial technological development and product innovation.
New entrants or existing competitors could attempt to develop products that compete directly with ours. Demand for our products and future
related products could be diminished by equivalent or superior products and technologies offered by competitors. If we are unable to innovate
successfully, our products could become obsolete and our revenue would decline as our customers purchase our competitors’ products.
We are currently focused on development of existing products for TCAR and other indications, new products for TCAR and new products for
other indications. If we are unable to develop new products, applications or features due to constraints, such as insufficient cash resources, high
employee turnover, inability to hire personnel with sufficient technical skills or a lack of other research and development resources, we may not be
able to maintain our competitive position compared to other companies. Furthermore, many of our competitors devote a considerably greater
amount of funds to their research and development programs than we do, and those that do not may be acquired by larger companies that would
allocate greater resources to research and development programs. Our failure or inability to devote adequate research and development
resources or compete effectively with the research and development programs of our competitors could harm our business.
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Any significant delays in our product launches may significantly impede our ability to enter or compete in a given market and may reduce the
sales that we are able to generate from these products. We may experience delays in any phase of a product development, including during
research and development, clinical trials, regulatory review, manufacturing and marketing. Delays in product introductions could have a material
adverse effect on our business, financial condition and results of operations.
The failure of TCAR to meet patient expectations or the occurrence of adverse events from TCAR could impair our financial
performance.
Our future success depends upon patients having an experience with TCAR that meets their expectations in order to increase physician
demand for our products as a result of positive feedback, social media and word-of-mouth. Patients may be dissatisfied if their expectations of the
procedure and results, among other things, are not met. Despite what we believe to be the safety profile of our products, patients may experience
adverse events such as arterial restenosis or dissection, cranial nerve injury, wound complications, transient ischemic attacks, stroke, heart
attack, and death. If the results of TCAR do not meet the expectations of the patients, or patients experience adverse events, it could discourage
patients from referring TCAR to others. Dissatisfied patients may express negative opinions through social media. Any failure to meet patient
expectations and any resulting negative publicity could harm our reputation and future sales.
We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly
skilled employees could harm our business.
Our success depends largely on the continued services of key members of our executive management team and others in key management
positions. For example, the services of Erica Rogers, our Chief Executive Officer, and Lucas Buchanan, our Chief Financial Officer, are essential
to driving adoption of our products, executing on our corporate strategy and ensuring the continued operations and integrity of financial reporting
within our company. In addition, the services of Andrew Davis, our Executive Vice President of Global Sales and Marketing, are critical to driving
the growth in sales of our products. Any of our employees may terminate their employment with us at any time. We do not currently maintain key
person life insurance policies on any of our employees. If we lose one or more key employees, we may experience difficulties in competing
effectively, developing our technologies and implementing our business strategy.
In addition, our research and development programs, and sales efforts depend on our ability to attract and retain highly skilled engineers and
sales professionals. We may not be able to attract or retain qualified engineers and sales professionals in the future due to the competition for
qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees
with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we do.
When we hire employees from competitors or other companies, their former employers have previously and may in the future attempt to assert
that these employees or we have breached legal obligations, which may result in a diversion of our time and resources and, potentially, damages.
In addition, job candidates and existing employees, particularly in the San Francisco Bay Area, often consider the value of the stock awards they
receive in connection with their employment along with salary, benefits and other factors. If the perceived benefits of our stock awards decline,
either because we are a public company or for other reasons, it may harm our ability to recruit and retain highly skilled employees. If we fail to
attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.
The use, misuse or off-label use of our products may result in injuries that lead to product liability suits, which could be costly to
our business.
The ENROUTE stent has been approved by the FDA for the treatment of high surgical risk patients who require carotid revascularization and
meet certain treatment parameters. If physicians expand the patient population in which they elect to use our products that is outside of the
intended use approved by
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the FDA, then the use, misuse, or off-label use of our products may result in outcomes and adverse events including stroke, myocardial infarction
and death, potentially leading to product liability claims. Our products are not indicated for use in all patients with carotid artery disease, and
therefore cannot be marketed or advertised in the United States for certain uses without additional approvals or clearances from the FDA.
However, we cannot prevent a physician from using our products for off-label applications or using components or products that are not our
products when performing TCAR. In addition, we cannot guarantee that physicians are trained by us or their peers prior to utilizing our products.
Complications resulting from the use of our products off-label or use by physicians who have not been trained appropriately, or at all, may expose
us to product liability claims and harm our reputation. Moreover, if the FDA determines that our promotional materials or physician training,
including our paid consultants’ educational materials, constitutes promotion of an off-label use, it could request that we modify our training or
promotional materials or subject us to enforcement action, including warning letters, untitled letters, fines, penalties, or seizures. If we are found to
have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines
and/or other penalties against companies for alleged improper promotion and has investigated, prosecuted, and/or enjoined several companies
from engaging in off-label promotion.
In addition, if our products are defectively designed, manufactured or labeled, contain defective components or are misused, we may become
subject to costly litigation initiated by physicians, hospitals or patients. Product liability claims are especially prevalent in the medical device
industry and could harm our reputation, divert management’s attention from our core business, be expensive to defend and may result in sizable
damage awards against us. Although we maintain product liability insurance, we may not have sufficient insurance coverage for future product
liability claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential
liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us
from securing continuing coverage, harm our reputation, significantly increase our expenses, and reduce product sales. Product liability claims
could cause us to incur significant legal fees and deductibles and claims in excess of our insurance coverage would be paid out of cash reserves,
harming our financial condition and operating results.
We may need substantial additional funding and may not be able to raise capital when needed, which could force us to delay,
reduce or eliminate our product development programs and commercialization efforts.
We believe that our cash and cash equivalents and investments as of December 31, 2019, and expected revenue, will be sufficient to meet
our capital requirements and fund our operations for at least the next 12 months. However, we have based these estimates on assumptions that
may prove to be incorrect, and we could spend our available financial resources much faster than we currently expect. Our future funding
requirements will depend on many factors, including:
•
The degree and rate of market acceptance of TCAR and our products;
• Whether we acquire third-party companies, products or technologies;
• Restructuring, refinancing or repayment of debt;
•
•
•
•
•
•
The scope and timing of investment in our sales force;
The scope and timing of investment in physician training;
The scope, rate of progress and cost of our current or future clinical studies;
The scope, rate of progress and cost of our research and development activities;
The scope, rate of progress and cost of additional regulatory clearances or approvals;
The costs associated with any product recall that may occur;
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•
•
•
The costs of attaining, defending and enforcing our intellectual property rights;
The emergence of competing technologies or other adverse market developments; and
The rate at which we expand internationally.
We may seek to raise additional capital through equity offerings or debt financings and such additional financing may not be available to us on
acceptable terms, or at all. In addition, any additional equity or debt financing that we raise may contain terms that are not favorable to us or our
stockholders. For example, if we raise funds by issuing equity or equity-linked securities, the issuance of such securities could result in dilution to
our stockholders. Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common
stock. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our
common stock to decline.
In addition, the terms of debt securities issued or borrowings could impose significant restrictions on our operations including restrictive
covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to pay dividends, limitations
on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our
business.
In the event that we enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms, such
as relinquishment or licensing of certain technologies or products that we otherwise would seek to develop or commercialize ourselves, or reserve
for future potential arrangements when we might otherwise be able to achieve more favorable terms. In addition, we may be forced to work with a
partner on one or more of our products or market development programs, which could lower the economic value of those programs to us.
If we are unable to obtain adequate financing on terms satisfactory to us when we require it, we may terminate or delay the development of
one or more of our products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or
other activities necessary to commercialize our products. If this were to occur, our ability to grow and support our business and to respond to
market challenges could be significantly limited, which could have a material adverse effect on our business, financial condition and results of
operations.
We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the
future.
As of December 31, 2019, we had an aggregate of approximately $44.9 million in principal and interest outstanding under our term loan
agreement. We must make significant interest only quarterly payments under the loan agreement, which has diverted and will continue to divert
resources from other activities. Our obligations under the term loan agreement are collateralized by substantially all of our assets, including our
material intellectual property, and we are subject to customary financial and operating covenants limiting our ability to, among other things,
relocate or dispose of assets, undergo a change in control, merge or consolidate, enter into certain transactions with affiliates, make acquisitions,
incur debt, pay dividends, grant liens, repurchase stock and make investments, in each case subject to certain exceptions. The covenants related
to the term loan agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations
and engage in, expand or otherwise pursue our business activities and strategies. While we have not previously breached and are not currently in
breach of these or any other covenants contained in our term loan agreement, there can be no guarantee that we will not breach these covenants
in the future. Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these
covenants could result in a default under the loan agreement. If not waived, future defaults could cause all of the outstanding indebtedness under
the term loan agreement to become immediately due and payable and terminate commitments to extend further credit. If we do not have or are
unable to generate sufficient cash available to repay our debt obligations when they become due and payable,
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either upon maturity or in the event of a default, our assets could be foreclosed upon and we may not be able to obtain additional debt or equity
financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern.
We may acquire other companies or technologies, or enter into license agreements, distribution arrangements or strategic
partnerships, which could fail to result in a commercial product or generate sales, divert our management’s attention, result in
additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
Although we currently have no agreements or commitments to complete any such transactions and are not involved in negotiations to do so,
we may in the future seek to acquire, license or invest in businesses, products or technologies that we believe could complement or expand our
portfolio, enhance our technical capabilities or otherwise offer growth opportunities. We could also seek to enter into distribution arrangements or
strategic partnerships with third parties that we believe could increase our revenue or offer other commercial benefits. However, we cannot assure
you that we would be able to successfully complete any acquisition, license agreement or distribution agreement we choose to pursue, or that we
would be able to successfully integrate any business or product or technology in a cost-effective and non-disruptive manner. Similarly, we cannot
guarantee that we would derive benefits from any distribution arrangement or other strategic partnership. The pursuit of potential acquisition,
license or partnering opportunities may divert the attention of management and cause us to incur various costs and expenses in identifying,
investigating and pursuing suitable transactions, whether or not they are consummated. We may not be able to identify desirable acquisition
targets or strategic partners, or be successful in entering into an agreement with any particular target or partner, or obtain the expected benefits of
any acquisition, license, investment or other strategic partnership arrangement.
To date, the growth of our operations has been largely organic, and we have limited experience in acquiring other businesses or technologies.
We may not be able to successfully integrate any acquired personnel, operations and technologies, or effectively manage the combined business
following an acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of
debt, which could harm our operating results. In addition, if an acquired business, product or technology fails to meet our expectations, our
operating results, business and financial condition may suffer.
Our ability to utilize our net operating loss carryforwards may be limited.
As of December 31, 2019, we had U.S. federal and state net operating loss carryforwards, or NOLs, of $167.9 million and $148.4 million,
respectively. Our U.S. federal NOLs arising in tax years ending on or before December 31, 2017 are subject to expiration and will begin to expire
in 2027 (U.S. federal NOLs arising in tax years ending after December 31, 2017 are not subject to expiration) and our state NOLs will begin to
expire in 2028. We may use these NOLs to offset taxable income for U.S. federal and state income tax purposes. However, Section 382 of the
Internal Revenue Code of 1986, as amended, or the Code, may limit the NOLs we may use in any year for U.S. federal income tax purposes in
the event of certain changes in ownership of our company. An “ownership change” pursuant to Section 382 of the Code generally occurs if one or
more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage
points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. Although we have
not performed a formal study under Section 382 of the Code, we believe we may have experienced at least one “ownership change” in the past
and may have experienced others. In addition, future issuances or sales of our stock, including certain transactions involving our stock that are
outside of our control, could result in future “ownership changes.” “Ownership changes” that have occurred in the past or that may occur in the
future could result in the imposition of an annual limit on the amount of pre-ownership change NOLs and other tax attributes we can use to reduce
our taxable income or income tax liability, potentially increasing and accelerating our liability for income taxes, and also potentially causing those
tax attributes to expire unused. Any limitation on using NOLs could, depending on the extent of such limitation and the NOLs previously used,
result in our retaining less cash after payment of U.S.
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federal and state income taxes during any year in which we have taxable income, rather than losses, than we would be entitled to retain if such
NOLs were available as an offset against such income for U.S. federal and state income tax reporting purposes, which could adversely impact our
operating results. Furthermore, under the Tax Cuts and Jobs Act of 2017, although the treatment of U.S. federal NOLs arising in tax years
beginning on or before December 31, 2017 has generally not changed, U.S. federal NOLs arising in tax years beginning after December 31, 2017
may only be used to offset 80% of our taxable income. This change may require us to pay U.S. federal income taxes in future years despite
generating a loss for federal income tax purposes in prior years.
As international expansion of our business occurs, it will expose us to market, regulatory, political, operational, financial, legal and
economic risks associated with doing business outside of the United States.
Our long-term strategy is to increase our international presence, including but not limited to securing regulatory approvals in Japan and China.
We have the right to affix the CE Mark to our products, allowing us to commercialize in Europe in the future. This strategy may include
establishing and maintaining physician outreach and education capabilities outside of the United States and expanding our relationships with
international distributors, providers and payers. Doing business internationally involves a number of risks, including:
• Difficulties in staffing and managing our international operations;
• Multiple, conflicting and changing laws and regulations such as tax laws, privacy laws, export and import restrictions, employment laws,
regulatory requirements and other governmental approvals, permits and licenses;
• Reduced or varied protection for intellectual property rights in some countries;
• Obtaining regulatory clearance where required for our products in various countries;
• Requirements to maintain data and the processing of that data on servers located within such countries;
• Complexities associated with managing multiple payer reimbursement regimes, government payers or patient self-pay systems;
• Difficulties in adequately training and managing international distributors;
•
•
Limits on our ability to penetrate international markets if we are required to manufacture our products locally;
Financial risks, such as longer payment cycles, difficulty collecting accounts receivable, foreign tax laws and complexities of foreign value-
added tax systems, the effect of local and regional financial pressures on demand and payment for our products and exposure to foreign
currency exchange rate fluctuations;
• Restrictions on the site-of-service for use of our products and the economics related thereto for physicians, providers and payers;
• Natural disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease, boycotts, curtailment of
trade and other market restrictions; and
• Regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the
United States Foreign Corrupt Practices Act of 1977, or FCPA, U.K. Bribery Act of 2010 and comparable laws and regulations in other
countries.
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Any of these factors could significantly harm our future international expansion and operations and, consequently, have a material adverse
effect on our business, financial condition and results of operations.
Additionally, pursuant to the terms of our intellectual property license with Cardinal Health, we do not have the right to sell the ENROUTE
stent through distributors, which may be desirable as we expand internationally. If we fail to renegotiate our agreement with Cardinal Health to
enable sale of the ENROUTE stent through international distributors, our ability to expand our business internationally may be harmed, which
could have a material adverse effect on our business, financial condition and results of operations.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or our
customers or patients, or prevent us from accessing critical information and expose us to liability, which could adversely affect our
business and our reputation.
In the ordinary course of our business, we may become exposed to, or collect and store sensitive data, including procedure-based information
and legally-protected health information, credit card, and other financial information, insurance information, and other potentially personally
identifiable information. We also store sensitive intellectual property and other proprietary business information. Although we take measures to
protect sensitive information from unauthorized access or disclosure, our information technology, or IT, and infrastructure, and that of our other
technology partners, may be vulnerable to cyber attacks by hackers or viruses or breached due to employee error, malfeasance or other
disruptions. We rely extensively on IT systems, networks and services, including internet sites, data hosting and processing facilities and tools,
physical security systems and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided
and/or used by third-parties or their vendors, to assist in conducting our business. A significant breakdown, invasion, corruption, destruction or
interruption of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems or
unauthorized persons could negatively impact operations. The ever-increasing use and evolution of technology, including cloud-based computing,
creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party
providers' systems, portable media or storage devices. We could also experience a business interruption, theft of confidential information or
reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead
to data leakage, either internally or at our third-party providers. Although the aggregate impact on our operations and financial condition has not
been material to date, we have been the target of events of this nature and expect them to continue as cybersecurity threats have been rapidly
evolving in sophistication and becoming more prevalent in the industry. We are investing in protections and monitoring practices of our data and IT
to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats. There can be no assurance,
however, that our efforts will prevent breakdowns or breaches to our or our third-party providers’ databases or systems that could adversely affect
our business.
We could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws and any investigation, and the
outcome of any investigation, by government agencies of possible violations by us of the FCPA could have a material adverse effect on
our business.
The FCPA and similar worldwide anti-bribery laws prohibit companies and their intermediaries from corruptly providing any benefits to
government officials for the purpose of obtaining or retaining business. We are in the process of further enhancing policies and procedures
intended to help ensure compliance with these laws. In the future, we may operate in parts of the world that have experienced governmental
corruption to some degree. Moreover, because of the significant role government entities play in the regulation of many foreign healthcare
markets, we may be exposed to heightened FCPA and similar risks arising from our efforts to seek regulatory approval of and reimbursement for
our products in such countries. We cannot assure you that our internal control policies and procedures will protect us from
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improper acts committed by our employees or agents. Violations of these laws, or allegations of such violations, would significantly disrupt our
business and have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
We may become a party to intellectual property litigation or administrative proceedings that could be costly and could interfere with
our ability to sell and market our products.
The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets, and other intellectual
property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible that U.S. and
foreign patents and pending patent applications or trademarks controlled by third parties may be alleged to cover our products, or that we may be
accused of misappropriating third parties’ trade secrets. Additionally, our products include components that we purchase from vendors, and may
include design components that are outside of our direct control. Our competitors, many of which have substantially greater resources and have
made substantial investments in patent portfolios, trade secrets, trademarks, and competing technologies, may have applied for or obtained, or
may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell and/or
export our products or to use product names. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred
to as “patent trolls,” have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to
extract settlements. From time to time, we may receive threatening letters, notices or “invitations to license,” or may be the subject of claims that
our products and business operations infringe or violate the intellectual property rights of others. The defense of these matters can be time
consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur
significant expenses or make substantial payments. Vendors from whom we purchase hardware or software may not indemnify us in the event
that such hardware or software is accused of infringing a third-party’s patent or trademark or of misappropriating a third-party’s trade secret.
Since patent applications are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent
application related to our products. Competitors may also contest our patents, if issued, by showing the patent examiner that the invention was not
original, was not novel or was obvious. In litigation, a competitor could claim that our patents, if issued, are not valid for a number of reasons. If a
court agrees, we would lose our rights to those challenged patents.
In addition, we may in the future be subject to claims by our former employees or consultants asserting an ownership right in our patents or
patent applications, as a result of the work they performed on our behalf. Although we generally require all of our employees and consultants and
any other partners or collaborators who have access to our proprietary know-how, information or technology to assign or grant similar rights to
their inventions to us, we cannot be certain that we have executed such agreements with all parties who may have contributed to our intellectual
property, nor can we be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be
breached, for which we may not have an adequate remedy.
Further, if such patents, trademarks, or trade secrets are successfully asserted against us, this may harm our business and result in
injunctions preventing us from selling our products, license fees, damages and the payment of attorney fees and court costs. In addition, if we are
found to willfully infringe third-party patents or trademarks or to have misappropriated trade secrets, we could be required to pay treble damages
in addition to other penalties. Although patent, trademark, trade secret, and other intellectual property disputes in the medical device area have
often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include
ongoing royalties. We may be unable to obtain necessary licenses on satisfactory terms, if at all. If we do not obtain necessary licenses, we may
not be able to redesign our products to avoid infringement.
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Similarly, interference or derivation proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office, or USPTO,
may be necessary to determine priority with respect to our patents, patent applications, trademarks or trademark applications. We may also
become involved in other proceedings, such as reexamination, inter parties review, derivation or opposition proceedings before the USPTO or
other jurisdictional body relating to our intellectual property rights or the intellectual property rights of others. Adverse determinations in a judicial
or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing our products or using product names,
which would have a significant adverse impact on our business, financial condition and results of operations.
Additionally, we may file lawsuits or initiate other proceedings to protect or enforce our patents or other intellectual property rights, which could
be expensive, time consuming and unsuccessful. Competitors may infringe our issued patents or other intellectual property. To counter
infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we
assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual
property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part,
construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not
cover the technology in question. Furthermore, even if our patents are found to be valid and infringed, a court may refuse to grant injunctive relief
against the infringer and instead grant us monetary damages and/or ongoing royalties. Such monetary compensation may be insufficient to
adequately offset the damage to our business caused by the infringer’s competition in the market. An adverse result in any litigation proceeding
could put one or more of our patents at risk of being invalidated or interpreted narrowly, which could adversely affect our competitive business
position, financial condition and results of operations.
Our success will depend on our ability to obtain, maintain and protect our intellectual property rights.
In order to remain competitive, we must develop, maintain and protect the proprietary aspects of our brands, technologies and data. We rely
on a combination of contractual provisions, confidentiality procedures and patent, copyright, trademark, trade secret and other intellectual property
laws to protect the proprietary aspects of our brands, technologies and data. These legal measures afford only limited protection, and competitors
or others may gain access to or use our intellectual property and proprietary information. Our success will depend, in part, on preserving our trade
secrets, maintaining the security of our data and know-how and obtaining and maintaining other intellectual property rights. We may not be able to
obtain or maintain intellectual property or other proprietary rights necessary to our business or in a form that provides us with a competitive
advantage. In addition, our trade secrets, data and know-how could be subject to unauthorized use, misappropriation, or disclosure to
unauthorized parties, despite our efforts to enter into confidentiality agreements with our employees, consultants, clients and other vendors who
have access to such information, and could otherwise become known or be independently discovered by third parties. Our intellectual property,
including trademarks, could be challenged, invalidated, infringed, and circumvented by third parties, and our trademarks could also be diluted,
declared generic or found to be infringing on other marks. If any of the foregoing occurs, we could be forced to re-brand our products, resulting in
loss of brand recognition and requiring us to devote resources to advertising and marketing new brands, and suffer other competitive harm. Third
parties may also adopt trademarks similar to ours, which could harm our brand identity and lead to market confusion. Failure to obtain and
maintain intellectual property rights necessary to our business and failure to protect, monitor and control the use of our intellectual property rights
could negatively impact our ability to compete and cause us to incur significant expenses. The intellectual property laws and other statutory and
contractual arrangements in the United States and other jurisdictions we depend upon may not provide sufficient protection in the future to prevent
the infringement, use, violation or misappropriation of our trademarks, data, technology and other intellectual property and services, and may not
provide an adequate remedy if our intellectual property rights are infringed, misappropriated or otherwise violated.
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We rely, in part, on our ability to obtain, maintain, expand, enforce, and defend the scope of our intellectual property portfolio or other
proprietary rights, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense
and enforcement of any patents or other intellectual property rights. The process of applying for and obtaining a patent is expensive, time
consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a
reasonable cost, in a timely manner, or in all jurisdictions where protection may be commercially advantageous, or we may not be able to protect
our proprietary rights at all. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information
that we regard as proprietary. In addition, the issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents,
they may not be valid or enforceable against third parties. Our patent applications may not result in issued patents and our patents may not be
sufficiently broad to protect our technology. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient
scope to achieve our business objectives. Issued patents may be challenged, narrowed, invalidated or circumvented. Decisions by courts and
governmental patent agencies may introduce uncertainty in the enforceability or scope of patents owned by or licensed to us. Furthermore, the
issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us
from marketing our own products and practicing our own technology. Alternatively, third parties may seek approval to market their own products
similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing
lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid,
unenforceable or not infringed; competitors may then be able to market products and use manufacturing and analytical processes that are
substantially similar to ours. Even if we have valid and enforceable patents, these patents still may not provide protection against competing
products or processes sufficient to achieve our business objectives.
If we are unable to protect the confidentiality of our other proprietary information, our business and competitive position may be
harmed.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information
that is not patentable or that we elect not to patent. However, trade secrets can be difficult to protect and some courts are less willing or unwilling
to protect trade secrets. To maintain the confidentiality of our trade secrets and proprietary information, we rely heavily on confidentiality
provisions that we have in contracts with our employees, consultants, collaborators and others upon the commencement of their relationship with
us. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or
proprietary technology and processes. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other
trade secrets by such third parties, despite the existence generally of these confidentiality restrictions. These contracts may not provide
meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use, misappropriation, or
disclosure of such trade secrets, know-how, or other proprietary information. There can be no assurance that such third parties will not breach
their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or
independently developed by competitors. Despite the protections we do place on our intellectual property or other proprietary rights, monitoring
unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our
intellectual property or other proprietary rights will be adequate. In addition, the laws of many foreign countries will not protect our intellectual
property or other proprietary rights to the same extent as the laws of the United States. Consequently, we may be unable to prevent our
proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to
protect our technology.
To the extent our intellectual property or other proprietary information protection is incomplete, we are exposed to a greater risk of direct
competition. A third party could, without authorization, copy or
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otherwise obtain and use our products or technology, or develop similar technology. Our competitors could purchase our products and attempt to
replicate some or all of the competitive advantages we derive from our development efforts or design around our protected technology. Our failure
to secure, protect and enforce our intellectual property rights could substantially harm the value of our products, brand and business. The theft or
unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our products
and harm our business, the value of our investment in research and development or acquisitions could be reduced and third parties might make
claims against us related to losses of their confidential or proprietary information. Any of the foregoing could materially and adversely affect our
business, financial condition and results of operations.
Further, it is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented
technology, and in such cases we could not assert any trade secret rights against such parties. Costly and time consuming litigation could be
necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. If we fail to
obtain or maintain trade secret protection, or if our competitors obtain our trade secrets or independently develop technology similar to ours or
competing technologies, our competitive market position could be materially and adversely affected. In addition, some courts are less willing or
unwilling to protect trade secrets and agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be
enforceable in certain cases.
We also seek to preserve the integrity and confidentiality of our data and other confidential information by maintaining physical security of our
premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,
organizations and systems, agreements or security measures may be breached and detecting the disclosure or misappropriation of confidential
information and enforcing a claim that a party illegally disclosed or misappropriated confidential information is difficult, expensive and time-
consuming, and the outcome is unpredictable. Further, we may not be able to obtain adequate remedies for any breach.
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 similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to
the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a
late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or
lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events
that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within
prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and
patent applications covering our products, we may not be able to stop a competitor from marketing products that are the same as or similar to our
products, which would have a material adverse effect on our business.
We may not be able to protect our intellectual property rights throughout the world.
A company may attempt to commercialize competing products utilizing our proprietary design, trademarks or tradenames in foreign countries
where we do not have any patents or patent applications and where legal recourse may be limited. This may have a significant commercial impact
on our foreign business operations.
Filing, prosecuting and defending patents or trademarks on our current and future products in all countries throughout the world would be
prohibitively expensive. The requirements for patentability and
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trademarking may differ in certain countries, particularly developing countries. The laws of some foreign countries do not protect intellectual
property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from utilizing our
inventions and trademarks in all countries outside the United States. Competitors may use our technologies or trademarks in jurisdictions where
we have not obtained patent or trademark protection to develop or market their own products and further, may export otherwise infringing products
to territories where we have patent and trademark protection, but enforcement on infringing activities is inadequate. These products or trademarks
may compete with our products or trademarks, and our patents, trademarks or other intellectual property rights may not be effective or sufficient to
prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trademarks and other
intellectual property protection, which could make it difficult for us to stop the infringement of our patents and trademarks or marketing of
competing products in violation of our proprietary rights generally. Proceedings to enforce our patent and trademarks rights in foreign jurisdictions
could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents and trademarks at
risk of being invalidated or interpreted narrowly and our patent or trademark applications at risk, and could provoke third parties to assert claims
against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially
meaningful. In addition, certain countries in Europe and certain developing countries, including India and China, have compulsory licensing laws
under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents
are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents.
This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and
enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
We may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, including
trade secrets or know-how, or are in breach of non-competition or non-solicitation agreements with our competitors and third parties
may claim an ownership interest in intellectual property we regard as our own.
Many of our employees and consultants were previously employed at or engaged by other medical device, biotechnology or pharmaceutical
companies, including our competitors or potential competitors. Some of these employees, consultants and contractors, may have executed
proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that
our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for
us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property or
disclosed the alleged trade secrets or other proprietary information, of these former employers or competitors.
Additionally, we may be subject to claims from third parties challenging our ownership interest in intellectual property we regard as our own,
based on claims that our employees or consultants have breached an obligation to assign inventions to another employer, to a former employer,
or to another person or entity. Litigation may be necessary to defend against any other claims, and it may be necessary or we may desire to enter
into a license to settle any such claim; however, there can be no assurance that we would be able to obtain a license on commercially reasonable
terms, if at all. If our defense to those claims fails, in addition to paying monetary damages, a court could prohibit us from using technologies or
features that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other
proprietary information of the former employers.
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An inability to incorporate technologies or features that are important or essential to our products could have a material adverse effect on our
business, financial condition and results of operations, and may prevent us from selling our products. In addition, we may lose valuable intellectual
property rights or personnel. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a
distraction to management. Any litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent
sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which
could have an adverse effect on our business, financial condition and results of operations.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our existing and future
products.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of patent applications and the
enforcement or defense of issued patents. In 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The
Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are
prosecuted and also may affect patent litigation. These also include provisions that switched the United States from a “first-to-invent” system to a
“first-to-file” system, allow third-party submission of prior art to the USPTO during patent prosecution and set forth additional procedures to attack
the validity of a patent by the USPTO administered post grant proceedings. Under a first-to-file system, assuming the other requirements for
patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether
another inventor had made the invention earlier. The USPTO recently developed new regulations and procedures to govern administration of the
Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file
provisions, only became effective in 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our
business. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial
condition and results of operations.
In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the
prosecution, enforcement and defense of our patents and applications. Furthermore, the U.S. Supreme Court and the U.S. Court of Appeals for
the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly,
foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We
cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign
legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in
the future.
The failure of third parties to meet their contractual, regulatory, and other obligations could adversely affect our business.
We rely on suppliers, vendors, outsourcing partners, consultants, alliance partners and other third parties to research, develop, manufacture
and commercialize our products and manage certain parts of our business. Using these third parties poses a number of risks, such as: (i) they
may not perform to our standards or legal requirements; (ii) they may not produce reliable results; (iii) they may not perform in a timely manner;
(iv) they may not maintain confidentiality of our proprietary information; (v) disputes may arise with respect to ownership of rights to technology
developed with our partners; and (vi) disagreements could cause delays in, or termination of, the research, development or commercialization of
our products or result in litigation or arbitration. Moreover, some third parties are located in markets subject to political and social risk, corruption,
infrastructure problems and natural disasters, in addition to country-specific privacy and data security risk given current legal and regulatory
environments. Failure of third parties to meet their contractual, regulatory, and other obligations may materially affect our business.
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If our trademarks and tradenames are not adequately protected, then we may not be able to build name recognition in our markets
and our business may be adversely affected.
We rely on trademarks, service marks, tradenames and brand names to distinguish our products from the products of our competitors, and
have registered or applied to register these trademarks. We cannot assure you that our trademark applications will be approved. During trademark
registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to
overcome such rejections. In addition, in proceedings before the USPTO and comparable agencies in many foreign jurisdictions, third parties are
given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation
proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. In the event that our trademarks are
successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote
resources towards advertising and marketing new brands and managing through regulatory implications such as relabeling. At times, competitors
may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market
confusion. Certain of our current or future trademarks may become so well known by the public that their use becomes generic and they lose
trademark protection. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may
not be able to compete effectively and our business, financial condition and results of operations may be adversely affected.
Risks Related to Government Regulation
Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system, could harm our business,
financial condition and results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. In March 2010, the
Affordable Care Act 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 affect our business, the Affordable Care Act:
•
•
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Established 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;
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.
We do not yet know the full impact that the Affordable Care Act will have on our business. The taxes imposed by the Affordable Care Act and
the expansion in the government’s role in the U.S. healthcare industry may result in decreased sale of our products and, lower reimbursement by
payers for our products, all of which may have a material adverse effect on our business, financial condition and results of operations. The Trump
Administration and the U.S. Congress may take further action regarding the Affordable Care Act, including, but not limited to, repeal or
replacement. Most recently, the Tax Cuts and Jobs Act of 2017 was enacted, which, among other things, removes penalties for not complying with
the individual mandate to carry health insurance. Additionally, all or a portion of the Affordable Care Act and related subsequent legislation may be
modified, repealed or otherwise invalidated through judicial challenge, which could result in lower numbers of insured individuals, reduced
coverage for insured individuals and adversely affect our business, financial condition and results of operations.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the
Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year,
effective on April 1, 2013
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and, due to subsequent legislative amendments to the statute, will remain in effect through 2029 unless additional Congressional action is taken.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to
several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers
from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, enacted on April 16, 2015, repealed the
formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a
new system of incentive payments scheduled to begin in 2019 that are based on various performance measures and physicians’ participation in
alternative payment models such as accountable care organizations. It is unclear what effect new quality and payment programs, such as
MACRA, may have on our business, financial condition, results of operations or cash flows.
We expect additional state and federal healthcare policies and reform measures to be adopted in the future. Any of these could make it more
difficult and costly for us to obtain regulatory clearances or approvals for our products or to manufacture, market or distribute our products after
clearance or approval is obtained. They could result in reduced demand for our products or result in additional pricing pressure. Any such
reforms could have a material adverse effect on our industry generally and on our customers. Any changes of, or uncertainty with respect to,
future coverage or reimbursement rates could affect demand for our products, which in turn could impact our ability to successfully commercialize
our products and could have an adverse material effect on our business, financial condition and results of operations. Changes and reforms in
the European Union and other countries where we may decide to commercialize could have similar effects.
Changes in the CMS fee schedules may harm our revenue and operating results.
Government payers, such as Centers for Medicare and Medicaid Services, or CMS, as well as insurers, have increased their efforts to control
the cost, utilization and delivery of healthcare services. From time to time, the U.S. Congress has considered and implemented changes in the
CMS fee schedules in conjunction with budgetary legislation. Reductions of reimbursement by Medicare or Medicaid for procedures that use our
products or changes in policy regarding coverage of these procedures, such as adding requirements for payment, or prior authorizations, may be
implemented from time to time. Reductions in the reimbursement rates and changes in payment policies of other third-party payers may occur as
well. Similar changes in the past have resulted in reduced payments for procedures that use medical device products as well as added costs and
have added more complex regulatory and administrative requirements. Further changes in federal, state, local and third-party payer regulations or
policies may have a material adverse impact on the demand for our products and on our business. Actions by agencies regulating insurance or
changes in other laws, regulations, or policies may also have a material adverse effect on our business, financial condition and results of
operations.
If we fail to comply with broad based healthcare and other governmental regulations, we could face substantial fines and penalties
and our business, results of operations and financial condition could be adversely affected.
The products we offer are highly regulated, and there can be no assurance that the regulatory environment in which we operate will not
change significantly and adversely in the future. Our arrangements with physicians, hospitals and medical centers will expose us to broadly
applicable fraud and abuse and other laws and regulations that may restrict the financial arrangements and relationships through which we
market, sell and distribute our products. Our employees, consultants, and commercial partners may engage in misconduct or other improper
activities, including non-compliance with regulatory standards and requirements. Federal and state healthcare laws and regulations that may
affect our ability to conduct business, include, without limitation:
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Federal and state laws and regulations regarding billing and claims payment applicable to TCAR and regulatory agencies enforcing those
laws and regulations;
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•
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FDA prohibitions against the advertisement, promotion and labeling of our products for off-label uses, or uses outside the specific
indications approved by the FDA;
The federal Anti-Kickback Statute, which broadly prohibits, among other things, any person from knowingly and willfully offering, soliciting,
receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the
purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as
the CMS programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have
committed a violation. Moreover, the government may assert that 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 federal civil False Claims Act. Violations of the
federal Anti-Kickback Statute may result in civil monetary penalties up to $176,495 for each violation, plus up to three times the
remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also
result in criminal penalties, including criminal fines of up to $100,000 and imprisonment of up to 10 years. Similarly, violations can result in
mandatory exclusion from participation in government healthcare programs, including Medicare and Medicaid;
The federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be
presented, false claims, or knowingly using false statements, to obtain payment from the federal government. These laws can apply to
manufacturers who provide inaccurate information on coverage, coding, and reimbursement of their products to persons who bill third-
party payers. Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals,
commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement. When an entity is
determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties ranging from $11,655
to $23,331 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal
healthcare programs;
Federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making, or causing to be made, false
statements relating to healthcare matters;
The federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal
healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or
services reimbursable by the government from a particular provider or supplier;
The FCPA, the U.K. Bribery Act of 2010, and other local anti-corruption laws that apply to our international activities;
The federal Physician Payment Sunshine Act, or Open Payments, created under the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Affordability Reconciliation Act, or Affordable Care Act, and its implementing regulations,
which requires manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare,
Medicaid, or the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services, or HHS,
information related to payments or other transfers of value made to licensed physicians, certain other healthcare professionals, and
teaching hospitals, and requires applicable manufacturers and group purchasing organizations, to report annually ownership and
investment interests held by physicians and their immediate family members. Additionally, on October 24, 2018, President Trump signed
into law the “Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act” which
in part (under a provision entitled “Fighting the Opioid Epidemic with Sunshine”) extends the reporting and transparency requirements for
physicians in the Physician Payments Sunshine Act to physician assistants,
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nurse practitioners, and other mid-level practitioners (with reporting requirements going into effect in 2022 for payments made in 2021).
Applicable manufacturers are required to submit annual reports to CMS. Our failure to submit required information on time may result in
civil monetary penalties of $11,766 per failure up to an aggregate of $176,495 per year (or up to an aggregate of $1.177 million per year
for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately, and
completely reported in an annual submission, and may result in liability under other federal laws or regulations;
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which
impose certain requirements relating to the privacy, security and transmission of individually identifiable health information; HIPAA also
created criminal liability for knowingly and willfully falsifying or concealing a material fact or making a materially false statement in
connection with the delivery of or payment for healthcare benefits, items or services. Failure to comply with the HIPAA privacy and
security standards when applicable can result in civil monetary penalties up to $59,522 per violation, not to exceed $1.79 million per
calendar year for non-compliance of an identical provision, and, in certain circumstances, criminal penalties with fines up to $250,000 per
violation and/or imprisonment. State attorneys general can also bring a civil action to enjoin a HIPAA violation or to obtain statutory
damages on behalf of residents of his or her state; and
•
Analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may
apply to items or services reimbursed by any third-party payer, including commercial insurers or patients; state laws that require device
companies 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; consumer protection and unfair competition laws, which broadly regulate marketplace
activities and activities that potentially harm customers, foreign and state laws, including the E.U. General Data Protection Regulation, or
GDPR, governing the privacy and security of health information in certain circumstances, many of which differ from each other in
significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the
case of claims involving private insurers.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions or safe harbors, it is possible that
some of our activities, such as stock-option compensation paid to physicians, could be subject to challenge under one or more of such laws. Any
action brought against us for violations of these laws or regulations, even successfully defended, could cause us to incur significant legal
expenses and divert our management’s attention from the operation of our business. We may be subject to private “qui tam” actions brought by
individual whistleblowers on behalf of the federal or state governments.
The growth of our business and sales organization and our expansion outside of the United States may increase the potential of violating
these laws or our internal policies and procedures. The risk of our being found in violation of these or other laws and regulations is further
increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a
variety of interpretations. Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it,
could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are
found to be in violation of any of the federal, state and foreign laws described above or any other current or future fraud and abuse or other
healthcare laws and regulations that apply to us, we may be subject to penalties, including significant criminal, civil, and administrative penalties,
damages, fines, imprisonment, for individuals, exclusion from participation in government programs, such as Medicare and Medicaid, and
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we could be required to curtail or cease our operations. Any of the foregoing consequences could seriously harm our business and our financial
results.
If we fail to obtain and maintain necessary regulatory clearances or approvals for our products, or if clearances or approvals for
future products and indications are delayed or not issued, our commercial operations would be harmed.
Our products are subject to extensive regulation by the FDA in the United States and by regulatory agencies in other countries where we do
business. Government regulations specific to medical devices are wide ranging and govern, among other things:
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Product design, development and manufacture;
Laboratory, preclinical and clinical testing, labeling, packaging, storage and distribution;
Premarketing clearance or approval;
• Record keeping;
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Product marketing, promotion and advertising, sales and distribution; and
Post marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals.
Before a new medical device, or a new intended use for an existing product, can be marketed in the United States, a company must first
submit and receive either 510(k) clearance pursuant to Section 510(k) of the Food, Drug and Cosmetic Act, or the FDCA, or approval of a
premarket approval, or PMA, application from the FDA, unless an exemption applies.
In many cases, the process of obtaining PMA approval, which was required for the ENROUTE stent, is much more rigorous, costly, lengthy
and uncertain than the 510(k) clearance process. In the 510(k) clearance process, the FDA must determine that a proposed device is
“substantially equivalent” to a device legally on the market, known as a “predicate” device, in order to clear the proposed device for marketing. 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 is sometimes required to support substantial equivalence. In the PMA approval process, the
FDA must determine that a proposed device is safe and effective for its intended use based on extensive data, including technical, pre-clinical,
clinical trial, manufacturing and labeling data. The PMA process is typically required for devices for which the 510(k) process cannot be used and
that are deemed to pose the greatest risk. Modifications to products that are approved through a PMA application generally need prior FDA
approval of a PMA supplement. Similarly, some modifications made to products cleared through a 510(k) may require a new 510(k), or such
modification may put the device into class III and require PMA approval. The FDA’s 510(k) clearance process usually takes from three to 12
months, but may last longer. The process of obtaining a PMA generally takes from one to three years, or even longer, from the time the PMA is
submitted to the FDA until an approval is obtained. Any delay or failure to obtain necessary regulatory approvals or clearances would have a
material adverse effect on our business, financial condition and results of operations.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
• Our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or
effective for their intended uses;
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The disagreement of the FDA or the applicable foreign regulatory body with the design, conduct or implementation of our clinical trials or
the analyses or interpretation of data from pre-clinical studies or clinical trials;
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Serious and unexpected adverse device effects experienced by participants in our clinical trials;
The data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;
• Our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
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An advisory committee, if convened by the applicable regulatory authority, may recommend against approval of our application or may
recommend that the applicable regulatory authority require, as a condition of approval, additional preclinical studies or clinical trials,
limitations on approved labeling or distribution and use restrictions, or even if an advisory committee, if convened, makes a favorable
recommendation, the respective regulatory authority may still not approve the product;
The applicable regulatory authority may identify significant deficiencies in our manufacturing processes, facilities or analytical methods or
those of our third party contract manufacturers;
The potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner
rendering our clinical data or regulatory filings insufficient for clearance or approval; and
The FDA or foreign regulatory authorities may audit our clinical trial data and conclude that the data is not sufficiently reliable to support
approval or clearance.
Similarly, regulators may determine that our financial relationships with our principal investigators resulted in a perceived or actual conflict of
interest that may have affected the interpretation of a study, the integrity of the data generated at the applicable clinical trial site or the utility of the
clinical trial itself. Even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the
product, which may limit the market for the product. Moreover, the FDA and European Union regulatory authorities strictly regulate the labeling,
promotion and advertising of our products, including comparative and superiority claims vis a vis competitors’ products, that may be made about
products.
As a condition of approving a PMA application, the FDA may also require some form of post-approval study or post-market surveillance,
whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA
on the clinical status of those patients when necessary to protect the public health or to provide additional safety and effectiveness data for the
device. As a part of our PMA approval, we agreed with the FDA to conduct a post-approval study at a minimum of 30 sites in the United States to
evaluate the safety and effectiveness of our products in at least 600 subjects. We have completed enrollment in this study and submitted our final
report to the FDA. On February 11, 2020 we received notice from the FDA of their review and that we have fulfilled the post-approval study
requirement. Thereafter, the product labeling must be updated and submitted in a PMA supplement, including any adverse event data, from the
post-approval study. Failure to have conducted the post-approval study in compliance with applicable regulations or to have timely completed
required post-approval studies or comply with other post-approval requirements could result in withdrawal of approval of the PMA, which would
harm our business.
In addition, we are required to investigate all product complaints we receive, and timely file reports with the FDA, including MDRs that require
that we report to regulatory authorities if our products may have caused or contributed to a death or serious injury or malfunctioned in a way that
would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not submitted in a timely manner,
regulators may impose sanctions and we may be subject to product liability or regulatory enforcement actions, including warning letters, untitled
letters, fines, civil penalties, recalls, seizures, operating restrictions, denial of requests for 510(k) clearance or premarket approval of new
products, new intended uses or modifications to existing products, withdrawal of current 510(k) clearances or premarket approvals and narrowing
of approved or cleared product labeling, all of which
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could harm our business. In addition, the FDA may provide notice of and conduct additional inspections, such as “for cause” inspections, of our
business, sites and facilities as part of its review process. We recently identified the need to implement corrective actions to our complaint
handling procedures, which may have caused a delay in timely submission of 20 MDR reports to the FDA since we began commercialization in
2015. As of January 31, 2020, we had filed 160 MDR reports with the FDA for adverse events including stroke, arterial dissection, stent
thrombosis and wound complications.
If we initiate a correction or removal action for our products to reduce a significant risk to health posed by our products, we would be required
to submit a publicly available correction and removal report to the FDA and, in many cases, similar reports to other regulatory agencies. 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 products. Furthermore, the submission of these reports could be used by competitors
against us and cause physicians to delay or cancel prescriptions, which could harm our reputation.
The FDA and the Federal Trade Commission, or FTC, also regulate the advertising, promotion and labeling of our products to ensure that the
claims we make are consistent with our regulatory clearances and approvals, that there is adequate and reasonable scientific data to substantiate
the claims and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any
of our advertising or promotional claims are misleading, not substantiated or not permissible, we may be subject to enforcement actions, including
adverse publicity, warning letters, and we may be required to revise our promotional claims and make other corrections or restitutions.
The FDA and state authorities have broad investigation and enforcement powers. Our failure to comply with applicable regulatory
requirements could result in enforcement action by the FDA or state agencies, which may include any of the following sanctions:
•
Adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;
• Repair, replacement, refunds, recalls, termination of distribution, administrative detention or seizure of our products;
• Operating restrictions, partial suspension or total shutdown of production;
• Denial of our requests for 510(k) clearance or premarket approval of new products, new intended uses or modifications to existing
products;
• Withdrawal of 510(k) clearance or premarket approvals that have already been granted; and
• Criminal prosecution.
If any of these events were to occur, our business and financial condition could be harmed. In addition, the FDA’s and other regulatory
authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of
our products. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things,
is intended to modernize the regulation of medical devices and spur innovation, but its ultimate implementation is unclear. If we are slow or unable
to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would
adversely affect our business, financial condition and results of operations.
Our clinical trials may fail to demonstrate competent and reliable evidence of the safety and effectiveness of our products, which
would prevent or delay commercialization of our products in development.
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We may be required to conduct clinical studies that demonstrate competent and reliable evidence that our products are safe and effective
before we can commercialize our products. Clinical testing is expensive and can take many years to complete, and its outcome is inherently
uncertain. We cannot be certain that our planned clinical trials or any other future clinical trials will be successful. In addition, even if such clinical
trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more
trials could be required before we submit our products for approval. To the extent that the results of the trials are not satisfactory to the FDA or
foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be
available to us, to conduct additional trials in support of potential approval of our products. Even if regulatory approval is secured for any of our
products, the terms of such approval may limit the scope and use of our products, which may also limit their commercial potential.
Material modifications to our products may require new 510(k) clearances, premarket approval, or CE Marks, or may require us to
recall or cease marketing our products until new clearances or approvals are obtained.
Material modifications to the intended use or technological characteristics of our products will require new 510(k) clearances, premarket
approvals or CE Marks prior to implementing the modifications, or require us to recall or cease marketing the modified devices until these
clearances or approvals are obtained. Furthermore, changes to our manufacturing facility or supplier of components used in our products require
prior FDA approval of a PMA supplement. The FDA requires device manufacturers to initially make and document a determination of whether or
not a modification requires a new approval, supplement or clearance; however, the FDA can review a manufacturer’s decision. Any modification to
an FDA cleared device that would significantly affect its safety or effectiveness or that would constitute a major change in its intended use would
require a new 510(k) clearance or approval of a PMA supplement. We may not be able to obtain additional 510(k) clearances or premarket
approvals for new products or for modifications to, or additional indications for, our products in a timely fashion, or at all. Delays in obtaining
required future clearances would harm our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future
growth. We have made modifications to our products in the past that we believe do not require additional clearances or approvals, and we may
make additional modifications in the future. If the FDA or an EU Notified Body disagrees and requires new clearances or approvals for any of
these modifications, we may be required to recall and to stop selling or marketing our products as modified, which could harm our operating
results and require us to redesign our products. In these circumstances, we may be subject to significant enforcement actions.
If we, or our suppliers, fail to comply with the FDA’s QSR or the European Union’s Medical Device Directive, our manufacturing or
distribution operations could be delayed or shut down and our revenue could suffer.
Our manufacturing and design processes and those of our third-party component suppliers are required to comply with the FDA’s Quality
System Regulation, or QSR, and the European Union’s Medical Device Directive, or MDD, both of which cover procedures and documentation of
the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our products. We are also subject to
similar state requirements and licenses, and to ongoing ISO 13485 compliance in our operations, including design, manufacturing, and service, to
maintain our CE Mark. In addition, we must engage in extensive recordkeeping and reporting and must make available our facilities and records
for periodic unannounced inspections by governmental agencies, including the FDA, state authorities, EU Notified Bodies and comparable
agencies in other countries. If we fail a regulatory inspection, our operations could be disrupted and our manufacturing interrupted. Failure to take
timely and adequate corrective action in response to an adverse regulatory inspection could result in, among other things, a shutdown of our
manufacturing or product distribution operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our
device, operating restrictions and criminal prosecutions, any of which would cause our business to suffer. Furthermore, our key component
suppliers may not currently be or may not continue to be in compliance with applicable regulatory
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requirements, which may result in manufacturing delays for our products and cause our revenue to decline.
We are registered with the FDA as a medical device specifications developer and manufacturer. The FDA has broad post-market and
regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of the California
Department of Public Health, or CDPH, and our Notified Body to determine our compliance with the QSR and other regulations at both our design
and manufacturing facilities, and these inspections may include the manufacturing facilities of our suppliers. These inspections may be initiated as
a result of concerns regarding the safety of our products or the components thereof.
We can provide no assurance that we will continue to remain in material compliance with the QSR or MDD. If the FDA, CDPH or our notified
body in the European Union, the British Standards Institution, or BSI, inspect any of our facilities and discover compliance problems, we may have
to cease manufacturing and product distribution until we can take the appropriate remedial steps to correct the audit findings. Taking corrective
action may be expensive, time consuming and a distraction for management and if we experience a delay at our manufacturing facility we may be
unable to produce our products, which would harm our business.
With the transition from the MDD to the new European Union Medical Device Regulation, or MDR, notified bodies are required to seek
designation to operate as conformity assessment authorities under the new law, which is effective in May 2020. Should our notified body fail to
obtain such designation or the scope of their designation does not include our product category, then our ability to apply the CE mark and
commercialize in the European Union may be interrupted. Identification and engagement of a new and properly designated notified body is a time
consuming process that may require comprehensive quality system audits and new conformity assessment certifications for our products.
The impact of the new EU Medical Device Regulation may be costly and disruptive to our business.
In 2017, the European Union released new regulations to ensure patient safety with the use of pharmaceuticals, medical devices and in-vitro
diagnostics that will go into effect over a three-year period from 2020 to 2022. The new regulations replace predecessor directives and emphasize
a global convergence of regulations. Major changes include:
• Reclassification of some products;
• Greater emphasis on clinical data;
• Data transparency, including publication of clinical trial data and safety summaries;
• Defined content and structure for technical files to support registration;
• Unique device identification system;
• Greater burden on post-market surveillance and clinical follow-up;
• Reduction of adverse event reporting time from 30 to 15 days after the event; and
• More power to notified bodies.
Complying with these new regulations may result in Europe being less attractive as a “first market” destination. Marketing authorization
timelines will become more protracted and the costs of operating in Europe will increase. A significantly more costly path to regulatory compliance
is anticipated. Adjusting to the new Medical Device Regulation may prove to be costly and disruptive to our business.
Our products may in the future be subject to product recalls that could harm our reputation.
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The FDA and similar governmental authorities in other countries have the authority to require the recall of commercialized products in the
event of material regulatory deficiencies or defects in design or manufacture. A government mandated or voluntary recall by us could occur as a
result of component failures, manufacturing errors or design or labeling defects. Recalls of our products would divert managerial attention, be
expensive, harm our reputation with customers and harm our financial condition and results of operations. A recall announcement would also
negatively affect our stock price.
Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations
could subject us to significant liability.
Our research and development and manufacturing operations involve the use of hazardous substances and are subject to a variety of federal,
state, local and foreign environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of, and human exposure
to, hazardous substances and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances.
Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with
environmental laws and regulations may be expensive and noncompliance could result in substantial liabilities, fines and penalties, personal injury
and third-party property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become
more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We cannot assure you
that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of human error, accidents,
equipment failure or other causes. The expense associated with environmental regulation and remediation could harm our financial condition and
operating results.
Risks Related to Ownership of Our Common Stock
The market price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for
purchasers of our common stock.
•
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:
• Changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’
estimates;
• Quarterly variations in our or our competitors’ results of operations;
•
•
Periodic fluctuations in our revenue, which could be due in part to the way in which we recognize revenue;
The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
• General market conditions and other factors unrelated to our operating performance or the operating performance of our competitors;
• Changes in reimbursement by current or potential payers;
• Changes in operating performance and stock market valuations of other technology companies generally, or those in the medical device
industry in particular;
Actual or anticipated changes in regulatory oversight of our products;
The results of our clinical trials;
The loss of key personnel, including changes in our board of directors and management;
Product recalls or other problems associated with our products;
•
•
•
•
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•
•
•
•
•
Legislation or regulation of our market;
Lawsuits threatened or filed against us, including litigation by current or former employees alleging wrongful termination, sexual
harassment, whistleblower or other claims;
The announcement of new products or product enhancements by us or our competitors;
Announced or completed acquisitions of businesses or technologies by us or our competitors;
Announcements related to patents issued to us or our competitors and related litigation; and
• Developments in our industry.
In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of listed companies. Broad market and industry factors may significantly affect the market price of
our common stock, regardless of our actual operating performance.
In addition, in the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become
involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and
harm our business, results of operations, financial condition and reputation. These factors may materially and adversely affect the market price of
our common stock.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our
business, our share price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or
our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us
downgrade our shares or change their opinion of our business, our share price would likely decline. If one or more of these analysts cease
coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share
price or trading volume to decline.
A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lapse
of lock-up and other legal restrictions on resale, the trading price of our common stock could decline. If these additional shares are sold, or if it is
perceived that they will be sold, in the public market, the trading price of our common stock could decline.
The holders of an aggregate of 7,835,229 shares of our outstanding common stock, have rights, subject to some conditions, to require us to
file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our
stockholders. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under
the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the market price of our common stock.
Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best
interests of our other stockholders.
As of February 28, 2020, our directors, officers and each stockholder holding 5% or more of our outstanding common stock and their affiliates
beneficially owned approximately 40.3% of our outstanding common stock in the aggregate. In addition, we are required to nominate and use
commercially reasonable efforts to have a number of individuals proportionate to the number of shares of common
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stock held by entities affiliated with Warburg Pincus & Co. compared to the number of shares of common stock outstanding, designated by
Warburg Pincus & Co., elected to the board of directors. As a result, the above stockholders, and Warburg Pincus & Co., acting alone, will be able
to exert significant influence over the management and affairs of our company and most matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. We have not elected under the rules of the Nasdaq Stock Market to take
advantage of the "controlled company" exemption to opt out of any corporate governance requirements, but this concentration of ownership may
have the effect of delaying or preventing a change in control, might adversely affect the market price of our common stock and may not be in the
best interests of our other stockholders.
We have previously identified two material weaknesses in our internal control over financial reporting and may identify additional
material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material
misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
Prior to the completion of our initial public offering, we were a private company and had limited accounting and financial reporting personnel
and other resources with which to address our internal controls and procedures. In connection with the audit of our financial statements for the
year ended December 31, 2017, we and our independent registered public accounting firm identified two material weaknesses in our internal
control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or
detected on a timely basis.
We determined that we had a material weakness because we did not maintain a sufficient complement of personnel with an appropriate
degree of knowledge, experience, and training, commensurate with our accounting and reporting requirements. As a result, there were a number
of post initial close adjustments that were material to the financial statements.
The second material weakness relates to the fact that we did not appropriately design and implement controls over the review and approval of
manual journal entries and the related supporting journal entry calculations, resulting in inappropriate segregation of duties over manual journal
entries. This material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to
the annual or interim financial statements that would not be prevented or detected.
With the oversight of senior management and our audit committee, we began the implementation of remediation steps in 2018. These efforts
focused on (i) the hiring of personnel with technical accounting and financial reporting experience and (ii) the implementation of improved
accounting and financial reporting procedures and systems to improve the completeness, timeliness and accuracy of our financial reporting and
disclosures including the assessment of more judgmental areas of accounting. We believe the measures described above will remediate the
material weaknesses identified and strengthen our internal control over financial reporting. While we believe the steps taken in our remediation
initiatives outlined above are sufficient to remediate the material weaknesses in internal control over financial reporting, our improvements,
including the enhanced controls, have not operated for a sufficient period of time to demonstrate that the material weaknesses are fully
remediated. As such, the remediation initiatives outlined above were not sufficient to fully remediate the material weaknesses in internal control
over financial reporting for the year ended December 31, 2019. We are committed to continuing to improve our internal control processes and will
continue to diligently and vigorously review our financial reporting controls and procedures.
While we continue with our plan to remediate the material weaknesses, we cannot predict the success of such plan or the outcome of our
assessment of these plans at this time. We can give no assurance that this implementation will remediate these deficiencies in internal control or
that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be
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identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial
statements that could result in a restatement of our financial statements, causing us to fail to meet our reporting obligations.
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, as a result, the value of our
common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by management on the effectiveness
of our internal control over financial reporting for the year ended December 31, 2020. This assessment will need to include disclosure of any
material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed
with the SEC following the date we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012,
or the JOBS Act. At such time as we are required to obtain auditor attestation, if we then have a material weakness, we would receive an adverse
opinion regarding our internal control over financial reporting from our independent registered accounting firm.
We are continuing the costly and challenging process of compiling the system and processing documentation necessary to perform the
evaluation needed to comply with Section 404, and we may not be able to complete our evaluation, testing and any required remediation in a
timely fashion. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management
efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public
company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the
evaluation needed to comply with Section 404.
During our evaluation of our internal control, if we are unable to remediate our material weaknesses or if we identify additional material
weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the
future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or
results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered
public accounting firm determines we have an additional material weakness or significant deficiency in our internal control over financial reporting,
we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our ordinary shares could
decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy our current
and any future material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems
required of public companies, could also restrict our future access to the capital markets.
We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced disclosure
requirements applicable to us will make our common stock less attractive to investors.
We currently qualify as an “emerging growth company” under the JOBS Act. For as long as we continue to be an emerging growth company,
we may take advantage of certain exemptions from reporting requirements that are applicable to other public companies including, but not limited
to, not being required to comply with the auditor attestation requirements of Section 404, 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. To the extent that we continue to
qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the
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Securities Exchange Act of 1934, after we cease to qualify as an emerging growth company, we will continue to be permitted to make certain
reduced disclosures in our periodic reports and other documents that we file with the SEC. We cannot predict if investors will find our common
stock less attractive to the extent we rely on available exemptions. If some investors do find our common stock less attractive, there may be a less
active trading market for our common stock and our stock price may be more volatile or may decline.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of our initial
public offering, (2) the last day of the fiscal year in which we have total annual revenue of more than $1.07 billion, (3) the date on which we are
deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as
of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-
year period.
Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws, and Delaware law, could discourage
a change in control of our company or a change in our management.
Our amended and restated certificate of incorporation and bylaws contain provisions that might enable our management to resist a takeover.
These provisions include:
•
•
•
•
•
•
•
•
•
•
A classified board of directors;
Advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as
to the form and content of a stockholders’ notice;
A supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation
and bylaws;
The right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile
acquirer;
Allowing stockholders to remove directors only for cause;
A requirement that the authorized number of directors may be changed only by resolution of the board of directors;
Allowing all vacancies, including newly created directorships, to be filled by the affirmative vote of a majority of directors then in office,
even if less than a quorum, except as otherwise required by law;
A requirement that our stockholders may only take action at annual or special meetings of our stockholders and not by written consent;
Limiting the forum to Delaware for certain litigation against us; and
Limiting the persons that can call special meetings of our stockholders to our board of directors, the chairperson of our board of directors,
the chief executive officer or the president, in the absence of a chief executive officer.
These provisions might discourage, delay or prevent a change in control of our company or a change in our management. The existence of
these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the
future for shares of our common stock. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business
combinations with any “interested”
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stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. See “Description of Capital
Stock.”
Our amended and restated certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware will
be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’
abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation and bylaws provide that, unless we consent in writing to the selection of an alternative
forum, the sole and exclusive forum, to the fullest extent permitted by law, for (1) any derivative action or proceeding brought on our behalf,
(2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders,
(3) any action asserting a claim against the company or any director or officer of the company arising pursuant to any provision of the Delaware
General Corporation Law, (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of
incorporation or bylaws, or (5) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of
the State of Delaware or federal court located within the State of Delaware if the Court of Chancery does not have jurisdiction, in all cases subject
to the court’s having jurisdiction over indispensable parties named as defendants. A complaint asserting a cause of action under the Securities Act
may be brought in state or federal court. With respect to the Securities Exchange Act of 1934, or Exchange Act, only claims brought derivatively
under the Exchange Act would be subject to the forum selection clause described above. The enforceability of similar choice of forum provisions
in other companies' certificates of incorporation and bylaws has been challenged in legal proceedings, and it is possible that, in connection with
any action, a court could find the choice of forum provisions contained in our amended and restated certificate of incorporation and bylaws to be
inapplicable or unenforceable in such action. Although we believe these provisions benefit us by providing increased consistency in the
application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against
us or our directors and officers. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate
of incorporation and bylaws 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, financial condition and operating results. Any person or entity purchasing or otherwise
acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to this exclusive forum provision, but will not
be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
We have not paid dividends in the past and do not expect to pay dividends in the future, and, as a result, any return on investment
may be limited to the value of our stock.
We have never paid cash dividends and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends will
depend on our earnings, capital requirements, financial condition, prospects for future earnings and other factors our board of directors may deem
relevant. In addition, our loan agreement limits our ability to, among other things, pay dividends or make other distributions or payments on
account of our common stock, in each case subject to certain exceptions. If we do not pay dividends, our stock may be less valuable because a
return on your investment will only occur if our stock price appreciates and you then sell our common stock.
If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the
accuracy and completeness of our reported financial information and the market price of our common stock may be negatively
affected.
Our chief financial officer had not previously been the chief financial officer of a publicly traded company and our chief executive officer had
not previously been the chief executive officer of a publicly traded company. As a public company, we are required to maintain internal control over
financial reporting and to report any material weaknesses in such internal control. We are required, pursuant to
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Section 404, to evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our second annual
report after the completion of our initial public offering in April 2019, provide a management report on the internal control over financial reporting.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial
reporting. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial
reporting until our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company,” as
defined in the JOBS Act. At such time as we are required to obtain auditor attestation, if we then have a material weakness, we would receive an
adverse opinion regarding our internal control over financial reporting from our independent registered accounting firm. If we are unable to
remediate our material weaknesses or if we have an additional material weakness in our internal control over financial reporting, we may not
detect errors on a timely basis and our financial statements may be materially misstated. We are implementing the process and documentation
necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required
remediation in a timely fashion.
If we are unable to remediate our material weaknesses or if we have additional material weaknesses in our internal control over financial
reporting in the future, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are beginning the
costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply
with Section 404, and we may not be able to complete our evaluation, testing and any required remediation in a timely fashion. Our compliance
with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have
an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and
technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with
Section 404.
During our evaluation of our internal control, if we are unable to remediate our material weaknesses or if we identify additional material
weaknesses in our internal control over financial reporting in the future, we will be unable to assert that our internal control over financial reporting
is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial
reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our
financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our
independent registered public accounting firm determines we were unable to remediate our material weaknesses or we have a material weakness
or significant deficiency in our internal control over financial reporting in the future, we could lose investor confidence in the accuracy and
completeness of our financial reports, the market price of our ordinary shares could decline, and we could be subject to sanctions or investigations
by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines,
trading suspensions or other remedies. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or
maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We currently lease approximately 31,000 square feet for our corporate headquarters and manufacturing facility located in Sunnyvale,
California under a lease agreement which terminates in 2024. We have an additional option to extend the lease term for a period of five years.
The option must be exercised no more than 12 months and no less than nine months prior to the expiration of the applicable term. Our operations
are growing at a pace that may require us to find a replacement or expansion facility sooner. We believe that additional space can be obtained on
commercially reasonable terms as needed.
Item 3. Legal Proceedings
We are not currently a party to any material legal proceedings. From time to time we may become involved in legal proceedings or
investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our
management from the operation of our business.
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
Price Range of Common Stock
Our common stock began trading on the NASDAQ Global Market under the symbol “SILK” on April 4, 2019. Prior to that time, there was no
public market for our common stock. In our initial public offering, our common stock priced at $20.00 per share on April 3, 2019. The following
table sets forth on a per share basis, for the periods indicated, the low and high sale prices of our common stock as reported by the NASDAQ
Global Market.
Second Quarter (beginning April 4)
Third Quarter
Fourth Quarter
Holders of Record
Year Ended December 31, 2019
High
Low
$
$
$
51.50
49.89
40.79
$
$
$
30.87
31.22
27.83
At February 28, 2020, there were approximately 91 stockholders of record of our common stock, and the closing price per share of our
common stock was $39.85. Since many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we
are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We do not
anticipate paying any dividends in the foreseeable future, and we currently intend to retain all available funds and any future earnings for use in
the operation of our business, to finance the growth and development of our business and for future repayment of debt. Future determinations as
to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions,
including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of
directors may deem relevant. In addition, our term loan agreement limits our ability to pay dividends or make other distributions or payments on
account of our common stock, in each case subject to certain exceptions.
Stock Performance Graph
The following graph illustrates a comparison of the total cumulative stockholder return on our stock with the total return for (i) the NASDAQ
Composite Index (U.S.) and (ii) the NASDAQ Medical Equipment Index for the period from April 4, 2019 (the first day of trading of our common
stock), through December 31, 2019. The graph assumes an investment of $100 in our common stock at market close on April 4, 2019 and the
reinvestment of dividends, if any. The comparisons in the table are not intended to forecast or be indicative of possible future performance of our
common stock. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the
Securities Act of 1933, as amended (the "Securities Act"), whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
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$100 investment in stock or index
Silk Road Medical, Inc. (SILK)
NASDAQ Composite
NASDAQ Medical Equipment
Recent Sales of Unregistered Securities
None.
Use of Proceeds
April 4,
2019
June 30, 2019
September 30,
2019
December 31, 2019
$
$
$
100 $
100 $
100 $
134 $
102 $
100 $
90 $
102 $
94 $
112
115
108
Our initial public offering of 6,000,000 shares of common stock was effected through a registration statement on Form S-1 (File No. 333-
230045), which was declared effective on April 3, 2019 and pursuant to which we sold an aggregate 6,000,000 shares of our common stock at a
public offering price of $20.00 per share for an aggregate offering price of $120.0 million. On April 4, 2019, the underwriters fully exercised their
option to purchase 900,000 additional shares of common stock from the selling stockholders pursuant to the underwriting agreement. When our
initial public offering closed on April 8, 2019, we received net proceeds of $109.1 million, after deducting underwriting discounts and commissions
of $8.4 million and other expenses of $2.5 million. No payments for such expenses were made directly or indirectly to any of our officers or
directors or persons holding 10 percent or more of our securities.
J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as representatives of the underwriters for the
offering. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus
filed with the SEC on April 4, 2019 pursuant to Rule 424(b) of the Securities Act.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. Selected Financial Data
We derived the selected statements of operations data for the years ended December 31, 2019 and 2018 and the balance sheets data as of
December 31, 2019 and 2018 from our audited financial statements appearing elsewhere in this Annual Report on Form 10-K. You should read
this data together with our audited financial statements and related notes thereto included elsewhere in this and the information under the caption
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected financial data included in this section are
not intended to replace the audited financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Our
historical results are not necessarily indicative of our future results.
Statements of Operations Data:
(in thousands, except share and per share data)
Revenue
Cost of goods sold
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Interest income (expense), net
Other income (expense), net
Net loss
Net loss attributable to non-controlling interest
Net loss attributable to Silk Road Medical, Inc. common stockholders
Net loss per share attributable to Silk Road Medical, Inc. common stockholders, basic and diluted
Weighted average common shares used to compute net loss per share attributable to Silk Road
Medical, Inc. common stockholders, basic and diluted
99
$
$
$
Years Ended December 31,
2019
2018
63,354 $
15,927
47,427
12,272
63,220
75,492
(28,065)
(3,296)
(21,054)
(52,415)
—
(52,415) $
(2.28) $
34,557
10,874
23,683
10,258
34,820
45,078
(21,395)
(4,172)
(12,063)
(37,630)
1
(37,629)
(39.16)
22,956,679
960,882
Table of Contents
Balance Sheets Data:
(in thousands)
Cash and cash equivalents
Short-term investments
Working capital
Total assets
Long-term debt
Convertible preferred stock warrant liability
Convertible preferred stock
Accumulated deficit
Total stockholders’ equity (deficit)
$
As of December 31,
2019
2018
39,181 $
51,508
95,558
137,402
44,879
—
—
(191,526)
71,891
24,990
—
27,824
42,743
44,201
16,091
105,235
(139,111)
(134,553)
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Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled
“Selected financial data” and our audited financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions, that are based on the beliefs of our management, as well as assumptions
made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-
looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this
Annual Report on Form 10-K entitled “Risk Factors.”
Overview
We are a medical device company focused on reducing the risk of stroke and its devastating impact. We believe a key to stroke prevention is
minimally-invasive and technologically advanced intervention to safely and effectively treat carotid artery disease, one of the leading causes of
stroke. We have pioneered a new approach for the treatment of carotid artery disease called transcarotid artery revascularization, or TCAR, which
we seek to establish as the standard of care. We manufacture and sell in the United States our portfolio of TCAR products, which are designed to
provide direct access to the carotid artery, effective reduction in stroke risk throughout the procedure, and long-term restraint of carotid plaque.
We began commercializing our products in the United States in late 2015. Our products are currently the only devices cleared and approved
by the FDA specifically for transcarotid use. While our current commercial focus is on the U.S. market, our products have obtained CE Mark
approval, allowing us to commercialize in Europe in the future. We also intend to pursue regulatory clearances in China, Japan, and other select
international markets. TCAR is reimbursed based on established current procedural technology, or CPT, codes and International Classification of
Diseases, or ICD-10, codes related to carotid stenting that track to Medicare Severity Diagnosis Related Group, or MS-DRG, classifications.
We designed our commercial strategy and built our direct sales force with a particular focus on vascular surgery practices. Vascular surgeons
are skilled in endovascular procedures, and our sales and marketing efforts are focused on driving adoption and supporting their practice
development by offering them an innovative, safe, effective and minimally-invasive alternative for treating carotid artery disease. We also market
to other specialists with experience in CEA or CAS with the appropriate skill set for TCAR, including neurosurgeons, cardiothoracic surgeons and
non-surgical interventionalists in radiology, neuroradiology and cardiology. We also work on developing strong relationships with physicians and
hospitals that we have identified as key opinion leaders. We consider the hospitals and medical centers where the procedure is performed to be
our customers, as they typically are responsible for purchasing our products.
We manufacture and distribute the ENROUTE NPS at our facility in Sunnyvale, California, using components and sub-assemblies
manufactured both in-house and by third party manufacturers and suppliers. We purchase our other products from third-party contract
manufacturers, including our ENROUTE stent. Many of these third-party manufacturers and outside vendors are currently single-source suppliers.
While we expect that our existing manufacturing facility will be sufficient to meet our anticipated growth through at least the next four years we
intend to supplement our distribution operations with a third-party logistics and warehousing service and/or additional leased facilities.
In April 2019, we completed our initial public offering by issuing 6,000,000 shares of common stock, at a public offering price of $20.00 per
share, for net proceeds of approximately $109.1 million after deducting underwriting discounts and commissions and expenses. In August 2019,
we completed a secondary public offering of 4,200,000 shares of common stock by selling stockholders, and the exercise in full of the
underwriters' option to purchase 630,000 additional shares of common stock from selling
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stockholders, at a public offering price of $39.50 per share. We received no proceeds from the sale of our common stock by the selling
stockholders.
Prior to our initial public offering in April 2019, our primary sources of capital were private placements of convertible preferred stock, debt
financing arrangements and revenue from sales of our products. As of December 31, 2019, we had cash and cash equivalents of $39.2 million,
investments of $69.7 million, long-term debt of $44.9 million and an accumulated deficit of $191.5 million. Since inception, we have raised a total
of $214.3 million in net proceeds from the sale of equity securities, including net proceeds of approximately $109.1 million from our initial public
offering in April 2019.
Key Business Metric - Number of U.S. TCAR procedures
We regularly review a number of operating and financial metrics, including the number of procedures performed in the United States, to
evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic
decisions. The following table lists the number of procedures performed in each of the three month periods as indicated:
Number of U.S. procedures
774
1,008
1,243
1,548
1,724
1,997
2,255
2,458
March 31,
2018
June 30,
2018
Sept. 30,
2018
Dec. 31, 2018
March 31,
2019
June 30,
2019
Sept. 30,
2019
Dec. 31, 2019
Three Months Ended
We define a procedure as any instance in which our ENROUTE NPS is used and for which we have a record that the procedure was
performed. A procedure that is started and then aborted, or converted to a different procedure, after the ENROUTE NPS is used would count as a
procedure. The number of procedures is an indicator of our ability to drive adoption and generate revenue, and is helpful in tracking the progress
of our business. We believe that it is representative of our current business; however, we anticipate this may be substituted for additional or
different metrics as our business grows.
Components of our Results of Operations
Revenue
We currently derive all of our revenue from the sale of our portfolio of TCAR products to hospitals and medical centers in the United States.
Each of our products is purchased individually, and the majority of our revenue is derived from sales of the ENROUTE NPS and ENROUTE stent.
No single customer accounted for 10% or more of our revenue during the during the years ended December 31, 2019 and 2018. We expect
revenue to increase in absolute dollars as we expand our sales territories, new accounts and trained physician base and as existing physicians
perform more TCAR procedures.
We expect our revenue to fluctuate from quarter-to-quarter due to a variety of factors, including seasonality. For example, in the first quarter,
our results can be harmed by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause
patients to delay elective procedures. Holiday and summer vacations by physicians and/or their patients can also affect procedure volumes that in
turn affect hospital ordering patterns. We have also seen procedure volumes moderate during major medical conferences when significant
portions of our customer base are attending the conferences.
Cost of Goods Sold and Gross Margin
We manufacture the ENROUTE NPS in California at our facility in Sunnyvale. We purchase our other products from third party manufacturers.
Cost of goods sold consists primarily of costs related to materials, components and sub-assemblies, direct labor, manufacturing overhead,
reserves for excess, obsolete and non-sellable inventories as well as distribution-related expenses. Overhead costs include the cost of quality
assurance, material procurement, inventory control, facilities, equipment and operations
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supervision and management. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as
those incurred for shipping our products and royalties related to the sale of our ENROUTE stent. We expense all inventory provisions as cost of
goods sold. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions
about future demand, past usage, changes to manufacturing processes and overall market conditions. We expect cost of goods sold to increase
in absolute dollars to the extent more of our products are sold.
We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of
factors, primarily average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, headcount and
cost-reduction strategies. We expect our gross margin to increase over the long-term as our production and ordering volumes increase and as we
spread the fixed portion of our overhead costs over a larger number of units produced. We intend to use our design, engineering and
manufacturing know-how and capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will
reduce costs and have a positive long-term impact on our gross margin. However, our gross margin could fluctuate from quarter to quarter as we
introduce new products, due to the timing of certain manufacturing engineering projects, as we adopt new manufacturing processes and
technologies and as we expand our distribution operations and infrastructure to support long term growth and risk mitigation.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of engineering, product development, clinical studies to develop and support
our products, regulatory expenses, medical affairs, and other costs associated with products and technologies that are in development. These
expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel
expenses, depreciation and an allocation of facility overhead expenses. Additionally, R&D expenses include costs associated with our clinical
studies, including clinical trial design, clinical trial site initiation and study costs, data management, related travel expenses and the cost of
products used for clinical trials, internal and external costs associated with our regulatory compliance and quality assurance functions and
overhead costs. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product
development efforts, as well as our clinical development, clinical trial and other related activities.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation,
related to selling and marketing functions, physician education programs, commercial operations and analytics, reimbursement, finance,
information technology and human resource functions. Other SG&A expenses include sales commissions, training, travel expenses, promotional
activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees (including legal, audit and
tax fees), insurance costs, general corporate expenses and allocated facilities-related expenses. We expect SG&A expenses to continue to
increase in absolute dollars as we expand our infrastructure to both drive and support the anticipated growth in revenue and due to additional
legal, accounting, insurance and other expenses associated with being a public company. In addition, we will continue exploring sales and
marketing expansion opportunities in international geographies.
Interest Income (Expense), net
Interest income (expense), net consists primarily of cash interest incurred on our outstanding indebtedness and non-cash interest related to
the amortization of debt discount and issuance costs associated with our term loan agreement. We may, at our election, pay a portion of the
interest on our term loan through the incurrence of additional indebtedness as payment-in-kind, or PIK. Our interest expense was partially offset
by interest income earned on our investments.
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Other Income (Expense), net
Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of the fair value of our convertible
preferred stock warrant liability at each balance sheet date. We recorded adjustments to the estimated fair value of the convertible preferred stock
warrants until they were exercised in connection with our initial public offering in April 2019. At such time, the final fair value of the warrant liability
was reclassified to stockholders’ equity (deficit) and we no longer record any related periodic fair value adjustments.
Results of Operations:
(in thousands)
Revenue
Costs of goods sold
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Interest income (expense), net
Other income (expense), net
Net loss
Years Ended December 31,
2019
2018
$
63,354 $
15,927
47,427
12,272
63,220
75,492
(28,065)
(3,296)
(21,054)
$
(52,415) $
34,557
10,874
23,683
10,258
34,820
45,078
(21,395)
(4,172)
(12,063)
(37,630)
Comparison of Years Ended December 31, 2019 and 2018
Revenue. Revenue increased $28.8 million, or 83%, to $63.4 million during the year ended December 31, 2019, compared to $34.6 million
during the year ended December 31, 2018. The increase in revenue was attributable to an increase in the number of products sold as we
expanded our sales territories, increased the number of new accounts, trained more physicians in TCAR and as physicians performed more
TCAR procedures.
Cost of Goods Sold and Gross Margin. Cost of goods sold increased $5.0 million, or 46%, to $15.9 million during the year ended
December 31, 2019, compared to $10.9 million during the year ended December 31, 2018. This increase was attributable to the increase in the
number of products sold and additional manufacturing overhead costs as we invested significantly in our operational infrastructure to support
anticipated future growth. Gross margin for the year ended December 31, 2019 increased to 75%, compared to 69% in the year ended
December 31, 2018. Gross margin increased as our production and ordering volumes increased and we were able to spread the fixed portion of
our overhead costs over a larger number of units produced.
Research and Development Expenses. R&D expenses increased $2.0 million, or 20%, to $12.3 million during the year ended December 31,
2019, compared to $10.3 million during the year ended December 31, 2018. The increase in R&D expenses was primarily attributable to an
increase of $1.4 million in personnel-related expenses including stock-based compensation, an increase of $0.3 million in clinical and regulatory
expense, an increase of $0.3 million relating to educational grants, an increase of $0.2 million in product development materials and costs, an
increase of $0.2 million in software related expense, and an increase of $0.1 million in outside services, partially offset by a decrease in travel and
the allocation of facilities expense.
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Selling, General and Administrative Expenses. SG&A expenses increased $28.4 million, or 82%, to $63.2 million during the year ended
December 31, 2019, compared to $34.8 million during the year ended December 31, 2018. The increase in SG&A expenses is primarily
attributable to an increase of $17.9 million in personnel-related expenses, an increase of $2.5 million in consulting, legal and professional fees, an
increase of $2.2 million in marketing, tradeshow and promotional costs, an increase of $1.9 million in travel expenses, an increase of $1.3 million
in insurance costs, an increase of $1.1 million in physician training and travel related costs, an increase of $0.8 million in software related
expense, and an increase of $0.7 million relating to depreciation and the allocation of facilities and related expenses. Personnel-related expenses
included stock-based compensation expense of $2.4 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively.
Interest Income (Expense), Net. Interest income (expense), net decreased $0.9 million, or 21%, to an expense of $3.3 million during the year
ended December 31, 2019, compared to an expense of $4.2 million during the year ended December 31, 2018. This decreased expense was
attributable to interest income earned on our investments, partially offset by the additional interest expense associated with the $15.0 million of
additional borrowings in September 2018 under our term loan agreement. As of December 31, 2019 and 2018, the aggregate outstanding
principal balance (including interest paid-in-kind) under the term loan agreement was $44.9 million and $44.2 million, respectively.
Other Income (Expense), Net. Other income (expense), net increased to an expense of $21.1 million during the year ended December 31,
2019, compared to an expense of $12.1 million during the year ended December 31, 2018. The decrease was primarily attributed to the
remeasurement of our convertible preferred stock warrants and recognition of the change in fair value.
Liquidity and Capital Resources
As of December 31, 2019, we had cash and cash equivalents of $39.2 million and investments of $69.7 million, an accumulated deficit of
$191.5 million and $44.9 million outstanding under our term loan agreement. No borrowings remain available under this credit facility.
In April 2019, we completed our initial public offering by issuing 6,000,000 shares of common stock, at a public offering price of $20.00 per
share, for net proceeds of approximately $109.1 million after deducting underwriting discounts and commissions and expenses. In August 2019,
we completed a secondary public offering of 4,200,000 shares of common stock by selling stockholders, and the exercise in full of the
underwriters' option to purchase 630,000 additional shares of common stock from selling stockholders, at a public offering price of $39.50 per
share. We received no proceeds from the sale of the common stock by the selling stockholders.
Prior to our initial public offering, our primary sources of capital were private placements of convertible preferred stock, debt financing
agreements and revenue from the sale of our products.
We believe that our cash and cash equivalents and available-for-sale investments as of December 31, 2019, together with our expected
revenue, will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months.
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Cash Flows
The following table summarizes our cash flows for each of the periods presented below:
(in thousands)
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Years Ended December 31,
2019
2018
$
$
(29,610) $
(69,956)
113,757
14,191 $
(21,695)
(2,270)
15,424
(8,541)
Net Cash Used in Operating Activities
Net cash used in operating activities for the year ended December 31, 2019 was $29.6 million, consisting primarily of a net loss of
$52.4 million and a decrease in net operating assets of $3.0 million, partially offset by non-cash charges of $25.8 million. The decrease in net
operating assets was primarily due to an increase in accounts receivable, inventories and prepaid expenses and other current assets to support
the growth of our operations, partially offset by increases in accounts payable and accrued liabilities, due to timing of payments and growth of our
operations. The non-cash charges primarily consisted of depreciation, stock-based compensation, non-cash interest expense and other charges
related to our term loan agreement, and an increase in the fair value of the convertible preferred stock warrants.
Net cash used in operating activities for the year ended December 31, 2018 was $21.7 million, consisting primarily of a net loss of
$37.6 million partially offset by an increase in net operating assets of $0.9 million and non-cash charges of $15.0 million. The increase in net
operating assets was primarily due to an increase in accounts receivable, inventories and prepaid expenses and other current assets to support
the growth of our operations, partially offset by increases in accrued and other liabilities, due to timing of payments and growth of our operations.
The non-cash charges primarily consisted of depreciation, stock-based compensation, non-cash interest expense and other charges related to our
term loan agreement, and an increase in the fair value of the convertible preferred stock warrants.
Net Cash Used in Investing Activities
Net cash used in investing activities in the year ended December 31, 2019 was $70.0 million consisting of purchases of available-for-sale
investments of $69.4 million and purchases of property and equipment of $535,000.
Net cash used in investing activities in the year ended December 31, 2018 was $2.3 million primarily consisting of purchases of property and
equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities in the year ended December 31, 2019 was $113.8 million, primarily attributable to proceeds of
$109.4 million from our initial public offering, net of issuance costs paid, proceeds of $2.6 million from stock option exercises and purchases under
our employee stock purchase plan and warrant exercises of $1.8 million.
Net cash provided by financing activities in the year ended December 31, 2018 was $15.4 million primarily attributable to proceeds of $15.0
million from additional borrowings under the term loan agreement, and $0.7 million of proceeds from the exercise of stock options, partially offset
by cash paid for deferred initial public offering costs of $0.2 million.
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Term Loan Agreement
In October 2015, we entered into the term loan agreement and related security agreement with Capital Resource Group ("CRG"), providing for
a term loan facility of up to $30.0 million, available in tranches on the terms and conditions set forth in the term loan agreement. In September
2018, we entered into a fifth amendment to the term loan agreement, or Fifth Amendment, to increase the aggregate term loan commitments from
up to $30.0 million to up to $55.0 million, to extend the commitment period from March 29, 2017 to June 30, 2019, to extend the maturity date
from September 30, 2021 to December 31, 2022, and to amend certain other terms.
As of December 31, 2019, the aggregate outstanding principal balance (including interest PIK) under the term loan agreement was $44.9
million.
Prior to the Fifth Amendment, the term loans bore interest at a rate of 13.0% per annum, which interest rate was reduced to 10.75% on and
after the effective date of the Fifth Amendment, and which interest rate was further reduced to 10.00% on and after the consummation of our initial
public offering. We may, at our election, pay the interest through a combination of cash and PIK. The interest is payable in cash and PIK as
follows: prior to the Fifth Amendment, 8.50% per annum in cash and 4.50% PIK; on or after the Fifth Amendment, 8.0% per annum in cash and
2.75% PIK; and on and after the consummation of our initial public offering, 8.0% per annum in cash and 2.0% PIK. Interest is due and payable
quarterly in arrears. The outstanding principal amount under the term loan agreement, together with all accrued and unpaid interest, is due and
payable on December 31, 2022. We may prepay the term loan agreement, in whole or in part, at any time. During 2019 and 2018, we incurred
$5.0 million and $4.3 million, respectively, in interest expense in connection with the term loan agreement. During 2019 and 2018, we made cash
interest payments of $4.2 million and $2.7 million, respectively, and issued $0.3 million and $1.2 million in PIK interest for the year ended
December 31, 2019 and 2018, respectively.
Our obligations under the term loan agreement are guaranteed by our existing and future subsidiaries, subject to exceptions for certain
foreign subsidiaries. Our obligations under the term loan agreement are secured by substantially all of our assets, including our material
intellectual property, and the assets of our guarantor subsidiaries, subject to certain exceptions. There are currently no guarantor subsidiaries.
Additionally, we and our subsidiaries are subject to customary affirmative and negative covenants, including covenants that limit or restrict the
ability of us and our subsidiaries to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of
assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case
subject to certain exceptions. We are also required to maintain minimum liquidity that exceeds the greater of $3.0 million or the minimum cash
balance required under any permitted accounts receivable credit facility. In addition, we must achieve minimum annual revenue of $40.0 million in
2020. If we fail to satisfy the minimum annual revenue covenant in any measurement period, we can cure the resulting default by raising the
revenue shortfall in additional equity or in subordinated debt within 90 days of such calendar year in which the shortfall occurred. As of the date of
this Annual Report on Form 10-K, we were in compliance with all covenants under the term loan agreement.
The term loan agreement is subject to customary events of default that include, among other things, non-payment defaults, inaccuracy of
representations and warranties, covenant defaults, cross-defaults to material indebtedness and material agreements, bankruptcy and insolvency
defaults, material judgment defaults, ERISA defaults, a change of control default and a material adverse change default. The occurrence of an
event of default could result in the acceleration of the obligations under the term loan agreement. Under certain circumstances, a default interest
rate will apply on all obligations during the existence of an event of default at a per annum rate equal to 4.0% above the applicable interest rate.
On November 14, 2018, we entered into a sixth amendment to the term loan agreement to amend a covenant regarding the timeline for provision
of audited financial statements. In June 2019, we entered into a
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seventh amendment to the term loan agreement to amend the definition of permitted cash equivalents to reflect updated flexibility.
Cordis License Agreement
In December 2010, we entered into a license agreement, or the Cordis License Agreement, with Cordis Corporation, or Cordis, which is now a
subsidiary of Cardinal Health. Pursuant to the Cordis License Agreement, Cordis has granted us a worldwide, non-exclusive, royalty-bearing
license to certain of its intellectual property related to the PRECISE® carotid stent, or the Licensed IP, for transcervical treatment of carotid artery
disease with an intravascular stent for certain applications for accessing blood vessels through the neck and cervical area. Cordis may not license
the Licensed IP in our licensed field of use to any other third party during the term of the Cordis License Agreement.
We have paid Cordis a one-time license execution fee and are obligated to pay royalties to Cordis on a calendar quarter basis during the term
of the Cordis License Agreement, calculated based on net sales of the licensed products we sell during the preceding quarterly period. The
license granted under Cordis License Agreement shall remain in full force and effect on a country by country basis until the last to expire of the
Licensed IP in such country.
The Cordis License Agreement requires us to work exclusively with either Cordis or Confluent Medical Technologies, Inc. (f/k/a Nitinol Devices
and Components, Inc.), or Confluent, for the development, manufacture and supply of the licensed products. If either Cordis or Confluent cannot
continue to manufacture or supply the licensed products, we can seek a third party manufacturer with the prior written consent of Cordis.
We have the right to assign or transfer the Cordis License Agreement to an entity that succeeds all or substantially all of our equity or assets.
The Cordis License Agreement may be terminated by either party in the event of uncured material breach by the other party that remains uncured
for 60 days (or 30 days for payment related breaches), or bankruptcy of the other party.
Cordis Supply Agreement
In October 2011, we entered into a supply agreement, or Cordis Supply Agreement, with Cordis and have since entered into four
amendments in March and July 2012, April 2013 and April 2018. Pursuant to the Cordis Supply Agreement, Cordis has assisted in the
development of a transcarotid stent delivery system according to our specifications with a PRECISE® carotid stent implant, or ENROUTE stent,
has supplied the ENROUTE stent through preclinical and clinical trials, and continues to supply the ENROUTE stent for our commercial sale. The
Cordis Supply Agreement will continue in full force and effect until the earlier to occur of (i) termination of the Cordis License Agreement; (ii) our
election if and when Cordis approves another manufacturer; (iii) mutual written termination; or (iv) termination pursuant to the terms therein. The
Cordis Supply Agreement may be terminated by either party in the event of uncured material breach by the other party that remains uncured for
30 days, or bankruptcy of the other party.
We are obligated under the Cordis Supply Agreement to purchase a minimum volume of the ENROUTE stent annually. This obligation is
binding until the natural expiration of the Cordis License Agreement, due to expiration of the last-to-expire of the Licensed IP, if the Cordis License
Agreement remains in effect through such natural expiration.
Cordis has the exclusive right to manufacture and supply the ENROUTE stent during the term of the Cordis Supply Agreement. However, if
Cordis is not able to supply the ENROUTE stent, upon our election, Cordis shall permit Confluent or a third party manufacturer to provide supply
of the ENROUTE stent, provided that Cordis retains the right to manufacture and supply the ENROUTE stent to us to the extent it is able to do so.
Notwithstanding the foregoing, we, without Cordis’ consent, may work directly with Confluent for the development and supply of next-generation
products that materially expand or change the specification of the ENROUTE stent.
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Lease Agreements
We currently lease our headquarters in Sunnyvale, California pursuant to a lease agreement which terminates in October 2024. We have an
additional option to extend the lease term for a period of five years. The option must be exercised no more than 12 months and no less than nine
months prior to the expiration of the applicable term. The facility lease is for approximately 31,000 square feet.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities.
Contractual Obligations and Commitments
Our principal obligations consist of the operating lease for our facility, our term loan agreement and non-cancellable inventory purchase
commitments. The following table sets out, as of December 31, 2019, our contractual obligations due by period:
(in thousands)
Operating lease obligations
Term loan agreement with CRG
Non-cancellable purchase commitments
Payments Due by Period
Less Than 1 Year
1-3 Years
3-5 Years
More Than 5 Years
Total
$
$
1,006 $
4,454
3,807
2,082 $
52,698
2,260
9,267 $
57,040 $
1,919 $
—
1,030
2,949 $
— $
—
—
— $
5,007
57,152
7,097
69,256
The non-cancellable purchase commitments primarily consist of ENROUTE stents and other inventory components.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have
been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to
make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are
based on our historical experience and on various other factors that we believe are 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. Actual results
may differ from these estimates under different assumptions or conditions and any such differences may be material.
While our significant accounting policies are more fully described in Note 2 of our audited financial statements included in this Annual Report
on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our
financial condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue Recognition
We adopted Accounting Standards Codification, or ASC, Topic 606, “Revenue from Contracts with Customers,” using the modified
retrospective method applied to contracts which were not completed as of that date effective January 1, 2018. Under ASC 606, revenue is
recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects
to receive in exchange for those goods or services. To determine revenue recognition for
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arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps:
(i)
(ii)
(iii)
(iv)
(v)
identify the contract(s) with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to the performance obligations in the contract; and
recognize revenue when (or as) the entity satisfies a performance obligation.
Our revenue is generated from the sale of our products to hospitals and medical centers in the United States through direct sales
representatives. Revenue is recognized when obligations under the terms of a contract with customers are satisfied, which occurs with the
transfer of control of our products to customers, either upon shipment of the product or delivery of the product to the customer under our standard
terms and conditions. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the goods.
For sales where the sales representative hand delivers product directly to the hospital or medical center from the sales representative’s trunk
stock inventory, we recognize revenue upon delivery, which represents the point in time when control transfers to the customer. For sales which
are sent directly to hospitals and medical centers, the transfer of control occurs at the time of shipment or delivery of the product. There are no
further performance obligations by us or the sales representative to the customer after delivery under either method of sale.
We accept product returns at our discretion or if the product is defective as manufactured. We establish estimated provisions for returns
based on historical experience and consideration of other factors that we believe could significantly impact our expected returns, which provisions
are classified within accrued liabilities on our balance sheet. We have elected to expense shipping and handling costs as incurred and include
them within cost of goods sold. In those cases where we invoice shipping and handling costs to customers, we will classify the amounts billed as a
component of revenue.
JOBS Act Accounting Election
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, we 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. We have
irrevocably elected not to avail ourselves of the exemption from new or revised accounting standards and, therefore, are subject to the same new
or revised accounting standards as other public companies that are not emerging growth companies.
Recently Issued Accounting Pronouncements
We adopted ASC 842, “Leases,” on January 1, 2019 using the modified retrospective method for all leases not substantially completed as of
the date of adoption. We elected to apply the package of practical expedients, which allowed us to not reassess: (i) whether expired or existing
contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing lease. See Note 3 to
our financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements.
See Note 3 to our financial statements included elsewhere in this Annual Report on Form 10-K for new accounting pronouncements not yet
adopted as of the date of this Annual Report on Form 10-K.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include risk related to interest rate sensitivities
and foreign currency exchange rate sensitivity.
Interest Rate Risk
We had cash, cash equivalents and investments of $108.9 million as of December 31, 2019; which consisted of bank deposits, money market
funds, U.S. government securities, corporate bonds/notes, asset-backed securities and commercial paper. The primary objectives of our
investment activities are the preservation of capital and support of our liquidity requirements. Our investments are exposed to market risk due to
fluctuations in interest rates, which may affect our income and the fair market value of our investments.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our
interest rate risk exposure. A hypothetical 10% change in interest rates would not have a material impact on the value of our cash and cash
equivalents or our investments as of December 31, 2019.
Credit Risk
As of December 31, 2019 and 2018, our cash and cash equivalents were maintained with two financial institutions in the United States, and
our current deposits are likely in excess of insured limits. We have reviewed the financial statements of these institutions and believe each to have
sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us. Our cash equivalents and
investments are invested in highly rated money market funds, U.S. government securities, corporate bonds/notes, asset-backed securities and
commercial paper.
Our accounts receivable primarily relate to revenue from the sale of our products to hospitals and medical centers in the United States. No
customer represented 10% or more of our accounts receivable as of December 31, 2019 or 2018.
Foreign Currency Risk
Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a
material effect on our results of operations, financial position or cash flows.
111
Silk Road Medical, Inc.
Index to Financial Statements
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Financial Statements:
Balance Sheets as of December 31, 2019 and December 31, 2018
Statements of Operations and Comprehensive Loss for the years ended December 31, 2019 and December 31, 2018
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2019
and December 31, 2018
Statements of Cash Flows for the years ended December 31, 2019 and December 31, 2018 of Cash Flows for the years ended
December 31, 2019 and December 31, 2018
Notes to Financial Statements
Page(s)
113
114
115
116
117
118
112
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Silk Road Medical, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Silk Road Medical, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related statements of
operations and comprehensive loss, of statements of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the years then
ended, including the related notes and financial statement schedule listed in the index appearing under Item 15 (collectively referred to as 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, 2019 and
2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States
of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits 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/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2020
We have served as the Company’s auditor since 2013.
113
Silk Road Medical, Inc.
Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $45 and $22 at December 31, 2019 and 2018, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Long-term investments
Property and equipment, net
Restricted cash
Other non-current assets
Total assets
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Redeemable convertible preferred stock warrant liability
Other liabilities
Total liabilities
Commitments and contingencies (Note 7)
December 31,
2019
2018
$
39,181 $
51,508
8,601
10,322
2,878
112,490
18,224
2,734
310
3,644
137,402 $
1,898 $
15,034
16,932
44,879
—
3,700
65,511
$
$
24,990
—
6,382
5,744
1,408
38,524
—
2,880
310
1,029
42,743
1,252
9,448
10,700
44,201
16,091
1,069
72,061
Redeemable convertible preferred stock issuable in series, $0.001 par value
Shares authorized: None and 24,069,615 at December 31, 2019 and 2018, respectively
Shares issued and outstanding: None and 21,233,190 at December 31, 2019 and 2018, respectively
Liquidation preference: None and $121,144 at December 31, 2019 and 2018, respectively
—
105,235
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value
Shares authorized: 5,000,000 and none at December 31, 2019 and 2018, respectively
Shares issued and outstanding: None at December 31, 2019 and 2018
Common stock, $0.001 par value
Shares authorized: 100,000,000 and 29,879,220 at December 31, 2019 and 2018, respectively
Shares issued and outstanding: 31,255,267 and 1,135,310 at December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity (deficit)
—
—
31
263,384
2
(191,526)
71,891
1
4,557
—
(139,111)
(134,553)
42,743
Total liabilities and stockholders’ equity (deficit)
$
137,402 $
The accompanying notes are an integral part of these financial statements.
114
Silk Road Medical, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
Revenue
Cost of goods sold
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Other income (expense), net
Net loss
Net loss attributable to non-controlling interest
Net loss attributable to Silk Road Medical, Inc. common stockholders
Other comprehensive loss:
Unrealized gain on investments, net
Net change in other comprehensive loss
Net loss and comprehensive loss attributable to Silk Road Medical, Inc. common stockholders
Net loss per share attributable to Silk Road Medical, Inc. common stockholders, basic and diluted
Weighted average common shares used to compute net loss per share attributable to Silk Road
Medical, Inc. common stockholders, basic and diluted
Year Ended December 31,
2019
2018
$
63,354 $
15,927
47,427
12,272
63,220
75,492
(28,065)
1,656
(4,952)
(21,054)
(52,415)
—
(52,415)
2
2
$
$
(52,413) $
(2.28) $
34,557
10,874
23,683
10,258
34,820
45,078
(21,395)
189
(4,361)
(12,063)
(37,630)
1
(37,629)
—
—
(37,629)
(39.16)
22,956,679
960,882
The accompanying notes are an integral part of these financial statements.
115
Silk Road Medical, Inc.
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
Redeemable Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Balances at December 31, 2017
21,233,190 $ 105,235
663,270 $
1 $
2,977 $
(101,556) $
Balances at December 31, 2018
21,233,190
105,235
1,135,310
Exercise of stock options
Employee stock-based
compensation
Nonemployee stock-based
compensation
NeuroCo common stock issuance
Issuance of common stock in
connection with NeuroCo merger
Cumulative effect of change in
accounting principle - ASC 606
adoption
Cumulative effect of change in
accounting treatment - ASU 2016-
09
Net loss and comprehensive loss
Exercise of Series C preferred stock
warrants
Exercise of common stock warrants
Issuance of common stock in
connection with IPO, net of
underwriting discount, commissions
and offering costs of $2,481
Conversion of preferred stock to
common stock upon IPO
Net exercise of Series C preferred
stock warrants upon IPO
Net exercise of common stock
warrants upon IPO
Exercise of stock options
Issuance of common stock under
employee stock purchase plan
Employee stock-based
compensation
Nonemployee stock-based
compensation
Net loss
Unrealized gains on investments,
net
—
—
—
—
—
—
—
—
—
—
438,578
—
—
—
33,462
—
—
—
—
—
656
728
183
—
—
—
—
—
—
—
—
—
—
—
—
87
—
—
—
—
—
—
292,361
1,784
—
—
—
3,764
—
—
1
—
—
13
—
4,557
—
31
—
—
6,000,000
6
109,113
(23,178,555)
(144,140)
23,178,555
23
144,117
1,653,004
37,121
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,204
873,786
61,648
—
—
—
—
—
—
1
—
—
—
—
—
—
—
1,541
1,048
2,887
90
—
—
(13)
(37,629)
(139,111) $
—
—
—
—
—
—
—
—
—
—
(52,415)
—
Balances at December 31, 2019
— $
31,255,267 $
31 $ 263,384 $
(191,526) $
The accompanying notes are an integral part of these financial statements.
116
Non-
controlling
Interest
Total
$
— $ (98,578)
—
—
—
1
—
656
728
183
1
—
—
87
—
(1)
—
—
—
—
(37,630)
(134,553)
—
31
—
109,119
—
144,140
—
—
—
—
—
1,542
—
1,048
—
2,887
—
—
—
90
(52,415)
2
$
— $ 71,891
—
—
—
—
—
—
—
—
—
— $ —
—
—
—
—
—
—
—
—
—
—
—
2
2
Silk Road Medical, Inc.
Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
Stock-based compensation expense
Change in fair value of redeemable convertible preferred stock warrant liability
Accretion of discount on investments
Amortization of debt discount and debt issuance costs
Amortization of right-of-use asset
Non-cash interest expense
Loss on disposal of property and equipment
Provision for doubtful accounts receivable
Provision for excess and obsolete inventories
Changes in assets and liabilities
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued liabilities
Other liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from sale of property and equipment
Purchases of investments
Net cash used in investing activities
Cash flows from financing activities
Proceeds from initial public offering, net of underwriting discount, commissions and offering costs paid
Proceeds from long-term debt
Proceeds from issuance of common stock
Proceeds from exercise of redeemable convertible preferred stock warrants
Proceeds from exercise of common stock warrants
Non-controlling interest
Net cash provided by financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Supplemental disclosure of cash flow information
Cash paid for interest
Non-cash investing and financing activities:
Accounts payable and accrued liabilities for purchases of property and equipment
Landlord paid tenant improvements
Unpaid deferred offering costs
Right-of-use asset obtained in exchange for lease obligation
Net exercise of redeemable convertible preferred stock warrants to preferred stock
Conversion of redeemable convertible preferred stock to common stock upon initial public offering
Year Ended December 31,
2019
2018
$
(52,415) $
(37,630)
712
2,977
21,030
(309)
46
582
672
—
23
118
(2,241)
(4,696)
(1,471)
552
615
4,964
(769)
517
911
11,906
—
68
—
1,555
159
(123)
23
(446)
(2,565)
(1,128)
(62)
(309)
5,023
406
(29,610)
(21,695)
(535)
—
(69,421)
(69,956)
109,352
—
2,590
1,784
31
—
113,757
14,191
25,300
39,491 $
(2,276)
6
—
(2,270)
(233)
15,000
656
—
—
1
15,424
(8,541)
33,841
25,300
4,234 $
2,738
32 $
— $
— $
3,982 $
37,121 $
144,140 $
6
794
717
—
—
—
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these financial statements.
117
Table of Contents
1. Formation and Business of the Company
The Company
Silk Road Medical, Inc. (the “Company”) was incorporated in the state of Delaware on March 21, 2007. The Company has developed a
technologically advanced, minimally-invasive solution for patients with carotid artery disease who are at risk for stroke. The Company’s portfolio of
TCAR products enable a new procedure, referred to as transcarotid artery revascularization, or TCAR, that combines the benefits of endovascular
techniques and surgical principles. The Company’s manufactures and sells in the United States its portfolio of TCAR products which are designed
to provide direct access to the carotid artery, effective reduction in stroke risk throughout the procedure, and long-term restraint of carotid plaque.
The Company commercialized its products in the United States in April 2016.
Liquidity
In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of December 31,
2019, the Company had an accumulated deficit of $191,526,000. The Company expects to incur losses for the foreseeable future. The Company
believes that its cash and cash equivalents of $39,181,000 and available-for-sale investments of $69,732,000 at December 31, 2019, as well as
its expected revenues will provide sufficient funds to allow the Company to fund its planned current operations for the next twelve months from the
issuance of these financial statements.
Reverse Stock Split
On March 13, 2019, the Company’s Board of Directors approved an amendment to the Company’s amended and restated certificate of
incorporation to effect a 1-for-2.7 reverse stock split of the Company’s common stock and redeemable convertible preferred stock to be
consummated prior to the effectiveness of the Company’s planned initial public offering (“IPO”). The reverse stock split was effected on March 27,
2019. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. All
the common stock, redeemable convertible preferred stock, stock options and warrants, and related per share amounts in the financial statements
have been retroactively adjusted for all periods presented to give effect to the reverse stock split.
Public Offerings
In April 2019, the Company issued and sold 6,000,000 shares of its common stock in its IPO at a public offering price of $20.00 per share, for net
proceeds of approximately $109,119,000 after deducting underwriting discounts and commissions of approximately $8,400,000 and expenses of
approximately $2,481,000. Upon the closing of the IPO, all shares of redeemable convertible preferred stock then outstanding converted into
shares of common stock and the Company's outstanding warrants to purchase shares of common and redeemable convertible preferred stock
were exercised, or automatically net exercised absent a prior election. The exercises resulted in the reclassification of the fair value of the related
redeemable convertible preferred stock warrant liability to additional paid-in capital.
In August 2019, the Company completed a secondary public offering of 4,200,000 shares of its common stock sold by certain selling stockholders,
and the exercise in full of the underwriters' option to purchase 630,000 additional shares of its common stock from certain selling stockholders, at
a public offering price of $39.50 per share. The Company did not receive any of the proceeds from the sale of the shares of its common stock
from the selling stockholders.
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2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements have been prepared in accordance with the accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Adjustment to Prior Period Financial Statements
The Company has adjusted the accompanying December 31, 2018 balance sheet to increase each of the accounts receivable and accrued
liabilities balances by $1,860,000 to correct for an immaterial prior year error in the classification of provisions for returns from customers.
Principles of Consolidation
As of December 31, 2017, the consolidated financial statements of the Company include the accounts of Silk Road Medical, Inc. and its
consolidated variable interest entity (“VIE”). Disclosure regarding the Company’s participation in the VIE is included in Note 12, “Variable Interest
Entity – NeuroCo”. On December 17, 2018, the Company acquired all assets and assumed all liabilities of its VIE. All intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts and disclosures reported in the financial statements. Management uses judgment when making estimates related to provisions for
accounts receivable and excess and obsolete inventories, the valuation of deferred tax assets, the reserves for sales returns, stock-based
compensation, and for periods prior to the Company's IPO, the valuation of common stock and redeemable convertible preferred stock warrants.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in
the future, actual results may ultimately differ from these estimates and assumptions.
Fair Value of Financial Instruments
The Company has evaluated the estimated fair value of its financial instruments as of December 31, 2019 and 2018. The carrying amounts of
certain of the Company’s financial instruments, which include cash equivalents, short-term investments, long-term investments, restricted cash,
accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the short-term nature of these
instruments. Management believes that its long-term debt bears interest at the prevailing market rates for instruments with similar characteristics
(Level 2 within the fair value hierarchy); accordingly, the carrying value of this instrument approximates its fair value. Prior to the Company's IPO,
fair value accounting was applied to the redeemable convertible preferred stock warrant liability.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash
equivalents. Cash equivalents are considered available-for-sale marketable securities and are recorded at fair value, based on quoted market
prices. As of December 31, 2019 and 2018, the Company’s cash equivalents are entirely comprised of investments in money market funds.
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total
of the same amounts shown in the statements of cash flows (in thousands):
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
December 31,
2019
2018
$
$
39,181 $
310
39,491 $
24,990
310
25,300
Restricted cash as of December 31, 2019 and 2018 consists of a letter of credit of $310,000 representing collateral for the Company’s facility
lease.
Investments
Short-term investments consist of debt securities classified as available-for-sale and have original maturities greater than 90 days, but less than
one year as of the balance sheet date. Long-term investments have maturities greater than one year as of the balance sheet date. All investments
are recorded at fair value based on the fair value hierarchy. Money market funds are classified within Level 1 of the fair value hierarchy, and
commercial paper, corporate bonds/notes, United States Government securities, and asset-backed securities are classified within Level 2 of the
fair value hierarchy. Unrealized gains and losses, deemed temporary in nature, are reported as a separate component of accumulated other
comprehensive income (loss). The cost of available-for-sale investments sold is based on the specific-identification method. Realized gains and
losses are included in earnings, and are derived for specific-identification method for determining the costs of investments sold. Amortization of
premiums and accretion of discounts are reported as a component of interest income.
A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the corresponding
establishment of a new cost basis for the investment.
Concentration of Credit Risk, and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, investments and accounts
receivable to the extent of the amounts recorded on the balance sheet. Cash, cash equivalents, and investments are deposited in financial
institutions which, at times, may be in excess of federally insured limits. Cash equivalents are invested in highly rated money market funds. The
Company invests in a variety of financial instruments, such as, but not limited to, commercial paper, corporate bonds/notes, United States
Government securities, asset-backed securities and, by policy, limits the amount of credit exposure with any one financial institution or commercial
issuer. The Company has not experienced any material losses on its deposits of cash and cash equivalents or investments during the years
ended December 31, 2019 and 2018.
The Company’s accounts receivable are due from a variety of health care organizations in the United States. At December 31, 2019 and 2018, no
customer represented 10% or more of the Company’s accounts receivable. For the years ended December 31, 2019 and 2018, there were no
customers that represented 10% or more of revenue.
The Company provides for uncollectible amounts when specific credit problems are identified. In doing so, the Company analyzes historical bad
debt trends, customer credit worthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of
the allowance for doubtful accounts.
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The Company manufactures certain of its commercial products in-house. Certain of the Company’s product components and sub-assemblies
continue to be manufactured by sole suppliers, the most significant of which is the ENROUTE stent. Disruption in component or sub-assembly
supply from these manufacturers or from in-house production would have a negative impact on the Company’s financial position and results of
operations.
The Company is subject to certain risks, including that its devices may not be approved or cleared for marketing by governmental authorities or be
successfully marketed. There can be no assurance that the Company’s products will achieve widespread adoption in the marketplace, nor can
there be any assurance that existing devices or any future devices can be developed or manufactured at an acceptable cost and with appropriate
performance characteristics. The Company is also subject to risks common to companies in the medical device industry, including, but not limited
to, new technological innovations, dependence upon third-party payers to provide adequate coverage and reimbursement, dependence on key
personnel and suppliers, protection of proprietary technology, product liability claims, and compliance with government regulations.
Existing or future devices developed by the Company may require approvals or clearances from the FDA or international regulatory agencies. In
addition, in order to continue the Company’s operations, compliance with various federal and state laws is required. If the Company were denied
or delayed in receiving such approvals or clearances, it may be necessary to adjust operations to align with the Company’s currently approved
portfolio. If clearance for the products in the current portfolio were withdrawn by the FDA, this would have a material adverse impact on the
Company.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company estimates allowances for doubtful
accounts. Specifically, the Company makes estimates on the collectability of customer accounts based primarily on analysis of historical trends
and experience and changes in customers’ financial condition. The Company uses its judgment, based on the best available facts and
circumstances, and records an allowance against amounts due to reduce the receivable to the amount that is expected to be collected. These
specific allowances are reevaluated and adjusted as additional information is received that impacts the amount reserved. During the years ended
December 31, 2019 and 2018, the Company did not experience any material credit-related losses.
Inventories
Inventories are valued at the lower of cost to purchase or manufacture the inventory or net realizable value. Cost is determined using the first-in,
first-out method for all inventories. Net realizable value is determined as the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal and transportation. The Company regularly reviews inventory quantities in consideration of
actual loss experiences, projected future demand, and remaining shelf life prior to sale to record a provision for excess and obsolete inventory
when appropriate. The Company’s policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its
expected lower of cost or net realizable value, and inventory in excess of expected requirements. The estimate of excess quantities is judgmental
and primarily dependent on the Company’s estimates of future demand for a particular product. If the estimate of future demand is too high, the
Company may have to increase the reserve for excess inventory for that product and record a charge to the cost of goods sold.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation or amortization. Repairs and maintenance costs are expensed as
incurred. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, typically three
to five years. Leasehold
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improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful economic life of the asset. When
assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or
loss is reflected in operations in the period realized.
Deferred Public Offering Costs
Specific incremental legal, accounting and other fees and costs directly attributable to a proposed or actual offering of securities may properly be
deferred and charged against the gross proceeds of the offering. As of December 31, 2018, there were $950,000 of offering costs primarily
consisting of legal and accounting fees that were capitalized in other non-current assets on the balance sheet of which $233,000 had been paid.
No deferred offering costs were capitalized as of December 31, 2019.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully recoverable. If indicators of impairment exist, an impairment loss
would be recognized when estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition
are less than their carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of the long-lived assets exceeds
their fair value. The Company did not record any impairment of long-lived assets during the years ended December 31, 2019 and 2018.
Leases
The Company adopted Accounting Standards Codification (“ASC”) 842, "Leases," on January 1, 2019 and used the modified retrospective
method for all leases not substantially completed as of the date of adoption and the package of practical expedients available in the standard. As
a result of adopting ASC 842, the Company recorded an operating lease right-of-use ("ROU") asset of $3,982,000 included within other non-
current assets and operating lease liabilities of $5,190,000 included within accrued liabilities and other liabilities on the balance sheet related to its
facility lease, based on the present value of the future lease payments on the date of adoption. The operating lease right-of-use asset also
includes adjustments for prepayments and excludes lease incentives. The adoption did not have an impact on prior periods or on the Company's
statements of operations and comprehensive loss.
The disclosure impact of the adoption of ASC 842 on the balance sheet was as follows (in thousands):
Balance Sheet:
Other non-current assets
Accrued liabilities
Other liabilities
Balance at December
31, 2018
Adjustments Due to
ASC 842
Balance at January 1,
2019
$
— $
139
1,069
3,982 $
582
3,400
3,982
721
4,469
The Company considers if an arrangement is a lease at inception if it obtains the right to control the use of an identified asset under a leasing
arrangement with an initial term greater than twelve months. The Company determines whether a contract conveys the right to control the use of
an identified asset for a period of time if the contract contains both the right to obtain substantially all of the economic benefits from the use of the
identified asset and the right to direct the use of the identified asset. The Company also evaluates the nature of each lease to determine whether it
is an operating or financing lease and recognizes the right-of-use asset and lease liabilities based on the present value of future minimum lease
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payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses
the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the
present value of its lease payments. The Company’s considers renewal options in the determination of the lease term if the option to renew is
reasonably certain. Variable lease costs represent payments that are dependent on usage, a rate or index. Variable lease costs, which consists
primarily of taxes, insurance and common area maintenance costs, are expensed as incurred, as the Company has elected to account separately
for contracts that contain lease and non-lease components, consistent with its historical practice. The Company does not have any finance leases.
Redeemable Convertible Preferred Stock Warrant Liability
Prior to its IPO, the Company accounted for its warrants for shares of redeemable convertible preferred stock as a liability based upon the
characteristics and provisions of each instrument. Redeemable convertible preferred stock warrants classified as a liability were initially recorded
at their fair value on the date of issuance and are subject to remeasurement at each subsequent balance sheet date. Any change in fair value as
a result of a remeasurement was recognized as a component of other income (expense), net in the statements of operations and comprehensive
loss. The Company recorded adjustments to the estimated fair value of the redeemable convertible preferred stock warrants until they were
exercised. Upon their exercise, the final fair value of the warrant liability was reclassified to stockholders’ equity (deficit). Subsequent to its IPO,
the Company no longer recorded any related periodic fair value adjustments.
Redeemable Convertible Preferred Stock
Prior to its IPO, the Company recorded its redeemable convertible preferred stock at fair value on the dates of issuance, net of issuance costs,
and classified the redeemable convertible preferred stock outside of stockholders’ equity (deficit) on the balance sheet as events triggering the
liquidation preferences were not solely within the Company’s control. Upon the closing of the Company's IPO, all shares of convertible preferred
stock then outstanding converted into an aggregate of 23,178,555 shares of common stock resulting in the reclassification of $144,140,000 from
outside of stockholders’ equity (deficit) to additional paid-in capital.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers,” using the modified retrospective method
applied to contracts which were not completed as of that date. Under ASC 606, revenue is recognized when a customer obtains control of
promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or
services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs
the following five steps:
(i)
(ii)
(iii)
(iv)
(v)
identify the contract(s) with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to the performance obligations in the contract; and
recognize revenue when (or as) the entity satisfies a performance obligation.
Under ASC 606, assuming all other revenue recognition criteria have been met, the Company will recognize revenue earlier for arrangements
where the Company has satisfied its performance obligations
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but have not issued invoices. As of December 31, 2019 and 2018, the Company recorded $102,000 and $128,000, respectively, of unbilled
receivables, which are included in accounts receivable, net on the balance sheet, as the Company has an unconditional right to payment as of the
end of the applicable period.
The Company’s revenue is generated from the sale of its products to hospitals and medical centers in the United States through direct sales
representatives. Revenue is recognized when obligations under the terms of a contract with customers are satisfied, which occurs with the
transfer of control of the Company’s products to its customers, either upon shipment of the product or delivery of the product to the customer
under the Company’s standard terms and conditions. The Company’s products are readily available for usage as soon as the customer
possesses it. Upon receipt, the customer controls the economic benefits of the product, has significant risks and rewards, and the legal title. The
Company has present right to payment; therefore, the transfer of control is deemed to happen at a point in time. Revenue is measured as the
amount of consideration the Company expects to receive in exchange for transferring the goods.
For sales where the Company’s sales representative hand delivers product directly to the hospital or medical center from the sales
representative’s trunk stock inventory, the Company recognizes revenue upon delivery, which represents the point in time when control transfers
to the customer. Upon delivery there are legally-enforceable rights and obligations between the parties which can be identified, commercial
substance exists and collectibility is probable. For sales which are sent directly from the Company to hospitals and medical centers, the transfer of
control occurs at the time of shipment or delivery of the product. There are no further performance obligations by the Company or the sales
representative to the customer after delivery under either method of sale. As allowed under the practical expedient, the Company does not
disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for
which it recognizes revenue at the amount to which it has the right to invoice for services performed.
The Company is entitled to the total consideration for the products ordered by customers as product pricing is fixed according to the terms of
customer contracts and payment terms are short. Payment terms fall within the one-year guidance for the practical expedient which allows the
Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The
Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction
price.
Costs associated with product sales include commissions and royalties. The Company applies the practical expedient and recognizes
commissions and royalties as expense when incurred because the expense is incurred at a point in time and the amortization period is less than
one year. Commissions are recorded as selling expense and royalties are recorded as cost of revenue in the statements of operations and
comprehensive loss.
The Company accepts product returns at its discretion or if the product is defective as manufactured. The Company establishes estimated
provisions for returns based on historical experience and considers other factors that it believes could significantly impact its expected returns,
which provisions are classified within accrued liabilities on our balance sheet. The Company elected to expense shipping and handling costs as
incurred and includes them in the cost of goods sold. In those cases where the Company bills shipping and handling costs to customers, it will
classify the amounts billed as a component of revenue.
Cost of Goods Sold
The Company manufactures certain of its portfolio of TCAR products at its facility and purchases other products from third party manufacturers.
Cost of goods sold consists primarily of costs related to
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materials, components and subassemblies, manufacturing overhead costs, direct labor, reserves for excess, obsolete and non-sellable inventories
as well as distribution-related expenses. A significant portion of the Company’s cost of goods sold currently consists of manufacturing overhead
costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations
supervision and management. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as
shipping costs and royalties.
Research and Development
The Company expenses research and development costs as incurred. Research and development expenses consist primarily of engineering,
product development, clinical studies to develop and support the Company’s products, regulatory expenses, medical affairs and other costs
associated with products and technologies that are in development. Research and development expenses include employee compensation,
including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility
overhead expenses. Additionally, research and development expenses include costs associated with our clinical studies including clinical trial
design, clinical site reimbursement, data management, travel expenses and the cost of products used for clinical trials and internal and external
costs associated with the Company’s regulatory compliance and quality assurance functions, including the costs of outside consultants and
contractors that assist in the process of submitting and maintaining regulatory filings, and overhead costs.
Clinical Trials
The Company accrues and expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and
other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated
agreements. The Company determines these accruals through discussion with internal personnel and outside service providers as to progress or
stage of completion of trials or services pursuant to contracts with clinical research organizations and other service providers and the agreed-upon
fee to be paid for such services.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs include design and production costs, including website development,
physician and patient testimonial videos, written media campaigns, and other items. Advertising costs of $362,000 and $186,000 were expensed
during the years ended December 31, 2019 and 2018, respectively.
Foreign Currency
The Company records net gains and losses resulting from foreign exchange transactions as a component of foreign currency exchange gains or
losses in other income (expense), net. The Company had no material foreign currency exchange gains or losses during the years ended
December 31, 2019 and 2018.
Stock–Based Compensation
The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) ASC
718, “Compensation-Stock Compensation.” ASC 718 requires the recognition of compensation expense, using a fair-value based method, for
costs related to all share-based payments including stock options. ASC 718 requires companies to estimate the fair value of all share-based
payment option awards on the date of grant using an option pricing model. The fair value of stock options is recognized over the period during
which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting
period), on a
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straight-line basis. For performance-based stock options, the Company will assess the probability of performance conditions being achieved in
each reporting period. The amount of stock-based compensation expense recognized in any one period related to performance-based stock
options can vary based on the achievement or anticipated achievement of the performance conditions.
In March 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-09, “Stock Compensation (Topic 718): Improvements to
Employee Shared-Based Payment Accounting.” Under ASU 2016-09, entities are permitted to make an accounting policy election to either
estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. The Company made an
accounting policy election to account for forfeitures as they occur. This change has been applied on a modified retrospective basis, resulting in a
cumulative-effect adjustment to increase the beginning accumulated deficit by $13,000 as of January 1, 2018, the date of adoption.
Income Taxes
The Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
The Company also follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes.” ASC 740-10 prescribes a comprehensive
model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken
or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded on the financial statements. It is the Company’s
policy to include penalties and interest expense related to income taxes as part of the provision for income taxes.
Comprehensive Loss
Comprehensive loss consists of net loss and changes in unrealized gains and losses on investments classified as available-for-sale. For the year
ended December 31, 2019, the Company’s unrealized gains and losses on available-for-sale investments represent the only component of other
comprehensive loss that are excluded from the reported net loss and that are presented in the statements of operations and comprehensive
income. Accumulated other comprehensive loss is presented in the accompanying balance sheets as a component of stockholders' equity
(deficit). For the year ended December 31, 2018, there was no difference between the Company's comprehensive loss and its net loss.
Net Loss per Share Attributable to Common Stockholders
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of
common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share is computed
by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and potentially dilutive
securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock and
warrants, and common stock options are considered to be potentially dilutive securities. Since the Company was in a loss position for all periods
presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential dilutive common shares would have
been anti-dilutive.
The Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. The
shares of the Company’s redeemable convertible preferred
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stock participate in any dividends declared by the Company and are therefore considered to be participating securities.
Net loss per share was determined as follows (in thousands, except share and per share data):
Net loss attributable to Silk Road Medical, Inc. common stockholders
Weighted average common stock outstanding used to compute net loss per share, basic and diluted
Net loss per share attributable to Silk Road Medical, Inc. common stockholders, basic and diluted
Year Ended December 31,
2019
2018
$
$
(52,415) $
22,956,679
(2.28) $
(37,629)
960,882
(39.16)
The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding
because such securities have an antidilutive impact due to the Company’s net loss:
Redeemable convertible preferred stock outstanding
Redeemable convertible preferred stock warrants outstanding
Common stock options
Common stock warrants outstanding
Total
Segment and Geographical Information
December 31,
2019
—
—
4,310,790
—
4,310,790
2018
21,233,190
2,672,502
4,364,377
7,527
28,277,596
The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the
chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial
performance. All of the Company’s long-lived assets are based in the United States. Long-lived assets are comprised of property and equipment.
All of the Company’s revenue was in the United States for the years ended December 31, 2019 and 2018, based on the shipping location of the
external customer.
3. Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, "Leases," that supersedes ASC 840, "Leases." Subsequently, the FASB issued several
updates to ASU No. 2016-02, codified in ASC Topic 842 (“ASC 842”). The Company adopted ASC 842 on January 1, 2019 using the modified
retrospective method for all leases not substantially completed as of the date of adoption. The Company elected to apply the package of practical
expedients, which allowed the Company to not reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any
expired or existing leases; and (iii) initial direct costs for any existing lease.
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Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Statements. This update provides financial statement
users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit
held by a reporting entity at each reporting date. The update replaces the incurred loss impairment methodology in current GAAP with a
methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
inform credit loss estimates. ASU 2016-13 became effective for the Company on January 1, 2020. The Company does not believe that the
adoption of this new guidance will have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which changed the disclosure requirements for fair value
measurements by removing, adding and modifying certain disclosures. ASU 2018-13 became effective for the Company on January 1, 2020. The
Company does not believe that the adoption of this new guidance will have a material impact on its financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Cloud Computing Arrangements, which aligns the requirements for capitalizing implementation
costs in a Cloud Computing Arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use
software license. ASU 2018-15 became effective for the Company on January 1, 2020. The Company does not believe that the adoption of this
new guidance will have a material impact on its financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and
simplifies various aspects of the income tax accounting guidance related to intraperiod tax allocation, interim period accounting for enacted
changes in tax law, and the year-to-date loss limitation in interim period tax accounting. ASU 2019-12 also amends other aspects of the guidance
to reduce complexity in certain areas. ASU 2019-12 will become effective for the Company on January 1, 2021. Early adoption is permitted. The
Company is evaluating the impact of adopting this guidance to its financial statements and related disclosures.
4. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, investments, and the
Company's previously outstanding preferred stock warrants. Fair value is an exit price, representing the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is
established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
•
•
•
Level 1 – quoted prices in active markets are identical assets and liabilities;
Level 2 – observable inputs other than quotes prizes in active markets for identical assets and liabilities;
Level 3 – unobservable inputs.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
management to make judgments and consider factors specific to the asset or liability. The Company’s cash equivalents are classified within
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Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources
with reasonable levels of price transparency. The corporate bonds/notes, commercial paper, asset-backed securities and U.S. government
securities are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable
in the market or can be corroborated by observable market data for substantially the full term of the assets.
The following tables sets forth by level within the fair value hierarchy the Company’s assets and liabilities that are reported at fair value as of
December 31, 2019 and 2018, using the inputs defined above (in thousands):
Assets:
Money market funds
Commercial paper
Corporate bonds/notes
U.S. government securities
Asset-backed securities
Assets:
Money market funds
Liabilities:
Redeemable convertible warrant liability
Level 1
Level 2
Level 3
Total
December 31, 2019
$
$
$
$
34,363 $
—
—
—
—
34,363 $
— $
9,919
10,176
44,456
5,181
69,732 $
— $
—
—
—
—
— $
34,363
9,919
10,176
44,456
5,181
104,095
Level 1
Level 2
Level 3
Total
December 31, 2018
10,495 $
— $
— $
10,495
— $
— $
16,091 $
16,091
As a derivative liability, the redeemable convertible warrants were initially recorded at fair value and were subject to remeasurement at each
balance sheet date. Any change in fair value as a result of a remeasurement was recognized as a component of other income (expense), net in
the statements of operations and comprehensive loss. The Company’s redeemable convertible warrant liability was classified within Level 3 of the
fair value hierarchy.
At December 31, 2018, the fair value of the redeemable convertible warrant liability was determined by using an option pricing model to allocate
the total enterprise value to the various securities within the Company’s capital structure. The fair value of the redeemable convertible warrant
liability was based on both the estimated fair value of the Company’s common stock of $11.29 as of December 31, 2018 and on valuation models
discounted at current implied market rates which are based on Level 3 inputs.
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Additionally, the model’s inputs reflected assumptions that market participants would use in pricing the instrument in a current period transaction
and included:
Time to liquidity (years)
Expected volatility
Discounted cash flow rate
Risk-free interest rate
Marketability discount rate
December 31,
2018
0.57
62.5%
12.0%
2.6%
14%
The final fair value of the redeemable convertible warrants was remeasured on the date of the Company's initial public offering in April 2019. The
final fair value of the redeemable convertible warrant liability was based on the fair value of the Company's common stock at the time of its initial
public offering. The following table provides a reconciliation of the beginning and ending balances of the Company's redeemable convertible
warrant liability are summarized below (in thousands):
Fair value at December 31, 2017
Change in fair value recorded in other income (expense), net
Fair value at December 31, 2018
Change in fair value recorded in other income (expense), net
Reclassification upon IPO
Fair Value at December 31, 2019
$
$
4,185
11,906
16,091
21,030
(37,121)
—
There were no transfers between fair value hierarchy levels during the years ended December 31, 2019 and 2018.
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5. Balance Sheet Components
Investments
The fair value of the Company's available-for-sale investments as of December 31, 2019 are as follows (in thousands):
Amortized Cost
Gains
Losses
December 31, 2019
Gross Unrealized
Estimated
Fair Value
Money market funds
Commercial paper
Corporate bonds/notes
U.S. government securities
Asset-backed securities
Classified as:
Cash equivalents
Short-term investments
Long-term investments
$
$
34,363 $
9,919
10,180
44,450
5,181
104,093 $
— $
—
—
9
—
9 $
— $
—
(4)
(3)
—
(7) $
$
$
34,363
9,919
10,176
44,456
5,181
104,095
34,363
51,508
18,224
104,095
The following table summarizes the fair value of the Company’s cash equivalents, short-term and long-term investments classified by maturity as
of December 31, 2019 (in thousands):
Amounts maturing within one year
Amounts maturing after one year through two years
December 31,
2019
$
$
85,871
18,224
104,095
Available-for-sale investments held as of December 31, 2019 had a weighted average days to maturity of 291 days.
The following table presents the Company's available-for-sale investments that were in an unrealized loss position as of December 31, 2019 (in
thousands):
Assets:
Corporate bonds/notes
U.S. government securities
December 31, 2019
Less than 12 months
Fair Value
Unrealized Loss
$
$
10,128 $
19,067
29,195 $
(4)
(3)
(7)
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Inventories
Components of inventories were as follows (in thousands):
Raw materials
Finished products
As of December 31, 2019 and 2018, there were no work-in-process inventories.
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Furniture and fixtures
Equipment
Software
Leasehold improvements
Less: Accumulated depreciation and amortization
Add: Construction-in-progress
December 31,
2019
2018
$
$
1,203 $
9,119
10,322 $
1,054
4,690
5,744
December 31,
2019
2018
$
657 $
1,295
18
1,991
3,961
(1,550)
323
$
2,734 $
517
1,217
76
1,978
3,788
(946)
38
2,880
Depreciation and amortization expense was $712,000 and $517,000 for the years ended December 31, 2019 and 2018, respectively.
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Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
Accrued payroll and related expenses
Provision for sales returns
Accrued professional services
Operating lease liability
Accrued royalty expense
Deferred revenue
Accrued travel expenses
Accrued clinical expenses
Accrued other expenses
6. Long-term Debt
December 31,
2019
2018
$
9,151 $
2,419
682
769
470
304
431
241
567
$
15,034 $
5,157
1,862
1,014
—
313
137
270
244
451
9,448
In October 2015, the Company entered into a term loan agreement with Capital Resource Group ("CRG"). The term loan agreement provides for
up to $30,000,000 in term loans split into two tranches as follows: (i) the Tranche A Loans provided for $20,000,000 in term loans, and (ii) the
Tranche B Loans provided for up to $10,000,000 in term loans. The Company drew down the Tranche A Loans on October 13, 2015. The Tranche
B Loans were available to be drawn prior to March 29, 2017. In January 2017, the term loan agreement was amended to extend the commitment
period of the Tranche B Loans to April 28, 2017. In April 2017, the Company drew down $5,000,000 of the available Tranche B Loans.
In September 2018, the Company entered into Amendment No. 5 to the term loan agreement with CRG. Under the amended terms of the
amended loan agreement the maturity date was extended to December 31, 2022 and the repayment schedule of the existing term loans were
changed to interest only so that the outstanding principal amount of the term loans will be payable in a single installment at maturity. The related
fixed interest rate was changed to equal 10.75% per annum, due and payable quarterly in arrears. At the election of the Company, 2.75% of the
interest due and payable may be “paid in kind” and added to the then outstanding principal and 8.0% of the interest due and payable paid in cash.
All unpaid principal, and accrued and unpaid interest, is due and payable in full on December 31, 2022. The amended term loan agreement also
provided for additional term loans in an aggregate principal amount of up to $25,000,000 and allowed for the conversion into shares of common
stock, at the Company’s option, of up to 25% of the outstanding loans under the term loan agreement in connection with an initial public offering of
the Company’s common stock which results in market capitalization of at least $250,000,000. In September 2018, the Company drew down an
additional $15,000,000 under the term loan agreement with CRG.
In June 2019, the Company entered into Amendment No. 7 to the term loan agreement with CRG to reflect flexibility with respect to permitted
cash investments.
The Company may voluntarily prepay the borrowings in full. The Tranche A borrowing required a payment, on the borrowing date, of a financing
fee equal to 1.75% of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee equal to 5.0% of the
amounts borrowed plus any “paid in kind” is payable at the end of the term or when the borrowings are repaid in full. A long-term
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liability is being accreted using the effective interest method for the facility fee over the term of the loan agreement. The borrowings are
collateralized by a security interest in substantially all of the Company’s assets.
The Company is subject to financial covenants related to liquidity and minimum trailing revenue targets that begin in December 31, 2016 and are
tested on an annual basis. The liquidity covenant requires the Company to maintain an amount which shall exceed the greater of (i) $3,000,000
and (ii) the minimum cash balance, if any, required of the Company by a creditor to the extent the Company has incurred permitted priority debt.
The Company had to achieve minimum net revenue of $1,000,000 in 2016, $5,000,000 in 2017, $15,000,000 in 2018, and must achieve minimum
net revenue of $30,000,000 in 2019 and $40,000,000 in 2020. The liquidity financial covenant has a 90-day equity cure period following end of the
calendar year to issue additional shares of equity interests in exchange for cash, or to borrow permitted cure debt. In addition, the term loan
agreement prohibits the payment of cash dividends on the Company’s capital stock and also places restrictions on mergers, sales of assets,
investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG may accelerate the payment terms of the term
loan agreement upon the occurrence of certain events of default set forth therein, which include the failure of the Company to make timely
payments of amounts due under the term loan agreement, the failure of the Company to adhere to the covenants set forth in the term loan
agreement, the insolvency of the Company or upon the occurrence of a material adverse change. As of December 31, 2019, the Company was in
compliance with all applicable financial covenants. As of December 31, 2019, management does not believe that it is probable that the above
clauses will be triggered within the next twelve months, therefore, the debt is classified as long-term on the balance sheet.
Future maturities under the term loan agreement as of December 31, 2019 are as follows (in thousands):
Year Ending December 31:
2020
2021
2022
Add: Accretion of closing fees
Less: Amount representing interest
Less: Amount representing debt discount and debt issuance costs
Present value of minimum payments
Amount
4,454
4,442
48,256
57,152
1,205
58,357
(13,339)
(139)
44,879
$
$
In October 2015, CRG purchased 327,759 shares of the Company’s Series C redeemable convertible preferred stock at $6.11 per share. In
addition, CRG received warrants to purchase 163,877 shares of the Company’s Series C redeemable convertible preferred stock at an exercise
price of $6.11 per share. Upon the closing of the IPO, the warrants were net exercised, based on the IPO price of $20.00 per share, into shares of
common stock.
In July 2017, CRG purchased 163,877 shares of the Company’s Series C convertible preferred stock at $6.11 per share.
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7. Commitments and Contingencies
Operating Lease and Rights of Use
The Company’s operating lease obligation consists of leased office, laboratory, and manufacturing space under a non-cancellable operating lease
that expires in October 2024. The lease agreement includes a renewal provision allowing the Company to extend this lease for an additional
period of five years. Operating lease costs were $870,000 for the year ended December 31, 2019. Cash paid for amounts included in the
measurement of operating lease liabilities was $721,000 for the year ended December 31, 2019. As of December 31, 2019, the weighted average
discount rate was approximately 6.50% and the weighted average remaining lease term was 4.83 years. Balance sheet information as of
December 31, 2019 consists of the following (in thousands):
Operating Lease:
Operating lease right-of-use asset in other non-current assets
Operating lease liability in accrued liabilities
Operating lease liability in other liabilities
Total operating lease liabilities
The following table summarizes the Company's operating lease maturities as of December 31, 2019 (in thousands):
Year Ending December 31:
2020
2021
2022
2023
2024
Total lease payments
Less: imputed interest
Present value of lease liabilities
December 31, 2019
Amount
3,400
769
3,700
4,469
1,037
1,066
1,096
1,127
904
5,230
(761)
4,469
$
$
$
$
$
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The aggregate future minimum lease payments under ASC 840 as of December 31, 2018 were as follows (in thousands):
Year Ending December 31:
2019
2020
2021
2022
2023 and thereafter
Purchase Obligations
Total Minimum
Lease Payments
$
$
1,002
1,002
1,031
1,044
1,920
5,999
Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31,
2019, the Company had non-cancellable purchase obligations to suppliers of $7,097,000.
Indemnification
In the normal course of business, the Company enters into contracts and agreements with suppliers and other parties that contain a variety of
representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is
unknown because it involves claims that may be made against it in the future but have not yet been made. To date, the Company has not been
subject to any claims or been required to defend any action related to its indemnification obligations.
The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director is or was
serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and
bylaws. The term of the indemnification period lasts as long as a director may be subject to any proceeding arising out of acts or omissions of
such director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds
director liability insurance. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has
not recognized any liabilities relating to these obligations as of December 31, 2019.
Contingencies
The Company is not involved in any pending legal proceedings that it believes could have a material adverse effect on its financial condition,
results of operations or cash flows. From time to time, the Company may pursue litigation to assert its legal right and such litigation may be costly
and divert the efforts and attention of its management and technical personnel which could adversely affect its business. The Company accrues a
liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There
were no contingent liabilities requiring accrual at December 31, 2019 and 2018.
Legal Matters
In February 2019, a former employee, through counsel, advised the Company that he had filed a charge of discrimination against the Company
with the California Department of Fair Employment & Housing, or
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DFEH. The former employee’s complaint alleged sexual harassment and retaliation in violation of the California Department of Fair Employment &
Housing Act. The complaint did not allege specific damages. The Company and the former employee participated in mediation on July 30, 2019
and reached a settlement that required the Company to pay an amount that was not material to its financial statements, which amount was fully
paid as of December 31, 2019.
8. Redeemable Convertible Preferred Stock
The Company had the following redeemable convertible preferred stock issued and outstanding at December 31, 2018 (in thousands except
share amounts):
Series
Series A
Series A-1
Series B
Series C
Shares
Authorized
Shares Issued and
Outstanding
Per share
Preference
Preferential
Liquidation Value (in
thousands)
Carrying Value (in
thousands)
1,629,629
1,111,111
6,264,470
15,064,405
24,069,615
1,629,626 $
1,111,109 $
6,264,463 $
12,227,992 $
21,233,190
2.70 $
3.38
6.11
6.11
4,400 $
3,755
38,276
74,713
4,369
3,723
38,014
59,129
$
121,144 $
105,235
Upon the closing of the IPO, all shares of redeemable convertible preferred stock then outstanding converted into shares of common stock. As of
December 31, 2019, the Company does not have any redeemable convertible preferred stock issued or outstanding.
Redeemable Convertible Preferred Stock Warrants
Upon the closing of the IPO, all of the outstanding redeemable convertible preferred stock warrants were exercised, or net exercised based on the
IPO price of $20.00 per share, into 1,945,365 shares of common stock. As of December 31, 2019 and 2018, warrants to purchase an aggregate
of 0 and 2,672,502, respectively, shares of Series C redeemable convertible preferred stock were outstanding.
9. Stockholders' Equity (Deficit)
Preferred Stock
At December 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 5,000,000
shares of preferred stock with $0.001 par value per share, of which no shares were issued and outstanding.
Common Stock
At December 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue up to 100,000,000
shares of common stock with $0.001 par value per share, of which 31,255,267 shares were issued and outstanding. The holders of common stock
are also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors. As of December 31,
2019, no dividends have been declared to date. Each share of common stock is entitled to one vote.
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At December 31, 2019 and 2018, the Company had reserved common stock for future issuances as follows:
Conversion of Series A redeemable convertible preferred stock
Conversion of Series A-1 redeemable convertible preferred stock
Conversion of Series B redeemable convertible preferred stock
Conversion of Series C redeemable convertible preferred stock and warrants
Exercise of options under stock plan
Issuance of options under stock plan
Issuance of common stock under employee stock purchase plan
Warrants to purchase common stock
Common Stock Warrants
December 31,
2019
—
—
—
—
4,310,790
1,554,690
372,352
—
6,237,832
2018
1,629,629
1,111,111
6,264,470
15,064,405
4,364,377
57,889
—
7,527
28,499,408
In connection with the IPO, the common stock warrants were cash, or net exercised based on the IPO price of $20.00 per share into 5,968 shares
of common stock. As of December 31, 2019 and 2018, warrants to purchase an aggregate of 0 and 7,527 shares of common stock were
outstanding.
10. Stock Option Plans
In 2007, the Company established its 2007 Stock Option Plan which provided for the granting of stock options to employees, directors and
consultants of the Company. In connection with its acquisition of NeuroCo in December 2018, the Company also assumed NeuroCo’s 2015 Equity
Incentive Plan. In March 2019, the Company's Board of Directors approved the termination of the 2007 Stock Option Plan and the NeuroCo 2015
Equity Incentive Plan and the adoption of the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective immediately prior to the
Company's IPO. The 2019 Plan provides for the grant of ISOs to employees and for the grant of NSOs, restricted stock, restricted stock units,
stock appreciation rights, performance units and performance shares to employees, directors and consultants. A total of 2,317,000 shares of
common stock were initially reserved for issuance pursuant to the 2019 Plan. In addition, the shares reserved for issuance under the 2019 Plan
will also include shares reserved but not issued under the 2007 Stock Option Plan, plus any share awards granted under the 2007 Stock Option
Plan that expire or terminate without having been exercised in full or that are forfeited or repurchased. In addition, the number of shares available
for issuance under the 2019 Plan will also include an annual increase on the first day of each fiscal year beginning in fiscal 2020, equal to the
lesser of (i) 3,000,000 shares; (ii) 4.0% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or
(iii) an amount as determined by the Board of Directors. As of December 31, 2019, the Company has reserved 2,366,251 shares of common stock
for issuance under the 2019 Plan.
The exercise price of ISOs and NSOs shall not be less than 100% and 85% of the estimated fair value of the shares on the date of grant,
respectively, as determined by the Board of Directors. The exercise price of ISOs and NSOs granted to a 10% stockholder shall not be less than
110% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors. To date, options have a term of ten
years and generally vest over 4 years from date of grant.
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Activity under the Company’s 2007 Stock Option Plan, NeuroCo 2015 Equity Incentive Plan and 2019 Plan is set forth below:
Shares Available
for Grant
Number of Shares
Options Outstanding
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Term
(in Years)
Aggregate Intrinsic
Value (in
thousands)
Balances, December 31, 2017
Authorized
Options granted
Options exercised
Options cancelled
Balances, December 31, 2018
Authorized
Options granted
Options exercised
Options cancelled
Balances December 31, 2019
Vested and exercisable at December 31, 2019
Vested and expected to vest at December 31,
2019
328,290
223,664
(629,716)
—
135,651
57,889
2,317,000
(848,023)
—
27,824
1,554,690
4,308,890 $
3.09
7.81 $
5,073
629,716 $
(438,578) $
(135,651) $
4,364,377 $
848,023 $
(873,786) $
(27,824) $
4,310,790 $
2,514,891 $
6.51
1.50
1.56
3.79
22.77
1.77
8.71
7.91
4.27
7.36 $
33,132
7.27 $
6.38 $
140,234
90,854
4,310,790 $
7.91
7.27 $
140,234
The aggregate intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $24,867,000 and $787,000,
respectively. The aggregate intrinsic value was calculated as the difference between the exercise prices of the underlying options and the
estimated fair value of the common stock on the date of exercise. The weighted-average grant date fair value of options granted during the years
ended December 31, 2019 and 2018 was $10.17 and $2.93 per share, respectively. The total fair value of options vested during the years ended
December 31, 2019 and 2018 was $2,221,000 and $569,000, respectively, based on the grant date fair value.
The following table summarizes information about stock options outstanding and vested as of December 31, 2019:
Exercise Price
$1.35 - $3.16
$4.73 - $8.27
$11.29 - $20.00
$36.47 - $48.53
Options Outstanding
2,072,765
919,355
1,192,804
125,866
4,310,790
Options Outstanding
Weighted Average
Remaining
Contractual Term (in
Years)
Options Vested
Weighted Average
Exercise Price
Number Exercisable
Weighted Average
Exercise Price
5.86 $
8.23 $
8.73 $
9.69 $
7.27 $
1.84
5.81
16.63
40.50
7.91
1,770,060 $
383,077 $
352,383 $
9,371 $
2,514,891 $
1.71
5.72
14.46
45.57
4.27
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2019 Employee Stock Purchase Plan
In March 2019, the Company's Board of Directors adopted the 2019 Employee Stock Purchase Plan, or the 2019 ESPP, under which eligible
employees are permitted to purchase common stock at a discount through payroll deductions. A total of 434,000 shares of common stock are
reserved for issuance and will be increased on the first day of each fiscal year, beginning in 2020, by an amount equal to the lesser of
(i) 1,200,000 shares (ii) 1.0% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) an
amount as determined by the Board of Directors. The price of the common stock purchased will be the lower of 85% of the fair market value of the
common stock at the beginning of an offering period or at the end of a purchase period. The 2019 ESPP was effective upon adoption by the
Company's Board of Directors but was not in use until the completion of the Company's IPO in April 2019. The 2019 ESPP is intended to qualify
as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
As of December 31, 2019, 61,648 shares of common stock have been issued to employees participating in the 2019 ESPP and 372,352 shares
were available for future issuance under the 2019 ESPP.
Stock-Based Compensation
The Company estimated the fair value of stock options using the Black–Scholes option pricing model. The fair value of employee and
nonemployee stock options is being amortized on a straight–line basis over the requisite service period of the awards. The fair value of employee
and nonemployee stock options was estimated using the following assumptions for the years ended December 31, 2019 and 2018:
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend yield
Year Ended December 31,
2019
5.00 - 6.25
42.4% - 42.9%
1.47% - 2.54%
—%
2018
5.00 - 6.25
38.0% - 38.8%
2.68% - 2.98%
—%
Prior to completion of the Company's IPO, the fair value of common stock was determined by the Company’s Board of Directors, who considered,
among other things, contemporaneous valuations of the Company’s common stock prepared by an unrelated third-party valuation firm in
accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-
Company Equity Securities Issued as Compensation. For stock options granted after the completion of the IPO, the fair value of the underlying
common stock is based on the closing price of the Company's common stock on The NASDAQ Global Market on the date of grant. The expected
term of stock options represents the weighted-average period the stock options are expected to remain outstanding. The Company does not have
sufficient historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term of options and has
opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual
term of the option. The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the
Company does not have sufficient trading history for the Company’s common stock. The Company will continue to analyze the historical stock
price volatility and expected term assumption as more historical data for the Company’s common stock becomes available. The risk-free interest
rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.
The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.
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Effective January 1, 2018, the Company made an accounting policy election to account for forfeitures as they occur.
The fair value of the shares to be issued under the Company’s 2019 ESPP was estimated using the Black-Scholes valuation model with the
following assumptions for the year ended December 31, 2019:
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend yield
Year Ended
December 31,
2019
0.50 - 0.63
44.4% - 47.8%
1.58% - 2.45%
—%
Total stock-based compensation expense relating to the Company’s stock options and 2019 ESPP during the years ended December 31, 2019
and 2018, is as follows (in thousands):
Cost of goods sold
Research and development expenses
Selling, general and administrative expenses
Year Ended December 31,
2019
2018
$
$
179 $
426
2,372
2,977 $
51
256
604
911
As of December 31, 2019, there was total unrecognized compensation costs of $8,539,000 related to stock options, which are expected to be
recognized over a period of approximately 3.04 years and $219,000 related to the 2019 ESPP, which the Company will recognize over 0.39 years.
.
11. Income Taxes
The components of income before taxes are as follows (in thousands):
United States
International
Year Ended December 31,
2019
2018
$
$
(52,415) $
—
(52,415) $
(37,630)
—
(37,630)
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A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows (in thousands):
Tax at federal statutory rate
State taxes, net of federal benefit
Permanent differences
Loss on Series C warrant liability
Change in valuation allowance
General business credits
Other
Provision for income taxes
Year Ended December 31,
2019
2018
$
$
(11,007) $
(2,270)
(4,731)
5,330
12,797
(319)
208
8 $
(7,902)
(1,582)
289
2,500
6,197
136
376
14
The Company's provision for income taxes are included within other income (expense) on the statements of operations and comprehensive loss.
Significant components of the Company’s net deferred tax assets as of December 31, 2019 and 2018 consist of the following (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Research and development credits
Capitalized start-up costs/Intangibles
Accruals and reserves
Property and equipment
Stock-based compensation
Operating lease liability
Total deferred tax assets
Less: Valuation allowance
Deferred tax liabilities:
Operating lease asset
Total deferred tax liabilities
Net deferred tax assets
December 31,
2019
2018
$
44,574 $
5,287
11
2,227
188
568
1,133
53,988
(53,126)
(862)
(862)
$
— $
33,815
4,944
16
1,169
82
274
—
40,300
(40,300)
—
—
—
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management believes it is more likely than not that the deferred tax
assets will not be realized; accordingly, a valuation allowance has been established on U.S. net deferred tax assets. The valuation allowance
increased $12,826,000 during the year ended December 31, 2019 and increased by $6,197,000 during the year ended December 31, 2018.
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As of December 31, 2019, the Company had net operating loss carryforwards of approximately $167,948,000 and $148,380,000 for federal and
state income tax purposes, respectively. The federal and state net operating loss carryforwards begin to expire in 2027 and 2028, respectively.
Federal NOL carryforwards generated in tax years beginning in 2018 are not subject to expiration. Federal NOLs that arose on or after January 1,
2018 can be carried forward indefinitely against future income, but can only be used to offset a maximum of 80% of the Company's federal taxable
income in any year.
The federal and state net operating loss carryforwards may be subject to significant limitations under Section 382 and Section 383 of the Internal
Revenue Code and similar provisions under state law. Federal tax legislation enacted in December 2017, commonly known as the Tax Cuts and
Jobs Act, contains provisions that limit the federal net operating loss carryforwards that may be used in any given year in the event of special
occurrences, including significant ownership changes. A Section 382 “ownership change” generally occurs if one or more stockholders or groups
of stockholders, who own at least 5% of the Company’s stock, increase their ownership by more than 50 percentage points over their lowest
ownership percentage within a rolling three-year period. The Company may have previously experienced, and may in the future experience, one
or more Section 382 “ownership changes,” including in connection with the Company’s initial public offering. If so, the Company may lose some or
all of the tax benefits of its NOLs and tax credits. The extent of such limitations for prior years, if any, has not yet been formally determined.
At December 31, 2019, the Company had $4,320,000 and $2,860,000 of federal and state research and development credit carryforwards,
respectively. If not utilized, the federal credits will expire beginning in 2027. The California Research and Development credits can be carried
forward indefinitely.
As of December 31, 2019, the Company had $1,436,000 of unrecognized tax benefits. The Company does not have any tax positions for which it
is reasonably possible that the total amount of gross unrecognized would increase or decrease within twelve months of the year ended
December 31, 2019. If recognized, $0 would affect the effective tax rate.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There was no such expense recorded
during the years ended December 31, 2019 and 2018.
A reconciliation of the unrecognized tax benefits from January 1, 2018 to December 31, 2019 is as follows (in thousands):
Balance at the beginning of year
Increases related to current years’ tax positions
Increases/(decreases) related to prior years’ tax positions
Balance at end of year
December 31,
2019
2018
$
$
1,348 $
88
—
1,436 $
615
118
615
1,348
The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its
inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examination.
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12. Acquisition of Variable Interest Entity - NeuroCo
In December 2014, the Board of Directors of the Company approved the sale of certain intellectual property of Silk Road Medical, Inc., to a newly
incorporated entity, NeuroCo, Inc. In consideration for the intellectual property, a promissory note was executed between the two parties for the
principal sum of $498,000 with an interest rate of 2.74% per annum, payable on the earlier of 10 years from the date of promissory note, or upon
the occurrence of an event of default. The intellectual property transfer was recorded at its carrying value of zero as of December 31, 2014.
During 2015 NeuroCo issued $154,000 in common stock to stockholders of the Company. During the year ended December 31, 2018, NeuroCo
issued common stock upon the exercise of stock options. These common stock issuance amounts, as they are related to non-controlling
investors, were reported as non-controlling interests in subsidiary in the Company’s financial statements and are offset by NeuroCo losses
consolidated by the Company.
Additionally, NeuroCo incurred research and development related expenses paid for by the Company which were added in to the original
promissory note.
The Company had identified NeuroCo as a VIE of which the Company is the primary beneficiary. Pursuant to the accounting guidance for
consolidating VIEs the main consideration was given to the fact that the amount of total equity investment at risk is not sufficient to permit
NeuroCo to finance its activities without additional subordinated financial support. Additionally, NeuroCo and Silk Road Medical had the same
Board of Directors and senior management composition, determining the Company to have the power to direct the activities that most significantly
impact NeuroCo’s economic performance and the obligation to absorb losses and the right to receive benefits. Accordingly, the financial results of
NeuroCo were included in the Company’s financial statements.
On December 17, 2018, the Company and NeuroCo entered into the Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which
the Company acquired all assets and assumed all liabilities of NeuroCo (the “Merger”). The Merger closed on the same day (the “Closing”) and
was consummated through a stock-for-stock transaction based on the relative values of the Company’s and NeuroCo’s equity. In consideration for
100% equity interest of NeuroCo, the Company issued 33,462 shares of its common stock and the above promissory note in the amount of
approximately $1,600,000 as of the Closing was settled and canceled. As a result of the Merger, NeuroCo merged into the Company with the
Company being the surviving corporation.
As the Company already controlled and consolidated NeuroCo and retained the control over NeuroCo’s business after the Merger, the Company
accounted for the acquisition of equity interest in NeuroCo as an equity transaction. Therefore, the Company did not recognize a gain or loss in its
net loss or comprehensive loss for acquisition of NeuroCo. As the carrying amount of the non-controlling interest as of the Closing was zero, the
Company recorded the consideration paid as a decrease to the Company’s additional paid-in capital within stockholder’s equity (deficit).
As part of the Merger, the Company assumed NeuroCo’s 2015 Equity Incentive Plan (the “NeuroCo Plan”) along with all of NeuroCo’s rights and
obligations under the NeuroCo Plan, except that the number of shares and exercise price of the assumed options have been adjusted based on
the Merger exchange ratio of the Company’s common stock and NeuroCo’s common stock. Similarly, the Company assumed outstanding
warrants to purchase NeuroCo’s common stock such that the number of shares and exercise price of the assumed warrants have been adjusted
based on the Merger exchange ratio of the Company’s common stock and NeuroCo’s common stock. The options and warrants to purchase
shares of the Company’s common stock were fully vested upon issuance, as they were replacing fully vested options and warrants to purchase
NeuroCo common stock.
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13. 401(k) Plan
The Company has a qualified retirement plan under section 401(k) of the Internal Revenue Code (“IRC”) under which participants may contribute
up to 90% of their eligible compensation, subject to maximum deferral limits specified by the IRC. The Company may make a discretionary
matching contribution to the 401(k) plan and may make a discretionary employer contribution to each eligible employee each year. Through
December 31, 2019, the Company has made no contributions to the 401(k) plan. Beginning in January 2020, the Company started matching
employees' contributions to the 401(k) plan at 50% of the first 5% of compensation deferred to the 401(k) plan.
14. Subsequent Events
2019 Equity Incentive Plan
In January 2020, the number of shares of common stock authorized for issuance under the 2019 Plan was automatically increased by 1,250,210
shares, which was ratified by the Company's Board of Directors in February 2020.
In February 2020, the Company’s Board of Directors approved the grant of options to purchase 92,885 shares of common stock under the 2019
Plan with an exercise price of $47.20 per share.
2019 Employee Stock Purchase Plan
In January 2020, the number of shares of common stock authorized for issuance under the 2019 ESPP was automatically increased by 312,552
shares, which was ratified by the Company's Board of Directors in February 2020.
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15. Quarterly Financial Information (unaudited)
The following table provides selected unaudited quarterly financial data for the years ended December 31, 2019 and 2018 (in thousands, except
per share data):
Revenue
Gross profit
Net loss
Net loss per share, basic and diluted
Revenue
Gross profit
Net loss
Net loss per share, basic and diluted
Three Months Ended
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
$
$
$
$
18,634 $
13,913 $
(8,291) $
(0.27) $
17,026 $
12,856 $
(8,007) $
(0.26) $
14,928 $
11,231 $
(11,959) $
(0.42) $
12,766
9,427
(24,158)
(20.12)
Three Months Ended
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
$
$
$
$
11,470 $
7,803 $
(15,618) $
(14.12) $
9,614 $
6,732 $
(8,953) $
(8.49) $
7,767 $
5,376 $
(7,651) $
(8.16) $
5,706
3,772
(5,408)
(7.31)
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
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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) under the Exchange Act refers to controls and
procedures that are designed to provide reasonable assurance 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 and principal financial officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable
assurance of achieving their control objectives.
Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, have evaluated our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior
to the filing of this Annual Report on Form 10-K. Based on that evaluation, our President and Chief Executive Officer and our Chief Financial
Officer have concluded that, as of December 31, 2019, the end of the period covered by this Annual Report on Form 10-K, our disclosure controls
and procedures were not effective because of the material weaknesses described below.
Material Weaknesses in Internal Control Over Financial Reporting
In connection with our preparation for our initial public offering, we identified two material weaknesses in our internal control over financial
reporting for the year ended December 31, 2017. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis. The first material weakness identified was that we did not maintain a sufficient complement of resources
with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements.
The second material weakness was that we did not appropriately design and implement controls over the review and approval of manual journal
entries and the related supporting journal entry calculations resulting in inappropriate segregation of duties over manual journal entries. These
material weaknesses resulted in audit adjustments to the Company's financial statements for the years ended December 31, 2017, 2018 and
2019, which did not result in a restatement to the Company’s annual or interim financial statements. Additionally, these material weaknesses could
result in misstatements of the account balances or disclosures that would result in a material misstatement to the annual or interim financial
statements that would not be prevented or detected.
Remediation Plan and Other Information
With the oversight of senior management and our audit committee, we executed the implementation of remediation steps in 2018. These
efforts focused on (i) the hiring of personnel with technical accounting and financial reporting experience and (ii) the implementation of improved
accounting and financial reporting procedures and systems to improve the completeness, timeliness and accuracy of our financial reporting and
disclosures including the assessment of more judgmental areas of accounting. While we believe the measures described above will remediate the
material weaknesses identified and strengthen our internal control over financial reporting, both the implemented and enhanced controls have not
operated for a sufficient period of time to demonstrate that the material weaknesses are fully
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remediated. As such, the remediation initiatives outlined above were not sufficient to fully remediate the material weaknesses in internal control
over financial reporting for the year ended December 31, 2019. We are committed to continuing to improve our internal control processes and will
continue to diligently and vigorously review our financial reporting controls and procedures.
Changes in Internal Control over Financial Reporting
As described under the Remediation Plan and Other Information section above, we enhanced controls related to our journal entry process
during the quarter ended December 31, 2019. There were no other changes in our internal control over financial reporting that occurred during the
most recent fiscal quarter covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or
an attestation report of the Company’s independent registered public accounting firm due to a transition period established by the rules of the SEC
for newly public companies.
Item 9B. Other Information
None.
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Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
PART III
The following table sets forth information, as of February 28, 2020, regarding our executive officers and directors.
Name
Executive Officers
Erica J. Rogers
Lucas W. Buchanan
Andrew S. Davis
Richard M. Ruedy
Non-Employee Directors
Ruoxi Chen(1)(2)
Tony M. Chou, M.D.
Amr Kronfol
Jack W. Lasersohn(2)
Robert E. Mittendorff, M.D.(2)
Elizabeth H. Weatherman(1)
Donald J. Zurbay(1)
_________________
(1) Member of the audit committee.
(2) Member of the compensation committee.
Executive Officers
Age
56
42
51
53
36
59
39
66
43
60
52
Title
President, Chief Executive Officer and Director
Chief Financial Officer
Executive Vice President of Global Sales and Marketing
Executive Vice President of Regulatory Affairs, Clinical Affairs and Quality
Assurance
Director
Director
Director
Director
Director
Director
Director
Erica J. Rogers. Ms. Rogers has served as our President and Chief Executive Officer and a member of our board of directors since October
2012. Ms. Rogers previously served as Chief Operating Officer of Medicines360, a non-profit pharmaceutical company developing drugs and
devices for women from June 2010 to October 2012. Ms. Rogers was an Executive Vice President at Nanosys, Inc. from December 2008 to
March 2010. Prior to that, Ms. Rogers founded and was Chief Executive Officer of Allux Medical, and co-founded Visiogen, which was acquired by
Abbott Medical Optics in 2009. She worked previously in neurovascular marketing at Target Therapeutics and peripheral vascular sales and sales
training at Boston Scientific. Ms. Rogers received a B.S. in zoology from San Diego State University.
We believe Ms. Rogers’ management experience in the medical device industry, her experience in founding and building medical device
companies and her extensive understanding of our business, operations, and strategy qualify her to serve on our board of directors.
Lucas W. Buchanan. Mr. Buchanan has served as our Chief Financial Officer since July 2016 and since August 2009 has held multiple roles
including Executive Vice President, Commercialization and Corporate Development and Vice President, Marketing and Business Development.
From May 2013 to May 2014, Mr. Buchanan was a Senior Director of Strategy and Corporate Development at Impax Laboratories. From 2009 to
2011, Mr. Buchanan was part of our early team while employed at The Vertical Group, a venture capital firm and the founder of our company. He
previously worked at Medtronic and at Ernst & Young Corporate Finance LLC. Mr. Buchanan received a B.A. in economics from Duke University
and an M.B.A. in health care management from The Wharton School at the University of Pennsylvania.
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Andrew S. Davis. Mr. Davis joined us in May 2015 as our Executive Vice President of Global Sales and Marketing. From September 2014 to
May 2015, Mr. Davis was Vice President of Sales and Marketing for U.S. and Canada in the Advanced Wound Therapy Group of Acelity. Mr.
Davis previously held various leadership positions at Medtronic from 1999 until September 2014, where he most recently served as U.S. Vice
President of Sales for CoreValve catheter-based therapies and prior to that U.S. Vice President of Sales for Endovascular. Prior to Medtronic, Mr.
Davis worked in sales at Boston Scientific. Mr. Davis received a B.S. in political science from Florida State University.
Richard M. Ruedy. Mr. Ruedy joined us in 2011 and is the Executive Vice President of Clinical and Regulatory Affairs, and Quality
Assurance. Mr. Ruedy was previously Vice President of Regulatory, Clinical and Quality for Nevro Corporation from 2009 to 2010 Prior to Nevro,
Mr. Ruedy served as Vice President of Regulatory Clinical and Quality affairs of Cardica Inc. from April 2007 to May 2009. Mr. Ruedy also
previously served as Director of Regulatory Affairs at Abbott Vascular, co-founded Acta Vascular (acquired by Covidien) and previously held
positions of increasing responsibility at Edwards Lifescienses, Medtronic, TriPath Imaging (acquired by Becton Dickinson), and Parallax Medical
(acquired by Arthrocare). Mr. Ruedy received a B.A. in English and international relations from Bucknell University.
Non-Employee Directors
Ruoxi Chen. Mr. Chen has served as a member of our board of directors since August 2016. Since August 2011 Mr. Chen has been
employed at Warburg Pincus, where he is currently a Principal, focusing on healthcare and consumer investments. Mr. Chen previously worked
as an Associate at The Carlyle Group from 2007 to 2009 and in investment banking at Citigroup Global Markets from 2005 to 2007. Mr. Chen
received a B.S. in economics and computer science from Duke University and an M.B.A. from Harvard Business School.
We believe Mr. Chen is qualified to serve on our board of directors due to his extensive experience as a private equity investor in healthcare
and medical device companies.
Tony M. Chou, M.D. Dr. Chou has served as a member of our board of directors since March 2007. Dr. Chou has been a general partner at
The Vertical Group, a healthcare-focused venture capital firm, since August 2006. After joining The Vertical Group, Dr. Chou co-founded our
company in 2007 and served as Chief Executive Officer until November 2010. Prior to that, Dr. Chou had general management and business
development responsibilities in the Abbott Vascular Division of Abbott Laboratories and last served as Division Vice President and General
Manager of vascular closure, managing the FDA approval and global launch of the Perclose and Starclose products. Dr. Chou was previously the
Director of the Adult Cardiac Catheterization Laboratory at the University of California, San Francisco, where he is currently Associate Professor
of Medicine. Dr. Chou received a B.S. in physics and electrical engineering from Carnegie Mellon University and an M.D. from Case Western
Reserve University.
We believe Dr. Chou is qualified to serve on our board of directors due to his role as a co-founder of our company, background as a practicing
physician and professor of medicine, experience in the medical device industry and extensive knowledge of our business.
Amr Kronfol. Mr. Kronfol has served on our board of directors since March 2019. Mr. Kronfol has been employed at Warburg Pincus since
2009, where he has been a Managing Director since 2018, focusing on investment activities in the healthcare, technology and consumer/retail
industries. He previously worked at Merrill Lynch, where he was a Vice President in the fixed income division and at Tigris Consulting. Mr. Kronfol
serves on the boards of a number of private medical and technology companies. Mr. Kronfol received an A.B. in computer science from Princeton
University and an M.B.A. from The Wharton School at the University of Pennsylvania.
We believe that Mr. Kronfol is qualified to serve on our board of directors due to his extensive experience as a private equity investor and as a
director of companies in the medical device industry.
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Jack W. Lasersohn, J.D. Mr. Lasersohn has served as a member of our Board since April 2007. Since 1988, Mr. Lasersohn has been a
general partner, or a principal of the general partner, of The Vertical Group, L.P., a private venture capital firm that is focused on the fields of
medical technology and biotechnology. The Vertical Group was a co-founder of our company. Prior to joining The Vertical Group’s predecessor, F.
Eberstadt, in 1981, Mr. Lasersohn was a corporate attorney with Cravath, Swaine & Moore LLP. Mr. Lasersohn served on the board of directors of
Masimo Corporation, a publicly traded global medical technology company, from January 1995 to 2017 and has served on the board of directors
of OncoMed Pharmaceuticals, Inc., a publicly traded clinical development-stage biopharmaceutical company, since July 2005. He also serves on
the boards of a number of private medical device and biotechnology companies. Mr. Lasersohn is the past Chairman of the Medical Industry
Group of the National Venture Capital Association, or NVCA, and previously served on the Executive Committee of the board of directors of the
NVCA. Mr. Lasersohn has also served, by appointment, on various committees advising the U.S. Food and Drug Administration and the Center
for Medicare and Medicaid Services. He holds a B.S. in physics from Tufts University, an M.A. from The Fletcher School of Law and Diplomacy,
and a J.D. from Yale Law School.
We believe Mr. Lasersohn is qualified to serve on our board of directors due to his extensive experience as a venture capital investor and as a
member of the boards of directors of multiple public and private medical device and biotechnology companies.
Robert E. Mittendorff, M.D. Dr. Mittendorff has served on our board of directors since July 2017. Dr. Mittendorff has been a partner at
Norwest Venture Partners since February 2012. Dr. Mittendorff was previously the VP of Marketing and Business Development at Hansen
Medical, Inc. Dr. Mittendorff currently serves on the board of directors of several private companies and is also a board certified emergency
physician. Dr. Mittendorff received a B.S. in biomedical engineering from Johns Hopkins University, an M.D. from Harvard Medical School and an
M.B.A. from Harvard Business School.
We believe Dr. Mittendorff is qualified to serve on our board of directors due to his background as a practicing physician, extensive experience
as an investor and his role as a board member of several medical device companies.
Elizabeth H. Weatherman. Ms. Weatherman has served on our board of directors since April 2013. Ms. Weatherman has been a Special
Limited Partner of Warburg Pincus since January 2016. Ms. Weatherman previously was a Managing Director of Warburg Pincus and a member
of the firm’s Executive Management Group. Ms. Weatherman joined Warburg Pincus in 1988 and led the firm’s Healthcare Group from 2008 to
2015. Ms. Weatherman serves on the board of directors of Wright Medical Group, N.V., Vapotherm Inc., and Nevro Corp., all publicly traded
medical device companies. She serves on the Advisory Council of the Stanford Graduate School of Business, and on the board of trustees of
Mount Holyoke College and Saint Ann’s School in Brooklyn, NY. Ms. Weatherman received a B.A. from Mount Holyoke College and an M.B.A.
from the Stanford Graduate School of Business.
We believe that Ms. Weatherman is qualified to serve on our board of directors due to her extensive experience as a private equity investor
and a director of public companies in the medical device industry.
Donald J. Zurbay. Mr. Zurbay has served on our board of directors since March 2018. Mr. Zurbay has been Chief Financial Officer of
Patterson Companies, Inc., a publicly traded global medical device company, since June 2018. From March 2004 to February 2017, Mr. Zurbay
held various leadership positions at St. Jude Medical, Inc., where he most recently served as Vice President and Chief Financial Officer from
August 2012 to January 2017. Mr. Zurbay previously worked at PricewaterhouseCoopers as an Assurance and Business Advisory Services
Senior Manager. Prior to PricewaterhouseCoopers, he was a General Accounting Manager at The Valspar Corporation. Prior to The Valspar
Corporation, Mr. Zurbay was an auditor at Deloitte & Touche. Mr. Zurbay is a member of the American Institute of Certified Accountants and the
Minnesota Society of Certified Public Accountants. Mr. Zurbay received a B.S. in business with an emphasis in accounting from the University of
Minnesota.
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We believe that Mr. Zurbay is qualified to serve on our board of directors due to his current and prior experience at leading publicly traded
healthcare companies, including as a Chief Financial Officer, and his financial experience and expertise.
Executive Officers
Each of our executive officers serves at the discretion of our board of directors and holds office until his or her successor is duly elected and
qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
Board of Directors
Our business is managed under the direction of our board of directors, which currently consists of eight directors. Our directors hold office
until the earlier of their death, resignation, removal or disqualification, or until their successors have been elected and qualified. We do not have a
chair of our board of directors. Our board of directors does not have a formal policy on whether the roles of chief executive officer and chair of our
board of directors should be separate. The members of our board of directors were elected in compliance with the provisions of our amended and
restated certificate of incorporation and a stockholders agreement among certain of our stockholders, and, under the terms of such stockholders
agreement, the stockholders who are party to the stockholders agreement have agreed to vote their respective shares to elect: (1) one director
who is our then-current Chief Executive Officer, currently Erica J. Rogers; (2) two directors designated by the holders of the Series A preferred
stock, currently Dr. Tony M. Chou and Jack W. Lasersohn; (3) three directors designated by the holders of the Series B preferred stock, currently
Amr Kronfol, Ruoxi Chen, and Donald Zurbay; and (4) two directors designated by the holders of the Series C preferred stock (one of whom shall
be designated by Norwest subject to their ownership of at least 50% of the shares of Series C preferred stock purchased by them pursuant to the
Series C Preferred Stock Purchase Agreement), currently Dr. Robert E. Mittendorff and Elizabeth H. Weatherman. Dr. Chou and Mr. Lasersohn
were designated and appointed as directors by the Vertical Group; Messrs. Chen, Kronfol and Zurbay and Ms. Weatherman were appointed as
directors by Warburg; and Dr. Mittendorff was appointed as a director by Norwest.
For as long as Warburg owns at least ten percent (10%) of our issued and outstanding common stock, we will nominate and use commercially
reasonable efforts (including, without limitation, soliciting proxies for each designee of Warburg to the same extent we do so for any of its other
nominees to the board of directors) to have such number of individuals designated by Warburg elected to the board of directors so that the
number of individuals designated by Warburg for election to the board of directors as compared to the size of the board of directors is
proportionate to the number of shares of issued and outstanding common stock then owned by Warburg as compared to the number of shares of
issued and outstanding common stock at such time; provided, however, that as long as Warburg owns at least ten percent (10%) of the issued
and outstanding common stock, Warburg has the right to designate at least one (1) individual for election to our board of directors.
Our board of directors was divided into three classes with staggered three-year terms. Our first annual meeting of stockholders will be in
2020. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election or until their earlier death, resignation or removal. Our directors are
divided among the three classes as follows:
• Class I directors are Ms. Rogers and Messrs. Kronfol and Lasersohn, and their terms will expire at our annual meeting of stockholders to
be held in 2020;
• Class II directors are Dr. Mittendorff, Dr. Chou and Mr. Chen, and their terms will expire at our annual meeting of stockholders to be held
in 2021; and
• Class III directors are Mr. Zurbay and Ms. Weatherman, and their terms will expire at our annual meeting of stockholders to be held in
2022.
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This classification of the board of directors, together with the ability of the stockholders to remove our directors only for cause and the inability
of stockholders to call special meetings, may have the effect of delaying or preventing a change in control or management. See “Description of
Capital Stock—Anti-Takeover Effects or Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws
and Delaware Law” for a discussion of other anti-takeover provisions that are included in our amended and restated certificate of incorporation.
Director Independence
Our common stock is quoted on The Nasdaq Stock Market. Under the rules of The Nasdaq Stock Market, independent directors must
comprise a majority of a listed company’s board of directors within a specified period of time after listing on The Nasdaq Stock Market. Under
Nasdaq Listing Rule 5605(a)(2), a director will qualify as an “independent director” only if, in the opinion of the company’s board of directors, that
person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has reviewed the independence of each director and determined that Dr. Chou, Mr. Lasersohn, Dr. Mittendorff, Ms.
Weatherman and Mr. Zurbay, representing five of our eight directors, are independent directors under the rules of The Nasdaq Stock Market. Our
board of directors will review the independence of each director at least annually. During these reviews, the board of directors will consider
transactions and relationships between each director, and his or her immediate family and affiliates, and our company and its management to
determine whether any such transactions or relationships are inconsistent with a determination that the director is independent. This review will be
based primarily on responses of the directors to questions in a directors’ and officers’ questionnaire regarding employment, business, familial,
compensation and other relationships with our company including its management.
In addition, the rules of The Nasdaq Stock Market require that, subject to specified exceptions, each member of a listed company’s audit,
compensation, and nominating and governance committees be independent. In order to be considered independent for purposes of Rule 10A-3
under the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee: (i) accept, directly or indirectly, any consulting, advisory, or other compensatory
fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries. Members of the
compensation committee must also satisfy additional independence requirements set forth in Nasdaq Listing Rule 5605(d)(2). In order to be
considered independent for purposes of Nasdaq Listing Rule 5605(d)(2), a member of a compensation committee of a listed company may not,
other than in his or her capacity as a member of the compensation committee, the board of directors, or any other board committee, accept,
directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries. Additionally, the board
of directors of the listed company must consider whether the compensation committee member is an affiliated person of the listed company or any
of its subsidiaries and, if so, must determine whether such affiliation would impair the director’s judgment as a member of the compensation
committee.
We believe that a majority of our directors and the composition of our board of directors meets the requirements for independence under the
current requirements of the SEC and The Nasdaq Stock Market. As required by The Nasdaq Stock Market, we anticipate that our independent
directors will meet in regularly scheduled executive sessions at which only independent directors are present. We intend to comply with future
governance requirements to the extent they become applicable to us.
Corporate Governance
We believe that good corporate governance is important to ensure that, as a public company, we will be managed for the long-term benefit of
our stockholders. We and our board of directors have been reviewing the corporate governance policies and practices of other public companies,
as well as those
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suggested by various authorities in corporate governance. We have also considered the provisions of the Sarbanes-Oxley Act and the rules of the
SEC and The Nasdaq Stock Market.
Based on this review, our board of directors has taken steps to implement many of these provisions and rules. In particular, our board of
directors has approved charters for the audit committee, compensation committee and nominating and corporate governance committee, as well
as a code of business conduct and ethics applicable to all of our directors, officers and employees.
Board Committees
Our board of directors has established a standing audit committee, a compensation committee and a nominating and corporate governance
committee. Our board of directors has assessed the independence of the members of each of these standing committees as defined under the
rules of The Nasdaq Stock Market and, in the case of the audit committee, the independence requirements of Rule 10A-3 under the Securities
Exchange Act of 1934, as amended, or Exchange Act.
Audit Committee
Ms. Weatherman and Messrs. Chen and Zurbay serve on our audit committee. Mr. Zurbay serves as the chair of the audit committee. Our
board of directors has determined that Ms. Weatherman and Mr. Zurbay meet the independence and experience requirements applicable to audit
committee members under the rules of The Nasdaq Stock Market and the SEC and that Mr. Zurbay is an “audit committee financial expert” as
defined under applicable rules of the SEC. Our board of directors has assessed whether all members of the audit committee meet the composition
requirements of The Nasdaq Stock Market, including the requirements regarding financial literacy and financial sophistication. Our board of
directors found that Ms. Weatherman and Messrs. Chen and Zurbay have met the financial literacy and financial sophistication requirements
under SEC and The Nasdaq Stock Market rules. Mr. Chen is currently not considered to be an independent audit committee member within the
meaning of applicable SEC and Nasdaq rules, but our board has determined to keep him on the audit committee based on his qualifications and
experience. As a result, Mr. Chen does not fall under the safe harbor provision of Rule 10A-3 of the Exchange Act and is not considered
independent under such rule. Until we locate a suitable replacement for Mr. Chen, we plan to rely on SEC and Nasdaq rules for phasing in new
independent audit committee members. The audit committee’s primary responsibilities include:
•
Appointing, approving the compensation of, and assessing the qualifications and independence of our independent registered public
accounting firm, which currently is PricewaterhouseCoopers LLP;
• Reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial
statements and related disclosures;
•
Preparing the audit committee report required by SEC rules to be included in our annual proxy statements;
• Monitoring our internal control over financial reporting, disclosure controls and procedures;
• Reviewing our risk management status;
•
Establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt
and retention of accounting related complaints and concerns;
• Meeting independently with our independent registered public accounting firm and management; and
• Monitoring compliance with the code of business conduct and ethics for financial management.
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All audit and non-audit services must be approved in advance by the audit committee. Our board of directors has adopted a written charter for
the audit committee, which is available on our website.
Compensation Committee
Dr. Mittendorff and Messrs. Chen and Lasersohn serve on our compensation committee. Mr. Lasersohn serves as the chair of the
compensation committee. Dr. Mittendorff and Mr. Lasersohn meet the independence requirements of Nasdaq Rule 5605(d)(2). Mr. Chen is not
currently considered to be independent and our board has determined to keep Mr. Chen on the compensation committee in reliance on Nasdaq
Rule 5605(d)(2)(B). The compensation committee’s responsibilities include:
•
•
Annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer and our other
executive officers;
Annually reviewing and making recommendations to our board of directors with respect to the compensation of our chief executive officer
and determining the compensation for our other executive officers;
• Reviewing and making recommendations to our board of directors with respect to director compensation; and
• Overseeing and administering our equity incentive plans.
Our chief executive officer and our vice president of human resources make compensation recommendations for our other executive officers
and initially proposes the corporate and departmental performance objectives under our Executive Incentive Compensation Plan to the
compensation committee. From time to time, our compensation committee may use outside compensation consultants to assist it in analyzing our
compensation programs and in determining appropriate levels of compensation and benefits. For example, we have periodically engaged
Compensia, Inc., to help develop our compensation philosophy, select of a group of peer companies to use for compensation benchmarking
purposes and cash and equity compensation levels for our directors, executives and other employees based on current market practices. Our
board of directors has adopted a written charter for the compensation committee, which is available on our website.
Nominating and Corporate Governance Committee
Ms. Weatherman and Messrs. Lasersohn and Zurbay serve on our nominating and corporate governance committee. Ms. Weatherman
serves as the chair of the nominating and corporate governance committee. The nominating and corporate governance committee's
responsibilities include:
•
•
•
•
•
identifying individuals qualified to become members of our board of directors;
recommending to our board of directors the persons to be nominated for election as directors and to each of our board’s committees;
reviewing and making recommendations to our board of directors with respect to management succession planning;
developing, updating and recommending to our board of directors corporate governance principles and policies; and
overseeing the evaluation of our board of directors and committees.
We expect our nominating and corporate governance committee to adopt a written charter that satisfies the applicable listing standards of The
NASDAQ Stock Market. Once adopted, a copy of the charter of our nominating and corporate governance committee will be available on our
website.
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Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including
those officers responsible for financial reporting. Our code of business conduct and ethics is available on our website at www.silkroadmed.com.
We intend to disclose any amendments to the code, or any waivers of its requirements, on our website to the extent required by the applicable
rules and exchange requirements. The inclusion of our website address in this Annual Report on Form 10-K does not incorporate by reference
into this Annual Report on Form 10-K the information on or accessible through our website.
Limitation on Liability and Indemnification Matters
Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the
fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages
for any breach of fiduciary duties as directors, except liability for:
•
•
Any breach of the director’s duty of loyalty to us or our stockholders;
Any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
• Unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
•
Any transaction from which the director derived an improper personal benefit.
Our board of directors has adopted an amended and restated certificate of incorporation and amended and restated bylaws, and it provides
that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and
restated bylaws also provides that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any
action or proceeding, and permits us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of
his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under Delaware law. We have
entered, and expect to continue to enter, into agreements to indemnify our directors, executive officers and other employees as determined by our
board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things,
attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. Insofar as
indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. We believe that these bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated
bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also
reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our
stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damages.
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Item 11. Executive Compensation
Summary Compensation Table
This discussion contains forward looking statements that are based on our current plans, considerations, expectations and determinations
regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned programs as
summarized in this discussion. As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation
Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies.
The following table provides information regarding the total compensation for services rendered in all capacities that was earned by our
principal executive officer and our two other most highly compensated executive officers who were serving as executive officers during the years
ended December 31, 2019 and 2018. These individuals were our named executive officers for 2019 and 2018.
Name and Principal Position
Erica J. Rogers
President, Chief Executive Officer and
Director
Lucas W. Buchanan
Chief Financial Officer
Andrew S. Davis
Executive Vice President, Global Sales and
Marketing
Year
2019
2018
2019
2018
2019
2018
Salary
($)
Bonus
($)(1)
Stock
Awards
($)
Option Awards
($)(2)
Non-Equity Incentive
Plan Compensation
($)(3)
Non-Qualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
$
421,167
$
64,500
$
—
$
2,734,154
$
459,240
$
—
$
4,850
$
3,683,911
390,000
365,583
350,000
430,583
234,000
46,250
210,000
54,375
415,000
199,000
—
—
—
—
—
—
635,071
—
334,249
12,067
—
329,300
387,150
—
—
—
—
—
—
—
624,000
14,646
1,390,850
—
560,000
11,817
1,218,174
—
626,067
_________________
(1) Amounts for 2018 reflect a year-end discretionary bonus paid on February 15, 2019. Amounts for 2019 reflect a year-end discretionary bonus paid on February 28, 2020.
(2)
The amounts reported represent the aggregate grant-date fair value of the stock options awarded to the named executive officers calculated in accordance with ASC Topic 718. Such grant-date fair value
does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant-date fair value of the options reported in this column are set forth
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Common Stock Valuation and Stock-Based Compensation.”
(3) Non-Equity Incentive Plan Compensation amounts for 2019 for all named executive officers were paid on February 28, 2020, pursuant to our 2019 Bonus Plan, as described in the section below titled
“Executive Compensation—Non-Equity Incentive Plan Compensation.”
Narrative Disclosure to Summary Compensation Table
Non-Equity Incentive Plan Compensation
We provide each of our named executive officers an opportunity to receive formula-based incentive payments. The payments are based on a
target incentive amount for each named executive officer. In addition, based on exceptional performance of each of our named executive officers
during 2019, our board of directors determined to provide each named executive officer an additional discretionary bonus that was in excess of
the amount determined under our 2019 Bonus Plan.
Non-Equity Incentive Payments for 2019
For 2019, the target incentive amount and year-end payments for Erica J. Rogers, Lucas W. Buchanan and Andrew S. Davis under our 2019
Bonus Plan were as follows:
Named Executive Officer
Erica J. Rogers
Lucas W. Buchanan
Andrew S. Davis
Target
Award
($)
Actual Award Amount Based on
Corporate Performance
($)
$
258,000 $
185,000
217,500
459,240
329,300
387,150
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The 2019 Bonus Plan provided for non-equity incentive compensation based upon our achievement of performance goals for 2019 at 178% of
target. The actual target incentive payments were weighted 100% toward achievement of Company goals which included achieving revenue and
clinical outcome targets.
Outstanding Equity Awards at 2019 Year-End
The following table sets forth information regarding outstanding stock options and stock awards held by our named executive officers as of
December 31, 2019:
Name
Erica J. Rogers
Lucas W. Buchanan
Andrew S. Davis
Grant Date(1)
Vesting
Commencement Date(2)
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of Securities
Underlying
Unexercised Options
(#) Unexercisable
Option Exercise
Price ($)(3)
Option Expiration
Date
Number of
Shares or Units
of Stock That
Vested (#)
Market Value of
Shares or Units
of Stock That
Have Not Vested
($)
12/14/2012
12/14/2012
12/24/2014
12/3/2015
8/4/2016
9/30/2016
11/30/2017
11/30/2017
11/30/2017
4/3/2019
12/24/2014
12/3/2015
8/4/2016
9/30/2016
11/30/2017
11/30/2017
11/30/2017
4/3/2019
6/23/2015
12/3/2015
11/30/2017
11/30/2017
9/13/2018
4/3/2019
10/23/2012
10/23/2012
12/24/2014
12/3/2015
8/4/2016
9/30/2016
8/1/2017
8/1/2017
8/1/2017
4/3/2019
12/24/2014
12/3/2015
8/4/2016
9/30/2016
8/1/2017
8/1/2017
8/1/2017
4/3/2019
5/5/2015
12/3/2015
8/1/2017
8/1/2017
8/1/2018
4/3/2019
81,510
82,512
61,728
143,290
216,049
330
43,209
213,888
—
50,493
7,408
207,795
41,666
398
42,630
19,652
—
11,728
125,623
45,780
—
49,150
987
6,172
—
—
—
—
43,210
—
30,865
152,778
22,222
252,469
—
—
8,334
—
35,899
14,037
25,847
58,642
—
—
36,111
35,109
1,975
30,865
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1.38
1.38
1.46
1.60
1.60
8.27
6.11
12.15
12.15
20.00
1.46
1.60
1.60
8.27
4.73
12.15
12.15
20.00
1.46
1.60
4.73
4.73
6.11
20.00
12/14/2022
12/14/2022
12/24/2024
12/13/2025
8/4/2026
9/30/2026
11/30/2027
11/30/2027
11/30/2027
4/3/2029
12/24/2024
12/3/2025
8/4/2026
9/30/2026
11/30/2027
11/30/2027
11/30/2027
4/3/2029
6/23/2025
12/3/2025
11/30/2027
11/30/2027
9/13/2028
4/3/2029
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_________________
(1) Each of the outstanding stock options was granted pursuant to our 2007 Stock Plan or 2019 Equity Incentive Plan.
(2) Options generally vest over four years from the vesting commencement date in 48 equal monthly amounts, subject to continued service through each such vesting date, provided that the option grants to
(x) Ms. Rogers on November 30, 2017 for 74,074 and 388,888 shares, respectively, (y) Mr. Buchanan on November 30, 2017, for 86,157 and 59,536 shares, respectively, and (z) Mr. Davis on November
30, 2017, for 120,370 shares will accelerate and fully vest if the applicable optionee experiences an involuntary termination under certain circumstances within the 12 month period following a change in
control of the Company. The option grants to (i) Ms. Rogers on November 30, 2017, for 22,222 shares, (ii) Mr. Buchanan on November 30, 2017, for 25,847 shares and (iii) Mr. Davis on November 30,
2017, for 36,111 shares all vest upon the earlier of a change in control of the Company or the two year anniversary of the initial public offering of the Company’s common stock, provided that each such
option will accelerate and fully vest upon the involuntary termination of the applicable optionee under certain circumstances. The option grant to Mr. Buchanan on December 3, 2015 for 226,995 shares
vested 85,122 shares on the vesting commencement date and the remaining shares vested over thirty months from the vesting commencement date in equal monthly amounts. The option grants to Mr.
Davis on June 23, 2015 and September 13, 2018 for 138,893 shares and 2,962 shares, respectively, vest over four years from the vesting commencement date, with 25% vested on the one year
anniversary of the vesting commencement date, and with the remaining amount vesting monthly over the subsequent 36 months in equal amounts.
This column represents the fair market value of our common stock on the date of grant, as determined by our board of directors.
(3)
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Pension Benefits and Nonqualified Deferred Compensation
We do not provide a pension plan for our employees, and none of our named executive officers participated in a nonqualified deferred
compensation plan in 2019.
Executive Officer Confirmatory Employment Letters
In March 2019, we entered into confirmatory employment letters with each of our named executive officers. Each letter has no specific term
and provides for at-will employment. Each letter also provides that for our 2019 fiscal year, the applicable employee will have the opportunity to
earn a target annual cash bonus based on achieving performance objectives established by our board of directors or compensation committee
equal to a percentage of the employee’s annual base salary, with such percentage being 60% for Ms. Rogers, 50% for Mr. Buchanan, and 50%
for Mr. Davis, respectively. Each letter also provides for an annual base salary, with such salary being $430,000 for Ms. Rogers, $370,000 for Mr.
Buchanan, and $435,000 for Mr. Davis.
Executive Officer Change in Control and Severance Agreements
In March 2019, we entered into change of control and severance agreements with each of our named executive officers, which superseded all
previous severance and change of control arrangements we had entered into with these employees. Each of these agreements has a term of
three years. Under each of these agreements, if, within the period three months prior to and 12 months following a “change of control” (such
period, the change in control period), we terminate the employment of the applicable employee without “cause” (excluding by reason of the
employee’s death or “disability,”) or the employee resigns for “good reason” (as such terms are defined in the employee’s change of control and
severance agreement) and the employee executes a separation agreement and release of claims that becomes effective and irrevocable within
60 days following the employee’s termination, the employee is entitled to receive (i) a lump sum severance payment, less applicable withholdings,
equal to the payment of employee’s base salary, as then in effect, of 18 months for Ms. Rogers, 12 months for Mr. Buchanan, and six months for
Mr. Davis, respectively, plus, for Ms. Rogers and Mr. Davis, one additional month for each year the applicable employee has remained our
employee through the termination date (with partial years of employment rounded up to a whole year), up to a limit of 24 months for Ms. Rogers
and 12 months for Mr. Davis, respectively (such monthly period, the severance period) (ii) a lump sum payment, less applicable withholdings,
equal to a percentage of the employee’s annual target bonus for the year in which the termination occurs, with such percentage being 100% for
Ms. Rogers and Mr. Buchanan and 50% for Mr. Davis, respectively, plus, for Ms. Rogers and Mr. Davis, 8.33% for each full year the applicable
employee has remained our employee through the termination date (with partial years of employment rounded up to a whole year), up to a limit of
200% for Ms. Rogers and 100% for Mr. Davis, respectively, (iii) reimbursement of premiums to maintain group health insurance continuation
benefits pursuant to “COBRA” for the employee and the employee’s dependents through the applicable employee’s severance period (with an
additional limit of 18 months for Ms. Rogers), and (iv) accelerated vesting as to 100% of the employee’s outstanding unvested equity awards.
In addition, under each of these agreements, if, outside of the change in control period, we terminate the employment of the applicable
employee without cause (excluding by reason of the employee’s death or disability), or the employee resigns for good reason, and the employee
executes a separation agreement and release of claims that becomes effective and irrevocable within 60 days following the employee’s
termination, the employee is entitled to receive (i) a lump sum severance payment, less applicable withholdings, equal to the payment of, for Ms.
Rogers and Mr. Buchanan, the employee’s base salary, as then in effect, for 12 months for Ms. Rogers, nine months for Mr. Buchanan,
respectively, and for Mr. Davis, six months of Mr. Davis’ average total annualized cash compensation, as measured over the prior 12 month period
preceding Mr. Davis’ termination of employment, including salary, commissions and bonuses, and (ii) reimbursement of premiums to maintain
group health insurance continuation benefits pursuant to “COBRA” for the employee and the employee’s dependents for 12 months for Ms.
Rogers, nine months for Mr. Buchanan, and six months for Mr. Davis, respectively.
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Under each of these agreements, in the event any payment to the applicable employee pursuant to his or her change of control and
severance agreement would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended, or the Code (as a
result of a payment being classified as a parachute payment under Section 280G of the Code), the employee will receive such payment as would
entitle the employee to receive the greatest after-tax benefit, even if it means that we pay him or her a lower aggregate payment so as to minimize
or eliminate the potential excise tax imposed by Section 4999 of the Code.
Employee Benefit and Stock Plans
2019 Equity Incentive Plan
Our board of directors adopted, and our stockholders approved, our 2019 Equity Incentive Plan, or the 2019 Plan. Our 2019 Plan became
effective upon the completion of our initial public offering in April 2019. Our 2019 Plan permits the grant of incentive stock options, within the
meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory
stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees,
directors and consultants and our parent and subsidiary corporations’ employees and consultants.
Authorized Shares. A total of 2,317,000 shares of our common stock are reserved for issuance pursuant to the 2019 Plan. In addition, the
shares reserved for issuance under our 2019 Plan will also include shares reserved but not issued under the 2007 Stock Plan, as amended, or the
2007 Plan, and shares subject to stock options or similar awards granted under the 2007 Plan that expire or terminate without having been
exercised in full and shares issued pursuant to awards granted under the 2007 Plan that are forfeited to or repurchased by us (provided that the
maximum number of shares that may be added to the 2019 Plan pursuant to this sentence is 4,170,676 shares). In addition, shares may become
available under the 2019 Plan as described below.
The number of shares available for issuance under the 2019 Plan includes an annual increase on the first day of each fiscal year beginning in
fiscal 2019, equal to the lesser of:
•
•
•
3,000,000 shares;
4% of the outstanding shares of common stock as of the last day of our immediately preceding fiscal year; or
such other amount as our board of directors may determine.
If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with
respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited or repurchased due to failure to vest, the
unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become
available for future grant or sale under our 2019 Plan.
With respect to stock appreciation rights, the net shares issued will cease to be available under the 2019 Plan and all remaining shares will
remain available for future grant or sale under the 2019 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding
obligations related to an award will become available for future grant or sale under our 2019 Plan. To the extent an award is paid out in cash
rather than shares, such cash payment will not result in reducing the number of shares available for issuance under our 2019 Plan.
Plan Administration. Our board of directors or one or more committees appointed by our board of directors will administer our 2019 Plan. In
addition, if we determine it is desirable to qualify transactions under the 2019 Plan as exempt under Rule 16b-3 of the Exchange Act, or Rule 16b-
3, such transactions will be structured to satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of
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our 2019 Plan, the administrator will have the power to administer our 2019 Plan and make all determinations deemed necessary or advisable for
administering the 2019 Plan, such as the power to determine the fair market value of our common stock, select the service providers to whom
awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2019
Plan, determine the terms and conditions of awards (such as the exercise price, the times or times at which the awards may be exercised, any
vesting acceleration or waiver or forfeiture restrictions, and any restriction or limitation regarding any award or the shares relating thereto),
construe and interpret the terms of our 2019 Plan and awards granted under it, to prescribe, amend, and rescind rules relating to our 2019 Plan,
including creating sub-plans, and to modify or amend each award, such as the discretionary authority to extent the post-termination exercisability
period of awards (provided that no option or stock appreciation right will be extended past its original maximum term, and to allow a participant to
defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator
also will have the authority to institute an exchange program by which (i) outstanding awards may be surrendered or cancelled in exchange for
awards of the same type which may have a higher or lower exercise price and/or different terms, awards of a different type and/or cash, (ii)
participants have the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator, or
(iii) the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations, and other actions will be
final and binding on all participants.
Stock Options. Stock options may be granted under our 2019 Plan. The exercise price of options granted under our 2019 Plan must at least
be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed 10 years,
except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not
exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator will determine the
methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well
as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, he or she may
exercise his or her option for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the
option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for three months following the
termination of service. However, in no event may an option be exercised later than the expiration of its term. Subject to the provisions of our 2019
Plan, the administrator determines the other terms of options.
Stock Appreciation Rights. Stock appreciation rights may be granted under our 2019 Plan. Stock appreciation rights allow the recipient to
receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Stock appreciation rights
may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, he or she may exercise his or her
stock appreciation right for the period of time stated in his or her option agreement. However, in no event may a stock appreciation right be
exercised later than the expiration of its term. Subject to the provisions of our 2019 Plan, the administrator determines the other terms of stock
appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our
common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock
appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock. Restricted stock may be granted under our 2019 Plan. Restricted stock awards are grants of shares of our common stock
that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of
restricted stock granted to any employee, director or consultant and, subject to the provisions of our 2019 Plan, will determine the terms and
conditions of such awards. The administrator may impose whatever conditions for lapse of the restriction on the shares it determines to be
appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to
us); provided,
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however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of
restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to the restriction,
unless the administrator provides otherwise. Shares of restricted stock as to which the restrictions have not lapsed are subject to our right of
repurchase or forfeiture.
Restricted Stock Units. Restricted stock units may be granted under our 2019 Plan. Restricted stock units are bookkeeping entries
representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2019 Plan, the
administrator will determine the terms and conditions of restricted stock units, including the vesting criteria (which may include accomplishing
specified performance criteria or continued service to us) and the form and timing of payment. Notwithstanding the foregoing, the administrator, in
its sole discretion, may accelerate the time at which any restricted stock units will vest.
Performance Units and Performance Shares. Performance units and performance shares may be granted under our 2019 Plan. Performance
units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator
are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals or other vesting criteria
in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and
performance shares to be paid out to participants. After the grant of a performance unit or performance share, the administrator, in its sole
discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares.
Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an
initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned
performance units or performance shares in the form of cash, in shares or in some combination
Outside Directors. Our 2019 Plan will provide that all outside (non-employee) directors will be eligible to receive all types of awards (except for
incentive stock options) under our 2019 Plan. In connection with our initial public offering, we implemented a formal policy pursuant to which our
outside directors will be eligible to receive equity awards under our 2019 Plan. Our 2019 Plan includes a maximum annual limit of $500,000 of
cash compensation and equity awards that may be paid, issued, or granted to an outside director in any fiscal year, increased to $1,000,000 for
the fiscal year an individual initially becomes a member of our board of directors. For purposes of this limitation, the value of equity awards is
based on the grant date fair value (determined in accordance with GAAP). Any cash compensation paid or equity awards granted to a person for
his or her services as an employee, or for his or her services as a consultant (other than as an outside director), will not count for purposes of the
limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to our outside directors.
Non-Transferability of Awards. Unless the administrator provides otherwise, our 2019 Plan generally does not allow for the transfer of awards
and only the recipient of an award may exercise an award during his or her lifetime. If the administrator makes an award transferable, such award
will contain such additional terms and conditions as the administrator deems appropriate.
Certain Adjustments. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential
benefits available under our 2019 Plan, the administrator will adjust the number and class of shares that may be delivered under our 2019 Plan
and/or the number, class and price of shares covered by each outstanding award and the numerical share limits set forth in our 2019 Plan. In the
event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate
immediately prior to the consummation of such proposed transaction.
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Merger or Change in Control. Our 2019 Plan provides that in the event of a merger or change in control, as defined under our 2019 Plan,
each outstanding award will be treated as the administrator determines, without a participant’s consent. The administrator is not required to treat
all awards, all awards held by a participant, or all awards of the same type, similarly.
In the event that a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding
award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or other vesting criteria applicable to such
award will be deemed achieved at 100% of target levels and such award will become fully exercisable, if applicable, for a specified period prior to
the transaction, unless specifically provided for otherwise under the applicable award agreement or other written agreement with the participant.
The award will then terminate upon the expiration of the specified period of time. If an option or stock appreciation right is not assumed or
substituted, the administrator will notify the participant in writing or electronically that such option or stock appreciation right will be exercisable for
a period of time determined by the administrator in its sole discretion and the option or stock appreciation right will terminate upon the expiration of
such period.
In addition, in the event of a change in control, each outside director’s options and stock appreciation rights, if any, will vest fully and become
immediately exercisable, all restrictions on his or her restricted stock and restricted stock units will lapse and all performance goals or other
vesting requirements for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and
conditions met.
Forfeiture and Clawback. All awards granted under our 2019 Plan will be subject to recoupment under any clawback policy that we are
required to adopt under applicable law. In addition, the administrator will be able to provide in an award agreement that the recipient’s rights,
payments, and benefits with respect to such award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of
specified events. In the event of any accounting restatement, the recipient of an award will be required to repay a portion of the proceeds received
in connection with the settlement of an award earned or accrued under certain circumstances.
Amendment, Termination. The administrator will have the authority to amend, suspend or terminate the 2019 Plan provided such action will
not impair the existing rights of any participant. Our 2019 Plan will automatically terminate in 2029, unless we terminate it sooner.
2019 Employee Stock Purchase Plan
Our board of directors adopted, and our stockholders have approved, our 2019 Employee Stock Purchase Plan, or ESPP. Our ESPP became
effective in connection with our initial public offering in April 2019. We believe that allowing our employees to participate in our ESPP provides
them with a further incentive towards ensuring our success and accomplishing our corporate goals.
The ESPP includes a component that is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue
Code of 1986, as amended, or the 423 Component, and a component that does not comply with Section 423, or the Non-423 Component. For
purposes of this disclosure, a reference to the “ESPP” will mean the 423 Component. Unless determined otherwise by the administrator, each of
our future non-U.S. subsidiaries, if any, will participate in a separate offering under the Non-423 Component.
Authorized shares. A total of 434,000 shares of our common stock are available for sale. In addition, our ESPP provides for annual increases
in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning in fiscal year 2019, equal to the
lesser of:
•
•
1% of the outstanding shares of our common stock on the last day of the previous fiscal year;
1,200,000 shares; or
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•
such other amount as may be determined by our board of directors.
Plan Administration. Our board of directors, or a committee appointed by our board of directors will administer our ESPP, and have full but
non-exclusive authority to interpret the terms of our ESPP and determine eligibility to participate, subject to the conditions of our ESPP, as
described below. Our compensation committee will administer our ESPP. The administrator will have full and exclusive discretionary authority to
construe, interpret, and apply the terms of the ESPP, to delegate ministerial duties to any of our employees, to designate separate offerings under
the ESPP, to designate our subsidiaries and affiliates as participating in the ESPP, to determine eligibility, to adjudicate all disputed claims filed
under the ESPP and to establish procedures that it deems necessary or advisable for the administration of the ESPP, such as adopting such
procedures, sub-plans, and appendices to the enrollment agreement as are necessary or appropriate to permit participation in the ESPP by
employees who are foreign nationals or employed outside the U.S. The administrator’s findings, decisions, and determinations will be final and
binding on all participants to the full extent permitted by law.
Eligibility. Generally, all of our employees will be eligible to participate if they are customarily employed by us, or any participating subsidiary,
for at least 20 hours per week and more than five months in any calendar year. The administrator will have the discretion prior to an enrollment
date for all options granted on such enrollment date in an offering, determine that an employee who (i) has not completed at least two years of
service (or a lesser period of time determined by the administrator) since his or her last hire date, (ii) customarily works not more than 20 hours
per week (or a lesser period of time determined by the administrator), (iii) customarily works not more than five months per calendar year (or a
lesser period of time determined by the administrator), (iv) is a highly compensated employee within the meaning of Section 414(v) of the Code or
is an officer or subject to disclosure requirements under Section 16(a) of the Exchange Act, is or is not eligible to participate in such offering
period.
However, an employee may not be granted rights to purchase shares of our common stock under our ESPP if such employee:
•
•
immediately after the grant would own capital stock possessing 5% or more of the total combined voting power or value of all classes of
our capital stock; or
hold rights to purchase shares of our common stock under all of our employee stock purchase plans that accrue at a rate that exceeds
$25,000 worth of shares of our common stock for each calendar year.
Offering Periods. Our ESPP will include a component that allows us to make offerings intended to qualify under Section 423 of the Code and
a component that allows us to make offerings not intended to qualify under Section 423 of the Code to designated companies, as described in our
ESPP. Our ESPP will provide for six-month offering periods. The offering periods will be scheduled to start on the first trading day on or after May
20th and November 20th of each year, except for the first offering period, which will commenced on the first trading day on or after completion of
our initial public offering and will end on the first trading day on or after November 20, 2019. Each offering period will consist of one 6-month
purchase period, which will commence with one exercise date and end with the next exercise date.
Contributions. Our ESPP will permit participants to purchase shares of our common stock through payroll deductions of up to 10% of their
eligible compensation. A participant will be able to purchase a maximum of 2,000 shares of our common stock during a purchase period.
Exercise of Purchase Right. Amounts deducted and accumulated by the participant will be used to purchase shares of our common stock at
the end of each six-month purchase period. The purchase price of the shares will be 85% of the lower of the fair market value of our common
stock on the first trading day of each offering period or on the exercise date. Participants will be able to end their participation at any time during
an offering period and will be paid their accrued contributions that have not yet been used to
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purchase shares of our common stock. Participation will end automatically upon termination of employment with us.
Non-Transferability. A participant will not be able to transfer rights granted under our ESPP. If our compensation committee permits the
transfer of rights, it may only be done by will, the laws of descent and distribution or as otherwise provided under our ESPP.
Merger or Change in Control. Our ESPP will provide that in the event of a merger or change in control, as defined under our ESPP, a
successor corporation may assume or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute for
the outstanding purchase right, the offering period then in progress will be shortened, and a new exercise date will be set that will be before the
date of the proposed merger or change in control. The administrator will notify each participant that the exercise date has been changed and that
the participant’s option will be exercised automatically on the new exercise date unless prior to such date the participant has withdrawn from the
offering period.
Amendment; Termination. The administrator will have the authority to amend, suspend or terminate our ESPP, except that, subject to certain
exceptions described in our ESPP, no such action may adversely affect any outstanding rights to purchase shares of our common stock under our
ESPP. Our ESPP automatically will terminate in fiscal year 2039 unless we terminate it sooner.
2007 Stock Plan, as Amended
Our board of directors adopted, and our stockholders approved, our 2007 Stock Plan, or the 2007 Plan, in March 2007. Our 2007 Plan was
most recently amended in June 2018. Our 2007 Plan allows for the grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, to our employees and our parent and subsidiary corporations’ employees, and for the grant of
nonstatutory stock options and shares of common stock to our employees, directors and consultants and our parent and subsidiary corporations’
employees, directors and consultants.
Authorized Shares. Our 2007 Plan was terminated in connection with our initial public offering in April 2019, and accordingly, no shares are
available for issuance under the 2007 Plan. Our 2007 Plan continues to govern outstanding awards granted thereunder. As of December 31,
2019, options to purchase 3,499,992 shares of our common stock remained outstanding under our 2007 Plan. In the event that an outstanding
option or other right for any reason expires or is canceled, the shares allocable to the unexercised portion of such option or other right shall be
added to the number of shares then available for issuance under the 2019 Plan once adopted by our board of directors and our stockholders.
Plan Administration. Our board of directors or a committee of our board (the administrator) administers our 2007 Plan. Subject to the
provisions of the 2007 Plan, the administrator has the full authority and discretion to take any actions it deems necessary or advisable for the
administration of the 2007 Plan. All decisions, interpretations and other actions of the administrator are final and binding on all participants in the
2007 Plan.
Options. The 2007 Plan was terminated, and accordingly, no additional options may be granted under our 2007 Plan. Prior to the termination
of the 2007 Plan the exercise price per share of all options must equal at least 100% of the fair market value per share of our common stock on
the date of grant, as determined by the administrator. The term of a stock option may not exceed 10 years. With respect to any participant who
owns 10% of the voting power of all classes of our outstanding stock as of the grant date, the term of an incentive stock option granted to such
participant must not exceed five years and the exercise price per share of such incentive stock option must equal at least 110% of the fair market
value per share of our common stock on the date of grant, as determined by the administrator. The 2007 Plan administrator determines the terms
and conditions of options.
After termination of an employee, director or consultant, he or she may exercise his or her option for the period of time as specified in the
applicable option agreement. If termination is due to death or
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disability, the option generally will remain exercisable for at least six months. In all other cases, the option will generally remain exercisable for at
least 30 days. However, an option generally may not be exercised later than the expiration of its term.
Shares of Common Stock. Prior to the termination of the 2007 Plan shares of our common stock may be granted under our 2007 Plan as a
purchasable award. The administrator will determine the purchase price and the number of shares granted to the award recipient. Stock purchase
rights generally must be exercised within 90 days of grant.
Transferability of Awards. Unless our administrator provides otherwise, our 2007 Plan generally does not allow for the transfer or assignment
of options or stock purchase rights, except by will or by the laws of descent and distribution. Shares issued upon exercise of an option will be
subject to such terms and conditions as the administrator may determine, including rights of first refusal and other transfer restrictions.
Certain Adjustments. In the event of a subdivision of our outstanding stock, a declaration of a dividend payable in shares, a combination or
consolidation of our outstanding stock into a lesser number of shares, a reclassification, or any other increase or decrease in the number of issued
shares of stock effected without receipt of consideration by us, the 2007 Plan will be appropriately adjusted by the administrator as to the class
and maximum number of securities subject to the 2007 Plan and the class, number of securities and price per share of common stock subject to
outstanding awards under the 2007 Plan, provided that our administrator will make any adjustments as may be required by Section 25102(o) of
the California Corporations Code.
Merger or Change in Control. Our 2007 Plan provides that, in the event that we are a party to a merger or change in control, outstanding
options and stock purchase rights may be assumed or substituted by the successor corporation or a parent or subsidiary thereof. In the event the
successor corporation refuses to assume or substitute for the option or stock purchase right, then the vesting of such awards will be fully
accelerated and the administrator will notify the holder in writing or electronically that such awards will be fully exercisable and vested for a period
as determined by the administrator, and such awards will terminate upon expiration of such period.
Amendment; Termination. Our board of directors terminated the 2007 Plan in April 2019 and no further awards will be granted thereunder. All
outstanding awards will continue to be governed by their existing terms.
NeuroCo, Inc. 2015 Equity Incentive Plan
In connection with our acquisition of NeuroCo, Inc. on December 17, 2018, our board of directors approved the assumption of the NeuroCo,
Inc. 2015 Equity Incentive Plan, or the NeuroCo Plan.
Authorized Shares. The NeuroCo Plan was terminated on April 3, 2019, and, accordingly, no shares will be available for issuance under this
plan. Our NeuroCo Plan will continue to govern outstanding awards granted thereunder. As of December 31, 2019, options to purchase 857
shares of our common stock remained outstanding under the NeuroCo Plan.
Plan Administration. Our board of directors or a committee thereof appointed by our board of directors has the authority to administer the
NeuroCo Plan. Subject to the provisions of the NeuroCo Plan, the administrator has the power to determine the terms of awards, including the
recipients, the number of shares subject to each award, the exercise price, if any, the fair market value of a share of our common stock, the
vesting schedule applicable to the awards, together with any vesting acceleration, and the terms of the award agreement for use under the
NeuroCo Plan. The administrator also has the authority, subject to the terms of the NeuroCo Plan, to institute an exchange program under which
(1) outstanding awards may be surrendered or cancelled in exchange for awards of the same type (which may have lower or higher exercise
prices and different terms), awards of a different type and/or cash, (2) participants would have the opportunity to transfer any outstanding awards
to a financial institution or
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other person or entity selected by the administrator and/or (3) the exercise price of an outstanding award is increased or reduced, to prescribe
rules and regulations pertaining to the NeuroCo Plan, including establishing sub-plans for the purposes of satisfying applicable foreign laws, and
to construe and interpret the NeuroCo Plan and awards granted thereunder.
Stock Options. The NeuroCo Plan was terminated, and accordingly, no additional options may be granted under the NeuroCo Plan. Prior to
the termination of the NeuroCo Plan the exercise price per share of all options must equal at least 100% of the fair market value per share of our
common stock on the date of grant. The term of an option may not exceed 10 years. An incentive stock option held by an employee who owns
more than 10% of the total combined voting power of all classes of our stock, or any parent or subsidiary corporations, may not have a term in
excess of five years and must have an exercise price of at least 110% of the fair market value per share of our common stock on the date of
grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares, promissory
notes or certain other property or other consideration acceptable to the administrator. After the termination of service of an employee, director or
consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, within 30 days of termination or such
longer period of time as stated in his or her option agreement. If termination is due to death or disability, the option will remain exercisable, to the
extent vested as of such date of termination, for six months or such longer period of time as stated in his or her option agreement. However, in no
event may an option be exercised later than the expiration of its term.
Restricted Stock. The NeuroCo Plan was terminated, and accordingly, no restricted stock may be granted under the NeuroCo Plan. Restricted
stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and
forfeiture provisions. Shares of restricted stock will vest, and the restrictions on such shares will lapse, in accordance with terms and conditions
established by the administrator. Recipients of restricted stock awards will generally have rights equivalent to those of a stockholder with respect
to such shares upon grant without regard to vesting.
Restricted Stock Units. The NeuroCo Plan was terminated, and accordingly, no restricted stock units may be granted under the NeuroCo
Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock.
The administrator determines the terms and conditions of restricted stock units including the vesting criteria, which may include accomplishing
specified performance criteria or continued service to us, and the form and timing of payment. Notwithstanding the foregoing, the administrator, in
its sole discretion may accelerate the time at which any restrictions will lapse or be removed.
Stock Appreciation Rights. The NeuroCo Plan was terminated, and accordingly, no stock appreciation rights may be granted under the
NeuroCo Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of shares of our common stock
between the exercise date and the date of grant. Subject to the provisions of the NeuroCo Plan, the administrator determines the terms of stock
appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our
common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock
appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Transferability of Awards. Unless the administrator provides otherwise, the NeuroCo Plan generally does not allow for the transfer of awards
other than by will or the laws of descent and distribution and only the recipient of an option may exercise such an award during his or her lifetime.
Certain Adjustments. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential
benefits available under the NeuroCo Plan, the administrator will adjust the number and class of shares that may be delivered under the NeuroCo
Plan and/or the number, class and price of shares covered by each outstanding award. In the event of our proposed liquidation or
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dissolution, the administrator will notify participants as soon as practicable, and all unexercised awards will terminate immediately prior to the
consummation of such proposed transaction.
Merger or Change in Control. The NeuroCo Plan provides that in the event of a merger or change in control, as defined under the NeuroCo
Plan, each outstanding award will be treated as the administrator determines, including, without limitation, that each award be assumed or
substituted for an equivalent award. In the event that awards are not assumed or substituted for, then the administrator will notify holders that such
awards will fully vest and such awards will become fully exercisable, if applicable, for a specified period prior to the transaction. The award will
then terminate upon the expiration of the specified period of time for no consideration, unless otherwise determined by the administrator.
Amendment, Termination. As noted above, as of April 3, 2019, the NeuroCo Plan was terminated and no further awards will be granted
thereunder. All outstanding awards will continue to be governed by their existing terms.
Executive Incentive Compensation Plan
Our board of directors has adopted an Executive Incentive Compensation Plan, or the Bonus Plan, which became effective upon the
completion of our initial public offering in April 2019. The Bonus Plan is administered by our compensation committee. The Bonus Plan allows our
compensation committee to provide cash incentive awards to selected employees, including our named executive officers, based upon
performance goals established by our compensation committee.
Under the Bonus Plan, our compensation committee determines the performance goals applicable to any award, which goals may include,
without limitation: (i) attainment of research and development milestones, (ii) bookings, (iii) business divestitures and acquisitions, (iv) cash flow,
(v) cash position, (vi) contract awards or backlog, (vii) customer renewals, (viii) customer retention rates from an acquired company, subsidiary,
business unit or division, (ix) earnings (which may include earnings before interest and taxes, earnings before taxes, and net taxes), (x) earnings
per share, (xi) expenses, (xii) gross margin, (xiii) growth in stockholder value relative to the moving average of the S&P 500 Index or another
index, (xiv) internal rate of return, (xv) market share, (xvi) net income, (xvii) net profit, (xviii) net sales, (xix) new product development, (xx) new
product invention or innovation, (xxi) number of customers, (xxii) operating cash flow, (xxiii) operating expenses, (xxiv) operating income,
(xxv) operating margin, (xxvi) overhead or other expense reduction, (xxvii) product defect measures, (xxviii) product release timelines, (xxix)
productivity, (xxx) profit, (xxxi) retained earnings, (xxxii) return on assets, (xxxiii) return on capital, (xxxiv) return on equity, (xxxv) return on
investment, (xxxvi) return on sales, (xxxvii) revenue, (xxxviii) revenue growth, (xxxix) sales results, (xl) sales growth, (xli) stock price, (xlii) time to
market, (xliii) total stockholder return, (xliv) working capital, a (xlv) individual objectives such as peer reviews or other subjective or objective
criteria, (xlvi) clinical quality metrics, (xlvii) regulatory milestones related to the U.S. Food and Drug Administration, Centers for Medicare and
Medicaid Services, or other government agencies, (xlviii) intellectual property milestones, (xlix) physician training, and (l) any other goals or
metrics related to the optimal management of a medical device company. Performance goals that include our financial results may be determined
in accordance with GAAP or such financial results may consist of non-GAAP financial measures and any actual results may be adjusted by the
compensation committee for one-time items or unbudgeted or unexpected items when performance goals that include our financial results may be
determined in accordance with GAAP, or such financial results may consist of non-GAAP financial measures, and any actual results may be
adjusted by the compensation committee for one-time items or unbudgeted or unexpected items when determining whether the performance
goals have been met. The goals may be on the basis of any factors the compensation committee determines relevant, and may be adjusted on an
individual, divisional, business unit or company-wide basis. The performance goals may differ from participant to participant and from award to
award.
Our compensation committee may, in its sole discretion and at any time, increase, reduce or eliminate a participant’s actual award, and/or
increase, reduce or eliminate the amount allocated to the bonus pool for a particular performance period. The actual award may be below, at or
above a participant’s target
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award, in the compensation committee’s discretion. Our compensation committee may determine the amount of any reduction on the basis of
such factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers.
Actual awards are paid in cash only after they are earned, which usually requires continued employment through the date a bonus is paid.
Our compensation committee has the authority to amend, alter, suspend or terminate the Bonus Plan provided such action does not impair the
existing rights of any participant with respect to any earned bonus.
401(k) Plan
We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis.
We may make a discretionary matching contribution to the 401(k) plan, and may make a discretionary employer contribution to each eligible
employee each year. Through December 31, 2019, we have not made any matching or profits sharing contributions into the 401(k) plan.
Beginning in January 2020, we started matching employees' contributions to the 401(k) plan at 50% of the first 5% of compensation deferred to
the 401(k) plan. All participants’ interests in their deferrals are 100% vested when contributed. Pre-tax contributions are allocated to each
participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The 401(k) plan
is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and
earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan, and all contributions are deductible by us
when made.
Director Compensation
Prior to the completion of our initial public offering in April 2019, except for Donald Zurbay, non-employee members of our board of directors
did not receive any cash compensation for service on our board of directors or committees, including attending board and committee meetings.
However, we did reimburse our non-employee directors for travel, lodging and other reasonable expenses incurred in attending board, committee
and other company related meetings. In addition, from time to time we have granted stock options to some of our directors.
Our Board of Directors approved our Outside Director Compensation Policy in April 2019 to compensate each non-employee director for his
or her service. Our board of directors will have the discretion to revise non-employee director compensation as it deems necessary or appropriate.
Each non-employee director is eligible to receive compensation for his or her service consisting of annual cash retainers and equity awards, as
described below:
Cash Compensation. All non-employee directors are entitled to receive the following cash compensation for their services:
•
•
•
•
•
•
•
$40,000 per year for services as a board member;
$46,000 per year additionally for service as chairman of the board of directors;
$20,000 per year additionally for service as chairman of the audit committee;
$8,000 per year additionally for service as an audit committee member;
$15,000 per year additionally for service as chairman of the compensation committee;
$6,000 per year additionally for service as a compensation committee member;
$5,000 per year additionally for service as a nominating and corporate governance committee member; and
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•
$9,000 per year additionally for service as chairman of the nominating and corporate governance committee.
Each annual cash retainer and additional annual fee is paid quarterly in arrears on a prorated basis.
Each non-employee director may also elect to receive all or part of his or her cash retainer and additional fee payments in the form of stock
options under our 2019 Plan. Elections to receive cash retainer and additional fee payments in the form of options with respect to services to be
performed during the period commencing on the date of an annual meeting of our stockholders, or an Annual Meeting, and ending on the
following year’s Annual Meeting must generally be made on or prior to December 31st of the year prior to the year in which such annual period
commences, or such earlier deadline as established by our board of directors or compensation committee (an “annual election”). Each individual
who first becomes a non-employee director is permitted to elect to convert cash retainer and additional fee payments payable in the same
calendar year through the date of the following year’s Annual Meeting into options, provided that the election is made prior to the date the
individual becomes a non-employee director (an “initial election”).
All options granted in lieu of cash retainer and additional fee payments will vest in quarterly installments that generally track when cash
retainer or additional fee payments would have been paid, with the final vesting event occurring on the date of the next Annual Meeting following
the date of grant. Options granted in connection with an annual election will generally be granted on the date of the next Annual Meeting following
the calendar year in which the election is made. Options granted in connection with an initial election will generally be granted either on the fifth of
the month following the month of the individual’s election or appointment to our board of directors or on the date of the next Annual Meeting that
occurs in the same calendar year as the individual’s election or appointment to our board of directors.
Equity Compensation. Non-employee directors are entitled to receive all types of awards (except incentive stock options) under the 2019 Plan
(or the applicable equity plan in place at the time of grant), including discretionary awards not covered under the Outside Director Compensation
Policy. Nondiscretionary, automatic grants of stock options are made to our non-employee directors as follows:
•
•
Initial Option Grant. Each person who first becomes a non-employee director will be granted an award of stock options with a value of
$175,000.
Annual Option Grant. Each non-employee director will be granted an award of stock options with a value of $100,000 on the date of each
Annual Meeting, beginning with the 2020 Annual Meeting.
The “value” for the options described above means the grant date fair value calculated in accordance with the Black-Scholes option valuation
methodology, or such other methodology our board of directors or compensation committee may determine. The term of each option described
above will be ten years from the date of grant, subject to earlier termination as provided in the 2019 Plan. The exercise price per share of each
option will equal the closing trading price of a share of our common stock on the date of grant.
Subject to the applicable provisions of the 2019 Plan as further described under the section titled “Employee Benefit and Stock Plans,” (i)
each Initial Option Grant will be scheduled to vest as to one-third of the shares subject to such Initial Option Grant on each annual anniversary of
the date the applicable non-employee’s service as a non-employee director commenced, subject to the non-employee director continuing to
provide services to the Company through the applicable vesting date and (ii) each Annual Option Grant will be scheduled to vest on the earlier of
(a) the annual anniversary of the date of grant of such Annual Option Grant, or (b) the day immediately prior to the Annual Meeting next following
the date the Annual Option is granted, provided that for either (a) or (b), the non-employee director has remained in continuous service with the
Company through the applicable vesting date. Additionally, pursuant to our Outside Director Compensation Policy, in the event of a change in
control, each outstanding and
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unvested equity award, including each Initial Option Grant and Annual Option Grant, held by a non-employee director who remains in continuous
service through the date of such change in control will accelerate and fully vest.
Pursuant to our Outside Director Compensation Policy, no non-employee director may be issued, in any fiscal year, cash compensation and
equity awards with an aggregate value greater than $500,000, increased to $1,000,000 for the fiscal year an individual initially becomes a member
of our board of directors. Any cash compensation paid or equity awards granted to an individual for his or her services as an employee, for his or
her services as a consultant (other than as a non-employee director), will not count for purposes of this limitation.
2019 Director Compensation Table
The following table sets forth a summary of the compensation received by our non-employee directors during our fiscal year ended December
31, 2019:
Name
Ruoxi Chen
Tony M. Chou, M.D.
Amr Kronfol
Jack W. Lasersohn
Robert E. Mittendorf, M.D.
Elizabeth H. Weatherman
Donald J. Zurbay
Fees Earned or Paid
in Cash ($) (1)
Option Awards
($) (2)(3)
Total ($)
$
31,500 $
23,333
23,333
32,756
26,833
29,212
51,168
102,903 $
97,071
97,071
103,312
99,560
100,395
80,411
134,403
120,404
120,404
136,068
126,393
129,607
131,579
_________________
(1)
(2)
(3)
The amounts reported represent the aggregate dollar amount of all fees earned or paid in cash to each non-employee director for their service as a director during fiscal year 2019, including any annual
retainer fees, committee and/or chairmanship fees. Certain non-employee directors elected to receive their cash retainer and additional fee payments in the form of stock options. The fair value of stock
option awards received in lieu of cash was $53,992 for Mr. Chen, $39,994 for Dr. Chou, $39,994 for Mr. Kronfol, $54,984 for Mr. Lasersohn, $45,983 for Dr. Mittendorf, and $47,985 for Ms. Weatherman.
The amount reported represents the aggregate grant-date fair value of the stock options awarded, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any
estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant-date fair value of the options reported in this column are set forth in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Common Stock Valuation and Stock-Based Compensation.”
These amounts include the additional value of the option awards received by Mr. Chen ($22,492), Dr. Chou ($16,660), Mr. Kronfol ($16,660), Mr. Lasersohn ($22,900), Dr. Mittendorf ($19,149), and Ms.
Weatherman ($19,985) in connection with their respective elections to receive their cash retainers and additional fees in the form of stock options.
Options outstanding as of December 31, 2019, held by our non-employee directors were as follows:
Name
Ruoxi Chen
Tony M. Chou, M.D.
Amr Kronfol
Jack W. Lasersohn
Robert E. Mittendorf, M.D.
Elizabeth H. Weatherman
Donald J. Zurbay
Shares Subject to
Outstanding Options
11,849
11,087
11,087
11,903
11,413
46,707
184,147
Directors who are also our employees receive no additional compensation for their service as directors. During 2019, Erica J. Rogers, who is
one of our directors, was also an employee of our
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Table of Contents
company. See “Executive Compensation—Summary Compensation Table” for additional information about the compensation for Ms. Rogers.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an
equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or its
compensation committee. None of the current members of the compensation committee of our board of directors has been one of our employees
within the past five years.
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Table of Contents
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information concerning beneficial ownership of our common stock as of February 28, 2020, by:
•
•
•
•
Each stockholder, or group of affiliated stockholders, that we know owns more than 5% of our outstanding common stock;
Each of our executive officers;
Each of our directors; and
All of our executive officers and directors as a group.
The percentage of shares beneficially owned is computed on the basis of 31,353,906 shares of our common stock outstanding as of February
28, 2020. Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power or investment power
with respect to the securities held. We have deemed shares of our common stock subject to stock options that are currently exercisable or
exercisable within 60 days of February 28, 2020, to be outstanding and to be beneficially owned by the person holding the stock option for the
purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of
computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, (i) the persons or entities named have sole voting and investment power with respect to all
shares of our common stock shown as beneficially owned by them, and (ii) the address for each beneficial owner is c/o Silk Road Medical, Inc.,
1213 Innsbruck Dr, Sunnyvale, CA 94089.
Name of Beneficial Owner
5% and Greater Stockholders:
Entities affiliated with Warburg Pincus & Co(1)
Entities affiliated with Wells Fargo & Company(2)
Entities affiliated with Janus(3)
Executive Officers and Directors:
Erica J. Rogers(4)
Lucas W. Buchanan(5)
Andrew S. Davis(6)
Richard M. Ruedy(7)
Elizabeth H. Weatherman(8)
Tony M. Chou, M.D.(9)
Ruoxi Chen(10)
Amr Kronfol(11)
Jack W. Lasersohn(12)
Robert E. Mittendorff, M.D.(13)
Donald J. Zurbay(14)
All executive officers and directors as a group
(11 persons)(15)
_________________
Shares Beneficially
Owned
Number of
Shares
5,906,301
2,309,767
1,928,928
1,117,890
435,024
238,338
198,994
303,742
97,799
2,204
1,632
7,304
1,877
91,268
Percentage
18.8%
7.4%
6.2%
3.5%
1.4%
*
*
1.0%
*
*
*
*
*
*
2,496,072
7.8%
Represents ownership of less than 1%.
*
(1) Consists of (i) 183,090 shares of common stock beneficially owned by Warburg Pincus X Partners, L.P. (“WPXP”), and (ii) 5,723,211 shares of common stock beneficially owned by WP X Finance, L.P.
(“WP X Finance”). WPX GP, L.P., a Delaware limited partnership (“WPX GP”), is the managing general partner of WP X Finance. Warburg Pincus Private Equity X, L.P., a Delaware limited partnership
(“WP X”), is the general
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Table of Contents
partner of WPX GP. Warburg Pincus X, L.P., a Delaware limited partnership (“WPX LP”), is the general partner of WPX and WPXP. Warburg Pincus X GP L.P., a Delaware limited partnership (“WP X GP
LP”), is the general partner of WPX LP. WPP GP LLC, a Delaware limited liability company (“WPP GP”), is the general partner of WP X GP LP. Warburg Pincus Partners, L.P., a Delaware limited
partnership (“WP Partners”), is the managing member of WPP GP. Warburg Pincus Partners GP LLC, a Delaware limited liability company (“WP Partners GP”), is the general partner of WP Partners.
Warburg Pincus & Co., a New York general partnership (“WP”), is the managing member of WP Partners GP. The business address for each of these entities and individuals is c/o Warburg Pincus & Co.,
450 Lexington Avenue, New York, New York 10017.
Ruoxi Chen, a Principal at Warburg Pincus & Co., and Amr Kronfol, a Managing Director at Warburg Pincus & Co., are members of our board of directors, and both have no voting or dispositive power
with respect to any of the above referenced shares and each disclaims beneficial ownership of such shares except to the extent of his or her respective pecuniary interest therein. All indirect holders of
the above referenced shares disclaim beneficial ownership of all applicable shares except to the extent of their pecuniary interest therein.
(2) Consists of 2,309,767 shares of common stock held by entities affiliated with Wells Fargo and Company, based on information provided by Wells Fargo and Company in Schedule 13G filed with the SEC on
February 4, 2020.
(3) Consists of 1,928,928 shares of common stock held by entities affiliated with Janus Henderson Group PLC, based on information provided by Janus Henderson Group PLC in Schedule 13G filed with the
SEC on February 14, 2020. The shares owned by Janus Henderson Capital Fund, Janus Henderson Global Life Sciences Fund and Buoybreeze (collectively, the “Funds”) may be deemed to be
beneficially owned by Janus Capital Management LLC (“Janus”), an investment advisor registered under the Investment Advisers Act of 1940, who acts as investment adviser for the Funds set forth
above and has the ability to make decisions with respect to the voting and disposition of the shares subject to the oversight of the board of trustees (or similar entity) of each Fund. Under the terms of its
management contract with each Fund, Janus has overall responsibility for directing the investments of the Fund in accordance with the Fund’s investment objective, policies and limitation. Each Fund has
one or more portfolio managers appointed by and serving at the pleasure of Janus who makes decisions with respect to the disposition of the Shares. The address for Janus is 151 Detroit Street, Denver,
CO 80206.
(4) Consists of (i) 97,546 shares of common stock held directly by Ms. Rogers, (ii) 83,843 shares of common stock held by Kevin J. Surace and Erica J. Rogers, as Trustees of The Surace/Rogers Family
Trust, and (iii) 936,501 shares of common stock issuable pursuant to options held directly by Ms. Rogers exercisable within 60 days of February 28, 2020.
(5) Consists of (i) 89,410 shares of common stock held directly by Mr. Buchanan, (ii) 13,518 shares of common stock held by the Buchanan Grandchildren’s Irrevocable Trust, and (iii) 332,096 shares of
common stock issuable pursuant to options held directly by Mr. Buchanan exercisable within 60 days of February 28, 2020.
(6) Consists of (i) 13,540 shares of common stock held directly by Mr. Davis, and (ii) 224,798 shares of common stock issuable pursuant to options held directly by Mr. Davis exercisable within 60 days of
February 28, 2020.
(7) Consists of (i) 7,794 shares of common stock held directly by Mr. Ruedy, (ii) 70 shares of common stock held by Linda Ruedy, and (iii) 191,130 shares of common stock issuable pursuant to options held
directly by Mr. Ruedy exercisable within 60 days of February 28, 2020.
(8) Consists of (i) 275,394 shares of common stock held directly by Ms. Weatherman, and (ii) 28,348 shares of common stock issuable pursuant to options held directly by Ms. Weatherman and exercisable
within 60 days of February 28, 2020.
(9) Consists of (i) 96,197 shares of common stock held directly by Dr. Chou, and (ii) 1,632 shares of common stock issuable pursuant to options held directly by Dr. Chou exercisable within 60 days of
February 28, 2020.
(10) Consists of 2,204 shares of common stock issuable pursuant to options held directly by Mr. Chen exercisable within 60 days of February 28, 2020.
(11) Consists of 1,632 shares of common stock issuable pursuant to options held directly by Mr. Kronfol exercisable within 60 days of February 28, 2020.
(12) Consists of (i) 5,060 shares of common stock held directly by Mr. Lasersohn, and (ii) 2,244 shares of common stock issuable pursuant to options held directly by Mr. Lasersohn exercisable within 60 days
of February 28, 2020.
(13) Consists of 1,877 shares of common stock issuable pursuant to options held directly by Dr. Mittendorf exercisable within 60 days of February 28, 2020.
(14) Consists of 91,268 shares of common stock issuable pursuant to options held directly by Mr. Zurbay exercisable within 60 days of February 28, 2020.
(15) Consists of (i) 682,342 shares of common stock and common stock purchase warrants held by our current directors and officers and entities affiliated with certain of our current directors and officers, and
(ii) 1,813,730 shares of common stock issuable pursuant to stock options held by such directors and officers and exercisable within 60 days of February 28, 2020.
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information as of December 31, 2019. Information is included for equity
compensation plans approved by our stockholders. We do not have any equity compensation plans not approved by our stockholders.
Plan Category
Equity Compensation Plan Approved by Stockholders (1)
Equity Compensation Plan Not Approved by Stockholders
Total
(a) Number of
Securities to be
Issued Upon Exercise
of Outstanding
Options, Warrants and
Rights
(b) Weighted
Average Exercise
Price of Outstanding
Options, Warrants
and Rights(2)
(c) Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities Reflected
in Column (a))
4,310,790 $
— $
4,310,790
7.91
—
1,927,042
—
1,927,042
_________________
(1)
Includes the following plans: 2007 Stock Option Plan, NeuroCo 2015 Equity Incentive Plan, 2019 Equity Incentive Plan (“2019 Plan”), and 2019 Employee Stock Purchase Plan (“2019 ESPP”). Our 2019
Plan provides that on January 1st of each fiscal year commencing in 2020 and ending on (and including) January 1, 2029, the number of shares authorized for issuance under the 2019 Plan is
automatically increased by a number
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Table of Contents
equal to the lesser of (i) 3,000,000 shares; (ii) 4.0% of the outstanding shares of our common stock as of the last day of the immediately preceding fiscal year or; (iii) such other amount as our board of
directors may determine. Our 2019 ESPP provides that on January 1st of each fiscal year commencing in 2020 and ending on (and including) January 1, 2039, the number of shares authorized for
issuance under the 2019 ESPP is automatically increased by a number equal to the lesser of (i) 434,000 shares; (ii) 1.0% of the outstanding shares of our common stock as of the last day of the
immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine.
The weighted average exercise price relates solely to outstanding stock option shares.
(2)
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than compensation arrangements, we describe below transactions and series of similar transactions, since January 1, 2017, to which
we were a party or will be a party, in which:
•
•
The amounts involved exceeded or will exceed $120,000; and
Any of our directors, executive officers, or holders of more than 5% of our common stock, or any member of the immediate family of the
foregoing persons, had or will have a direct or indirect material interest.
Compensation arrangements for our directors and named executive officers are described elsewhere in this Annual Report on Form 10-K.
Certain Transactions with Related Persons
During 2017 and 2018, the wife of Richard Ruedy, Executive Vice President of Clinical and Regulatory Affairs and Quality Assurance, was
employed by the Company as Senior Director of Clinical and Regulatory Affairs. In 2017, Mr. Ruedy’s wife earned total compensation of
$204,883. In 2018, Mr. Ruedy’s wife earned total compensation and severance of $315,900. Total compensation includes salary and bonus. In
2019, Mr. Ruedy’s wife transitioned to a regulatory consultant at a rate of $30,000 per month through March 31, 2019. The compensation of Mr.
Ruedy’s wife was consistent with that of other employees with equivalent qualifications and responsibilities and holding similar positions, and Mr.
Ruedy recused himself from any decision regarding the hiring of, or compensation related to his wife.
Series C Preferred Stock Financing
Between August 2014 and July 2017, we issued an aggregate 12,227,992 shares of our Series C preferred stock at a purchase price of $6.11
per share. The aggregate purchase price in the table below reflects the price paid for the Series C preferred stock only and not for the warrants.
The shares of Series C preferred stock converted into an aggregate of 12,227,992 shares of common stock upon the completion of our initial
public offering. The table below sets forth the number of shares of Series C preferred stock and the number of warrant shares issued in
connection with our Series C preferred stock financing to our directors, executive officers and holders of more than 5% of our capital stock:
Name
Entities affiliated with Warburg Pincus & Co.(1)
Entities affiliated with Janus(2)
Entities affiliated Norwest Venture Partners(3)
Entities affiliated with The Vertical Group, Inc.(4)
Elizabeth H. Weatherman
Erica J. Rogers(5)
Lucas W. Buchanan(6)
Andrew S. Davis
Number of
Shares
Number of Warrant
Shares
Aggregate
Purchase
Price
5,904,180
2,458,210
2,458,210
656,015
163,880
9,012
18,843
12,290
2,214,626 $
36,027,324.24
—
—
246,067
40,970
1,638
4,915
—
14,999,999.68
14,999,999.68
4,003,022.74
999,995.76
54,997.10
114,993.32
74,998.10
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Table of Contents
_________________
(1) Affiliates of Warburg Pincus holding our securities, whose shares are aggregated for purposes of reporting the above share purchase information, are WP X Finance, L.P., which purchased 5,721,152
shares, and Warburg Pincus X Partners, L.P., which purchased 183,028 shares.
(2) Affiliates of Janus holding our securities, whose shares are aggregated for purposes of reporting the above share purchase information, are Buoybreeze + Co (a State Street Nominee), which purchased
1,610,446 shares, and Janus Capital Funds PLC on behalf of its Series Janus Global Life Sciences Fund, which purchased 847,764 shares.
The affiliate of Norwest Venture Partners holding our securities is Norwest Venture Partners XIII, LP, which purchased 2,458,210 shares.
(3)
(4) Affiliates of the Vertical Group holding our securities, whose shares are aggregated for purposes of reporting the above share purchase information, are Vertical Fund I, L.P., which purchased 524,814
shares, and Vertical Fund II, L.P., which purchased 131,201 shares.
Includes 9,012 shares held of record by The Surace/Rogers Family Trust, of which Erica J. Rogers, one of our executive officers, serves as trustee.
Includes 10,651 shares held of record by the Buchanan Grandchildren’s Irrevocable Trust, of which Mr. Buchanan, one of our executive officers, serves as trustee.
(5)
(6)
Stockholders Agreement
In July 2017, in connection with the final closing of our Series C preferred stock financing, we entered into an amended and restated
stockholders agreement with certain holders of our convertible preferred stock, including entities with which certain of our directors are affiliated.
Registration Rights Agreement
In July 2017, in connection with the final closing of our Series C preferred stock financing, we entered into an amended and restated
registration rights agreement with certain holders of our convertible preferred stock, including entities with which certain of our directors are
affiliated. The amended and restated registration rights agreement was amended on March 21, 2019. For a detailed description of registration
rights under this agreement (as amended), see “Description of Capital Stock—Registration Rights.” Upon the completion of our initial public
offering in April 2019, the information rights and right of first refusal under the stockholders agreement terminated.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things,
require us to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses
such as attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by the director or officer in any action or proceedings,
including any action or proceeding by or in right of us, arising out of the person’s service as a director or officer. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions,
or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable.
NeuroCo Merger
We established a holding company, NeuroCo, Inc., to hold certain intellectual property and to undertake certain research and development
activities. On December 17, 2018, we and NeuroCo entered into an Agreement and Plan of Merger pursuant to which we acquired all assets,
including the assignment of all patents, and assumed all liabilities of NeuroCo. The merger closed on the same day and was consummated
through a stock-for-stock transaction based on the relative values of our equity and NeuroCo’s equity. In consideration for 100% equity interest of
NeuroCo, we issued 33,462 shares of our common stock, and a promissory note in the principal amount of approximately $1.6 million was settled
and canceled. We assumed NeuroCo’s 2015 Equity Incentive Plan, or the NeuroCo Plan. As of the merger closing, the outstanding options to
purchase common stock of NeuroCo under the NeuroCo Plan converted to options to purchase 1,442 shares of our common stock, and all
outstanding warrants to purchase common stock of NeuroCo converted to warrants to purchase 7,527 shares of our common stock. As a result of
the merger, NeuroCo merged into our company, with our company being the surviving corporation.
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Table of Contents
Policies and Procedures for Related Party Transactions
Our board of directors has approved a policy that our executive officers, directors, nominees for election as a director, beneficial owners of
more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to
enter into a related person transaction with us without the prior consent of our audit committee. Any request for us to enter into a transaction with
an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any
member of the immediate family of any of the foregoing persons in which the amount involved exceeds $120,000 and such person would have a
direct or indirect interest must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such
proposal, our audit committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms
no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related
person’s interest in the transaction. We did not have a formal review and approval policy for related party transactions at the time of any of the
transactions described above. However, all of the transactions described above were entered into after presentation, consideration and approval
by our board of directors.
Item 14. Principal Accounting Fees and Services
The following table presents fees for professional audit services and other services billed to us by PricewaterhouseCoopers LLP, or PwC, for
our fiscal years ended December 31, 2019 and 2018:
Year Ending December 31,
Audit fees(1)
Audit related fees
Tax fees
All other fees
Total
2019
2018
$
$
1,774,000 $
—
—
1,000
1,775,000 $
641,000
—
—
22,000
663,000
_________________
(1) Audit fees consist of professional services rendered for the audits of our financial statements and reviews of quarterly financial statements. The audit fees incurred in 2019 also include fees of $857,000
related to services performed in connection with our initial public offering, which was completed in April 2019 and our follow-on offering, which was completed in August 2019, and review of documents
filed with the SEC.
Auditor Independence
In our fiscal year ended December 31, 2019, there were no other professional services provided by PwC that would have required our audit
committee to consider their compatibility with maintaining the independence of PwC.
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting
Firm
Our audit committee expects to establish a policy governing our use of the services of our independent registered public accounting firm.
Under this policy, our audit committee will be required to pre-approve all audit and non-audit services performed by our independent registered
public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. All fees paid to
PwC for our fiscal years ended December 31, 2019 and 2018 were pre-approved by our audit committee.
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Table of Contents
Item 15. Exhibits and Financial Statement Schedules
(a)
Exhibits.
PART IV
See the Exhibit Index immediately preceding the signature page hereto for a list of exhibits filed as part of this registration statement on Form
10-K, which Exhibit Index is incorporated herein by reference.
(b)
Financial Statement Schedules.
All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto. The table below presents Schedule II, Valuation and Qualifying Accounts, detailing the activity of the allowance for
doubtful accounts and the provision for sales returns for the years ended December 31, 2019 and 2018 (in thousands):
Description
Allowance for doubtful accounts receivable:
Year ended December 31, 2019
Year ended December 31, 2018
Balance at
Beginning of Year
Charged to
expenses
Write offs
Balance at End of
Year
$
$
22 $
149 $
23 $
(123) $
— $
4 $
45
22
Description
Provision for sales returns:
Year ended December 31, 2019
Year ended December 31, 2018
Balance at
Beginning of Year
Charged to
expenses
Write offs
Balance at End of
Year
$
$
1,862 $
462 $
1,765 $
1,958 $
1,208 $
558 $
2,419
1,862
179
EXHIBIT INDEX
Incorporated by Reference
Exhibit Description
Form
File No.
Exhibit
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2+
10.3+
10.4+
10.5+
10.6#
10.7#
10.8
10.9#
10.1
10.11
10.12
10.13+
10.14+
10.15+
Amended and Restated Certificate of Incorporation of the registrant
Amended and Restated Bylaws of the registrant
Specimen Common Stock Certificate of the registrant
Amended and Restated Registration Rights Agreement by and among the registrant
and certain stockholders, dated July 7, 2017
Amended and Restated Stockholders Agreement by and among the registrant and
certain stockholders, dated July 7, 2017
Amendment to the Amended and Restated Registration Rights Agreement, dated
March 21, 2019
Description of the registrant’s securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934
Form of Indemnification Agreement for directors and executive officers
2007 Stock Plan, as amended, and related form agreement
2019 Employee Stock Purchase Plan and related form agreements
Executive Incentive Compensation Plan
2019 Equity Incentive Plan and related form agreements
Supply Agreement by and between the registrant and Cordis Corporation, dated
October 21, 2011, as amended by the Amendment dated March 12, 2012, the Second
Amendment to Supply Agreement dated July 12, 2012, the Third Amendment to
Supply Agreement dated April 19, 2013 and the Fourth Amendment to Supply
Agreement dated April 9, 2018
License Agreement by and between the registrant and Cordis Corporation, dated
December 17, 2010
Quality Assurance Agreement by and among the registrant and Lake Region Medical
and affiliates, dated May 4, 2015
Amended and Restated Manufacturing and Supply Agreement by and between the
registrant and Galt Medical Corporation, dated January 10, 2018
Term Loan Agreement by and among the registrant, certain affiliates of CRG Partners
III L.P. as lenders and certain subsidiary guarantors, dated October 13, 2015, as
amended by Amendment No. 1 to Term Loan Agreement dated January 3, 2017,
Amendment No. 2 to Term Loan Agreement dated June 22, 2017, Amendment No. 3
to Term Loan Agreement dated November 30, 2017, Amendment No. 4 to Term Loan
Agreement dated June 25, 2018, Amendment No. 5 to Term Loan Agreement dated
September 4, 2018, Amendment No. 6 to Term Loan Agreement dated November 14,
2018 and effective as of October 31, 2018, and Amendment No. 7 to Term Loan
Agreement dated June 11, 2019
Lease Agreement by and between the registrant and Hanover Properties Ltd., dated
November 30, 2017
Director Offer Letter for Donald Zurbay dated as of February 6, 2018
Confirmatory Employment Letter between the registrant and Erica Rogers, dated as of
March 21, 2019
Confirmatory Employment Letter between the registrant and Lucas Buchanan, dated
as of March 21, 2019
Confirmatory Employment Letter between the registrant and Richard Ruedy, dated as
of March 21, 2019
8-K
8-K
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
S-1
180
001-38847
001-38847
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
333-233044
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.1
Filed/Furnished
Herewith
*
Filing
Date
4/8/2019
4/8/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
8/6/2019
333-233044
10.11
8/6/2019
333-233044
333-233044
10.12
10.13
8/6/2019
8/6/2019
333-233044
10.14
8/6/2019
333-233044
10.15
8/6/2019
S-1
S-1
S-1
S-1
S-1
333-233044
10.16
8/6/2019
333-233044
10.17
8/6/2019
333-233044
10.18
8/6/2019
333-233044
10.19
8/6/2019
333-233044
10.2
8/6/2019
10.16+
10.17+
10.18+
10.19+
10.20+
23.1
24.1
31.1
31.2
32.1
Confirmatory Employment Letter between the registrant and Andrew Davis, dated as
of March 21, 2019
Change in Control and Severance Agreement between the registrant and Erica
Rogers, dated as of March 21, 2019
Change in Control and Severance Agreement between the registrant and Lucas
Buchanan, dated as of March 21, 2019
Change in Control and Severance Agreement between the registrant and Richard
Ruedy, dated as of March 21, 2019
Change in Control and Severance Agreement between the registrant and Andrew
Davis, dated as of March 21, 2019
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
** Furnished herewith.
+ Indicates a management contract or compensatory plan or arrangement.
# Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a grant of confidential treatment. The omitted information has been filed separately with the SEC.
*
*
*
*
**
*
*
*
*
*
*
181
Table of Contents
Item 16. Form 10-K Summary
Not applicable.
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
March 2, 2020
March 2, 2020
SILK ROAD MEDICAL, INC.
By:
By:
/s/ Erica J. Rogers
Erica J. Rogers
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Lucas W. Buchanan
Lucas W. Buchanan
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Erica J.
Rogers and Lucas W. Buchanan, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, with full power of
each to act alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full
power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the
following persons in the capacities and on the dates indicated:
182
Signature
Title
/s/ Erica J. Rogers
Erica J. Rogers
/s/ Lucas W. Buchanan
Lucas W. Buchanan
/s/ Ruoxi Chen
Ruoxi Chen
/s/ Tony M. Chou
Tony M. Chou, M.D.
/s/ Amr Kronfol
Amr Kronfol
/s/ Jack W. Lasersohn
Jack W. Lasersohn
/s/ Robert E. Mittendorff
Robert E. Mittendorff, M.D.
/s/ Elizabeth H. Weatherman
Elizabeth H. Weatherman
/s/ Donald J. Zurbay
Donald J. Zurbay
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Director
Director
Director
Director
Director
Director
Director
183
Date
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
Exhibit 4.5
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
Silk Road Medical, Inc. (the “Company”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended:
our common stock, par value $0.001 per share.
As used in this summary, the terms “Silk Road Medical,” “the Company,” “we,” “our” and “us” refer to Silk Road Medical, Inc.
Description of Common Stock
The following is a description of the material terms and provisions relating to our common stock. The following description is a summary that is not complete
and is subject to and qualified in its entirety by reference to our amended and restated certificate of incorporation and our amended and restated bylaws, and to
provisions of the Delaware General Corporation Law. Copies of our amended and restated certificate of incorporation and our amended and restated bylaws,
each of which may be amended from time to time, are included as exhibits to the Annual Report on Form 10-K to which this description is an Exhibit.
Voting Rights
Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of
directors. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to
elect all of the directors.
Dividends
Subject to preferences that may be applicable to any then outstanding convertible preferred stock, holders of our common stock are entitled to receive
dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available
for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders
of any then outstanding shares of convertible preferred stock.
Rights and Preferences
Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions
applicable to our common stock.
Fully Paid and Nonassessable
All of our outstanding shares of common stock are fully paid and nonassessable.
1
Exhibit 4.5
Anti-Takeover Effects or Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and
Delaware Law
Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws that are in effect
contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy
contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could
deter transactions that stock holders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a
premium over the market price for our shares.
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of a non-friendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the
following exceptions:
•
Before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder
becoming an interested holder;
• Upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding
(but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii)
employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
• On or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
In general, Section 203 defines business combination to include the following:
• Any merger or consolidation involving the corporation and the interested stockholder;
• Any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
•
Subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder;
• Any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation
beneficially owned by the interested stockholder; or
2
Exhibit 4.5
•
The receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the
corporation.
In general, Section 203 defines interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or controlled by such entity or person.
Undesignated Preferred Stock
The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of our company.
Special Stockholder Meetings
Our amended and restated bylaws provide that a special meeting of stockholders may be called only by our board of directors, the chairperson of our
board of directors, or our Chief Executive Officer or President. This provision might delay the ability of our stockholders to force consideration of a proposal or
for stockholders controlling a majority of our common stock to take any action, including the removal of directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for
election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. Our amended and
restated bylaws also specify certain requirements regarding the form and content of a stockholder’s notice.
Advance Notice of Stockholder Business
If a stockholder is submitting a stockholder proposal related to the business of the company, such stockholder must: (i) be a stockholder of record at the
time notice is given, (ii) submit the notice in a timely manner, and (iii) such business must be of a proper matter for stockholder action in accordance with our
bylaws and applicable law. To be in proper written form, a stockholder’s notice related to the business of the company must contain the following items: (i) a
brief description of the business intended to be brought before the annual meeting, the text of the proposed business (including the text of any resolutions
proposed for consideration) and the reasons for conducting such business at the annual meeting, (ii) the name and address of the stockholder proposing such
business, (iii) the class and number of shares that are held of record or are beneficially held by the stockholder, (iv) whether and the extent to which any hedging
activities have been entered into by or on behalf of such stockholder with respect to our securities, (v) any material interest of the stockholder in such business,
(vi) a statement whether such stockholder will deliver a proxy statement or form of proxy to holders required under applicable law to carry the proposal.
Advance Notice of Director Nominations
If a stockholder is submitting a nomination in connection with an annual meeting, such stockholder must: (i) be a stockholder of record at the time
notice if given, and (ii) submit the notice in a timely manner. To be in proper written form, a stockholder’s notice related to director nominations must contain
the following items with respect to each nominee: (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or
employment of the nominee, (iii) the class and number of shares of the company that are held of record or are beneficially owned by the nominee and any
derivative positions held or beneficially held by the nominee, (iv) whether and the extent to which any hedging activities have been entered into by or on behalf
of the nominee with respect to our securities, (v) a description of all arrangements or understandings between or among the stockholder, any nominee or any
other person or persons pursuant to which the nominations are to be made by the stockholder and (vi) a written statement executed by the nominee
acknowledging and representing that the nominee intends to serve a full term on our board of directors if elected. With respect to the stockholder, the notice must
contain the following items: (i) the name and address of the stockholder proposing such business, (ii) the class and number of shares that are held of
3
Exhibit 4.5
record or are beneficially held by the stockholder, (iii) whether and the extent to which any hedging activities have been entered into by or on behalf of such
stockholder with respect to our securities, (iv) any material interest of the stockholder in such business, and (v) a statement whether such stockholder will deliver
a proxy statement or form of proxy reasonably believed by such stockholder to be necessary to elect such nominee.
Elimination of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and our amended and restated bylaws eliminate the right of stockholders to act by written consent
without a meeting. As a result, a holder controlling a majority of our common stock would not be able to amend our amended and restated bylaws or remove
directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws.
Classified Board; Election and Removal of Directors
Our amended and restated certificate of incorporation and amended and restated bylaws authorizes only our board of directors to fill vacant
directorships, including newly created seats. In addition, the number of directors constituting our board of directors are permitted to be set only by a resolution
adopted by our board of directors. These provisions prevent a stockholder from increasing the size of our board of directors and then gaining control of our
board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but
promotes continuity of management.
Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our
stockholders, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a
majority of the shares of common stock outstanding will be able to elect all of our directors up for election. In addition, our amended and restated certificate of
incorporation provides that directors may only be removed for cause. For more information on the classified board, see the section entitled “Management—
Board of Directors” in our Annual Report on Form 10-K to which this description is an Exhibit. This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders
to replace a majority of the directors.
Exclusive Forum
Our amended and restated certificate of incorporation and bylaws provides that, unless we consent in writing to the selection of an alternative forum,
the sole and exclusive forum, to the fullest extent permitted by law, for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a
claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against
the company or any director or officer of the company arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated
certificate of incorporation or bylaws, or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of
the State of Delaware or federal court located within the State of Delaware if the Court of Chancery does not have jurisdiction, in all cases subject to the court’s
having jurisdiction over indispensable parties named as defendants. A complaint asserting a cause of action under the Securities Act may be brought in state or
federal court. With respect to the Securities Exchange Act of 1934, or Exchange Act, only claims brought derivatively under the Exchange Act would be subject
to the forum selection clause described above. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and
bylaws has been challenged in legal proceedings, and it is possible that, in connection with any action, a court could find the choice of forum provisions
contained in our amended and restated certificate of incorporation and bylaws to be inapplicable or unenforceable in such action. Although we believe these
provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions
may have the effect of discouraging lawsuits against us or our directors and officers. Any person or entity purchasing or otherwise acquiring any interest in our
shares of common stock shall be deemed to have notice of and consented to this exclusive forum provision, but will not be deemed to have waived our
compliance with the federal securities laws and the rules and regulations thereunder.
4
Amendment of Charter Provisions
The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would
require approval by holders of at least 66 2/3% of the voting power of our then outstanding voting stock.
The provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation and our amended and restated bylaws
may have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market
price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in
our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their
best interests.
Exhibit 4.5
Exchange Listing
Our common stock is quoted on The Nasdaq Global Market under the symbol “SILK.”
Transfer Agent
The transfer agent for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue,
Brooklyn, NY 11219.
5
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-230778) of Silk Road
Medical, Inc. of our report dated March 2, 2020 relating to the financial statements and financial statement schedule, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2020
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Erica J. Rogers, certify that:
1 I have reviewed this Annual Report on Form 10-K of Silk Road Medical, Inc.;
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)) for the registrant and we have:
a.
b.
c.
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;
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
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 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.
b.
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
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.
/s/ Erica J. Rogers
Erica J. Rogers
Chief Executive Officer
(Principal Executive Officer)
Date: March 2, 2020
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Lucas W. Buchanan, certify that:
1 I have reviewed this Annual Report on Form 10-K of Silk Road Medical, Inc.;
Exhibit 31.2
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)) for the registrant and we have:
a.
b.
c.
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;
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
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 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):
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
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.
a.
b.
/s/ Lucas W. Buchanan
Lucas W. Buchanan
Chief Financial Officer
(Principal Financial Officer)
Date: March 2, 2020
Exhibit 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Silk Road Medical, Inc. (the “Company”) on Form 10-K for the fiscal year ended December
31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Erica J. Rogers
Erica J. Rogers
Chief Executive Officer
(Principal Executive Officer)
Date: March 2, 2020
/s/ Lucas W. Buchanan
Lucas W. Buchanan
Chief Financial Officer
(Principal Financial Officer)
Date: March 2, 2020