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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number: 001-39130
TELA Bio, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1 Great Valley Parkway, Suite 24
Malvern, Pennsylvania
(Address of principal executive offices)
45-5320061
(I.R.S. Employer
Identification Number)
19355
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(484) 320-2930
(Registrant’s telephone number, including area code)
Title of each class:
Common Stock, $0.001 par value per share
Trading Symbol
TELA
Name of each exchange on which registered:
The 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. ☐ Yes ⌧ No
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
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 and post such files). ⌧ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ⌧
Accelerated filer ☐
Smaller reporting company ⌧
Emerging growth company ⌧
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
As of June 30, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the
registrant’s common stock held by non-affiliates was approximately $54.4 million based on the closing price of the common stock as reported on the
NASDAQ Global Market on June 30, 2022.
As of March 16, 2023, the registrant had 19,216,821 shares of Common Stock, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with the U.S. Securities and Exchange Commission (the “SEC”) for TELA Bio’s 2023
annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K
Table of Contents
Item No.
Page No.
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 9C.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART I
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
[RESERVED]
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
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
PART IV
EXHIBIT INDEX
SIGNATURES
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) and the documents incorporated by reference herein contain
“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we
may, through our officers and other authorized representatives, make certain forward-looking statements in publicly
released materials, both written and oral, including statements contained in filings with the Securities and Exchange
Commission, press releases, and our communications with our stockholders.
Forward-looking statements are neither statements of historical facts nor assurances of future performance, but instead
discuss the future of our business, operations, future financial performance, future financial condition, plans, anticipated
growth strategies, anticipated or perceived trends in our business, the industry in which we operate or the broader economy,
and other objectives of management. In some cases, you can identify forward-looking statements by terminology such as
“aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,”
“goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,”
“would,” the negative of such terms, and other similar expressions although not all forward-looking statements contain
these identifying words.
You should understand that the following important factors could affect our future results and could cause those results or
other outcomes to differ materially from those expressed or implied in our forward-looking statements:
● the ongoing and possible future effects arising from the COVID-19 pandemic, or other pandemics, epidemics or
outbreaks of a contagious illness, and associated economic disruptions, including the frequency of surgical
procedures using our products, labor and hospital staffing shortages, supply chain integrity, and inflation,
impacting our business, financial condition, results of operations and cash flows;
● estimates regarding future results of operations, financial position, research and development costs, capital
requirements and our needs for additional financing;
● the commercial success and the degree of market acceptance of our products;
● our ability to expand, manage and maintain our direct sales and marketing organization and to market and sell our
products in the U.S. and Europe;
● the performance of our exclusive contract manufacturer for our OviTex portfolio products, Aroa Biosurgery Ltd.
(“Aroa”), in connection with the supply of product and in the development of additional products and product
configurations within these product lines;
● our ability to maintain our supply chain integrity and expand our supply chain to manage increased demand for
our products;
● our ability to compete successfully with larger competitors in our highly competitive industry;
● our ability to achieve and maintain adequate levels of coverage or reimbursement for our current products and
any future products we may seek to commercialize;
● our ability to enhance our products, expand our indications and develop and commercialize additional products;
● the development, regulatory approval, efficacy and commercialization of competing products;
● our business model and strategic plans for our products, technologies and business, including our implementation
thereof;
● the size of the markets for our current and future products;
● our ability to attract and retain senior management and other highly qualified personnel;
● our ability to obtain additional capital to finance our planned operations;
● our ability to maintain regulatory approval for our products;
● our ability to commercialize or obtain regulatory approvals for our future products, or the effect of delays in
commercializing or obtaining regulatory approvals;
● decreasing selling prices and pricing pressures;
● regulatory developments in the U.S. and European markets;
● the potential impact of healthcare reform in the United States, including the Inflation Reduction Act of 2022, and
measures being taken worldwide designed to reduce healthcare costs;
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● the volatility of capital markets and other adverse macroeconomic factors, including due to inflationary pressures,
economic slowdown or recession, banking instability, geopolitical tensions or the outbreak of hostilities or war;
● our ability to develop and maintain our corporate infrastructure, including our internal controls;
● our ability to establish and maintain intellectual property protection for our products, as well as our ability to
operate our business without infringing the intellectual property rights of others;
● our expectations regarding the use of proceeds from recent and any future financings, if any;
● the occurrence of adverse safety events, restrictions on use with our products or product liability claims; and
● other risks and uncertainties, including those listed under the caption “Risk Factors.”
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 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. In light of the significant uncertainties in these forward-looking statements, you should not rely
upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the
forward-looking statements are reasonable, the future results, levels of activity, performance or events and circumstances
reflected in the forward-looking statements may not be achieved or occur at all.
You should refer to the section titled “Risk Factors” in this Annual Report for a discussion of important factors that may
cause our actual results to differ materially from those expressed or implied by our forward-looking statements.
Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required
by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise.
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SUMMARY RISK FACTORS
We are providing the following summary of the risk factors contained in our Form 10-K to enhance the readability
and accessibility of our risk factor disclosures. Additional discussion of the risks and uncertainties summarized in
this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Cautionary
Note Regarding Forward-Looking Statements” and “Risk Factors” in this Annual Report. The below summary is
qualified in its entirety by those more complete discussions of such risks and uncertainties.
Risks Related to Achieving or Sustaining Profitability, Financial Position and Capital Requirements
● We have incurred significant operating losses since inception, we expect to incur operating losses in the future,
and we may not be able to achieve or sustain profitability.
● Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and
competitive position.
● We may require substantial additional capital to finance our planned operations, which may not be available to us
on acceptable terms or at all.
● If we are unable to expand, manage and maintain our direct sales and marketing organizations, we may not be
able to generate anticipated revenue.
● Macroeconomic conditions, including the ongoing response to the COVID-19 pandemic may negatively impact
certain aspects of our business, our prospects, results of operations and financial condition.
● Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our
product or a decrease in consumer spending results in lower volumes of elective surgeries. In addition, if our costs
increase and we are not able to pass along these price increases, our profitability would be adversely affected, and
the adverse impact may be material.
Risks Related to the Commercialization of our Products
● To date, the vast majority of our revenue has been generated from sales of our OviTex products, and we therefore
are highly dependent on the commercial success of our OviTex product line.
● The commercial success of our products will largely depend upon attaining significant market acceptance.
● Even if we are able to attain significant market acceptance of our products, the commercial success of our
products is not guaranteed.
● The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that
lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are
deemed to have engaged in the promotion of our products for these uses.
● If we are unable to achieve and maintain adequate levels of coverage or reimbursement for our OviTex, OviTex
PRS or other products we may commercialize in the future, our commercial success may be hindered.
● Our long-term growth may depend on our ability to enhance our product offerings.
● In the future our products may become obsolete, which would negatively affect operations and financial
condition.
● To successfully market and sell our products in markets outside of the U.S., we must address many international
business risks with which we have limited experience.
Risks Related to Our Reliance on Third Parties
● We are highly dependent upon Aroa as the exclusive contract manufacturer of our OviTex portfolio products.
● We, or our partners, may experience development or manufacturing problems, capacity constraints, or delays in
the production of our products that could limit the potential growth of our revenue or increase our losses.
● Our products contain materials derived from animal sources and may become subject to additional regulation.
● Our supply of ovine rumen for use in manufacturing our products may be vulnerable to disruption due to natural
disaster, disease or other events.
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Risks Related to Intellectual Property Matters
● We may need to license intellectual property from third parties, and such licenses may not be available or may not
be available on commercially reasonable terms.
● If we fail to comply with our obligations under any license, collaboration or other agreements, we could lose
intellectual property rights that are necessary for developing and protecting our products.
● If we are unable to adequately protect our intellectual property rights, or if we are accused of infringing on the
intellectual property rights of others, our competitive position could be harmed, or we could be required to incur
significant expenses to enforce or defend our rights.
● Litigation or other proceedings or third-party claims of intellectual property infringement could require us to
spend significant time and money, enter into license agreements for disputed intellectual property and could
prevent us from selling our products.
● If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be
harmed.
Risks Related to Government Regulation
● Our products and operations are subject to extensive government regulation and oversight both in the U.S. and
internationally.
● We may not receive, or may be significantly delayed in receiving, the necessary clearances or approvals for our
future products and modifications to our current products may require new 510(k) clearances or premarket
approval (“PMA”), and may require us to cease marketing or recall the modified products until clearances or
approvals are obtained.
● Although we have obtained regulatory clearance for our products, they will remain subject to extensive regulatory
scrutiny.
● If guidelines for soft-tissue reconstruction surgery change or the standard of care evolves, we may need to
redesign and seek new marketing authorization from the U.S. Food and Drug Administration (“FDA”) for our
OviTex and OviTex PRS products or other products we may commercialize in the future.
Risks Related to Our Business and Products
● Our financial results may fluctuate significantly and may not fully reflect the underlying performance of our
business.
● We may be unable to renew existing or obtain additional contract positions with major group purchasing
organizations (“GPOs”) and integrated delivery networks (“IDNs”) for our products, and even if we are able to do
so, such contracts may not generate sufficient sales of our products.
● We have limited data and experience regarding the safety and efficacy of certain of our products. Results of
earlier studies may not be predictive of future clinical trial results, or the safety or efficacy profile for such
products.
● Interim or preliminary data from our clinical trials that we announce or publish from time to time may change as
more patient data become available and are subject to audit and verification procedures that could result in
material changes in the final data.
Risks Related to Our Securities
● The trading price of the shares of our common stock has been and could in the future be highly volatile.
● Our 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.
● We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth
companies may make our common stock less attractive to investors.
● Provisions in our corporate charter documents and under Delaware law could discourage another company from
acquiring us and may prevent attempts by our stockholders to replace or remove our current management.
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ITEM 1.
BUSINESS
Overview
PART I
We are a commercial-stage medical technology company focused on providing innovative soft-tissue reconstruction
solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy. Our
growing product portfolio is purposefully designed to leverage the patient’s natural healing response while minimizing
long-term exposure to permanent synthetic materials. We are committed to delivering our advanced technologies with a
strong economic value proposition to assist surgeons and institutions in providing next-generation soft-tissue repair
solutions to more patients worldwide.
We are dedicated to building true partnerships with surgeons and healthcare providers to deliver solutions that provide both
clinical and economic improvements. We believe that genuine collaboration with surgeons and healthcare providers results
in the development of new solutions that empower patient care.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the
U.S. in July 2016, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of
biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price.
Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million
procedures annually. Based on the volume weighted average selling price of our OviTex products, we estimate the annual
U.S. total addressable market opportunity for our OviTex products to be approximately $1.5 billion.
Our OviTex portfolio consists of multiple product configurations intended to address various surgical procedures within
hernia repair and abdominal wall reconstruction, including ventral, inguinal, and hiatal hernia repair. In addition, we have
also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as
OviTex LPR and began commercializing this product in November 2018. We recently launched two new, larger
configurations of OviTex LPR, designed for ventral and incisional hernias.
We have also focused on evaluating and publishing clinical data on the effectiveness and safety of our OviTex products. To
date, there have been thirty published or presented works relating to these clinical findings, either by us or a third-party
evaluating the OviTex product. Recently in October 2022, the 24-month results of our single arm, multicenter post-market
clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery. The BRAVO
study was designed to evaluate the clinical performance of OviTex for primary or recurrent ventral hernias using open,
laparoscopic, or robotic techniques in 92 enrolled patients. The recurrence rate at the 24-month time point was 2.6%, and
surgical site occurrences (“SSOs”) were observed in 38% of the study population. Of the enrolled patients, 78% were
characterized as high risk for experiencing an SSO based on at least one known risk factor, which included obesity, active
smoking, COPD, diabetes mellitus, coronary artery disease, or advanced age (≥75 years). The results also indicated that
BRAVO patients experienced statistically significant and clinically meaningful improvements in their quality of life and
perceived health based on patient responses to the EuroQol-5 Dimension (EQ-5D) health assessment and the validated 12-
question Hernia-Related Quality of Life survey (HerQLes). In addition to the BRAVO study and other current clinical
initiatives, we also commenced enrollment in May 2021 for our BRAVO II study, a prospective study evaluating the use of
OviTex in robot-assisted ventral and inguinal hernia repairs.
Our second portfolio of products, the OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which we first
commercialized in the U.S. in May 2019, addresses unmet needs in plastic and reconstructive surgery. OviTex PRS is
indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or
reinforcement in plastic and reconstructive surgery. Our OviTex PRS portfolio is supported by non-human primate data that
demonstrated more rapid tissue integration and tissue remodeling compared to the market leading biologic matrix used in
this indication. Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable
market opportunity for our OviTex PRS products to be approximately $700 million.
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Our OviTex products have received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”), which
clearance was obtained and is currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019,
our OviTex PRS products received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is currently
held by us. We have also engaged in discussions with the FDA regarding an Investigational Device Exemption (“IDE”)
protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery.
The FDA has stated that a PMA, rather than 510(k) clearance will be required for such an indication. We have also
commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products.
We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue
restoration portfolio, including through the development of complimentary solutions targeting surgical wound management
and infection control. In January 2023, we announced an exclusive development and distribution partnership with Collagen
Matrix, Inc. (“CMI”), pursuant to which we launched the commercialization of our NIVIS Fibrillar Collagen Pack, an
absorbent matrix of Type I and Type III bovine collagen designed to manage moderately to heavily exudating wounds and
to control minor bleeding. We also previously commercialized through a distribution agreement with Next Science
Technologies Pty Limited (“Next Science”), a proprietary antimicrobial surgical wash in the U.S. plastic reconstructive
market. We are assessing additional strategic partnerships with medical device companies whereby we may enter into
distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing
and future products in our distribution channel.
We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the
proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry.
Our intellectual property applies to our differentiated product construction and materials. In addition, we believe our
exclusive manufacturing and long-term supply and license agreement (the “Aroa License”) with Aroa creates a competitive
advantage by allowing us to secure an exclusive supply of ovine rumen at a low cost. Ovine rumen, the forestomach of a
sheep, is the source of the biologic material used in our OviTex portfolio products. In manufacturing the product, we use
biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen
architecture that allows for rapid cellular infiltration. We purchase product from Aroa at a fixed cost equal to 27% of our
net sales of licensed products.
We market our products through a single direct sales force, predominantly in the U.S., as augmented by a smaller number
of sales representatives and distributors in certain European countries. We have invested in our direct sales and marketing
infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2022,
we had 67 sales territories in the U.S. As part of our commercial strategy, we plan to continue to invest in our commercial
organization by hiring additional territory managers and administrative and field-based support employees to support and
service new accounts for soft-tissue reconstruction procedures. We believe we can enhance the productivity of our sales
force by improving customer segmentation and targeting, implementing and further refining our proprietary training
programs leveraging support from our medical education and clinical development functions to drive physician awareness
and education on our products, and utilizing engagement analytics to support product development. Additionally, we have
contracted with three national GPOs covering our OviTex portfolio and plan to continue to contract with additional GPOs
and other integrated delivery networks (“IDNs”) to increase access to and penetration of hospital accounts.
Our business was directly impacted by the COVID-19 pandemic. We experienced volatility in demand for our products
which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns,
decreasing the volume of elective procedures using our products. We saw improvement in our business during the second
half of 2022 and anticipate that procedure volumes will continue to normalize to pre-pandemic levels; however, we
continue to monitor the potential impact of COVID-19 on labor and hospital staffing levels, procedural volumes and
ultimately on our financial results.
Our revenue for the years ended December 31, 2022 and 2021 was $41.4 million and $29.5 million, respectively, which
represents an increase of $12.0 million, or 41% for the year ended December 31, 2022. Our net loss for the same time
periods was $44.3 million and $33.3 million, respectively, which represents an increase of $11.0 million, or 33% for the
year ended December 31, 2022. As of December 31, 2022, we had an accumulated deficit of $274.2 million. The vast
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majority of our revenue to date has been generated from sales of our OviTex and OviTex PRS products in the U.S., with the
remainder generated from sales of our OviTex products in Europe and the sale of other products.
Market Opportunity
OviTex
Hernia repair is one of the most common surgeries performed in the U.S. There are an estimated 1.1 million hernia repairs
annually in the U.S. including recurrences, which we categorize as approximately (i) 60,000 complex/moderate ventral
hernia repairs and abdominal wall reconstructions, (ii) 345,000 simple ventral hernia repairs and (iii) 665,000 inguinal
hernia repairs, and (iv) 40,000 hiatal hernia repairs.
The healthcare burden of hernia disease to patients, insurers and employers is significant. For the patient, a hernia may
cause an increasing level of pain when lifting, straining during urination or a bowel movement, or sitting or standing for
long periods of time. Increased pain from the hernia is the most common reason that a patient who is deferring surgical
hernia repair will ultimately elect repair surgery. Following surgical hernia repair, convalescence has a significant
socioeconomic impact. Absence from work during this period can range from approximately five to 14 days according to
one study. Pain is the most common cause of delay in returning to work, followed by wound problems. Long-term pain or
discomfort at the hernia repair site is one of the most serious complications of hernia surgery and may, in some cases,
persist for years.
Given the limitations of and lack of innovation in existing hernia repair products, we believe a significant market
opportunity exists for our portfolio of OviTex products. Based on the volume weighted average selling price of our OviTex
products, we estimate the annual U.S. total addressable market opportunity for our OviTex products to be approximately
$1.5 billion.
Approximate
Number of
Annual
U.S. Hernia
Procedures
Using
Tissue
Reinforcement
Material
60,000
345,000
665,000
40,000
1,110,000
Complex/Moderate Ventral Repair /Abdominal
Wall Reconstruction
Simple Ventral Hernia Repair
Inguinal Hernia Repair
Hiatal Hernia Repair
Total
OviTex PRS
Estimated
Annual
U.S. Total
Addressable
Market
Opportunity
$
Traditional
Products
Utilized
360 million Biologic Matrices and Resorbable
Synthetic Mesh
515 million Permanent Synthetic Mesh
600 million Permanent Synthetic Mesh
40 million Biologic Matrices and Resorbable
Synthetic Mesh
1.5 billion
$
$
$
$
Modern advances in tissue engineering have transformed the plastic and reconstructive surgeon’s management strategies
across a wide variety of applications. Because biologic matrices incorporate into host tissues and enable revascularization
and functional tissue remodeling, surgeons have realized multiple applications for their use, with techniques tailored to the
specific requirements of the surgery. There is growing clinical literature validating the use of biologic matrices in head and
neck surgery and reconstructions of the chest wall, pelvic region, extremities and breast.
In head and neck surgery, biologic matrices are used for both aesthetic and reconstructive purposes that include: surgery of
the nose to change its shape or improve its function, referred to as rhinoplasty; lip augmentation; repair of perforations of
the cartilage and thin bone separating the nostrils referred to as the nasal septum; complex reconstruction of the oral and
oropharynx cavities after oncologic resection; cleft palate repair; upper and lower eyelid reconstruction; scalp defects and
defects of the fibrous membrane covering the brain and spinal cord referred to as dura. In chest wall
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reconstruction, biologic matrices are used to repair defects from oncologic resections. In pelvic reconstruction, biologic
matrices are utilized as an adjunct in the reconstruction of acquired pelvic defects caused by resections for colorectal,
gynecologic and urologic malignancies. In extremities reconstruction, biologic matrices are used in the upper extremity for
repair of the donor site following the harvest of a radial forearm free flap, a procedure used to harvest tissue and replace it
in the head and neck after cancer has been resected. In breast reconstruction, biologic matrices are utilized for prosthetic
based reconstruction following the removal of cancerous breast tissue.
Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable market
opportunity for our OviTex PRS products to be approximately $700 million. Given the limitations of and lack of
innovation in existing biologic matrices for plastic and reconstructive surgical procedures, we believe a significant market
opportunity exists for our OviTex PRS portfolio products.
Current Materials Used in Hernia Repair and Abdominal Wall Reconstruction and Their Limitations
Hernia Repair and Abdominal Wall Reconstruction
The vast majority of hernias are treated with surgical repair. Surgical hernia repair is performed either through open repair,
which uses a single incision to open the abdomen or groin across the hernia, or minimally invasive repair, which involves
laparoscopic or robotic-assisted techniques. Laparoscopic surgery is a minimally invasive surgical technique performed in
the abdomen or groin through small incisions. Surgical instruments and devices, such as mesh products, are then delivered
to the surgical site through a trocar, which is an access port to the patient’s abdomen or groin. Robotic-assisted surgery is
also performed using small incisions in the patient’s abdomen or groin and a trocar, but the surgeon sits at a console in the
operating room and operates the robotic instruments remotely.
At the advent of hernia repair, all procedures were performed using an open surgical technique in which an incision is
made through the body to access and repair the hernia. Due to the amount of healthy soft-tissue disruption required for an
open procedure, there is a high risk of wound-related complications and seroma formation. In the early 1990s, surgeons
began using a laparoscopic approach for hernia repair because it provided the benefits of lower wound complication rates,
lower patient morbidity and decreased length of stay for patients. Despite these benefits, laparoscopic surgery presents
surgeons with challenges, primarily due to restricted instrument dexterity that makes it difficult to achieve primary closure
of the hernia defect, in which the connective tissue layer is sutured close, and leads to a bridged repair. In a bridged repair,
the tissue reinforcement material spans a portion of the hernia defect without any connective tissue layer above it to
provide additional reinforcement. This leads to increased risk of bulging of the material or hernia recurrence. Robotic-
assisted hernia repair addresses this issue while still providing the benefits of a laparoscopic repair. In robotic-assisted
repair, the surgeon enjoys greater instrument dexterity and precision, and is able to achieve primary closure of the hernia
defect. This has contributed to a significant increase in the number of robotic-assisted hernia repairs over the last
several years.
It is estimated that about 90% of hernia repairs today use a form of reconstruction material to provide long-term support at
the repair site. Reconstruction materials include synthetic mesh, which can be either permanent or resorbable, and biologic
matrices made from tissue material.
In October 2020, we surveyed a group of 71 surgeons to better understand their receptivity to natural repair solutions, their
technique preferences across their hernia practice and their views on the risks associated with plastic mesh. Feedback was
gathered across inguinal hernia, simple ventral, moderate-to-complex ventral and hiatal hernia repair. Included in the group
were 43 general surgeons (61%), 19 plastic reconstructive surgeons (27%) and the remainder were colorectal and trauma
surgeons. These surgeons indicated they believe there is a role for natural repair products across all hernia segments and
they expect to increase their usage of those products in the next 24 months. Almost 60% of surgeons stated that they are
aware of the risks associated with plastic mesh and reported approximately 20% of their hernia patients have voiced
concern about the use of plastic mesh within the past 12 months.
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Permanent Synthetic Mesh
Permanent synthetic mesh, the oldest category of hernia repair materials, is made of plastic materials that are also used in
industrial and consumer products. These products have gained popularity with surgeons because they are relatively inert,
can be readily sterilized, exhibit biomechanical strength and durability and are available at relatively low upfront cost.
Limitations of permanent synthetic mesh products may include:
● significant persistent foreign body inflammatory response that can result in encapsulation of the implant by
fibrotic tissue or contraction of the mesh;
● chronic post-operative pain;
● scar tissue formation and lack of regeneration of soft-tissue;
● permanent susceptibility to mesh infection;
● significant cost associated with subsequent repairs or failed and infected mesh;
● compromised abdominal wall anatomy due to damaged and eroded tissue rendering subsequent surgical
repairs challenging; and
● migration of the permanent synthetic mesh which can result in organ erosion or perforation.
Many of these complications caused by permanent synthetic mesh require additional surgical intervention, including,
explantation of the mesh or repair of hernia recurrence or of the abdominal wall. Based on longitudinal data from the
Danish Hernia Database, in an analysis of approximately 2,900 patients who received a hernia repair using a permanent
synthetic mesh, the observed rate of surgical intervention due to either recurrence or mesh-related complications at
five years post operatively was approximately 17%. As a result of these complications and litigation involving these
complications, the number of adverse events reported to the FDA for permanent synthetic mesh hernia repairs has risen
from 1,484 in 2016, 3,220 in 2017, 9,887 in 2018 to 18,072 in 2019. Synthetic mesh products have been the subject of an
increasing number of lawsuits with over 24,000 cases filed in federal and state courts across the U.S. as of September 2022.
Biologic Matrices
The complications associated with permanent synthetic mesh prompted the development of biologic matrices as a second
category of hernia repair materials. Biologic matrices are derived from human or animal dermis, pericardium or intestinal
submucosa, which allows them to become replaced entirely by the patient’s own tissue over time, a process known as
remodeling. The goal behind these biologic materials was to lower the foreign body inflammatory response and
biomechanical requirements of the repair, while providing a matrix upon which tissue remodeling could occur. Compared
to permanent synthetic mesh, biologic matrices are less likely to induce this inflammatory response and become infected;
however, they may have the following limitations:
● lack strength or durability as compared to synthetic mesh products;
● prone to laxity and stretching;
● difficult to handle, leading to longer operating times as compared to synthetic mesh products;
● inability to be placed in a patient through a trocar in laparoscopic or robotic-assisted surgery; and
● considerably more expensive upfront costs than permanent synthetic mesh, typically limiting their use to
complex hernia repairs or abdominal wall reconstructions.
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Though hernia recurrence occurs with the use of all types of soft-tissue reconstruction, biologic matrices have the highest
rates of recurrence, partly due to common use in complex hernia repairs or abdominal wall reconstructions. The RICH
study, a multicenter, prospective study sponsored by LifeCell Corporation (“LifeCell”) that evaluated the performance of
Strattice, the industry leader for biological tissue matrices in complex abdominal wall reconstruction, in open ventral
incisional hernia repair in contaminated abdominal wall defects, demonstrated post-operative hernia recurrence rates of
19% and 28% at 12-months and 24-months follow-up, respectively.
Resorbable Synthetic Mesh
Resorbable synthetic mesh was introduced as a third category of hernia repair materials and as an alternative to permanent
synthetic mesh and biologic matrices. Resorbable synthetic mesh was designed with the intended benefits of full
degradation over several months, a moderately lower cost than biologic matrices and gradual transfer of strength from
synthetic mesh to native tissue over time. Resorbable synthetic mesh is polymer-based and does not include biologic
material to promote tissue remodeling and healing. Despite improvements compared to the use of permanent synthetic
mesh or biologic matrices, limitations of resorbable synthetic mesh may include:
● significant foreign body inflammatory response that can result in encapsulation or contraction of the mesh
until resorbed;
● scar tissue formation and lack of remodeling of soft-tissue;
● mesh infection until resorbed;
● migration of the mesh until resorbed which can result in organ erosion or perforation; and
● lack of mid-term and long-term soft-tissue reinforcement as resorption progresses.
Many of these complications can require additional surgical intervention including explantation of the resorbable synthetic
mesh or repair of hernia recurrence or the abdominal wall. Data from a published, multicenter, prospective study sponsored
by C.R. Bard, Inc. (now a subsidiary of Becton, Dickinson and Company) that evaluated the performance of Phasix, the
current market-leading resorbable synthetic mesh, in CDC Class I, high risk ventral and incisional hernia repair, showed a
post-operative hernia recurrence rate of 9% at 18-months follow-up and 18% at 36-month follow-up.
Current Materials Used in Plastic and Reconstructive Surgery and Their Limitations
Biologic matrices are most commonly used in plastic and reconstructive surgery, including surgery of the nose to change its
shape or improve its function, referred to as rhinoplasty, lip augmentation, repair of perforations of cartilage and thin bone
separating the nostrils, complex reconstruction of the oral and oropharynx cavities after oncologic resection, cleft palate
repair, upper and lower eyelid reconstruction, scalp defects, and defects of the fibrous membrane covering the brain and
spinal cord, called the dura, because of their ability to define shape and position, improve tissue quality, reinforce existing
soft-tissue and reduce the rate of complications associated with a foreign body inflammatory response, however they are
prone to excessive stretching over time and difficult for surgeons to handle. These limitations may lead to undesirable
results requiring additional surgical intervention. Additionally, biologic matrices are typically expensive to source.
Our Solution
We have created a new category of tissue reinforcement materials that were purposefully designed in close collaboration
with more than 100 surgeons to address the unmet clinical needs in soft-tissue reconstruction. Our portfolio of products,
designed with over 95% biologic material, combines the benefits of both biologic and polymer materials while addressing
their limitations by interweaving polymer fibers through layers of a minimally-processed biologic material. These products
are priced competitively and designed for use with a range of surgical techniques, allowing the benefits
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of an advanced biologic repair to be available to more patients for use in accordance with the products’ 510(k) clearances
and instructions for use.
The biologic material serves as the natural building block from which we can fabricate devices that meet specific clinical
and surgical handling requirements. This material consists of an intact, minimally-processed extracellular matrix derived
from ovine rumen, which is the forestomach of a sheep. Polymer fibers are interwoven through the layers of biologic
material in unique embroidered patterns and contribute to approximately 5% of the overall device by mass. The interwoven
polymer utilized can be either permanent, made from polypropylene, or resorbable, made from polyglycolic acid (“PGA”).
The embroidering pattern varies between our OviTex and OviTex PRS portfolios to impart different biomechanical
properties tailored for their respective intended clinical applications. Our OviTex products are designed with a lockstitch
embroidery pattern that is sewn in a grid pattern to create a ripstop effect and minimize unraveling (when cut). Our
OviTex PRS products are designed with a patented corner-lock stitch pattern designed to resist deformation and to control
the degree and direction of stretching of the product.
Our capabilities in polymer science, biologics, textile engineering and analytical testing enable us to quickly design
innovative products for development and manufacture. These competencies also allow our technical team to tailor the
degree of stretch, direction of stretch, overall strength, handling properties, permeability, thickness, texture, size and shape
of each reinforced tissue matrix to suit the needs of particular clinical applications and surgical techniques. This expertise
has been utilized in the development of our OviTex and OviTex PRS products and is currently being leveraged in the
development of our additional OviTex product pipeline seeking to enhance product features for various applications within
our indications.
Our reinforced tissue matrices are designed to improve the outcomes of soft-tissue reconstructions by reinforcing tissue
while allowing rapid tissue integration, revascularization and biomechanical control. In addition to overall strength, a key
property that we engineer into our products is the degree to which they stretch, known as compliance. Each of our products
is designed to exhibit a degree of compliance appropriate for its intended clinical application.
The graphics below illustrate the key features of our OviTex and OviTex PRS products:
OviTex
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OviTex PRS
We believe the principal benefits of our reinforced tissue matrices are:
● Reduced foreign body inflammatory response. The biologic material utilized in our reinforced tissue
matrices is designed to minimize the body’s inflammatory response to the device. Our unique embroidered
patterns create a macroporous grid within the biologic material. In our non-human primate study in which we
compared our OviTex products to several commercially available synthetic mesh and biologic matrix
products, at 24 weeks, our OviTex products demonstrated a minimal foreign body inflammatory response
similar to that of biologic matrices, and less foreign body inflammatory response than all of the synthetic
mesh tested.
● Enhanced remodeling of soft-tissue and rate of healing. Our reinforced tissue matrices are constructed to
provide increased surface area and permeability, allowing for rapid absorption of wound fluids and blood
during implantation and enabling oxygen supply, cellular infiltration, migration, and repopulation for
revascularization and functional tissue remodeling during healing. In our non-human primate comparative
study, at 24 weeks the pattern of collagen formation in our OviTex products resembled connective tissue as
opposed to the random fibers typical of scar tissue that were seen adjacent to the synthetic mesh. By contrast,
the synthetic mesh showed no signs of remodeling of soft-tissue and exhibited a high level of mesh
contraction.
● Highly engineered biomechanical properties supported by clinical evidence. Our reinforced tissue matrices
are reinforced with interwoven polymer fibers to provide mid-term and long-term support. The interwoven
polymer increases the strength of our OviTex products by approximately 25% compared to the biologic
material alone. When tensile forces are applied, this design allows for load sharing between the biologic
material and the polymer during the remodeling process. Data from our strength testing demonstrated that
our OviTex products meet or exceed that of published data from market-leading permanent and resorbable
synthetic mesh. In our BRAVO study, the recurrence rate at the 24-month time point was 2.6%, and SSOs
were observed in 38% of the study population. Of the enrolled patients, 78%
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were characterized as high risk for experiencing an SSO based on at least one known risk factor, which
included obesity, active smoking, COPD, diabetes mellitus, coronary artery disease, or advanced age (≥75
years). Based on this data, we believe that this recurrence rate is the lowest reported rate in any published
study, including our biologic or resorbable synthetic mesh competitors. The addition of polymer to our
reinforced tissue matrices allows each product to maintain its physiologic compliance properties, while
resisting stretching and elongation. In our non-human primate comparative study, our OviTex devices best
preserved their original shape, experiencing less contraction compared to biologic and synthetic mesh.
● Enhanced surgeon handling and satisfaction. Each of our embroidery patterns was designed specifically to
allow the surgeon to trim and shape the product while minimizing the potential for unraveling of the polymer.
Based upon our survey of approximately 50 surgeons, our OviTex products conform readily to the contours
of surgical sites and are easy to handle, trim, suture and tack in all surgical approaches. In addition, in our
BRAVO study, 32 of the 92 enrolled subjects received minimally invasive surgery, of whom 12 received
laparoscopic repair and 20 received robotic repair. Of the surgeons who performed minimally invasive
surgery, all reported at the time of surgery that the product was easy or very easy to place. The average
surgeon satisfaction with the product was 9.7/10 at 30 days for the minimally invasive cohort and remained
consistent over 24 months of follow-up. We are also actively enrolling patients in our BRAVO II study, a
prospective study evaluating robot-assisted ventral and inguinal hernia repairs with OviTex, including our
OviTex LPR, OviTex Core Permanent and OviTex 1S Permanent configurations. During the fourth quarter of
2022, 40% of reported cases using OviTex were performed robotically and 20% were completed
laparoscopically, showing growing use of our OviTex product in these minimally invasive settings.
● Lower upfront cost products. Our reinforced tissue matrices provide our customers with meaningful cost
savings over leading competitive products across a range of clinical uses so that more patients can experience
the benefits of an advanced biologic repair solution. We price our OviTex products competitively, and on
average, our customers realize 20% to 40% cost savings over leading biologic matrices and resorbable
synthetic mesh. Our OviTex PRS portfolio is priced below leading biologic matrices.
Our Strengths
We are focused on developing and commercializing a new category of tissue reinforcement materials for surgeons and
patients that aim to address the shortcomings of existing products. We believe the following strengths will allow us to build
our business and potentially increase our market penetration:
● Innovative and broad portfolio of products. Our OviTex and OviTex PRS products are the only FDA-
cleared products to incorporate polymer fibers interwoven through layers of biologic material in a lockstitch
pattern creating an embroidered construction. The biologic matrix is derived from ovine rumen and utilizes a
patented process to create a reinforced tissue matrix that is optimized for soft-tissue reconstruction. Our
OviTex and OviTex PRS products are available in resorbable and permanent polymer versions in a variety of
configurations and sizes. For example, our OviTex devices are currently available in sizes ranging from 4 × 8
cm to 25 × 40 cm, and our OviTex LPR devices are designed with specific thickness, handling properties and
shapes optimized for use in laparoscopic and robotic-assisted surgery.
● Disruptive technology supported by compelling pre-clinical and clinical evidence. OviTex product
technology is supported by extensive pre-clinical research, including bench testing, in-vitro and in-vivo
studies. These studies have demonstrated appropriate physiologic strength for the repair, compliance within
the physiologic range of the human abdominal wall, retention of extracellular matrix proteins which may aid
in tissue remodeling and porosity and permeability to promote fluid transfer. Our in-vivo non-human primate
data demonstrated that use of our OviTex products resulted in more rapid tissue integration and
revascularization compared to pure biologic matrices, as well as lower inflammatory response and better
functional tissue remodeling compared to permanent and resorbable synthetic mesh. This preclinical data is
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supported by our compelling clinical evidence showing the safety and efficacy of our OviTex products in
published data on over 1,000 hernia patients.
● Long-term supply agreement that provides pricing flexibility. Our Aroa License provides for the exclusive
supply of ovine rumen and manufacture of our OviTex and OviTex PRS products, which gives us a low and
fixed cost of raw materials. We purchase product from Aroa at a fixed cost equal to 27% of our net sales of
licensed products.
● Potential cost savings to healthcare systems and hospitals. Our pricing flexibility allows us to sell our
OviTex and OviTex PRS products to hospitals and healthcare systems at prices substantially below
competitive products based on national average competitive pricing. Our OviTex products are sold at prices
approximately 20% to 40% lower than other biologic matrices and resorbable synthetic mesh. We believe our
pricing flexibility will continue to drive greater adoption of our products. Our OviTex PRS products are
priced below leading biologic matrices, and as we further commercialize our OviTex PRS portfolio, we
anticipate that our customers will realize cost savings over biologic matrices based on national average
competitive pricing. We believe that the average selling prices across our products will provide financial
benefits to our customers in addition to improving clinical outcomes.
● Established reimbursement pathway for hernia repair. The implantation of biologic matrices and synthetic
mesh for hernia repair is coded using an established fixed procedure payment system known as a MS-DRG
that consists of a lump sum payment rate that varies based on the degree of complications and comorbidities
of each hernia. In addition, surgeons receive payment for their services depending on the coding associated
with the procedure. The MS-DRG-based reimbursement system encourages hospitals to become more
efficient in treating patients due to its fixed per-patient reimbursement nature.
● Broad intellectual property portfolio. Our products are covered by intellectual property that broadly covers
changing a biologic matrix’s biomechanical properties by interweaving a polymer thread through the biologic
matrix. Specifically, our patents claim the ability to tailor stretch resistance. The ability to predictably control
the biomechanical properties of a biologic matrix is the cornerstone of our product portfolio. Our intellectual
property also covers the development of extracellular matrix scaffolds derived from ovine rumen, methods
for isolating these scaffolds from ovine rumen, layering multiple sheets of these ovine rumen scaffolds
together, sewing in an anti-adhesive layer into a scaffold, and adding unique patterns sewn or embroidered
into these scaffolds using different polymers to impart reinforcing strength. Our portfolio also includes
patents covering implants with gripping strands, and implants with multivesicular liposomes that may be
used to deliver drugs. Through the Aroa License and our issued or allowed patents and patent applications,
we have a broad portfolio of intellectual property that is leveraged in all of our reinforced tissue matrix
products. In addition, we believe that the trade secrets developed with Aroa create additional barriers to entry.
● Highly accomplished executive team with proven track record. Our executive team consists of seasoned
medical device professionals with deep industry experience, and a broad network of relationships within the
industry and the medical community. Our executive team has led and managed companies through
significant growth and introduction and commercialization of multiple new products, including driving
surgeon adoption of biologic and biosurgery technologies. Members of our team have held leading positions
with medical technology companies such as Orthovita Inc., Stryker Corporation, OraSure Technologies, Inc.,
LifeCell and Medtronic plc. We believe this team is well-positioned to lead us through the commercial
expansion of our products and development and launch of future products.
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Our Growth Strategy
Our goal is to become the leading provider of soft-tissue reconstruction products. The key elements of our strategy include:
● Expand our U.S. commercial organization to support our growth. We sell our products through a single
direct sales organization in the U.S. As of December 31, 2022, we had 67 sales territories in the U.S. which
are supported by 123 employees in our U.S. based commercial organization. We plan to continue to invest in
our commercial organization by hiring additional territory managers and administrative and field-based
support employees to support and service new accounts for soft-tissue reconstruction procedures. We believe
we can also enhance the productivity of our sales force by improving customer segmentation and targeting,
implementing and further refining our proprietary training programs, leveraging support from our medical
education and clinical development functions to drive physician awareness and education on our products,
and utilizing engagement analytics to support product development.
● Promote awareness of our products to drive surgeon use. We educate surgeons regarding the value
proposition of our products through presentations and exhibits at industry conferences, medical education
symposia, direct training and education, webinars and publishing additional clinical data demonstrating the
benefits of our products and establishing online peer-to-peer communities. We plan to continue to drive
awareness of our products through in-person and virtual versions of these programs, while expanding their
geographic reach and increasing the number of surgeon interactions. We will continue to increase our digital
marketing efforts as well to build brand awareness with event marketing engagement, targeted ads and
emails, various social media efforts and patient education and outreach efforts.
● Drive utilization through existing GPO and IDN contracts and secure additional contracts. We are focused
on partnering with our existing GPO- and IDN-contracted customers to promote implementation of our
contracts, increase our access to surgeon customers, broaden awareness of products and help drive utilization
of our products within associated hospitals and healthcare systems. To date, we have contracted with three
national GPOs covering our OviTex and OviTex PRS products. In addition, we continue to pursue contracts
with additional GPOs and IDNs. GPO and IDN contracts enable greater access to geographies with high
procedural volumes and provide prioritized status within hospital procurement systems.
● Continue to build upon clinical evidence of the effectiveness and safety of our products. We are committed
to evidence-based medicine and investing in clinical data to support the use of our products. In our BRAVO
study, the recurrence rate at the 24-month time point was 2.6%, and SSOs were observed in 38% of the study
population. 78% of all enrolled patients were characterized as high risk for experiencing an SSO based on at
least one known risk factor, which included obesity, active smoking, COPD, diabetes mellitus, coronary
artery disease, or advanced age (≥75 years). Our analysis of patients in the BRAVO study reaching 24-month
follow-up was published in the Annals of Medicine and Surgery in October 2022. We have begun our next
post-market prospective study, BRAVO II, which evaluates OviTex LPR, OviTex Core Permanent and
OviTex 1S Permanent in the robotic repair of ventral and inguinal hernias over 24 months.
● Advance our portfolio of reinforced tissue matrices with the introduction of new product features and
designs. We plan to continue to expand our product offerings and the treatment capabilities of our products to
address a broader patient base within soft-tissue reconstruction. As we innovate and develop our products,
the new features and improved surgical techniques expand the clinical applications for soft-tissue
reinforcement. Areas of focus include enhanced surgical handling, increased permeability, and longer-acting
resorbable polymers. Improving the surgical handling and implementation of our devices benefits both the
clinician and patient. Increasing product permeability encourages a more-natural healing response. Longer-
acting polymers can provide additional support for patients that need more time to heal. We believe these
technology enhancements will continue to bolster our portfolio and expand the successful use of our
products.
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● Expand our service offerings and diversify our supplier base to create a broader soft tissue preservation
and restoration portfolio. We plan to continue assessing internal development strategies and strategic
partnerships with medical device companies whereby we may enter into distribution, product development
and/or licensing agreements for new soft tissue preservation and restoration products complimentary to, or
related to, existing and future products in our distribution channel. For example, in January 2023, we
announced the commercial launch of our NIVIS Fibrillar Collagen Pack, an absorbent matrix of Type I and
Type III bovine collagen designed to manage moderately to heavily exudating wounds and to control minor
bleeding. Similarly, we continue to evaluate additional product opportunities that address patient health and
unmet needs within the indications in which we operate.
Our Products
Our Technology Platform
Our advanced reinforced tissue matrix technology consists of multiple layers of minimally-processed, decellularized
extracellular matrix derived from ovine rumen with interwoven polymer fibers in a unique embroidered pattern. The
extracellular matrix is the collagen component of the rumen that is retained following removal of the epithelium, muscle
and cellular content, and has an optimal biomechanical profile and open collagen architecture that allows for rapid cellular
infiltration. These thin, strong layers of ovine rumen are plentiful in supply and serve as building blocks from which we
can construct multilayered devices to customize products to adapt to clinical needs and surgeon preferences. The layers of
extracellular matrix provide a high degree of surface area for tissue remodeling. We strengthen these reinforced tissue
matrix layers with interwoven polymers, that are either permanent (polypropylene), or resorbable (PGA). These polymers
were selected because they are well characterized suture materials with a history of significant clinical use and recognized
safety profiles. Polypropylene has a high tensile strength and a low inflammatory response in small quantities. PGA is the
fastest resorbing polymer and within three months it tends to be fully absorbed into the body.
Our highly specialized and customizable textile engineering capability allows us to tailor the degree and direction of
stretch, overall strength, handling properties, permeability, thickness, texture, size and shape of each reinforced tissue
matrix to suit the needs of particular clinical applications and surgical techniques. Our textile engineering utilizes a
computer-controlled fabrication method that is scalable, reproducible, efficient and customizable. This embroidery process
creates hundreds of micro-channels to allow the multi-directional passage of the patients’ native cells and fluids throughout
the product. The interwoven polymers are embroidered using a lockstitch pattern, which allows for the device to be
trimmed while minimizing unraveling (when cut), and we use a patented corner-lock pattern, which creates a stable
polymer fabric within the biologic material. We manipulate the polymer thread patterns to control the degree and stretch of
our products. Denser grid patterns increase the amount of reinforcement and less dense patterns of different geometry allow
for greater stretch. We are also able to manufacture products with smooth external layers that minimize the amount of
exposed polymer such that the product can be placed in contact with the viscera.
OviTex Reinforced Tissue Matrix
Our OviTex Reinforced Tissue Matrix has received 510(k) clearance from the FDA, which clearance was obtained and is
currently held by Aroa and is intended for use as a surgical mesh to reinforce and/or repair soft-tissue where weakness
exists. Indications for use include the repair of hernias and/or abdominal wall defects that require the use of reinforcing or
bridging material to obtain the desired surgical outcome. Our OviTex products can be used in a variety of hernia repairs,
including simple and complex ventral, inguinal and hiatal hernias, as well as abdominal wall reconstructions.
Our OviTex products are sterile reinforced tissue matrices derived from ovine rumen with either polypropylene or PGA.
The product is provided in a dry, hydratable form and packaged in a double pouched configuration. The product can be
stored at room temperature and only needs five minutes of rehydration for use. To be used in surgery our OviTex product is
placed in a sterile dish, rehydrated with sterile saline for five minutes, trimmed to fit the site, if needed, and then positioned
to achieve maximum contact between the device and the surrounding tissue. The device may be sutured, stapled or tacked
into place.
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All of our OviTex products were designed to minimize the amount of polymer material implanted in patients. The synthetic
material in our OviTex products comprise less than 5% of our final product. Depending on the configuration selected, the
amount of polymer is approximately 75% less than the polymer content of the most widely implanted permanent synthetic
mesh, thereby reducing the patient’s foreign body inflammatory response to the polymer.
We market a variety of OviTex products in a range of sizes, thicknesses and degrees of reinforcement in order to suit
surgeon preference and desired surgical technique. Our OviTex portfolio is designed to allow surgeons to select a device
appropriate for any abdominal tissue plane. Generally, surgeons may place the reinforced tissue matrix in direct contact
with internal organs, known as intraperitoneal placement, or away from these internal organs in a variety of tissue planes,
known as pre-peritoneal placement. When selecting a product for intraperitoneal placement, surgeons require a surface that
minimizes the risk of tissue attachment, whereas when selecting a product for pre-peritoneal placement, surgeons are able
to use a product with polymer exposure on both sides. Surgeons may select the most appropriate product from our OviTex
portfolio based on the size of the defect, necessity or surgeon preference for internal organ contact, use of a minimally
invasive or open surgical technique and risk of infection.
OviTex Laparoscopic and Robotic Procedures
Our OviTex LPR product was specifically designed for use in laparoscopic and robotic-assisted hernia surgical repairs.
OviTex LPR was designed for use with a trocar and requires the same rehydration and fixation as our other OviTex
products. This product includes design elements to improve surgical handling, including two extra embroidered lines of
blue colored polypropylene fibers to enhance endoscopic orientation and alignment. This product can be introduced into
the patient’s body through various sized trocar ports. Based on surgeon feedback, OviTex LPR was designed in an elliptical
or circular shape to minimize trimming.
OviTex Portfolio
OviTex
OviTex 1S
OviTex 2S
OviTex LPR
Size and Shape
4 × 8 cm to 25 × 40 cm*
(Rectangle or Square)
4 × 8 cm to 25 × 40 cm*
(Rectangle or Square)
4 × 8 cm to 25 × 40 cm*
(Rectangle or Square)
Strength
Layers of Ovine
Rumen
Common
Procedures
Polymer
Shelf Life
Configuration
Commercial
Availability
+
Four
++
Six
+++
Eight
Moderate ventral hernia
(pre-peritoneal placement),
inguinal hernia, hiatal hernia
Moderate to complex ventral
hernia, can be placed
intraperitoneally
Resorbable (PGA) or
Permanent (Polypropylene)
Resorbable-18 months
Permanent-36 months
Exposed polymer on both
sides
·
·
U.S.
Europe
Resorbable (PGA) or
Permanent (Polypropylene)
Resorbable-18 months
Permanent-36 months
Exposed polymer on one
side, and one smooth side
·
·
U.S.
Europe
Complex ventral hernia and
abdominal wall
reconstruction and can be
used for bridging, can be
placed intraperitoneally
Resorbable (PGA) or
Permanent (Polypropylene)
Resorbable-18 months
Permanent-36 months
Two smooth sides
·
·
U.S.
Europe
12 × 18 cm to 15 x 25 cm ˄
(Ellipse); 9 cm to 15 cm
(Round)
+
Four
Laparoscopic or Robotic-
assisted surgery
Permanent (Polypropylene)
36 months
Exposed polymer on one
side, and one smooth side
·
·
U.S.
Europe
*
˄
25 x 30 cm and 25 x 40 cm sizes currently only available with permanent (polypropylene) polymer.
15 x 20 cm and 15 x 25 cm sizes currently only available in the U.S.
+ Denotes relative level of strength
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OviTex Plastic and Reconstructive Surgery — OviTex PRS
OviTex PRS, has received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is held by us, and is
indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or
reinforcement in plastic and reconstructive surgery. Our OviTex PRS product can be stored at room temperature and comes
in the same packaging and requires the same rehydration and fixation as our OviTex products.
Our OviTex PRS product is a sterile reconstructive reinforced tissue matrix composed of three layers of ovine rumen joined
by a patented corner-lock embroidered diamond patterned polymer (PGA or polypropylene) that allows the product to
stretch while also maintaining its shape. Machine punched regularly spaced fenestrations, or holes, and die-cut slits in the
product facilitate fluid management, allow for rapid cellular infiltration and create a directional bias to the stretch. Our
OviTex PRS product is available in arced rectangle and half-moon shapes in a range of sizes (4 × 16 cm through 20 × 20
cm) to suit surgeon preference and nature of the soft-tissue repair in plastic and reconstructive surgery. The device may be
trimmed to a desired shape to further accommodate individual anatomy. The current shelf life of permanent OviTex PRS is
36 months and the current shelf life of resorbable OviTex PRS is 12 months.
OviTex PRS
Product Pipeline and Research and Development
We continue to advance our product pipeline to broaden our treatment capabilities for soft-tissue reinforcement. As we
innovate and develop our products, the new features and improved surgical techniques expand the clinical applications for
soft-tissue reinforcement. Areas of focus include enhanced surgical handling, increased permeability, and longer-acting
resorbable polymers. Improving the surgical handling and implementation of our devices benefits both the clinician and
patient. Increasing product permeability encourages a more-natural healing response. Longer-acting polymers can provide
additional support for patients that need more time to heal. We believe these technology enhancements will continue to
bolster our portfolio and expand the successful use of our products.
Scientific Evidence
Overview of Preclinical and Clinical Programs
One of our key strategies is to continuously obtain evidence to support the safety and effectiveness of our products, which
we believe will differentiate us from our competitors. As part of our strategy to gather and analyze high-quality data, we
seek to ensure rigorous and reliable data collection and reporting. The data from our preclinical and clinical studies
strengthens our ability to raise surgeon awareness and drive adoption of our products as a new category of soft-tissue
reconstruction products. We expect our clinical evidence will provide surgeons with safety and efficacy data on
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the appropriate use of our products and we plan to obtain further clinical evidence to support additional regulatory
clearances or approvals of our reinforced tissue matrices for additional indications for use in the future.
Preclinical Program
Our pre-clinical program is paramount in the design of our products. Our program starts with bench performance
characterization to ensure proper strength and compliance for the indication, followed by in-vitro and in-vivo studies to
ensure proper biological performance to help promote remodeling of the repair site. We have developed an extensive pre-
clinical research library on our devices, as well as on competitor devices. We continue to evaluate new and existing
technologies for safety and biocompatibility as part of our product development process.
We believe we have completed the largest collection of non-human primate preclinical studies conducted in soft-tissue
reconstruction surgery. In these studies, we compared our OviTex and OviTex PRS products to market leading competitive
materials. The results showed our reinforced tissue matrices exhibited a minimal inflammatory response, rapid cellular
infiltration and revascularization and demonstrated early and complete remodeling into functional tissue. The OviTex
results have been published in the peer-reviewed journal Hernia (https://doi.org/10.1007/s10029-019-02119-z). The OviTex
PRS results have been published in the peer-reviewed journal ePlasty (ePlasty 2022;22:e43).
Clinical Program
We are committed to obtaining evidence to support the safety and efficacy of our products across their indications. Clinical
data has been published on over 1,000 patients treated with OviTex in ventral hernia, inguinal hernia, hiatal hernia, and
abdominal wall reconstruction. As part of our clinical research program, we have developed two post-market studies,
BRAVO and BRAVO II. This commitment to generating clinical data through controlled prospective studies with 24-
month follow-up will allow us to understand the short- and long-term benefits of using OviTex in hernia repair.
In October 2022, the 24-month results of our BRAVO study were published in the Annals of Medicine and Surgery. The
BRAVO study was designed to evaluate the clinical performance of OviTex for primary or recurrent ventral hernias using
open, laparoscopic, or robotic techniques in 92 enrolled patients. The recurrence rate at the 24-month time point was 2.6%,
and SSOs were observed in 38% of the study population. 78% of all enrolled patients were characterized as high risk for
experiencing an SSO based on at least one known risk factor, which included obesity, active smoking, COPD, diabetes
mellitus, coronary artery disease, or advanced age (≥75 years). The results also indicated that BRAVO patients experienced
statistically significant and clinically meaningful improvements in their quality of life and perceived health.
Surgeons continue to use our OviTex PRS reinforced tissue matrices in their surgeries and, in addition to a potential IDE
study, we have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS
products.
Intellectual Property
Our success depends in part on our ability to obtain, maintain, protect and enforce our proprietary technology and
intellectual property rights, in particular, our patent and trademark rights, preserving the confidentiality of our trade secrets,
and operating without infringing the valid and enforceable patents and other proprietary rights of third parties. We rely on a
combination of patent, trademark, trade secret and other intellectual property rights and measures to protect the intellectual
property rights that we consider important to our business. We also rely on know-how and continuing technological
innovation to develop and maintain our competitive position.
Aroa License
In August 2012, we entered into the Aroa License, which was amended and restated in July 2015, pursuant to which we
obtained an exclusive license to certain patents and know-how to develop, commercialize and sell bovine and ovine
extracellular matrix products for hernia repair, abdominal wall and breast reconstruction in North America and Europe,
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which we refer to as the Licensed Territory. In addition, under the Aroa License, Aroa is our exclusive manufacturer and
supplier for the development of our bovine and ovine extracellular matrix products.
Pursuant to the terms of the Aroa License, we made upfront payments to Aroa totaling $2.3 million and granted Aroa
74,316 newly issued shares of our restricted common stock. We have made additional payments in the aggregate of
$2.0 million to Aroa following the achievement of certain regulatory and operational milestones, including FDA
510(k) clearance of our OviTex products, which clearance was obtained and is currently held by Aroa, for use in surgical
soft-tissue reinforcement and the receipt of the first CE mark for sale of our products in the European Economic Area for
use in abdominal wall reconstruction and hernia repair and our acceptance of certain supply quantities manufactured by
Aroa for our commercial launch in Europe. In addition, we paid Aroa $4.0 million in revenue-based milestone payments
upon our achievement of certain net sales thresholds for sales of our products within the Licensed Territory. As of
December 31, 2022, we have satisfied all milestone payment obligations under the Aroa License.
We are responsible for commercializing the products manufactured for us by Aroa. We pay Aroa for the supply and
manufacturing of our products through a revenue sharing agreement. Pursuant to the Aroa License, we retain 73% of the
net sales of all of our products and pay Aroa the remaining 27%. If at any point during the term of the Aroa License we and
Aroa determine that our anticipated product needs exceed Aroa’s manufacturing capabilities, we and Aroa will mutually
approve an expansion and equally share the cost of such expansion. Our share of such expansion costs may be offset by us
against future revenue share payments.
The initial term of the Aroa License terminates on the expiration of the last patent covering the OviTex and OviTex PRS
products, currently March 9, 2031, with an option to extend for an additional ten-year period. Either party may terminate
the Aroa License upon the other party’s material breach, subject to a ninety-day notice and cure period or upon thirty-days
written notice in the event of bankruptcy. We may terminate manufacture and production of a specific product upon thirty-
days prior written notice upon (i) a reasonable determination that such product infringes the intellectual property rights of a
third party, (ii) an uncured supply failure by Aroa or (iii) such product proves unfeasible, and immediately upon written
notice from a regulatory authority that such product must be withdrawn from the market. If we materially breach the Aroa
License in one of the Licensed Territories, Aroa may terminate the Aroa License solely with respect to the Licensed
Territory in which the breach occurred. Upon termination of the Aroa License, we have the right to purchase all or any part
of the unsold portion of any completed products from Aroa and the right to continue to sell all products remaining in our
inventory.
The Aroa License also contains customary representations and warranties, confidentiality, insurance, audit, indemnification
and non-competition provisions.
Patents
As of December 31, 2022, we exclusively license two issued U.S. patents that will expire in 2029 and 2031. We own
fifteen U.S. issued or allowed patents which will expire between 2035 and 2038 and nine pending U.S. patent applications,
which subject to issuance, are projected to expire between 2035 and 2042, without taking into account potential patent term
extensions or adjustments. In addition to our U.S. intellectual property, we also own three issued non-U.S. patents and four
pending non-U.S. patent applications, which, subject to issuance, would be projected to expire between 2036 and 2037 and
have exclusively licensed issued patents in Europe and Canada that will expire in 2029.
Our patents and patent applications cover, among other things, our corner-lock embroidery pattern, the use of adhesion
barriers sewn into soft-tissue and compliance associated with stretching.
Although the term of individual patents varies depending upon the country in which they were granted, in most countries,
including the U.S., the patent term is 20 years from the earliest claimed filing date of a non-provisional patent application
in the applicable country. In the U.S., a patent’s term may, in certain cases, be lengthened by patent term adjustment, which
compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a
patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a
common inventor and having an earlier expiration date.
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We cannot be sure that our pending patent applications that we have filed or may file in the future will result in issued
patents, and we can give no assurance that any patents that have been issued or might issue in the future will protect our
current or future products, will provide us with any competitive advantage, and will not be challenged, invalidated, or
circumvented.
Trade Secrets
We seek to protect our proprietary rights through a variety of methods, including confidentiality agreements and
proprietary information agreements with suppliers, employees, consultants and others who may have access to our
proprietary information. However, trade secrets and proprietary information can be difficult to protect. While we have
confidence in the measures we take to protect and preserve our trade secrets and proprietary information, such measures
can be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets and
proprietary information may otherwise become known or be independently discovered by competitors.
Trademarks
We also rely on trademarks and trade designs to develop and maintain our competitive position. TELA Bio®, OviTex®,
Minimize the Foreign Body Footprint®, and A More Natural Hernia Repair® are registered trademarks of ours in the U.S.
and TELA Bio® and OviTex® are registered trademarks in the foreign jurisdictions in which we conduct our business.
For more information regarding the risks related to our intellectual property, please see the section titled “Risk Factors —
Risks Related to Intellectual Property Matters.”
Research and Development
We invest in research and development to advance our reinforced tissue matrix products and to develop complimentary soft
tissue preservation and restoration products, with the goal of improving upon and supplementing our existing product
offerings. We believe our ability to rapidly develop new products and product configurations is attributable to the dynamic
product innovation process that we have implemented, the versatility and leveragability of our core technology and the
management philosophy behind that process. We have recruited and retained engineers and scientists with significant
experience in the development of polymer science, biologics, textile engineering and analytical testing. We have a number
of design improvements for our reinforced tissue matrices in various stages of development that are expected to enhance
our current products and increase surgeon adoption of our products. In addition, we have engaged in discussions with the
FDA regarding an IDE protocol to study the safety and effectiveness of our OviTex PRS portfolio for an indication in
breast reconstruction surgery. The FDA has stated that a PMA, rather than 510(k) clearance, will be required for such an
indication. Our research and development efforts are based at our facility in Malvern, Pennsylvania.
Commercial Strategy
Our commercial efforts are predominantly focused on the U.S. market where we have established strong relationships with
key constituencies, including hospitals, ambulatory surgery centers, GPOs, IDN, third-party payors and other key clinical
and economic decision makers by offering a unique high quality, cost-effective product. As part of our overall commercial
strategy, we intend to contract with GPOs and IDNs to increase access and penetration with hospital accounts. To date, we
have contracted with three national GPOs for coverage of our OviTex and OviTex PRS products. We have invested in our
direct sales and marketing infrastructure in order to expand our presence to promote awareness and adoption of our
products.
We market our products to hospitals, ambulatory surgery centers, surgeons, GPOs, IDNs and medical device supply chain
participants primarily through our direct sales force. Our sales representatives and sales managers have substantial medical
device experience. As of December 31, 2022, we had 123 employees in our U.S. based commercial organization in 67 sales
territories, which includes sales management, territory managers, marketing and administrative and field-based support
staff. We plan to continue to invest in our commercial organization by hiring additional territory managers and
administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction
procedures.
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Manufacturing
All our raw materials are sourced through and manufactured by Aroa in their Auckland, New Zealand facility under the
terms of the Aroa License. Aroa’s facility is approximately 40,000 square feet of which approximately 25,000 square feet
is dedicated to manufacturing, including an additional 15,000 square feet of additional manufacturing space in a
neighboring facility. The Auckland facility is FDA registered and ISO 13485 certified. We believe that Aroa will be
capable of providing sufficient quantities of our products to meet anticipated customer demands. In the event of an uncured
supply failure by Aroa, we have the right to, directly or through a third-party, step in and operate the Aroa Auckland
facility to manufacture our products on behalf of Aroa.
The proprietary ovine rumen used in the manufacturing of our products is obtained from sheep raised for human
consumption in New Zealand and is currently sourced by Aroa from two abattoirs, or slaughterhouses. Although only two
abattoirs are currently used, there are more than 30 additional abattoirs in New Zealand that could be used to source the
ovine rumen. New Zealand cattle and sheep are considered by the USDA to be free of prion disease (progressive
neurodegenerative disorders, including scrapie). The sheep receive veterinary inspection prior to slaughter and then each
carcass is inspected post-mortem for the presence of disease according to USDA approved standards. Only sheep which
pass full inspection can be used as a raw tissue source for our products and all the ovine rumen is processed in compliance
with the FDA’s regulations for Medical Devices Containing Materials Derived from Animal Sources. Once the ovine
rumen is procured, our reinforced tissue matrix products are then manufactured by Aroa at its facility in Auckland, New
Zealand.
Distribution
The majority of our products are shipped directly from Auckland, New Zealand to our headquarters in Malvern,
Pennsylvania. We sell our products directly to our customers, which are hospitals and ambulatory surgery centers. Except
for our stocking distributors in Europe, we do not use distributors to sell our products.
Competition
The medical device industry is intensely competitive, subject to change and significantly affected by new product
introductions and other market activities of industry participants.
In the hernia repair market, our primary competitors are Bard, a subsidiary of Becton, Dickinson and Company, which
produces Phasix and Ventralight ST, and LifeCell, a subsidiary of AbbVie, which produces Strattice. In the plastic and
reconstructive surgery market, our primary competitor is LifeCell, a subsidiary of AbbVie, which produces AlloDerm.
Many of these competitors are large, well-capitalized companies with significantly greater market share and resources than
we have, selling products that have been on the market prior to the commercialization of our products. As a consequence,
they are able to spend more on product development, marketing, sales and other product initiatives than we can, while also
benefiting from greater brand awareness. We also compete with smaller medical device companies that have single
products or a limited range of products. Some of our competitors have:
● significantly greater name recognition;
● broader or deeper relations with healthcare professionals, customers and third-party payors;
● more established distribution networks;
● greater experience in conducting research and development, manufacturing, clinical trials, marketing and
obtaining regulatory clearance or approval for products; and
● greater financial and human resources for product development, sales and marketing and patent prosecution.
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We believe that our continued ability to compete favorably depends on:
● successfully expanding our commercial operations;
● continuing to innovate and maintain scientifically-advanced technology;
● attracting and retaining skilled personnel;
● maintaining and obtaining intellectual property protection for our products; and
● conducting clinical studies and obtaining and maintaining regulatory approvals.
Government Regulation
Our products and operations are subject to extensive and rigorous regulation by the FDA and other federal, state and local
authorities, as well as foreign regulatory authorities. The FDA regulates, among other things, the research, development,
testing, design, manufacturing, approval, labeling, storage, recordkeeping, advertising, promotion and marketing,
distribution, post-approval monitoring and reporting and import and export of medical devices in the U.S. to assure the
safety and effectiveness of medical products for their intended use. The Federal Trade Commission also regulates the
advertising of our products in the U.S. Further, we are subject to laws directed at preventing fraud and abuse, which subject
our sales and marketing, training and other practices to government scrutiny.
Regulatory System for Medical Devices in the U.S.
All of our medical devices sold in the U.S. are subject to the Federal Food, Drug, and Cosmetic Act (“FDCA”) as
implemented and enforced by the FDA.
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the
U.S. will require either a premarket notification to the FDA requesting permission for commercial distribution under
Section 510(k) of the FDCA also referred to as a 510(k) clearance, or approval from the FDA of a PMA application. 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 Quality Systems Regulations, or 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.
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Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining
devices, or implantable devices, in addition to those deemed novel and not substantially equivalent to a medical device
cleared through the 510(k) process. The 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, preclinical 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.
510(k) Clearance Pathway
Our current products are subject to premarket notification and clearance under section 510(k) of the FDCA.
When a 510(k) clearance is required, we must submit a premarket notification to the FDA demonstrating that our proposed
device is substantially equivalent to a predicate device, which is a previously cleared and legally marketed 510(k) device or
a device that was in commercial distribution before May 28, 1976 (pre-amendments device) and for which a PMA is not
required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially
equivalent through the 510(k) process. By regulation, a premarket notification must be submitted to the FDA at least
90 days before we intend to distribute a device. As a practical matter, clearance often takes nine to twelve months, but may
take significantly longer. To demonstrate substantial equivalence, the manufacturer must show that the proposed device has
the same intended use as the predicate device, and it either has the same technological characteristics, or different
technological characteristics and the information in the premarket notification demonstrates that the device is as safe and
effective as the predicate device and does not raise different questions of safety and effectiveness. The FDA may require
further information, including clinical data, to make a determination regarding substantial equivalence.
If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant
510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent”
to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then
fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in
accordance with the de novo classification procedure, which is a route to market for novel medical devices that are low to
moderate risk and are not substantially equivalent to a predicate device.
After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or
effectiveness, or that would constitute a major change or modification in its intended use, will require a new
510(k) marketing clearance or, depending on the modification, a de novo classification or PMA approval. The FDA
requires each manufacturer to determine whether the proposed change requires a premarket submission in the first instance,
but the FDA can review any such decision and disagree with a manufacturer’s determination.
Many minor modifications today are accomplished by a manufacturer documenting 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 every change. The FDA can always review
these letters-to-file in an inspection. If the FDA disagrees with a manufacturer’s determination, the FDA can require the
manufacturer to cease marketing and/or request the recall of the modified device until marketing authorization is obtained.
Also, in these circumstances, we may be subject to significant regulatory fines or penalties.
De Novo Classification
Medical device types that the FDA has not previously classified as Class I, II or III are automatically classified into Class
III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997, or FDAMA,
established a new route to market for low to moderate risk medical devices that are automatically placed into
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Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,”
or the de novo classification procedure.
This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-
classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather
than requiring the submission and approval of a PMA application. Prior to the enactment of the Food and Drug
Administration Safety and Innovation Act of 2012, or FDASIA, a medical device could only be eligible for de novo
classification if the manufacturer first submitted a 510(k) premarket notification and received a determination from the
FDA that the device was not substantially equivalent to a predicate device. FDASIA streamlined the de novo classification
pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) premarket
notification to the FDA and receiving a not substantially equivalent determination. Under FDASIA, the FDA is required to
classify the device within 120 days following receipt of the de novo application, although the review of an application can
occur over a significantly longer period of time. 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. In addition, the FDA may reject the reclassification petition if it identifies a legally
marketed predicate device that would support a 510(k) or determines that the device is not low to moderate risk or that
general controls would be inadequate to control the risks and special controls cannot be developed.
The PMA Approval Process
Class III devices require PMA approval before they can be marketed although some pre-amendment Class III devices for
which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding
than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and
effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical
trials. The PMA must also contain a full description of the device and its components, a full description of the methods,
facilities and controls used for manufacturing, and proposed labeling. While our current products are subject to the 510(k)
clearance pathway, any future products or modifications to our existing products that we plan to develop for a breast
reconstruction indication would be subject to the PMA approval process.
Following receipt of a PMA application, the FDA determines 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 has 180 days to review a filed PMA application, although the review of an application can
occur over a significantly longer period of time, and can take up to several years. During this review period, the FDA may
request additional information or clarification of information already provided, or 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., a major deficiency letter) within 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 will approve the new device for commercial distribution if it determines that the data and information in the
PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its
intended use(s).
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
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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 FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to
protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a
longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of
years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions
of approval can result in material adverse enforcement action, including withdrawal of the approval.
New PMA applications or PMA supplements are required for changes to an approved device, such as modifications to the
manufacturing process, equipment or facility, quality control procedures, sterilization, packaging, expiration date, labeling,
device specifications, ingredients, materials or design. 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 extensive technical or
clinical data or the convening of an advisory committee, 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. The FDA may also approve a PMA application with other 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.
The Investigational Device Process
Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission. All
clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance
with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational
device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study
investigators. Some types of studies deemed to present a “non-significant risk” are deemed to have an approved IDE once
certain requirements are addressed and Institutional Review Board, or 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 will automatically become effective 30 days
after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines
that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical
trial to proceed under an approval with conditions. 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. 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 an appropriate IRB. 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 efficacy, even if the trial meets its intended success criteria.
During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial
monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse
event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or
effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA good clinical practice
regulations and must obtain patient informed consent, rigorously follow the investigational plan and study
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protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping
requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any
time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. The results of
clinical testing may be unfavorable, or, even if the intended safety and efficacy success criteria are achieved, may not be
considered sufficient for the FDA to grant marketing approval or clearance of a product.
Pervasive and Continuing FDA Regulation
After the FDA permits a device to enter commercial distribution, numerous and pervasive regulatory requirements continue
to apply to our business operations, products and technologies. These include:
● the FDA’s Quality Systems Regulations (“QSR”), which requires manufacturers, including third party
manufacturers, to follow stringent design, testing, production, control, supplier/contractor selection,
complaint handling, documentation and other quality assurance procedures during all aspects of the
manufacturing process;
● labeling and marketing regulations which require that promotion is truthful, not misleading, fairly balanced
and provides adequate directions for use and that all claims are substantiated;
● complying with requirements for Unique Device Identifiers on devices and also requiring the submission of
certain information about each device to the FDA’s Global Unique Device Identification Database;
● advertising and promotion requirements, including FDA prohibitions against the promotion of products for
uncleared, unapproved or off-label uses and FDA guidance on off-label dissemination of information and
responding to unsolicited requests for information;
● restrictions on sale, distribution or use of a device;
● device establishment, registration and listing requirements and annual reporting requirements;
● approval or clearance of modifications to 510(k)-cleared devices that could significantly affect safety or
effectiveness or that would constitute a major change in intended use of one of our cleared devices;
● medical device reporting regulations, which require that manufacturers report to the FDA if their device may
have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or
contribute to a death or serious injury if the malfunction were to recur;
● medical device correction, removal and recall reporting regulations, which require that manufacturers report
to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by
the device or to remedy a violation of the FDCA that may present a risk to health;
● recall requirements, including a mandatory recall if there is a reasonable probability that the device would
cause serious adverse health consequences or death;
● an order of repair, replacement or refund;
● device tracking requirements; and
● post-market surveillance activities and regulations, which apply when necessary to protect the public health
or to provide additional safety and effectiveness data for the device.
The FDA has broad post-market and regulatory enforcement powers. Medical device manufacturers are subject to
unannounced inspections by the FDA and other state, local and foreign regulatory authorities to assess compliance with
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the QSR and other applicable regulations, and these inspections may include the manufacturing facilities of any suppliers.
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, untitled letters, Form 483s, fines, injunctions, consent decrees and civil penalties;
● recall or seizure of products;
● operating restrictions, partial suspension or total shutdown of production;
● the FDA’s refusal of requests for 510(k) clearance or premarket approval of new products, new intended uses
or modifications to existing products;
● the FDA’s refusal to issue certificates to foreign governments needed to export products for sale in other
countries;
● withdrawing 510(k) clearance or premarket approvals that have already been granted; and
● criminal prosecution.
Regulatory System for Medical Devices in Europe
The European Union (“EU”) and the European Economic Area (“EEA”) (which is comprised of the 27 Member States of
the EU plus Norway, Liechtenstein and Iceland) has a coordinated system for the authorization of medical devices. Until
May 25, 2021, medical devices were regulated by the Council Directive 93/42/EEC, or the Medical Devices Directive
(“MDD”), which has been repealed and replaced by Regulation (EU) No 2017/745, or the Medical Devices Regulation
(“MDR”). There is a transition period during which certificates issued under the MDD remain valid, however, when such
certificates expire (or, if earlier, by 27 May 2024) the devices must be certified under the new regime set forth in the MDR.
However, in response to concerns raised about notified body capacity and the ability for devices to be re-certified within
such time period, the European Commission has adopted a proposal to extend the transition period by some years,
depending on the risk class of the device. Such proposal is currently being considered for adoption by the European
Parliament and Council.
The MDR went into effect on May 26, 2021, and it:
● strengthens the rules on placing devices on the market and reinforces surveillance once they are available;
● establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality,
performance and safety of devices placed on the market;
● improves the traceability of medical devices throughout the supply chain to the end-user or patient through a
unique identification number;
● sets up a central database (Eudamed) to provide patients, healthcare professionals and the public with
comprehensive information on products available in the EU; and
● strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to
undergo an additional check by experts before they are placed on the market.
Under the MDR, the system of regulating medical devices operates by way of a certification for each medical device,
which confirms that the device meets the relevant general safety and performance requirements laid down in Annex I of
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the MDR. Each certificated device is marked with a CE mark which shows that the device has a certificat de conformité,
also referred to as a certificate of conformity. The means for achieving the requirements for a CE mark varies 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 requirements to be fulfilled in accordance with the MDR before a CE mark can be placed
on a product. The procedure by which a device is assessed to confirm if it complies with the applicable safety and
performance requirements is known as a conformity assessment. Conformity assessment procedures require an assessment
of available clinical evidence, literature data for the product, and post-market experience in respect of similar products
already marketed. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during
normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable
when weighed against the benefits of its intended performance, and that any claims made about the performance and safety
of the device are supported by suitable evidence. Except for low-risk medical devices (Class I non-sterile, non-measuring
devices), where the manufacturer can self-certify compliance with the MDR based on a self-assessment of the conformity
of its products with the applicable requirements of the MDR, a conformity assessment procedure requires the intervention
of an independent organization accredited by a member state of the EEA to conduct conformity assessments, known as a
notified body. If satisfied that the relevant product conforms to the relevant general safety and performance requirements,
the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of
conformity. The manufacturer may then apply the CE mark to the device, which allows the device to be placed on the
market throughout the EEA.
The MDR requires that before placing a device, other than a custom-made device, on the market, manufacturers (as well as
other economic operators such as authorized representatives and importers) must register by submitting identification
information to the electronic system (Eudamed), unless they have already registered, and manufacturers must assign a
unique identifier to the device and provide it along with other core data to the unique device identifier, or UDI, database.
These new requirements aim at ensuring better identification and traceability of the devices. Manufacturers are responsible
for entering the necessary data on Eudamed, which includes the UDI database, and for keeping it up to date. Eudamed is
not yet fully functional, however the European Commission is aiming to have a fully functional version of the Eudamed
medical device database available in the second quarter of 2024. The Medical Device Coordination Group (MDCG) has
published guidance on administrative practices for manufacturers until Eudamed is fully functional.
Post-Brexit, the MDR does not apply in the United Kingdom (except for Northern Ireland, which under the Northern
Ireland Protocol is bound by certain EU laws). The medical device legislative framework in the United Kingdom is set out
in the Medical Devices Regulations 2002. These Regulations are based on the previous medical device directives of the
EU but have been amended so that they function properly now the United Kingdom is no longer part of the EU. The
amended Medical Devices Regulations 2002 have introduced several changes including (but not limited to) replacing the
CE mark with a UKCA marking, requiring manufacturers outside of the United Kingdom to appoint a “UK Responsible
Person” if they place devices on the market in the United Kingdom and more wide-ranging device registration
requirements. Manufacturers can continue placing CE marked medical devices on the Great Britain market for the time
being, however from July 2024, transitional arrangements will apply for CE marked medical devices placed on the Great
Britain market. These transitional arrangements have not yet been brought into force through the UK medical devices
regulations, but the UK Government intends to introduce legislation by Spring 2023 that will bring these into force.
Privacy and Security Laws
There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information,
including health information. Among others, the federal Health Insurance Portability and Accountability Act of 1996, as
amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations
(collectively referred to as “HIPAA”) establish privacy and security standards that limit the use and disclosure of protected
health information (“PHI”) and require covered entities and business associates to implement administrative, physical, and
technical safeguards to ensure the confidentiality, integrity and availability of individually identifiable health information in
electronic form, among other requirements.
Violations of HIPAA may result in civil and criminal penalties. Companies subject to HIPAA must also comply with
HIPAA’s breach notification rule which requires notification of affected patients and the U.S. Department of Health and
Human Services (“HHS”) and in certain cases of media outlets, in the case of a breach of unsecured PHI. The
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regulations also require business associates of covered entities to notify the covered entity of breaches by the business
associate. State attorneys general also have the right to prosecute HIPAA violations committed against residents of their
states, and HIPAA standards have been used as the basis for the duty of care in state civil suits, such as those for negligence
or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance
audits of HIPAA covered entities and their business associates for compliance.
Many states have laws that protect the privacy and security of sensitive and personal information, including health
information, to which we are subject. These laws may be similar to or even more protective than HIPAA and other federal
privacy laws. For example, California enacted the California Consumer Privacy Act (“CCPA”) which creates individual
privacy rights for California consumers and increases the privacy and security obligations of entities handling certain
personal data. The CCPA went into effect on January 1, 2020, and the California Attorney General may bring enforcement
actions for violations beginning July 1, 2020. The CCPA has been amended from time to time, and it remains unclear what,
if any, further modifications will be made to this legislation or how it will be interpreted. And the CPRA, which will take
effect in most material respects on January 1, 2023, modifies the CCPA significantly, potentially resulting in further
uncertainty and requiring us to incur additional costs and expenses to comply.
We may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security practices
and deceptive statements about privacy and security, laws that place specific requirements on certain types of activities,
such as data security and texting, and laws requiring holders of personal information to maintain safeguards and to take
certain actions in response to a data breach.
Foreign data protection laws, including the General Data Protection Regulation, (“GDPR”) may also apply to health-
related and other personal information belonging to individuals who reside outside of the U.S. The GDPR went into effect
in the European Union in May 2018 and introduced strict requirements for processing the personal data of data subjects
residing in the European Economic Area. Companies that must comply with the GDPR face increased compliance
obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for
noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is
greater. Among other requirements, the GDPR regulates cross-border transfers of personal data and requires transferee
countries to have protections equivalent to protections available in the EU. Because of the uncertainty created by the Court
of Justice of the European Union’s decision invalidating the EU/US Privacy Shield (the primary mechanism to effectuate
the flow of data from the EU to the United States), there continues to be uncertainty as to appropriate transfer mechanism
for the transfer of data from the EU to the United States.
Further, the United Kingdom’s exit from the European Union, referred to as Brexit, has created uncertainty regarding data
protection regulation in the United Kingdom. The United Kingdom has transposed the GDPR into domestic law with a
United Kingdom version of the GDPR that took effect in January 2021 (“UK GDPR”). Currently, the GDPR and UK
GDPR remain largely aligned, but the United Kingdom has announced plans to reform the country’s data protection legal
framework in its Data Reform Bill, which will introduce significant changes from the GDPR. This may lead to divergence
between the GDPR and UK GDPR.
EU member states have introduced national laws implementing the GDPR which impose additional requirements; this
adds to the complexity of processing personal data in or from the EEA or United Kingdom. Guidance on implementation
and compliance practices are often updated or otherwise revised.
Anti-Kickback Statutes
The federal Anti-Kickback Statute prohibits persons from (among other things) knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce the referral of an
individual, or the recommending, furnishing or arranging for a good or service, for which payment may be made under a
federal healthcare program such as Medicare or Medicaid.
Courts have interpreted the Anti-Kickback Statute quite broadly, holding that the statute will be violated if even one
purpose of a payment — though not its sole or primary purpose — is to induce an act prohibited by the statute with a
willful intent to act improperly. The statute prohibits many arrangements and practices that are otherwise lawful in
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businesses outside of the healthcare industry. A person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation. Prosecutors may infer intent from the surrounding
circumstances and, because courts have interpreted the statute to be violated if even one purpose of a payment is to induce
the purchase of items or services paid for by federal healthcare programs, prosecutors have broad discretion in choosing
arrangements to prosecute under the statute. There are statutory exceptions and regulatory “safe harbors” available to
protect certain appropriately structured arrangements that otherwise would implicate the Anti-Kickback Statute and those
who structure their business arrangements to satisfy all of the criteria of a safe harbor are protected from liability under the
statute. Our business is subject to these laws.
Many states have adopted anti-kickback and self-referral laws similar to the Anti-Kickback Statute; however, some of these
state prohibitions are broader in scope and apply to arrangements involving healthcare items or services reimbursed by any
source, and not only by Medicare, Medicaid or another federal healthcare program. These state laws do not always have the
same exceptions or safe harbors as the federal Anti-Kickback Statute.
False Claims Laws
The federal False Claims Act imposes liability on any individual 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 or
“whistleblower” provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal
government alleging that the defendant has violated the False Claims Act and to share in any monetary recovery. In
recent years, the number of lawsuits brought against healthcare industry participants by private individuals has increased
dramatically.
There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity
knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government, but also may
arise when an entity knowingly makes a false statement material to an obligation to pay or transmit money or property to
the federal government or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or
transmit money or property to the federal government. Various states have also enacted false claims and insurance fraud
laws that are analogous to the federal False Claims Act. Many of these state laws apply to claims submitted to any third-
party payor and are not limited to claims submitted to a federal healthcare program. The scope of these laws and the
interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad
discretion. A determination of liability under such laws could result in fines and penalties and restrictions on a company’s
ability to operate in these jurisdictions.
Transparency Laws
The federal Physician Payments Sunshine Act (“Sunshine Act”) which was enacted as part of the Patient Protection and
Affordable Care Act (“PPACA”) generally requires certain manufacturers of a drug, device, biologic or other medical
supply that is covered by Medicare, Medicaid or the Children’s Health Insurance Program and applicable GPOs to report
on an annual basis: (i) certain payments and other transfers of value given to certain healthcare professionals and teaching
hospitals and (ii) any ownership or investment interest that certain healthcare professionals, or their immediate family
members, have in their company. The payments required to be reported include the cost of meals provided to a healthcare
professional, travel reimbursements and other transfers of value, including those provided as part of contracted services
such as speaker programs, advisory boards, consultation services and clinical trial services. Under the statute, the federal
government makes reported information available to the public. Failure to comply with the reporting requirements can
result in significant civil monetary penalties or criminal penalties if an entity intentionally makes false statements in the
reports.
There has been a recent trend of separate state regulation of payments and transfers of value by manufacturers of medical
devices to healthcare professionals and entities, however, and some state transparency laws apply more broadly than the
federal Sunshine Act. There are also an increasing number of analogous state laws that require manufacturers to file reports
with states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply
with the laws. For example, several states have enacted legislation requiring manufacturers to, among other things,
establish and implement commercial compliance programs, file periodic reports with the state, make periodic
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public disclosures on sales, marketing, pricing, clinical trials and other activities and/or register their sales representatives.
Certain state laws also regulate manufacturers’ use of physician and patient identifiable data. These laws may affect our
sales, marketing and other promotional activities by imposing administrative and compliance burdens. In addition, given
the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty
provisions of the pertinent state and federal authorities. All of our activities are also potentially subject to federal and state
consumer protection and unfair competition.
Other Federal Healthcare Fraud and Abuse Laws
We may also be subject to other federal healthcare fraud and abuse laws, including provisions of HIPAA, which imposes
criminal liability and amends provisions on the reporting, investigation, enforcement, and penalizing of civil liability for,
among other things, knowingly and recklessly executing a scheme or artifice to defraud any healthcare benefit program,
including private payors, as well as knowingly and willfully falsifying, concealing or covering up a material fact by any
trick, scheme or device or making any materially false, fictitious or fraudulent statement in connection with the delivery of
or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines,
imprisonment or exclusion from government-sponsored programs. As with the federal Anti-Kickback Statute, a person or
entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a
violation.
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. businesses and their representatives from offering to pay,
paying, promising to pay or authorizing the payment of money or anything of value to a foreign official in order to
influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage
in order to obtain or retain business. The FCPA also obligates companies whose securities are listed in the U.S. to comply
with accounting provisions requiring us to maintain books and records, which in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the corporation, including international subsidiaries, if any, and to
devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the
reliability of financial reporting and the preparation of financial statements. Our industry is heavily regulated and therefore
involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many
other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the
purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are
subject to regulation under the FCPA. Recently, the SEC and Department of Justice have increased their FCPA enforcement
activities with respect to pharmaceutical companies. Violations could result in fines, criminal sanctions against us, our
officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business
activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our
business. Enforcement actions may be brought by the Department of Justice or the SEC, and recent enacted legislation has
expanded the SEC’s power to seek disgorgement in all FCPA cases filed in federal court and extended the statute of
limitations in SEC enforcement actions in intent-based claims such as those under the FCPA from five years to ten years.
International Laws
In Europe, and throughout the world, other countries have enacted anti-bribery laws and/or regulations similar to the
FCPA. Violations of any of these anti-bribery laws, or allegations of such violations, could have a negative impact on our
business, results of operations and reputation.
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.
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U.S. Healthcare Reform
The U.S. and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the
healthcare system. The U.S. government, state legislatures and foreign governments also have shown significant interest in
implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls
and restrictions on reimbursement.
In the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act, or collectively the “Affordable Care Act”, substantially changed the way healthcare is financed by both
governmental and private insurers, and significantly impacts the healthcare industry. The Affordable Care Act is intended
to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new
taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.
There have been significant ongoing judicial, administrative, executive and legislative efforts to modify or eliminate the
Affordable Care Act. For example, the Tax Act enacted on December 22, 2017, repealed the shared responsibility payment
for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code,
commonly referred to as the individual mandate. Other legislative changes have been proposed and adopted since passage
of the Affordable Care Act. The Budget Control Act of 2011, among other things, created the Joint Select Committee on
Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not
achieve its targeted deficit reduction of an amount greater than $1.2 trillion for the fiscal years 2012 through 2021,
triggering the legislation’s automatic reductions to several government programs. These reductions included aggregate
reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into effect in April
2013. Subsequent litigation extended the 2% reduction, on average, to 2030 unless additional Congressional action is
taken. The Coronavirus Aid, Relief and Economic Security Act, or the “CARES Act”, which was designed to provide
financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2%
Medicare sequester from May 1, 2020 to December 31, 2021, which was further extended through March 31, 2022.
Following the suspension, a 1% payment reduction began April 1, 2022 and remained through June 30, 2022. The 2%
payment reduction resumed on July 1, 2022. The sequester will remain in place through 2030. On January 2, 2013, the
American Taxpayer Relief Act was signed into law, which, among other things, reduced Medicare payments to several
types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years.
The Affordable Care Act has been subject to challenges in the courts. On December 14, 2018, a Texas U.S. District Court
Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed
by Congress. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is
unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire
Affordable Care Act. An appeal was taken to the U.S. Supreme Court. On June 17, 2021, the Supreme Court ruled that the
plaintiffs lacked standing to challenge the law as they had not alleged personal injury traceable to the allegedly unlawful
conduct. As a result, the Supreme Court did not rule on the constitutionality of the ACA or any of its provisions.
Further changes to and under the Affordable Care Act remain possible, but it is unknown what form any such changes or
any law proposed to replace or revise the Affordable Care Act would take, and how or whether it may affect our business
in the future.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control
healthcare costs, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
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We expect that additional federal, state and foreign healthcare reform measures will be adopted in the future, any of which
could limit the amounts that federal and state governments will pay for healthcare products and services, which could result
in limited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing
pressures.
Pricing and Reimbursement
In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial
sale will depend in part on the availability of reimbursement from third party payors. Third party payors include
government health administrative authorities, managed care providers, private health insurers, and other organizations.
These third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products
and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare
products, and there are continuing legislative and regulatory efforts by the federal government and the states to reduce the
cost of medical products and services overall. We may need to conduct expensive studies in order to demonstrate the cost-
effectiveness of our products. Our product candidates may not be considered cost-effective. Decisions regarding the extent
of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. One third-party payor’s
decision to cover a particular product or procedure using the product does not ensure that other payors will also provide
coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels
sufficient to realize an appropriate revenue levels. Future legislation could limit payments for medical devices, including
our products and our future products.
The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost
containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on
reimbursement and requirements for substitution of less costly products. Adoption of government controls and measures,
and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for our
products. The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the
government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing
emphasis on managed care in the U.S. has increased and will continue to increase the pressure on medical product and
service pricing.
Human Capital Resources
As of December 31, 2022, we had 173 employees worldwide. None of our employees are represented by a collective
bargaining agreement and we have never experienced a work stoppage. We believe we have good relationships with our
employees.
The success of our business is fundamentally connected to the well-being of our employees. Accordingly, we are
committed to their health, safety and wellness. We provide our employees and their families with access to a variety of
flexible and convenient health and wellness programs, including benefits that provide protection and security so they can
have peace of mind concerning events that may require time away from work or that impact their financial well-being; that
support their physical and mental health by providing tools and resources to help them improve or maintain their health
status and encourage engagement in healthy behaviors; and that offer choice where possible so they can customize their
benefits to meet their needs and the needs of their families. In response to the COVID-19 pandemic, we implemented
significant changes that we determined were in the best interest of our employees, as well as the communities in which we
operate, and which comply with government regulations.
We strive to provide a competitive mix of pay, benefits and services that help meet the needs of our employees. In addition
to salaries, these programs include variable incentive compensation plans, potential annual discretionary bonuses, stock
awards, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off,
family leave, and flexible work schedules, among others. In addition to our broad-based equity award programs, we have
used targeted equity-based grants with vesting conditions to enhance retention of personnel.
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Corporate Information
We were incorporated on April 17, 2012.
Our primary executive offices are located at 1 Great Valley Parkway, Suite 24, Malvern, Pennsylvania 19355 and our
telephone number is (484) 320-2930. Our website address is www.telabio.com. The information contained in, or that can
be accessed through, our website is not part of this Annual Report. We make available, free of charge and through our
website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any
amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after they are electronically filed with or furnished to the SEC.
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ITEM 1A.
RISK FACTORS
You should carefully consider the following risks described below, together with all of the other information in this Annual
Report, including our consolidated financial statements and related notes. While we believe that the risks and uncertainties
described below are the material risks facing our business, additional risks that we do not know of or that we currently
think are immaterial may also arise and materially affect our business. The realization of any of these risks could have a
material adverse effect on our business, financial condition, results of operations, and our ability to accomplish our
strategic objectives.
Risks Related to Achieving or Sustaining Profitability, Financial Position and Capital Requirements
We have incurred significant operating losses since inception, we expect to incur operating losses in the future, and we
may not be able to achieve or sustain profitability.
We have incurred net losses since our incorporation on April 17, 2012. For the years ended December 31, 2022, 2021 and
2020, we had net losses of $44.3 million, $33.3 million and $28.8 million, respectively. As of December 31, 2022, we had
an accumulated deficit of $274.2 million.
We expect to continue to incur significant sales and marketing, research and clinical development, regulatory and other
expenses as we expand our sales and marketing efforts to increase adoption of our products, expand existing relationships
with our customers, obtain regulatory clearances or approvals for our planned or future products, conduct clinical trials on
our existing and planned or future products, develop, acquire or license complimentary products for our product portfolio,
or add new features to our existing products. As a result, we expect to continue to incur operating losses for the foreseeable
future and may never achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase
profitability on an ongoing basis. If we do not achieve or sustain profitability, it will be more difficult for us to finance our
business and accomplish our strategic objectives, either of which would have a material adverse effect on our business,
financial condition and results of operations and may cause the market price of our common stock to decline.
Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and
competitive position.
As of December 31, 2022, we had $40.0 million of indebtedness outstanding under our credit facility with MidCap
Financial Trust (“MidCap”) that matures in May 2027.
To service this indebtedness and any additional indebtedness we may incur in the future, we need to generate cash from our
operating activities. Our ability to generate cash is subject, in part, to our ability to successfully execute our business
strategy, as well as general economic, financial, competitive, regulatory, and other factors beyond our control. We cannot
assure you that our business will be able to generate sufficient cash flow from operations or that future borrowings or other
financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other
liquidity needs. To the extent we are required to use cash from operations or the proceeds of any future financing to service
our indebtedness, our ability to plan for, or react to, changes in our business, industry and the economy generally will be
limited.
In addition, the MidCap credit facility contains certain covenants that limit our ability to engage in certain transactions that
may be in our long-term best interests, including the incurrence of additional indebtedness, effecting certain corporate
changes, making certain investments, acquisitions or dispositions and paying dividends.
We have not previously breached and are not currently in breach of these or any of the other covenants; however, there can
be no guarantee that we will not breach these covenants in the future. In the event that we breach one or more covenants,
our lender may choose to declare an event of default and require that we immediately repay all amounts outstanding,
terminate any commitment to extend further credit and foreclose on the collateral granted to it to collateralize such
indebtedness. The occurrence of any of these events could have a material adverse effect on our business, financial
condition and results of operations.
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We may require substantial additional capital to finance our planned operations, which may not be available to us on
acceptable terms or at all.
If needed, any future funding requirements will depend on many factors, including:
● surgeon and market acceptance of our products;
● the cost of our research and development activities;
● the cost and timing of obtaining regulatory clearances or approvals;
● the cost and timing of establishing additional sales and marketing capabilities;
● the cost and timing of clinical trials that we are currently conducting or may conduct in the future;
● costs associated with any product recall that may occur;
● the effect of competing products in our markets or competing technologies;
● the extent to which we acquire or invest in products, technologies and businesses, although we currently have
no commitments or agreements relating to any of these types of transactions;
● the cost of filing and prosecuting patent applications and defending and enforcing our patent or other
intellectual property rights; and
● the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other
intellectual property rights.
Any additional equity or debt financing that we raise may contain terms that are not favorable to us or our stockholders. In
addition, any future debt financing into which we enter may impose upon us additional covenants that restrict our
operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common
stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. If we raise additional
funds through collaboration and licensing arrangements with third-parties, it may be necessary to relinquish some rights to
our technologies or our products, or grant licenses on terms that are not favorable to us.
Furthermore, we cannot be certain that additional funding will be available on acceptable terms, if at all. If we do not have,
or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or
license to third-parties the rights to commercialize products or technologies that we would otherwise seek to
commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products or
cease operations. Any of these factors could harm our business, financial condition and results of operations.
If we are unable to expand, manage and maintain our direct sales and marketing organizations, we may not be able to
generate anticipated revenue.
Building the requisite sales, marketing and distribution capabilities to successfully market and sell our products continues
to be expensive and time-consuming and requires significant attention from our leadership team to manage. Any failure or
delay in the expansion of our sales, marketing or distribution capabilities would adversely impact the commercialization of
our products. Additionally, we may choose to collaborate, either globally or on a territory-by-territory basis, with third
parties on the commercialization of our products. If we are unable to enter into such arrangements on acceptable terms or at
all, we may not be able to successfully commercialize our products.
As of December 31, 2022, our commercial organization consisted of 123 employees in the U.S. and 9 employees in
Europe. To generate future revenue growth, we plan to expand the size and geographic scope of our direct sales
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organization. This growth may require us to split or adjust existing sales territories, which may adversely affect our ability
to retain customers in those territories. Additionally, our future success will depend largely on our ability to continue to
hire, train, retain and motivate skilled sales and marketing personnel with significant industry experience and technical
knowledge of medical devices and related products. The competition for talented individuals experienced in selling and
marketing medical device products is intense, and we cannot assure you that we can assemble or maintain an effective
team. We cannot assure you that we will be able to hire and retain additional personnel on favorable or commercially
reasonable terms, if at all. Our operating results are directly dependent upon the sales and marketing efforts of our
employees. Failure to hire or retain qualified sales and marketing personnel would prevent us from expanding our business
and generating revenue. If we are unable to expand our sales and marketing capabilities, we may not be able to effectively
commercialize our products, which could have an adverse effect on our business, financial condition and results of
operations.
Macroeconomic conditions, including the ongoing response to the COVID-19 pandemic, may negatively impact certain
aspects of our business, our prospects, results of operations and financial condition.
Macroeconomic conditions, including the COVID-19 pandemic, have negatively impacted our business, results of
operations and financial condition, and, if continued or exacerbated by inflationary pressures, geopolitical conflict or other
macroeconomic events, may adversely impact our business, financial condition and prospects. In the first quarter of 2022,
regional surges of the COVID-19 Omicron variant resulted in some government restrictions on elective procedures and
surgical staffing challenges leading to the deferral of elective surgeries. While the initial challenges from COVID-19 and
its variants have begun to subside, we cannot predict the severity of any long-term impact stemming from strains on the
healthcare system, labor and staffing in the hospital sector, fatigue on healthcare workers, and hospital capacity for elective
procedures, that resulted from measures taken to address the COVID-19 pandemic. We do not know when, and how,
hospitals will return to normal surgical procedural volumes and also reduce the substantial backlog in elective procedures
deferred in response to the COVID-19 pandemic. Any prolonged delays in normalized levels of elective surgeries by
governmental, hospital or payor actions would continue to impair net sales of our products.
General supply chain disruptions, initially arising from COVID-19, have also continued to interrupt trade globally and
weakened supply systems. We currently rely on Aroa, which is headquartered in New Zealand, for supply of our products.
While there have been minimal disruptions to our supply chain to date, there is a risk that in the future supplies of our
products could be disrupted or delayed based on competition within a tightening supply chain or otherwise affected by
substantial inflationary pressures due to macroeconomic conditions. There can be no assurance that we would be able to
timely implement any mitigation plans relating to our supply chain.
Continued concerns about the systemic impact of potential long-term and wide-spread recession, liquidity constraints,
failures and instability in the U.S. and international financial banking systems, and geopolitical issues, including the war in
Ukraine, have contributed to increased market volatility and diminished expectations for economic growth in the world.
These conditions may lead to continued volatility in the future, which could result in a decline in our stock price, high
inflation, increase our cost of capital and adversely affect our ability to access the capital markets in the future even after
local conditions improve.
Market acceptance of our medical products in the U.S. and other countries is dependent upon the procurement practices of
our customers, patient need for our products and procedures and the reimbursement of patients’ medical expenses by
government healthcare programs and third-party payors. The continuing uncertainty surrounding global economic
conditions and financial markets, including the lingering economic impact of the COVID-19 pandemic on our customers,
may adversely affect demand for our products and procedures and result in lower reimbursement rates or coverage for our
products, resulting in lower sales volume and downward pricing pressure on our products and slower adoption of new
products.
The full extent to which the global economic forces, including the COVID-19 pandemic, will further, directly or indirectly,
impact our business, results of operations and financial condition, including our sales, expenses, manufacturing capability,
supply chain integrity, research and development activities, and employee-related matters, will depend on future
developments that are highly uncertain.
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Information pertaining to the impact of the COVID-19 pandemic and these macroeconomic pressures on our operations to
date can be found in “Management's Discussion and Analysis of Financial Position and Results of Operations” in this
Annual Report on Form 10-K.
Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our product or
a decrease in consumer spending results in lower volumes of elective surgeries. In addition, if our costs increase and
we are not able to pass along these price increases, our profitability would be adversely affected, and the adverse impact
may be material.
Inflation rates, particularly in the U.S., have increased recently to levels not seen in years. Increased inflation may result in
decreased demand for our products, increased operating costs (including our labor costs), reduced liquidity, and limitations
on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has
raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if
coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing
economic uncertainty and heightening these risks. In an inflationary environment, we may be unable to raise the prices of
our products at or above the rate at which our costs increase, which could/would reduce our profit margins and have a
material adverse effect on our financial results. We also may experience lower than expected sales and potential adverse
impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing. A
reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse
impact on our future growth.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity,
defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our
current and projected business operations and its financial condition and results of operations.
Events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial
institutions, transactional counterparties or other companies in the financial services industry or the financial services
industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in
the future lead to market-wide liquidity problems. Most recently, on March 10, 2023, the California Department of
Financial Protection and Innovation closed Silicon Valley Bank (“SVB”) and appointed the Federal Deposit Insurance
Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each
swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC
indicated that all depositors of SVB would have access to all of their money after only one business day of closure,
including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other
financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the
FDIC may be unable to access undrawn amounts thereunder. Even though we assess our banking and customer
relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in
amounts adequate to finance or capitalize our current and projected future business operations could be significantly
impaired by factors that affect us, the financial services industry or economy in general. These factors could include,
among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of
financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or
financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.
The results of events or concerns that involve one or more of these factors could include a variety of material and adverse
impacts on our current and projected business operations and our financial condition and results of operations. These
factors could include, but may not be limited to, the following:
● Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;
● Loss of access to working capital sources and/or the inability to refund, roll over or extend the maturity of, or
enter into new credit facilities or other working capital resources;
● Potential or actual breach of financial covenants in our credit agreements or credit arrangements;
● Potential or actual cross-defaults in other credit agreements, credit arrangements or operating or financing
agreements; or
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● Termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash
management arrangements.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable
commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or
systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing
on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among
other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other
obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws.
Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not
described above, could have material adverse impacts on our liquidity and our business, financial condition or results of
operations.
Risks Related to the Commercialization of our Products
To date, the vast majority of our revenue has been generated from sales of our OviTex products, and we therefore are
highly dependent on the commercial success of OviTex product line.
Sales of our OviTex products accounted for 70%, 78% and 83% of total revenue for the years ended December 31, 2022,
2021 and 2020, respectively. We first commercialized OviTex products in the U.S. in 2016 and have introduced our larger
sized OviTex products, our OviTex LPR product for use in laparoscopic and robotic-assisted hernia surgical repairs, larger
configurations of our LPR product, OviTex PRS products for use in surgery for soft-tissue repair or reinforcement in plastic
and reconstructive procedures and recently our NIVIS Fibrillar Collagen Pack for the management of surgical wounds. We
expect that sales of our OviTex products and our OviTex PRS products, will account for the majority of our revenue for the
foreseeable future. Our failure to successfully increase sales of these products or any other event impeding our ability to
sell these products would result in a material adverse effect on our business, financial condition and results of operations.
The commercial success of our products will largely depend upon attaining significant market acceptance.
Our ability to execute our growth strategy, achieve commercial success and become profitable will depend upon the
adoption by inpatient and outpatient hospitals, surgeons, and medical device supply chain participants of our reinforced
tissue matrix products. We cannot predict how quickly, if at all, surgeons will accept our products or, if accepted, how
frequently they will be used. Our products and planned or future products we may develop or market may never gain broad
market acceptance among surgeons and the medical community for some or all of our indications. Some surgeons may
have prior history with or a preference for other soft-tissue reinforcement products, such as permanent synthetic mesh,
resorbable synthetic mesh, or other biologic matrices, or may be reluctant to alter their practice patterns to treat patients
with our reinforced tissue matrix products. The degree of market acceptance of any of our products will depend on a
number of factors, including:
● whether surgeons and others in the medical community consider our products to be safe, effective and cost
effective;
● the potential and perceived advantages of our products over alternative products;
● the effectiveness of our sales and marketing efforts for our products;
● the prevalence and severity of any complications associated with using our products;
● the convenience and ease of use of our products relative to competing products;
● product labeling or product insert requirements by regulatory authorities;
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● the competitive pricing of our products;
● the quality of our products meeting patient and surgeon expectations;
● the results of clinical trials and post-market clinical studies relating to the use of our products;
● pricing pressure, including from GPOs and government payors;
● the availability of coverage and adequate reimbursement for procedures using our products from third-party
payors, including government authorities;
● the willingness of patients to pay out-of-pocket for our products in the absence of coverage and adequate
reimbursement by third-party payors, including government authorities; and
● our ability to provide incremental clinical and economic data that show the safety, clinical efficacy and cost
effectiveness, and patient benefits from, our products.
Additionally, even if our products achieve market acceptance, they may not maintain that market acceptance over time if
competing products or technologies, which are more cost effective or received more favorably, are introduced. Failure to
achieve or maintain market acceptance and/or market share would limit our ability to generate revenue and would have a
material adverse effect on our business, financial condition and results of operations.
Even if we are able to attain significant market acceptance of our products, the commercial success of our products is
not guaranteed.
Our future financial success will depend substantially on our ability to effectively and profitably market and sell our
products. Even if we are able to attain significant market acceptance of our products, the commercial success of our
products and any of our planned or future products is dependent on a number of additional factors, including the results of
clinical trials relating to the use of our products and our ability to obtain and maintain regulatory approval or clearance to
market our products and maintain compliance with applicable regulatory requirements. Successful growth of our sales and
marketing efforts will depend on the strength of our marketing and distribution infrastructure and the effectiveness of our
marketing and sales efforts, including our efforts to expand our direct sales force, while our ability to satisfy demand for
our products driven by our sales and marketing efforts will be largely dependent on the ability of Aroa to maintain a
commercially viable manufacturing process that is compliant with regulatory standards. If we fail to successfully market
and sell our products, we will not be able to achieve profitability, which will have a material adverse effect on our business,
financial condition and results of operations.
Our ability to grow our revenue in future periods will depend on our ability to increase sales of our OviTex and OviTex
PRS products and any new product or product indications that we introduce, which will, in turn, depend in part on our
success in expanding our customer base and driving increased use of our products. New products or product indications
may also need to be approved or cleared by the FDA and comparable non-U.S. regulatory agencies to drive revenue
growth. If we cannot achieve revenue growth, it could have a material adverse effect on our business, financial condition
and results of operations.
The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to
product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have
engaged in the promotion of our products for these uses.
Surgeons and other medical professionals may misuse our reinforced tissue matrix products or use improper techniques if
they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our products are
misused or used with improper technique, we may become subject to costly litigation by our customers or their patients.
Product liability claims could divert management’s attention from our core business, be expensive to defend
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and result in sizeable damage awards against us that may not be covered by insurance. In addition, any of the events
described above could harm our business.
The products we commercialize have been cleared by the FDA and other regulatory authorities for specific indications. Our
OviTex products are reinforced tissue matrices designed for use as a surgical mesh to reinforce and/or repair soft-tissue
where weakness exists and indications for use of our OviTex products include the repair of hernia and/or abdominal wall
defects which require the use of reinforcing or bridging material to obtain the desired surgical outcome. Our OviTex PRS
products are reconstructive reinforced tissue matrices designed for implantation to reinforce soft-tissue where weakness
exists in patients requiring soft tissue repair or reinforcement in plastic and reconstructive surgery. In connection with the
March 2019 meeting of the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Committee, the
FDA stated that no surgical mesh device has been cleared or approved for use in breast surgery, and that to obtain such
indication, the product sponsor must obtain an approved PMA. This statement applies to our OviTex PRS products as they
are not cleared or approved for use in breast surgery and thus, we are prohibited from marketing them for that use. OviTex
PRS or any other product we may develop for use in breast surgery will need to be approved specifically for that indication
and there can be no guarantee that it will be approved. We have engaged in discussions with the FDA regarding an IDE
protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery.
There can be no assurance that we will be able to secure a PMA approval in a timely manner, or at all. Any marketing for
OviTex PRS or any other product for a use in breast reconstruction surgery would be deemed off-label promotion of that
product if it has been cleared for a general indication of use to reinforce or repair soft-tissue and has not received an
approval specifically for use in breast surgery. We train our marketing personnel and direct sales force to not promote our
OviTex or OviTex PRS products for uses outside of the FDA-cleared indications for use, known as “off-label uses.” We
cannot, however, prevent a surgeon or medical professional from using our OviTex or OviTex PRS products or other
products we may commercialize in the future for off-label uses.
Although we train our direct sales force not to promote our products for off-label uses, and our instructions for use in all
markets specify that our products are not intended for use outside of those indications cleared or approved for use, the FDA
or another regulatory authority could conclude that we have engaged in off-label promotion. If the FDA determines that our
promotional or training materials constitute promotion of an off-label use, or make claims that are not supported by the
available clinical data, it could request that we modify our training or promotional materials or subject us to regulatory or
enforcement actions. It is also possible that other federal, state or non-U.S. enforcement authorities might take action under
other regulatory authority if they consider our business activities to constitute promotion of an off-label use, or are
otherwise objectionable, which could result in significant penalties, including, but not limited to, criminal, civil and
administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs
and the curtailment of our operations.
Even if surgeons or medical professionals use our OviTex products only for their approved indications, a failure by such
surgeons and medical professionals to use our products in accordance with the processes and procedures established to
properly utilize our OviTex products could result in product liability lawsuits, costly investigations and potentially affect
our ability to achieve sufficient market penetration for our OviTex products. In those possible events, our reputation could
be damaged and adoption of the products would be impaired. We may also be required to reassess the training, written
instructions and product warnings or other labeling information we provide our customers. This process could require us to
expend significant time and capital and could have a material adverse effect on our business, financial condition and results
of operations and impair our ability to grow our business.
If we are unable to achieve and maintain adequate levels of coverage or reimbursement for our OviTex, OviTex PRS or
other products we may commercialize in the future, our commercial success may be hindered.
Our ability to successfully commercialize and achieve market acceptance of our products depends, in significant part, on
the availability of adequate financial coverage and reimbursement from third-party payors, including governmental payors
(such as the Medicare and Medicaid programs in the U.S.), managed care organizations and private health insurers. The
primary customers for our products are hospitals and ambulatory surgery centers who will then seek reimbursement from
third-party payors for the procedures performed using our products. While some third-party payors currently cover and
provide reimbursement for procedures using our currently cleared or approved products, we can give
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no assurance that these third-party payors will continue to provide coverage and adequate reimbursement for the
procedures using our products, to permit hospitals and surgeons to offer procedures using our products to patients requiring
treatment, or that current reimbursement levels for procedures using our products will continue. Additionally, no uniform
policy for coverage and reimbursement exists in the U.S. and coverage and reimbursement can differ significantly from
payor to payor. If third-party payors reverse or limit their coverage for the procedures using our currently cleared or
approved products in the future, this could have a material adverse effect on our business. If we are forced to lower the
price we charge for our products, this could have a material adverse effect on our business, financial condition and results
of operations and impair our ability to grow our business.
Healthcare costs have risen significantly over the past decade, which has resulted in or led to numerous cost reform
initiatives. Third-party payors, whether U.S. or non-U.S., or governmental or commercial, are developing increasingly
sophisticated methods of controlling healthcare costs, including examining the cost effectiveness of procedures, in addition
to their safety and efficacy, when making coverage and payment decisions. Payors continually review new and existing
technologies for possible coverage and can, without notice, deny or reverse coverage or alter pre-authorization
requirements for new or existing procedures. We cannot provide assurance that we will be successful in any efforts we may
potentially undertake to reverse such non-coverage decisions. If we are not successful in reversing non-coverage policies,
or if third-party payors that currently cover or reimburse certain procedures reverse or limit their coverage of such
procedures in the future, or if other third-party payors issue similar policies, our business could be adversely impacted.
Our long-term growth may depend on our ability to enhance our product offerings.
It is important to our business that we continue to enhance our OviTex and OviTex PRS products and develop and
introduce new reinforced tissue matrix products. Developing products is expensive and time-consuming and could divert
management’s attention away from other aspects of our business. The success of any new reinforced tissue matrix product
offering or product enhancements to our OviTex and OviTex PRS products will depend on several factors, including our
ability to:
● properly identify and anticipate surgeon and patient needs;
● develop and introduce new products and product enhancements in a timely manner;
● avoid infringing upon the intellectual property rights of third parties;
● ensure the quality, manufacture and supply of new products by Aroa;
● demonstrate, if required, the safety and efficacy of new products with data from preclinical studies, clinical
trials and post-market clinical studies;
● obtain the necessary regulatory clearances or approvals for expanded indications, new products or product
modifications;
● be fully FDA-compliant with marketing of new devices or products;
● provide adequate training to potential users of our new products;
● receive adequate coverage and reimbursement for procedures performed with our new products; and
● develop and expand an effective and dedicated sales and marketing team.
If we are not successful in introducing new product indications and developing and commercializing new products and
product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on
our business, financial condition and results of operations.
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In the future our products may become obsolete, which would negatively affect operations and financial condition.
The medical device industry is characterized by rapid and significant change. There can be no assurance that other
companies will not succeed in developing or marketing devices and products that are more effective than our reinforced
tissue matrix products or that would render our reinforced tissue matrix products obsolete or noncompetitive. Additionally,
new surgical procedures, medications and other therapies could be developed that replace or reduce the importance of our
products. Accordingly, our success will depend in part on our ability to respond quickly to medical and other changes
through the development and introduction of new products. Our reinforced tissue matrix products have a limited shelf life
and will expire if not timely used. Product development involves a high degree of risk, and there can be no assurance that
our new product development efforts will result in any commercially successful products.
To successfully market and sell our products in markets outside of the U.S., we must address many international
business risks with which we have limited experience.
Approximately 8%, 5% and 4% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively, came
from sales in markets outside of the U.S. Part of our sales strategy is to maintain our European presence. European sales
are subject to a number of risks, including:
● difficulties in staffing and managing international operations;
● increased competition as a result of more products and procedures receiving regulatory approval in
international markets;
● longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
● fluctuations in currency exchange rates;
● non-U.S. certification and regulatory clearance or approval requirements;
● difficulties in developing effective marketing campaigns in unfamiliar countries;
● customs clearance and shipping delays;
● complexities associated with managing multiple payor reimbursement regimes, government payors or patient
self-pay systems;
● political, social, and economic instability abroad, terrorist attacks, and security concerns in general;
● the impact of the macroeconomic factors, including COVID-19 pandemic, inflationary pressures and
geopolitical conflicts like the war in Ukraine;
● natural disasters and global pandemics like COVID-19, which result in lock-downs, travel restrictions and
other restrictions on our ability to operate internationally;
● preference for locally produced products;
● potentially adverse tax consequences, including the complexities of non-U.S. value-added tax systems, tax
inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings;
● the burdens of complying with a wide variety of non-U.S. laws and different legal standards; and
● increased financial accounting and reporting burdens and complexities.
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If one or more of these risks are realized, our business, financial condition and results of operations could be adversely
affected.
Risks Related to Our Reliance on Third Parties
We are highly dependent upon Aroa, as the exclusive manufacturer and supplier of our OviTex portfolio products.
In August 2012, we entered into our Aroa License which was amended and restated in July 2015. The Aroa License grants
us an exclusive license in North America, the EU, United Kingdom, Norway, Switzerland, Russia and former Soviet
satellite countries to certain intellectual property rights, including patents relating to the use of bovine and ovine rumen as a
source of extracellular matrix. Under the Aroa License, Aroa is our exclusive manufacturer and supplier of our OviTex
portfolio products, consisting of OviTex, OviTex LPR and OviTex PRS.
We are reliant upon the intellectual property we license from Aroa for the development and commercialization of our
products. Under the Aroa License, we hold an exclusive license to certain intellectual and technology rights to develop,
commercialize and sell certain endoform regenerative template products derived from cows and sheep. The Aroa License
also provides for cooperative development of our products utilizing the licensed intellectual property and all of our
products rely on intellectual property owned by Aroa and licensed to us under the Aroa License. The Aroa License imposes
various developmental and regulatory requirements upon us along with requiring us to make milestone payments upon the
achievement of certain commercial and regulatory milestones. If we fail to comply with our obligations under the Aroa
License, Aroa will have the right to terminate the Aroa License, in which event we would not be able to develop and
market our products.
Aroa is required under the Aroa License to manufacture all of our OviTex portfolio products at its manufacturing and
warehousing facility in Auckland, New Zealand. The production of all of our OviTex portfolio products in a single location
exposes us to the risk of Aroa’s facility being harmed or rendered inoperable by natural or man-made disasters or
pandemics, which may render it difficult or impossible for Aroa to perform its manufacturing and assembly activities for
some time. Although we and Aroa intend to establish redundant production facilities to lessen the risk of production
disruptions, we will need to ensure that any manufacturing facility complies with our quality expectations and applicable
regulatory requirements. If we are unable to establish redundant manufacturing facilities in a timely manner, any disruption
in the manufacture of our OviTex portfolio products at Aroa’s manufacturing and warehouse facility, the continued
commercialization of our OviTex portfolio products, the supply of our OviTex portfolio products to customers and the
development of any new reinforced tissue matrix products will be delayed, limited or prevented, which could have material
adverse effect on our business, financial condition and results of operations.
Under the Aroa License, Aroa is responsible for supplying all of the raw materials and components used in the manufacture
and assembly of our OviTex portfolio products. If Aroa is unable to supply the raw materials and components or to
manufacture and assemble our OviTex portfolio products reliably and at the levels we anticipate or that are required by the
market, we may be unable to acquire a substitute supply of raw materials and components on a timely basis, if at all.
Under the Aroa License Aroa also holds the FDA clearances under which we commercialize our OviTex and OviTex LPR
products, and maintains ultimate responsibility for all regulatory interactions with FDA relating to our OviTex and OviTex
LPR products and decisions made with respect to changing or updating those clearances. If Aroa fails to comply with all
applicable regulatory requirements and maintain the FDA clearances related to our OviTex and OviTex LPR products, we
may be unable to commercialize our OviTex and OviTex LPR products on a timely basis, or at all. Our ability to supply our
OviTex portfolio products commercially and to develop any future products depends, in part, on our ability to obtain these
materials, components and products in accordance with regulatory requirements and in sufficient quantities for
commercialization and clinical testing. While Aroa has historically met our demand for its products and services on a
timely basis in the past, we cannot guarantee that it will always be able to meet our demand for its products. If Aroa fails to
meet demand or notifies us that it believes it will fail to meet demand for our OviTex portfolio products, we are required
under the Aroa License to work with Aroa to cure its supply failure and may, only in certain circumstances and on a
temporary basis, engage a replacement contract manufacturer to mitigate a failure by Aroa to meet demand for our OviTex
portfolio products. As such, we are highly dependent upon Aroa’s continued ability to
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supply our OviTex portfolio products at the levels we require and any production shortfall that impairs the supply of our
OviTex portfolio products could have a material adverse effect on our business, financial condition and results of
operations and adversely affect our ability to satisfy demand for our OviTex portfolio products, which could adversely
affect our product sales and operating results materially.
We, or our partners, may experience development or manufacturing problems, capacity constraints, or delays in the
production of our products that could limit the potential growth of our revenue or increase our losses.
We may encounter unforeseen situations in Aroa’s manufacturing and assembly of our OviTex portfolio products that
would result in delays or shortfalls in its production. For example, Aroa was unable to supply us with our products from
September 2017 to December 2017 due to a quality testing process failure identified by Aroa. Personnel shortages and
reduced manufacturing capacity due to the COVID-19 pandemic may also result in a disruption in production.
Based upon our current planned market adoption we believe we will reach our capacity limitations in the Aroa facility.
Aroa expanded its manufacturing capacity, with approximately 15,000 square feet of additional manufacturing space being
constructed in a neighboring facility, in 2022. If we are unable to successfully expand capacity, we may not be able to meet
the demand for our products. In addition, Aroa’s production processes and assembly methods may have to change in order
to accommodate any significant future expansion of its manufacturing capacity, which may increase our manufacturing
costs, delay production of our products and adversely impact our business. Conversely, if demand for our OviTex portfolio
products shifts such that Aroa’s manufacturing facility is operated below its capacity for an extended period, it may adjust
its manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and
quality during any transition period.
If Aroa’s manufacturing activities are adversely impacted or if it is otherwise unable to keep up with demand for our
OviTex portfolio products by successfully manufacturing, assembling, testing and shipping our OviTex portfolio products
in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our
customers might instead purchase our competitors’ products, which would have a material adverse effect on our business,
financial condition and results of operations.
Our products contain materials derived from animal sources and may become subject to additional regulation.
Our products are manufactured using ovine rumen. Products that contain materials derived from animal sources are
increasingly subject to scrutiny in the media and by regulatory authorities. Regulatory authorities are concerned about the
potential for the transmission of disease, particularly progressive neurodegenerative disorders, from animals to humans via
those materials. In addition, the COVID-19 pandemic has heightened public awareness of animals and animal products as a
disease vector. Products that contain materials derived from animals, including our products, may become subject to
additional regulation, or even be banned in certain countries, because of concern over the potential for the transmission of
infectious agents. Significant new regulation, or a ban of our products, could impair our current business or our ability to
expand our business, and in the case of a ban or suspension, could have a material adverse effect on our business, financial
condition and results of operations.
Our supply of ovine rumen for use in manufacturing our products may be vulnerable to disruption due to natural
disaster, disease or other events.
The ovine rumen used in the manufacturing of our products is sourced through Aroa in New Zealand. Although Aroa
obtains its supply of ovine rumen from jurisdictions with sheep that are not currently known to carry any prion disease
(progressive neurodegenerative disorders, including scrapie disease), there can be no assurance that these flocks will
remain prion disease-free or that a future outbreak or presence of other unintended and potentially hazardous agents would
not adversely affect our products or patients that may receive them. The geographic concentration of our supply chain
increases our vulnerability to disruption due to natural disasters, disease or other events. If there is a disruption in the
supply of ovine rumen to our manufacturer and supplier, we may be unable to fulfill customer orders or delay the
commercialization of new products.
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We may also be prohibited from importing our products into the U.S. in the event of disease outbreak or other event
impacting the sheep population in New Zealand. Any disruption in our supply lines could have a material adverse effect on
our business, financial condition and results of operations.
Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business
and harm our reputation and ability to provide our products on a timely basis.
Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for reliable
and secure point-to-point transport of our OviTex portfolio products (and would rely heavily on such providers for any
other products we may commercialize and ship in the future) to our customers and for tracking of these shipments. Should
a carrier encounter delivery performance issues such as loss, damage or destruction of any of our products, it would be
costly to replace such products in a timely manner and such occurrences may damage our reputation and lead to decreased
demand for our OviTex portfolio products (or any other products we commercialize in the future) and increased cost and
expense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins
and results of operations. Similarly, strikes, severe weather, natural disasters, disease or other service interruptions affecting
delivery services we use would adversely affect our ability to deliver our OviTex portfolio products (or any other products
we commercialize in the future) on a timely basis. For example, disruptions to transportation infrastructure as a result of
macroeconomic conditions, including COVID-19 pandemic, may impact our ability to provide our products to our
customers.
Risks Related to Intellectual Property Matters
We may need to license intellectual property from third parties, and such licenses may not be available or may not be
available on commercially reasonable terms.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our products, and
we cannot provide any assurances that third-party patents do not exist which might be enforced against our products in the
absence of such a license. The licensing and acquisition of third-party intellectual property rights is a competitive practice
and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to
license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to
commercialize our products. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even
if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies
licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement
technology. If we are unable to do so, we may be unable to develop or commercialize the affected products, which could
materially harm our business and the third parties owning such intellectual property rights could seek either an injunction
prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of
compensation. Licensing of intellectual property is of critical importance to our business and involves complex legal,
business and scientific issues. If disputes over intellectual property that we have licensed prevent or impair our ability to
maintain our current licensing arrangements on acceptable terms, we may not be able to successfully develop and
commercialize the affected products, which would have a material adverse effect on our business.
If we fail to comply with our obligations under any license, collaboration or other agreements, we could lose intellectual
property rights that are necessary for developing and protecting our products.
We have licensed certain intellectual property rights covering our current products from third parties, including Aroa. We
are heavily dependent on our agreements with such third parties for our current products. If, for any reason, one or more of
our agreements is terminated or we otherwise lose those rights, it could harm our business. Our license and other
agreements impose, and any future collaboration agreements or license agreements we enter into are likely to impose
various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution
and enforcement or other obligations on us. If we breach any material obligations, or use the intellectual property licensed
to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the
license, which could result in us being unable to develop, manufacture and sell products that are
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covered by the licensed technology, having to negotiate new or reinstated licenses on less favorable terms, or enabling a
competitor to gain access to the licensed technology.
If we are unable to adequately protect our intellectual property rights, or if we are accused of infringing on the
intellectual property rights of others, our competitive position could be harmed or we could be required to incur
significant expenses to enforce or defend our rights.
Our commercial success will depend in part on our success in obtaining and maintaining issued patents, trademarks and
other intellectual property rights in the U.S. and elsewhere and protecting our proprietary technology. If we do not
adequately protect our intellectual property and proprietary technology, competitors may be able to use our technologies or
the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have, which
could harm our business and ability to achieve profitability.
We own fifteen issued or allowed U.S. patents and have nine pending U.S. patent applications. As of December 31, 2022,
we had rights, whether through ownership or licensing, to seventeen issued or allowed U.S. patents, nine pending U.S.
patent applications, three issued non-U.S. patents and four pending non-U.S. patent applications. Our issued U.S. patents
will expire between 2035 and 2042. The licensed patents will expire between 2029 and 2031.
Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers
who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain
evidence of infringement in a competitor’s or potential competitor’s product. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all
necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to
identify patentable aspects of our research and development output before it is too late to obtain patent protection. We
cannot provide any assurances that any of our patents, or patents to which we have ownership rights through licensing
agreements, have, or that any of our pending patent applications that mature into issued patents will include, claims with a
scope sufficient to protect our OviTex portfolio products, any additional features we develop for our OviTex portfolio
products or any new products we seek to develop in the future. Other parties may have developed technologies that may be
related or competitive to our OviTex portfolio products, may have filed or may file patent applications and may have
received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods
or devices or by claiming subject matter that could dominate our patent position. The patent positions of medical device
companies, including our patent position, may involve complex legal, scientific and factual questions, and, therefore, the
issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty.
Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented. Proceedings challenging our
patents could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or
more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that
we may own, or to which we have ownership rights through licensing agreements, may not provide any protection against
competitors. Furthermore, an adverse decision in a judicial or administrative proceeding can result in a third party
receiving the patent right sought by us, which in turn could affect our ability to commercialize our products.
Patents covering our products could be found invalid or unenforceable if challenged in court or before administrative
bodies in the U.S. or abroad.
Although an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its
enforceability and it may not provide us with adequate proprietary protection or competitive advantages against
competitors with similar products. Competitors could purchase our OviTex or OviTex PRS products and attempt to
replicate the competitive advantages we derive from our development efforts, willfully infringe our intellectual property
rights, design around the relevant patents, or develop and obtain patent protection for more effective technologies, designs
or methods. We may be unable to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by
consultants, suppliers, vendors, former employees and current employees. The laws of some non-U.S.
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countries do not protect our proprietary rights to the same extent as the laws of the U.S., and we may encounter significant
problems in protecting our proprietary rights in these countries.
In addition, proceedings to enforce or defend our patents, or patents to which we have ownership rights through licensing
agreements, could put those patents at risk of being invalidated, held unenforceable or interpreted narrowly. Such
proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or
more of those patents are invalid or otherwise unenforceable. If any of the patents covering our OviTex portfolio products
are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one
or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to
enforce or defend our rights.
Third parties may assert ownership or commercial rights to inventions we develop.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. In
addition, we may face claims by third parties that our agreements with employees, contractors or consultants obligating
them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of
assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop
and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to
resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property or
may lose our exclusive rights in such intellectual property. Either outcome could harm our business and competitive
position.
Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend
significant time and money, enter into license agreements for disputed intellectual property and could prevent us from
selling our products.
Our commercial success will depend in part on not infringing the patents or violating other proprietary rights of others.
Significant litigation regarding patent rights occurs in our industry. Our competitors may have applied for or obtained, or
may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use
and sell our products. We do not always conduct independent reviews of patents issued to third parties. In addition, patent
applications in the U.S. and elsewhere can be pending for many years before issuance, or unintentionally abandoned
patents or applications can be revived, so there may be applications of others now pending or recently revived patents of
which we are unaware. Patent applications in the U.S., the EU and elsewhere are published approximately 18 months after
the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority
date. These applications may later result in issued patents, or the revival of previously abandoned patents, that will prevent,
limit or otherwise interfere with our ability to develop and market our products. Third parties may assert claims that we are
employing their proprietary technology without authorization, including claims from competitors or from nonpracticing
entities that have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect.
As we continue to commercialize our products in their current or updated forms, launch new products and enter new
markets, we expect competitors may claim that one or more of our products infringe their intellectual property rights as a
strategy to impede our commercialization and entry into new markets. The large number of patents, the rapid rate of new
patent applications and issuances, the complexities of the technologies involved, and the uncertainty of litigation may
increase the risk of business resources and management’s attention being diverted to patent litigation. We have received,
and we may in the future receive, letters or other threats or claims from third parties inviting us to take licenses under, or
alleging that we infringe, their patents.
Moreover, we may become party to adversarial proceedings regarding our or third-party patent portfolios. Such
proceedings could include supplemental examination or contested post-grant proceedings such as review, reexamination,
inter partes review, interference or derivation proceedings before the U.S. Patent and Trademark Office (“USPTO”) and
challenges in U.S. District Courts. Patents may be subjected to opposition, post-grant review or comparable proceedings
lodged in various foreign, both national and regional, patent offices. The legal threshold for initiating litigation or contested
proceedings may be low, so that even lawsuits or proceedings with a low probability of success might be
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initiated. Litigation and contested proceedings can also be expensive and time-consuming, and our adversaries in these
proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can.
We may also occasionally use these proceedings to challenge the patent rights of others. We cannot be certain that any
particular challenge will be successful in limiting or eliminating the challenged patent rights of the third party.
Any lawsuits resulting from such allegations could subject us to significant liability for damages and/ or invalidate our
proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the following:
● stop making, selling or using products or technologies that allegedly infringe the asserted intellectual
property;
● lose the opportunity to license our technology to others or to collect royalty payments;
● incur significant legal expenses, including, in some cases, the attorney’s fees and costs of litigation to the
party whose intellectual property rights we may be found to be infringing;
● pay substantial damages (possibly treble damages) or royalties to the party whose intellectual property rights
on which we may be found to be infringing;
● redesign products that contain the allegedly infringing intellectual property; and
● attempt to obtain a license to the relevant intellectual property from third parties, which may not be available
on reasonable terms or at all.
Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a
significant strain on our financial resources, divert the attention of management from our business and harm our reputation.
If we are found to infringe the intellectual property rights of third parties, we could be required to pay substantial damages
(which may be increased up to three times of awarded damages) and/or substantial royalties and could be prevented from
selling our products unless we obtain a license or are able to redesign our products to avoid infringement. In addition, we
may choose to seek, or be required to seek, a license from a third party, which may not be available on acceptable terms, if
at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give any
competitors access to the same technology or intellectual property rights license to us. Any such license may not be
available on reasonable terms, if at all, and there can be no assurance that we would be able to redesign our products in a
technically feasible way that would not infringe the intellectual property rights of others. We could encounter delays in
product introductions while we attempt to develop alternative methods or products. If we fail to obtain a required license,
the holders of any such patents may be able to block us, our licenses or our collaborators from marketing products based on
the disputed technology until such patents expire, which could limit our ability to generate revenue or achieve profitability
and possibly prevent us from generating revenue sufficient to sustain our operations.
Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and management
resources that we would otherwise be able to devote to our business. Intellectual property litigation, regardless of its
outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit
us from manufacturing, importing, marketing or otherwise commercializing our products, services and technology. In
addition, if the breadth or strength of protection provided the patents and patent applications we own or in-license is
threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future
products. In addition, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of
litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or
developments, and if securities analysts or investors view these announcements in a negative light, the price of our
common stock could be adversely affected.
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In addition, we generally indemnify our customers with respect to infringement by our products of the proprietary rights of
third parties. Third parties may assert infringement claims against our customers. These claims may require us to initiate or
defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these
claims succeed or settle, we may be forced to pay damages or settlement payments on behalf of our customers or may be
required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable
terms, our customers may be forced to stop using our products.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be
harmed.
We also rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment
agreements with our employees, consultants and third parties, to protect our confidential and proprietary information.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information using
commonly accepted physical and technological security measures. Such measures may not provide adequate protection for
our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our
trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an
adequate remedy to protect our interests fully. Unauthorized parties may also attempt to copy or reverse engineer certain
aspects of our products that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a
trade secret can be difficult, expensive and time-consuming, and the outcome of any such claim is unpredictable. Trade
secret violations are often a matter of state law, and the criteria for protection of trade secrets can vary among different
jurisdictions. In addition, trade secrets may be independently developed or reverse engineered by others in a manner that
could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to
be disclosed or misappropriated, or if any such information was independently developed by a competitor, our business and
competitive position could be harmed.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in
our markets of interest.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our
target markets and our business may be adversely affected. At times, competitors may adopt trade names or trademarks
similar to ours, thereby impeding our ability to build brand identity, possibly leading to market confusion and potentially
requiring us to pursue legal action. In addition, there could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks
or trade names. If we are unable to successfully register our trademarks and trade names and establish name recognition
based on our trademarks and trade names, then we may not be able to compete effectively and our business may be
adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain
names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of
resources and could adversely impact our financial condition or results of operations.
We may be unable to enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents covering our products in all countries throughout the world would be
prohibitively expensive, and the laws of some foreign countries do not protect intellectual property rights to the same
extent as the laws of the U.S. Many companies have encountered significant problems in protecting and defending
intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our
foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign
countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition,
some countries limit the enforceability of patents against third parties, including government agencies or government
contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we
may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such
countries. Additionally, in the event that our trademarks are successfully challenged, we could be forced to rebrand our
products, which could result in loss of brand recognition and could require us to devote resources to advertising and
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marketing new brands. Our competitors may infringe our trademarks, and we may not have adequate resources to enforce
our trademarks.
Proceedings to enforce our patent or trademark rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights
in such countries may be inadequate.
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information
or misappropriated trade secrets.
We employ individuals who previously worked with other companies, including our competitors. Although we try to
ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for
us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or
otherwise used or disclosed intellectual property or personal data, including trade secrets or other proprietary information,
of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in
defending any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, we
may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees.
Recent changes in U.S. patent laws may limit our ability to obtain, defend and/or enforce our patents.
The U.S. has recently enacted and implemented wide ranging patent reform legislation. The U.S. Supreme Court has ruled
on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or
weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability
to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once
obtained. Depending on actions by the U.S. Congress, the U.S. federal courts, and the USPTO, the laws and regulations
governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce
patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other
countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant
governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce
patents that we have licensed or that we may obtain in the future.
Obtaining and maintaining our 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 other 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 and annuity fees on any
issued patent are due to be paid to the USPTO and other patent agencies over the lifetime of the patent. While an
inadvertent failure to make payment of such fees or to comply with such provisions can in many cases be cured by
additional payment of a late fee or by other means in accordance with the applicable rules, there are situations in which
non-compliance with such provisions will result in the abandonment or lapse of the patent or patent application, and the
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 failure to respond to official actions within prescribed time
limits, non-payment of fees and failure to properly legalize and submit formal documents within prescribed time limits. If
we or our licensors fail to maintain the patents and patent applications covering our product or if we or our licensors
otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to
enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our
products.
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Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount
of time.
The term of any individual patent depends on applicable law in the country where the patent is granted. In the U.S.,
provided all maintenance fees are timely paid, a patent generally has a term of 20 years from its application filing date or
earliest claimed non-provisional filing date. Extensions may be available under certain circumstances, but the life of a
patent and, correspondingly, the protection it affords is limited. Even if we or our licensors obtain patents covering our
products, when the terms of all patents covering a product expire, our business may become subject to competition from
products identical or similar to ours. As a result, our owned and licensed patent portfolio may not provide us with sufficient
rights to exclude others from commercializing products similar or identical to ours.
We may be unable to obtain a patent term extension in the U.S. under the Hatch-Waxman Act and in foreign countries
under similar legislation.
In the U.S., a patent that covers a drug product or medical device approved by the FDA may be eligible for a term
extension designed to restore the period of the patent term that is lost during the premarket regulatory review process
conducted by the FDA. Depending upon the timing, duration and conditions of FDA marketing approval of our products,
one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and
Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to five years
for a patent covering an approved product as compensation for effective patent term lost during product development and
the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of
14 years from the date of product approval, and only claims covering such approved drug product, a method for using it or
a method for manufacturing it may be extended. In the European Union, our product candidates may be eligible for term
extensions based on similar legislation. In either jurisdiction, however, we may not receive an extension if we fail to apply
within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable
requirements. Even if we are granted such extension, the duration of such extension may be less than our request. If we are
unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during
which we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval
to market competing products sooner. The resulting reduction of years of revenue from applicable products could be
substantial.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights
have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For
example:
● others may be able to make products that are similar to our products or utilize similar technology but that are
not covered by the claims of our patents or that incorporate certain technology in our products that is in the
public domain;
● we, or our future licensors or collaborators, might not have been the first to make the inventions covered by
the applicable issued patent or pending patent application that we own now or may own or license in the
future;
● we, or our future licensors or collaborators, might not have been the first to file patent applications covering
certain of our or their inventions;
● we may not be able to successfully commercialize our products before our relevant patents we may have, or
to which we have ownership rights through licensing agreements, expire;
● others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights;
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● it is possible that our current or future pending patent applications will not lead to issued patents;
● issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal
challenges by our competitors or other third parties;
● our competitors or other third parties might conduct research and development activities in countries where
we do not have patent rights and then use the information learned from such activities to develop competitive
products for sale in our major commercial markets;
● we may not develop additional proprietary technologies that are patentable;
● the patents of others may harm our business; and
● we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party
may subsequently file a patent covering such intellectual property.
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Government Regulation
Our products and operations are subject to extensive government regulation and oversight both in the U.S. and
internationally.
Our products are regulated as medical devices. We and our products are subject to extensive regulation in the U.S. and
internationally including by the FDA and competent authorities of the EU member states. The FDA and other foreign
equivalents regulate, among other things, with respect to medical devices: design, development and manufacturing; testing,
labeling, content and language of instructions for use and storage; clinical trials; product safety; establishment registration
and device listing; marketing, sales and distribution; premarket clearance and approval; record keeping procedures;
advertising and promotion; recalls and field safety corrective actions; post-market surveillance, including reporting of
deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market
approval studies; and product import and export.
The regulations to which we are subject are complex, have become more stringent over time and are subject to further
change. Failure to comply with applicable regulations could jeopardize our ability to sell our products and result in
enforcement actions such as: warning letters; untitled letters; Form 483s; fines; injunctions; civil penalties; termination of
distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial
suspension of production; refusal to grant future clearances or approvals; withdrawals or suspensions of current approvals,
resulting in prohibitions on sales of our products; and in the most serious cases, criminal penalties.
We may not receive, or may be significantly delayed in receiving, the necessary clearances or approvals for our future
products and modifications to our current products may require new 510(k) clearances or PMA approvals, and may
require us to cease marketing or recall the modified products until clearances or approvals are obtained.
An element of our strategy is to continue to add new features and expand the indications and uses for our current products.
In the U.S., before we can market a new medical device, or a new use of, new claim for or significant modification to an
existing product, we must first receive marketing authorization, such as either clearance under Section 510(k) of the FDCA
or approval of a PMA from the FDA, unless an exemption applies. Our products are cleared with the FDA, through
clearances obtained and, with the exception of the clearances relating to our OviTex PRS products, held by Aroa, under
Section 510(k) of the FDCA, which permits marketing of a device if it is “substantially equivalent” to an already legally-
marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device
that was legally marketed prior to May 28, 1976 (preamendments device), a device that was originally on the U.S. market
pursuant to an approved PMA and later downclassified, or a 510(k)-exempt device. To be “substantially equivalent,” the
proposed device must have the same intended use as the predicate device,
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and either have the same technological characteristics as the predicate device or have different technological characteristics
and the information in the premarket notification demonstrates that the device is as safe and effective and does not raise
different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support
substantial equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective for its
intended use based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial,
manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest
risk, such as life-sustaining, life-supporting or implantable devices. To date, our products have been the subject of cleared
510(k)s, obtained and, with the exception of the clearances relating to our OviTex PRS products, held by Aroa. For more
information regarding the regulation of our products, see “Business — Government Regulation.”
Modifications to products that are approved through a PMA application generally require FDA approval. Similarly, certain
modifications made to products cleared through a 510(k) may require a new 510(k) clearance. Both the PMA approval and
the 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes
from three to 12 months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the
510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is filed
with the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. Despite the time, effort
and cost, we cannot assure you that any particular device will be approved or cleared by the FDA. Any delay or failure to
obtain necessary regulatory clearances or approvals could harm our business.
In the U.S., Aroa has obtained and holds 510(k) clearances from the FDA to market our OviTex products and obtained the
501(k) clearances from the FDA held by us for our OviTex PRS products. An element of our strategy is to continue to
upgrade our reinforced tissue matrix products. We expect that any such modifications may require new 510(k) clearances;
however, future modifications may be subject to the substantially more costly, time-consuming and uncertain PMA
process. The FDA will require a PMA, rather than a 510(k) clearance for the use if OviTex PRS in breast surgery. If the
FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing
products than we had expected, product introductions or modifications could be delayed or canceled, which could cause
our sales to decline.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
● we may not be able to demonstrate to the FDA’s satisfaction that the product or modification is substantially
equivalent to the proposed predicate device or safe and effective for its intended use;
● the data from our preclinical studies and clinical trials may be insufficient to support clearance or approval,
where required; and
● the manufacturing process or facilities we use may not meet applicable requirements.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing
regulations, or take other actions which may prevent or delay approval or clearance of our future products under
development.
Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing
responsibilities under FDA regulations. The failure to comply with applicable regulations could jeopardize our ability to
sell our reinforced tissue matrix products and result in enforcement actions such as:
● warning letters, untitled letters or Form 483s;
● fines;
● injunctions;
● civil penalties;
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● termination of distribution;
● recalls or seizures of products;
● delays in the introduction of products into the market;
● total or partial suspension of production;
● refusal to grant future clearances or approvals;
● withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our
products; and
● in the most serious cases, criminal penalties.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation,
business, financial condition and results of operations.
In addition, 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. Principal investigators for our
clinical trials may serve as speakers or consultants to us from time to time and receive compensation in connection with
such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other
regulatory authority. The FDA or other regulatory authority may conclude that a financial relationship between us and a
principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or other
regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the
utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing
applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of
marketing approval of one or more of our future products.
To sell our products in member countries of the EEA our products must comply with the general safety and performance
requirements of the EU Medical Devices Regulation (Regulation 2017/745) (“MDR”), which was passed by the EU
Parliament on April 5, 2017, and became effective on May 26, 2021. The MDR repeals and replaces the former Medical
Devices Directive (Council Directive 93/42/EEC) and the Active Implantable Medical Devices Directive (Council
Directive 90/385/EEC). Compliance with the new MDR requirements is a prerequisite to be able to affix the Conformité
Européenne, or CE, mark to our products, without which they cannot be sold or marketed in the EEA. In the EEA, we have
obtained the CE mark for our OviTex products. For more information regarding regulation of our products, see “Business
—Government Regulation.”
An element of our strategy is to continue to add new features and expand the indications and uses for our current products.
Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval
of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review
any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals
are necessary. Such modifications can be expensive and uncertain in time and outcome. We may not be able to obtain
additional 510(k) clearances or PMAs 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 or approvals would adversely affect our ability
to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. We have made
modifications to our products in the past and expect to make additional modifications in the future that we believe do not or
will not require additional clearances or approvals. If the FDA disagrees and requires new clearances or approvals for these
modifications, we may be required to recall and to stop selling or marketing such products as modified until we obtain
clearance or approval, which could harm our operating results and require us to redesign such products. In these
circumstances, we may be subject to significant enforcement actions, including significant fines or penalties.
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International regulatory approval processes may take more or less time than the FDA clearance or approval process. If we
fail to comply with applicable FDA and comparable non-U.S. regulatory requirements, we may not receive regulatory
clearances or approvals or may be subject to FDA or comparable non-U.S. enforcement actions.
We may be unable to obtain future regulatory clearance or approval in a timely manner, or at all, especially if existing
regulations are changed or new regulations are adopted. For example, the FDA clearance or approval process can take
longer than anticipated due to requests for additional clinical data and changes in regulatory requirements. A failure or
delay in obtaining necessary regulatory clearances or approvals would materially adversely affect our business, financial
condition and results of operations.
Although we have obtained regulatory clearance for our products, they will remain subject to extensive regulatory
scrutiny.
We are subject to ongoing and pervasive regulatory requirements governing, among other things, the manufacturing,
marketing, advertising, medical device reporting, selling and promoting our products. For example, we must submit
periodic reports to the FDA as a condition of our clearance under Section 510(k). These reports include safety and
effectiveness information about the device after its clearance. Failure to submit such reports, or failure to submit the reports
in a timely manner, could result in enforcement action by the FDA.
Even after we have obtained the proper regulatory approval to market our products, they will be subject to ongoing
regulatory requirements for design, development, manufacturing, testing, labeling, packaging, storage, advertising,
promotion, sampling, record-keeping, recalls and field safety corrective actions, conduct of post-marketing studies and
submission of safety, effectiveness and other post-market information, including both federal and state requirements in the
U.S. and requirements of comparable non-U.S. regulatory authorities. Our failure to comply with applicable regulatory
requirements could result in enforcement action by the FDA and applicable state regulatory authorities, which may include
any of the following sanctions:
● issue warning or untitled letters that would result in adverse publicity or may require corrective advertising;
● fines, injunctions, consent decrees and civil penalties;
● recalls, termination of distribution, administrative detention, or seizure of our products;
● customer notifications or repair, replacement or refunds;
● operating restrictions or partial suspension or total shutdown of production;
● delays in or refusal to grant our requests for future clearances under Section 510(k) or premarket approvals or
EU regulatory approvals of new products, new intended uses, or modifications to existing products;
● withdrawal or suspension of regulatory clearances or approvals;
● FDA refusal to issue certificates to non-U.S. governments needed to export products for sale in other
countries; and
● criminal prosecution.
Any government investigation of alleged violations of law could require us to expend significant time and resources in
response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may
significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory
sanctions are applied or if regulatory clearance or approval is withdrawn, it would have a material adverse effect on our
business, financial condition and results of operations.
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Our products must be manufactured in accordance with federal and state regulations, and we could be forced to recall
our products or terminate production if we fail to comply with these regulations.
The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s QSR which
is a complex regulatory scheme that covers the procedures and documentation of the design, testing, production, process
controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing and shipping of
medical devices. Furthermore, Aroa must maintain facilities, procedures and operations that comply with our quality
standards and applicable regulatory requirements. The FDA enforces the QSR through periodic announced or unannounced
inspections of medical device manufacturing facilities, which may include the facilities of subcontractors. Our products are
also subject to similar state regulations and various EU laws and regulations governing manufacturing.
Aroa may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of
our products. For example, following an inspection in March 2017, Aroa received an FDA Form 483 that contained
multiple observations related to its manufacturing processes and procedures. In addition, failure to comply with applicable
FDA requirements or later discovery of previously unknown problems with our products or manufacturing processes could
result in, among other things: untitled letters or warning letters; fines, injunctions or civil penalties; suspension or
withdrawal of approvals; seizures or recalls of our products; total or partial suspension of production or distribution;
administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our
products; clinical holds; refusal to permit the import or export of our products; and criminal prosecution of us or our
employees.
Any of these actions could significantly and negatively affect supply of our products. If any of these events occurs, our
reputation could be harmed, we could be exposed to product liability claims and we could lose customers and experience
reduced sales and increased costs.
If guidelines for soft-tissue reconstruction surgery change or the standard of care evolves, we may need to redesign and
seek new marketing authorization from the FDA for our OviTex and OviTex PRS products or other products we may
commercialize in the future.
If guidelines for soft-tissue reconstruction surgery change or the standard of care for reconstructing tissue evolves, we may
need to redesign the applicable product and seek new approvals from the FDA. Our clearances under Section 510(k) of the
FDCA are based on current soft-tissue reconstruction surgery guidelines. If the guidelines change so that different surgeries
or products become desirable, the clinical utility of one or more of our OviTex portfolio products or other products we may
commercialize in the future could be diminished and our business could be adversely affected.
If any of our products cause or contribute to a death, serious injury, or other adverse medical events, or malfunction in
certain ways, we will be required to report these events to FDA and other comparable regulatory authorities under
applicable medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement
actions. If we fail to comply with our reporting obligations, we would be subject to sanctions that could harm our
reputation, business, financial condition and results of operations. The discovery of serious safety issues with our products,
or a recall of our products either voluntarily or at the direction of the FDA or another governmental authority, could have a
negative impact on us.
We are subject to the FDA’s medical device reporting regulations and similar EU and other foreign regulations, which
require us to report to the FDA when we receive or become aware of information that reasonably suggests that one or more
of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the
malfunction were to recur, could cause or contribute to a death or serious injury. The timing of our obligation to report is
triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report
adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have
become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse
event that is unexpected or removed in time from the use of the product. If we fail to comply with our reporting
obligations, the FDA could take action, including untitled letters, warning letters, administrative actions, criminal
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prosecution, imposition of civil monetary penalties, revocation of related approvals, seizure of our products or delay in
clearance or approval of future products.
The FDA and foreign regulatory agencies have the authority to require the recall of commercialized products in the event
of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an
unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable
probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any
material deficiency is found. For example, in April 2018, Aroa, as the product manufacturer, issued a voluntary recall of
our resorbable OviTex products due to a reduction in the labeled shelf life of such products from 24 months to 18 months.
The recall included a total of 1,974 units from 48 manufacturing lots and was ultimately terminated in April 2019. A
government-mandated or voluntary recall by us could also occur as a result of an unacceptable risk to health, component
failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or
failures to comply with applicable regulations. Product defects or other errors may occur in the future.
Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may
decide, that we will need to obtain new clearances or approvals for the device before we may market or distribute the
corrected device. Seeking such approvals may delay our ability to replace the recalled devices in a timely manner.
Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory
enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties or civil or
criminal fines.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA.
We may initiate voluntary withdrawals or corrections for our products in the future that we determine do not require
notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those actions as recalls
and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers,
potentially lead to product liability claims against us and negatively affect our sales. Any corrective action, whether
voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital,
distract management from operating our business and may harm our reputation and financial results.
Legislative or regulatory reforms may 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.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions
governing the regulation of medical devices, or the FDA may change its clearance and approval policies, adopt additional
regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our
future products under development. In addition, FDA regulations and guidance are often revised or reinterpreted by the
FDA in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions or
reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or
make it more difficult to obtain clearance of or approval for, manufacture, market or distribute our products. We cannot
determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or
adopted may have on our business in the future. Such changes could, among other things, require: additional testing prior
to obtaining clearance or approval; changes to manufacturing methods; recall, replacement or discontinuance of our
products; or additional record keeping.
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 product candidates. We cannot predict the likelihood, nature or
extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad.
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.
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On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals
and replaces the EU Medical Devices Directive and the Active Implantable Medical Devices Directive. Unlike directives,
which must be implemented into the national laws of the EEA member states, the regulations would be directly applicable,
i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states and are
intended to eliminate current differences in the regulation of medical devices among EEA member states. The Medical
Devices Regulation is intended to, among other things, establish a uniform, transparent, predictable and sustainable
regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting
innovation.
The MDR became fully effective on May 26, 2021. It includes new regulations which, among other things:
● strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
● establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance
and safety of devices placed on the market;
● improve the traceability of medical devices throughout the supply chain to the end-user or patient through a
unique identification number;
● establish a central database to provide patients, healthcare professionals and the public with comprehensive
information on products available in the EU; and
● strengthen rules for the assessment of certain high-risk devices, which may have to undergo an additional
check by experts before they are placed on the market.
Failure to comply with these regulations may harm our business.
Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key
leadership and other personnel, or otherwise prevent new products and services from being developed or
commercialized in a timely manner.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government
budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory,
regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition,
government funding of other government agencies that fund research and development activities is subject to the political
process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new devices to be reviewed and/or
approved or cleared by necessary government agencies, which would adversely affect our business. For example, over the
last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have
had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could
significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a
material adverse effect on our business.
Our relationships with surgeons, patients and payors in the U.S. are subject to applicable anti-kickback, fraud and
abuse laws and regulations.
Our current and future operations with respect to the commercialization of our products are subject to various U.S. federal
and state healthcare laws and regulations. These laws impact, among other things, our proposed sales, marketing, support
and education programs and constrain our business and financial arrangements and relationships with third-party
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payors, surgeons and other healthcare professionals. The laws are described in greater detail in the section below under
“Business — Government Regulation,” and include, but are not limited to:
● the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from
knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the
purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any good or service,
for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare
and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation;
● the U.S. federal false claims laws, including the civil False Claims Act (which can be enforced through “qui
tam,” or whistleblower actions, by private citizens on behalf of the federal government), which prohibits any
person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims
for payment of government funds or knowingly making, using or causing to be made or used, a false record
or statement material to an obligation to pay money to the government or knowingly and improperly
avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government;
● the U.S. federal Health Insurance Portability and Accountability Act of 1996 which imposes criminal and
civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false statement, in connection with the delivery of, or payment for
healthcare benefits, items or services by a healthcare benefit program, which includes both government and
privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does
not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation;
● the Physician Payments Sunshine Act, implemented as the Open Payments program, and its implementing
regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are
reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the
Centers for Medicare and Medicare Services, or CMS, information related to certain payments made in the
preceding calendar year and other transfers of value to physicians, certain other licensed healthcare
practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and
their immediate family members; and
● state laws and regulations, including state anti-kickback and false claims laws, that may apply to our business
practices, including but not limited to, research, distribution, sales and marketing arrangements and claims
involving healthcare items or services reimbursed by any third-party payor, including private insurers; state
laws that require medical device companies to comply with the medical device industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or
otherwise restrict payments that may be made to healthcare providers and other potential referral sources;
and state laws and regulations that require drug and device manufacturers to file reports relating to pricing
and marketing information, which requires tracking gifts and other remuneration and items of value provided
to healthcare professionals and entities.
The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to
comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a
healthcare or medical device company may fail to comply fully with one or more of these requirements. Efforts to ensure
that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve
substantial costs. Certain physicians who influence the ordering or use of our products in procedures they perform have
ownership interests in us and/or receive compensation for consulting services provided to us. It is possible that
governmental authorities will conclude that our business practices do not comply with applicable fraud and abuse or other
healthcare laws and regulations or guidance.
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To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny
of interactions between healthcare companies and healthcare providers, which has led to a number of investigations,
prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time- and
resource-consuming and can divert management’s attention from the business. Additionally, as a result of these
investigations, healthcare providers and entities may also have to agree to additional compliance and reporting
requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlements could
increase our costs or otherwise have an adverse effect on our business. Even an unsuccessful challenge or investigation into
our practices could cause adverse publicity and be costly to respond to.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to
us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion
from government funded healthcare programs, such as Medicare and Medicaid, additional oversight and reporting
requirements if we become subject to a corporate integrity agreement to resolve allegations of non-compliance with these
laws and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with
whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to the same
criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
We are subject to anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt
Practices Act, in which violations of these laws could result in substantial penalties and prosecution.
We are exposed to trade and economic sanctions and other restrictions imposed by the U.S. and other governments and
organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities
have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for
violations of economic sanctions laws, export control laws, the U.S. Foreign Corrupt Practices Act, or the FCPA, and other
federal statutes and regulations, including those established by the Office of Foreign Assets Control. In addition, the U.K.
Bribery Act of 2010 (“Bribery Act”), prohibits both domestic and international bribery, as well as bribery across both
private and public sectors. An organization that “fails to prevent bribery” by anyone associated with the organization can
be charged under the Bribery Act unless the organization can establish the defense of having implemented “adequate
procedures” to prevent bribery. Under these laws and regulations, as well as other anti-corruption laws, anti-money
laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various
government agencies may require export licenses, may seek to impose modifications to business practices, including
cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to
compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A
violation of these laws or regulations would negatively affect our business, financial condition and results of operations.
We face risks related to our collection and use of data, which could result in investigations, inquiries, litigation, fines,
legislative and regulatory action and negative press about our privacy and data protection practices.
Our business processes personal data, including some data related to health. When conducting clinical trials, we face risks
associated with collecting trial participants’ data, especially health data, in a manner consistent with applicable laws and
regulations. We also face risks inherent in handling large volumes of data and in protecting the security of such data. We
could be subject to attacks on our systems by outside parties or fraudulent or inappropriate behavior by our service
providers or employees. Third parties may also gain access to users’ accounts using stolen or inferred credentials, computer
malware, viruses, spamming, phishing attacks or other means, and may use such access to obtain users’ personal data or
prevent use of their accounts. Further, our general liability insurance and corporate risk program may not cover all potential
claims to which we are exposed and may not be adequate to indemnify us for all liability that may be imposed.
As our operations and business grow, we may become subject to or affected by new or additional data protection laws and
regulations and face increased scrutiny or attention from regulatory authorities. In the U.S., HIPAA imposes, among other
things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable
health information. Certain states have also adopted comparable privacy and security laws and regulations,
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some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various
courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future
customers and strategic partners. In addition, California enacted the CCPA on June 28, 2018, which took effect on
January 1, 2020. The CCPA created individual privacy rights for California consumers and increased the privacy and
security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well
as a private right of action for data breaches in certain instances that is expected to increase data breach litigation. The
CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal
level and in other states. Additionally, a new privacy law, the California Privacy Rights Act, or the CPRA, was approved by
California voters in the election of November 3, 2020. The CPRA, which took effect in most material respects on January
1, 2023, modifies the CCPA significantly, potentially resulting in further uncertainty and requiring us to incur additional
costs and expenses to comply. A failure to comply with these current or future federal and state laws and regulations and
industry standards relating to data privacy and security could lead to investigatory or regulatory action, private litigation or
class actions that could result in exposure to civil or criminal penalties, monetary or statutory damages, attorney fee awards
and/or exposure to adverse publicity that could negatively affect our operating results and business.
This risk is enhanced in certain jurisdictions as we expand our operations internationally. The EU’s GDPR became
effective in May 2018. The GDPR applies extraterritorially and imposes several stringent requirements for controllers and
processors of personal data, of data subjects residing in the European Economic Area. For example, the GDPR imposes
higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to
individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations
on retention of information, increased requirements pertaining to special categories of personal data and pseudonymised
(i.e., key-coded) data and additional obligations when we contract third-party processors in connection with the processing
of the personal data. This risk is increased because EU member states have made their own laws and regulations limiting
the processing of personal data, including special categories of data (e.g., racial or ethnic origin, political opinions,
religious or philosophical beliefs) and profiling and automated individual decision-making of individuals, which limits our
ability to process personal data or other data and could cause our compliance costs and liability risks to increase, harming
our business and financial condition.
Further, the United Kingdom’s exit from the European Union, referred to as Brexit, has created uncertainty regarding data
protection regulation in the United Kingdom. The United Kingdom has transposed the GDPR into domestic law with a
United Kingdom version of the GDPR that took effect in January 2021 (UK GDPR). Currently, the EU GDPR and UK
GDPR remain largely aligned, but the UK has announced plans to reform the country’s data protection legal framework in
its Data Reform Bill, which will introduce significant changes from the EU GDPR. This may lead to additional compliance
costs and could increase our overall risk exposure as we may no longer be able to take a unified approach across the EEA
and the UK, and we will need to amend our processes and procedures to align with the new framework. Non-compliance
with GDPR, and UK GDPR, is subject to significant penalties, including fines of up to €20.0 million (£17.5 million under
UK GDPR) or 4% of total worldwide revenue, whichever is greater. The implementation and enforcement of the GDPR
(and UK GDPR) may subject us to enforcement risk and requirements to change certain of our data collection, processing
and other policies and practices. We could incur significant costs investigating and defending such claims and, if we are
found liable, significant damages. If any of these events were to occur, our business and financial results could be adversely
affected. Other jurisdictions outside the EU and the United Kingdom are similarly introducing or enhancing laws and
regulations relating to privacy and data security, which enhances risks relating to compliance with such laws.
The GDPR also regulates cross-border transfers of personal data and requires transferee countries to have protections
equivalent to protections available in the EU. The GDPR imposes strict rules on the transfer of personal data to countries
outside the EEA, Switzerland or the United Kingdom, including the United States, to other countries in respect of which
the European Commission or the United Kingdom government has not issued a so-called “adequacy decision” or “
adequacy regulation” (known as “third countries”), unless the parties to the transfer have implemented specific safeguards
to protect the transferred personal data. This includes putting in place the European Commission’s Standard Contractual
Clauses (SCCs) for transfers outside of the EEA and a similar transfer mechanism for transfers of personal data outside of
the United Kingdom, the International Data Transfer Agreement or Addendum (IDTA). Under both the GDPR and the UK
GDPR, exporters are also required to assess the risk of the data transfer on a case-by-case basis,
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including conducting an analysis of the laws in the destination country. The SCCs had to be in place by December 27,
2022, whereas the IDTA must be implemented in all existing contracts by March 21, 2024. Finalizing the implementation
of the updated SCCs and UK IDTA, and conducting the required risk assessments, may continue to necessitate significant
contractual overhaul of our data transfer arrangements with customers, sub-processors and vendors. On June 28, 2021, the
European Commission published its decision recognizing the United Kingdom as having adequate laws to the protect the
rights and freedoms of data subjects such that personal data may transfer to from the EU to the United Kingdom without an
approved transfer mechanism. The decision is effective for four years and its continuing effect is dependent on United
Kingdom and regulation on data privacy not diverging materially from the GDPR. The United Kingdom Government also
confirmed that data transfers to the EU remain free flowing.
Compliance with U.S. federal and state laws and foreign data protection laws and regulations could require us to take on
more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our
ability to operate in certain jurisdictions. Failure to comply with United States and foreign data protection laws and
regulations could result in government enforcement actions (which could include civil or criminal penalties), private
litigation, and/or adverse publicity and could negatively affect our operating results and business. And claims that we have
violated individuals’ privacy rights, failed to comply with data protection laws or breached our contractual obligations,
even if we are not found liable, could be expensive and time-consuming to defend, could result in adverse publicity and
could have a material adverse effect on our business, financial condition, results of operations, and prospects.
The Affordable Care Act and any changes in healthcare law may increase the difficulty and cost for us to successfully
commercialize our products and affect the prices we may obtain.
In the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both
governmental and private insurers, and significantly impacts the healthcare industry. The Affordable Care Act is intended
to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new
taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.
There have been significant ongoing judicial, administrative, executive and legislative efforts to modify or eliminate the
Affordable Care Act. For example, the Tax Act enacted on December 22, 2017, repealed the shared responsibility payment
for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code,
commonly referred to as the individual mandate. Other legislative changes have been proposed and adopted since passage
of the Affordable Care Act. The Budget Control Act of 2011, among other things, created the Joint Select Committee on
Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not
achieve its targeted deficit reduction of an amount greater than $1.2 trillion for the fiscal years 2012 through 2021,
triggering the legislation’s automatic reductions to several government programs. These reductions included aggregate
reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into effect in April
2013. Subsequent litigation extended the 2% reduction, on average, to 2030 unless additional Congressional action is
taken. The Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, which was designed to provide
financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2%
Medicare sequester from May 1, 2020 to December 31, 2021 , later extended through March 31, 2022. Following the
suspension, a 1% payment reduction began April 1, 2022, and remained through June 30, 2022. The 2% payment reduction
resumed on July 1, 2022. The sequester will remain in place through 2030. On January 2, 2013, the American Taxpayer
Relief Act was signed into law, which, among other things, reduced Medicare payments to several types of providers,
including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the
government to recover overpayments to providers from three to five years.
The Affordable Care Act has been subject to challenges in the courts. On December 14, 2018, a Texas U.S. District Court
Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed
by Congress. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is
unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire
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Affordable Care Act. An appeal was taken to the U.S. Supreme Court. On June 17, 2021, the Supreme Court ruled that the
plaintiffs lacked standing to challenge the law as they had not alleged personal injury traceable to the allegedly unlawful
conduct. As a result, the Supreme Court did not rule on the constitutionality of the ACA or any of its provisions.
Further changes to and under the Affordable Care Act remain possible, but it is unknown what form any such changes or
any law proposed to replace or revise the Affordable Care Act would take, and how or whether it may affect our business
in the future.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control
healthcare costs, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
We expect that additional federal, state and foreign healthcare reform measures will be adopted in the future, any of which
could limit the amounts that federal and state governments will pay for healthcare products and services, which could result
in limited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing
pressures. and could seriously harm our future revenues. Any reduction in reimbursement from Medicare, Medicaid, or
other government programs may result in a similar reduction in payments from private payers. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain and maintain
profitability of our product and product candidates, if approved.
Our business involves the use of hazardous materials and we and Aroa must comply with environmental laws and
regulations, which may be expensive and restrict how we do business.
Aroa’s activities in manufacturing our products may involve the controlled storage, use and disposal of hazardous
materials. Aroa is or may be subject to federal, state, local and non-U.S. laws and regulations governing the use,
generation, manufacture, storage, handling and disposal of these hazardous materials. We currently carry no insurance
specifically covering environmental claims relating to the use of hazardous materials.
Although we believe that Aroa’s safety procedures for handling and disposing of these materials and waste products
comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental injury or
contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident, federal, state
or other applicable authorities may curtail Aroa’s use of these materials and interrupt their business operations which could
adversely affect our business.
Compliance with environmental laws and regulations may be expensive and non-compliance 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 results of operations.
Risks Related to Our Business and Products
Our financial results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly and annual results of operations 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.
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Factors that may cause fluctuations in our quarterly and annual results include:
● surgeon and patient adoption of our products;
● timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors;
● changes in coverage policies by third-party payors that affect the reimbursement of procedures in which our
products are used;
● unanticipated pricing pressure;
● our ability to obtain and maintain regulatory clearance or approval for any products in development or for
our current products for additional indications or in additional jurisdictions;
● the hiring, retention and continued productivity of our sales representatives;
● our ability to expand the geographic reach of our sales and marketing efforts;
● results of clinical research and trials on our existing products and products in development;
● delays in, or failure of, component and raw material deliveries by Aroa;
● recalls or other field safety corrective actions by Aroa;
● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters
such as earthquakes, floods or public health emergencies such as the COVID-19 pandemic; and
● positive or negative coverage in the media or clinical publications of our products or products of our
competitors or our industry.
Because our quarterly and annual results may fluctuate, period-to-period comparisons may not be the best indication of the
underlying results of our business. In particular, we cannot predict at this time the extent of the impact that the COVID-19
pandemic will have on our sales and financial results. These fluctuations may also increase the likelihood that we will not
meet our forecasted performance, which could negatively affect the market price for our common stock.
We may be unable to compete successfully with larger competitors in our highly competitive industry.
The medical device industry is intensely competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. Our competitors also compete with us in recruiting and
retaining qualified scientific, management and commercial personnel, as well as in acquiring technologies complementary
to, or necessary for, our products. Because of the complex and technical nature of our products and the dynamic market in
which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our
ability to develop and commercialize our products, which would have a material adverse effect on our business, financial
condition and results of operations.
In the U.S., we currently compete with LifeCell Corporation, a subsidiary of AbbVie, and Davol Inc., a subsidiary of
Becton, Dickinson and Company, which produce, among other things, soft-tissue reconstruction surgery products,
including Strattice and Phasix, respectively. In the EEA, we compete with Bard, a subsidiary of Becton, Dickinson and
Company, who produces other soft-tissue reinforcement products. Many of these competitors are large, well-capitalized
companies with significantly greater market share and resources than us, selling products that have been on the market
prior to the commercialization of our products. As a consequence, they are able to spend more on product development,
marketing, sales and other product initiatives than we can, while benefiting from greater brand awareness. We believe other
emerging businesses are in the early stages of developing similar products designed for soft-tissue reconstruction
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surgery. Although we are the only ovine-derived implantable product designed for soft-tissue reconstruction surgery, there
are other soft tissue reconstruction surgery products derived solely, or in part, from other biological sources.
Most of the other soft-tissue reconstruction surgery products currently have a greater penetration into the soft tissue
reconstruction surgery market. Often, other soft-tissue reconstruction surgery products with which our products compete
are marketed as part of a bundled product line, which may provide our potential customers a better price-per-product than
we could offer. If we are unable to penetrate the soft-tissue reconstruction surgery market or offer competitive pricing on
our products compared with products sold as part of a bundled product line, it could have a material adverse effect on our
business, financial condition and results of operations.
In addition, competitors with greater financial resources could acquire other companies to gain enhanced name recognition
and market share, as well as new technologies or products that could effectively compete with our existing products, which
may cause our revenue to decline and would harm our business.
We may be unable to renew existing contracts with GPOs or obtain additional contract positions with major GPOs and
integrated delivery networks, or IDNs, for our products, and even if we are able to do so, such contracts may not
generate sufficient sales of our products.
Many existing and potential customers for our products within the U.S. are members of GPOs and IDNs, including
accountable care organizations or public-based purchasing organizations, and our business strategy is focused on entering
into major contracts with these organizations. Our products can be contracted under national tenders or with larger
hospital GPOs. GPOs and IDNs typically award contracts on a category-by-category basis through a competitive bidding
process. We are currently responding to bids and negotiating a number of GPO and IDN agreements.
We may not be able to renew existing contracts with GPOs or IDNs and due to the highly competitive nature of the bidding
process and the GPO and IDN contracting processes in the U.S., we may not be able to obtain additional contract positions
with major GPOs and IDNs for our products. If we are unable to renew existing contracts with GPOs or IDNs, our net sales
and results of operations may be materially and adversely affected. In addition, while having a contract with a major
purchaser for a given product category can facilitate sales, sales volumes of those products may not be maintained. For
example, GPOs and IDNs are increasingly awarding contracts to multiple suppliers for the same product category. Even if
we are the sole contracted supplier of a GPO or IDN for our product category, members of the GPO or IDN generally are
free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause upon 60
to 90 days’ notice.
Supply chain disruptions could adversely impact our operations and financial condition.
Global supply chains have been disrupted because of the COVID-19 pandemic and other factors, and this may impact the
availability of raw materials and components used in the manufacture of our products. Additionally, even when we and our
suppliers are able to source such materials and components, they may cost more and may only be available on a delayed
basis. Higher materials and component costs could adversely affect our margins if we are unable to pass such costs along to
customers in the form of price increases. Delays in receipt of materials and components could also interrupt our production
and cause us to go into backorder on certain of our products, further exacerbating the effect of the global supply chain
disruption.
We face the risk of product liability claims that could be expensive, divert management’s attention and harm our
reputation and business.
Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing
of medical devices. This risk exists even if a product is cleared or approved for commercial sale by the FDA, and
manufactured in facilities licensed and regulated by the FDA. Any side effects, manufacturing defects or misuse associated
with our products could result in patient injury or death. The industry in which we operate has historically been subject to
extensive litigation over product liability claims, and we cannot offer any assurance that we will not face product liability
suits. We may be subject to product liability claims if our products cause, or merely appear to have caused, patient injury or
death. In addition, an injury that is caused by the activities of Aroa may be the basis for a claim
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against us. Product liability claims may be brought against us by patients, healthcare providers or others selling or
otherwise coming into contact with our products. If we cannot successfully defend ourselves against product liability
claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome,
product liability claims may result in substantial litigation costs, product recalls or market withdrawals, decreased sales and
demand for our products and damage to our reputation.
While we may attempt to manage our product liability exposure by proactively recalling or withdrawing from the market
any defective products, any recall or market withdrawal of our products may delay the supply of those products to our
customers and may impact our reputation. We can provide no assurance that we will be successful in initiating appropriate
market recall or market withdrawal efforts that may be required in the future or that these efforts will have the intended
effect of preventing product malfunctions and the accompanying product liability that may result. Such recalls and
withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by patients as a safety
risk when considering the use of our products, either of which could have a material adverse effect on our business,
financial condition and results of operations.
Although we have product liability insurance that we believe is appropriate, this insurance is subject to deductibles and
coverage limitations. In addition, our current product liability insurance may not continue to be available to us on
acceptable terms, if at all, and, if available, coverage may not be adequate to protect us against any future product liability
claims. 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.
The continuing development of our products depends upon our maintaining strong working relationships with
surgeons.
The research, development, marketing and sale of our current and future products and any future product indications for
which we receive regulatory clearance or approval depend upon our maintaining working relationships with surgeons. We
rely on these professionals to provide us with considerable knowledge and experience regarding the development,
marketing and sale of our products. Surgeons assist us in clinical trials and in marketing, and as researchers, product
consultants and public speakers. If we cannot maintain our strong working relationships with these professionals and
continue to receive their advice and input, the development and marketing of our products could suffer, which could have a
material adverse effect on our business, financial condition and results of operations. At the same time, the medical device
industry’s relationship with surgeons is under increasing scrutiny by the U.S. Department of Health and Human Services
Office of Inspector General (“OIG”), the U.S. Department of Justice (“DOJ”), the state attorneys general and other foreign
and domestic government agencies. Our failure to comply with requirements governing the industry’s relationships with
surgeons or an investigation into our compliance by the OIG, the DOJ, state attorneys general and other government
agencies, could have a material adverse effect on our business, financial condition and results of operations. Additional
information regarding the laws impacting our relationships with surgeons and other healthcare professionals can be found
above under “Risks Related to Government Regulation.”
We have limited data and experience regarding the safety and efficacy of certain of our products. Results of earlier
studies may not be predictive of future clinical trial results, or the safety or efficacy profile for such products.
Our single arm multicenter post-market clinical study, which we refer to as our BRAVO study, was fully enrolled at 92
patients. We conducted this study to support the marketing of our OviTex products for their cleared indicated uses, and do
not currently have any clinical data for use of our OviTex PRS products in patients. The long-term effects of using certain
of our products in a large number of patients have not been studied and the results of short-term clinical use of such
products do not necessarily predict long-term clinical benefits or reveal long-term adverse effects. The results of preclinical
studies and clinical studies of our products conducted to date and ongoing or future studies and trials of our current,
planned or future products may not be predictive of the results of later clinical trials, and interim results of a clinical trial
do not necessarily predict final results. Our interpretation of data and results from our clinical trials do not ensure that we
will achieve similar results in future clinical trials in other patient populations. In addition, preclinical and clinical data are
often susceptible to various interpretations and analyses, and many companies that have believed their products performed
satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate
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results in later clinical trials. Products in later stages of clinical trials may fail to show the desired safety and efficacy
despite having progressed through nonclinical studies and earlier clinical trials.
Interim or preliminary data from our clinical trials that we announce or publish from time to time may change as more
patient data become available and are subject to audit and verification procedures that could result in material changes
in the final data.
From time to time, we may publicly disclose interim or preliminary data from our clinical studies, which is based on a
preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change
following a full analyses of all data related to the particular trial. We also make assumptions, estimations, calculations and
conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully
evaluate all data. As a result, the interim results that we report may differ from future results of the same trials, or different
conclusions or considerations may qualify such results, once additional data have been received and fully evaluated.
Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being
materially different from the preliminary data we previously published. As a result, interim or preliminary data should be
viewed with caution until the final data are available. We may also disclose interim data from our clinical trials. Interim
data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may
materially change as patient enrollment continues and more patient data become available. Adverse differences between
preliminary or interim data and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations,
conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the
particular program, the approvability or commercialization of the particular product candidate or product and our business
in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based
on what is typically extensive information, and you or others may not agree with what we determine is the material or
otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may
ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a
particular drug, product candidate or our business. If the interim or preliminary data that we report differ from actual
results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to use such results to
support the marketing of our products may be jeopardized.
The sizes of the markets for our current and future products have not been established with precision, and may be
smaller than we estimate.
Our estimates of the annual total addressable markets for our current products and products under development are based
on a number of internal and third-party estimates, including, without limitation, the number of hernia and soft-tissue
reconstruction surgery patients and overall market and the assumed prices at which we can sell our products. While we
believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be
correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive
accuracy of these underlying factors. As a result, our estimates of the annual total addressable market for our products may
prove to be incorrect. If the price at which we can sell future products, or the annual total addressable market for our
products is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business.
Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for our
products and manage our inventory.
Our reinforced tissue matrix products have a limited shelf life and will expire if not timely used. To ensure adequate
inventory supply, we must forecast inventory needs and place orders with Aroa based on our estimates of future demand
for our reinforced tissue matrix products. Our ability to accurately forecast demand for such products could be negatively
affected by many factors, including:
● product introductions by competitors;
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● an increase or decrease in surgeon demand for our products or for products of our competitors;
● our failure to accurately manage our expansion strategy;
● our failure to accurately forecast surgeon acceptance of new products;
● our failure to obtain contracts with a significant number of GPOs and IDNs;
● unanticipated changes in general market conditions or regulatory matters;
● the severity and duration of market disruptions as a result of the COVID-19 outbreak; and
● weakening of economic conditions or consumer confidence.
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our
gross margin to be adversely affected and could impair the strength of our brand. Additionally, we are subject to the risk
that a portion of our inventory will expire, which could have a material adverse effect on our earnings and cash flows due
to the resulting costs associated with the inventory impairment charges and costs required to replace such inventory.
Conversely, if we underestimate customer demand for our products, Aroa may not be able to deliver products to meet our
requirements, and this could result in damage to our reputation and customer relationships. In addition, if we experience a
significant increase in demand, additional supplies of raw materials or additional manufacturing capacity may not be
available when required on terms that are acceptable to us, or at all, or Aroa may not be able to allocate sufficient capacity
to meet our increased requirements, which could have an adverse effect on our ability to meet customer demand for our
products and our results of operations.
We rely on our own direct sales force for our products, which may result in higher fixed costs than our competitors and
may slow our ability to reduce costs.
We rely on our own direct sales force, which as of December 31, 2022 consisted of 61 representatives in the U.S. and 7
representatives in Europe, to market and sell our products. A direct sales force may subject us to higher fixed costs than
those of companies that market competing products through independent third parties, due to the costs that we will bear
associated with employee benefits, training and managing sales personnel. As a result, we may be at a competitive
disadvantage. Additionally, these fixed costs may slow our ability to reduce costs in the face of a sudden decline in demand
for our products, which could have a material adverse effect on our business, financial condition and results of operations.
Our employees, independent contractors, consultants, commercial partners, distributors and vendors may engage in
misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, commercial partners and vendors may
engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent
conduct or disclosure of unauthorized activities to us that violates: (i) the rules of the FDA and other similar foreign
regulatory bodies; (ii) manufacturing standards; (iii) healthcare fraud and abuse laws in the U.S. and similar foreign
fraudulent misconduct laws; (iv) data privacy laws and other similar non-U.S. laws; or (v) laws that require the true,
complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales,
marketing and education programs.
It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we
take to detect and prevent these activities 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 be in compliance
with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or
other misconduct, even if none occurred. If any such actions are instituted against us and we are not successful in
defending ourselves or asserting our rights, those actions could result in the imposition of significant fines
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or other sanctions, including the imposition of civil, criminal and administrative penalties, additional integrity reporting
and oversight obligations and possible exclusion from participation in Medicare, Medicaid and other federal healthcare
programs, any of which could adversely affect our ability to operate our business and our results of operations. 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, financial condition and results of operations.
We could be adversely affected by any interruption to our ability to conduct business at our current location.
We do not have redundant facilities. We perform substantially all of our research and development and back-office activity
and maintain all our finished goods inventory in a single location in Malvern, Pennsylvania. Our facility, equipment and
inventory would be costly to replace and could require substantial lead time to repair or replace. The facility may be
harmed or rendered inoperable by natural or man-made disasters, including, but not limited to, tornadoes, flooding, fire,
public health emergencies such as pandemics and power outages, which may render it difficult or impossible for us to
perform our customer service research, development and commercialization activities for some period of time. The
inability to perform those activities, combined with the time it may take to rebuild our inventory of finished product, may
result in the loss of customers or harm to our reputation. Although we possess insurance for damage to our property and the
disruption of our business, this insurance may not be sufficient to cover all of our potential losses and this insurance may
not continue to be available to us on acceptable terms, or at all.
If we experience significant disruption or a breach in our information technology systems, our business could be
adversely affected.
We rely extensively on information technology systems to conduct our business. These systems affect, among other things,
ordering and managing products, shipping products to customers, processing transactions, summarizing and reporting
results of operations, complying with regulatory, legal and tax requirements, data security and other processes necessary to
manage our business. Our information systems require an ongoing commitment of significant resources to maintain,
protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information
processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer
information, and changing customer patterns. If our systems are damaged or cease to function properly due to any number
of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not
effectively compensate on a timely basis, we may experience interruptions in our operations, which could have an adverse
effect on our business.
If we fail to maintain or protect our information systems and data integrity effectively, we could lose existing customers,
have difficulty attracting new customers, suffer backlash from negative public relations, have regulatory sanctions or
penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy
breach, or suffer other adverse consequences. Furthermore, any breach in our information technology systems could lead to
the unauthorized access, disclosure and use of non-public information from our patient registry or other patient information
which is protected by HIPAA and other laws. Any such access, disclosure, or other loss of information could result in legal
claims or proceedings, liability under laws that protect the privacy of personal information and damage to our reputation.
If we become profitable, our ability to use our net operating loss carryforwards and other tax attributes to offset future
taxable income or taxes may be subject to limitations.
As of December 31, 2022, we had federal and state net operating loss carry forwards (“NOLs”) of approximately $212.3
million and $173.5 million, respectively. The federal carry forwards for losses incurred prior to 2018 will begin expiring in
2032 for federal purposes. Federal net operating losses incurred in 2018 and onward have an indefinite expiration under the
2017 Tax Cut & Jobs Act. The state carry forwards will begin expiring in 2026. A full allowance for the value of the NOLs
is provided for in our audited financial statements for the year of December 31, 2022 included in this Annual Report on
Form 10-K. We cannot guarantee what the ultimate outcome or amount of the benefit we may receive from the NOLs, if
any, will be. If we become profitable in the future, our ability to use net operating loss carryforwards and other tax
attributes to offset future taxable income or reduce taxes may be subject to limitations.
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Risks Related to Our Securities
The trading price of the shares of our common stock has been and could in the future be highly volatile.
The price of our common stock has been and may continue to be volatile. Even though our common stock is listed on the
Nasdaq Global Market (“Nasdaq”), an active trading market for our common stock may not be sustained. The lack of an
active trading market may impair the value of your shares and your ability to sell your shares at the time you wish to sell
them. An inactive trading market may also impair our ability to raise capital by selling shares of our common stock and
enter into strategic partnerships or acquire other complementary products, technologies or businesses by using shares of
our common stock as consideration. Furthermore, there can be no guarantee that we will continue to satisfy the continued
listing standards of Nasdaq. If we fail to satisfy the continued listing standards, we could be de-listed, which would have a
negative effect on the price of our common stock.
We cannot predict the prices at which our shares of common stock may trade. The market price of our common stock is
likely to be highly volatile and may fluctuate substantially due to many factors, including:
● the volume and timing of sales of our products;
● the introduction of new products or product enhancements by us or others in our industry;
● disputes or other developments with respect to our or others’ intellectual property rights;
● our ability to develop, obtain regulatory clearance for, and market new and enhanced products on a timely
basis;
● product liability claims or other litigation;
● quarterly variations in our results of operations or those of others in our industry;
● media exposure of our products or of those of others in our industry;
● changes in governmental regulations or in reimbursement;
● changes in earnings estimates or recommendations by securities analysts;
● broad trends impacting companies within the pharmaceutical, biotechnology and medical technology
industries; and
● general market conditions and other factors, including factors unrelated to our operating performance or the
operating performance of our competitors, including any economic downturn as a result of the COVID-19
pandemic, or macroeconomic factors such as geopolitical tensions or the outbreak of hostilities or war.
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 those companies. Broad market and industry factors may
significantly affect the market price of our common stock, regardless of our actual operating performance. Further, on
March 10, 2023, the FDIC took control and was appointed receiver of SVB. The financing uncertainty pharmaceutical,
biotechnology and medical technology companies may now face as a result of SVB’s entry into receivership may cause
significant volatility with respect to pharmaceutical, biotechnology, and medical technology company stocks, which in turn
could negatively impact the trading price of our common stock.
In addition, in the past, class action litigation has often been instituted against companies whose securities have
experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock
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price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our
financial condition and operating results and divert management’s attention and resources from our business.
We do not intend to pay cash dividends on our common stock for the foreseeable future.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our business
and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the agreement
governing our credit facility precludes, and any future debt agreements may preclude us from paying cash dividends. Any
future determination to declare dividends will be made at the discretion of our board of directors and will depend on,
among other factors, our financial condition, operating results, capital requirements, general business conditions and other
factors that our board of directors may deem relevant. Any return to stockholders will therefore be limited to the
appreciation in the value of their stock, if any.
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.
Our officers, directors and principal stockholders each holding more than 5% of our common stock, collectively, control
approximately 56% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to
significantly influence our management and affairs and most matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. The interests of these stockholders may not be the same as
or may even conflict with your interests. For example, these stockholders could attempt to delay or prevent a change in
control, even if such change in control would benefit our other stockholders, which could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale of our capital stock or our assets, and might
affect the prevailing market price of our common stock due to investors’ perceptions that conflicts of interest may exist or
arise. As a result, this concentration of ownership may not be in the best interests of our other stockholders.
We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth
companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions and
relief from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies.” In particular, while we are an “emerging growth company” (i) we will not be required to comply with the
auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) we will be exempt from any rules that
could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a
supplement to the auditor’s report on financial statements, (iii) we will be subject to reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements, and (iv) we will not be required to hold
nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not
previously approved.
We may remain an emerging growth company until as late as December 31, 2024, the fiscal year-end following the fifth
anniversary of the completion of our IPO, though we may cease to be an “emerging growth company” earlier under certain
circumstances, including if (i) we have more than $1.235 billion in annual revenue in any fiscal year, (ii) the market value
of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 or (iii) we issue more than
$1.0 billion of non-convertible debt over a three-year period.
The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory
agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In
addition, investors may find our common stock less attractive to the extent we rely on the exemptions and relief granted by
the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may decline or become more volatile.
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We are at risk of securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market
price of its securities. This risk is especially relevant for us because medical device companies have experienced significant
stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of
management’s attention and resources, which could harm our business.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our
business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that industry or financial analysts
publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or
unfavorable research about our business, the price of our stock could decline. If one or more of these analysts cease
coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could
cause our stock price to decline.
Provisions in our corporate charter documents and under Delaware law could discourage another company from
acquiring us and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our fourth amended and restated certificate of incorporation and our second amended and restated bylaws
may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider
favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These
provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock,
thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any
attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to
replace members of our board of directors. As our board of directors is responsible for appointing the members of our
management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our
management team. These provisions provide, among other things, that:
● our board of directors has the exclusive right to expand the size of our board of directors and to elect
directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or
removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
● our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving
staggered three-year terms, which may delay the ability of stockholders to change the membership of a
majority of our board of directors;
● our stockholders may not act by written consent, which forces stockholder action to be taken at an annual or
special meeting of our stockholders;
● a special meeting of stockholders may be called only by the chair of our board of directors, our chief
executive officer (or president, in the absence of a chief executive officer) or a majority of our board of
directors, which may delay the ability of our stockholders to force consideration of a proposal or to take
action, including the removal of directors;
● our fourth amended and restated certificate of incorporation prohibits cumulative voting in the election of
directors, which limits the ability of minority stockholders to elect director candidates;
● our board of directors may alter certain provisions of our second amended and restated bylaws without
obtaining stockholder approval;
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● the approval of the holders of at least two-thirds of our shares entitled to vote at an election of our board of
directors is required to adopt, amend or repeal our second amended and restated bylaws or repeal the
provisions of our fourth amended and restated certificate of incorporation regarding the election and removal
of directors;
● stockholders must provide advance notice and additional disclosures to nominate individuals for election to
the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may
discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own
slate of directors or otherwise attempting to obtain voting control of our shares; and
● our board of directors is authorized to issue shares of preferred stock and to determine the terms of those
shares, including preferences and voting rights, without stockholder approval, which could be used to
significantly dilute the ownership of a hostile acquirer.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware (“DGCL”) which prohibits a person who owns in excess of 15% of our
outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in
which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved
in a prescribed manner.
Our fourth amended and restated certificate of incorporation provides that the Court of Chancery of the State of
Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit
our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our fourth amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware
(or, if the Court of Chancery does not have jurisdiction, the United State District Court for the District of Delaware) is the
exclusive forum, to the fullest extent permitted by law, for (i) any derivative action or proceeding brought on our behalf,
(ii) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers,
employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the
DGCL or our fourth amended and restated certificate of incorporation or second amended and restated bylaws or (iv) any
action asserting a claim governed by the internal affairs doctrine, except, in each case, (A) any claim as to which such court
determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does
not consent to the personal jurisdiction of such court within 10 days following such determination), (B) which is vested in
the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject
matter jurisdiction, in all cases subject to the courts having jurisdiction over indispensable parties named as defendants.
This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with
us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers
and other employees. For example, stockholders who do bring a claim in the Court of Chancery could face additional
litigations costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of
Chancery may also reach different judgments or results than would other courts, including courts where a stockholder
considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be
more favorable to us than to our stockholders. The enforceability of similar choice of forum provisions in other companies’
certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any
applicable action brought against us, a court could find the choice of forum provisions contained in our fourth amended and
restated certificate of incorporation to be inapplicable or unenforceable in such action. Alternatively, if a court were to find
the choice of forum provision contained in our fourth amended and restated certificate of incorporation to be inapplicable
or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
This provision will not apply to actions arising under the Securities Act or Exchange Act. Our fourth amended and restated
certificate of incorporation and second amended and restated bylaws further provide that the federal district courts of the
U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Section 22 of the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought
to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is
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uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims
arising under the Securities Act.
General Risk Factors
Our ability to maintain our competitive position depends on our ability to attract and retain senior management and
other highly qualified personnel.
We are highly dependent on our senior management and other key personnel. Our success depends in part on our continued
ability to attract, retain and motivate highly qualified senior management and attract, retain and motivate qualified
employees, including sales and marketing professionals, clinical specialists and other highly skilled personnel. Competition
for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on
acceptable terms, or at all. If we are not successful in attracting and retaining highly qualified personnel, it would have a
material adverse effect on our business, financial condition and results of operations. The loss of highly qualified
employees could result in delays in product development and commercialization and harm our business.
Although we have entered into employment agreements with all of our executive officers, each of them may terminate their
employment with us at any time. The replacement of any of our key personnel likely would involve significant time and
costs and may significantly delay or prevent the achievement of our business objectives and could therefore have an
adverse effect on our business. We also do not maintain “key man” insurance policies on the lives of these individuals or
the lives of any of our other employees.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and
procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the
Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures,
no matter how well those controls and procedures are conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the
inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our products are manufactured by our exclusive manufacturer and supplier of our products, Aroa, at their facility in
Auckland, New Zealand which currently totals approximately 40,000 square feet.
We lease our corporate headquarters in Malvern, Pennsylvania, which houses our research and development operations,
controlled environment room, and office space, and currently totals approximately 25,000 square feet.
We believe that our current facilities meet our current and future anticipated needs, although we may seek to negotiate new
leases or evaluate additional or alternate space for our operations. We believe appropriate office space will be readily
available on commercially reasonable terms.
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ITEM 3.
LEGAL PROCEEDINGS
We may be subject to other legal proceedings and claims in the ordinary course of business. We cannot predict the results
of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on us
due to diversion of management time and attention as well as the financial costs related to resolving such disputes.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “TELA” since November 8,
2019.
Holders
As of March 16, 2023, the Company had approximately 65 record holders of its common stock.
Dividends
The Company has not declared or paid any dividends since its inception nor does it expect to pay dividends in the
foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The information under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” will be filed in
the Company’s definitive proxy statement for the 2023 annual meeting of stockholders and is incorporated herein by
reference.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
ITEM 6.
RESERVED
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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 and the
consolidated financial statements and the related notes included elsewhere in this Annual Report. In addition to historical
financial information, the following discussion contains forward-looking statements based upon our current plans,
expectations and beliefs that involve risks, uncertainties and assumptions. Our actual results may differ materially from
those described in or implied by these forward-looking statements as a result of many factors, including those set forth
under the section titled “Risk Factors” and in other parts of this Annual Report.
Overview
We are a commercial-stage medical technology company focused on providing innovative soft-tissue reconstruction
solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy. Our
growing product portfolio is purposefully designed to leverage the patient’s natural healing response while minimizing
long-term exposure to permanent synthetic materials. We are committed to delivering our advanced technologies with a
strong economic value proposition to assist surgeons and institutions in providing next-generation soft-tissue repair
solutions to more patients worldwide.
We are dedicated to building true partnerships with surgeons and healthcare providers to deliver solutions that provide both
clinical and economic improvements. We believe that genuine collaboration with surgeons and healthcare providers results
in the development of new solutions that empower patient care.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the
U.S. in July 2016, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of
biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price.
Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million
procedures annually. Based on the volume weighted average selling price of our OviTex products, we estimate the annual
U.S. total addressable market opportunity for our OviTex products to be approximately $1.5 billion.
Our OviTex portfolio consists of multiple product configurations intended to address various surgical procedures within
hernia repair and abdominal wall reconstruction, including ventral, inguinal, and hiatal hernia repair. In addition, we have
also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as
OviTex LPR and began commercializing this product in November 2018. We recently launched two new, larger
configurations of OviTex LPR, designed for ventral and incisional hernias.
We have also focused on evaluating and publishing clinical data on the effectiveness and safety of our OviTex products. To
date, there have been thirty published or presented works relating to these clinical findings, either by us or a third-party
evaluating the OviTex product. Recently in October 2022, the 24-month results of our single arm, multicenter post-market
clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery. The BRAVO
study was designed to evaluate the clinical performance of OviTex for primary or recurrent ventral hernias using open,
laparoscopic, or robotic techniques in 92 enrolled patients. The recurrence rate at the 24-month time point was 2.6%, and
surgical site occurrences (“SSOs”) were observed in 38% of the study population. Of the enrolled patients, 78% were
characterized as high risk for experiencing an SSO based on at least one known risk factor, which included obesity, active
smoking, COPD, diabetes mellitus, coronary artery disease, or advanced age (≥75 years). The results also indicated that
BRAVO patients experienced statistically significant and clinically meaningful improvements in their quality of life and
perceived health based on patient responses to the EuroQol-5 Dimension (EQ-5D) health assessment and the validated 12-
question Hernia-Related Quality of Life survey (HerQLes). In addition to the BRAVO study and other current clinical
initiatives, we also commenced enrollment in May 2021 for our BRAVO II study, a prospective study evaluating the use of
OviTex in robot-assisted ventral and inguinal hernia repairs.
Our second portfolio of products, the OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which we first
commercialized in the U.S. in May 2019, addresses unmet needs in plastic and reconstructive surgery. OviTex PRS is
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indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or
reinforcement in plastic and reconstructive surgery. Our OviTex PRS portfolio is supported by non-human primate data that
demonstrated more rapid tissue integration and tissue remodeling compared to the market leading biologic matrix used in
this indication. Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable
market opportunity for our OviTex PRS products to be approximately $700 million.
Our OviTex products have received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”), which
clearance was obtained and is currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019,
our OviTex PRS products received 510(k) clearance from the FDA, which clearance was obtained by Aroa and is currently
held by us. We have also engaged in discussions with the FDA regarding an Investigational Device Exemption (“IDE”)
protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery.
The FDA has stated that a PMA, rather than 510(k) clearance will be required for such an indication. We have also
commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products.
We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue
restoration portfolio, including through the development of complimentary solutions targeting surgical wound management
and infection control. In January 2023, we announced an exclusive development and distribution partnership with Collagen
Matrix, Inc. (“CMI”), pursuant to which we launched the commercialization of our NIVIS Fibrillar Collagen Pack, an
absorbent matrix of Type I and Type III bovine collagen designed to manage moderately to heavily exudating wounds and
to control minor bleeding. We also previously commercialized through a distribution agreement with Next Science
Technologies Pty Limited (“Next Science”), a proprietary antimicrobial surgical wash in the U.S. plastic reconstructive
market. We are assessing additional strategic partnerships with medical device companies whereby we may enter into
distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing
and future products in our distribution channel.
We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the
proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry.
Our intellectual property applies to our differentiated product construction and materials. In addition, we believe our
exclusive manufacturing and long-term supply and license agreement (the “Aroa License”) with Aroa creates a competitive
advantage by allowing us to secure an exclusive supply of ovine rumen at a low cost. Ovine rumen, the forestomach of a
sheep, is the source of the biologic material used in our OviTex portfolio products. In manufacturing the product, we use
biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen
architecture that allows for rapid cellular infiltration. We purchase product from Aroa at a fixed cost equal to 27% of our
net sales of licensed products.
We market our products through a single direct sales force, predominantly in the U.S., as augmented by a smaller number
of sales representatives and distributors in certain European countries. We have invested in our direct sales and marketing
infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2022,
we had 67 sales territories in the U.S. As part of our commercial strategy, we plan to continue to invest in our commercial
organization by hiring additional territory managers and administrative and field-based support employees to support and
service new accounts for soft-tissue reconstruction procedures. We believe we can enhance the productivity of our sales
force by improving customer segmentation and targeting, implementing and further refining our proprietary training
programs, leveraging support from our medical education and clinical development functions to drive physician awareness
and education on our products, and utilizing engagement analytics to support product development. Additionally, we have
contracted with three national GPOs covering our OviTex product and plan to continue to contract with additional GPOs
and other integrated delivery networks (“IDNs”) to increase access to and penetration of hospital accounts.
We are currently devoting research and development resources to develop additional versions of our OviTex hernia product
lines, including self-adhering technology to further enhance product compatibility in robotic procedures, as well as
additional versions of our OviTex PRS product lines. We are also working to develop new product features and designs for
both our existing OviTex and OviTex PRS products. Additionally, we are exploring new packaging technology to increase
the shelf life of our OviTex and OviTex PRS products. We are also exploring additional
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technologies that may complement our existing products, or expand the number of our product lines, in each case within
the hernia, plastic and reconstruction, and broader soft-tissue reconstruction and preservation market. We intend to
continue to make investments in research and development efforts to develop improvements and enhancements. We are
also assessing strategic partnerships with medical device companies whereby we may enter into distribution, product
development and/or licensing agreements for products complimentary to, or related to, existing and future products in our
distribution channel, which could result in the payment of single digit royalties or other product acquisition costs.
Our OviTex products are manufactured by Aroa at their FDA registered and ISO 13485 compliant facility in Auckland,
New Zealand. We maintain our Aroa License for the exclusive supply of ovine rumen and manufacture of our reinforced
tissue matrices under which we purchase product from Aroa at a fixed cost equal to 27% of our net sales of licensed
products. This revenue sharing arrangement allows us to competitively price our products and pass along cost-savings to
our customers.
Our business was directly impacted by the COVID-19 pandemic. We experienced volatility in demand for our products
which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns,
decreasing the volume of elective procedures using our products. We saw improvement in our business during the second
half of 2022 and anticipate that procedure volumes will continue to normalize to pre-pandemic levels; we continue to
monitor the potential impact of the COVID-19 pandemic on labor and hospital staffing levels, procedural volumes and
ultimately on our results.
Our revenue for the years ended December 31, 2022 and 2021 was $41.4 million and $29.5 million, respectively, which
represents an increase of $12.0 million, or 41% for the year ended December 31, 2022. Our net loss for the same time
periods was $44.3 million and $33.3 million, respectively, which represents an increase of $11.0 million, or 33% for the
year ended December 31, 2022. As of December 31, 2022, we had an accumulated deficit of $274.2 million. The vast
majority of our revenue to date has been generated from sales of our OviTex and OviTex PRS products in the U.S., with the
remainder generated from sales of our OviTex products in Europe and the sale of other products.
Business Update Regarding Macroeconomic Conditions and COVID-19
Our business, results of operations and commercial operations have been impacted by macroeconomic conditions,
including the COVID-19 pandemic, as well as, to a lesser extent, inflationary pressures, fluctuations in foreign currency in
the jurisdictions in which we operate, and geopolitical conflicts. These factors have and may continue to impact us in the
following ways:
COVID-19: In the first quarter of 2022, regional surges of the COVID-19 Omicron variant resulted in some government
restrictions on elective procedures and surgical staffing challenges leading to the deferral of elective surgeries and lower
surgical procedural volumes overall. While we anticipate the normalization of surgical procedures to pre-pandemic levels,
the pace of increased procedural volume remains unknown as hospitals allocate to address staffing shortages to prioritize
any backlog of non-elective procedures. Additionally, other labor and financial strains on healthcare systems may continue
to reduce procedural volumes.
General Economic Uncertainty: Continued concerns about the systemic impact of potential long-term and wide-spread
recession and geopolitical issues, including the war in Ukraine, have contributed to increased market volatility and
diminished expectations for economic growth in the world. As a result, we have experienced high volatility in our stock
price over the prior year. Continued uncertainty and perception of worsening market conditions could result in a decline in
our stock price, high inflation, increase our cost of capital and adversely affect our ability to access the capital markets in
the future.
Financial Strain and Inflationary Pressures: Market acceptance of our medical products in the U.S. and other countries is
dependent upon the procurement practices of our customers, patient need for our products and procedures and the
reimbursement of patients’ medical expenses by government healthcare programs and third-party payors. The continuing
uncertainty surrounding global economic conditions and financial markets, including the financial strain suffered by
hospital customers during the COVID-19 pandemic, may adversely affect demand for our products and procedures and
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result in lower reimbursement rates or coverage for our products, resulting in lower sales volume and downward pricing
pressure on our products and slower adoption of new products.
Components of Our Results of Operations
Revenue
Substantially all our revenue consists of direct sales of our products to hospital accounts in the U.S. Depending on the
terms of our agreements with our customers, we recognize revenue related to product sales either when control transfers,
which generally occurs when the product is shipped to the customer, or when the product is utilized in a surgical procedure
in the case of consignment agreements. Fees charged to customers for shipping are recognized as revenue. Recent revenue
growth has been driven by increasing revenue from product sales due to our expanding customer base, although it is
unclear at this point what long-term effect the COVID-19 pandemic and related macroeconomic pressures will have on our
ability to continue to generate revenue and expand our customer base.
Cost of Revenue
Cost of revenue primarily consists of the costs of licensed products, charges related to excess and obsolete inventory
adjustments, royalties and costs related to shipping. We purchase product from Aroa at a fixed cost equal to 27% of our net
sales of licensed products. The initial term of our Aroa License terminates on the expiration of the last patent covering
bovine and ovine products, with an option to extend for an additional ten-year period. We expect our cost of revenue to
increase in absolute dollars as, and to the extent, our sales volume grows, although it is unclear at this point what long-term
effect, if any, the COVID-19 pandemic and related macroeconomic pressures will have on our product demand which
could lead to additional charges to excess and obsolete inventory.
Amortization of Intangible Assets
Amortization of intangible assets relates to the amortization of capitalized milestone amounts paid or probable to be paid to
Aroa related to license fees or commercialization rights after future economic benefit has been established for a product.
These capitalized milestone amounts relate to regulatory clearances, the receipt of certain supply quantities of product, and
amounts based upon aggregate net sales thresholds within a specified territory, and are amortized over the remaining useful
life of the intellectual property.
Gross Profit and Gross Margin
Our gross profit is calculated by subtracting our cost of revenue and amortization of intangible assets from our revenue. We
calculate our gross margin percentage as our gross profit divided by our revenue. Our gross margin has been, and we
expect it will continue to be, affected by a variety of factors, including sales volume, royalties and inventory excess and
obsolescence costs. Our gross profit may increase to the extent our revenue grows.
Sales and Marketing Expenses
Sales and marketing expenses consist of commercial activities related to the sale of our products, along with the salaries
and related benefits, including sales commissions and stock-based compensation for employees focused on these efforts.
Other significant sales and marketing expenses include costs incurred with post-market clinical studies, conferences and
trade shows, promotional and marketing activities, market research, as well as travel and training expenses.
Over time we expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our
commercial organization to both drive and support our planned growth in revenue. We expect our sales and marketing
expenses to continue to decrease as a percentage of revenue, as and to the extent, our revenue grows.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation
for personnel in executive, finance, information technology and administrative functions. General and administrative
expenses also include professional service fees for legal, accounting, consulting, investor and public relations, insurance
costs and direct and allocated facility-related costs.
We expect that our general and administrative expenses will increase in absolute dollars as we execute our growth
initiatives and expand our business and headcount to support these initiatives. We expect our general and administrative
expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.
Research and Development Expenses
Research and development expenses consist primarily of product research, engineering, product development, regulatory
compliance and clinical development. These expenses include salaries and related benefits including stock-based
compensation, for employees focused on these efforts, consulting services, costs associated with our preclinical studies,
costs incurred with our manufacturing partner under development agreements related to technology transfer, costs incurred
from license agreements with no alternative future uses, laboratory materials and supplies and an allocation of related
facilities costs. We expense research and development costs as they are incurred.
We expect research and development expenses in absolute dollars to increase in the future as we develop new products and
enhance existing products. We expect research and development expenses as a percentage of revenue to vary over time
depending on the level and timing of new product development initiatives.
Interest Expense
Interest expense consists of cash interest under our credit facilities and non-cash interest attributable to the amortization of
final payment fees and the amortization of deferred financing costs related to our indebtedness.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of the excess consideration paid over the net carrying value of our debt at the time
of extinguishment.
Other Expense
Other expense consists primarily of miscellaneous tax expenses and foreign currency exchange gains and losses offset by
income earned on our cash and cash equivalents.
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Results of Operations
Comparison of the Year Ended December 31, 2022 and 2021
Revenue
Cost of revenue (excluding amortization of intangible assets)
Amortization of intangible assets
Gross profit
Gross margin
Operating expenses:
Sales and marketing
General and administrative
Research and development
Total operating expenses
Loss from operations
Other expense:
Interest expense
Loss on extinguishment of debt
Other expense
Total other expense
Net loss
Revenue
Year Ended December 31,
Change
2022
2021
Dollar
Percentage
$ 41,418
13,570
804
27,044
$ 29,463
10,346
304
18,813
$ 11,955
3,224
500
8,231
41 %
31
164
44
65 %
64 %
43,252
13,862
8,937
66,051
(39,007)
29,062
12,459
6,743
48,264
(29,451)
14,190
1,403
2,194
17,787
(9,556)
(4,051)
(1,228)
(10)
(5,289)
(3,597)
—
(228)
(3,825)
$ (44,296) $ (33,276)
(454)
(1,228)
218
(1,464)
$ (11,020)
49
11
33
37
32
13
—
(96)
38
33 %
Revenue increased by $12.0 million, or 41%, to $41.4 million for the year ended December 31, 2022 from $29.5 million
for the year ended December 31, 2021. The increase in revenue was primarily driven by an increase in unit sales of our
products due to the expansion of our commercial organization, increased penetration within existing customer accounts and
stronger international sales. During the year ended December 31, 2022, we sold 10,083 units of OviTex compared to 7,516
units of OviTex during the year ended December 31, 2021, a 34% increase in unit sales volume. Additionally, we sold
2,385 units of OviTex PRS compared to 1,260 units during the year ended December 31, 2021, an 89% increase in unit
sales volume.
Cost of Revenue
Cost of revenue (excluding amortization of intangible assets) increased by $3.2 million to $13.6 million for the year ended
December 31, 2022 from $10.3 million for the year ended December 31, 2021. The increase in cost of revenue was
primarily the result of an increase in products purchased to support demand from our higher unit sales.
Amortization of Intangible Assets
Amortization of intangible assets increased by $0.5 million, or 164%, to $0.8 million for the year ended December 31,
2022 from $0.3 million for the year ended December 31, 2021. In June 2022, we determined that our final milestone target
under our licensing agreement with Aroa was probable of being met and recorded the payment obligation as an intangible
asset, resulting in an additional cumulative amortization charge of $0.5 million.
Gross Margin
Gross margin increased to 65% for the year ended December 31, 2022 from 64% for the year ended December 31, 2021.
The increase was primarily due to a lower expense recognized for excess and obsolete inventory adjustments as a
percentage of revenue which resulted from improved inventory management processes during the year ended December
31, 2022 as compared to the prior year partially offset by higher amortization of intangible assets.
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Sales and Marketing
Sales and marketing expenses increased by $14.2 million, or 49%, to $43.3 million for the year ended December 31, 2022
from $29.1 million for the year ended December 31, 2021. The increase was primarily due to higher salaries, benefits and
commission costs as a result of our expanded commercial organization, higher travel and consulting expenses and
additional employee-related costs due to an increase in headcount.
General and Administrative
General and administrative expenses increased by $1.4 million, or 11%, to $13.9 million for the year ended December 31,
2022 from $12.5 million for the year ended December 31, 2021. The increase was primarily due to higher salaries and
benefits due to an increase in headcount, higher software related expenses and additional bad debt expense which offset
lower insurance expense and recruiting fees.
Research and Development
Research and development expenses increased by $2.2 million, or 33%, to $8.9 million for the year ended December 31,
2022 from $6.7 million for the year ended December 31, 2021. The increase was primarily due to an in-process research
and development charge, higher salaries and benefits due to an increase in headcount and higher study costs, which offset a
decrease in stock-based compensation expense.
Interest Expense
Interest expense increased by $0.5 million, or 13%, to $4.1 million for the year ended December 31, 2022 from $3.6
million for the year ended December 31, 2021 as our borrowings increased under our MidCap Credit Agreement at higher
interest rates.
Loss on Extinguishment of Debt
We recorded a loss on the extinguishment of debt of $1.2 million during the year ended December 31, 2022 related to the
repayment of borrowings of our credit facilities with OrbiMed in May. The losses were primarily comprised of the write-
off of unamortized debt discounts and prepayment penalties at the time of extinguishment.
Other Expense
Other expense decreased by $0.2 million, or 96%, primarily due to foreign currency translation adjustments offset by
increased interest income.
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Liquidity and Capital Resources
Overview
As of December 31, 2022, we had cash and cash equivalents of $42.0 million, working capital of $50.0 million and an
accumulated deficit of $274.2 million. As of December 31, 2021, we had cash and cash equivalents of $43.9 million,
working capital of $48.5 million and an accumulated deficit of $229.9 million.
In August 2022, we completed an underwritten public offering in which we issued and sold 4,600,000 shares of common
stock at a public offering price of $8.00 per share. We received net proceeds of $34.4 million after deducting underwriting
discounts, commissions and other offering expenses.
We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near
term as we seek to invest in our sales and marketing initiatives to support our growth in existing and new markets and in
additional research and development activities. As of December 31, 2022, we had $40.0 million of borrowings outstanding
under our Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent and
certain lender parties thereto. The MidCap Credit Agreement matures in May 2027 and provides for up to $50.0 million in
term loans (the “MidCap Term Loans”), consisting of a $40.0 million Tranche 1 (“Tranche 1”) and a $10.0 million Tranche
2 (“Tranche 2”). Upon closing, we borrowed $40.0 million of Tranche 1 and used a portion of the proceeds to repay
borrowings under the OrbiMed Credit Facility and intend to use the remaining proceeds to fund operations and other
general corporate purposes. We will be eligible to borrow Tranche 2 at our option upon meeting certain conditions,
including, but not limited to, reaching $65.0 million of net product revenue over the preceding four quarters by fiscal year
end 2023.
Based on our current business plan, we believe that our existing cash resources will be sufficient to meet our capital
requirements and fund our operations for at least the next 12 months from the issuance of this Annual Report. If these
sources are insufficient to satisfy our liquidity requirements, we may seek to sell common or preferred equity or debt
securities, or enter into a new credit facility. In December 2020, we entered into an Equity Distribution Agreement (the
“Equity Agreement”) with Piper Sandler & Co (the “Agent”) in connection with the establishment of an at-the-market
offering program under which we may sell up to an aggregate of $50.0 million of shares of our common stock, from time
to time through the Agent as sales agent. No sales were made under the Equity Agreement during the years ended
December 31, 2022, 2021 or 2020. If we raise additional funds by issuing equity or equity-linked securities, our
stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior
to those of holders of our common stock. Debt financing, if available, may involve covenants restricting our operations or
our ability to incur additional debt. We cannot be assured that additional equity, equity-linked or debt financing will be
available on terms favorable to us or our stockholders, or at all, including as a result of market volatility resulting from the
COVID-19 pandemic, inflationary pressures, geopolitical conflict or other factors. If we are unable to obtain adequate
financing, we may be required to delay or reduce the current development, commercialization and marketing plans for our
products.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
(in thousands)
Cash used in operating activities
Cash (used in) provided by investing activities
Cash provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
$
$
87
2022
(40,748)
(1,872)
40,852
(144)
(1,912)
$
$
Year Ended December 31,
2021
(30,432)
(627)
585
11
(30,463)
$
$
2020
(24,456)
9,122
44,409
17
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Operating Activities
During the year ended December 31, 2022, we used $40.7 million of cash in operating activities, resulting from our net loss
of $44.3 million and the change in operating assets and liabilities of $5.3 million offset by non-cash charges of $8.9
million. Our non-cash charges were comprised of stock-based compensation expense of $4.0 million, our excess and
obsolete inventory charge of $1.9 million, loss on extinguishment of debt of $1.2 million, depreciation and amortization
expense of $1.2 million and interest expense of $0.7 million. The change in our operating assets and liabilities was
primarily related to an increase in our inventory and accounts receivable, partially offset by increases in accrued expenses
and other current and long-term liabilities.
During the year ended December 31, 2021, we used $30.4 million of cash in operating activities, resulting from our net loss
of $33.3 million and the change in operating assets and liabilities of $3.5 million offset by non-cash charges of $6.3
million. Our non-cash charges were comprised of stock-based compensation expense of $3.7 million, our excess and
obsolete inventory charge of $1.4 million, interest expense of $0.7 million and depreciation and amortization expense of
$0.5 million. The change in our operating assets and liabilities was primarily related to an increase in our inventory and
prepaid expenses and other assets, partially offset by increases in accrued expenses and other current and long-term
liabilities.
During the year ended December 31, 2020, we used $24.5 million of cash in operating activities, resulting from our net loss
of $28.8 million and the change in operating assets and liabilities of $0.2 million offset by non-cash charges of $4.5
million. Our non-cash charges were comprised of stock-based compensation expense of $2.1 million, our excess and
obsolete inventory charge of $1.3 million, interest expense of $0.6 million and depreciation and amortization expense of
$0.5 million.
Investing Activities
During the year ended December 31, 2022, cash used in investing activities was $1.9 million consisting of a $1.0 million
payment made for our intangible asset and purchases of property and equipment.
During the year ended December 31, 2021, cash used in investing activities was $0.6 million consisting of purchases of
property and equipment.
During the year ended December 31, 2020, cash provided by investing activities was $9.1 million consisting primarily of
the proceeds from the sale and maturity of short-term investments.
Financing Activities
During the year ended December 31, 2022, cash provided by financing activities was $40.9 million, consisting primarily of
$34.4 million in proceeds from an underwritten public offering, $40.0 million in proceeds received from the issuance of
long-term debt, partially offset by $30.0 million in repayments of long-term debt and $3.5 million in payments of issuance
costs.
During the year ended December 31, 2021, cash provided by financing activities was $0.6 million, consisting primarily of
the proceeds received from the exercise of stock options.
During the year ended December 31, 2020, cash provided by financing activities was $44.4 million, consisting primarily of
the net proceeds received from a follow-on public offering of our common stock.
Indebtedness
On May 26, 2022, we entered into the MidCap Credit Agreement with MidCap Financial Trust, as agent and certain lender
parties thereto. The MidCap Credit Agreement provides for up to $50.0 million in MidCap Term Loans, consisting of a
$40.0 million Tranche 1 and a $10.0 million Tranche 2. Upon closing, we borrowed $40.0 million of Tranche 1 and used a
portion of the proceeds to fully repay borrowings under the OrbiMed Credit Facility and intend to
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use the remaining proceeds to fund operations and other general corporate purposes. We will be eligible to borrow Tranche
2 at our option upon meeting certain conditions, including, but not limited to, reaching $65.0 million of net product
revenue over the preceding four quarters by fiscal year end 2023.
Pursuant to the MidCap Credit Agreement, we provided a first priority security interest in all existing and future acquired
assets, including intellectual property, owned by us. The MidCap Credit Agreement contains certain covenants that limit
our ability to engage in certain transactions that may be in our long-term best interests, including the incurrence of
additional indebtedness, effecting certain corporate changes, making certain investments, acquisitions or dispositions and
paying dividends.
The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default,
including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and
obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii)
impairment of security, (ix) key permit events, (x) termination of a pension plan, (xi) regulatory matters, (xii) material
adverse effect and (xiii) breach of material contracts.
In addition, we must maintain minimum net revenue levels tested quarterly. In the event of default under the MidCap
Credit Agreement, we would be required to pay interest on principal and all other due and unpaid obligations at the current
rate in effect plus 2%.
The MidCap Term Loans mature on May 1, 2027 and bear interest at a rate equal to 6.25% plus the greater of one-month
Term SOFR (as defined in the MidCap Credit Agreement) or 1.0%. We are required to make 36 monthly interest payments
beginning on June 1, 2022 (the “Interest-Only Period”). If we are in covenant compliance at the end of the Interest-Only
Period, we will have the option to extend the Interest-Only Period by 12 months to 48 monthly interest payments, followed
by 12 months of straight-line amortization, with the entire principal payment due at maturity. If we are not in covenant
compliance at the end of the Interest-Only Period, we are required to make 24 months of straight-line amortization
payments, with the entire principal amount due at maturity.
Subject to certain limitations, the MidCap Term Loans have a prepayment fee equal to 3.0% of the prepaid principal
amount for the first year following the closing date of the MidCap Term Loans, 2.0% of the prepaid principal amount for
the second year following the closing date and 1.0% of the prepaid principal amount for the third year following the
closing date and thereafter. We are also required to pay an exit fee at the time of maturity or prepayment event equal to 5%
of all principal borrowings (or in the event of a prepayment event, the amount of principal being prepaid).
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2022 and the effects that such obligations
are expected to have on our liquidity and cash flows in future periods:
Payments due by Period
Less than
(in thousands)
Principal payments on long-term debt
Total
$ 40,000
1 year 1 to 3 years 3 to 5 years Thereafter
—
— $ 40,000
— $
$
$
Interest and end of term charge on long-term debt(1)
Operating lease commitments(2)
20,147
2,039
4,190
358
8,379
741
7,578
775
—
165
Purchase commitments
21,655
2,275
3,315
4,335
11,730
Total
$ 83,841
$
6,823
$ 12,435
$ 52,688
$ 11,895
(1)
Interest payable reflects the rate in effect as of December 31, 2022. The interest rate on borrowings under the MidCap
Credit Facility is variable and resets monthly. End of term fee reflects final payment fee due at maturity.
(2) Reflects payments due for our lease of office and laboratory space in Malvern, Pennsylvania under an operating lease
agreement that expires in 2028.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash is held on deposit in demand accounts at high-credit-quality financial institutions in amounts in excess of the
Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limit of $250,000 per depositor, per FDIC-insured
bank, per ownership category. On March 10, 2023, the California Department of Financial Protection and Innovation
closed Silicon Valley Bank (“SVB”) and appointed the FDIC as receiver. On March 12, 2023, the U.S. Department of the
Treasury, the Federal Reserve and the FDIC released a joint statement confirming that all depositors of SVB would have
access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts.
In addition, on March 10, 2023, the Bank of England (the “BOE”) announced that it intended to seek the placement of
Silicon Valley Bank UK Limited (“SVBUK”), an affiliate of SVB, into a Bank Insolvency Procedure, which ultimately
results in the acquisition of SVBUK by HSBC UK Bank Plc (“HSBC") on March 13, 2023. The BOE confirmed that all
depositors’ money with SVBUK is safe and secure as a result of the transaction, and that operations at SVBUK would
continue as normal.
During the course of these events, a portion of our cash was held in accounts at SVB and SVBUK, with the remainder at
another high-credit-quality financial institution. We have recently established additional redundant accounts with another
high-credit-quality financial institution to mitigate liquidity risk to our cash and cash equivalents from any further
instability in the financial industry. We have reviewed the consolidated financial statements of this financial institution and
believe they have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or
no credit risk to us.
Financial instruments that potentially subject us to concentrations of credit risk principally consist of cash equivalents and
accounts receivable. We limit our credit risk associated with cash equivalents by placing investments in highly-rated money
market funds. We limit our credit risk with respect to accounts receivable by performing credit evaluations when deemed
necessary, but we do not require collateral to secure amounts owed to us by our customers.
As discussed above in the section of this Annual Report entitled “Liquidity and Capital Resources — Indebtedness,” the
MidCap Credit Facility bears interest at a floating rate of interest, which resets monthly and is equal to 6.25% plus the
greater of one-month Term SOFR or 1.0%. As a result, we are exposed to risks from changes in interest rates. A 1%
increase in interest rates would have resulted in a $0.2 million increase to our interest expense for the year ended December
31, 2022.
Inflationary factors, such as increases in our cost of revenue and operating expenses, may adversely affect our operating
results. Although we do not believe inflation has had a material impact on our financial condition, results of operations or
cash flows to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase
our gross margin or decrease our operating expenses as a percentage of our revenue if our selling prices of our products do
not increase as much or more than our costs increase.
We do not currently have any material exposure to foreign currency fluctuations and do not engage in any hedging
activities as part of our normal course of business.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S.
(“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates
and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amount of revenue and expenses during the reporting
period. We base our estimates on historical experience, known trends and events, and various other factors that we believe
are 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. We evaluate our estimates and assumptions on an
ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
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While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements
appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the
judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with
Customers (“ASC 606”). Under ASC 606, we recognize revenue when our customer obtains control of our promised good,
in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods.
Inventory Valuation
Inventory is stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method.
Inventory, which consists of our OviTex portfolio products held on consignment or held in our warehouse, is considered
finished goods and is purchased from a third party.
We evaluate the carrying value of our inventory in relation to the estimated forecast of product demand, which takes into
consideration the expiration date of the products. A significant decrease in demand could result in an increase in the
amount of excess inventory on hand, which could lead to additional charges for excess and obsolete inventory. The need to
maintain substantial levels of inventory impacts our estimates for excess and obsolete inventory. In addition, we continue
to introduce new products and sizes, which we believe will increase our revenue. As a result, we may be required to take
additional charges for excess and obsolete inventory in the future if the purchased units do not align with sales.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results
of operations is disclosed in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and
are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth
company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933
for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such
time as those standards apply to private companies. Section 107 of the JOBS Act provides that we can elect to opt out of
the extended transition period at any time, which election is irrevocable. We have elected to avail ourselves of this
exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or
revised accounting standards as other public companies that are not emerging growth companies.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth on pages F-1 through F-25 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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) of the Exchange Act, refers to
controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required
by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Chief Executive
Officer and Chief Operating Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief
Executive Officer and our Chief Operating Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2022.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive
Officer and Chief Operating Officer and Chief Financial Officer, and effected by our board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles, and includes those
policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore the
benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no
evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company
have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and
that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people or by management override of the controls. The design
of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures
may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial
statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures
are designed to provide reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations
of our systems of controls to enhance, where necessary, our control policies and procedures.
Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Operating Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the
framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal
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control over financial reporting. Based on its evaluation, management has concluded that our internal control over financial
reporting was effective as of December 31, 2022.
Changes in Internal Control over Financial Reporting
During the fourth quarter ended December 31, 2022, there were no changes in our internal control over financial reporting
(as defined in Rule 13a-15(f) of the Exchange Act) which materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning directors and compliance with Section 16(a) of the Exchange Act and our Code of Conduct
that applies to our principal executive officer, principal financial officer, principal accounting officer or controller called for
by Item 10 of Form 10-K will be set forth in our definitive proxy statement for the 2023 annual meeting of stockholders, to
be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K, and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by reference to the information contained in our
definitive proxy statement for the 2023 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Form 10-K is incorporated by reference to the information contained in our
definitive proxy statement for the 2023 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 of Form 10-K is incorporated by reference to the information contained in our
definitive proxy statement for the 2023 annual meeting of stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Philadelphia, PA, Auditor Firm ID: 185.
The information required by Item 14 of Form 10-K is incorporated by reference to the information contained in our
definitive proxy statement for the 2023 annual meeting of stockholders.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
See Index to the Consolidated Financial Statements on page F-1 of this Annual Report.
2. Financial Statement Schedules
None, as all information required in these schedules is included in the Notes to the Consolidated Financial Statements.
3. Exhibits
Reference is made to the Exhibit Index on page 95 of this Annual Report for a list of exhibits required by Item 601 of
Regulation S-K to be filed as part of this Annual Report.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
94
Table of Contents
TELA Bio, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
TELA Bio, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TELA Bio, Inc. and subsidiary (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with
U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for
leases as of January 1, 2022 due to the adoption of Accounting Standards Update 2016-02, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2013.
Philadelphia, Pennsylvania
March 23, 2023
F-2
Table of Contents
TELA Bio, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory
Prepaid expenses and other assets
Total current assets
Property and equipment, net
Intangible assets, net
Right-of-use assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Long‑term debt
Long‑term debt with related party
Other long‑term liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
December 31,
2022
2021
$
$
$
$
$
$
42,019
6,621
11,792
2,015
62,447
1,682
2,499
1,227
67,855
1,534
10,869
12,403
39,916
—
1,231
53,550
43,931
4,234
7,658
3,232
59,055
1,186
2,303
—
62,544
2,414
8,161
10,575
—
31,491
380
42,446
Preferred stock; $0.001 par value: 10,000,000 shares authorized; no shares issued and
outstanding
Common stock; $0.001 par value: 200,000,000 shares authorized; 19,165,027 and
14,529,606 shares issued and 19,165,027 and 14,529,577 shares outstanding at December
31, 2022 and December 31, 2021, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
19
288,361
150
(274,225)
14,305
67,855
$
15
250,064
(52)
(229,929)
20,098
62,544
$
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
TELA Bio, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Revenue
Cost of revenue (excluding amortization of intangible assets)
Amortization of intangible assets
$
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Research and development
Total operating expenses
Loss from operations
Other expense:
Interest expense
Loss on extinguishment of debt
Other (expense) income
Total other expense
Net loss
Net loss per common share, basic and diluted
Weighted average common shares outstanding, basic and diluted
Comprehensive loss:
Net loss
Foreign currency translation adjustment
Comprehensive loss
2022
Year ended December 31,
2021
2020
41,418 $
13,570
804
27,044
43,252
13,862
8,937
66,051
(39,007)
$
29,463
10,346
304
18,813
29,062
12,459
6,743
48,264
(29,451)
18,213
6,675
304
11,234
22,111
10,143
4,255
36,509
(25,275)
(4,051)
(1,228)
(10)
(5,289)
(44,296) $
(2.72) $
(3,597)
—
(228)
(3,825)
$
(33,276)
(2.30)
$
16,267,678 14,473,213
(3,564)
—
45
(3,519)
$
(28,794)
(2.23)
$
12,934,421
$
$
(44,296) $
202
(44,094) $
(33,276)
19
(33,257)
$
$
(28,794)
(52)
(28,846)
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
TELA Bio, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
Common stock
Shares
Amount
Additional
paid‑in
capital
Accumulated
other
comprehensive
income (loss)
$
11,406,221
306
27,783
11
$
—
—
198,829
3
175
$
Accumulated
deficit
(167,859)
—
—
(19)
$
—
—
$
Total
30,962
3
175
Balance at January 1, 2020
Vesting of common stock previously subject to repurchase
Exercise of stock options
Issuance of common stock under the employee stock
purchase plan
Foreign currency translation adjustment
Stock‑based compensation expense
Issuance of common stock upon follow-on offering, net of
underwriting discounts, commissions and offering costs
Net loss
Balance at December 31, 2020
Vesting of common stock previously subject to repurchase
Vesting of share-based awards and exercise of stock options
Issuance of common stock under the employee stock
purchase plan
Foreign currency translation adjustment
Stock‑based compensation expense
Reclassification of liability-classified stock-based
compensation awards
Net loss
Balance at December 31, 2021
Vesting of common stock previously subject to repurchase
Vesting of share-based awards and exercise of stock options
Issuance of common stock under the employee stock
purchase plan
Shares withheld for employee taxes
Foreign currency translation adjustment
Stock‑based compensation expense
Sale of common stock, net of underwriting discounts,
commissions and offering costs
Net loss
Balance at December 31, 2022
2,797
—
—
3,000,000
—
14,437,107
153
89,154
3,163
—
—
—
—
14,529,577
29
44,346
4,523
(13,448)
—
—
4,600,000
19,165,027
—
$
—
—
—
3
—
14
—
1
—
—
—
—
—
15
—
—
—
—
—
—
34
—
1,976
44,719
—
245,736
1
546
38
—
3,661
82
—
250,064
—
19
50
(157)
—
3,989
—
(52)
—
—
—
(71)
—
—
—
19
—
—
—
(52)
—
—
—
—
202
—
—
—
—
—
(28,794)
(196,653)
—
—
—
—
—
—
(33,276)
(229,929)
—
—
—
—
—
—
4
—
$
19
34,396
—
$
288,361
—
—
$
150
—
(44,296)
(274,225)
$
34
(52)
1,976
44,722
(28,794)
49,026
1
547
38
19
3,661
82
(33,276)
20,098
—
19
50
(157)
202
3,989
34,400
(44,296)
14,305
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
TELA Bio, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
2021
2020
2022
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
$ (44,296)
$
(33,276)
$
(28,794)
Depreciation expense
Noncash interest expense
Noncash loss on extinguishment of debt
Amortization of intangible assets
Net changes in operating lease ROU assets and liabilities
Inventory excess and obsolescence charge
Stock‑based compensation expense
Loss on disposal of fixed assets
Change in operating assets and liabilities:
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current and long-term liabilities
Foreign currency remeasurement loss
Net cash used in operating activities
Cash flows from investing activities:
Proceeds from the sale and maturity of short-term investments
Payment for intangible asset
Purchase of property and equipment
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from sale of common stock, net of underwriting discounts, commissions and offering
costs
Proceeds from issuance of long‑term debt
Repayment of long‑term debt
Payment of debt financing costs
Payment of initial public offering costs
Proceeds from exercise of stock options
Payment of withholding taxes related to stock-based compensation to employees
Proceeds from issuance of common stock under the employee stock purchase plan
Net cash provided by financing activities
Effect of exchange rate on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Supplemental disclosures of noncash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities
Issuance of common stock for early exercised stock options
Liability-classified stock-based compensation in accrued expenses and other current liabilities
Reclassification of liability-classified stock-based compensation awards to equity-classified
Operating lease ROU asset exchanged for operating lease liabilities
Tenant improvement and deferred rent reclassified to operating lease liabilities
Operating lease liabilities assumed for operating lease ROU assets
$
$
$
$
$
$
$
$
$
383
657
1,228
804
(36)
1,866
3,989
—
(2,421)
(6,073)
1,216
(884)
2,399
420
(40,748)
—
(1,000)
(872)
(1,872)
34,400
40,000
(30,000)
(3,460)
—
19
(157)
50
40,852
(144)
(1,912)
43,931
42,019
3,394
$
$
7
$
— $
— $
— $
$
$
$
1,376
380
1,756
231
664
—
304
—
1,439
3,661
2
(1,553)
(5,194)
(992)
1,597
2,673
12
(30,432)
—
—
(627)
(627)
—
—
—
—
—
547
—
38
585
11
(30,463)
74,394
43,931
$
221
584
—
304
—
1,327
2,058
—
149
(620)
66
(2,002)
2,321
(70)
(24,456)
9,289
—
(167)
9,122
44,722
—
—
—
(522)
175
—
34
44,409
17
29,092
45,302
74,394
2,933
$
2,980
166
1
$
$
— $
82
$
— $
— $
— $
3
3
82
—
—
—
—
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
(1) Background
TELA Bio, Inc.
Notes to Consolidated Financial Statements
TELA Bio, Inc. (the “Company”) was incorporated in the state of Delaware on April 17, 2012 and wholly owns TELA Bio
Limited, a company incorporated in the United Kingdom. The Company is commercial-stage medical technology company
focused on providing innovative soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the
preservation and restoration of the patient’s own anatomy. OviTex Reinforced Tissue Matrix (“OviTex”), the Company’s
first portfolio of products, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the
benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. OviTex
PRS Reinforced Tissue Matrix (“OviTex PRS”), the Company’s second portfolio of products, addresses unmet needs in
plastic and reconstructive surgery. The Company’s principal corporate office and research facility is located in Malvern,
Pennsylvania.
The Company has been directly impacted by the COVID-19 pandemic since the onset of the pandemic in 2020. To date,
among other impacts on the Company’s business related to the pandemic, physicians and their patients have been required
by state mandates, or have chosen to, defer elective surgery procedures in which the Company’s products otherwise would
be used. There remains uncertainty and lack of visibility regarding the Company’s near-term revenue growth prospects and
product development plans due to the volatility in the frequency of surgical procedures using the Company’s products,
including through labor and hospital staffing shortages and the allocation of hospital resources due to financial strain
experienced during the COVID-19 pandemic. Although the Company continues to monitor developments related to
hospital capacity and the volume of elective procedures, there is uncertainty regarding the pace to which surgical volumes
will normalize to their pre-pandemic levels and the timing to address the backlog of deferred procedures. The full extent of
the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including
revenue, expenses, manufacturing capability, supply chain integrity, staffing availability, research and development costs
and employee-related compensation, will depend on future developments that are highly uncertain.
(2) Risks and Liquidity
The Company’s operations to date have focused on commercializing products, developing and acquiring technology and
assets, business planning, raising capital and organization and staffing. The Company has incurred recurring losses and
negative cash flows from operations since inception and has an accumulated deficit of $274.2 million as of December 31,
2022. The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from
its products to cover its expenses.
In August 2022, the Company completed an underwritten public offering in which the Company issued and sold 4,600,000
shares of its common stock at a public offering price of $8.00 per share. The Company received net proceeds of $34.4
million after deducting underwriting discounts, commissions and other offering expenses.
The operations of the Company are subject to certain risks and uncertainties including, among others, the uncertainty of
product development, the impact of macroeconomic conditions, including the COVID-19 pandemic, general economic
uncertainty, including as a result of inflationary pressures and the measures undertaken by various governments to address
them, banking instability, geopolitical factors such as the war in Ukraine, technological uncertainty, commercial acceptance
of any developed products, alternative competing technologies, dependence on collaborative partners, uncertainty
regarding patents and proprietary rights, comprehensive government regulations, and dependence on key personnel.
F-7
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
(3) Summary of Significant Accounting Policies
Basis of Presentation and Principals of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to
GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”)
promulgated by the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the
accounts of TELA Bio, Inc. and its wholly owned subsidiary TELA Bio Limited. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent
liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the
reporting period. The most significant judgments are employed in estimates used to determine the recoverability of the
carrying value of the Company’s inventory. As future events and their effects cannot be determined with precision, actual
results may differ significantly from these estimates.
Segments
Operating segments are defined as components of an enterprise about which separate discrete information is available for
evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in
assessing performance. The Company views its operations and manages its business in one segment.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and
cash equivalents. The Company places its cash with high-credit-quality financial institutions and primarily invests in
money market funds. The Company has established guidelines relative to credit ratings and maturities that seek to maintain
safety and liquidity.
On March 10, 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (“SVB”)
and appointed the FDIC as receiver. On March 12, 2023, the U.S. Department of the Treasury, the Federal Reserve and the
FDIC released a joint statement confirming that all depositors of SVB would have access to all of their money after only
one business day of closure, including funds held in uninsured deposit accounts.
In addition, on March 10, 2023, the Bank of England (the “BOE”) announced that it intended to seek the placement of
Silicon Valley Bank UK Limited (“SVBUK”), an affiliate of SVB, into a Bank Insolvency Procedure, which ultimately
results in the acquisition of SVBUK by HSBC UK Bank Plc (“HSBC") on March 13, 2023. The BOE confirmed that all
depositors’ money with SVBUK is safe and secure as a result of the transaction, and that operations at SVBUK would
continue as normal.
During the course of these events, a portion of the Company’s cash was held in accounts at SVB and SVBUK, with the
remainder held at another high-credit-quality financial institution. We have recently established additional redundant
accounts with another high-credit-quality financial institution to mitigate liquidity risk to our cash and cash equivalents
from any further instability in the financial industry.
F-8
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
As described in Note 11, the Company has licensed patents and other intellectual property from Aroa Biosurgery Ltd.
(“Aroa”). As part of this agreement, Aroa is also the exclusive contract manufacturer of the Company’s OviTex portfolio of
products. The inability of Aroa to fulfill supply requirements of the Company could materially impact future operating
results. A change in the relationship with Aroa, or an adverse change in their business, could materially impact future
operating results.
Cash and Cash Equivalents
The Company considers cash equivalents to be highly liquid investments with maturities of three months or less from the
date of purchase. Cash equivalents consist of investments in a money market fund. The Company’s cash and cash
equivalents are carried at fair value.
Inventory
Inventory consists of finished goods and is identified and tracked by lot and stated at the lower of cost or net realizable
value, with cost being determined on a first-in, first-out basis. The Company periodically analyzes its inventory levels and
writes down inventory that has become obsolete or that has a cost basis in excess of its expected net realizable value based
on expected customer demand. As of December 31, 2022 and 2021, the Company had $2.3 million and $1.7 million,
respectively, in finished goods consigned to others.
Property and Equipment
Property and equipment are stated at the aggregate cost incurred to acquire and place the asset in service. Expenditures for
routine maintenance and repairs are charged to expense as incurred and costs of improvements and renewals are
capitalized. Depreciation is provided over the estimated useful lives of the assets using the straight-line method.
Intangible Assets
Upfront payments and milestone payments due related to licenses or commercialization rights prior to future economic
benefit being established are recorded as research and development expenses. Milestone payments due related to licenses
or commercialization rights after future economic benefit is established are recorded as intangible assets. In 2022, 2021 and
2020, the Company recorded $0.8 million, $0.3 million and $0.3 million of amortization expense, respectively, related to
intangible assets. At December 31, 2022, the remaining life of intangible assets was 6.6 years. The Company anticipates
recognizing amortization expense of $0.4 million in each of the next five years and $0.5 million thereafter.
Long-Lived Assets
Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-
lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected
to be generated by such asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group
exceeds the undiscounted cash flows, an impairment is recognized to the extent the carrying value exceeds its fair value.
Fair value is determined using various valuation techniques, including discounted cash flow models, quoted market values,
and third-party independent appraisals, as considered necessary. No impairment losses were recognized during the years
ended December 31, 2022, 2021 or 2020.
F-9
Table of Contents
Debt Issuance Costs
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
Debt issuance costs incurred in connection with debt (Note 6) are amortized to interest expense over the term of the
respective financing arrangement using the effective-interest method. Debt issuance costs, net of related amortization are
deducted from the carrying value of the related debt.
Revenue Recognition
Under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), an entity recognizes revenue when its
customer obtains control of the promised good, in an amount that reflects the consideration that the entity expects to be
entitled in exchange for those goods. The Company performs the following five steps to recognize revenue under ASC
606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize
revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue when it is
probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be
transferred to the customer.
A significant portion of the Company’s revenue is generated from product shipped to a customer or from consigned
inventory maintained at hospitals. Revenue from the sale of consigned products is recognized when control is transferred to
the customer, which occurs at the time the product is used in a surgical procedure. For product that is not held on
consignment, the Company recognizes revenue when control transfers to the customer which occurs at the time the product
is shipped or delivered. For all of the Company’s customer contracts, the only identified performance obligation is
providing the product to the customer.
Revenue is recognized at the estimated net sales price which includes estimates of variable consideration. The Company
enters into contracts with certain third-party payors for the payment of rebates with respect to the utilization of its products.
These rebates are based on contractual percentages. The Company estimates and records rebates in the same period the
related revenue is recognized, resulting in a reduction of product revenue.
Payment terms with customers do not exceed one year and, therefore, the Company does not account for a financing
component in its arrangements. There are no incremental costs of obtaining a contract that would rise to or enhance an
asset other than product costs, which are a component of inventory. The Company expenses incremental costs of obtaining
a contract with a customer (e.g., sales commissions) when incurred as the period of benefit is less than one year. Fees
charged to customers for shipping are recognized as revenue.
The following table presents revenue disaggregated (in thousands):
OviTex
OviTex PRS
Other
Total revenue
Year ended December 31,
2022
2021
2020
$
$
28,879
12,431
108
41,418
$
$
22,990
6,473
—
29,463
$
$
15,093
3,120
—
18,213
Sales outside of the U.S. were $3.2 million or 8% of total revenue for the year ended December 31, 2022 and immaterial
for the years ended December 31, 2021 and 2020.
F-10
Table of Contents
Research and Development
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
Research and development costs are charged to expense as incurred and consist primarily of salaries, benefits, and other
related costs, including stock-based compensation for personnel serving in the research and development functions as well
as costs incurred with Aroa under development agreements related to technology transfer, laboratory materials and
supplies. At the end of the reporting period, the Company compares payments made to third-party service providers to the
estimated progress toward completion of the research or development objectives. Such estimates are subject to change as
additional information becomes available. Depending on the timing of payments to the service providers and the progress
that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or
accrued expense relating to these costs. Costs incurred in obtaining patent and other intellectual property licenses or
milestone payments from license agreements for which there are no alternative future uses are charged to expense as
incurred.
Stock-Based Compensation
The Company accounts for stock-based awards in accordance with provisions of ASC Topic 718, Compensation—Stock
Compensation, under which the Company recognizes the grant-date fair value of stock-based awards issued to employees
and nonemployee board members as compensation expense on a straight-line basis over the vesting period of the award
while awards containing a performance condition are recognized as expense when the achievement of the performance
criteria is considered probable. The Company uses the Black-Scholes option pricing model to determine the grant-date fair
value of stock options. The Company estimates forfeitures that it expects will occur and adjusts expense for actual
forfeitures in the periods they occur.
Income Taxes
Income taxes are accounted for under the asset-and-liability method as required by ASC Topic 740, Income Taxes (“ASC
740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period corresponding to the
enactment date. Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of
the deferred tax assets will not be realized through generating sufficient future taxable income.
ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes (“ASC 740-10”), defines the criterion an individual tax
position must meet for any part of the benefit of the tax position to be recognized in consolidated financial statements
prepared in conformity with GAAP. The Company may recognize the tax benefit from an uncertain tax position only if it is
more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the
technical merits of the respective tax position. The tax benefits recognized in the consolidated financial statements from
such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority. In accordance with the disclosure requirements of ASC 740-10, the
Company’s policy on income statement classification of interest and penalties related to income tax obligations is to
include such items as part of income tax expense.
Fair value of financial instruments
Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction among
market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of
significant judgments are made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or
as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of
F-11
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions
are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including
cash and cash equivalents, accounts receivable, other assets, and accounts payable are shown at cost, which approximates
fair value due to the short-term nature of these instruments. Due to the related-party relationship of the OrbiMed Credit
Facility (Note 6), it was impractical to determine the fair value of the debt.
The Company follows the provisions of ASC Topic 820, Fair Value Measurement, for financial assets and liabilities
measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the
following three categories:
● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
● Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liabilities.
● Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported by little or no market activity).
The following fair value hierarchy table presents information about each major category of the Company’s financial assets
and liabilities measured at fair value on a recurring basis (in thousands):
December 31, 2022:
Cash equivalents – money market fund
December 31, 2021:
Cash equivalents – money market fund
Net loss per share
Fair value measurement at reporting date using
Quoted prices in
active markets
for identical
assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
$
39,010
41,396
$
$
— $
— $
—
—
Basic and diluted net loss per common share is determined by dividing net loss by the weighted-average shares of common
stock outstanding during the reporting period. In periods in which the Company reports a net loss, diluted net loss per share
is the same as basic net loss per share since dilutive shares are not assumed to have been issued if their effect is
antidilutive. Therefore, the weighted-average shares used to calculate both basic and diluted loss per share are the same.
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares
outstanding, as they would be antidilutive.
F-12
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
Stock options (including shares subject to repurchase)
Unvested restricted stock units
Common stock warrants
Total
Recently Issued Accounting Pronouncements
Year ended December 31,
2022
2,071,848
311,991
88,556
2,472,395
2021
1,706,438
163,043
88,556
1,958,037
2020
1,498,390
—
88,556
1,586,946
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company
has elected to use this extended transition period for complying with new or revised accounting standards that have
different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging
growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.
As a result, these consolidated financial statements may not be comparable to companies that comply with the new or
revised accounting pronouncements as of public company effective dates.
In February 2016, the FASB issued ASU No. 2016-02, Leases, (“ASU 2016-02”) which requires a lessee to record a right-
of-use (“ROU”) asset and a corresponding lease liability on the balance sheet for all leases with terms longer than
12 months. A modified retrospective transition approach is required, applying the new standard to all leases existing at the
date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest
comparative period presented in the consolidated financial statements as its date of initial application. The Company
adopted ASU 2016-02 on January 1, 2022 using the modified retrospective transition method and elected the transition
practical expedients to not reassess lease identification, lease classification and initial indirect costs related to those leases
entered into prior to the date of application.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which provides
guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses
model. The standard is effective for the Company beginning January 1, 2023, and the adoption of this guidance is not
expected to have a significant impact on the consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and
Hedging - Contracts in Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 eliminates the beneficial conversion and cash
conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s
own equity that are currently accounted for as derivatives because of specific settlement provisions. The new guidance also
modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the
diluted EPS computation. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim
periods within those annual periods. The adoption of this guidance is not expected to have a significant impact on the
consolidated financial statements and related disclosures.
F-13
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
(4) Property and Equipment
Property and equipment consisted of the following (in thousands):
Asset description
Lab equipment
Furniture and fixtures
Computer equipment and software
Leasehold improvements
Estimated useful lives
5 Years
5 Years
3 Years
Lesser of useful life or lease term
$
Total
Less accumulated depreciation and
amortization
Property and equipment, net
December 31,
2022
2,635
274
604
2,309
5,822
$
2021
2,352
242
468
1,881
4,943
(4,140)
1,682
$
(3,757)
1,186
$
The cost of property and equipment at both December 31, 2022 and 2021 includes $0.2 million of equipment located at
Aroa. Depreciation expense was $0.4 million, $0.2 million and $0.2 million for the years ended December 31, 2022, 2021
and 2020, respectively.
(5) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Compensation and related benefits
Third-party and professional fees
Amounts due to contract manufacturer
Current portion of operating lease liabilities
Research and development expenses
Other
Total accrued expenses and other current liabilities
F-14
December 31, December 31,
2022
6,420
2,563
1,263
340
137
146
10,869
$
$
2021
4,976
2,233
842
—
31
79
8,161
$
$
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
(6) Debt
Long-term debt consisted of the following (in thousands):
MidCap Term Loan
OrbiMed Term Loan (related party)
End of term charge
Unamortized end of term charge and issuance costs
Long-term debt
December 31,
2022
$ 40,000
—
2,000
(2,084)
$ 39,916
2021
$
—
30,000
3,000
(1,509)
$ 31,491
MidCap Term Loan
On May 26, 2022, the Company entered into the Credit and Security Agreement (the “MidCap Credit Agreement”) with
MidCap Financial Trust, as agent (the “Agent”), and certain lender parties thereto. The MidCap Credit Agreement provides
for up to $50.0 million in term loans (the “MidCap Term Loans”), consisting of a $40.0 million Tranche 1 (“Tranche 1”)
and a $10.0 million Tranche 2 (“Tranche 2”). Upon closing, the Company borrowed $40.0 million of Tranche 1 and used a
portion of the proceeds to repay borrowings under the OrbiMed Credit Facility (described below) and intends to use the
remaining proceeds to fund operations and other general corporate purposes. The Company will be eligible to borrow
Tranche 2 at the Company’s option upon meeting certain conditions, including, but not limited to, reaching $65.0 million
of net product revenue over the preceding four quarters by fiscal year end 2023.
Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future
acquired assets, including intellectual property, owned by the Company. The MidCap Credit Agreement contains certain
covenants that limit the Company’s ability to engage in certain transactions that may be in the Company’s long-term best
interests, including the incurrence of additional indebtedness, effecting certain corporate changes, making certain
investments, acquisitions or dispositions and paying dividends.
The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default,
including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and
obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii)
impairment of security, (ix) key permit events, (x) termination of a pension plan, (xi) regulatory matters, (xii) material
adverse effect and (xiii) breach of material contracts.
In addition, the Company must maintain minimum net revenue levels tested quarterly. In the event of default under the
MidCap Credit Agreement, the Company would be required to pay interest on principal and all other due and unpaid
obligations at the current rate in effect plus 2%.
The MidCap Term Loans mature on May 1, 2027 and bear interest at a rate equal to 6.25% plus the greater of one-month
Term SOFR (as defined in the MidCap Credit Agreement) or 1.0%. The Company is required to make 36 monthly interest
payments beginning on June 1, 2022 (the “Interest-Only Period”). If the Company is in covenant compliance at the end of
the Interest-Only Period, the Company will have the option to extend the Interest-Only Period by 12 months to 48 monthly
interest payments, followed by 12 months of straight-line amortization, with the entire principal payment due at maturity. If
the Company is not in covenant compliance at the end of the Interest-Only Period, the Company is required to make 24
months of straight-line amortization payments, with the entire principal amount due at maturity.
Subject to certain limitations, the MidCap Term Loans have a prepayment fee equal to 3.0% of the prepaid principal
amount for the first year following the closing date of the MidCap Term Loans, 2.0% of the prepaid principal amount for
F-15
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
the second year following the closing date and 1.0% of the prepaid principal amount for the third year following the
closing date and thereafter. The Company is also required to pay an exit fee at the time of maturity or prepayment event
equal to 5% of all principal borrowings (the “End of Term Charge”) (or in the event of a prepayment event, the amount of
principal being prepaid). Interest expense associated with the MidCap Credit Facility recorded for the year ended
December 31, 2022 was $2.6 million, of which $0.4 million was related to the amortization of debt issuance costs.
OrbiMed Term Loan (Related Party)
In November 2018, the Company entered into the OrbiMed Credit Facility with OrbiMed, a related party as the lender is
affiliated with a stockholder of the Company, which consisted of up to $35.0 million in term loans (the “OrbiMed Term
Loans”). The OrbiMed Term Loans consisted of two tranches, a $30.0 million Tranche 1 (“First Tranche”) and a
$5.0 million Tranche 2 (“Second Tranche”). In November 2018, the Company borrowed $30.0 million of the First Tranche.
The Company elected not to borrow the Second Tranche prior to its expiration on December 31, 2019. On May 26, 2022,
the Company entered into the MidCap Credit Agreement and upon closing used a portion of the proceeds to repay all
borrowings under the OrbiMed Credit Facility.
The OrbiMed Term Loan bore interest at a rate equal to 7.75% plus the greater of one-month LIBOR or 2.0% until the
aggregate principal, interest and End of Term Charge of $3.0 million were paid with part of the proceeds received from the
MidCap Credit Agreement. As a result of these payments, a $1.2 million loss on extinguishment was recorded during the
year ended December 31, 2022. Interest expense associated with the OrbiMed Credit Facility recorded for the year ended
December 31, 2022, was $1.5 million, of which $0.3 million was related to the amortization of debt issuance costs. Interest
expense associated with the OrbiMed Credit Facility recorded for the year ended December 31, 2021, was $3.6 million, of
which $0.7 million was related to the amortization of debt issuance costs. Interest expense associated with the OrbiMed
Credit Facility recorded for the year ended December 31, 2020, was $3.6 million, of which $0.6 million was related to the
amortization of debt issuance costs.
(7) Stockholders’ Equity
Public Stock Offerings
In June 2020, the Company sold 3,000,000 shares of its common stock at a public offering price of $16.00 per share. The
Company received net proceeds of $44.7 million after deducting underwriting discounts, commissions and other offering
expenses.
In December 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Piper
Sandler & Co (“Piper”) in connection with the establishment of an at-the-market offering program under which it may sell
up to an aggregate of $50.0 million of shares of the Company’s common stock, from time to time through Piper as sales
agent. No sales were made under the Equity Agreement during the years ended December 31, 2022, 2021 or 2020.
In August 2022, the Company completed an underwritten public offering in which the Company issued and sold 4,600,000
shares of its common stock at a public offering price of $8.00 per share. The Company received net proceeds of $34.4
million after deducting underwriting discounts, commissions and other offering expenses.
F-16
Table of Contents
Warrants
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
The Company had the following warrants outstanding at December 31, 2022:
Common stock warrants
Common stock warrants
(8) Stock-Based Compensation
Outstanding
8,379
80,177
88,556
Exercise
price
28.65
28.65
Expiration
dates
2028
2027
$
The Company has two equity incentive plans: the 2012 Stock Incentive Plan and the Amended and Restated 2019 Equity
Incentive Plan. New awards can only be granted under the Amended and Restated 2019 Equity Incentive Plan (the “Plan”).
At December 31, 2022, 1,427,772 shares of common stock were available for future issuances under the Plan. The Plan is
subject to an annual increase, subject to prior approval by the Company’s board of directors, equal to the lesser of (i)
432,442 shares, (ii) 4% of the shares outstanding on the last day of the immediately preceding fiscal year and (iii) such
smaller number of shares as determined by the board of directors. The Plan provides for the grant of incentive stock
options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to
employees, directors, and other persons, as determined by the Company’s board of directors. The Company’s stock options
vest based on the terms in each award agreements and generally vest over four years and have a term of 10 years. The
Company estimates forfeitures that it expects will occur and adjusts expense for actual forfeitures in the periods they occur.
The Company measures employee and nonemployee stock-based awards at grant-date fair value and records compensation
expense ratably over the vesting period of the award. The Company recorded stock-based compensation expense in the
following expense categories of its accompanying consolidated statements of operations and comprehensive loss (in
thousands):
Sales and marketing
General and administrative
Research and development
Total stock‑based compensation
Year ended December 31,
2021
2020
2022
$
$
1,373
2,029
587
3,989
$
$
961
1,542
1,158
3,661
$
$
696
1,030
332
2,058
F-17
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
The following table summarizes stock option activity for the Plan:
Outstanding at January 1, 2020
Granted
Exercised
Canceled/forfeited
Outstanding at December 31, 2020
Granted
Exercised
Canceled/forfeited
Outstanding at December 31, 2021
Granted
Exercised
Canceled/forfeited
Outstanding at December 31, 2022
Vested and expected to vest at December 31, 2022
Exercisable at December 31, 2022
Number of
shares
Weighted
average exercise
price per share
Weighted
average
remaining
contractual term
(years)
1,420,942
175,086
(27,783)
(70,037)
1,498,208
468,000
(77,154)
(182,645)
1,706,409
450,410
(3,563)
(81,408)
2,071,848
2,022,232
1,237,751
$
$
$
$
$
10.35
15.03
6.29
12.41
10.87
14.80
7.08
13.08
11.88
10.24
5.51
13.13
11.49
11.48
11.14
7.16
7.12
6.16
Included in outstanding options at December 31, 2022, were 381,125 stock options granted outside of the Plan. These
grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq listing rule 5635(c)(4). At
December 31, 2022, the aggregate intrinsic value of outstanding options and exercisable options was $3.0 million and $2.3
million, respectively.
The 2012 Stock Incentive Plan provided the holders of stock options an election to early exercise prior to vesting. The
Company had the right, but not the obligation, to repurchase early exercised options without transferring any appreciation
to the employee if the employee terminates employment before the end of the original vesting period. The repurchase price
is the lesser of the original exercise price or the then fair value of the common stock. At December 31, 2022, all early
exercised options had vested.
The following table summarizes activity relating to early exercise of stock options:
Unvested balance at January 1, 2020
Vested
Forfeited
Unvested balance at December 31, 2020
Vested
Unvested balance at December 31, 2021
Vested
Unvested balance at December 31, 2022
Number of
shares
755
(306)
(267)
182
(153)
29
(29)
—
The weighted average grant-date fair value per share of options granted was $6.55, $8.66 and $8.13 for the years ended
December 31, 2022, 2021 and 2020, respectively. The aggregate intrinsic value of options exercised was $16,000, $0.4
million and $0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31,
F-18
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
2022, the total unrecognized compensation expense related to unvested employee and nonemployee stock option awards
was $5.1 million, which is expected to be recognized in expense over a weighted-average period of approximately
2.5 years.
Estimating Fair Value of Stock Options
The fair value of each grant of stock options was determined by the Company using the methods and assumptions
discussed below. Certain of these inputs are subjective and generally require judgment to determine.
Expected term – The expected term of stock options represents the weighted average period the stock options are expected
to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the Securities
and Exchange Commission. The simplified method calculates the expected term as the average time to vesting and the
contractual life of the options.
Expected volatility – Due to the Company’s limited operating history and lack of sufficient company-specific historical or
implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of
industry peers, including the Company, whose share prices are publicly available.
Risk-free interest rate – The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were
consistent with the expected term of the Company’s stock options.
Expected dividend – The Company has not paid and does not intend to pay dividends.
The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table
below:
Expected dividend yield
Expected volatility
Risk‑free interest rate
Expected term (in years)
Restricted Stock Units
2022
—
Year ended December 31,
2020
2021
—
—
69.6 % 63.9 % 59.1 %
2.55 % 0.99 % 0.87 %
6.20
6.15
5.98
The Company’s restricted stock units (“RSUs”) vest based on the terms in each award agreement and generally vest over
four years. The following table summarizes restricted stock units for the Plan:
Outstanding at January 1, 2021
Granted
Vested
Canceled/forfeited
Outstanding at December 31, 2021
Granted
Vested
Canceled/forfeited
Outstanding at December 31, 2022
F-19
Number of
shares
—
194,232
(12,000)
(19,189)
163,043
197,950
(40,783)
(8,219)
311,991
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
Included in outstanding RSUs at December 31, 2022, were 7,500 RSUs granted outside of the Plan. These grants were
made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq listing rule 5635(c)(4). The weighted
average grant-date fair value per RSU granted was $11.21 and $16.57 during the year ended December 31, 2022 and 2021,
respectively. The aggregate intrinsic value of RSUs outstanding was $3.6 million and $2.1 million at December 31, 2022
and 2021, respectively. The total unrecognized compensation expense at December 31, 2022 related to RSUs was
$2.6 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.6 years.
(9) Employee Benefit Plans
401(k) Defined Contribution Plan
The Company sponsors a 401(k) defined-contribution plan covering all employees. Participants are permitted to contribute
up to 100% of their eligible annual pretax compensation up to an established federal limit on aggregate participant
contributions. Discretionary contributions made by the Company, if any, are determined annually by the board of directors.
Effective January 1, 2020, the Company matched 50% of employees’ contributions up to 6%, subject to a maximum annual
amount. The Company’s contributions were $0.4 million, $0.3 million and $0.2 million for the years ended December 31,
2022, 2021 and 2020, respectively. The match was suspended from April to August 2020 due to COVID-19. Participants
are immediately vested in their own contributions to the plan and are fully vested in discretionary profit sharing made by
the Company after three years of service.
2019 Employee Stock Purchase Plan
In November 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”). At December 31, 2022,
421,065 shares were available for future issuance under the ESPP. The ESPP is subject to an annual increase, subject to
prior approval by the Company’s board of directors, equal to the least of (i) 107,887 shares of common stock, (ii) 1% of the
shares outstanding on the final day of the immediately preceding calendar year, and (iii) such smaller number of shares as
determined by the board of directors. The ESPP provides the opportunity to purchase the Company’s common stock at a
15% discount to the market price through payroll deductions. As of December 31, 2022, 2021 and 2020, 4,523, 3,163 and
2,797 shares, respectively, have been issued under the ESPP.
(10) Income Taxes
The Company has incurred losses since inception. Deferred tax assets and liabilities are determined based on the
differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates
in effect for years in which differences are expected to reverse.
F-20
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
Significant components of the Company’s deferred tax assets for federal income taxes consisted of the following (in
thousands):
Deferred tax assets
Net operating loss carryforwards
Research and development credits
Lease liability
Accrued expenses and other
Inventory reserve
Gross deferred tax asset
Deferred tax liabilities
Depreciation and amortization
Right of use asset
Gross deferred tax liability
Net deferred tax asset before valuation allowance
Valuation allowance
Net deferred tax asset
December 31,
2022
2021
$
$
55,091
623
387
4,425
372
60,898
(435)
(302)
(737)
60,161
(60,161)
$
— $
47,737
623
—
1,356
171
49,887
(89)
—
(89)
49,798
(49,798)
—
The Company does not have unrecognized tax benefits as of December 31, 2022 and 2021. The Company recognizes
interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
The Company’s net operating loss (“NOL”) carryforwards for federal and state income tax purposes consisted of the
following (in thousands):
NOL carryforwards
Federal
State
December 31,
2022
2021
$ 212,314
173,472
$
181,443
151,488
The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes yet $100.7
million of the federal NOL carryforwards have no expiration. The Company recorded a valuation allowance on the
deferred tax assets as of December 31, 2022 and 2021 because of the uncertainty of their realization. The valuation
allowance increased by $10.4 million and $8.1 million for the years ended December 31, 2022 and 2021, respectively,
mainly due to losses incurred.
Utilization of the net operating losses and general business tax credits carryforwards may be subject to a substantial
limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if changes in ownership of the
company have occurred previously or occur in the future. Ownership changes may limit the amount of net operating losses
and general business tax credits carryforwards that can be utilized annually to offset future taxable income and tax,
respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the
ownership of 5% shareholders in the stock of a corporation by more than 50 percentage points over a three-year period. If
the Company experiences a Section 382 ownership change, the tax benefits related to the NOL carryforwards may be
further limited or lost. The Company has not performed an analysis under Section 382 and cannot predict or otherwise
determine whether there would be any limitation to the amount of net operating losses and general business tax credits
carryforwards that can be utilized.
F-21
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
A reconciliation of income tax benefit at the statutory federal income tax rate and as reflected in the consolidated financial
statements is as follows:
Rate reconciliation
Federal tax benefit at statutory rate
State rate, net of federal benefit
Permanent differences
Research and development
Change in valuation allowance
Other
Total tax provision
Year ended December 31,
2020
2021
2022
(21.0)% (21.0)%
(21.0)%
(3.5)
(3.1)
0.2
0.6
0.4
—
24.2
23.4
(0.3)
0.1
— % — % — %
(4.2)
0.6
0.7
24.0
(0.1)
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and the United Kingdom.
Tax years 2019 and forward remain open for examination for federal and the Company’s more significant state tax
jurisdictions. Carryforward attributes from prior years may be adjusted upon examination by taxing authorities if used in an
open period.
Many governments have enacted or are currently contemplating economic stimulus and financial aid measures. Many of
these measures include deferring the due dates for tax payments, including both income tax and other taxes. The
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States
to address the economic impacts of the COVID-19 pandemic. The CARES Act includes corporate income tax, payroll tax,
and other provisions. While the Company may receive financial, tax, or other benefits under the bill, this legislation did not
impact the Company during the year ended December 31, 2020. During the year ended December 31, 2021, the Company
claimed an employee retention payroll tax credit of $0.5 million for certain employment taxes.
(11) Commitments and Contingencies
Legal Proceedings
From time to time, the Company may be a party to various other lawsuits, claims, and other legal proceedings that arise in
the ordinary course of its business. While the outcomes of these matters are uncertain, management does not expect that the
ultimate costs to resolve these matters will have a material adverse effect on the Company’s financial position, results of
operations, or cash flows.
Agreements with Aroa
In August 2012, the Company entered into a License, Product Development, and Supply Umbrella Agreement (“Aroa
Agreement”) with Aroa. The Aroa Agreement provides the Company a license to patent rights and other intellectual
property related to Aroa’s products and technologies for use in certain indications and expires on the expiration of the last
patent covering the products (currently March 9, 2031). The Company has the right to extend the term of the agreement by
an additional 10 years following the expiration of the last patent covering the products on commercially reasonable terms
to be negotiated by the parties. This agreement initially limited the Company’s license rights to the U.S. but was
subsequently amended in March 2013 to include certain countries in Europe including the United Kingdom and members
of the European Union and certain former Union of Soviet Socialist Republic satellite nations. The Aroa Agreement
required payments aggregating up to $4.0 million upon the achievement of U.S. and European cumulative product sales
targets.
F-22
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
The Company paid $1.0 million to Aroa in 2018 related to one of the cumulative product sales targets and the remaining
$2.0 million in 2019. The Company paid $1.0 million in 2022 related to the sales milestone payments in the European
territory.
Other key terms of the amended Aroa agreement in addition to those disclosed above are as follows:
● The transfer price for product produced by Aroa is 200% of Aroa’s cost of goods sold. The transfer price and
the quarterly true-up amount continued to equal 27% of Company’s net sales of licensed products. Upon a
change in control of the Company (as defined in the amended agreement), the annual minimum amounts will
be extended for a sixth year with a $5.0 million minimum amount for the North American territory and
$1.0 million minimum amount for the European territory. If a change in control of the Company occurs prior
to the first product launch in the applicable territory, then the annual minimum requirements shall commence
upon such change in control. If the make whole payments, if any, are not made by the Company after a notice
and cure period, then the license will convert to a nonexclusive basis in the territory for which the payment
was required but not made.
● Provisions exist for the Company to step in and operate Aroa’s plant if a supply failure occurs and is not
cured within a set timeframe. Under the amended agreement, the criteria for a supply failure was modified to
mean a failure by Aroa to timely supply, during any consecutive 60-day period, at least 75% of the products
ordered by the Company under binding purchase orders. During the period that the Company steps in and
assumes manufacturing responsibility, it shall not be required to purchase product from or pay transfer prices
to Aroa, the annual minimums shall be proportionately reduced to reflect the lack of supply responsibility by
Aroa and the Company shall pay a royalty of 6% of net sales in lieu of 27% of net sales of the licensed
products.
The Company expects to enter into similar milestone-based agreements with its strategic partner for both product territories
and new products in order to expand and extend its product portfolio.
As of December 31, 2022, the Company had $1.0 million in purchase commitments with Aroa, $20.7 million in
commitments with certain other suppliers to maintain exclusivity rights over time and $2.2 million milestone payments
related to certain research and development arrangements which are currently deemed not probable as the timing and
likelihood of such payments are not known with certainty.
Other Commitments
In November 2021, the Company entered into an exclusive distribution agreement with Next Science, a medical
technology company, granting the Company exclusive rights to sell and market Next Science’s proprietary antimicrobial
surgical wash in the U.S. plastic reconstructive surgery market. To maintain exclusivity, the Company had purchase
commitments and annual license fees over a ten-year period.
In April 2022, the Company entered into an exclusive development and distribution partnership for Collagen Matrix, Inc.’s
proprietary fibrillar collagen pack in the U.S. To maintain exclusivity, the Company has purchase commitments of $20.7
million over the remaining nine-year period.
Employment Agreements
The Company entered into employment agreements with key personnel providing for compensation and severance in
certain circumstances, as defined in the respective employment agreements.
F-23
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Leases
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
The Company leases office and laboratory space in Malvern, Pennsylvania under a noncancelable lease (the “Malvern
Lease”). The Malvern Lease, which was concluded to be an operating lease, was amended in December 2020 to extend the
term of the lease from May 2021 to May 2028. The Malvern Lease has annual scheduled payment increases and provides
the Company a renewal option for an additional term of 60 months at the end of the lease term. The Company evaluates
renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to
exercise in its expected lease terms when classifying leases and measuring lease liabilities. As the Company is not
reasonably certain to exercise the renewal option, the additional 60-month term has been excluded.
On January 1, 2022 and upon adoption of ASU 2016-02, the Company recorded an operating lease liability of $1.8 million
and an operating lease ROU asset of $1.4 million related to the Malvern Lease. The Company also eliminated
approximately $0.4 million of deferred rent and tenant allowance liabilities as of January 1, 2022 as these components are
reflected as a reduction in the operating lease ROU asset.
Operating lease leasehold improvements are depreciated over the lesser of the useful lives of the leasehold improvements
or the lease term. The tenant allowance was historically amortized over the initial, non-cancelable term of the Malvern
Lease.
The Company's lease does not provide an implicit rate, and therefore, the Company uses its incremental borrowing rate as
the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the
interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a
collateralized basis over the term of a lease. The Company used an incremental borrowing rate of 9.75% to discount the
Malvern Lease payments included in the operating lease liabilities recognized upon adoption of ASU 2016-02.
The Company recognized $0.3 million of lease cost during the year ended December 31, 2022. Cash paid for amounts
included in the measurement of operating lease liabilities was $0.3 million for the year ended December 31, 2022, and this
amount is included in operating activities in the consolidated statements of cash flows. As of December 31, 2022, the
remaining lease term for the Malvern Lease is 5.5 years.
The following table reconciles the undiscounted future minimum lease payments (displayed in aggregate by year) under
non-cancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the
consolidated balance sheets as of December 31, 2022 (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total undiscounted future minimum lease payments
Less imputed interest
Total operating lease liabilities
$
$
$
358
366
375
383
392
165
2,039
(468)
1,571
At December 31, 2021, the Company’s future minimum lease payments under non-cancelable operating leases for the five
years ending December 31, 2022 through 2026 and thereafter were as follows: $0.3 million, $0.4 million, $0.4 million,
$0.4 million, $0.4 million and $0.5 million, respectively.
F-24
Table of Contents
TELA Bio, Inc.
Notes to Consolidated Financial Statements (continued)
As of December 31, 2022, $0.3 million representing the current portion of operating lease liabilities is included in accrued
expenses and other current liabilities in the consolidated balance sheets and $1.2 million representing the long-term portion
of operating lease liabilities is included in other long-term liabilities in the consolidated balance sheets.
(12) Related-Party Transactions
On November 16, 2018, the Company entered into a senior secured term loan facility with OrbiMed, an entity affiliated
with an owner of a material amount of the Company’s outstanding voting securities. The terms of the debt and related
components are described in more detail in Note 6. On May 26, 2022, the Company entered into the MidCap Credit
Agreement and upon closing used a portion of the proceeds to repay all borrowings under the OrbiMed Credit Facility, and
terminated the OrbiMed Credit Facility.
F-25
Table of Contents
Exhibits.
The following exhibits are being filed herewith:
Exhibit No.
EXHIBIT INDEX
Exhibit
3.1 Fourth Amended and Restated Certificate of Incorporation (incorporated by reference to exhibit 3.1 of the
Company’s Current Report on Form 8-K filed on November 19, 2019).
3.2 Second Amended and Restated Bylaws (incorporated by reference to exhibit 3.2 of the Company’s Current Report
on Form 8-K filed on November 19, 2019).
4.1 Specimen Common Stock Certificate of the Company (incorporated by reference to exhibit 4.1 to the Company’s
Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019).
4.2 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934 (incorporated by reference to exhibit 4.2 to the Company’s Report on Form 10-K, filed on March 30, 2020).
10.1 Form of Indemnification Agreement by and between the Company and its individual directors and officers
(incorporated by reference to exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-
234217), dated November 7, 2019).
10.2 TELA Bio, Inc. 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.2 to the Company’s
Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019)
10.3 Amendment to the TELA Bio, Inc. 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.3 to the
Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019)
10.4 Second Amendment to the TELA Bio, Inc. 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.4
to the Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019)
10.5 Third Amendment to the TELA Bio, Inc. 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.5 to
the Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019)
10.6 Fourth Amendment to the TELA Bio, Inc. 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.6 to
the Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019)
10.7 Fifth Amendment to the TELA Bio, Inc. 2012 Stock Incentive Plan (incorporated by reference to exhibit 10.7 to
the Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019)
10.8 Form of Incentive Stock Option Agreement pursuant to the 2012 Stock Incentive Plan (incorporated by reference
to exhibit 10.8 to the Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7,
2019)
10.9 Form of Nonstatutory Stock Option Agreement pursuant to 2012 Stock Incentive Plan (incorporated by reference
to exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7,
2019)
10.10 TELA Bio, Inc. Amended and Restated 2019 Equity Incentive Plan (incorporated by reference to exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on June 8, 2020).
10.11 Form of TELA Bio, Inc. Amended and Restated 2019 Equity Incentive Plan Stock Option Grant Notice and Stock
Option Agreement (incorporated by reference to exhibit 10.1 to the Company’s Report on Form 10-Q, filed on
May 11, 2022).
10.12 Form of TELA Bio, Inc. Amended and Restated 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice
and Restricted Stock Unit Agreement (time-based vesting) (incorporated by reference to exhibit 10.2 to the
Company’s Report on Form 10-Q, filed on May 11, 2022).
10.13 Form of TELA Bio, Inc. Amended and Restated 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice
and Restricted Stock Unit Agreement (performance-based vesting) (filed herewith).
10.14 TELA Bio, Inc. 2019 Employee Stock Purchase Plan (incorporated by reference to exhibit 10.12 to the
Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019).
10.15 Amendment No. 1 to TELA Bio, Inc. 2019 Employee Stock Purchase Plan (filed herewith).
10.16 Form of TELA Bio, Inc. Inducement Award Agreement for Non-Qualified Stock Option (filed herewith).
10.17 Form of TELA Bio, Inc. Inducement Award Agreement for Restricted Stock Unit (filed herewith).
10.18 TELA Bio, Inc. Amended and Restated Non-Employee Director Compensation Policy (filed herewith).
10.19 Amended and Restated Employment Agreement, dated October 25, 2019, by and between the Company and
Antony Koblish (incorporated by reference to exhibit 10.16 to the Company’s Registration Statement on Form S-1
(File No. 333-234217), dated November 7, 2019).
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Table of Contents
10.20 Employment Agreement, dated January 17, 2020, by and between the Company and Peter Murphy (incorporated
by reference to exhibit 10.26 to the Company’s Report on Form 10-K, filed on March 30, 2020).
10.21 Employment Agreement, dated August 27, 2021, by and between the Company and Roberto Cuca (incorporated
by reference to exhibit 10.1 to the Company’s Report on Form 8-K, filed on September 27, 2021).
10.22 Employment Agreement, dated September 15, 2020, by and between the Company and Paul Talmo (incorporated
by reference to exhibit 10.19 to the Company’s Report on Form 10-K, filed on March 23, 2022).
10.23 Credit and Security Agreement, dated as of May 26, 2022, by and among TELA Bio, Inc., MidCap
Financial Trust and the lenders from time to time party thereto (incorporated by reference to exhibit 10.1 to
the Company’s Report on Form 8-K, filed on May 31, 2022).
10.24* Second Amended and Restated License, Product Development and Supply Umbrella Agreement, dated July 16,
2015, by and between the Company and Aroa Biosurgery Ltd. (incorporated by reference to exhibit 10.23 to the
Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019).
10.25* Amendment to Second Amended and Restated License, Product Development and Supply Umbrella
Agreement, dated November 26, 2015, by and between the Company and Aroa Biosurgery Ltd.
(incorporated by reference to exhibit 10.24 to the Company’s Registration Statement on Form S-1 (File No.
333-234217), dated November 7, 2019).
10.26* Amendment to Second Amended and Restated License, Product Development and Supply Umbrella
Agreement, dated January 3, 2019, by and between the Company and Aroa Biosurgery Ltd. (incorporated by
reference to exhibit 10.25 to the Company’s Registration Statement on Form S-1 (File No. 333-234217),
dated November 7, 2019).
10.27* Addendum to the Second Amended and Restated License, Product Development and Supply Umbrella
Agreement, dated August 27, 2019, by and between the Company and Aroa Biosurgery Ltd. (incorporated
by reference to exhibit 10.22 on the Company’s Report on Form 10-K filed on March 30, 2020).
10.28* Addendum to the Second Amended and Restated License, Product Development and Supply Umbrella
Agreement, dated February 15, 2020, by and between the Company and Aroa Biosurgery Ltd. (incorporated
by reference to exhibit 10.2 on the Company’s Report on Form 10-Q filed on May 15, 2020).
10.29 Lease between the Company and Liberty Property Limited Partnership, dated January 31, 2013
(incorporated by reference to exhibit 10.26 to the Company’s Registration Statement on Form S-1 (File No.
333-234217), dated November 7, 2019).
10.30 First Amendment to Lease between the Company and Liberty Property Partnership, dated June 19, 2014
(incorporated by reference to exhibit 10.27 to the Company’s Registration Statement on Form S-1 (File No.
333-234217), dated November 7, 2019).
10.31 Second Amendment to Lease between the Company and WPT Land 2 LP (as successor in interest to Liberty
Property Limited Partnership), dated January 17, 2018 (incorporated by reference to exhibit 10.28 to the
Company’s Registration Statement on Form S-1 (File No. 333-234217), dated November 7, 2019).
10.32 Third Amendment to Lease between the Company and WPT Land 2 LP (as successor in interest to Liberty
Property Limited Partnership), dated December 22, 2020 (incorporated by reference to exhibit 10.29 to the
Company’s Report on Form 10-K, filed on March 25, 2021).
10.33 Equity Distribution Agreement, dated December 18, 2020 (incorporated by reference to Exhibit 1.2 of the
Company’s Registration Statement on Form S-3 (File No. 333-251505) filed on December 18, 2020).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of KPMG LLP (filed herewith).
31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101 INS Inline XBRL Instance Document (filed herewith).
96
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101 SCH Inline XBRL Taxonomy Extension Schema Document (filed herewith).
101 CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101 DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101 LAB Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101 PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
* Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit.
97
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
TELA BIO, INC.
By: /s/ ANTONY KOBLISH
Name: Antony Koblish
Title: President, Chief Executive Officer and Director
Date: March 23, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ ANTONY KOBLISH
Antony Koblish
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 23, 2023
/s/ ROBERTO CUCA
Roberto Cuca
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
March 23, 2023
/s/ MEGAN SMEYKAL
Megan Smeykal
Chief Accounting Officer and Controller (Principal
Accounting Officer)
March 23, 2023
/s/ DOUG EVANS
Doug Evans
/s/ KURT AZARBARZIN
Kurt Azarbarzin
/s/ VINCE BURGESS
Vince Burgess
/s/ LISA COLLERAN
Lisa Colleran
/s/ JOHN NOSENZO
John Nosenzo
/s/ FEDERICA O’BRIEN
Federica O’Brien
Chairman, Board of Directors
March 23, 2023
Director
Director
Director
Director
Director
98
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
March 23, 2023
TELA BIO, INC.
AMENDED AND RESTATED 2019 EQUITY INCENTIVE PLAN
PERFORMANCE RESTRICTED STOCK UNIT GRANT NOTICE AND
PERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENT
Exhibit 10.13
TELA Bio, Inc., a Delaware corporation (the “Company”), pursuant to its Amended and Restated 2019 Equity Incentive
Plan (the “Plan”), hereby grants to the individual listed below (“Participant”) an award of the target number of Performance
Restricted Stock Units set forth below (the “Restricted Stock Units” or “PSUs”) listed below (an “Award” and such number
of PSUs, the “Target Number of PSUs”). The PSUs are subject to the terms and conditions set forth in this Performance
Restricted Stock Unit Grant Notice (the “Grant Notice”), the Performance Restricted Stock Unit Award Agreement attached
hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined meanings in the Agreement. Each PSU represents
the right to receive one Share at the times and subject to the conditions set forth herein.
Participant:
Grant Date:
Target No. of PSUs:
[_________]
[_________]
[_________]
By Participant’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the
Agreement and the Grant Notice. Participant has reviewed the Agreement, the Plan and the Grant Notice in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all
provisions of the Grant Notice, the Agreement and the Plan.
TELA BIO, INC.
PARTICIPANT
_____________________________
_____________________________
Name:
Title:
Name:
EXHIBIT A
TO PERFORMANCE RESTRICTED STOCK UNIT GRANT NOTICE
PERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENT
1.
Award of Performance Restricted Stock Units. The Company has granted to the Participant the Target
Number of PSUs set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this
Agreement. Each Restricted Stock Unit represents the right to receive one Share at the times and subject to the conditions set
forth herein.
2.
Date of Grant. The Restricted Stock Units were granted on the Grant Date set forth in the Grant Notice.
3.
Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise
encumbered or disposed of by the Participant, and any Shares issuable with respect to the Award may not be sold,
transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the PSUs have vested as provided in Section
4 of this Agreement and (ii) Shares have been issued to the Participant in accordance with the terms of the Plan and this
Agreement.
4.
Vesting of Restricted Stock Units. Except as otherwise provided below, the restrictions and conditions of
Section 3 of this Agreement shall lapse as follows:
(a)
Number of Restricted Stock Units Earned. The number of PSUs to be earned by the Participant will
vary depending upon the Company’s achievement of the Performance Criteria during the Measurement Period, each as set
forth on Appendix A, attached hereto, and shall equal the Target Number of PSUs multiplied by the Performance Multiplier
(as described on Appendix A) for the Measurement Period. The number of Restricted Stock Units earned for a Performance
Period (if any) shall be rounded to the nearest whole Share. The Performance Multiplier shall be determined as set forth on
Appendix A. The number of PSUs determined to be earned as of the achievement of the Performance Criteria pursuant to
this Section 4 and Appendix A shall be referred to herein as “Earned PSUs.”
(b)
Number of Restricted Stock Units Vested. With respect to any Earned PSUs, the restrictions and
conditions of Section 3 of this Agreement shall lapse as set forth on Appendix A, subject to the Grantee’s continued service
or employment with the Company through the Performance Period End Date (as defined in Appendix A). The number of
Earned PSUs that become vested in accordance with the preceding sentence and in accordance with Appendix A shall be
referred to herein as “Vested PSUs.”
(c)
Discretionary Acceleration Upon Death. If the Participant dies while in service with the Company,
any Restricted Stock Units that are outstanding and unvested immediately prior to the Participant’s death will remain
outstanding for sixty (60) days, during which time the Committee may, in its sole discretion, vest all or a portion of such
Restricted Stock Units. If the Committee decides to vest any Restricted Stock Units under this Section 4(c), it may condition
such vesting on the execution by Participant’s estate and/or beneficiaries of a general release of claims against the Company
and its affiliates in such form as the Company may prescribe (each, a “Release”). Upon conclusion of the sixtieth (60th) day
following the Participant’s death, any portion of the unvested Restricted Stock Units that the Committee has not determined
to vest in accordance with this Section 4(c) will then be forfeited automatically.
(d)
Service with Affiliates. Solely for purposes of this Agreement, service with the Company will be
deemed to include service with any Affiliate of the Company (for only so long as such entity remains an Affiliate of the
Company).
(e)
Effect of Termination of Service. Except as set forth in paragraphs (c) and (d) of this Section 4 or as
set forth in any applicable employment agreement between the Participant and the Company, if the Participant’s service with
the Company ceases for any reason, any then unvested Restricted Stock Units will be forfeited automatically.
5.
Change in Control. Notwithstanding anything to the contrary set forth herein or contained in the Plan, in the
event the Participant ceases to be employed by the Company as a result of a Qualifying Termination (as such term is defined
below) upon the date a Change in Control is consummated (the “Closing”) or within the [_________] period following such
Closing, the number of Restricted Stock Units that shall become Vested PSUs on such date (i.e., the later of the Closing or
such Qualifying Termination) shall equal [_________]. Notwithstanding the foregoing, in the event that in connection with a
Change in Control the acquirer does not agree to assume in writing the Restricted Stock Units, effective upon the Closing, on
substantially the same terms and obligations described herein, then the number of Restricted Stock Units that shall become
Vested PSUs as of immediately prior to the Closing shall equal [________].
6.
Settlement of Restricted Stock Units.
(a)
Shares will be issued in respect of Vested PSUs within sixty (60) days following the Vesting Date.
For avoidance of doubt, this deadline is intended to comply with the “short-term deferral” exemption from Section 409A of
the Code.
(b)
The Restricted Stock Units will not confer on the Participant any rights as a stockholder of the
Company until Shares are actually issued in settlement of such Restricted Stock Units.
(c)
Notwithstanding the foregoing, to the extent provided in Prop. Treas. Reg. § 1.409A-1(b)(4)(ii) or
any successor provision, the Company may delay settlement of Restricted Stock Units if it reasonably determines that such
settlement would violate federal securities laws or any other applicable law.
7.
Non-Transferability of Restricted Stock Units. The Restricted Stock Units may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner, either voluntarily or involuntarily, by operation of
law or otherwise, other than by will or by the laws of descent and distribution.
8.
Investment Representations. The Participant represents and warrants to the Company that the Participant is
acquiring the Restricted Stock Units (and upon settlement of the Restricted Stock Units, may be acquiring Shares) for
investment for the Participant’s own account, not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof. As a further condition to the settlement of the Restricted Stock Units, the Board may require
that certain agreements, undertakings, representations, certificates, legends and/or information or other matters, as the Board
may deem necessary or advisable, be executed, agreed to and/or provided to the Company to assure compliance with all such
applicable laws or regulations.
9.
Tax Consequences. The Participant acknowledges that the Company has not advised the Participant
regarding the Participant’s income tax liability in connection with the grant of the Restricted Stock Units and that the
Company does not guarantee any particular tax treatment. The Participant acknowledges that the Participant has reviewed
with the Participant’s own tax advisors the tax treatment of the Restricted Stock Units and is relying solely on those advisors
in that regard. The Participant understands that the Participant (and not the Company) will be responsible for the
Participant’s own tax liabilities arising in connection with the Restricted Stock Units.
10.
No Continuation of Service. Neither the Plan nor this Agreement will confer upon the Participant any right
to continue in the employment or service of the Company or any of its Affiliates, or
limit in any respect the right of the Company or its Affiliates to discharge the Participant at any time, with or without Cause
and with or without notice.
11.
Withholding. The Company is hereby authorized to withhold from any consideration payable or property
transferable to the Participant any taxes required to be withheld in connection with the Restricted Stock Units.
12.
Company Policies. In consideration for the grant of the PSUs, the Participant agrees to be subject to the
policies of the Company regarding clawback, securities trading and hedging or pledging of securities, as in effect from time
to time.
13.
The Plan. The Participant has received a copy of the Plan, has read the Plan and is familiar with its terms,
and hereby accepts the Restricted Stock Units subject to the terms and provisions of the Plan. Pursuant to the Plan, the Board
is authorized to interpret the Plan and to adopt rules and regulations not inconsistent with the Plan as it deems appropriate.
The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board with
respect to questions arising under the Plan, the Grant Notice or this Agreement.
14.
Entire Agreement. The Grant Notice and this Agreement, together with the Plan, represents the entire
agreement between the parties with respect to the subject matter hereof and supersedes any prior agreement, written or
otherwise, relating to the subject matter hereof.
15.
Amendment. Except as otherwise provided herein, in the Grant Notice or in the Plan, or as would otherwise
not have a material adverse effect on the Participant, this Agreement may only be amended by a writing signed by each of
the parties hereto.
16.
Governing Law. This Agreement will be construed in accordance with the laws of the State of Delaware,
without regard to the application of the principles of conflicts of laws.
17.
Execution. The Grant Notice may be executed, including execution by facsimile or electronic signature, in
one or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one and
the same instrument.
Appendix A
Vesting Criteria
First Amendment to
TELA Bio, Inc. 2019 Employee Stock Purchase Plan
WHEREAS, TELA Bio, Inc., a Delaware Corporation (the “Company”) sponsors the TELA Bio, Inc. 2019
Employee Stock Purchase Plan (the “Plan”);
WHEREAS, pursuant to Section 19.8 of the Plan, the Compensation Committee of the Board of Directors
of the Company (the “Committee”) may, in its sole discretion, amend the Plan at any time and for any reason; and
Exhibit 10.15
WHEREAS, the Committee desires to amend the Plan as set forth below.
NOW THEREFORE, the Plan is hereby amended as follows, effective on the date hereof:
1. The definition of “Eligible Employee” is restated as follows:
“Eligible Employee” means an Employee who (i) has been continuously employed by the Company or a
Participating Subsidiary for at least one (1) year (or such other period, not to exceed two (2) years, as
determined by the Committee prior to a particular Offering Period) and (ii) is customarily employed for at
least twenty (20) hours per week and for more than five (5) months in any calendar year. Notwithstanding
the foregoing, the Committee may exclude from participation in the Plan or from any Offering, within a
manner permitted under Section 423 of the Code, Employees who are (x) “highly compensated
employees” (within the meaning of Section 414(q) of the Code) with compensation above a certain level
or who are officers or subject to the disclosure requirements of Section 16(a) of the Exchange Act, or
(y) citizens or residents of a foreign jurisdiction where the grant of an option under the Plan to such
Employee would be prohibited under the laws of such foreign jurisdiction or the grant of an option under
the Plan to such Employee in compliance with the laws of such foreign jurisdiction would cause the Plan
to violate the requirements of Section 423 of the Code, as determined by the Committee in its sole
discretion.
2. The definition of “Offering Period” is restated as follows:
“Offering Period” means (x) the six (6) month period starting on February 1 of each year and ending on
July 31 of such year, and (y) the six (6) month period starting on August 1 of each year and ending on
January 31 of the next year; provided that, pursuant to Section 5, the Committee may change the duration
of future Offering Periods (subject to a maximum Offering Period of twenty-seven (27) months), the
frequency of future Offering Periods, the start dates of future Offering Periods, and the end dates of future
Offering Periods.
3. The definition of “Purchase Price” is restated as follows:
“Purchase Price” means an amount equal to eighty-five percent (85%) (or such greater percentage, if
determined by the Committee prior to a particular Offering
Period) of the lesser of (i) the Fair Market Value of a share of Common Stock on the Offering Date, and
(ii) the Fair Market Value of a share of Common Stock on the Purchase Date; provided that, the Purchase
Price per share of Common Stock will in no event be less than the par value of the Common Stock.
Except as set forth in this amendment, all other terms of the Plan remain unchanged.
IN WITNESS WHEREOF, this amendment has been executed by a duly authorized officer of the
Company on the 18th day of January, 2023.
TELA BIO, INC.
By:
/s/ Antony Koblish
Antony Koblish
President & Chief Executive
Officer
- 2 -
TELA BIO, INC. INDUCEMENT AWARD AGREEMENT
FOR NON-QUALIFIED STOCK OPTION
STOCK OPTION GRANT NOTICE AND
STOCK OPTION AGREEMENT
Exhibit 10.16
TELA Bio, Inc., a Delaware corporation (the “Company”) hereby grants to the individual listed below (“Grantee”) a
non-qualified stock option to purchase the number of Shares set forth below (the “Option”) as an inducement to the
Grantee’s acceptance of the Company’s offer of employment. The Option is subject to the terms and conditions set forth in
this Stock Option Grant Notice (the “Grant Notice”) and the Stock Option Agreement attached hereto as Exhibit A (the
“Agreement”). This Option constitutes a non-plan “inducement award” as contemplated by NASDAQ Listing Rule 5635(c)
(4) and is therefore not made pursuant to the TELA Bio, Inc. 2019 Equity Incentive Plan (the “Plan”). Nonetheless, the
terms and provisions of the Plan are hereby incorporated into the Grant Notice and Agreement by this reference, as if this
Option was granted pursuant to the Plan. Unless otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Grant Notice and the Agreement.
Grantee:
Grant Date:
Exercise Price Per Share:
Total Number of Shares Subject to Option:
Expiration Date:
Vesting Schedule:
[_________]
[_________]
[_________]
[_________]
[_________]
Subject to the continued service of Grantee with
the Company though the relevant vesting date or
event,
the Option will become vested and
exercisable as follows:
25% shall vest on the first anniversary of the Grant
Date (the “Initial Vesting Date”). The remaining
75% shall vest
in equal monthly
ratably
installments on the last day of each of the thirty-
six (36) calendar months immediately following
the Initial Vesting Date.
[Signature Page to Follow]
By Grantee’s signature below, Grantee agrees to be bound by the terms and conditions of the Agreement and this
Grant Notice. Grantee has reviewed the Agreement, the Plan and the Grant Notice in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Grant Notice, the
Agreement and the Plan.
TELA BIO, INC.
GRANTEE
_____________________________
_____________________________
Name:
Title:
Name:
EXHIBIT A
TO STOCK OPTION GRANT NOTICE
INDUCEMENT AWARD AGREEMENT FOR NON-QUALIFIED STOCK OPTION
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Grantee an
Option to purchase the number of Shares set forth in the Grant Notice.
1.
Award of Option. Effective as of the Grant Date set forth in the Grant Notice, the Company has granted to
Grantee the Option to purchase any part or all of the aggregate number of Shares set forth in the Grant Notice, upon the
terms and conditions set forth in the Grant Notice and this Agreement (including the terms and provisions of the Plan, which
are incorporated into this Agreement by reference). A copy of the Plan has been provided to the Grantee along with this
Agreement.
2.
Date of Grant; Term of Option. The Option is granted on the Grant Date and may not be exercised later than
the Expiration Date, subject to earlier termination in accordance with the terms of the Plan and this Agreement.
3.
Option Exercise Price. The exercise price per Share of the Shares subject to the Option (the “Exercise
Price”) shall be as set forth in the Grant Notice.
4.
Vesting and Exercise of Option. The Option will become vested and exercisable only in accordance with the
terms and provisions of this Agreement, as follows:
(a)
Vesting.
Generally. Subject to the continued service of Grantee with the Company through the
relevant vesting date or event, the Option shall become vested and exercisable in such amounts and at such times as are set
forth in the Grant Notice.
(i)
(ii)
Discretionary Acceleration Upon Death. If Grantee dies while in service with the Company,
any portion of the Option that is outstanding and unvested immediately prior to Grantee’s death will remain outstanding for
sixty (60) days, during which time the Committee may, in its sole discretion, vest all or a portion of such Option. If the
Committee decides to vest all or any portion of such Option under this Section 4(a)(ii), it may condition such vesting on the
execution by Grantee’s estate and/or beneficiaries of a general release of claims against the Company and its affiliates in
such form as the Company may prescribe (each, a “Release”). Upon conclusion of the sixtieth (60th) day following
Grantee’s death, any portion of the unvested Option that the Committee has not determined to vest in accordance with this
Section 4(a)(ii) will then be forfeited automatically.
(b)
Service with Affiliates. Solely for purposes of this Agreement, service with the Company will be
deemed to include service with any Affiliate of the Company (for only so long as such entity remains an Affiliate of the
Company).
(c)
Effect of Termination of Service on the Option.
service terminates or is terminated for any reason, any then unvested portion of the Option will be forfeited automatically.
(i)
Forfeiture of Unvested Option. Except as set forth in Section 4(a)(ii) above, if the Grantee’s
Vested Portion of the Option. If the Grantee’s service terminates or is terminated for any
reason, the vested portion of the Option will remain exercisable for such period as set forth in Section 7 of the Plan. For
avoidance of doubt, to the extent the Committee elects to accelerate an
(ii)
otherwise unvested portion of the Option under Section 4(a)(ii) above (relating to discretionary acceleration upon death), the
portion of the Option then vesting will be subject to Section 7(a) of the Plan.
(d)
Method of Exercise. The Grantee may exercise the Option only to the extent it is vested. To
exercise the Option, the Grantee must deliver payment of the Exercise Price, any required tax withholding and written notice
of exercise to the Company as set forth in Section 5(d) of the Plan. Such notice must also be accompanied by:
the Company (if not already party thereto) agreeing to be bound by the terms thereof; and
(i)
a joinder to any shareholder, voting or similar agreement entered into by the stockholders of
intent of this Agreement.
(ii)
any further documents or instruments necessary or desirable to carry out the purposes or
(e)
Partial Exercise. The vested portion of the Option may be exercised in whole or in part; provided,
however, that any exercise may apply only with respect to a whole number of Shares.
(f)
Restrictions on Exercise. The Option may not be exercised, and any purported exercise will be
void, if the issuance of Shares upon such exercise would constitute a violation of any law, regulation or exchange listing
requirement. The Board may from time to time modify the terms of the Option or impose additional conditions on the
exercise of the Option as it deems necessary or appropriate to facilitate compliance with any law, regulation or exchange
listing requirement. As a further condition to the exercise of the Option, the Company may require the Grantee to make any
representation or warranty as may be required by or advisable under any applicable law or regulation.
5.
Non-Transferability of Option. The Option may not be sold, pledged, assigned, hypothecated, gifted,
transferred or disposed of in any manner either voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent and distribution.
6.
Investment Representations. The Grantee represents and warrants to the Company that the Grantee is
acquiring the Option (and upon exercise of the Option, will be acquiring Shares) for investment for the Grantee’s own
account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. As a
further condition to the exercise of the Option, the Board may require that certain agreements, undertakings, representations,
certificates, legends and/or information or other matters, as the Board may deem necessary or advisable, be executed, agreed
to and/or provided to the Company to assure compliance with all such applicable laws or regulations.
7.
Tax Consequences. The Grantee acknowledges that the Company has not advised the Grantee regarding the
Grantee’s income tax liability in connection with the grant of the Option and that the Company does not guarantee any
particular tax treatment. The Grantee acknowledges that the Grantee has reviewed with the Grantee’s own tax advisors the
tax treatment of the Option (including the purchase and sale of Shares subject hereto) and is relying solely on those advisors
in that regard. The Grantee understands that the Grantee (and not the Company) will be responsible for the Grantee’s own
tax liabilities arising in connection with the Option.
8.
No Continuation of Service. This Agreement will not confer upon the Grantee any right to continue in the
employment or service of the Company or any of its Affiliates, or limit in any respect the right of the Company or its
Affiliates to discharge the Grantee at any time, with or without Cause and with or without notice.
9.
Withholding. The Company is hereby authorized to withhold from any consideration payable or property
transferable to the Grantee any taxes required to be withheld by applicable law in connection with the exercise of the Option
or the vesting or disposition of the Shares subject to the Option.
10.
Administration. The Grantee hereby accepts the Option, subject to the terms and conditions stated in the
Grant Notice and this Agreement (including the terms and conditions of the Plan incorporated herein). The Board, or any
committee of the Board designated to administer the Plan, is hereby authorized to interpret the Grant Notice and this
Agreement, to administer the Option and to otherwise exercise the same authority with respect to this Option as the Board
(or committee thereof) possesses under the Plan with respect to Awards granted thereunder. By accepting this Award, the
Grantee hereby acknowledges and agrees to accept as binding, conclusive and final all decisions or interpretations of the
Board or its committee with respect to the Option.
11.
Entire Agreement. The Grant Notice and this Agreement, including the terms of the Plan incorporated
herein, represent the entire agreement between the parties with respect to the subject matter hereof and supersede any prior
agreement, written or otherwise, relating to the subject matter hereof.
12.
Amendment. Except as otherwise provided herein, in the Grant Notice or in the Plan, or as would otherwise
not have a material adverse effect on the Grantee, this Agreement may only be amended by a writing signed by each of the
parties hereto.
13.
Governing Law. This Agreement will be construed in accordance with the laws of the State of Delaware,
without regard to the application of the principles of conflicts of laws.
14.
Execution. The Grant Notice may be executed, including execution by facsimile or electronic signature, in
one or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one and
the same instrument.
TELA BIO, INC. INDUCEMENT AWARD AGREEMENT
FOR RESTRICTED STOCK UNIT
RESTRICTED STOCK UNIT GRANT NOTICE AND
RESTRICTED STOCK UNIT AGREEMENT
Exhibit 10.17
TELA Bio, Inc., a Delaware corporation (the “Company”), hereby grants to the individual listed below
(“Participant”) an award of the number of Restricted Stock Units set forth below (the “Restricted Stock Units”) as an
inducement to the Participant’s acceptance of the Company’s offer of employment. The Restricted Stock Units are subject to
the terms and conditions set forth in this Restricted Stock Unit Grant Notice (the “Grant Notice”) and the Restricted Stock
Unit Agreement attached hereto as Exhibit A (the “Agreement”). The Restricted Stock Units constitute a non-plan
“inducement award” as contemplated by NASDAQ Listing Rule 5635(c)(4) and is therefore not made pursuant to the TELA
Bio, Inc. 2019 Equity Incentive Plan (the “Plan”). Nonetheless, the terms and provisions of the Plan are hereby incorporated
into the Grant Notice and Agreement by this reference, as if the Restricted Stock Units were granted pursuant to the Plan.
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and
the Agreement.
Participant:
Grant Date:
[_________]
[_________]
Total Number of Restricted Stock Units:
[_________]
Vesting Schedule:
Subject to Participant’s continued service with the Company through
the applicable vesting date or event, the Restricted Stock Units will
vest as follows:
25% of the Restricted Stock Units shall vest on each of the first four
anniversaries of the Grant Date.
By Participant’s signature below, Participant agrees to be bound by the terms and conditions of the Agreement and
the Grant Notice. Participant has reviewed the Agreement, the Plan and the Grant Notice in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the
Grant Notice, the Agreement and the Plan.
TELA BIO, INC.
PARTICIPANT
_____________________________
_____________________________
Name:
Title:
Name:
EXHIBIT A
TO RESTRICTED STOCK UNIT GRANT NOTICE
INDUCEMENT AWARD AGREEMENT FOR RESTRICTED STOCK UNIT
1.
Award of Restricted Stock Units. The Company has granted to the Participant the number of Restricted Stock Units
set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice and this Agreement. Each
Restricted Stock Unit represents the right to receive one Share at the times and subject to the conditions set forth herein.
2.
3.
Date of Grant. The Restricted Stock Units were granted on the Grant Date set forth in the Grant Notice.
Vesting of Restricted Stock Units.
(a)
Vesting.
(i)
Generally. Subject to the continued service of the Participant with the Company through the relevant vesting date or
event, the Restricted Stock Units shall become vested in such amounts and at such times as are set forth in the Grant Notice.
(ii)
Discretionary Acceleration Upon Death. If Participant dies while in service with the Company, any Restricted Stock
Units that are outstanding and unvested immediately prior to Participant’s death will remain outstanding for sixty (60) days,
during which time the Committee may, in its sole discretion, vest all or a portion of such Restricted Stock Units. If the
Committee decides to vest any Restricted Stock Units under this Section 3(a)(ii), it may condition such vesting on the
execution by Participant’s estate and/or beneficiaries of a general release of claims against the Company and its affiliates in
such form as the Company may prescribe (each, a “Release”). Upon conclusion of the sixtieth (60th) day following
Participant’s death, any portion of the unvested Restricted Stock Units that the Committee has not determined to vest in
accordance with this Section 3(a)(ii) will then be forfeited automatically.
Service with Affiliates. Solely for purposes of this Agreement, service with the Company will be deemed to include
(b)
service with any Affiliate of the Company (for only so long as such entity remains an Affiliate of the Company).
Effect of Termination of Service. Except as set forth in Section 3(a)(ii) above, if the Participant’s service with the
(c)
Company ceases for any reason, any then unvested Restricted Stock Units will be forfeited automatically.
4.
Settlement of Restricted Stock Units.
(a)
Shares will be issued in respect of vested Restricted Stock Units within sixty (60) days following the applicable
vesting date. For avoidance of doubt, this deadline is intended to comply with the “short-term deferral” exemption from
Section 409A of the Code.
The Restricted Stock Units will not confer on the Participant any rights as a stockholder of the Company until
(b)
Shares are actually issued in settlement of such Restricted Stock Units.
(c)
Notwithstanding the foregoing, to the extent provided in Prop. Treas. Reg. § 1.409A-1(b)(4)(ii) or any successor
provision, the Company may delay settlement of Restricted Stock Units if it reasonably determines that such settlement
would violate federal securities laws or any other applicable law.
A-1
5.
Non-Transferability of Restricted Stock Units. The Restricted Stock Units may not be sold, pledged, assigned,
hypothecated, gifted, transferred or disposed of in any manner, either voluntarily or involuntarily, by operation of law or
otherwise, other than by will or by the laws of descent and distribution.
6.
Investment Representations. The Participant represents and warrants to the Company that the Participant is
acquiring the Restricted Stock Units (and upon settlement of the Restricted Stock Units, may be acquiring Shares) for
investment for the Participant’s own account, not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof. As a further condition to the settlement of the Restricted Stock Units, the Board may require
that certain agreements, undertakings, representations, certificates, legends and/or information or other matters, as the Board
may deem necessary or advisable, be executed, agreed to and/or provided to the Company to assure compliance with all such
applicable laws or regulations.
7.
Tax Consequences. The Participant acknowledges that the Company has not advised the Participant regarding the
Participant’s income tax liability in connection with the grant of the Restricted Stock Units and that the Company does not
guarantee any particular tax treatment. The Participant acknowledges that the Participant has reviewed with the Participant’s
own tax advisors the tax treatment of the Restricted Stock Units and is relying solely on those advisors in that regard. The
Participant understands that the Participant (and not the Company) will be responsible for the Participant’s own tax liabilities
arising in connection with the Restricted Stock Units.
8.
No Continuation of Service. This Agreement will not confer upon the Participant any right to continue in the
employment or service of the Company or any of its Affiliates, or limit in any respect the right of the Company or its
Affiliates to discharge the Participant at any time, with or without Cause and with or without notice.
Withholding. The Company is hereby authorized to withhold from any consideration payable or property
9.
transferable to the Participant any taxes required to be withheld in connection with the Restricted Stock Units.
10.
Company Policies. In consideration for the grant of the Restricted Stock Units, the Participant agrees to be subject
to the policies of the Company regarding clawback, securities trading and hedging or pledging of securities, as in effect from
time to time.
11.
Administration. The Participant hereby accepts the Restricted Stock Units, subject to the terms and conditions stated
in the Grant Notice and this Agreement (including the terms and conditions of the Plan incorporated herein). The Board, or
any committee of the Board designated to administer the Plan, is hereby authorized to interpret the Grant Notice and this
Agreement, to administer the Restricted Stock Units and to otherwise exercise the same authority with respect to the
Restricted Stock Units as the Board (or committee thereof) possesses under the Plan with respect to Awards granted
thereunder. By accepting this Award, the Participant hereby acknowledges and agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board or its committee with respect to the Restricted Stock Units.
Entire Agreement. The Grant Notice and this Agreement, including the terms of the Plan incorporated herein,
12.
represents the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior
agreement, written or otherwise, relating to the subject matter hereof.
Amendment. Except as otherwise provided herein, in the Grant Notice or in the Plan, or as would otherwise not
13.
have a material adverse effect on the Participant, this Agreement may only be amended by a writing signed by each of the
parties hereto.
Governing Law. This Agreement will be construed in accordance with the laws of the State of Delaware, without
14.
regard to the application of the principles of conflicts of laws.
A-2
15.
Execution. The Grant Notice may be executed, including execution by facsimile or electronic signature, in one or
more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one and the
same instrument.
A-3
Exhibit 10.18
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Non-employee members of the board of directors (the “Board”) of TELA Bio, Inc. (the “Company”) shall be
eligible to receive cash and equity compensation as set forth in this Amended and Restated Non-Employee Director
Compensation Policy (this “Policy”). The cash and equity compensation described in this Policy shall be paid or granted, as
applicable, automatically and without further action of the Board, to each member of the Board who is not an employee of
the Company or any parent or subsidiary of the Company (each, a “Non-Employee Director”), unless such Non-Employee
Director declines the receipt of such cash or equity compensation by written notice to the Company. This Policy shall
become effective on January 1, 2023 (the “Effective Time”) and shall remain in effect until it is revised or rescinded by
further action of the Board. This Policy may be amended, modified or terminated by the Board at any time in its sole
discretion. The terms and conditions of this Policy shall supersede any prior cash and/or equity compensation arrangements
for service as a member of the Board between the Company and any of its Non-Employee Directors and between any
subsidiary of the Company and any of its non-employee directors.
(1)
Cash Compensation.
(a)
the Board.
Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $45,000 for service on
(b)
Additional Annual Retainers. In addition, a Non-Employee Director shall receive the following annual
retainers:
(i)
Chairperson of the Board. A Non-Employee Director serving as Chairperson of the Board shall
receive an additional annual retainer of $35,000 for such service.
(ii)
Audit Committee. A Non-Employee Director serving as Chairperson of the Audit Committee shall
receive an additional annual retainer of $20,000 for such service. A Non-Employee Director serving as a member of the
Audit Committee (other than the Chairperson) shall receive an additional annual retainer of $10,000 for such service.
(iii)
Compensation Committee. A Non-Employee Director serving as Chairperson of the Compensation
Committee shall receive an additional annual retainer of $15,000 for such service. A Non-Employee Director serving as a
member of the Compensation Committee (other than the Chairperson) shall receive an additional annual retainer of $7,500
for such service.
(iv)
Nominating and Corporate Governance Committee. A Non-Employee Director serving as
Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $10,000
for such service. A Non-Employee Director serving as a member of the Nominating and Corporate Governance Committee
(other than the Chairperson) shall receive an additional annual retainer of $5,000 for such service.
(c)
Payment of Retainers.
(i)
Timing. The annual retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly
basis based on a calendar quarter and shall be paid by the Company in arrears not later than the fifteenth day following the
end of each calendar quarter.
(ii)
Form. The annual retainers shall be paid in the form of cash; provided that the Board may, in its
discretion, permit a Non-Employee Director to elect to receive any portion of the annual retainer in the form of shares of
common stock of the Company (“Common Stock”) in lieu of cash. If such an election is permitted by the Board and made
by a Non-Employee Director, the number of shares of Common Stock to be paid shall be determined by dividing the portion
of the annual retainer payable in the form of Common Stock by the Fair Market
Value (as defined in the Company’s Amended and Restated 2019 Equity Incentive Plan or any other applicable Company
equity plan then maintained by the Company (such plan, as may be amended from time to time, the “Equity Plan”)) per
share of Common Stock on the date the annual retainer is payable. Shares issued in lieu of cash shall be fully vested and
unrestricted shares of Common Stock. Any election by a Non-Employee Director to receive a portion of the annual retainer
in shares of Common Stock must be made prior to the applicable payment date for such portion of the annual retainer and
pursuant to an election form to be provided by the Company. An election must comply with all rules established from time to
time by the Board, including any insider trading policy or similar policy. A Non-Employee Director may not make an
election pursuant to this Section 1(c)(ii) during a Company blackout period or when the Non-Employee Director is otherwise
in possession of material non-public information.
(iii)
Termination of Service. In the event a Non-Employee Director does not serve as a Non-Employee
Director, or in the applicable positions described in Section 1(b), for an entire calendar quarter, such Non-Employee Director
shall receive a prorated portion of the retainer(s) otherwise payable to such Non-Employee Director for such calendar
quarter pursuant to Section 1(b), with such prorated portion determined by multiplying such otherwise payable retainer(s) by
a fraction, the numerator of which is the number of days during which the Non-Employee Director serves as a Non-
Employee Director or in the applicable positions described in Section 1(b) during the applicable calendar quarter and the
denominator of which is the number of days in the applicable calendar quarter.
(2)
Equity Compensation. Non-Employee Directors shall be granted the equity awards described below (collectively,
the “Awards”). The Awards shall be granted under and shall be subject to the terms and provisions of the Equity Plan and
shall be granted subject to the execution and delivery of award agreements in substantially the forms approved by the Board.
The approval of this Policy by the Board is intended to be effective for all purposes, including for purposes of satisfying
Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as amended, in respect of each award issued hereunder.
(a)
Initial Awards. Upon a Non-Employee Director’s initial appointment or election to the Board after the
Effective Time, he or she will be granted: (i) an option to purchase 8,040 shares of Common Stock at a per-share exercise
price equal to the closing price per share of Common Stock on the date of such appointment or election (or on the last
preceding trading day, if the date of such appointment or election is not a trading day), and (ii) a restricted stock unit award
with respect to 4,702 shares of Common Stock. The Awards described in this Section 2(a) shall be referred to as “Initial
Awards.”
(b)
Annual Awards. Each Non-Employee Director who serves on the Board as of the date of any annual
meeting of the Company’s stockholders (an “Annual Meeting”) after the Effective Time, and will continue to serve as a
Non-Employee Director immediately following such Annual Meeting, shall be automatically granted on the date of such
Annual Meeting: (i) an option to purchase 5,360 shares of Common Stock at a per-share exercise price equal to the closing
price per share of Common Stock on the date of such Annual Meeting (or on the last preceding trading day, if the date of the
Annual Meeting is not a trading day), and (ii) a restricted stock unit award with respect to 3,135 shares of Common Stock.
The Awards described in this Section 2(b) shall be referred to as “Annual Awards.”
(c)
Vesting of Awards. Awards will vest as follows, in each case subject to the continued service of the grantee
to the Company through the applicable vesting date or event:
(i)
Initial Awards described in Section 2(a)(i) will vest in 36 equal monthly installments, on the
monthly anniversary of the date of grant over the 36 calendar months commencing after the grantee’s initial
appointment or election to the Board.
(ii)
Initial Awards described in Section 2(a)(ii) will vest in three equal annual installments, on the first
three anniversaries of the grantee’s initial appointment or election to the Board.
(iii)
Annual Awards will vest on the earlier of (A) the first anniversary of the date of grant, and
(B) the date of the subsequent Annual Meeting following the date of grant.
(iv)
In addition, any otherwise unvested Awards will vest and become exercisable in full immediately
prior to and contingent upon the occurrence of a Change in Control (as defined in the Equity Plan).
LIST OF SUBSIDIARIES
Exhibit 21.1
Subsidiary
TELA Bio, Limited
Ownership Percentage
100%
Jurisdiction of Incorporation or
Organization
England and Wales
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (No. 333-251505) on Form S-3 and (Nos. 333-263797, 333-
245707 and 333-235241) on Form S-8 of our report dated March 23, 2023, with respect to the consolidated financial statements of TELA
Bio, Inc.
Exhibit 23.1
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 23, 2023
CERTIFICATION
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
I, Antony Koblish, certify that:
1. I have reviewed this Form 10-K of TELA Bio, 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)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 23, 2023
/s/ Antony Koblish
Antony Koblish
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, Roberto Cuca, certify that:
1. I have reviewed this Form 10-K of TELA Bio, 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)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 23, 2023
/s/ Roberto Cuca
Roberto Cuca
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), that: Antony Koblish, Chief Executive Officer of
TELA Bio, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
(1) The Company’s Annual Report on Form 10-K for the period ended December 31, 2022, to which this Certification is attached
as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange
Act; and
(2) The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 23, 2023
/s/ Antony Koblish
Antony Koblish
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.2
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), that: Roberto Cuca, Chief Operating Officer and
Chief Financial Officer of TELA Bio, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
(1) The Company’s Annual Report on Form 10-K for the period ended December 31, 2022, to which this Certification is attached as
Exhibit 32.2 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange
Act; and
(2) The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 23, 2023
/s/ Roberto Cuca
Roberto Cuca
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)