What changed in this filing

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Item 1A. Risk Factors

2024-03-15 compared with 2023-03-16 · 101 added, 152 removed, 346 unchanged (42% of the section changed)

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There can be no assurance that, even if substantial growth in product sales and the demand for our products is achieved, we will be able to:

Gain acceptance of our broadened portfolio of existing products, as well as future products, by the medical community, hospitals, physicians, other health care providers, third-party payers, and end-users, which acceptance may depend upon the extent to which the medical community and end-users perceive our products as safer, more effective or more cost-competitive than other similar products.

Gain acceptance of our broadened portfolio of existing products, as well as future products, by the medical community, hospitals, physicians, other health care providers, third-party payers, and end-users, which acceptance may depend upon the extent to which the medical community and end-users perceive our products as safer, more effective or more cost-competitive than other similar products.

Maintain, manage, and develop the necessary manufacturing capabilities and inventory management practices;

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Important market makers, like group purchasing organizations and integrated delivery networks, have increased their negotiating leverage, and if these market makers demand significant price concessions or if we are excluded as a supplier by these market makers, our product revenue could be adversely impacted.

There can be no assurance that we will be able to compete against current or future competitors or that competition will not have a material adverse effect on our business, financial condition, and results of operations. 

Our business may be adversely affected if consolidation in the healthcare industry leads to demand for price concessions or if we are excluded from being a supplier by a group purchasing organization or similar entity.

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If a group purchasing organization excludes us from being one of their suppliers, our net sales could be adversely impacted.

We expect that market demand, government regulation, third-party reimbursement policies, and societal pressures will continue to change the worldwide healthcare industry, which may exert further downward pressure on the prices of our products.

A significant portion of our OA Pain Management revenues are derived from a small number of customers, the loss of which could materially adversely affect our business, financial condition and results of operations.

We have historically derived most of our OA Pain Management revenues from a small number of customers who resell our products to end-users.

We have historically derived most of our revenues from a small number of customers who resell our products to end-users.

Many of these customers are significantly larger companies than us.

In 2022, Mitek accounted for 43% of our total revenue.

In 2023, Mitek, accounted for 45% of our revenue.

While we have started to diversify our sales channels, including through the implementation of a direct commercial model in the United States for our Joint Preservation and Restoration products, we expect to continue to be dependent on a small number of large customers for a substantial portion of our business.

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We experience quarterly sales volume variation, which makes our future results difficult to predict and makes period-to-period comparisons potentially not meaningful.

We experience quarterly fluctuations in our product sales as a result of multiple factors, many of which are outside of our control including our arrangement with Mitek which performs most of the downstream sales and marketing activities to customers and end-users for Monovisc and Orthovisc in the United States.

Therefore, we are subject to fluctuations in our customers’

sales patterns and corresponding ordering patterns, including Mitek.

We experience quarterly fluctuations in our product sales as a result of multiple factors, many of which are outside of our control including our arrangements with Mitek which performs most of the downstream sales and marketing activities to customers and end-users for Monovisc and Orthovisc in the United States.

Therefore, we are subject to fluctuations in our customers’ sales patterns and corresponding ordering patterns, including Mitek.

These quarterly fluctuations create uncertainty as to the volume of sales that we may achieve in a given period.

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As a result, our quarterly operating results are difficult to predict, even in the near term.

We rely on a small number of suppliers for certain key raw materials and a small number of suppliers for a number of other materials required for the manufacturing and delivery of our products, and disruption could materially adversely affect our business, financial condition, and results of operations.

We rely on a small number of suppliers for certain key raw materials and components for the manufacturing and delivery of our products, and disruption could materially adversely affect our business, financial condition, and results of operations.

Although we believe that alternative sources for many of these and other components and raw materials that we use in our manufacturing processes are available, we cannot be certain that the supply of key raw materials will continue to be available at current levels or will be sufficient to meet our future needs.

The COVID-19 pandemic has impacted, and the lingering effects of the pandemic may continue to impact, our supply chain as the companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, are, or may be disrupted, temporarily closed or experience worker shortages for a sustained period of time.

We continue to see impacts on our supply chain as the companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, were disrupted, temporarily closed or experienced worker shortages for a sustained period of time during and following the global pandemic or due to other supply chain disruptions.

For example, for the manufacture of Arthrosurface joint solutions products, we engage a single third-party organization as a contract manufacturer.

This contract manufacturer has noted that there could be lead times up to a year or more to deliver certain products.

This contract manufacturer has noted that there could be lead times up to a year or more to deliver product.

Any supply interruption could harm our ability to manufacture our products until a new source of supply is identified and qualified.

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We and our third-party providers are subject to national, international, federal or state laws and regulations, regulatory guidance and industry standards relating to data protection, privacy and information security.

This includes the European Union, or EU, GDPR, as well as other national data protection legislation in force in relevant EU member states (including the GDPR in such form as incorporated into the law of England and Wales, Scotland and Northern Ireland by virtue of the European Union (Withdrawal) Act 2018 and any regulations thereunder and the UK Data Protection Act 2018, or UK GDPR.

The GDPR and UK GDPR are wide-ranging in scope and impose numerous additional requirements on companies that process personal data, including imposing special requirements in respect of the processing of health and other sensitive data, requiring that consent of individuals to whom the personal data relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, creating mandatory data breach notification requirements in certain circumstances, requiring data protection impact assessments for high risk processing and requiring that certain measures (including contractual requirements) are put in place when engaging third-party processors.

The GDPR and the UK GDPR also provide individuals with various rights in respect of their personal data.

The GDPR and UK GDPR define personal data to include pseudonymized or coded data and requires different informed consent practices and more detailed notices for clinical trial participants and investigators than applies to clinical trials conducted in the United States.

We are required to apply GDPR and UK GDPR standards to any clinical trials that our EU and UK established businesses carry out anywhere in the world.

Significantly, the GDPR and the UK GDPR impose strict rules on the transfer of personal data out of the EU or the UK to the U.S.

or other regions that have not been deemed to offer “adequate”

privacy protections.

Currently, we rely mainly on Standard Contractual Clauses approved by the European Commission, or SCCs, to legitimize transfers of personal data out of the EU and International Transfer Agreements approved in the UK for transfers of personal data out of the UK, however, there continue to be concerns about whether the SCCs and other mechanisms will face additional legal challenges.

Any inability to transfer personal data from the EU to the U.S.

This includes the European Union, or EU, GDPR, and the United Kingdom, or UK, equivalent of the same (the UK GDPR, together with the EU GDPR, referred to as the GDPR), as well as other national data protection legislation in force in relevant European Economic Area, or EEA, Member States and the UK (including the UK Data Protection Act 2018), which governs the collection, use, storage, disclosure, transfer, or other processing of personal data (including health data processed in the context of clinical trials):

(i) regarding individuals in the EEA and UK;

and/or (ii) carried out in the context of the activities of our establishment in any EEA Member State or the UK.

The GDPR is wide-ranging in scope and imposes numerous additional requirements on companies that process personal data, including imposing special requirements in respect of the processing of health and other sensitive data, requiring that consent of individuals to whom the personal data relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, creating mandatory data breach notification requirements in certain circumstances, requiring data protection impact assessments for high risk processing and requiring that certain measures (including contractual requirements) are put in place when engaging third-party processors.

The GDPR also provide individuals with various rights in respect of their personal data.

The GDPR defines personal data to include pseudonymized or coded data and requires different informed consent practices and more detailed notices for clinical trial participants and investigators than applies to clinical trials conducted in the United States.

We are required to apply GDPR standards to any clinical trials that our EEA and UK established businesses carry out anywhere in the world.

Significantly, the GDPR impose strict rules on the transfer of personal data out of the EEA or the UK to the U.S.

or other regions that have not been deemed to offer “adequate” privacy protections.

Currently, we rely mainly on Standard Contractual Clauses approved by the European Commission, or SCCs, to legitimize transfers of personal data out of the EEA and International Transfer Agreements approved the UK for transfers of personal data out of the UK, however, there continue to be concerns about whether the SCCs and other international transfer mechanisms will face additional legal challenges.

Any inability to transfer personal data from the EEA to the U.S.

in compliance with data protection laws may impede our ability to conduct trials and may adversely affect our business and financial position.

The GDPR and UK GDPR have increased our responsibilities and may increase our liability in relation to personal data that we process where such processing is subject to the GDPR and UK GDPR.

While we have taken steps to comply with the GDPR and UK GDPR, and implementing legislation in applicable EU member states and the UK, including by seeking to establish appropriate lawful bases for the various processing activities we carry out, reviewing our security procedures and those of our service providers, and entering into data processing agreements with relevant service providers we cannot be certain that our efforts to achieve and remain in compliance have been, and/or will continue to be, fully successful.

Given the breadth and depth of changes in data protection obligations, complying with the GDPR and UK GDPR and similar laws’

requirements are rigorous and time intensive and require significant resources and a review of our technologies, systems and practices, as well as those of any third-party service providers, contractors or consultants that process or transfer personal data.

The GDPR increases our responsibilities and may increase our liability in relation to personal data that we process where such processing is subject to the GDPR.

While we have taken steps to comply with the GDPR, and implementing legislation in applicable EEA member states and the UK, including by seeking to establish appropriate lawful bases for the various processing activities we carry out, reviewing our security procedures and those of our service providers, and entering into data processing agreements with relevant service providers we cannot be certain that our efforts to achieve and remain in compliance have been, and/or will continue to be, fully successful.

Given the breadth and depth of changes in data protection obligations, complying with the GDPR and similar laws’ requirements are rigorous and time intensive and require significant resources and a review of our technologies, systems and practices, as well as those of any third-party service providers, contractors or consultants that process or transfer personal data.

Although the EU GDPR and the UK GDPR currently impose substantially similar obligations, it is possible that over time the UK GDPR could become less aligned with the EU GDPR, particularly with the UK plans to reform the country’s data protection legal framework in its Data Reform Bill introduced into the UK legislative process.

In addition, EEA Member States have adopted implementing national laws to implement the GDPR which may partially deviate from the GDPR and the competent authorities in the EEA Member States may interpret GDPR obligations slightly differently from country to country, so that we do not expect to operate in a uniform legal landscape in the EEA and UK with respect to data protection regulations.

The potential of the respective provisions and enforcement of the EU GDPR and UK GDPR further diverging in the future creates additional regulatory challenges and uncertainties for us.

The lack of clarity on future UK laws and regulations and their interaction with EU laws and regulations could add legal risk, uncertainty, complexity and compliance cost to the handling of European personal data and our privacy and data security compliance and could require us to amend our processes and procedures to implement different compliance measures for the UK and the EEA.

In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators and third-party providers.

For example, California has enacted the California Consumer Privacy Act, or the CCPA, which became effective on January 1, 2020.

The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used.

The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.

For example, California enacted the California Consumer Privacy Act, or the CCPA.

This law, which became effective on January 1, 2020 gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used.

It also provides for civil penalties for violations, as well as a private right of action for data breaches that are expected to increase data breach litigation.

At this time, we do not collect personal data on residents of California but should we begin to do so, and in the context of doing so, become subject to the CCPA, the CCPA will impose new and burdensome privacy compliance obligations on our business and will raise new risks for potential fines and class actions.

In addition a California ballot initiative, the California Privacy Rights Act, or CPRA, was passed in November 2020.

As of January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’

rights with respect to certain sensitive personal information.

The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA, as modified by the CPRA.

The effects of the CCPA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.

In addition, the California Privacy Rights Act, or CPRA, which became effective on January 1, 2023, imposes additional obligations on companies covered by the legislation and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.

The CPRA also created a new state agency that was vested with authority to implement and enforce the CCPA.

The effects of the CCPA are potentially significant and, should we begin to process personal information concerning California residents may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.

Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business.

New consumer privacy laws enter into force in Connecticut, Colorado, Virginia and Utah in 2023.

In addition, many other states have proposed new privacy laws, some of which are similar to the above discussed recently passed laws.

New consumer privacy laws similar to the CCPA have been passed in a number of states and many other states have proposed new privacy laws.

Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

The existence of comprehensive privacy laws in different states in the country would make our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for noncompliance.

In addition to these comprehensive laws and proposals, several other states have passed or proposed more limited privacy laws focused on particular privacy issues.

In addition, many jurisdictions around the world have adopted legislation that regulates how businesses operate online and enforces information security, including measures relating to privacy, data security and data breaches.

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In many jurisdictions, enforcement actions and consequences for non-compliance with protection, privacy and information security laws and regulations are rising.

In the EU and the UK, data protection authorities may impose large penalties for violations of the data protection laws, including potential fines of up to €20 million (£17.5 million in the UK) or 4% of annual global revenue, whichever is greater.

In the EEA and the UK, data protection authorities may impose large penalties for violations of the data protection laws, including potential fines of up to €20 million (£17.5 million in the UK) or 4% of annual global revenue, whichever is greater.

The authorities have shown a willingness to impose significant fines and issue orders preventing the processing of personal data on non-compliant businesses.

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The risk of our being found in violation of these laws is increased by the fact that the interpretation and enforcement of them is not entirely clear.

EU Member States have adopted implementing national laws to implement the GDPR which may partially deviate from the GDPR and the competent authorities in the EU Member States may interpret GDPR obligations slightly differently from country to country, so that we do not expect to operate in a uniform legal landscape in the EU.

In addition, the UK has announced plans to reform the country’s data protection legal framework in its Data Reform Bill, but these have been put on hold.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs.

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

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Failure by us or our and third-party providers to comply with data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties and orders preventing us from processing personal data), private litigation and result in significant fines and penalties against us.

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.

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.

We are increasingly dependent on sophisticated information technology and if we fail to effectively maintain or protect our information systems or data, including from data breaches, our business could be adversely affected.

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We rely on our third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches.

Any breach in our or our third-party providers’

information technology systems could lead to the unauthorized access, disclosure and use of non-public information, including protected health information and other personally identifiable information which is protected by HIPAA, and other laws.

Any breach in our or our third-party providers’ information technology systems could lead to the unauthorized access, disclosure and use of non-public information, including protected health information and other personally identifiable 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, damage to our reputation and the further development and commercialization of our products could be delayed.

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Any compromise to our information security or that of our third-party service providers or contractors could result in an interruption in our operations, the unauthorized publication of our confidential business or proprietary information, the unauthorized release, use, disclosure and/or dissemination of customer, vendor, or employee data, the violation of privacy and/or data protection laws, including under the GDPR, in the European Union or the United Kingdom, or other laws and exposure to litigation, any of which could harm our business and operating results.

We may face circumstances in the future that will result in impairment charges, including, but not limited to, goodwill impairment and in-process research and development charges.

As of December 31, 2022, we had long-lived assets in the amount of $130.2 million.

If the fair value of any of our long-lived assets, including those that we acquired in the acquisitions of Arthrosurface and Parcus Medical, decrease as a result of an economic slowdown, a downturn in the markets where we sell products and services, a downturn in our financial performance or future outlook, or other reasons, we may be required to record an impairment charge on such assets.

We may face circumstances in the future that will result in impairment charges, including, but not limited to, goodwill impairment, intangible assets impairment and in-process research and development charges.

As of December 31, 2023, we had long-lived assets in the amount of $58.4 million, including property and equipment of $46.2 million, intangible assets of $4.6 million and goodwill of $7.6 million.

If the fair value of any of our long-lived assets, including those that we acquired in the acquisitions of Arthrosurface and Parcus Medical, decrease as a result of an economic slowdown, a downturn in the markets where we sell products and services, a downturn in our stock price, financial performance or future outlook, or other reasons, we may be required to record an impairment charge on such assets.

We are required to test intangible assets with indefinite life periods for potential impairment annually and on an interim basis if there are indicators of a potential impairment.

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Impairment charges could have a negative impact on our results of operations and financial position, as well as on the market price of our common stock.

Our business is dependent upon hiring and retaining qualified management, operations, commercial and technical personnel.

We are highly dependent on the members of our management, operations, commercial and technical staff, the loss of one or more of whom could have a material adverse effect on us.

During the year ended December 31, 2023, we recorded an impairment charge of $62.2 million on intangible assets related to the acquisitions of Arthrosurface and Parcus Medical.

Our business is dependent upon hiring and retaining qualified management, operations and technical personnel.

We are highly dependent on the members of our management, operations and technical staff, the loss of one or more of whom could have a material adverse effect on us.

We have experienced a number of management changes in recent years, and there can be no assurances that any future management changes will not adversely affect our business.

We believe that our future success will depend in large part upon our ability to attract and retain technical and highly skilled executive, managerial, professional, and technical personnel.

We continue to engage with our employees on a regular basis to limit voluntary employee turnover.

We face significant competition for such personnel from competitive companies, research and academic institutions, government entities, and other organizations.

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Progress with preclinical studies, clinical trials, and product approvals and clearances by the FDA and other agencies;

Requirement to conduct additional preclinical studies and clinical trials for future products; 

The cost and timing of our efforts to manage our manufacturing capabilities and related costs;

Expanding our manufacturing capacity to support growing demand for our products and add redundancies to our manufacturing process;

The cost of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights and the cost of defending any other legal proceeding;

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These changes could subject us to additional income-based taxes and non-income taxes (such as payroll, sales, use, value-added, net worth, property, and goods and services taxes), which in turn could materially affect our financial position and results of operations.

Additionally, new, changed, modified, or newly interpreted or applied tax laws could increase our customers’

and our compliance, operating and other costs, as well as the costs of our products.

For example, under Section 174 of the Code, in taxable years beginning after December 31, 2021, expenses that are incurred for research and development in the U.S.

will be capitalized and amortized, which may have an adverse effect on our cash flow.

Additionally, new, changed, modified, or newly interpreted or applied tax laws could increase our customers’ and our compliance, operating and other costs, as well as the costs of our products.

In recent years, many such changes have been made, and changes are likely to continue to occur in the future.

As we expand the scale of our business activities, any changes in the U.S.

taxation of such activities may increase our effective tax rate and harm our business, financial condition, and results of operations.

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 the Company ’

s current and projected business operations and its financial condition and results of operations.

taxation of such activities may impact our effective tax rate, result in higher tax payments and harm our business, financial condition, cash flows and results of operations.

Actual 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.

If any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to lending arrangements with financial institutions, such parties’

ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.

Although 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 the Company, the financial institutions with which the Company has credit agreements or arrangements directly, or 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. 

If any of our customers, suppliers or other parties with whom we conduct business are unable to access funds pursuant to lending arrangements with financial institutions, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.

These factors could involve financial institutions or financial services industry companies with which the Company has financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

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Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;

Delayed or lost access to, or reductions in borrowings available under revolving existing credit facilities or other working capital sources and/or delays, inability or reductions in the company’s ability 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 contractual obligations that require the Company to maintain letters of credit or other credit support arrangements;

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Risks Related to Our Commercialization Activities

Our license agreements with Mitek provide substantial control of Monovisc and Orthovisc in the United States to Mitek, and Mitek ’

s actions could have a material impact on our business, financial condition and results of operations.

Our license agreements with Mitek provide substantial control of Monovisc and Orthovisc in the United States to Mitek, and Mitek ’ s actions could have a material impact on our business, financial condition and results of operations.

Our license and distribution agreements with Mitek related to Monovisc and Orthovisc provide Mitek with, among other things, the exclusive right to market and sell Monovisc and Orthovisc in the United States, unilateral decision-making authority over the sale, price, and promotion of Monovisc and Orthovisc in the United States, substantial control over the future development of Monovisc and Orthovisc related to the treatment of pain associated with osteoarthritis, a license to manufacture and have manufactured such products in the event that we are unable to supply Mitek with Monovisc or Orthovisc in accordance with the terms of the relevant agreement, and certain rights of first refusal with respect to future products we develop for the treatment of pain associated with osteoarthritis.

In exchange, Mitek pays us a transfer price calculated with reference to historical end-user prices in the market and a fixed royalty rate per product on their net product sales.

As Mitek accounts for a large percentage of our yearly revenue and has unilateral decision-making authority over in-market activities, including end-user pricing and discounts, reimbursement strategy, and overall promotion strategy, actions taken by Mitek could impact our ability to predict and generate revenue and have a material impact on our business, financial condition, and results of operations.

As Mitek accounts for a large percentage of our revenue and has unilateral decision-making authority over in-market activities, including end-user pricing and discounts, reimbursement strategy, and overall promotion strategy, actions taken by Mitek could impact our ability to predict and generate revenue and have a material impact on our business, financial condition, and results of operations.

We may not succeed in our integration and buildout of our direct sales channel in the United States, and our failure to do so could negatively impact our business and financial results.

Beginning in 2019, and with our expanded commercial infrastructure, as a result of the Parcus Medical and Arthrosurface acquisitions in 2020, we now sell our Joint Preservation and Restoration family of products directly to customers, including hospitals and ASCs, through our direct Anika sales team and large network of independent third-party distributors.

Beginning in 2019, and with our expanded commercial infrastructure, as a result of the Parcus Medical and Arthrosurface acquisitions, we sold and marketed our Joint Preservation and Restoration family of products directly to customers, including hospitals and ASCs, through our direct Anika sales team and large network of independent third-party distributors.

This approach was a departure from our historical distribution model in the United States, and we cannot be certain that we will be successful in implementing and executing on this commercial approach or that, even if we are able to implement it, the approach will be successful at scale.

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In the United States and other foreign markets, health care providers, such as hospitals and physicians, that purchase health care products, such as our products, generally rely on third-party payers, including Medicare, Medicaid, and other health insurance and managed care plans, to provide coverage and to reimburse for all or part of the cost of the health care product or procedures that use such products.

Coverage and reimbursement by third-party payers, both in the United States and internationally, may depend on several factors, including the individual payer’s determination that our products or procedures that use our products are clinically useful and cost-effective, medically necessary, and not experimental or investigational.

Since insurance coverage determinations and reimbursement decisions are made by each payer individually, seeking positive coverage and reimbursement decisions can be a time consuming and costly process, which could require us or our marketing partners to provide supporting scientific, clinical, and cost-effectiveness data for the use of our products to each payer separately.

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There may be uncertainties that result from modification or repeal of any of the provisions of the ACA, including as a result of current and future executive orders and legislative actions.

There can be no assurance that third party coverage will be available or that reimbursement will be adequate for any products or services developed by us or procedures using our products or services.

We cannot predict what other health care programs and regulations will ultimately be implemented at the federal or state level or the effect that any future legislation or regulation in the United States may have on our business There can be no assurance that third-party coverage will be available or that reimbursement will be adequate for any products or services developed by us or procedures using our products or services.

Outside the United States, the success of our products is also dependent in part upon the availability of reimbursement and health care payment systems.

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In 2018, we received and analyzed the results of our second Phase III clinical trial for Cingal and found that the data did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between Cingal and the approved steroid component of Cingal at the six-month time point.

After discussions, the FDA indicated that an additional Phase III clinical trial would be necessary to support U.S.

After discussions with the FDA, it was determined that an additional Phase III clinical trial would most likely be necessary to support U.S.

marketing approval for Cingal.

In 2019, we began the design of our third Phase III clinical trial to enable us to evaluate our full-scale Phase III clinical trial design, including patient and site selection criteria, and increase the probability of success for the Phase III trial.

In 2020 the first patient was enrolled in the pilot study and in 2022, we completed this third Phase III clinical trial, which achieved its primary endpoint.

In 2022, we completed this third Phase III clinical trial, which achieved its primary endpoint.

Together with previous clinical studies, Cingal has demonstrated superiority over each of its active ingredients and placebo over 26 weeks for long-acting pain relief.

We will engage with the FDA in the first half of 2023 on next steps for U.S.

We have been engaging with the FDA on next steps for U.S.

regulatory approval.

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Because the results of any additional clinical trials, or other unforeseen future developments, could have a substantial negative impact on the timeline for and the cost associated with a potential Cingal regulatory approval, our overall business condition, financial results, and competitive position could be affected.

We also are conducting our clinical trial to support approval in the United States for Hyalofast, our single-stage, off-the-shelf, cartilage repair therapy, currently sold only outside the United States.

We have fully enrolled the 200 patients targeted in the trial.

This pivotal trial has a two-year follow-up protocol expected to be achieved in early 2025 before regulatory submission is completed.

We are targeting to file the first module as part of a modular PMA in 2024 which is the first step in seeking FDA approval for Hyalofast in the U.S.

The final module of the PMA will be filed in 2025 once the clinical data becomes available to be submitted to the FDA.

Failure to obtain, or any delay in obtaining, FDA or other U.S.

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For our devices that are subject to 510(k) clearances, the FDA requires device manufacturers to make a determination of whether a modification requires a clearance;

however, the FDA can review a manufacturer’s decision not to submit for additional clearances.

We cannot provide any assurance that the FDA will agree with our decisions not to seek clearances for particular device modifications.

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The relevant approval or clearance may also include other significant conditions such as post-market testing, tracking, or surveillance requirements.

Any of these factors could significantly impact our competitive position in relation to such products and could have a negative impact on the sales of such products. 

Once obtained, we cannot guarantee that the FDA or international product clearances or approvals will not be withdrawn or that relevant agencies will not require other corrective action, and any withdrawal or corrective action could materially affect our business and financial results.

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The FDA and foreign regulatory bodies impose extensive regulations applicable to our operations and products, including regulations governing product and sterilization standards, packaging requirements, labeling requirements, adverse event reporting, quality system and manufacturing requirements, import restrictions, tariff regulations, duties, and tax requirements.

The FDA and other foreign regulatory bodies worldwide conduct periodic inspections of our facilities to determine compliance with the FDA’s requirements and all comparable foreign regulations.

We cannot assure you that we will be able to achieve and maintain compliance required for the FDA, CE marking, or other foreign regulatory clearances or approvals for any or all our operations and products or that we will be able to produce our products in a timely and profitable manner while complying with applicable requirements.

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Approvals for certain of our currently marketed products could be curtailed or withdrawn as a result of the implementation of the EU MDR, and acquiring approvals for new products could be more challenging and costly.

The EU MDR requires all devices to undergo review and approval for compliance to EU MDR. 

The original compliance date of May 26, 2024 is being reconsidered 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’s proposal is to December 2027 or December 2028, depending on the risk class of the device.

This proposal has been approved by the Council of the European Union, and is awaiting publication in the Official Journal to be made effective, which is expected to occur in March 2023.

The EU MDR requires all devices to undergo review and approval for compliance to EU MDR by the expiry of a transitional period.

The original expiry date of May 26, 2024 has been extended to December 2027 or December 2028 for certain devices, depending on the risk class of the device, in response to concerns raised about notified body capacity and the ability for devices to be re-certified within the original time period.

We have reviewed our products that are sold in the EU market and have completed the product rationalization exercise to identify the products that we will continue to market in the EU.

Products we intend to continue marketing will require substantial submissions to be made to the notified bodies no later than May 26, 2024, for the MDR extension timelines to apply.

Products we intend to continue marketing will require substantial submissions to be made to the notified bodies for a conformity assessment under the EU MDR no later than May 26, 2024, for the MDR extension timelines to apply.

Compliance with this and any other requirements is time consuming and costly, and our failure to comply may subject us to significant liabilities, which could have a material adverse effect on our business, financial condition, and results of operations.

Notices of inspectional observations or deficiencies from the FDA or other regulatory bodies require us to undertake corrective and preventive actions or other actions to address the FDA ’

s or other regulatory bodies' concerns.

Notices of inspectional observations or deficiencies from the FDA or other regulatory bodies require us to undertake corrective and preventive actions or other actions to address the FDA ’ s or other regulatory bodies' concerns.

These actions could be expensive and time-consuming to complete and could impose an additional burden on us.

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We have previously received notices of observations or deficiencies from the FDA.

Failure to adequately address the FDA’s or other regulatory bodies’

concerns could expose us to enforcement or administrative actions.

Failure to adequately address the FDA’s or other regulatory bodies’ concerns could expose us to enforcement or administrative actions.

We may rely on third parties to support certain aspects of our clinical trials.

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The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about medical devices and drugs.

For example, devices cleared under section 510(k) cannot be marketed for any intended use that is outside of the FDA’s substantial equivalence determination for such devices.

Physicians nevertheless may use our products on their patients in a manner that is inconsistent with the intended use cleared by the FDA.

If we are found to have promoted such “off-label”

uses, we may become subject to significant government fines and other related liability.

If we are found to have promoted such “off-label” uses, we may become subject to significant government fines and other related liability.

The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion.

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There can be no assurance that our current management systems will be adequate or that we will be able to manage our recent or future growth successfully.

Any failure to do so could have a material adverse effect on our business, operating results and financial condition. 

We may not generate the expected benefits of our acquisitions, and the ongoing integration of those acquisitions could disrupt our ongoing business, distract our management and increase our expenses.

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The continued successful integration of these other companies into our operations is critical to our future financial performance.

This will require that we continue to integrate more closely the companies’

product offerings and research and development capabilities, retain key employees, assimilate diverse corporate cultures, further integrate management and financial information systems, consolidate the acquired operations and manage geographically dispersed operations, among other things, each of which could pose significant challenges.

This will require that we continue to integrate more closely the companies’ product offerings and research and development capabilities, retain key employees, assimilate diverse corporate cultures, further integrate management and financial information systems, consolidate the acquired operations and manage geographically dispersed operations, among other things, each of which could pose significant challenges.

The difficulty of combining the acquired companies with our company may be increased by the need to integrate personnel, and changes effected in the combination may cause key employees to leave.

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Any diversion of the attention of management created by the integration process, any disruptions or other difficulties encountered in the integration process, and unforeseen liabilities or unanticipated problems with the acquired businesses could have a material adverse effect on our business, operating results and financial condition.

We are working diligently to complete integration activities, minimize employee disruptions and improve manufacturing and operations processes and communication as we continue to integrate the Arthrosurface and Parcus Medical businesses.

We are working diligently to complete integration activities, minimize employee disruptions and improve production and communication as we continue to integrate Arthrosurface and Parcus Medical.

It has been more challenging than anticipated to effectively and timely complete our integration goals.

We recorded an impairment to goodwill in 2020 and a reduction in the fair value of contingent consideration in connection with the acquisitions that was driven in part by the significant effect that COVID-19 has had on the business industry.

The acquisition of these two companies and the related investment in the business have contributed to our net loss in recent years.

We recorded an impairment to goodwill in 2020 and to intangible assets in 2023 and a reduction in the fair value of contingent consideration in connection with the acquisitions that was driven in part by slower than expected revenue growth with these businesses that have impacted near-term cash flows.

There can be no assurance that these acquisitions will provide the benefits we expect or that we will be able to integrate and develop the operations of Parcus Medical and Arthrosurface successfully.

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Customer and employee uncertainty about the effects of any acquisitions could harm us.

Customers of any companies or technologies that we acquire may, in response to the consummation of the acquisitions, delay or defer purchasing decisions, which could adversely affect the success of our acquired businesses.

Similarly, employees of acquired companies may experience uncertainty about their future roles, which may adversely affect our ability to attract and retain key management, sales, marketing, and technical personnel following an acquisition. 

Customers of any companies we acquire may, in response to the consummation of the acquisitions, delay or defer purchasing decisions, which could adversely affect the success of our acquired businesses.

As our international sales and operations grow, we could become increasingly subject to additional economic, political, and other risks that could harm our business.

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These risks include:

The impact of recessions, inflation and other economic conditions in economies, including the impact of the COVID-19 pandemic, outside the United States;

The impact of recessions, inflation and other economic conditions in economies outside the United States;

Instability of foreign economic, political, and labor conditions;

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However, no assurance can be given that any patent application will be filed, that any filed applications will result in issued patents, or that any issued patents will provide us with a competitive advantage or will not be successfully challenged by third parties.

The protections afforded by patents will depend upon their scope and validity, and others may be able to design around our patents. 

We also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology.

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As a result, any such infringement may have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to the COVID-19 Pandemic

Our operations are located in areas impacted by the COVID-19 pandemic, and those operations have been, and may continue to be, adversely affected by the COVID-19 pandemic.

The coronavirus has impacted the social and economic framework globally.

Our administrative, research and development, and manufacturing operations are principally performed at our U.S.

facilities in Massachusetts and Florida.

Though our Italian operations represent a relatively small percentage of our consolidated business, we conduct commercial activity, product development, sales, logistics, inventory management and supply chain activities, and other services in our office in Padova, Italy.

Our business operations in the United States and Italy are subject to potential business interruptions arising from protective measures that have been or may be taken by Italian, U.S., Massachusetts and Florida regulators and other government agencies due to COVID-19 or its variants.

Business disruptions elsewhere in the world could also negatively affect the sources and availability of components and materials that are essential to the operation of our business in both the United States and Italy.

Our commercial day-to-day operations have been, and may in the future be, significantly impacted by cancellations or delays of elective procedures in hospitals and ASCs, and timelines associated with certain clinical studies and research and development programs have been delayed.

Stay-at-home orders, business closures, travel restrictions, supply chain disruptions, employee illness or quarantines, our or our suppliers’

ability to hire employees and other extended periods of interruption to our business have resulted in disruptions to our operations, caused us to cease or delay operations, and prevented our customers from receiving shipments or processing payments.

All these impacts could continue as new variants of COVID-19 could continue to impact our business.

If a number of our essential employees become sick or otherwise unable to continue working during the current or any future epidemic, our operations may be harmed.

Also, the remote work environment made necessary by the COVID-19 pandemic may exacerbate various cybersecurity risks to our business, including an increased demand for information technology resources, an increased risk of phishing and other cybersecurity attacks, and an increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information.

Extended periods of interruption to our corporate, development or manufacturing facilities due to the COVID-19 pandemic have caused or could cause us to lose revenue and market share, which has depressed and could continue to depress our financial performance and may be difficult to recapture.

Employee disruptions and remote working environments related to the COVID-19 pandemic have impacted, and are continuing to impact, the efficiency and pace with which we work and develop our product candidates and our manufacturing capabilities.

In addition, the COVID-19 pandemic and related economic uncertainties have increased challenges associated with hiring highly skilled and experienced employees and may continue to create challenges and/or adversely impact employee retention due to the additional financial, family, and health burdens that many employees or potential employees may be experiencing.

Our industry’s highly competitive market for skilled workers and leaders may negatively affect our ability to retain qualified employees.

Losing members of our senior management and other highly skilled personnel could prevent us from achieving our business objectives or divert management’s attention to seeking qualified replacements and ensuring seamless transitions.

The COVID-19 pandemic resulted in a significant reduction in the number of elective surgeries being performed since  

2020 and the lingering impact of the pandemic has slowed the pace of new product approvals by current and potential customers, which has decreased the usage of, and revenue from, certain of our products.

A significant portion of the demand for our products results from the usage of our products in elective surgeries.

Since 2020, we have experienced a significant decline in procedure volume in the U.S.

compared to previous levels, as healthcare systems diverted resources to meet the increasing demands of managing COVID-19 and subsequently encountered significant staffing challenges when trying to support procedures.

In addition, primarily as a result of the impacts of COVID-19 including stay-at-home orders and other attempts to limit in-person meetings, and ongoing staffing challenges, hospitals and ASCs at times delayed having meetings of their committees to review and approve the introduction of new products into their facilities.

As we are focused on growing our business by introducing new products to existing and new hospital and ASC customers, the inability to have our products timely reviewed and approved by these customers has also negatively impacted our revenue and operating results as delays in product approvals impact and draw out product adoption timelines.

It is uncertain whether elective surgeries or product review and approval processes will be negatively impacted or halted again in the future by a resurgence of COVID-19.

The COVID-19 pandemic, its variants or other similar pandemics could adversely impact our development activities, preclinical studies and clinical trials, which could significantly impair our long-term business plans and operating results.

The timely initiation and completion of our preclinical and development activities and clinical trials depend upon the availability of facility access, preclinical study and clinical trial sites, researchers and investigators, regulatory agency personnel, and materials, all of which may be adversely affected by the COVID-19 pandemic, its variants or other similar pandemics.

The timing of our clinical trials depends on our ability to recruit patients to participate as well as the completion of required follow-up periods.

The COVID-19 pandemic has had and may continue to have a sustained impact on our ability to recruit, enroll, treat and follow-up with patients either due to renewed restrictions on travel or shelter-in-place orders or policies, or due to changes in patient willingness to participate in trials or travel to study sites during a pandemic.

The timeline for recruiting patients, conducting trials and obtaining regulatory approval of our product candidates have been and may in the future be delayed, which could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether.

Factors resulting from the COVID-19 pandemic, its variants or other similar pandemics that could delay or otherwise adversely affect the completion of our preclinical activities and the planned activities related to our clinical trials, as well as our business generally, include: 

the potential diversion of healthcare resources away from the conduct of preclinical activities and clinical trials to focus on pandemic concerns, including the availability of necessary materials and the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our prospective clinical trials;

limitations on travel that could interrupt key preclinical and clinical activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to our research, manufacturing and clinical trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our prospective clinical trials;

interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact review, inspection, clearance and approval timelines;

interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, product candidates and supplies, to be used in our prospective clinical trials;

limitations on our business operations by government authorities that could impact our ability to conduct our preclinical or clinical activities;

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations, cyber security and data accessibility, or communication or mass transit disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, ethics committees, manufacturing sites, research or clinical trial sites, and other important agencies and contractors.

Our global supply chain may be materially adversely impacted due to the ongoing impacts of the COVID-19 pandemic, its variants or other pandemics.

We rely upon the facilities of our global suppliers to support our business.

The COVID-19 pandemic resulted in significant governmental measures being implemented in many countries to control the spread of COVID-19, including restrictions on manufacturing and the movement of employees.

As a result of COVID-19 and the measures designed to contain its spread, certain of our suppliers did not have the materials, staffing, capacity, or capability to supply our needed materials and other supplies that we require to manufacture our products according to our schedule and specifications.

It is uncertain whether and to what extent these supply chain challenges will continue or fully recover following the direct and indirect impacts of COVID-19.

Further, logistics issues, including our ability and our supply chain’s ability to quickly ramp up production, and transportation demands may cause delays.

If our suppliers’

operations are curtailed, we may need to seek alternate sources of supply, which may be more expensive or require approval from regulatory agencies which could cause further delays.

Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations.

If the duration of the production and supply chain disruptions continue for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows.

Risks Related to Ownership of Our Common Stock

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Factors such as announcements of new commercial products or technological innovations by us or our competitors, disclosure of results of clinical testing or regulatory proceedings, government regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products developed by us, and general market conditions may have a significant effect on the market price of our common stock.

We have highlighted to investors increased volatility and uncertainty in the global macroeconomic environment and the changing dynamics associated with staffing shortages, supply chain disruption, inflation and other direct and indirect impacts of the COVID pandemic.

These actions, as well as general investor uncertainty, could create volatility and unpredictability in our stock price.

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Our operating results in future quarters may be below the expectations of equity research analysts and investors.

In such an event, the price of our common stock would likely decline, perhaps substantially. 

Our charter documents contain anti-takeover provisions that may prevent or delay an acquisition of our company.

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The provisions include, among others, a classified board of directors, advance notice to the board of stockholder proposals, limitations on the ability of stockholders to remove directors and to call stockholder meetings, and a provision that allows vacancies on the Board of Directors to be filled by vote of a majority of the remaining directors.

We are also subject to Section 203 of the Delaware General Corporate Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested stockholder”

for a period of three years following the date that such stockholder becomes an interested stockholder.

Those provisions could have the effect of discouraging a third party from pursuing a non-negotiated takeover of our company at a price considered attractive by many stockholders and could have the effect of preventing or delaying a potential acquirer from acquiring control of our company.

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If any analysts who cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We have been, and may continue to be, subject to the actions of activist stockholders, which could cause us to incur substantial costs, divert management ’

s and the board ’

s attention and resources, and have an adverse effect on our business and stock price.

We have been, and may continue to be, subject to the actions of activist stockholders, which could cause us to incur substantial costs, divert management ’ s and the board ’ s attention and resources, and have an adverse effect on our business and stock price.

From time to time, we may be subject to proposals by activist stockholders urging us to take certain corporate actions or to nominate certain individuals to our board of directors.

In February 2023, Caligan Partners LP, or Caligan, indicated that it intends to consider all available options, including nominating a slate of directors for election to the board of directors at our 2023 annual meeting of stockholders.

If activist stockholder activities, such as those by Caligan or other stockholders, ensue, our business could be adversely affected, as responding to proxy contests and reacting to other actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our board of directors.

In February 2023, Caligan Partners LP, or Caligan, indicated that it intended to consider all available options, including nominating a slate of directors for election to the board of directors at our 2023 annual meeting of stockholders.

In April 2023, we entered into a Cooperation Agreement (the “Cooperation Agreement”) with Caligan.

Pursuant to the Cooperation Agreement, we agreed to increase the size of our board of directors to eight directors and appointed Mr.

Gary Fischetti as an independent Class III director.

On March 6, 2024, Caligan nominated two directors for election to our board of directors at our 2024 annual meeting of stockholders.

If Caligan solicits proxies for its candidates or proceeds with other similar types of actions, our business could be adversely affected.

Responding to such actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our board of directors.

For example, we have retained the services of various professionals to advise us on activist stockholder matters, including legal, financial, and communications advisors, the costs of which negatively impact our financial results and we may be required to retain additional services in the future, which could have a further negative impact on our financial results.

In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors