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Item 1. Business

2022-03-11 compared with 2021-03-26 · 595 added, 977 removed, 136 unchanged (92% of the section changed)

Bioventus Inc.

is a Delaware corporation formed on December 22, 2015.

Unless the context requires otherwise, in this Annual Report on Form 10-K (Annual Report) the terms “we,” “us,” “our,” the “Company,” “Bioventus,” “Bioventus Inc.” and similar references refer to the combined operations of Bioventus Inc.

and its consolidated subsidiaries and affiliates, including Bioventus LLC (BV LLC).

Initial public offering and organizational transactions

On February 16, 2021, we closed an initial public offering (IPO) of 9,200,000 shares of our Class A common stock at a public offering price of $13.00 per share, which included 1,200,000 shares issued pursuant to the underwriters' over-allotment option.

We received $111.2 million in proceeds, net of underwriting discounts and commissions, which we used to purchase newly-issued membership interests from BV LLC at a price per interest equal to the IPO price of our Class A common stock of $13.00.

Bioventus is a holding company with no direct operations and our principal asset is the equity interest in BV LLC.

In connection with the IPO, we completed a series of organizational transactions including, without limitation, the following:

• the limited liability company agreement of BV LLC was amended and restated (Bioventus LLC Agreement) to, among other things, (i) provide for a new single class of common membership interests in BV LLC (LLC Interests), (ii) exchange all of the then existing membership interests of the holders of BV LLC membership interests (Original LLC Owners) for LLC Interests and (iii) appoint Bioventus Inc.

as the sole managing member of BV LLC;

• the acquisition, by merger, of certain members of BV LLC (Former LLC Owners), for which we issued 31,838,589 shares of Class A common stock as merger consideration (Merger).

Refer to Note 4 Subsequent events of the Bioventus, Inc.

financial statements included in Part II, Item 8.

Financial Statements and Supplementary Data of this Annual Report for more information about the above-mentioned transactions as well as the other transactions completed in connection with the IPO (Transactions).

Following the completion of the Transactions, Bioventus owned 72.2% of BV LLC.

Smith & Nephew, Inc.

(Continuing LLC Owner) owned the remaining 27.8% of BV LLC.

We have a majority economic interest, the sole voting interest in, and control the management of, BV LLC.

As a result, we will consolidate the financial results of BV LLC and will report a non-controlling interest representing the LLC Interests held by the Continuing LLC Owners.

Company overview

We are a global medical device company focused on developing and commercializing clinically differentiated, cost efficient and minimally invasive treatments that engage and enhance the body’s natural healing process.

Our devices are most often used to delay or replace the need for an elective surgical procedure and are focused on reaching patients early on in their treatment paradigm.

The Company is headquartered in Durham, North Carolina.

We have administrative facilities in the United States (U.S.), Canada, and the Netherlands, and a manufacturing facility in the U.S.

We directly distribute products in the U.S., Canada, United Kingdom (U.K.), Germany and the Netherlands.

In several of these and other markets, we also distribute our products through independent distributors.

We believe our non-invasive medical device and biologic products play a critical role in supporting the body’s own healing mechanisms to heal or eliminate the pain caused by orthopedic conditions and problems, which we define as our active healing products.

These products address an estimated $6.0 billion market opportunity across osteoarthritic (OA) joint pain treatment and joint preservation, spinal fusion surgery and bone fractures, each of which is experiencing growth through multiple industry tailwinds, including an aging population, increased participation in sports and active lifestyles and a rise in obesity rates.

Our devices are most often used to delay or replace the need for an elective surgical procedure and are focused on reaching patients early on in their treatment paradigm.

Our products are widely reimbursed by both public and private health insurers and are sold in the physician’s office or clinic, in ambulatory surgical centers (ASCs), and in the hospital setting in the U.S.

and across 37 countries.

We manage our business by our two reporting segments, U.S.

We manage our business through two reporting segments, U.S.

and International which accounted for 90% and 10%, respectively, of our total net sales during the fiscal year ended December 31, 2021.

Financial information regarding our reportable business segments and certain geographic information is included in Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report.

See also Note 15.

Segments of the Notes to the Consolidated Financial Statements in Part II, Item 8.

Financial Statements and Supplementary Data of this Annual Report for further information regarding our business segments.

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Our existing portfolio of products is grouped into three verticals based on our targeted customer focus:

• OA Joint Pain Treatment and Joint Preservation .

We are the largest pure play orthopedics-focused company in the OA joint pain treatment and joint preservation market.

We have been the fastest growing hyaluronic acid (HA) participant over the last three years, driving our share to number three by revenue in the U.S.

We offer the only complete portfolio of HA viscosupplementation therapies, including single, three and five injection regimens, for patients experiencing pain related to OA in the knee.

Our HA products are all approved by the U.S.

Food and Drug Administration (FDA) through premarket approvals (PMAs), and include:

(a) Durolane, a single injection therapy, was launched in the United States in 2018 and is also marketed outside the United States in more than 30 countries including Europe through a CE mark, which is an abbreviation for Conformité Européenne or European Conformity;

(b) GELSYN-3, a three injection therapy, was launched in the United States in 2016;

• Bone Graft Substitutes.

We are the fastest growing participant in the bone graft substitutes (BGSs) market and offer a broad portfolio of products including human tissue allografts and synthetics.

Our BGS products can be used in conjunction with any orthopedic fixation and spinal fusion implant.

They are designed to improve bone fusion rates following spinal fusion and other orthopedic surgeries and reduce the need for using the patient’s own bone, which is associated with additional cost and morbidity.

Our products include an allograft-derived bone graft with growth factors (OsteoAMP), a demineralized bone matrix (DBM) (Exponent), a cancellous bone in different preparations (PureBone), bioactive synthetics (Signafuse and Interface), a collagen ceramic matrix (OsteoMatrix) and two bone marrow isolation systems (CellXtract and Extractor).

Our products have received either 510(k) clearance from the FDA or are marketed pursuant to Section 361 of the Public Health Service Act (PHSA) as Section 361 HCT/Ps.

HCT/Ps regulated solely under Section 361 are human cells, tissues and cellular and tissue-based products that do not require marketing authorization to be marketed in the United States.

• Minimally Invasive Fracture Treatment.

Our Exogen system was the number one prescribed device in the bone growth stimulatory market in 2018 (the latest period for which data is available).

It has had marketing authorization via a PMA through the FDA for over 25 years.

We are the only company to utilize advanced, pulsed ultrasound technology for bone growth in delayed and nonunion fractures in all fracture locations except spine, as well as in fresh fractures of the tibia and radius.

Our Exogen system offers significant advantages over electrical based long bone stimulation systems, including a documented mechanism of action, shorter treatment times and superior nonunion heal rates.

The system is also sold internationally under a CE mark for nonunions and fresh fractures and is the market-leading bone healing treatment in the delayed union and nonunion market in Japan.

The COVID-19 pandemic and the measures imposed to contain the spread of the virus disrupted our business beginning in early March 2020 as healthcare systems across the U.S.

were forced to limit patient visits and elective surgical procedures.

The effects of the pandemic began to decrease in late April 2020 and we saw a very strong recovery for our products at the end of the second quarter as restrictions on orthopedic procedures were lifted across the United States and patients also returned to orthopedic offices.

Our portfolio of products is grouped into three verticals:

• Pain Treatments is comprised of non-surgical joint pain injection therapies as well as peripheral nerve stimulation (PNS) products to help the patient get back to their normal activities;

• Surgical Solutions is comprised of bone graft substitutes (BGS) to fuse and grow bones, improve results following spinal and other orthopedic surgeries as well as ultrasonic medical devices used for precise bone sculpting, remove tumors and tissue debridement, in various surgeries including spine and neurosurgery;

• Restorative Therapies is comprised of an Ultrasonic bone healing system for fracture care, skin allografts and products used to support healing of chronic wounds as well as Advanced Rehabilitation devices designed to help patients regain leg or hand function due to stroke, multiple sclerosis or other central nervous system disorders and orthopedic conditions impacting extremity function.

Financial information regarding our reportable business segments is included in Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 14.

Segments of the Notes to the Consolidated Financial Statements within Part II, Item 8.

Financial Statements and Supplementary Data of this Annual Report.

Our verticals and the products within each vertical are described in additional detail below under “Our products.”

COVID-19 Update and Outlook

Refer to Part I, Item 1A.

Risk Factors and Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information regarding the impact and related risks of the COVID-19 pandemic on our business.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the effects of the global COVID-19 pandemic on our business in 2021 and of its expected impact in 2022 and beyond.

Our growth strategy

We intend to pursue the following strategies to build a market-leading and customer-focused company centered on the OA joint pain treatment and joint preservation, BGSs and minimally invasive fracture treatments, and to continue to grow our net sales and Adjusted EBITDA:

We intend to pursue the following strategies to build a market-leading and customer-focused company centered on our three verticals, Pain Treatments, Surgical Solutions and Restorative Therapies, and to continue to grow our net sales and Adjusted EBITDA:

• Continue to expand market share in HA viscosupplementation .

We intend to increase sales of our HA viscosupplementation therapies and extend our market leadership in this category by building on our unique positioning as the only company to offer a one, three and five injection treatment regimen and by expanding payer coverage, which we have done successfully, increasing the number of lives under contract from 6 million to 48 million between 2017 and 2020.

This increase in lives, along with our differentiated portfolio and dedicated direct sales team, has allowed us to achieve significant market share gains over the last several years and positioned us as the largest pure play orthopedic-focused company in the U.S.

HA viscosupplementation market with a market share of approximately 17% as of September 26, 2020.

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• Introduce new OA joint pain treatment and joint preservation products.

To expand our offering beyond HA viscosupplementation therapies and build a comprehensive portfolio for the OA joint pain treatment and joint preservation, we are planning to commercially launch a range of new therapies over the next several years, including:

An off-the-shelf aragonite implant designed for implantation into osteochondral defects in the knee.

The Agili-C implant received breakthrough device designation by the FDA in the fourth quarter of 2020.

We have an option to acquire this technology from CartiHeal upon FDA approval.

CartiHeal submitted the non-clinical module of the PMA in January 2021 and expects to submit the final, clinical module of a Modular PMA in the fourth quarter of 2021 seeking FDA approval.

A placental tissue injectable biologic for knee OA, which we began selling in the cash pay market in the fourth quarter of 2020 as a Section 361 HCT/P pursuant to a temporary FDA policy of enforcement discretion.

On October 29, 2020, we received FDA confirmation indicating its authorization of our investigational new drug application (IND), and a clinical trial for MOTYS has commenced in the first quarter of 2021.

In parallel, we plan to pursue a required BLA premarket approval for this product, which we expect would expand insurance payment alternatives over time.

A bio-inductive collagen implant for regeneration of tendon tissue in the rotator cuff.

We expect to file a request for 510(k) clearance in either the second or third quarter of 2022.

• Further develop and commercialize our BGS portfolio.

We intend to grow our presence in the BGS market and expand our reach into the operating room in both ASCs and hospitals.

We offer the highest molecular weight single injection product known as Durolane.

• Introduce new pain treatment products as well as complementary products within sports medicine.

We plan to expand our offering beyond HA viscosupplementation, and nerve stimulation into sports medicine by building a comprehensive portfolio for pain and sports medicine treatments for launch over the next several years.

• Further develop and commercialize our surgical solutions portfolio.

We intend to grow our presence in the surgical solutions market and expand our reach into the operating room in both ambulatory surgical centers (ASCs) and hospitals.

In the near-term, we plan to maintain and selectively expand our profitable product lines by adding to our U.S.

distributor base in an effort to reach significantly underpenetrated markets.

Over time, we intend to launch product line enhancements and invest in the development of next-generation BGS therapies to continue to grow our market share.

Consistent with this strategy, we recently launched the Signafuse Bioactive Strip and anticipate launching the OsteoAmp Flowable in 2021.

distributor base in an effort to reach significantly under-penetrated markets.

Over time, we intend to launch product line enhancements and invest in the development of next-generation surgical solution therapies to continue to grow our market share.

• Expand indications for use for our Exogen system .

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clinical studies, which are aimed at generating data to support label expansion in additional bone types and expanded reimbursement for the treatment of fresh fractures in patients at risk of nonunion due to certain comorbidities, such as diabetes or obesity.

We commenced patient enrollment to study three specific bones in 2017 and began a rolling release of data in late 2020.

Depending on the results from our studies, we plan to submit a total of three PMA supplements to the FDA, the first of which was submitted in December 2020 seeking approval for the adjunctive treatment of acute and delayed metatarsal fractures to reduce the risk of non-union.

We plan to submit the second PMA supplement in the second quarter of 2022 and the third PMA supplement in the second half of 2023.

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• Invest in research and development.

We are focused on internal research and development to broaden our portfolio of therapies to manage OA joint pain and joint preservation, expand our Exogen system product label and undertake clinical research to support commercialization of our next-generation of BGS products.

We see significant opportunity to develop innovative and clinically differentiated products internally with our qualified research and development team.

We are focused on internal research and development to broaden our portfolio of Pain Treatments, Surgical Solutions and Restorative Therapies.

We rely on a team of highly trained individuals to develop new products, conduct clinical investigations and help educate health care providers using our products.

Our research and development team is comprised of 13 members holding PhDs and 18 members with more than 20 years of experience in the medical device industry.

We collaborate with academic centers of excellence, leading contract research organizations and other industrial groups to complement and expedite execution of our research and development programs and minimize fixed costs.

We collaborate with academic centers of excellence, leading contract research organizations and other industry groups to complement and expedite execution of our research and development programs and minimize fixed costs.

• Pursue business development opportunities.

Consistent with our track record of partnerships and acquisitions of MOTYS, PROcuff and CartiHeal, we intend to continue to pursue business development opportunities that leverage our significant customer presence across orthopedics, broaden our portfolio and increase our global footprint.

Consistent with our track record of acquisitions of Bioness and Misonix and strategic investments in CartiHeal and Trice Medical, we intend to continue to pursue business development opportunities in the medium term that leverage our significant customer presence across orthopedics, broaden our portfolio and increase our global footprint.

We will continue to search for clinically differentiated and cost-effective products and technologies that also balance our portfolio in terms of risk and time to market.

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We intend to focus our international business on markets where our existing portfolio can maintain profitable growth over time, either through direct or distributor based channels.

For example, we launched OsteoAMP in Canada in 2020, where Durolane and Exogen had a market leading presence in 2016.

We plan to selectively expand to new markets with Durolane, Exogen and our BGSs and intend to pursue further opportunities in the Asia Pacific markets.

We plan to selectively expand to new markets and intend to pursue further opportunities in the Asia Pacific markets.

In particular, China represents an attractive and exciting market given its large and aging population as well as its rising middle class.

We have added management in China and will be creating a legal entity as we seek approval from the China Food and Drug Administration for Durolane, which we believe will be facilitated by the successful completion of our Chinese randomized controlled trial (RCT).

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Recent Developments

Investment and Potential Acquisition

On January 4, 2021, we made a convertible debt investment of $1.5 million, (Investment), in a medical device company (Target), as a part of our exclusive negotiations with the Target regarding the Potential Transaction (as defined below).

If the Potential Transaction is not consummated, the Investment will be convertible into equity of the Target at our discretion or upon a change of control of the Target, which we expect to result in approximately 2% equity ownership in the Target.

The arrangement has allowed the parties to explore a possible acquisition of the Target (Potential Transaction) for a payment of $45.0 million to be paid at closing with contingent payments of up to $65.0 million to be paid upon achievement of certain key milestones.

While still subject to due diligence, we believe the Target’s patent-protected portfolio of FDA approved products and its product development pipeline are highly complementary to our OA joint pain treatment and joint preservation vertical and would allow us to further leverage our claims processing infrastructure.

For the year ended December 31, 2020, the Target generated approximately $40.0 million in revenue and had loss from operations of approximately $14.0 million.

We expect the Target to be accretive to revenues immediately if the Potential Transaction closed, and to have a positive contribution to combined Company net income excluding purchase accounting and transaction costs by the end of year one post-close.

We were notified that a minority shareholder of the Target filed a complaint with the Court of Chancery of the State of Delaware on February 4, 2021 contesting the Potential Transaction, as well as related motions to expedite proceedings and issue a temporary restraining order.

We understand that the Target was successful defending the action and on March 4, 2021, the complaint and motions were dismissed, but there can be no assurance that this action will not impact the timing, terms, or likelihood of closing of the Potential Transaction.

Any resulting acquisition will be funded through our current cash balance and, if necessary, proceeds from our existing line of credit.

We cannot assure that the acquisition will occur on or before a certain time, on the terms described herein, or at all.

See Part I, Item 1A.

Risk Factors —Risks related to our business—If we choose to acquire or invest in new businesses, products or technologies, we may be unable to complete these acquisitions or to successfully integrate them in a cost-effective and non-disruptive manner.

We offer a diverse portfolio of active healing products to serve physicians spanning the orthopedic continuum, including sports medicine, total joint reconstruction, hand and upper extremities, foot and ankle, podiatric surgery, trauma, spine and neurosurgery, in the physician’s office or clinic, ASCs or in the hospital setting.

Misonix Acquisition

On October 29, 2021, we acquired Misonix, Inc.

(Misonix) in a cash-and-stock transaction (Misonix Merger).

Misonix manufactures minimally invasive surgical ultrasonic medical devices used for precise bone sculpting, removal of soft and hard tumors, and tissue debridement, primarily in the areas of neurosurgery, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery.

Misonix also exclusively distributes skin allografts and wound care products used to support healing of wounds.

At the closing of the Misonix Merger, we provided merger consideration totaling $525.3 million, including cash of $183.0 million, the issuance of 18,340,790 shares of our Class A common stock and the assumption or settlement of Misonix stock options having a value of $27.6 million.

The remaining consideration consisted of Misonix debt and other liabilities that benefited the seller which we repaid in full.

The acquisition includes the entire portfolio of Misonix products as well as its research and development pipeline.

The cash consideration was funded through taking on additional debt as well as the use of cash on hand.

Bioness Acquisition

On March 30, 2021, we acquired Bioness, Inc.

(Bioness), in a cash transaction (Bioness Merger).

Bioness is a global leader in neuromodulation and advanced rehabilitation medical devices through its innovative peripheral nerve stimulator (PNS) therapy and premium advanced rehabilitation solutions.

The Bioness Merger gives us access into two large and growing markets:

PNS and the advanced rehabilitation market.

We believe both of these markets offer attractive growth opportunities driven by demographic trends and the need for safe, effective, treatment options for the many patients suffering from post-surgical pain, stroke, multiple sclerosis, traumatic brain injury, spinal cord injury and cerebral palsy.

We estimate Bioness medical devices address total global market opportunities approaching $8 billion per year.

Bioness advanced rehabilitation solutions have a broad portfolio of offerings, including proprietary electrical stimulation exoskeletal devices for both the upper and lower extremities, robotic gait and fall safety systems, and high-tech, interactive software learning and recovery assessment platforms.

These products play an essential role in helping patients regain mobility due to stroke, traumatic brain injury, multiple sclerosis and osteoarthritis, and are used by physical or occupational therapists in a clinical setting or by the patient at home, with the guidance of a clinician through telemedicine.

Bioness PNS Systems are designed to help patients suffering from pain after surgery on an extremity, which affects over 16 million patients each year globally.

As consideration for the Bioness Merger, we paid $48.9 million in cash at closing and we expect to pay an additional $15.5 million of contingent consideration related to the achievement of certain key milestones.

The acquisition included the entire portfolio of Bioness products as well as its research and development pipeline.

The up-front consideration was funded exclusively through the use of cash on hand.

For additional information regarding the Misonix and Bioness Mergers, including associated risks and uncertainties, refer to Part I, Item 1A.

Risk Factors—Risks related to our business — We may be unable to complete proposed acquisitions or to successfully integrate proposed or recent acquisitions in a cost-effective and non-disruptive manner and Note 4.

Acquisitions and investments of the Notes to the Consolidated Financial Statements within Part II, Item 8.

Financial Statements and Supplementary Data included in this Annual Report.

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We offer a diverse portfolio of products to serve physicians spanning the orthopedic continuum, including sports medicine, total joint reconstruction, hand and upper extremities, foot and ankle, podiatric surgery, trauma, spine and neurosurgery, in the physician’s office or clinic, ASCs or in the hospital setting.

Our portfolio of products is grouped into three verticals based on clinical use:

(i) OA joint pain treatment and joint preservation, (ii) BGSs and (iii) minimally invasive fracture treatment.

OA joint pain treatment and joint preservation

Knee OA is a degenerative condition that is chronic in nature and is characterized by gradual breakdown and destruction of the cartilage in the knee.

This condition develops over years and is often found in patients who exhibit joint malalignment, have had a joint injury, or are overweight.

The disease can involve joint inflammation and results in symptoms that include redness, warmth, swelling, stiffness, tenderness, limited range of motion and pain.

As the condition advances, the knee joint gradually loses cartilage tissue and the cartilage layer attached to the bone deteriorates to the point where eventually the bone becomes exposed.

We have the only complete one, three and five injection portfolio in the HA viscosupplementation market in the United States with Durolane, GELSYN-3 and SUPARTZ FX.

Product Description Regulatory pathway Region where marketed (1)

Single injection HA

viscosupplementation therapy • PMA

• Device approval by Health Canada

• CE mark and other registrations (2)

• United States

Three injection HA

viscosupplementation therapy • PMA

• United States

Five injection HA

viscosupplementation therapy • PMA

• United States

__________________

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(1) We maintain exclusive distribution agreements with respect to Durolane, GELSYN-3 and SUPARTZ FX in the United States.

We maintain exclusive distribution agreements and own certain assets with respect to Durolane outside the United States.

(2) Durolane is also approved for marketing in Argentina, Australia, Brazil, Columbia, India, Indonesia, Jordan, Malaysia, Mexico, New Zealand, Russia, Switzerland, Taiwan, Turkey and the United Arab Emirates (UAE).

Single Injection Therapy

Durolane is a sterile, transparent and viscoelastic gel that is a single injection therapy that is indicated for the symptomatic treatment of OA in the knee in the United States.

(i) Pain Treatments, (ii) Surgical Solutions and (iii) Restorative Therapies.

Pain Treatments

Our joint Pain Treatment products are non-surgical alternatives created to work with the body’s biological processes, providing a natural lubricant into the joint that relieve mild to moderate pain, improves mobility, and helps the patient get back to their normal activities.

Durolane is an FDA-approved sterile, transparent and viscoelastic gel that is a single injection therapy that is indicated in the United States for the symptomatic treatment of OA in the knee in patients who have failed to respond adequately to conservative non-pharmacological therapy and simple analgesics.

Durolane is also indicated for the hip, ankle and shoulder, as well as for treatment of other small orthopedic joints outside the United States.

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Durolane’s injection schedule results in economic advantages and greater patient convenience and compliance compared to other HA viscosupplementation therapies which require weekly injections over a period of three to five weeks.

For example, we believe that changes in physician visiting patterns, as a result of the COVID-19 pandemic, have led to increased preference for single injection therapies.

Durolane is highly purified and based upon a natural and patented non-animal stabilized HA (NASHA), expanding use to patients who are allergic to animal derived solutions.

Comparison of major FDA-approved single injection HA viscosupplementation therapies

Manufacturer or

Indication Source and process Active ingredient /

treatment dosage Duration

OA of the knee Non-animalstabilized HA NASHA / (60 mg) Six months

OA of the knee Animal sourced Hylan A and Hylan B polymers Hylan G-F 20 / (48 mg) Six months

DePuy Orthopaedics,

OA of the knee Non-animal cross-linked sourced HA 2.2% sodium hyaluronate / (88 mg) Six months

Zimmer Biomet

Holdings, Inc.

OA of the knee Animal sourced HA 1.0% sodium hyaluronate /(30 mg) Three months

Durolane clinical data

Durolane’s proprietary stabilizing technology substantially extends the amount of time it remains in the joint.

Multiple studies have been conducted to determine Durolane’s half-life, which is the amount of time needed for 50% of the injected material to be broken down and excreted from the body.

In one study, Durolane’s half-life in the joint was studied in a rabbit model.

Results showed the Durolane remained in the joint with an observable half-life of 32 days, substantially longer than the half-lives of Synvisc and unmodified HA, as determined in comparable studies, which were 1.5 days and less than 1 day, respectively.

The long half-life of Durolane was also observed in the 2002 Lindqvist et al.

human study where six healthy volunteers were given a single injection of Durolane that contained a radioactive isotope that could be traced, allowing scientists to measure Durolane’s elimination from the body over time.

The results showed a 30-day half-life, indicative of the expected long residence time in the joint due to Durolane’s proprietary stabilizing technology and preclinical studies.

In terms of efficacy, Durolane has been directly compared against the main intra-articular therapeutic options available for managing osteoarthritic pain:

SUPARTZ FX, a five injection product, Synvisc One, a single injection product and methylprednisolone acetate, an intra-articular corticosteroid.

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In a multi-center randomized, blinded, controlled trial of 349 patients with mild-to-moderate knee OA, Durolane was compared with SUPARTZ FX.

This 2015 Zhang et al.

study concluded that one injection of Durolane was non-inferior to five weekly injections of SUPARTZ FX in terms of pain, stiffness, physical function and global self-assessment.

In an independent, investigator-initiated randomized, controlled study involving 213 patients with mild-to-moderate knee OA, Durolane was further compared to Synvisc-One.

After following up with the patients over a span of 12 months following the treatment, the results from this 2013 McGrath et al.

study showed that Durolane produced significantly more durable pain relief effects than Synvisc-One, while also providing longer-lasting improvements in range of motion and a reduction in the use of pain medication for study participants.

Greater Reduction in Knee Pain versus Synvisc-One

* p <0.000 compared to Synvisc

# p <0.000 compared to DUROLANE baseline

* p =0.008 compared to Synvisc baseline

Mean values +/- standard deviation

In a separate prospective, multi-center, randomized, active-controlled, double-blind, non-inferiority clinical trial with 442 enrolled patients with knee OA, it was observed that single injection Durolane was well tolerated and non-inferior compared to the corticosteroid methylprednisolone acetate at twelve weeks.

Methylprednisolone acetate is a steroid injectable formulation used to treat pain and swelling that occurs with OA and other joint disorders.

The effect size for pain, physical function and stiffness scores favored Durolane over methylprednisolone acetate from twelve to 26 weeks.

The benefit of Durolane was maintained through 26 weeks, while that of methylprednisolone acetate declined during the same period.

An additional injection of Durolane at 26 weeks conferred improvements through 52 weeks without increased sensitivity or risk of complications compared to the initial injection.

One subset of 31 patients treated with Durolane remained pain free after six months from the first injection and did not elect to receive a second injection.

As of December 31, 2020, over 2 million injections of the Durolane formulation have been safely administered globally since its international launch in 2006.

We launched Durolane in the United States in March 2018 and have owned certain Durolane assets outside of the United States relating to trademark, product registrations and clinical data since November 2015.

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Three Injection Therapy

We currently market Durolane in the United States and Europe.

GELSYN-3 is an FDA-approved sterile, buffered solution of highly purified sodium hyaluronate that is administered as a three injection HA viscosupplementation therapy.

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We currently market GELSYN-3 in the United States.

As of December 31, 2020, approximately 900,000 injections of the GELSYN-3 HA formulation have been safely administered in the United States since its launch in 2016.

GELSYN-3 clinical data

The safety and efficacy of GELSYN-3 was assessed in a prospective, multicenter, randomized, controlled, double-blind, non-inferiority pivotal study that enrolled 381 adult patients with knee OA.

Patients were randomized to receive three weekly injections of GELSYN-3 or three weekly injections of Synvisc 3, a three injection regimen commercialized in the United States by Sanofi S.A., with follow-up visits scheduled up to 26 weeks.

GELSYN-3 was observed to be non-inferior to Synvisc 3 at the 26-week time point.

Five Injection Therapy

SUPARTZ FX is an FDA-approved sterile and viscoelastic solution of HA that is administered as a five injection HA viscosupplementation therapy.

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SUPARTZ FX is derived from HA extracted from certified and veterinary inspected chicken combs.

Risks can include general knee pain, warmth and redness or pain at the injection site.

We currently market SUPARTZ FX in the United States.

As of December 31, 2020, over 410 million injections of the SUPARTZ FX HA formulation have been safely administered globally since its launch in 1987.

SUPARTZ FX clinical data

In a double blind, randomized, multi center, parallel group study conducted by Day et al.

in 2004 of the effectiveness and tolerance of intra-articular SUPARTZ FX compared to control (saline) treatment for knee OA, it was observed that SUPARTZ FX reduced knee pain in patients during the post-injection period by about 50% from the baseline.

Of 240 patients randomized for inclusion in the study, 223 patients were evaluable for the modified intention to treat analysis and the statistically significant difference from the control was apparent after the series of injections was complete.

Intra-articular SUPARTZ FX therapy was shown to be more effective than saline in mild to moderate knee OA for the 13-week post injection period of the study.

The safety and efficacy of SUPARTZ FX was observed by Strand et al.

in an integrated analysis.

This integrated analysis included five separate double-blind, randomized, saline-controlled trials, and included a total of 1,155 patients comparing five weekly injections of SUPARTZ FX versus a saline placebo.

The pooled results from this study showed that SUPARTZ FX produced statistically significantly greater reduction from baseline in total Lequesne scores, a measure of overall function including pain.

The incidence of adverse events were observed to be minimal and similar in both treatment arms.

Furthermore, none of the reported adverse events were observed to be deemed treatment-related suggesting that SUPARTZ FX was safe and well-tolerated.

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Comparison of FDA-approved multi-injection HA viscosupplementation therapies

Manufacturer or distributor

Indication Source and

process Active ingredient /

total treatment

dosage Number of

per course Duration

OA of the knee Fermented, bacterial derived HA 0.84% sodium hyaluronate

(50.4 mg) Three Six months

OA of the knee Naturally derived, purified HA 1.0% sodium hyaluronate

(75/125 mg) Three to Five Six months

OA of the knee Hylan polymers, purified HA 0.8% Hylan G-F

20 (48 mg) Three Six months

Pharmaceuticals Inc.

OA of the knee Fermented, bacterial derived HA 1.0% sodium hyaluronate

(60 mg) Three Six months

Fidia Farmaceutici

OA of the knee Naturally derived, purified HA 1.0% sodium hyaluronate

(60 mg/100 mg) Three to Five Six months

OrthogenRx, Inc.

OA of the knee Fermented, bacterial derived HA 1.0% sodium hyaluronate

(75/125 mg) Three to Five Six months

Development and Clinical Pipeline

Amniotic tissue products for the treatment of OA

Collaboration and development agreement for MOTYS

On May 29, 2019, we entered into a Development Agreement with Musculoskeletal Transplant Foundation, Inc.

(MTF) to develop an injectable placental tissue product, MOTYS, for use in the OA joint pain treatment and joint preservation.

The development and commercialization of the product will take place in two stages, and we began limited commercialization of MOTYS to a cash pay only market in the fourth quarter of 2020 as a Section 361 HCT/P pursuant to the FDA’s policy of enforcement discretion allowing for marketing without the required BLA approval until May 2021, while in parallel we pursue a BLA pre-market approval for the product.

Once approved as a biologic, MOTYS will be eligible for health insurance reimbursement and hence gain access a broader patient population.

We are planning to conduct randomized clinical trials to ultimately support the submission to the FDA of a BLA for the use of MOTYS in the OA joint pain treatment.

Based on our preclinical evidence, we believe the MOTYS formulation holds potential for mitigating OA joint pain while protecting damaged cartilage and promoting anti-catabolic and pro-anabolic events that could ultimately result in delayed disease progression in OA.

We have completed extensive in vitro and in vivo studies comparing the effect of MOTYS to the clinical standard of care (steroid injections).

MOTYS provided non-inferior pain relief effects to a steroid, but was superior in its effect on cartilage protection and in promotion of new tissue formation.

In October 2020, we received FDA confirmation indicating its authorization of our IND and plan to initiate clinical studies by year end.

Amniotic products have been extensively and safely used in clinical practice, and FDA has granted Regenerative Medicine Advanced Therapy (RMAT), designation to other amniotic tissue products being investigated for use in OA, which enables an expedited development pathway as well as eligibility for increased and earlier interactions with FDA.

We intend to submit a request for RMAT designation for MOTYS in 2022.

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Implantable for the treatment of rotator cuff injuries

Development collaboration agreement for PROcuff

On August 23, 2019, we entered into an exclusive Collaboration Agreement with Harbor Medtech Inc.

(Harbor) to develop and license the rights to commercialize a woven-suture-collagen composite implant product, PROcuff, for the regeneration of tendon tissue.

Concurrently with the execution of the agreement, we purchased $1.0 million of shares of Harbor.

As a result of Harbor’s achievement of certain milestones, on October 5, 2020, we purchased $1.0 million of additional shares of Harbor.

The sole use of proceeds from these investments is for the development of the woven-suture-collagen composite implant product and we have the right to purchase the product from Harbor once it is cleared for marketing by the FDA.

We have currently completed a pilot sheep implantation study through a collaboration with a prominent academic investigator.

Results indicate that the material is well tolerated, rapidly integrated and promotes the formation of new tendon tissue at the bone tendon interface.

We expect to file a request for 510(k) clearance in either the second or third quarter of 2022.

We plan to conduct post-clearance human clinical studies with the composite implant to further demonstrate the safety and efficacy of the product, and facilitate reimbursement.

Treatment of Cartilage for Osteochondral defects

CartiHeal (developer of Agili-C) investment and option and equity purchase agreement

On July 15, 2020, we made a $15.0 million equity investment in CartiHeal (2009) Ltd.

(CartiHeal), a privately-held company headquartered in Israel and developer of the proprietary Agili-C implant for the treatment of joint surface lesions in traumatic and osteoarthritic joints.

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Our PNS system is a permanent option that provides relief for chronic peripheral pain including:

Nerve Pain, Neuroma, Neuropathic Pain, Post-Stroke Shoulder Pain and Neuralgia.

StimRouter is implanted during a minimally invasive outpatient procedure performed under local anesthetic and delivers gentle electrical pulses directly to target peripheral nerve pain at its source.

Its small profile allows the system to be implanted in many locations around the body, depending on patient needs.

StimRouter is ideally suited for patients with chronic pain of a peripheral origin who are unable to find sustained pain relief with other treatment options such as nerve blocks, nerve ablation, and other temporary treatments.

StimRouter is programmed with up to eight different stimulation programs from which the patient is able to select, turn off/on and increase or decrease the stimulation intensity.

Development and clinical pipeline for Pain Treatments (including investments)

We continue to look for and execute on opportunities to expand our Pain Treatments portfolio through business development, product extensions and new market development.

An off-the-shelf aragonite implant designed for implantation into osteochondral defects in the knee currently under development by CartiHeal (2009) Ltd.

(CartiHeal), which is subject to our exclusive rights as described below.

The Agili-C implant received breakthrough device designation from the FDA in the fourth quarter of 2020.

We believe Agili-C is the only product in clinical development in the United States as an off-the-shelf scaffold implant that is designed to regenerate hyaline cartilage and subchondral bone simultaneously.

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We also believe Agili-C will enable the treatment of cartilage lesions in a significant population of OA patients, including those younger, active patients for whom available treatment options are limited.

The FDA’s grant of breakthrough device designation in the fourth quarter of 2020 for the treatment of an International Cartilage Repair Society (ICRS) grade III or above knee-joint surface lesions(s), with a total treatable area of 1-7cm2, without severe osteoarthritis (Kellgren-Lawrence grade 0-3) is a promising development, as such designation may help patients receive more timely access to Agili-C by expediting its development, assessment and review by the FDA.

We believe the FDA’s grant of breakthrough device designation in the fourth quarter of 2020 for the treatment of an International Cartilage Repair Society (ICRS) grade III or above knee-joint surface lesions(s), with a total treatable area of 1-7cm2, without severe osteoarthritis (Kellgren-Lawrence grade 0-3) is a promising development, as such designation may help patients receive more timely access to Agili-C by potentially expediting its development, assessment and review by the FDA.

On January 12, 2021, the Centers for Medicare and Medicaid Services (CMS) issued a final rule under which a breakthrough device designation by the FDA also provides a streamlined pathway to national Medicare coverage for a period of four years, beginning as early as the FDA approval for the product.

On March 12, 2021, CMS delayed by 60 days the effective date of the final rule on Medicare coverage for innovative technology, which was previously slated to become effective March 15, 2021.

The agency also provided a 30-day public comment period, which ends April 16, 2021.

We believe Agili-C also has the potential for broader indications for use in other joints, providing entrance into the global market for cartilage repair products designed to delay or eliminate the need for knee replacements.

In preclinical studies Agili-C was associated with osteochondral regeneration, good lateral integration and hyaline cartilage formation in critical size defects at 20 months when implanted in a goat, with the implant being fully resorbed between six to 20 months.

The Agili-C implant has been implanted in more than 190 patients outside the United States with follow up of more than four years and is CE marked.

The implant is currently being evaluated in a pivotal study pursuant to an IDE filed with the FDA.

The trial’s objective is to demonstrate the superiority of the Agili-C implant over the surgical standard of care (microfracture and debridement) for the treatment of cartilage or osteochondral defects, in both osteoarthritic knees and knees without degenerative changes.

The study’s protocol design, which is based on feedback from multiple pre-IDE interactions with the FDA, involves broad inclusionary criteria, such as defect size, age, and etiology, multiple controls, including microfracture and debridement, and multiple pre-planned secondary endpoints.

The study has an adaptive design, which allows for a maximum of 500 planned patients, includes multiple interim analyses to estimate sample size needs and includes European Union (EU), Israeli and U.S.

Our CartiHeal investment follows the recently completed enrollment and reporting of interim results in CartiHeal’s IDE multinational pivotal study for Agili-C.

This investment is expected to enable CartiHeal to complete the study, including all patient follow-up, and submit a PMA to the FDA.

Under the equity purchase agreement, CartiHeal can secure an additional $5.0 million from us, if needed, for IDE study completion.

We previously made an initial $2.5 million investment in CartiHeal in January 2018 and a subsequent investment of $0.2 million in January 2020 as part of prior CartiHeal financing rounds.

Any additional investment we make will be subject to customary closing conditions.

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Concurrent with the July 15, 2020 investment, we entered into an Option and Equity Purchase Agreement with CartiHeal and its shareholders, which provides us with an exclusive option to acquire 100% of CartiHeal’s shares, or the Call Option, and provides CartiHeal with a put option that would require us to purchase 100% of CartiHeal’s shares under certain conditions, or the Put Option.

The Call Option is exercisable by us at any time after the closing of the investment.

The Put Option is only exercisable by CartiHeal upon pivotal clinical trial success, including achievement of certain secondary endpoints and FDA approval of the Agili-C device with a label consistent in all respects with pivotal clinical trial success.

If not previously exercised, the Call Option and the Put Option terminate 45 days following the FDA approval of Agili-C or in the event of failure of the pivotal clinical trial.

We also have the right to terminate the Call Option and Put Option at any time ending 30 days after receipt from CartiHeal of the statistical report regarding the final results of the pivotal clinical trial upon payment of a breakup fee of $30.0 million.

Consideration for the acquisition of all of the shares of CartiHeal pursuant to the Call Option or Put Option would be $350.0 million, all of which would be payable at closing, with an additional $150.0 million payable upon achievement of certain sales milestones related to Agili-C.

Bone Graft Substitutes

BGSs in spinal fusion and other procedures

In November 2021, however, CMS rescinded this rule in its entirety, and stated that it plans to work with the FDA and other stakeholders to develop a new process to cover innovative devices that benefit Medicare patients.

We believe Agili-C may also have the potential for broader indications for use in other joints, providing entrance into the global market for cartilage repair products.

On July 15, 2020, we entered into an Option Equity Purchase Agreement (Option Agreement) and made a $15.0 million equity investment in CartiHeal, a privately-held company headquartered in Israel and developer of the proprietary Agili-C implant for the treatment of joint surface lesions in traumatic and osteoarthritic joints.

CartiHeal submitted the non-clinical module of the PMA in January 2021 and submitted the final, clinical module of a Modular PMA in the August 2021 seeking FDA approval.

In September 2021, CartiHeal achieved pivotal clinical trial success, as defined in the Option Agreement, for Agili-C.

In accordance with the Option Agreement and upon Board of Director approval, we deposited $50.0 million into escrow for the potential acquisition of CartiHeal.

If additional support is needed to complete the CartiHeal product study in response to FDA feedback, we will purchase an additional 338,089 of CartiHeal Series G Preferred Shares for $5.0 million.

We have an exclusive option to acquire the remaining equity in CartiHeal, which may be exercised at any time up to and within 45 days following notice of the FDA approval for Agili-C.

In addition, upon the same FDA approval, CartiHeal may exercise an option within 45 days that requires us to complete the acquisition of the remaining equity in CartiHeal.

A placental tissue injectable biologic for knee OA currently in clinical development.

We have completed extensive in vitro and in vivo studies comparing the effect of MOTYS to the clinical standard of care (steroid injections).

In these preclinical studies, MOTYS provided non-inferior pain relief effects to a steroid and showed superiority in protecting cartilage and in promoting new tissue formation.

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We began selling MOTYS in the cash pay market during the fourth quarter of 2020 as human cells, tissues and cellular and tissue-based product (HCT/P) pursuant to a temporary FDA policy of enforcement discretion.

Following the end of this temporary enforcement discretion policy on May 31, 2021, we were required to cease selling MOTYS and will not be able to resume sales of MOTYS in the United States unless and until such time as we obtain approval of a Biologics License Application (BLA).

Following completion of necessary clinical trials, we plan to pursue submission and approval of the required BLA for this product.

On October 29, 2020, we received FDA allowance to proceed with clinical studies under our investigational new drug application (IND).

We began randomized clinical trials for MOTYS in the first quarter of 2021 to support submission of a potential BLA to the FDA for the use of MOTYS in pain treatments.

We have completed enrollment and 6 months follow-up of all patients in our Phase I study with no material safety findings as assessed by an independent clinical safety review board.

Expected completion of this 12 month study is the fourth quarter of 2022.

In parallel, we have initiated an international Phase II dose finding clinical investigation.

Following national and local regulatory approvals, recruitment has started in Canada and Australia.

Study completion is expected in the first quarter of 2023.

An investigational bio-inductive collagen implant for regeneration of tendon tissue in the rotator cuff.

Preclinical evidence developed in a sheep model suggest that the material was well tolerated, rapidly integrated and promoted the formation of new tendon tissue at the bone tendon interface.

Further to those encouraging findings, we have initiated a pivotal Good Laboratory Practices sheep implantation study through a collaboration with a prominent academic investigator.

The results of this study, together with other ongoing test results, will be part of the request for 510(K) clearance submission, planned for the fourth quarter of 2022.

On August 23, 2019, we entered into an exclusive Collaboration Agreement with Harbor Medtech Inc.

(Harbor) to develop and license the rights to commercialize a woven-suture-collagen composite implant product, PROcuff, for the regeneration of tendon tissue.

This Collaboration Agreement was terminated on June 8, 2021, and we have acquired all rights to the product.

Surgical Solutions

Our Surgical Solutions product portfolio is comprised of clinically efficacious and cost effective bone graft solutions to meet a broad range of patient needs and procedures.

Bone grafting is a surgical procedure used to fuse spinal vertebrae, replace missing bones, fix bones that are damaged from trauma or problem joints, or to facilitate growing bones around an implanted device, such as a total knee replacement.

The bones used in a bone graft can come from a particular patient’s own body, referred to as an autograft, or from a donor, referred to as an allograft, or can be entirely man-made, referred to as a synthetic.

Most bone grafts are expected to be reabsorbed and replaced as the natural bone heals over a few months.

Our BGS product portfolio is comprised of clinically efficacious and cost effective bone graft solutions to meet a broad range of patient needs and procedures.

Our products are designed to improve bone fusion rates following spinal and other orthopedic surgeries, including trauma and reconstructive foot and ankle procedures.

These products include an allograft-derived bone graft with growth factors (OsteoAMP), a DBM (Exponent), cancellous bone in different preparations (PureBone), bioactive synthetics (Signafuse and Interface), a collagen ceramic matrix (OsteoMatrix) and two bone marrow isolation systems (CellXtract and Extractor).

As we build the body of clinical evidence supporting our products, we continue to look for and execute on opportunities to innovate in our BGS portfolio.

To meet growing market demand and evolving surgical techniques, we continue to develop product extensions and adjust formulations.

For example, we launched OsteoAMP Select in 2019 and we expect to launch OsteoAMP Flowable in 2021.

We designed OsteoAMP Flowable to be moldable and easy to use, with a convenient, ready to use syringe.

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Product Indications Description Regulatory pathway / year launched

Orthopedic, neurosurgical and reconstructive bone grafting procedures An allogeneic bone graft that is available in

multiple formats (fibers, putty, sponge and

granules) that is processed with bone

marrow cells to maintain the wide array of

growth factors present in native bone • Section 361 HCT/P / 2009

Posterolateral spine procedures Derived from human allograft bone tissue

and is combined with a migration-resistant

resorbable carrier and formulated into a

putty • 510(k) / 2012

Orthopedic, neurosurgical and reconstructive bone grafting procedures 100% cancellous bone with compressible,

elastic and sponge-like attributes, offered in

filler, block and strip options, as well as

mineralized chips • Section 361 HCT/P / 2012

Standalone posterolateral spine, extremities and pelvis, as well as a bone graft extender in the posterolateral spine Bioactive synthetic bone graft substitute

comprised of a mixture of calcium

phosphate granules and bioglass granules

suspended in a resorbable polymer carrier

that facilitates handling and delivery of the

granule components to fill spaces of

missing bone • 510(k) / 2014

Posterolateral spine when mixed with autograft, extremities and pelvis Bioactive synthetic bone graft in the form

of irregular granules of bioglass to repair

bone defects • 510(k) / 2011

Posterolateral spine, extremities and pelvis Next-generation mineralized two-phase

calcium phosphate bone void filler

comprised of a collagen scaffold designed

for optimized intra-operative handling and

biologic responsiveness at the defect site • 510(k) / 2010

Posterolateral spine, extremities and pelvis Next-generation mineralized bone void filler

comprised of bioglass and biphasic mineral

granules embedded in a collagen scaffold

designed for optimized intra-operative

handling and biologic responsiveness at the

• 510(k) / 2020

Minimally Invasive Fracture Treatment

Bone fractures

Fractures, also known as broken bones, occur when there is a high force or impact put on a bone, most commonly from trauma resulting from sports injuries, car accidents, falls or from osteoporosis, which is bone weakening due to aging.

Immediately following a fracture, patients are treated to realign the fractured bone ends.

If possible or required, the affected limb is immobilized using plaster or a splint.

In some cases, fractures require surgical fixation with devices such as screws, plates, rods and frames.

X-rays, CT and MRI imaging are utilized to verify alignment of the bone and to assess progress towards healing.

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A fracture is considered a fresh fracture during the first 14 days after the fracture occurs.

After a fracture is treated, new bone tissue begins to form and bridge the gap.

With modern treatment methods, most fractures heal spontaneously over the course of several months following injury.

However, some fractures fail to heal even when they receive the best surgical or non-surgical treatments.

This condition may be diagnosed as a nonunion fracture.

Nonunions may occur due to mechanical instability of the fracture site, due to inadequate immobilization, poor blood supply, gaps in bone to bone contact, or a number of comorbidities experienced by the patient.

In clinical literature, it is estimated that five to ten percent of all fractures fail to heal, often in high impact fractures or in patients that have compromised health from old age, obesity, cardiovascular disorders, arthritis, diabetes or smoking.

A nonunion is considered to be established when the fracture site shows no visibly progressive signs of healing.

Nonunions have a negative impact on quality of life with symptoms, such as reduced mobility, swelling, pain, tenderness, deformity and difficulty bearing weight.

Patients with nonunions may undergo surgery when certain conditions occur, such as an unstable or misaligned fracture, or a larger inter-fragment gap.

Some nonunions can be treated non-surgically using bone stimulation devices.

Long bone stimulation systems

We offer our Exogen ultrasound bone healing system for the non-invasive treatment of established nonunion fractures and certain fresh fractures.

Our Exogen system was the number one prescribed device in the long bone growth stimulatory market in 2018.

It has been sold commercially for over 25 years and is the only FDA-approved device on the market for the accelerated healing of fresh, closed posteriorly displaced distal fractures of the radius and fresh, closed or grade I open long bone fractures.

Product Description Regulatory pathway Region where marketed (1)

Ultrasound bone healing system for nonunion fractures and fresh fractures to the tibia and radius (2)

• Device approval by Health Canada

• CE mark and other registrations (2)

• United States

____________________

(1) Our Exogen system is indicated in the United States for the non-invasive treatment of established nonunions, excluding skull and vertebra, and for accelerating the time to a healed fracture for fresh, closed, posteriorly displaced distal radius fractures and fresh, closed or Grade I open long bone fractures in skeletally mature individuals when these fractures are orthopedically managed by closed reduction and cast immobilization.

We own our Exogen system and market it both in and outside the United States.

(2) Exogen is also approved for marketing in Australia, Japan, New Zealand, Saudi Arabia, Turkey and the UAE.

Our Exogen system is used to administer treatment in a location of convenience, including at home or work, once daily, for 20 minutes, or as prescribed by the patient’s physician, for accelerating bone healing.

This therapy provides a cost-effective treatment alternative to surgical intervention for nonunions.

Our Exogen system consists of the portable device, a charger, a gel bottle and strap.

The device features a transducer at the end of a coiled cord, a color screen, a power button and a mini-USB charging port to allow for recharging the battery.

The transducer sends specifically-programmed low-intensity pulsed ultrasound to the fracture site through the skin and soft tissue, with little or no sensation felt by the patient during the treatment.

The gel facilitates ultrasound signal transmission through the patient’s skin.

Our Exogen system provides an easy to use interface that tracks treatment use and promotes compliance.

In a clinical study of our Exogen system, we observed a 91% patient compliance with the treatment regimen, based on median total time of device usage.

An additional support tool for the patient is Exogen Connects, a free smartphone app that provides daily automated treatment reminders and helpful healing information.

Our Exogen system utilizes low-intensity pulsed ultrasound technology to stimulate the body’s natural bone healing process.

The ultrasound output intensity of the device is comparable to diagnostic ultrasound intensity levels used in obstetrical sonogram procedures for fetal monitoring and is typically only one to five percent of the output intensity of conventional therapeutic ultrasound devices used for physical therapy.

Some patients report experiencing a tingling sensation at the treatment site.

The depth and breadth of the Exogen ultrasound signal enables it to treat superficial and deep indicated fractures.

Exogen ultrasound is osteoinductive, which means it stimulates cells to differentiate into osteoblasts, or cells that make new bone.

The growth of this new bone helps bridge the gap at the fracture site.

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Comparison of U.S.

long bone stimulation devices

Daily treatment

times Technology Indications

20 minutes Low-intensity pulsed ultrasound Nonunions and select fresh fractures (2)

DJO Global, Inc.

30 minutes Combined magnetic field Nonunions

Orthofix International B.V.

3 hours Pulsed electromagnetic field Nonunions

EBI Bone Healing System

Zimmer Biomet Holdings, Inc.

10 hours Pulsed electromagnetic field Nonunions

Zimmer Biomet Holdings, Inc.

24 hours Direct electrical current (implanted) Nonunions

Orthopak 2 Bone Growth Stimulator

Zimmer Biomet Holdings, Inc.

24 hours Capacitive coupling Nonunions

____________________

(1) Heal rates for fresh fracture as compared to placebo.

(2) Our Exogen system is indicated in the United States for the non-invasive treatment of established nonunions excluding skull and vertebra and for accelerating the time to a healed fracture for fresh, closed, posteriorly displaced distal radius fractures and fresh, closed or Grade I open long bone fractures in skeletally mature individuals when these fractures are orthopedically managed by closed reduction and cast immobilization.

Exogen clinical data

In a meta-analysis published by Leighton et al.

in 2017 studied heal rates of many different fracture nonunions treated with our Exogen system.

A total of 13 eligible studies were identified which reported success of treatment with our Exogen system in 1,441 nonunions.

Overall, that analysis estimated that 82% of nonunions of at least three months in age treated with our Exogen system successfully healed.

Because healing of established nonunion is not expected without treatment, these findings are compelling.

Our Exogen system may be most useful in patients for whom surgery is high risk.

With an observed overall average nonunion heal rate of at least 80% after treatment with our Exogen system, the study authors concluded that treatment with our Exogen system was comparable to surgical treatment for nonunion.

Additional published evidence supports the efficacy of our Exogen system in treating fracture nonunions.

Established fracture nonunions rarely heal without corrective surgery, though nonunion revision surgery is expensive, invasive and the expected heal rate averages approximately 86%.

In a study that looked at patient data collected over a four-year period, Zura et al.

found that was that the Exogen system enhanced the heal rate among chronic nonunions and even healed fractures that had been nonunion for more than 10 years, without further surgical intervention.

Heal rate was 86.2% among patients with fractures that had not healed for at least one year, 82.7% among 98 patients with chronic nonunion of greater than five years duration, and furthermore 12 patients healed after chronic nonunion of greater than 10 years.

Therefore, our Exogen system offers a heal rate comparable to surgery, with fewer associated risks and morbidities.

Developmental and clinical pipeline

Ongoing Bioventus-sponsored clinical studies (B.O.N.E.S.)

While currently indicated for the treatment of both established nonunions, excluding skull and vertebrae, and certain types of conservatively managed acute fractures of the tibia and radius, our Exogen system’s use in fracture care management has grown over its 20 year clinical history in both the United States and internationally.

The use of our Exogen system for the management of fresh fractures has been the subject of numerous published peer reviewed research articles.

The current prescription data indicate that the product’s use in routine practice of fresh fracture management is based on clinician’s determination of medical necessity, in an effort to mitigate risk of progression to fracture nonunion in at-risk patients.

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In order to quantify the effectiveness of our Exogen system in mitigating the risk of progression to fracture nonunion, and in an effort to obtain regulatory approval for expanded indications, we are seeking to supplement the body of clinical knowledge in an innovative population-based clinical development program, B.O.N.E.S., which stands for Bioventus Observational Non-interventional Exogen Studies.

With enrollment started in late 2017, the B.O.N.E.S.

clinical study design includes the parallel conduct of three independent study protocols which, taken together, are designed to prospectively include more than 3,000 Exogen-treated patients presenting with certain risk factors to be observed over the course of 9 to 12 months.

Our Exogen system treated patients will be propensity matched to one or more untreated controls extracted from a real-world health claims database provided by Truven Healthcare Analytics, generating a total sample size of at least 6,000 patients.

The program involves the concurrent execution of three studies on pre-specified anatomical locations, such as the tibia, scaphoid and fifth metatarsal, with the objective of determining if the use of our Exogen system mitigates risk of fracture nonunion in predisposed patients.

We plan to submit the second PMA supplement in the second quarter of 2022 and the third PMA supplement in either the third or fourth quarter of 2023.

Our portfolio is also comprised of minimally invasive surgical ultrasonic medical devices.

These products are used for precise bone sculpting, removal of soft and hard tumors, and tissue debridement, primarily in the areas of neurosurgery, orthopedic surgery, plastic surgery, wound care and maxillo-facial surgery.

OSTEOAMP is an allograft-derived bone graft with growth factors used for orthopedic, neurosurgical and reconstructive bone grafting procedures.

OSTEOAMP is an allogeneic bone graft that is available in multiple formats (fibers, putty, sponge and granules) that is processed with bone marrow cells to maintain the wide array of growth factors present in native bone.

We currently market OSTEOAMP in the U.S.

We launched OSTEOAMP Flowable in 2021, which is designed to be moldable and easy to use, with a convenient, ready to use syringe.

EXPONENT provides an osteoconductive scaffold with osteoinductive potential while providing optimal handling characteristics indicated for posterolateral spine procedures.

EXPONENT is derived from human allograft bone tissue and is combined with a migration-resistant resorbable carrier and formulated into a putty that is ready-to-use out of the syringe.

EXPONENT is highly malleable and easy to mold and pack into the surgical defect.

Donor bone is sourced from AATB-certified and FDA-registered tissue banks in the U.S.

All tissues are screened for the standard panel of infectious viruses.

We currently market EXPONENT in the U.S.

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PUREBONE provides a natural osteoconductive scaffold that facilitates cellular ingrowth and revascularization which is indicated for orthopedic, neurosurgical and reconstructive bone grafting procedures.

PUREBONE is 100% human bone, and is available as demineralized cortical fibers, demineralized cancellous strips and blocks, and mineralized cancellous chips.

Demineralized cortical fibers are easy to mold, shape and pack, and provide osteoinductive potential.

The fibers demonstrate high fluid retention and expansion properties, which potentially increases the opportunity for bone-on-bone contact.

Demineralized block and strip formats provide interconnected porosity with compressible, sponge-like handling characteristics, and provide osteoinductive potential.

Mineralized cancellous chips range from 1-4 mm and 4-10 mm granule size for optimal void packing capabilities.

Demineralized PUREBONE formats provide osteoinductive potential to recruit and differentiate bone-forming cells.

Donor bone is sourced from AATB-certified and FDA-registered tissue banks in the U.S.

All tissues are screened for the standard panel of infectious viruses.

We currently market PUREBONE in the U.S.

SIGNAFUSE contains a synergistic combination of biomaterials that supports new bone formation which is indicated for standalone posterolateral spine, extremities and pelvis, as well as a bone graft extender in the posterolateral spine.

SIGNAFUSE is a synthetic bone graft made up of bioglass and a biphasic mineral (60% hydroxyapatite, 40% β-tricalcium phosphate) available in putty and strip formats.

Bioactive synthetic bone graft substitute is comprised of a mixture of calcium phosphate granules and bioglass granules suspended in a resorbable polymer carrier that facilitates handling and delivery of the granule components to fill spaces of missing bone.

The unique and synergistic combination of biomaterials in SIGNAFUSE is designed to help accelerate cellular activity and kickstart osteogenesis.

We currently market SIGNAFUSE in the U.S.

INTERFACE is designed to facilitate a rapid biologic response that stimulates the bone healing process and is used for posterolateral spine when mixed with autograft, extremities and pelvis.

INTERFACE’s patented particle technology is designed for enhanced bone graft performance through irregularly shaped synthetic bioglass granules that provide an osteoconductive scaffold for new osseous ingrowth and tissue generation.

The patented bioglass component stimulates the formation of an apatite layer as early as seven days on the surface of the granules.

The apatite surface layer that is formed is equivalent in composition and structure to the hydroxyapatite found in bone and provides an osteoconductive bioactive scaffold that supports the generation of new osseous tissue.

New bone infiltrates around the granules, allowing the repair of the defect as the granules are absorbed.

The patented INTERFACE Bioactive Bone Graft particle size of 210-420 microns is designed for a faster speed of bone fill than glass particles with a broader particle size distribution of 90-710 microns and smaller particles below 210 microns.

INTERFACE features consistent composition without variability inherently found in particle size and porosity of tissue based grafts.

INTERFACE Bioactive Bone Graft conforms to ASTM speciﬁcation F1538 for 45S5 bioactive glass.

INTERFACE is packed in a sterile, single use vial.

We currently market INTERFACE in the U.S.

OSTEOMATRIX+ is a synthetic bone graft with exceptional handling, rapid hydration and a biphasic composition for sustained performance used on the posterolateral spine, extremities and pelvis.

OSTEOMATRIX+ is a moldable bone graft substitute consisting of biphasic granules designed to produce a reliable, porous scaffold and sustained osteoconductivity throughout bone remodeling.

The OSTEOMATRIX+ biphasic granules are composed of 60% hydroxyapatite and 40% beta-tricalcium phosphate (β-TCP), a ratio demonstrated to have advantageous bone remodeling properties.

The long-term stability of hydroxyapatite and the solubility of β-TCP provide an osteoconductive graft with an optimal resorption profile.

Interconnected macropores provide a porous, osteoconductive matrix that mimics a natural scaffold for cellular ingrowth and revascularization.

Three-dimensional micropores enhance the flow and circulation of biological fluids.

We currently market OSTEOMATRIX+ in the U.S.

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CELLXTRACT is a bone marrow aspirate without dilution or centrifugation.

CELLXTRACT provides high levels of cells and their associated signals to deliver optimum clinical results.

Independently reviewed clinical data shows the number of stem cells collected by CELLXTRACT, as counted by fibroblast-like colony-forming units (CFU-f), were greater than aspirations from a standard needle of similar volumes and was comparable or greater than final products after centrifugation.

Autologous bone marrow aspirate (BMA) contains the needed cells and growth factors to enhance bone healing.

There is no waste of biologic material or discard of viable cells compared to inherent inefficiencies in centrifuge-based systems.

We believe potential savings can be realized as compared to the centrifuge-based competitors.

Generally, the cost of CELLXTRACT is less than the disposable kit associated with those systems.

No additional personnel is needed to operate equipment as no centrifugation is required.

The aspirated fluid is not required to leave the sterile field for centrifugation, creating less risk for contamination or infection.

Traditional needles require repositioning via an additional insertion point(s) or angling in order to access a fresh channel of BMA increasing the risk of infection, blood loss, and operative time.

CELLXTRACT, on the other hand, only requires one insertion point minimizing the risks to the patient.

We currently market CELLXTRACT in the U.S.

EXTRACTOR is a complementary and cost-effective solution designed to add needed cells and signals to aid in bone healing.

EXTRACTOR provides a six-ported cannula with a simplistic design for more flexible positioning and enhanced marrow extraction.

The large side port design of EXTRACTOR allows for better access and retrieval of the bone marrow aspirate which contains the cells and signals needed for solid bone formation.

The “twin peaks” tip design allows for easy insertion through the hard wall of the cortical bone.

An ergonomically designed handle allows the clinician to apply consistent pressure for greater control.

We currently market EXTRACTOR in the U.S.

Reficio Demineralized Bone Matrix (Reficio DBM) is a putty comprised of human demineralized bone matrix and a biocompatible bioabsorbable carrier, carboxymethylcellulose, mixed into a putty-like consistency for ease in surgical use.

Reficio DBM is indicated for use as a bone void filler and bone graft substitute for voids or gaps that are not intrinsic to the stability to the bony structure, specifically for the treatment of surgically created osseous defects or osseous defects from traumatic injury to the bone.

Reficio DBM can be used for extremities, posterolateral spine and pelvis.

neXus is a next generation integrated ultrasonic surgical platform that combines all the features of our existing solutions, including BoneScalpel, SonicOne and SonaStar, into a single fully integrated platform that we believe will also serve to power future solutions.

The neXus platform is driven by a new proprietary digital algorithm that results in more power, efficiency, and control.

The device incorporates Smart Technology that allows for easier setup and use.

neXus’ increased power has the potential to improve tissue resection rates for both soft and hard tissue removal, which we believe makes it a unique surgical platform for a variety of different surgical specialties.

In addition, neXus’ ease of use enables physicians to fully leverage neXus’ capabilities via its digital touchscreen display and smart system setup.

Our current ultrasonic applications, which are BoneScalpel, SonaStar and SonicOne, all work on the neXus generator.

This allows a hospital to access all of our product offerings on this all-in-one console.

We principally sell neXus in the U.S.

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The BoneScalpel is a state of the art, ultrasonic bone cutting and sculpting system capable of enabling precise cuts with minimal necrosis, minimal burn artifact, minimal inflammation and minimal bone loss.

The device is also capable of preserving surrounding soft tissue structures because of its ability to differentiate soft tissue from rigid bone.

This device can make precise linear or curved cuts, on any plane, with precision not normally associated with powered instrumentation.

We believe that BoneScalpel offers the speed and convenience of a powered instrument without the dangers associated with conventional rotary devices.

The effect on surrounding soft tissue is limited due to the elastic and flexible structure of healthy tissue.

We believe this is a significant advantage in anatomical regions like the spine where patient safety is of primary concern.

In addition, the linear motion of the blunt, tissue-impacting tips avoids accidental ‘trapping’ of soft tissue while largely eliminating the high-speed spinning and tearing associated with rotary power instruments.

We believe the BoneScalpel allows surgeons to improve on existing surgical techniques by creating new approaches to bone cutting, sculpting, and removal, leading to substantial time-savings and increased operation efficiencies.

The SonaStar System provides powerful and precise aspiration following the ultrasonic ablation of soft tissue.

The SonaStar has been used for a wide variety of surgical procedures applying both open and minimally invasive approaches, including neurosurgery and general surgery.

The SonaStar may also be used with OsteoSculpt® probe tips, which enable the precise shaping or shaving of bony structures that prevent open access to partially or completely hidden soft tissue masses.

Developmental and clinical pipeline for Surgical Solutions (including investments)

As we build the body of clinical evidence supporting our products, we continue to look for and execute on opportunities to innovate in our Surgical Solution portfolio.

To meet growing market demand and evolving surgical techniques, we continue to develop product extensions and adjust formulations on all of our surgical technology platforms, including developing new presentations of OsteoAMP, and further refining the Bonescalpel and Sonastar technologies to expand our ability to serve evolving surgical techniques.

On August 23, 2021, we made a strategic investment in Trice Medical, Inc.

Trice is a privately held company that develops and commercializes minimally invasive technologies for sports medicine and orthopedic surgical procedures.

Trice combines their handheld arthroscope and portable ultrasound visualization technologies with its surgical devices to treat a range of sports medicine and orthopedic conditions, including tendinopathy, planter fasciitis and carpel tunnel, in order to improve patient recovery time, reduce pain, minimize scarring and move surgical procedures out of higher cost points of care.

Trice’s established and growing presence in sports medicine and orthopedics is directly aligned with our strategy of expanding our offerings.

Our investment resulted in exclusive sales and distribution rights to Trice’s products outside of the U.S.

and a seat on the Trice board of directors.

We also entered into a co-development arrangement to explore the integration of Trice technologies with our current and future PNS products in order to accelerate the adoption of both of our products.

Restorative Therapies

Our Restorative Therapies product portfolio is comprised of an Ultrasonic bone healing system and skin allografts and products used to support healing of wounds.

Our Restorative Therapies product portfolio is also comprised of Advanced Rehabilitation devices designed to help patients regain leg or hand function due to stroke, multiple sclerosis or other central nervous system disorders.

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EXOGEN is an ultrasound bone healing system for the non-invasive treatment of established nonunion fractures and certain fresh fractures.

A nonunion fracture is considered to be established when the fracture site shows no visibly progressive signs of healing.

EXOGEN has been sold commercially for over 25 years and is the only FDA-approved device on the market for the accelerated healing of fresh, closed posteriorly displaced distal fractures of the radius and fresh, closed or grade I open long bone fractures.

EXOGEN utilizes low-intensity pulsed ultrasound technology to stimulate the body’s natural bone healing process.

EXOGEN is used to administer treatment in a location of convenience with an easy to use interface that tracks treatment use and promotes compliance.

EXOGEN is indicated in the U.S.

for the non-invasive treatment of established nonunions, excluding skull and vertebra, and for accelerating the time to a healed fracture for fresh, closed, posteriorly displaced distal radius fractures and fresh, closed or Grade I open long bone fractures in skeletally mature individuals when these fractures are orthopedically managed by closed reduction and cast immobilization.

EXOGEN is marketed in the U.S., Canada, Europe and Japan.

EXOGEN is also approved for marketing in Australia, New Zealand, Saudi Arabia, Turkey and the UAE.

TheraSkin is a biologically active human skin allograft that has all of the relevant characteristics of human skin needed to heal wounds, including living cells, growth factors, and a collagen matrix.

TheraSkin is derived from human skin tissue and is an HCT/P.

LifeNet processes and supplies TheraSkin to us under a supply and distribution agreement that gives us exclusive rights to sell TheraSkin in the United States.

TheraSkin is used on all external skin tissue wounds, including but not limited to difficult to heal diabetic foot ulcers, venous leg ulcers, dehisced surgical wounds, necrotizing fasciitis, burns, Mohs and wounds with exposed structures.

Therion is used as a cover and barrier for homologous use for wound care and surgical procedures.

Therion is a dehydrated and terminally sterilized chorioamniotic allograft derived from human placental membrane and is an HCT/P.

CryoLife processes and supplies Therion to us under a supply and distribution agreement that gives us exclusive rights to distribute the product in the United States.

CryoLife produces Therion using a proprietary process that removes the maternal-derived decidua cells from the placental membrane, leaving the amnion and chorion layers in their native configuration.

TheraGenesis is a Bilayer Wound Matrix and Meshed Bilayer Wound Matrix consisting of a porcine collagen sponge layer and a silicone film layer that provides a scaffold for cellular invasion and capillary growth for management of wounds including partial and full-thickness wounds, chronic wounds, surgical wounds, trauma wounds and draining wounds.

We obtain TheraGenesis under an exclusive supply and distribution agreement with Gunze Limited that gives us exclusive rights to distribute the product in the United States.

The SonicOne Ultrasonic Cleansing and Debridement System is a highly innovative, tissue specific approach for the removal of devitalized or necrotic tissue and fibrin deposits while sparing viable, surrounding cellular structures.

The tissue specific capability is, in part, due to the fact that healthy and viable tissue structures have a higher elasticity and flexibility than necrotic tissue and are more resistant to destruction from the impact effects of ultrasound.

The ultrasonic debridement process separates devitalized tissue from viable tissue layers, allowing for a more defined treatment and, usually, a reduced pain sensation.

We believe that SonicOne establishes a new standard in wound bed preparation, the essential first step in the healing process, while contributing to a faster patient healing.

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L300 GO is a functional electrical stimulation that produces measurable mobility improvements for patients living with foot drop and thigh weakness.

A 3-axis gyroscope and accelerometer are embedded in the Stimulator to monitor user movement in all three kinematic planes and deploy stimulation in 0.01 seconds of detecting a valid gait event.

Through an adaptive, learning algorithm, the L300 Go is designed to detect gait events, providing stimulation precisely when needed making it easier for users to clear their foot at different walking speeds, on stairs, ramps, and while navigating uneven terrain.

H200 Wireless is a hand rehabilitation system that supports the wrist in a functioning position, allowing the fingers and thumb to move efficiently while reaching, grasping and pinching.

H200 Wireless has two main parts that communicate wirelessly with each other:

the functional stimulation support (orthosis) and the control unit (microprocessor).

These designed to increase hand function, increase or maintain hand range of motion, reduce muscle spasms, prevent muscle loss, reeducate muscles and/or increase blood circulation.

H200 Wireless is programmed by a clinician to stimulate the appropriate nerves and muscles of the forearm and hand.

We believe this helps to reeducate electrical brain signals, stimulating weak or paralyzed muscles.

Vector is a body weight support system designed to accelerate physical rehabilitation of patients with severe gait and/or balance impairment.

The system unloads a programmed amount of weight to enable the patient to practice walking with less than his or her full body weight.

Vector is designed to alleviate the risk of falling and provides a feeling of security, instilling confidence in patients and empowering clinicians to develop effective and challenging rehabilitation regimens.

Vector is designed to reduce safety risks so clinicians can remain focused on their patient’s execution of an activity.

Designed for both physical and occupational therapy, Vector is designed to provide a safe environment and real-world experience for adult and pediatric patients recovering from stroke, amputations, and orthopedic, brain and spinal cord injuries.

The Bioness Integrated Therapy System (BITS®) is an affordable and versatile solution for vision, motor and balance training for individuals, including those with deficits resulting from traumatic injuries and movement disorders as well as competitive athletes.

BITS is a multi-disciplinary therapy solution designed to motivate patients and enhance clinician efficiency.

BITS’s interactive touchscreen and diverse program options challenge patients to improve performance through the use of visual motor activities, visual and auditory processing, cognitive skills, endurance and balance training.

Standardized assessments and progress reports make documenting outcomes quick and easy.

With the large variety of BITS programs, therapists can choose activities that are tailored to each individual.

BITS programs can be further modified to accommodate varying degrees of difficulties.

With hundreds of possible parameter combinations, BITS can be customized even further to provide a unique therapy experience for each patient.

BITS is optimized for occupational therapy, physical therapy and speech language pathology.

Developmental and clinical pipeline for Restorative Therapies

In order to evaluate the effectiveness of EXOGEN in mitigating the risk of progression to fracture nonunion, and in an effort to obtain regulatory approval for expanded indications, we are seeking to supplement the body of clinical knowledge in an innovative population-based clinical development program, B.O.N.E.S., which stands for Bioventus Observational Non-interventional EXOGEN Studies.

The B.O.N.E.S.

clinical study design includes the parallel conduct of three independent study protocols which, taken together, are designed to prospectively include more than 3,000 EXOGEN-treated patients presenting with certain risk factors to be observed over time and propensity matched to one or more untreated controls extracted from a real-world health claims database provided by Truven Healthcare Analytics, generating a total sample size of at least 6,000 patients.

The program involves the concurrent execution of three studies on pre-specified anatomical locations, such as the tibia, scaphoid and fifth metatarsal, with the objective of determining if the use of EXOGEN mitigates risk of fracture nonunion in predisposed patients.

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We submitted a supplemental PMA to the FDA in December 2020 seeking approval of an expanded indication for EXOGEN, specifically, for the adjunctive treatment of acute and delayed metatarsal fractures to reduce the risk of non-union.

This PMA supplement was based on and supported by clinical data in metatarsal fractures from the ongoing B.O.N.E.S.

In April 2021, we received a letter from the FDA identifying certain deficiencies in the PMA supplement that must be addressed before the FDA can complete its review of the PMA supplement.

The deficiencies include concerns about the data and endpoints from the B.O.N.E.S.

study, and requests for re-analyses of certain data and provision of other information to support the findings.

We are in the process of performing re-analysis of the data as requested by the FDA and are remaining engaged in discussions with the FDA to address the agency’s concerns.

In addition, in December 2021, we completed the follow up of all patients in the scaphoid fracture portion of the B.O.N.E.S.

We plan on submitting a PMA supplement for this indication in the fourth quarter of 2022.

We can give no assurance that we will be able to resolve the deficiencies identified by the FDA in a timely manner, or at all.

Consequently, the FDA’s decision on the PMA supplements may be delayed beyond the time originally anticipated.

Moreover, if our responses do not satisfy the FDA’s concerns, the FDA may not approve our PMA supplements seeking to expand the indications for use of EXOGEN in metatarsal and scaphoid fractures as proposed.

Sales and marketing

Our expansive direct sales and distribution channel across our product portfolio provides us with broad and differentiated customer reach, and allows us to serve physicians spanning the orthopedic continuum, including sports medicine, total joint reconstruction, hand and upper extremities, foot and ankle, podiatric surgery, trauma, spine and neurosurgery.

Our products are widely reimbursed by both public and private health insurers and are sold in the physician’s office or clinic, ASCs, and in the hospital setting in the United States and across 37 countries.

Our sales team and distributors work directly with our physician customers on a frequent basis, providing us with a significant opportunity to introduce new products and upsell from our current portfolio.

We believe our sales organization will provide us with an opportunity to efficiently roll out our deep pipeline and participate in business development opportunities going forward.

Our OA joint pain treatment and joint preservation products and our minimally invasive fracture treatment products are sold by a direct sales team of approximately 240 in the United States and approximately 45 internationally as of December 31, 2020.

This direct team is complimented by approximately 20 account representatives who work with our sales team to provide account access through IDNs, GPOs and payer contracting.

Our direct sales organization, totaling approximately 305 globally, is supplemented by approximately 35 sales managers.

Our sales leaders have considerable experience, with an average of five years of experience.

Our BGS products are sold by approximately 170 independent distributors in the United States, each with their own independent sales force, supported by our 15 member regionalized sales support team as of December 31, 2020.

We market our BGSs primarily to orthopedic spine surgeons and neurosurgeons for use in the operating room in both the hospital and ASC setting.

We believe that our broad customer reach has and will continue to enable strong and durable growth in each of our verticals and provides a significant foundation for future product launches.

We support our sales organization with extensive training to help them excel, and we have a performance culture built on serving our core orthopedic patient customers and delivering our products to a variety of physicians and care settings.

Research and clinical operations

We see significant opportunity to develop innovative and clinically differentiated products internally with our experienced research and development team.

As a result, we expect our research and development expense to increase to the mid-single digits as a percentage of net sales as we introduce new products, extend existing product lines and expand indications.

Our research and development activities are focused on product development in BGSs, treatments for OA and soft tissue surgery.

Our clinical research is focused on running the B.O.N.E.S.

and MOTYS clinical programs, as well as continuing to build our body of clinical evidence to demonstrate the efficacy and value of our products through collaborations with prominent academic investigators.

Research and development expense, including spending on our clinical evidence development efforts, totaled $11.2 million, $11.1 million and $8.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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We believe our products or procedures using our products are widely reimbursed by both public and private health insurers and are sold in the physician’s office or clinic, ASCs, and in the hospital setting in the United States and across approximately 65 countries.

Our sales team and distributors work directly with our physician customers on a frequent basis.

Products from our Pain Treatments, Restorative Therapies and Surgical Solutions verticals are sold by direct sales teams in the United States and a complementary distributor team for Surgical Solutions.

That team is supported by a broad management team in addition to a market access team focused on expanding approvals with IDNs, GPOs and payers.

Internationally our products are sold through a mix of direct and indirect sales teams.

We support our entire sales organization with extensive training to help them excel, and we have a performance culture built on serving our core orthopedic patient customers and delivering our products to a variety of physicians and care settings.

The medical device industry is highly competitive, subject to change and significantly affected by activities of industry participants.

The multi-injection HA viscosupplementation therapies that we own or distribute compete against Ferring Pharmaceutical Inc.’s Euflexxa, Fidia Farmaceutici S.p.A.’s Hyalgan, DePuy Orthopaedics, Inc.

(Johnson & Johnson’s) Orthovisc, Sanofi S.A.’s Synvisc and OrthogenRx Inc.’s GenVisc 850.

These products have faced significant competition from single injection therapies, such as Sanofi S.A.’s Synvisc-One, Zimmer Biomet Holdings, Inc.’s Gel-One and DePuy Orthopaedics, Inc.

(Johnson & Johnson’s) Monovisc.

Our BGS product portfolio competes with products from Medtronic, DePuy Orthopaedics, Inc.

We believe that the principal competitive factors in our markets are product features, value-added solutions, reliability, clinical evidence, reimbursement coverage, and price.

Customer support, reputation, and efficient distribution are also important factors.

The speed with which we can develop products, complete clinical testing and regulatory clearance processes and supply commercial quantities of our products to the market are therefore important competitive factors.

We compete with many companies having more significant capital resources, larger research laboratories and more extensive distribution systems than we do.

Our Pain Treatments that we own or distribute compete with products from Ferring Pharmaceutical Inc., Fidia Farmaceutici S.p.A., DePuy Orthopaedics, Inc.

(Johnson & Johnson), and Sanofi S.A, OrthogenRx Inc.

and for peripheral nerve stimulation specifically.

we compete with SPR Therapeutics, Nalu and Stimwave.

Our Surgical Solution products compete with products from Medtronic, DePuy Orthopaedics, Inc.

(Johnson & Johnson), Stryker Corporation, NuVasive, Inc., SeaSpine, Inc., Orthofix Medical Inc., Zimmer Biomet Holdings, Inc.

and Globus Medical Inc.

Our Exogen system competes with products marketed by Orthofix Medical Inc., Zimmer Biomet Holdings, Inc.

and DJO Global Inc.

At any time, these or other market participants may develop alternative treatments, products or procedures that compete directly or indirectly with our products.

They may also develop and patent processes or products earlier than we can or obtain regulatory clearance or approvals for competing products more rapidly than we can.

Intellectual property

and Globus Medical Inc., Johnson & Johnson, Integra Life Sciences, Inc., and Söering.

Our Restorative Therapies compete with products marketed by Orthofix Medical Inc., Zimmer Biomet Holdings, Inc., DJO Global Inc., MiMedx, Integra Life Sciences, Organogenesis, Hanger Orthopedics, XFT Medical, Rewalk Robotics, Ekso Bionics, Aretech LLC and DIH Medical.

We strive to protect and enhance the proprietary technologies, inventions and improvements that we believe are important to our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties.

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We also rely on trademarks, trade secrets and careful monitoring of and contractual obligations with respect to our proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, maintain our licenses to use intellectual property owned by third parties and operate without infringing the valid and enforceable patents and other proprietary rights of third parties.

For important factors related to our proprietary technology, inventions and improvements, please see the section entitled Part I, Item 1A.

Risk Factors —Risks related to intellectual property.

We own numerous patents and/or patent applications which relate to our material products, including patents and/or patent applications with respect to our Exogen system, OsteoAMP and MOTYS.

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Patents, trade secrets, assignments and licenses

We rely on a combination of patents, trade secrets, assignment and license agreements, and non-disclosure agreements to protect our proprietary intellectual property.

We own numerous patents and/or patent applications which relate to our material products.

Although in the aggregate our intellectual property is of material importance to our business, we do not believe that any single patent is of material importance to our product portfolio.

As of November 13, 2020, we owned four issued U.S.

patents and two pending U.S.

As of December 31, 2021, we owned forty-five issued U.S.

patents and twelve pending U.S.

patent applications relating to our material products.

We also owned nine issued foreign patents and 11 pending foreign patent applications directed to our material products.

Our patents and patent applications as of November 30, 2020 directed to our material products are summarized below.

We owned three issued U.S.

We also owned seventy-five issued foreign patents and thirty-eight pending foreign patent applications directed to our material products.

Our patents and patent applications as of December 31, 2021 directed to our material products are summarized below.

We own three issued U.S.

patents and one issued foreign patent in Australia directed to our Exogen system.

patents are expected to expire between 2025 and 2029, and the foreign patent is expected to expire in 2025.

We owned one issued U.S.

We own one issued U.S.

patent, one pending U.S.

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Patents issuing from these applications, if any, are expected to expire in 2040, without accounting for potential patent term extensions and adjustments.

Our patents and pending patent applications directed to our material products are detailed in the below table.

Country Application

Number Filing Date Patent Number Application

Status Expected

Date Description Product

AU 2009324417 December 13, 2009 2009324417 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

AU 2014259553 November 14, 2014 2014259553 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

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Country Application

Number Filing Date Patent Number Application

Status Expected

Date Description Product

AU 2016213839 August 11, 2016 2016213839 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

CA 2746668 December 13, 2009 2746668 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

CN 200980155596.X December 13, 2009 200980155596.X Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

CN 201410413348.3 August 20, 2014 201410413348.3 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

EP 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

HK 15105678.1 June 16, 2015 HK1205007 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

IN 2567/KOLNP/2011 February 4, 2016 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

KR 10-2011-7016270 July 2, 2019 10-1713346 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

US 15/016072 December 13, 2009 10383974 Issued December 2029 Directed to methods of making osteoinductive implants OsteoAMP

US 16/459778 February 4, 2016 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

GB 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

FR 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

DE 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

IT 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

CH 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

BE 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

ES 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

PT 9832666.3 December 13, 2009 Pending December 2029 Directed to methods of making osteoinductive implants OsteoAMP

US 09/925,193 August 9, 2001 7429248 Granted July 2025 Directed to applying ultrasound to tissue using a modal converter having a plurality of angled sides.

AU 2006203281 August 1, 2006 2006203281 Granted August 2025 Directed to treating a neuropathy disease with ultrasound using a specific frequency and pulse rate for the signal Exogen

US 11/462271 August 3, 2006 8048006 Granted February 2029 Directed to treating a neuropathy disease with ultrasound using a specific frequency and pulse rate for the signal Exogen

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Country Application

Number Filing Date Patent Number Application

Status Expected

Date Description Product

US 12/296,333 April 7, 2007 8226582 Granted June 2028 Directed to applying ultrasound to tissue using a modal converter having an oblique angle and speed of sound similar to human tissue Exogen

US 17/097,350 November 13, 2020 Pending November 2040 Directed to placental tissue particulates compositions, methods of treating musculoskeletal or orthopedic conditions, methods of treating pain associated with osteoarthritis, kits and methods of making the compositions MOTYS

PCT PCT/US20/60393 November 13, 2020 Pending November 2010 Directed to placental tissue particulates compositions, for use in treating musculoskeletal or orthopedic conditions, methods of treating pain associated with osteoarthritis, kits and methods of making the compositions MOTYS

We own registered trademarks for Bioventus, Cellxtract, Durolane, Exogen, Exponent, Gelsyn-3, OsteoAMP, Osteofuse, Prohesion, PureBone, SAFHS, and Signafuse in the United States.

We also own ten issued U.S.

patents and ten issued foreign patents in Australia, Canada, Europe, and Japan directed to our StimRouter system.

patents are expected to expire between 2026 and 2031, and the foreign patents are expected to expire between 2028 and 2030.

We also own twenty-one issued U.S.

patents, three pending U.S.

patent applications, forty-three issued foreign patents, and eight pending foreign patent applications directed to our L300 system, including foreign patents and patent applications in Australia, Canada, Europe, and Japan.

patents are expected to expire between 2026 and 2037, and the foreign patents are expected to expire between 2026 and 2037.

The pending patent applications, if issued, are expected to expire between 2026 and 2037, without accounting for potential patent term extensions and adjustments.

We also own eight issued U.S.

patents, six pending U.S.

patent applications, twelve issued foreign patents, and thirteen pending foreign patent applications directed to our Vector Gait and Safety System, including foreign patents and patent applications in in Australia, Canada, Europe, and Japan.

patents are expected to expire between 2033 and 2038, and the foreign patents are expected to expire between 2034 and 2036.

The pending patent applications, if issued, are expected to expire between 2033 and 2038, without accounting for potential patent term extensions and adjustments.

We also own one issued U.S.

patent, one issued foreign patent in Australia and one pending foreign application in Canada directed to our Bioness Integrated Therapy System (“BITS”).

patent is expected to expire in 2037, and the foreign patent is expected to expire in 2036.

The pending patent application, if issued, is expected to expire in 2036, without accounting for potential patent term extensions and adjustments.

We also own one issued U.S.

patent and one pending U.S.

patent application and five pending foreign patent applications directed to our TalisMann product, including foreign patent applications in Australia, Canada, Europe, Japan and one pending Patent Cooperation Treaty application.

patent is expected to expire in 2039.

The pending patent applications, if issued, are expected to expire between 2039 and 2040, without accounting for potential patent term extensions and adjustments.

We also own twenty-four issued U.S.

patents and four pending U.S.

patent applications directed to our BoneScalpel product.

Our patents and pending patent applications directed to our material products are further detailed in Exhibit 99.1 to this Annual Report on Form 10-K.

We own registered trademarks for Bioventus, Bioness, BITS, Bonescalpel, Cellxtract, Durolane, Exogen, Exponent, Gelsyn-3, LiveOn, L300 Go, Misonix, Ness, Ness L300, Nexus, OsteoAMP, Osteofuse, Prohesion, PureBone, SAFHS, Signafuse, Sonastar, StimRouter, TheraSkin, Therion and Vector Gait and Safety System in the United States.

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Trade secrets

We may rely on trade secret law to protect some of our technology, including the processing of tissue for OsteoAMP.

We may rely on trade secret law to protect some of our technology.

Trade secrets, however, can be difficult to protect.

We seek to protect our proprietary technology and manufacturing process, in part, by confidentiality and invention assignment agreements with employees, under which they are bound to assign to us inventions that are made during the term of their employment and relate to our business, unless there is an exception.

We seek to protect our proprietary technology and manufacturing process, in part, by confidentiality and invention assignment agreements with employees, consultants scientific advisors and contractors, under which they are bound to assign to us certain inventions that are made during the course of performing work for us and relate to our business.

These agreements further restrict the use and disclosure of proprietary information belonging to any third-party.

These agreements further prohibit our employees from using, disclosing, or bringing onto the premises any proprietary information belonging to any third-party.

In addition, our consultants, scientific advisors and contractors are required to sign agreements under which they must assign to us any inventions that relate to our business.

These agreements also prohibit these third-parties from incorporating into any inventions the proprietary rights of third-parties without informing us.

It is our policy to require all employees to document potential inventions and other intellectual property in laboratory notebooks and to disclose inventions to patent counsel.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by taking commercially reasonable efforts to maintain the physical security of our premises and physical and electronic security of our information technology systems.

While we have confidence in these individuals, organizations and systems, our security measures may be breached, or may otherwise prove inadequate to protect the integrity and confidentiality of our data and trade secrets.

Further, our agreements may be breached (or not obtained in the first place) and we may not have adequate remedies for any breach.

In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

In addition to patents, trademarks, and trade secrets, we also rely on assignment and license agreements, pursuant to which we may license rights under patents held by third parties, and non-disclosure agreements, to protect our proprietary intellectual property.

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These agreements generally provide for royalty payments and termination rights in the event of a material breach.

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We will continue to seek patent, trademark, and copyright protection as we deem advisable to protect the markets for our products and to support our research and development efforts.

Manufacturing and supply

Our HA viscosupplementation therapies and certain of our surgical products are manufactured exclusively by single-source third-party manufacturers, pursuant to multi-year supply agreements.

We work closely with each of our manufacturing partners and provide them with a forecast, which enables them to better capacity plan and sequence their production efficiently.

For Durolane, we are subject to minimum order volumes for each order and purchase amounts are also based in part on forecasts.

For GELSYN-3, we will be subject to certain annual minimum purchase requirements and purchase amounts based on rolling forecasts.

For SUPARTZ FX, we are subject to certain annual minimum purchase requirements based on a percentage of our SUPARTZ FX annual forecast.

For Durolane, in December 2016, we entered into an amended and restated supply agreement, or the Q-Med Supply Agreement, with Q-Med AB, or Q-Med.

Under the Q-Med Supply Agreement, Q-Med supplies Durolane products exclusively to us for sale in the United States for use in the in the prevention or treatment of pain due to OA on a purchase order basis, based on the amounts of Durolane we require as set forth in rolling forecasts and we are subject to certain semi-annual minimum purchase requirements based on a percentage of our Durolane forecast.

We assemble, inspect, test and package our Exogen system at our facility in Cordova, Tennessee with components supplied by third-party suppliers.

Our Exogen system includes a transducer which is a key component that is supplied by a single-source supplier.

We perform inspections of these components before use in our manufacturing operations.

We largely manufacture and assemble our medical device products at our production facilities located in Cordova, TN, Farmingdale, NY, Valencia, CA and Hod Hasharon, Israel.

We believe our manufacturing operations are in compliance with regulations mandated by the FDA.

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Our manufacturing facilities and processes are subject to periodic inspections and audits by various federal, state and foreign regulatory agencies.

MTF will exclusively manufacture and supply MOTYS under current Good Tissue Practices (cGTPs) to us to allow for our limited commercialization that began in the fourth quarter of 2020 under the tissue regulations while we pursue a BLA for the product.

MTF is responsible for obtaining and storing all materials, including all tissue materials, required for the manufacture, testing, handling, packaging, labeling, release and delivery of the product to us.

Our products include components manufactured by other companies in the United States.

Some of our products and product components are manufactured exclusively by single-source third-party manufacturers, pursuant to multi-year supply agreements and may include minimum order volumes.

We work closely with each of our manufacturing partners and provide them with a forecast, which enables them to better capacity plan and sequence their production efficiently.

We partnered with and MTF exclusively manufactured and supplied MOTYS to us while we pursue a BLA for the product.

MTF was responsible for obtaining and storing all materials, including all tissue materials, required for the manufacture, testing, handling, packaging, labeling, release and delivery of the product to us.

We may encounter difficulty in obtaining materials, supplies and components adequate for our anticipated short-term needs.

In addition, supply disruptions resulting from the COVID-19 pandemic may increase the price of, and make more difficult to obtain, materials, supplies or components.

We intend to maintain sufficient supplies of the products and components from these single-source suppliers in the event that one or more of these suppliers were to encounter certain interruptions in supply.

Government regulation

Government regulation of medical devices

Our medical devices are subject to regulation by numerous government agencies, including the FDA and comparable foreign agencies.

The FDA and other U.S.

and foreign governmental agencies regulate, among other things, with respect to medical devices:

• design, development and manufacturing;

• testing, labeling, content and language of instructions for use and storage;

• clinical trials;

• product safety;

• marketing, sales and distribution;

• premarket clearance and approval;

• record keeping procedures;

• advertising and promotion;

• recalls and field safety corrective actions;

• postmarket surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;

• postmarket approval studies;

• product import and export.

The regulations to which we are subject are complex and have tended to become more stringent over time.

Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales.

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FDA premarket clearance and approval requirements

Each medical device we seek to commercially distribute in the United States must first receive 510(k) clearance or approval of a PMA application from the FDA, unless specifically exempt.

The FDA classifies all medical devices into one of three classes.

Devices deemed to pose lower risk are categorized as either Class I or Class II.

Class II devices require the manufacturer to submit to the FDA a 510(k) pre-market notification requesting clearance of the device for commercial distribution in the United States.

Class I devices are exempted from this requirement.

Devices deemed by the FDA to pose the greatest risk, such as life sustaining, life-supporting, selected implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device, are categorized as Class III, generally requiring submission and approval of a PMA.

510(k) clearance process

To obtain 510(k) clearance, we must submit a premarket notification to the FDA demonstrating the proposed device to be substantially equivalent to a predicate device.

A predicate is a previously cleared 510(k) device, a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMA applications, or is a device that has been reclassified from Class III to either Class II or I.

The standard review process for 510(k)s is between 30 days to 3 months, dependent upon the type of 510(k) filing submitted.

Although many 510(k) premarket notifications are cleared without clinical data, in some cases, the FDA may require clinical data to support substantial equivalence.

In reviewing a premarket notification, the FDA may request additional information, including clinical data, which may significantly prolong the review process and clearance is never assured.

After a device receives 510(k) clearance, any subsequent modification of the device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require submission and approval of a PMA application in cases where new indications are sought for which there is no predicate.

Non-significant changes are handled via internal documentation by the Company.

Each manufacturer must judge the significance of modifications based on algorithms within FDA 510(k) guidance documents.

FDA may review any such decision and may disagree with a manufacturer’s determination.

If the FDA disagrees with a manufacturer’s determination, the FDA may require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained.

We have modified aspects of some of our devices since receiving initial regulatory clearance.

We concluded that some of those modifications did not significantly affect the safety or efficacy of the device and therefore, that new 510(k) clearances were not required.

We have also obtained new 510(k) clearances from the FDA for other modifications to our devices.

In the future, we may make additional modifications to our products after they have received FDA clearance or approval and in appropriate circumstances, determine that new clearance or approval is unnecessary.

However, the FDA may disagree with our determination and if the FDA requires us to seek 510(k) clearance or submit new PMA applications for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain the required clearance or approval.

Under these circumstances, we may also be subject to significant regulatory fines or other penalties.

We have obtained 510(k) premarket clearance from the FDA for Signafuse Bioactive Bone Graft Putty, Interface Bioactive Bone Graft, Osteomatrix +, and Signafuse Mineralized Collagen Scaffold.

Premarket approval process

A PMA application must be submitted if the medical device is in Class III (although the FDA has the discretion to continue to allow certain pre-amendment Class III devices to use the 510(k) process) or cannot be cleared through the 510(k) process.

A PMA application must be supported by, among other things, extensive technical, preclinical, clinical trials, manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device.

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After a PMA application is submitted and filed, the FDA begins an in-depth review of the submitted information.

The standard review of such application is six months.

During this review period, the FDA may request additional information or clarification of information already provided.

This can extend the overall review process and typically PMAs take between one to three years in total for approval.

Also during the review period, an advisory panel of experts from outside the FDA will usually be convened for a new type of device to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device.

In addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with Quality System Regulation (QSR), which impose elaborate design development, testing, control, documentation and other quality assurance procedures in the design and manufacturing process.

The FDA may approve a PMA application with post-approval conditions intended to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution and collection of long-term follow-up data from patients in the clinical study that supported approval.

Failure to comply with the conditions of approval can result in materially adverse enforcement action, including the loss or withdrawal of the approval.

PMA supplements are required for significant modifications to the manufacturing process, labeling of the product and design of a device that is approved through the PMA process.

PMA supplements requires submission of information needed to support any changes from the device covered by the original PMA and typically do not require clinical data or the convening of an advisory panel.

Non-significant changes must be reported to the FDA through an annual report filing with the FDA.

In review of this Annual Report, FDA may disagree with a manufacturer’s determination of the level of significance of the change.

If the FDA disagrees with a manufacturer’s determination, the FDA may require the manufacturer to cease marketing and/or recall the modified device until PMA supplement approval is obtained.

Durolane, GELSYN-3, SUPARTZ FX and our Exogen bone healing system have each been approved through the PMA process.

Clinical trials

A clinical trial is typically required to support a PMA and is sometimes required for a 510(k) premarket notification.

In the United States, authorization to conduct a clinical trial generally requires submission of an application for an IDE to the FDA.

The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the investigational protocol is scientifically sound.

The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant risk device and eligible for abbreviated IDE requirements.

Clinical trials for a significant risk device may begin once the IDE application is approved by the FDA as well as the appropriate institutional review boards (IRBs), at the clinical trial sites and the informed consent of the patients participating in the clinical trial is obtained.

After a trial begins, the FDA may place it on hold or terminate it if, among other reasons, it concludes that the clinical subjects are exposed to an unacceptable health risk.

Any trials we conduct must be conducted in accordance with FDA regulations as well as other federal regulations and state laws concerning human subject protection and privacy.

Moreover, the results of a clinical trial may not be sufficient to obtain clearance or approval of the product.

Pervasive and continuing FDA regulation

After a medical device is placed on the market, numerous FDA regulatory requirements apply, including, but not limited to the following:

• QSRs, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the manufacturing process;

• Establishment Registration, which requires establishments involved in the production and distribution of medical devices, intended for commercial distribution in the United States, to register with the FDA;

• Medical Device Listing, which requires manufacturers to list the devices they have in commercial distribution with the FDA;

• Labeling regulations, which prohibit “misbranded” devices from entering the market, as well as prohibit the promotion of products for unapproved or off-label uses and impose other restrictions on labeling;

• Postmarket surveillance, including Medical Device Reporting (MDR) requirements which requires manufacturers to 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 it were to recur;

• Corrections and Removal 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 United States Federal Food, Drug, and Cosmetic Act (FDCA) that may present a risk to health.

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The FDA enforces these requirements by inspection and market surveillance.

Failure to comply with applicable regulatory requirements may result in enforcement action by the FDA, which may include one or more of the following sanctions:

• untitled letters or warning letters;

• fines, injunctions and civil penalties;

• mandatory recall or seizure of our products;

• administrative detention or banning of our products;

• operating restrictions, partial suspension or total shutdown of production;

• refusing our request for 510(k) clearances or PMA approvals for new product versions;

• revocation of 510(k) clearances or PMA approvals previously granted;

• criminal prosecution and penalties.

regulation of HCT/Ps

Our products, including OsteoAMP and PureBone, are regulated as human cells, tissues and cellular and tissue-based products, or HCT/Ps.

Our products and operations are subject to extensive regulation by the FDA and other federal and state authorities in the United States, as well as comparable authorities in foreign jurisdictions.

In the United States, our products and product candidates are regulated as either medical devices under the Federal Food, Drug, and Cosmetic Act (FDCA), and its implementing regulations, or as drugs or biological products under the FDCA and the Public Health Service Act (PHSA), and their implementing regulations, each as amended and enforced by the FDA.

The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices and biological products to ensure that such products distributed domestically are safe and effective for their intended uses and otherwise meet the applicable requirements of the FDCA and PHSA.

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Regulation of Medical Devices

The majority of our products are regulated by the FDA as medical devices in the United States.

Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, or approval of a PMA application.

Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness.

Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed into Class III.

While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device.

The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance.

Class III devices require approval of a premarket approval application, or PMA, evidencing safety and effectiveness of the device.

To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating to the FDA’s satisfaction that the proposed device is “substantially equivalent” to another legally marketed device that itself does not require PMA approval (a predicate device).

A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process.

The FDA’s 510(k) clearance process usually takes from three to twelve months, but often takes longer.

FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.

In addition, the FDA collects user fees for certain medical device submissions and annual fees for medical device establishments.

If the FDA agrees that the device is substantially equivalent to a lawfully marketed predicate device, it will grant 510(k) clearance to authorize the device for commercialization.

If the FDA determines that the device is “not substantially equivalent,” the device is automatically designated as a Class III device.

The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the de novo classification process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.

After a device receives 510(k) 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) clearance or, depending on the modification, PMA approval or de novo classification.

The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo classification request or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination.

If the FDA disagrees with a manufacturer’s determination not to seek a new 510(k) or other form of marketing authorization for the modification to the 510(k)-cleared product, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) clearance or PMA approval is obtained or a de novo classification is granted.

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.

All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption (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.

If the device presents a “significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.

A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.

In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board (IRB), for each clinical site.

The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study.

If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements.

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In addition to clinical and preclinical data, the PMA must 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.

Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review.

If FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years.

An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device.

The FDA may or may not accept the panel’s recommendation.

In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ facilities to ensure compliance with the QSR.

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).

The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval.

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.

Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement, or in some cases a new PMA.

After a device is cleared or approved or otherwise authorized for marketing, numerous pervasive regulatory requirements continue to apply unless explicitly exempt.

These include:

• establishment registration and device listing with the FDA;

• QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;

• labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling;

FDA guidance on off-label dissemination of information and responding to unsolicited requests for information;

• clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices;

• medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;

• correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

• complying with requirements governing Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database;

• the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations;

• post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.

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Certain of our products are regulated as HCT/P.

Section 361 of the PHSA authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease.

HCT/Ps regulated as “Section 361” HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, cGTP, when processing, storing, labeling and distributing HCT/Ps, including required labeling information, stringent record keeping and adverse event reporting, among other applicable requirements and laws.

Specifically, cGTPs are requirements that govern the methods used in, and the facilities and controls used for, the manufacture of HCT/Ps in a way that prevents the introduction, transmission, or spread of communicable diseases.

HCT/Ps regulated as “Section 361” HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, current Good Tissue Practices (cGTPs), when processing, storing, labeling and distributing HCT/Ps, including required labeling information, stringent record keeping and adverse event reporting, among other applicable requirements and laws.

Section 361 HCT/Ps do not require 510(k) clearance, PMA approval, BLAs, or other premarket authorization from the FDA before marketing.

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A Section 361 HCT/P must also be intended for “homologous use,” which refers to use in the repair, reconstruction, replacement, or supplementation of a recipient’s cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor.

We believe our OsteoAMP product is properly regulated as a Section 361 HCT/P and therefore have not sought or obtained 510(k) clearance, PMA approval, or licensure through a BLA.

However, the FDA’s Center for Devices and Radiological Health (CDRH) issued us a letter in March 2016 in which it asserted that OsteoAMP meets the definition of a medical device and requested that we provide CDRH with information in support of our position that OsteoAMP does not require 510(k) clearance or PMA approval.

We provided CDRH with the requested information in support of this position in May 2016 and we have received no further inquiries to date.

We believe that CDRH’s assertion is unfounded and inconsistent with a 2011 letter from the FDA concluding that OsteoAMP meets the criteria for regulation solely as a Section 361 HCT/P.

However, if the FDA were to disagree and if we are otherwise unsuccessful in asserting our position, the FDA may then require that we obtain 510(k) clearance or PMA approval and that we cease marketing OsteoAMP and/or recall OsteoAMP unless and until we receive clearance or approval.

We estimate that if we were to cease marketing OsteoAmp and/or recall OsteoAmp that our net sales would decrease, which would adversely affect our results of operations.

See Part I, Item 1A.

Risk Factors —Risks related to government regulation—Our HCT/P products are subject to extensive government regulation and our failure to comply with these requirements could cause our business to suffer.

HCT/Ps that do not meet the criteria of Section 361 are regulated under Section 351 of the PHSA.

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Minimal Manipulation and Homologous Use—Guidance for Industry and Food and Drug Administration Staff.” The guidance outlined the FDA’s position that all lyophilized amniotic products are more than minimally manipulated and would therefore require a BLA to be lawfully marketed in the United States.

The guidance also indicated that the FDA would exercise enforcement discretion, using a risk-based approach, with respect to the IND application and pre-market approval requirements for certain HCT/Ps for a period of 36 months from the issuance date of the guidance to allow manufacturers to pursue its IND application.

The guidance also indicated that the FDA would exercise enforcement discretion, using a risk-based approach, with respect to the IND application and pre-market approval requirements for certain HCT/Ps that had been marketed without marketing authorization, including, among others, lyophilized amniotic products, for a period of 36 months from the issuance date of the guidance to allow manufacturers to pursue INDs and/or seek marketing authorizations.

Under this approach, FDA indicated that high-risk products and uses could be subject to immediate enforcement action.

In July 2020, the FDA extended its period of enforcement discretion to May 31, 2021.

Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties.

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regulation of drugs and biologics

We expect that MOTYS will be regulated by the FDA as a biological product, or biologic, and we plan to submit a BLA to the FDA to allow for the marketing of MOTYS following the expiration of the FDA’s enforcement discretion period for certain HCT/Ps.

Biologics are regulated under both the FDCA and the PHSA and other federal, state, local and foreign statutes and regulations.

We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

The process required by the FDA before product candidates may be marketed in the United States generally involves the following:

• completion of extensive preclinical laboratory tests and animal studies performed in accordance with applicable regulations, including the FDA’s Good Laboratory Practice (GLP), regulations;

The FDA resumed enforcement of IND and premarket approval requirements with respect to these products as of June 1, 2021.

Regulation of Drugs and biological products

Certain of our products or product candidates, such as MOTYS, are regulated by the FDA as drugs or biological products, also called biologics.

In the United States, the FDA regulates drugs under the FDCA, and its implementing regulations, and biologics under the FDCA and the PHSA and their implementing regulations.

The process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following:

• completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s Good Laboratory Practice requirements;

• submission to the FDA of an IND, which must become effective before clinical trials may begin;

• approval by an independent institutional review board, or IRB, or ethics committee at each clinical site before the trial is commenced;

• performance of adequate and well-controlled human clinical trials to establish the safety and effectiveness of the proposed drug candidate and the safety, purity and potency of the proposed biologic product candidate for its intended purpose;

• preparation of and submission to the FDA of an New Drug Application (NDA) or BLA after completion of all pivotal clinical trials;

• approval by an IRB or ethics committee at each clinical site before the trial is commenced;

• performance of adequate and well-controlled human clinical trials to establish the safety, efficacy, purity and potency of the proposed product candidate for its intended purpose;

• preparation of and submission to the FDA of a BLA for biologics or New Drug Application (NDA) for small molecule drugs after completion of all pivotal clinical trials;

• satisfactory completion of an FDA Advisory Committee review, if applicable;

• a determination by the FDA within 60 days of its receipt of a NDA or BLA to file the application for review;

• satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMP requirements, and to assure that the facilities, methods and controls are adequate to preserve the product’s safety and effectiveness, and of selected clinical investigation sites to assess compliance with GCPs;

• FDA review and approval of a NDA or BLA to permit commercial marketing of the product for particular indications for use in the United States.

Preclinical and Clinical Development

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA.

• a determination by the FDA within 60 days of its receipt of a BLA or NDA to file the application for review;

• satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMPs and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with Good Clinical Practices (GCPs);

• FDA review and approval of the BLA or NDA to permit commercial marketing of the product for particular indications for use in the United States.

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Prior to beginning clinical trials of a new drug or biologic product in the United States, an IND must be submitted to the FDA.

An IND is a request for authorization from the FDA to administer an investigational new drug product to humans.

The central focus of an IND submission is on the general investigational plan and the protocol or protocols clinical trials.

The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls (CMC), information, and any available human data or literature to support the use of the investigational product.

An IND must become effective before human clinical trials may begin.

The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial.

In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin.

Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with good clinical practices (GCPs), which include the requirement that all research subjects provide their informed consent for their participation in any clinical study.

Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.

A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments.

Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed.

Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives.

Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.

There are also requirements governing the reporting of ongoing preclinical studies and clinical trials and clinical study results to public registries.

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For purposes of regulatory approval, human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

The investigational product is initially introduced into patients with the target disease or condition.

These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

The investigational product is administered to a limited patient population to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.

The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites.

These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product.

These so-called Phase 4 studies may be made a condition to approval of the NDA or BLA.

Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.

The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency.

Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical study investigators.

The FDA or the sponsor or its data safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research participant or participants are being exposed to an unacceptable health risk.

Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

Sponsors of clinical trials of FDA-regulated products may be required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov.

NDA or BLA Submission and Review

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a NDA or BLA requesting approval to market the product for one or more indications.

The NDA or BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s CMCs and proposed labeling, among other things.

The submission of a NDA or BLA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies.

The FDA has 60 days from the applicant’s submission of a NDA or BLA to either issue a refusal to file letter or accept the NDA or BLA for filing, indicating that it is sufficiently complete to permit substantive review.

Once a NDA or BLA has been accepted for filing, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing.

In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification.

The FDA reviews a NDA or BLA to determine, among other things, whether a product is safe and effective, or safe, pure, and potent, for its intended use, and whether the facility in which it is manufactured, processed, packed or held meets standards designed to assure and preserve the product’s identity, safety, strength, quality, potency and purity.

The FDA may convene an advisory committee to provide clinical insight on application review questions.

Before approving a NDA or BLA, the FDA will typically inspect the facility or facilities where the product is manufactured.

The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

Additionally, before approving a NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs.

If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information.

Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

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After the FDA evaluates a NDA or BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be manufactured, the FDA may issue an approval letter or a Complete Response letter.

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of an NDA or BLA requesting approval to market the product for one or more indications.

The BLA or NDA must include all relevant data available from preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things.

The submission of a BLA or NDA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies.

After the FDA evaluates a BLA or NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced and of select clinical trial sites, the FDA may issue an approval letter or a Complete Response Letter (CRL).

An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.

A Complete Response letter will describe all of the deficiencies that the FDA has identified in the NDA or BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling.

In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the NDA or BLA in condition for approval, including requests for additional information or clarification, including the potential requirement for additional clinical studies.

The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed.

For example, the FDA may approve the NDA or BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks.

A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.

A CRL will describe all of the deficiencies that the FDA has identified in the BLA or NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling.

In issuing the CRL, the FDA may recommend actions that the applicant might take to place the BLA or NDA in condition for approval, including requests for additional information or clarification.

The FDA may delay or refuse approval of a BLA or NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may include limitations on the indicated uses for which such product may be marketed.

The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications.

Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace.

The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product.

The FDA may require one or more post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Any drugs or biologics manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product.

After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval.

There also are continuing user fee requirements, under which the FDA assesses an annual program fee for each product identified in an approved NDA or BLA.

Manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers.

There also are continuing, annual program fees for any marketed products.

Biologic and drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers.

Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented.

FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting requirements upon us and any third-party manufacturers that we may decide to use.

Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

imposition of post-market studies or clinical studies to assess new safety risks;

or imposition of distribution restrictions or other restrictions under a Risk Evaluation and Mitigation Strategy (REMS) program.

FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use.

Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

Post-market Enforcement

The FDA may withdraw marketing authorizations for drugs, biologics (including Section 361 HCT/Ps) or medical devices if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical studies to assess new safety risks, or imposition of distribution restrictions or other restrictions.

Other potential consequences include, among other things:

• restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls;

• fines, warning or untitled letters or holds on post-approval clinical studies;

• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals;

• product seizure or detention, or refusal of the FDA to permit the import or export of products;

• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

• mandated modification of promotional materials and labeling and the issuance of corrective information;

• the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product;

• injunctions or the imposition of civil or criminal penalties.

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The FDA closely regulates the marketing, labeling, advertising and promotion of drugs and biologics.

A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label.

However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling.

complete withdrawal of the product from the market, product recalls, fines, warning letters, untitled letters, clinical holds on clinical studies, refusal of the FDA to approve pending applications or supplements to approved applications, product seizures or detention, refusal to permit the import or export of products, consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs, the issuance of corrective information, injunctions, or the imposition of civil or criminal penalties.

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In addition, the FDA closely regulates the marketing, labeling, advertising and promotion of drugs, biologics (including Section 361 HCT/Ps) and medical devices.

A company can make only those claims relating to safety and efficacy, purity and potency that are cleared or approved by the FDA and in accordance with the provisions of the authorized label.

The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA, but physicians may not submit claims for reimbursement that are false or fraudulent.

Such off-label uses are common across medical specialties.

Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances.

The FDA does not regulate the behavior of physicians in their choice of treatments.

The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

International regulation of medical devices

Sales of medical devices outside the United States are subject to foreign government regulations, which vary substantially from country to country.

In order to market our products in other countries, we must obtain regulatory approvals and comply with extensive safety and quality regulations in other countries.

The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval and the requirements may differ significantly.

In order to market our products in other countries, we must obtain regulatory approvals or certifications and comply with extensive safety and quality regulations in other countries.

The time required to obtain approval or certification by a foreign country may be longer or shorter than that required for FDA approval and the requirements may differ significantly.

EU regulation of medical devices

The EU has adopted legislation, in the form of directives to be implemented in each Member State, concerning the regulation of medical devices within the EU.

The directives include, among others, the Medical Device Directive (Council Directive 93/42/EEC) that establishes certain requirements, such as the essential requirements, with which medical devices must comply before they can be commercialized in the European Economic Area (EEA) (which is comprised of the Member States of the EU plus Norway, Liechtenstein and Iceland).

Under the EU Medical Device Directive, medical devices are classified into four Classes, I, IIa, IIb and III, with Class I being the lowest risk and Class III being the highest risk.

Under the Medical Device Directive, a competent authority is nominated by the government of each Member State to monitor and ensure compliance with the Directive.

To demonstrate compliance of their medical devices with the essential requirements, manufacturers must undergo a conformity assessment evaluation, which varies according to the type of medical device and its classification.

Except for certain types of low risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the essential requirements of the Medical Devices Directive, a conformity assessment evaluation requires the intervention of an organization accredited by a Member State of the EEA to conduct conformity assessments, a so-called Notified Body.

The Notified Body would typically audit and examine the quality system for the manufacture, design and final inspection of the medical devices, along with conducting a technical review of data supporting the device’s safety and efficacy, before issuing a certification demonstrating compliance with the essential requirements.

Both the quality system and the product are reviewed and certified.

The Company is subject to annual surveillance audits by the Notified Body and must undergo re-certification every 5 years.

During these audits, (minor or major) non-conformities to the essential requirement may be issued to the Company.

The Company could potentially lose marketing authorization if these non-conformities are not remediated with the Notified Body.

Significant modifications to the quality system or product changes for Class III devices must be submitted to the Notified Body for review prior to implementation.

Non-significant changes are subject to review during the annual surveillance audits.

Medical devices that comply with the essential requirements are entitled to bear the CE mark.

Medical devices properly bearing the CE mark may be commercially distributed throughout the EEA.

We have received CE certification from the British Standards Institute, a United Kingdom Notified Body, for conformity with the EU Medical Device Directive allowing us to place the CE mark on Durolane (Class III) and our Exogen bone healing system (Class IIa).

Additional PMAs in individual EEA countries are sometimes required prior to marketing of a product.

Failure to maintain the CE mark would preclude us from selling our products in the EEA, as could failure to comply with the specific requirements of the Member States.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices Directive.

Unlike directives, which must be implemented into the national laws of the EEA Member States, the regulations would be directly applicable 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, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and in vitro diagnostic devices and ensure a high level of safety and health while supporting innovation.

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The Medical Devices Regulation was meant to become applicable three years after publication (in May 2020).

However, on April 23, 2020, to take the pressure off EEA national authorities, notified bodies, manufacturers and other actors so they can focus fully on urgent priorities related to the COVID-19 pandemic, the European Council and Parliament adopted Regulation 2020/561, postponing the date of application of the Medical Devices Regulation by one year (to May 2021).

Once applicable, the new regulations will 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 on 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;

• set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;

• strengthen 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.

These new rules and procedures may result in increased regulatory oversight of our devices and this may, in turn, increase the costs, time and requirements that we need to meet in order to maintain or place such devices on the EEA market.

Further, the advertising and promotion of our products in the EEA is subject to the laws of individual EEA Member States implementing the EU Medical Devices Directive, Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, as well as other EEA Member State laws governing the advertising and promotion of medical devices.

These laws may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.

Other countries’ regulation of medical devices

The European Union (EU) has adopted specific directives and regulations regulating the design, manufacture, clinical investigation, conformity assessment, labeling and adverse event reporting for medical devices.

Until May 25, 2021, medical devices were regulated by Council Directive 93/42/EEC (the EU Medical Devices Directive), which has been repealed and replaced by Regulation (EU) No 2017/745 (the EU Medical Devices Regulation).

Our current certificates have been granted under the EU Medical Devices Directive whose regime is described below.

However, as of May 26, 2021, some of the EU Medical Devices Regulation requirements apply in place of the corresponding requirements of the EU Medical Devices Directive with regard to registration of economic operators and of devices, post-market surveillance and vigilance requirements.

Pursuing marketing of medical devices in the EU will notably require that our devices be certified under the new regime set forth in the EU Medical Devices Regulation when our current certificates expire.

Medical Devices Directive

Under the EU Medical Devices Directive, all medical devices placed on the market in the EU must meet the relevant essential requirements laid down in Annex I to the EU Medical Devices Directive, including the requirement that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others.

In addition, the device must achieve the performance intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner.

The European Commission has adopted various standards applicable to medical devices.

These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices.

There are also harmonized standards relating to design and manufacture.

While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter as it creates a rebuttable presumption that the device satisfies that essential requirement.

To demonstrate compliance with the essential requirements laid down in Annex I to the EU Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification.

As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use.

Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence.

Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body.

Notified bodies are independent organizations designated by EU member states to assess the conformity of devices before being placed on the market.

A notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system (the notified body must presume that quality systems which implement the relevant harmonized standards – which is ISO 13485:2016 for Medical Devices Quality Management Systems – conform to these requirements).

If satisfied that the relevant product conforms to the relevant essential 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 EU.

Throughout the term of the certificate of conformity, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements.

In particular, there will be a new audit by the notified body before it will renew the relevant certificate(s).

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Medical Device Regulation

The regulatory landscape related to medical devices in the EU recently evolved.

On April 5, 2017, the EU Medical Devices Regulation was adopted with the aim of ensuring better protection of public health and patient safety.

The EU Medical Devices Regulation establishes a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation.

Unlike the EU Medical Devices Directive, the EU Medical Devices Regulation is directly applicable in EU member states without the need for member states to implement into national law.

This aims at increasing harmonization across the EU.

The EU Medical Devices Regulation became effective on May 26, 2021.

The new Regulation among other things:

• strengthens the rules on placing devices on the market (e.g.

reclassification of certain devices and wider scope than the EU Medical Devices Directive) 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;

• establishes explicit provisions on importers’ and distributors’ obligations and responsibilities;

• imposes an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation;

• improves the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk;

• sets up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;

• strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to undergo a clinical evaluation consultation procedure by experts before they are placed on the market.

Devices lawfully placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021 may generally continue to be made available on the market or put into service until May 26, 2025, provided that the requirements of the transitional provisions are fulfilled.

In particular, the certificate in question must still be valid.

However, even in this case, manufacturers must comply with a number of new or reinforced requirements set forth in the EU Medical Devices Regulation, in particular the obligations described below.

The EU Medical Devices Regulation 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.

The information to be submitted by manufacturers (and authorized representatives) also includes the name, address and contact details of the person or persons responsible for regulatory compliance.

The new Regulation also requires that before placing a device, other than a custom-made device, on the market, manufacturers must assign a unique identifier to the device and provide it along with other core data to the unique device identifier (UDI) database.

These new requirements aim at ensuring better identification and traceability of the devices.

Each device – and as applicable, each package – will have a UDI composed of two parts:

a device identifier (UDI-DI) specific to a device, and a production identifier (UDI-PI) to identify the unit producing the device.

Manufacturers are also notably responsible for entering the necessary data on Eudamed, which includes the UDI database, and for keeping it up to date.

The obligations for registration in Eudamed will become applicable at a later date (as Eudamed is not yet fully functional).

Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply for the purpose of meeting the obligations laid down in the provisions regarding exchange of information, including, and in particular, information regarding registration of devices and economic operators.

All manufacturers placing medical devices into the market in the EU must comply with the EU medical device vigilance system.

Under this system, serious incidents and Field Safety Corrective Actions (FSCAs) must be reported to the relevant authorities of the EU member states.

Manufacturers are required to take FSCAs defined as any corrective action for technical or medical reasons to prevent or reduce a risk of a serious incident associated with the use of a medical device that is made available on the market.

An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device.

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The advertising and promotion of medical devices is subject to some general principles set forth in EU legislation.

According to the EU Medical Devices Regulation, only devices that are CE marked may be marketed and advertised in the EU in accordance with their intended purpose.

Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example, requiring that advertisements are evidenced, balanced and not misleading.

Specific requirements are defined at a national level.

EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.

Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular vis-à-vis healthcare professionals and organizations.

Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to healthcare professionals or entities and many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States, on medical device manufacturers.

Certain countries also mandate implementation of commercial compliance programs.

The aforementioned EU rules are generally applicable in the European Economic Area (EEA) which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland.

Other countries

Many other countries have specific requirements for classification, registration and post marketing surveillance that are independent of the countries already listed.

We obtain what we believe are the appropriate clearances for Durolane and our Exogen bone healing system and conduct our business in accordance with the applicable laws of each country.

We obtain what we believe are the appropriate clearances for our products and conduct our business in accordance with the applicable laws of each country.

This landscape is constantly changing and we could be found in violation if we interpret the laws incorrectly or fail to keep pace with changes.

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Anti-kickback, false claims and other healthcare laws

In addition to FDA restrictions on the marketing of pharmaceutical, biological and medical device products, we are also subject to healthcare regulation and enforcement by the federal government and the states and foreign governments and authorities in the locations in which we conduct our business.

These other agencies include, without limitation, CMS, other divisions of the U.S.

We are subject to a number of U.S.

laws regulating healthcare fraud and abuse including the federal Anti-Kickback Statute and the federal Physician Self-Referral Law (known as the Stark Law), the Civil False Claims Act, and the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as well as numerous state laws regulating healthcare and insurance.

These laws are enforced by, without limitation, CMS, other divisions of the U.S.

Department of Health and Human Services (HHS), the U.S.

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Attorney offices within the Department of Justice, as well as state and local governments.

Such agencies enforce a variety of laws which include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, data privacy and security and physician payment transparency laws and regulations.

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The federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, by Medicare, Medicaid or other federal healthcare programs.

The term “remuneration” has been broadly interpreted to include anything of value, including cash, improper discounts and free or reduced price items and services.

Among other things, the Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical, biotechnology and medical device manufacturers on the one hand and prescribers, purchasers and formulary managers on the other.

Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.

Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor.

Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute.

Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.

Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated.

In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Violations are subject to civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved, and may result in criminal fines of up to $100,000 and imprisonment of up to ten years, or exclusion from Medicare, Medicaid or other governmental programs.

Further, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute also constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.

Federal law also includes a provision commonly known as the “Stark Law,” which prohibits a physician from referring Medicare or Medicaid patients to an entity providing “designated health services,” which includes durable medical equipment, if the physician or immediate family member of the physician, has an ownership or investment interest or compensation arrangement with such entity that does not comply with the requirements of a Stark exception.

Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a non-compliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs.

The federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to or approval by the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

A claim includes “any request or demand” for money or property presented to the U.S.

Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the U.S.

Violations of the False Claims Act can result in very significant monetary penalties and treble damages.

The federal government is using the False Claims Act and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical, biotechnology and medical device companies throughout the country.

Manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by for example, in connection with the promotion of products for unapproved or off-label uses and other sales and marketing practices.

The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions under applicable criminal statutes.

When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties ranging from $11,181 to $22,363 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs.

In addition, companies found liable under the False Claims Act have been forced to implement extensive corrective action plans, and have often become subject to consent decrees or corporate integrity agreements, severely restricting the manner in which they conduct their business and imposing ongoing reporting and disclosure obligations.

The federal civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

Given the significant size of actual and potential settlements, it is expected that governmental authorities will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

For drugs that are covered under Medicare Part B, the manufacturer must report average sales price (ASP), to CMS on a quarterly basis.

Failure to report this information in a timely and accurate manner can lead to substantial civil and criminal penalties and to liability under the False Claims Act.

In July of 2018 we became aware of allegations that certain of our sales personnel may have been completing Section B of the Certificate for Medical Necessity form (CMN) required in connection with Medicare claims for the Exogen system, which, under federal law, must be completed by the physician and/or physician staff.

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Together with our outside counsel, we initiated an investigation into these allegations, and we determined that the CMN forms for a portion of Medicare claims for the Exogen system were in fact improperly completed by our sales representatives, some of which also failed to meet CMS coverage requirements.

As a result of our findings we made a self-disclosure on November 30, 2018 to the Office of Inspector General of the HHS (OIG), under the Provider Self-Disclosure Protocol.

Our self-disclosure disclosed the extent of our findings relative to the inappropriate completion of CMN forms by our sales personnel and offered to make repayment for such claims which failed to meet CMS coverage requirements and which we submitted to the Medicare program between October 1, 2012 and September 30, 2018, the statutory period applicable to such conduct.

The total value of impacted claims was $30.1 million in the aggregate.

In October 2019, our outside counsel received a letter from the Office of the United States Attorney in the Middle District of North Carolina (USAO) stating that the USAO would be working with the OIG to resolve our self-disclosure.

After settlement discussions with the USAO and OIG, on January 25, 2021 we reached an agreement in principle with the USAO and the OIG with respect to the submission of Medicare claims that did not meet CMS coverage requirements and for which our sales representatives completed Section B of the CMN forms.

On February 22, 2021, we finalized all terms related to the settlement and entered into a formal settlement agreement with the USAO and OIG consistent with our previous agreement in principle and which included releases from associated False Claims Act liability and further Civil Monetary Penalties that are customary in self-disclosures of this type.

Under the agreement, we resolved the potential liability related to our self-disclosure for $3.6 million, of which $2.4 million had already been paid through our 2019 return of overpayments described previously, leaving a net payment to be made of $1.2 million.

We made payment of the $1.2 million net settlement amount due under the agreement on February 23, 2021.

The settlement amount noted above was recorded in the consolidated financial statements for the year ended December 31, 2020.

In 2019, separate from the self-disclosure described above, as a result of our internal auditing of Exogen Medicare claims, we made repayments to our Medicare Administrative Contractors (MACs) for overpayments identified during such auditing totaling $7.5 million for the period October 1, 2012 through December 31, 2018.

This amount reflected certain Medicare claims for Exogen for which we lacked adequate documentation of medical necessity consistent with Medicare coverage requirements.

Similarly, in July of 2020, we made repayments to the MACs of $1.5 million after completing our internal auditing of Exogen Medicare claims for the period beginning January 1, 2019 through December 31, 2019.

We maintain a reserve for reimbursement claims related to our Exogen system that may have been processed for payment without adequate medical records support.

Our reserve is estimated using an extrapolation of an error rate from a statistical sample, which represents our best estimate as of the date of the financial statements, but because of the uncertainty inherent in such estimates, the ultimate repayment amounts may be materially different.

See Part I, Item 1A.

Risk Factors —Risks related to government regulation—We may be subject to enforcement action if we engage in improper claims submission practices and resulting audits or denials of our claims by government agencies could reduce our net sales or profits.

The federal Health Insurance Portability and Accountability Act of 1996, as amended by Health Information Technology for Economic and Clinical Health Act (HITECH), and the regulations that implement both laws, collectively known as HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of these statutes or specific intent to violate them in order to have committed a violation.

Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed under Medicaid and other state programs.

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In addition, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties of up to $20,866 for each wrongful act.

Moreover, in certain cases, providers who routinely waive co-payments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and civil False Claims Act, which can impose additional penalties associated with the wrongful act.

One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of co-payments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts.

The OIG emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient.

Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of co-payments and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud.

To the extent our patient assistance programs are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties.

Additionally, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education and Reconciliation Act, or collectively, the Affordable Care Act, imposed, among other things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and “transfers of value” provided to physicians and teaching hospitals, and, beginning in 2022, physician assistants, nurse practitioners and other practitioners, as well as ownership and investment interests held by such providers and their immediate family members.

Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $176,495 per year and up to an aggregate of $1.177 million per year for “knowing failures.” Covered manufacturers must submit reports by the 90th day of each calendar year.

In addition, certain states require implementation of compliance programs and compliance with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities and/or require tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.

These laws impact the kinds of financial arrangements we may have with hospitals, physicians or other potential purchasers of our products.

They particularly impact how we structure our sales offerings, including discount practices, customer support, education and training programs, physician consulting, research grants and other arrangements.

If our operations are found to be in violation of any of the health regulatory laws described above or any other laws or regulations that apply to us, we may be subject to penalties, including, without limitation, potentially significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, imprisonment, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations.

As a result of our sale or distribution of products in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.

We participate in state government-managed Medicaid programs as well as certain other qualifying federal and state government programs where discounts and mandatory rebates are provided to participating state and local government entities.

Among other things, these laws and others generally (1) prohibit the provision of anything of value in exchange for the referral of patients or for the purchase, order, or recommendation of any item or service reimbursed by a federal healthcare program, (including Medicare and Medicaid);

(2) require that claims for payment submitted to federal healthcare programs be truthful;

and (3) require the maintenance of certain government licenses and permits.

Many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and services reimbursed under Medicaid and other state programs.

The federal Anti-Kickback Statute (AKS) prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state 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.

Several courts have interpreted the AKS’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the AKS has been violated.

The AKS includes statutory exceptions and regulatory safe harbors that protect certain arrangements.

Failure to meet the requirements of an applicable AKS safe harbor, however, does not render an arrangement illegal.

Rather, the government may evaluate such arrangements on a case-by-case basis, taking into account all facts and circumstances, including the parties’ intent and the arrangement’s potential for abuse, and may be subject to greater scrutiny by enforcement agencies.

The Stark Law prohibits a physician who has a financial relationship, or who has an immediate family member who has a financial relationship, with entities providing designated health services (DHS) from referring Medicare and Medicaid patients to such entities for the furnishing of DHS, unless an exception applies.

The Stark Law also prohibits the entity from billing for any such prohibited referral.

Unlike the AKS, the Stark Law is violated if the financial arrangement does not meet an applicable exception, regardless of any intent by the parties to induce or reward referrals or the reasons for the financial relationship and the referral.

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The Federal False Claims Act (FCA) prohibits a person from knowingly presenting, or caused to be presented, a false or fraudulent request for payment from the federal government, or from making a false statement or using a false record to have a claim approved.

A claim includes “any request or demand” for money or property presented to the United States government.

Moreover, the government may assert that a claim including items and services resulting from a violation of the AKS or the Stark Law constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

Penalties for a violation of the FCA include fines for each false claim, plus up to three times the amount of damages caused by each false claim.

Private individuals also have the ability to bring actions under these false claims laws in the name of the government alleging false and fraudulent claims presented to or paid by the government (or other violations of the statutes) and to share in any amounts paid by the entity to the government in fines or settlement.

Further, the Civil Monetary Penalties Statute authorizes the imposition of civil monetary penalties, assessments and exclusion against an individual or entity based on a variety of prohibited conduct, including, but not limited to offering remuneration to a federal healthcare program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive healthcare items or services from a particular provider.

Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the AKS and civil FCA.

One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts.

The Department of Health and Human Services Office of Inspector General emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient.

Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud.

The Health Insurance Portability and Accountability Act (HIPAA) also established federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the AKS, 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.

We also participate in state government-managed Medicaid programs as well as certain other qualifying federal and state government programs where discounts and mandatory rebates are provided to participating state and local government entities.

In connection with several of these government programs, we are required to report prices to various government agencies.

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The calculations are complex and are often subject to interpretation by the reporting entities, government agencies and the courts.

Our methodologies for calculating these prices could be challenged under false claims laws or other laws.

We could make a mistake in calculating reported prices and required discounts, which could result in retroactive liability to government agencies.

Government agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid.

If we make these mistakes or if governmental agencies make these changes, we could face, in addition to prosecution under federal and state false claims laws, substantial liability and civil monetary penalties, exclusion of our products from reimbursement under government programs, criminal fines or imprisonment, or prosecutors may impose a Corporate Integrity Agreement, Deferred Prosecution Agreement, or similar arrangement.

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The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), requires that manufacturers report data to CMS on pricing of covered drugs reimbursed under Medicare Part B.

By way of example, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), requires that manufacturers report data to CMS on pricing of covered drugs reimbursed under Medicare Part B.

These are generally drugs and biologicals, such as injectable products, that are administered “incident to” a physician service and in general are not self-administered.

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The SUPARTZ FX product is reimbursed under Medicare Part B and, as a result, we provide ASP data on this product to CMS on a quarterly basis.

Privacy and data protection laws in the United States

HIPAA and its implementing regulations, contain substantial restrictions and requirements with respect to the use and disclosure of certain protected health information (PHI)).

These restrictions and requirements are set forth in the HIPAA Privacy, Security and Breach Notification Rules.

In some of our operations, such those involving the acceptance of payments, we are a “covered entity” under HIPAA and therefore required to comply with the Privacy, Security and Breach Notification Rules and is subject to significant civil and criminal penalties for failure to do so.

We also provide services to customers that are covered entities themselves and we are required to provide satisfactory written assurances to these customers through written “business associate” agreements that we will provide our services in accordance with HIPAA.

The Final Rule published by HHS Office for Civil Rights (OCR) in January 2013 and effective March 23, 2013, modified the HIPAA Privacy, Security, Breach Notification and Enforcement Rules, including revisions/additions made by the HITECH Act.

The rule expanded the privacy and security requirements for business associates that create, receive, maintain or transmit PHI for or on behalf of covered entities, increased penalties for noncompliance and strengthened requirements for reporting of breaches of unsecured PHI, among other changes.

The rule also made business associates and their subcontractors directly liable for civil monetary penalties for impermissible uses and disclosures of PHI.

If we were to be found to have breached our obligations under HIPAA, we could be subject to enforcement actions by the OCR and state health regulators and lawsuits, including class action law suits, by private plaintiffs.

In addition, OCR performs compliance audits in order to proactively enforce the HIPAA privacy and security standards.

OCR has become an increasingly active regulator and has signaled its intention to continue this trend.

OCR has the discretion to impose penalties without being required to attempt to resolve violations through informal means;

further OCR may require companies to enter into resolution agreements and corrective action plans which impose ongoing compliance requirements.

OCR enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.

In addition to enforcement by OCR, state attorneys general are authorized to bring civil actions under either HIPAA or relevant state laws seeking either injunctions or damages in response to violations that threaten the privacy of state residents.

Although we have implemented and maintained policies, processes and a compliance program infrastructure to assist us in complying with these laws and regulations and our contractual obligations, we cannot provide assurance regarding how these laws and regulations will be interpreted, enforced or applied to our operations.

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In addition to HIPAA, we must adhere to state patient confidentiality laws that are not pre-empted by HIPAA, including those that are more stringent than HIPAA requirements.

Numerous other state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of patient health information.

In addition, Congress and some states are considering new laws and regulations that further protect the privacy and security of medical records or medical information.

With the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, all states have passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected customers.

Generally, these laws are limited to electronic data and make some exemptions for smaller breaches.

Congress has also been considering similar federal legislation relating to data breaches.

The Federal Trade Commission (FTC) and states’ Attorneys General have also brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the FTC Act.

In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information.

For example, the California Consumer Privacy Act (CCPA) took effect on January 1, 2020.

The CCPA establishes a new privacy framework for covered businesses and provides new and enhanced data privacy rights to California residents, such as affording consumers the right to access and delete their information and to opt out of certain sharing and sales of personal information.

The CCPA imposes severe statutory damages as well as a private right of action for certain data breaches that result in the loss of personal information.

This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation.

It remains unclear how various provisions of the CCPA will be interpreted and enforced.

The CCPA contains an exemption for medical information governed by the California Confidentiality of Medical Information Act (CMIA) and for PHI collected by a covered entity or business associate governed by the privacy, security and breach notification rules established pursuant to HIPAA and HITECH, but the precise application and scope of this exemption is not yet clear, and the law may still apply to certain aspects of our business.

Additionally, a new privacy law, the California Privacy Rights Act (CPRA), was approved by California voters in the November 3, 2020 election.

The CPRA generally takes effect on January 1, 2023 and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information, restricting use of sensitive personal information, which includes health information, and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.

The CCPA and CPRA may lead other states to pass comparable legislation, with potentially greater penalties, and more rigorous compliance requirements relevant to our business, and that may not include exemptions for businesses subject to HIPAA.

The effects of the CCPA, and other similar state or federal laws, are potentially significant and may require us to modify our data processing practices and policies and to incur substantial costs and potential liability in an effort to comply with such legislation.

As with HIPAA, any laws regulating the collection, dissemination, use, access to, confidentiality and security of personal information may apply directly to our business or indirectly by contract when we provide services to other companies.

We intend to continue to comprehensively protect all consumer data and to comply with all applicable laws regarding the protection of this data.

Privacy and data protection laws in Europe

We are subject to European laws relating to our and our suppliers’, partners’ and subcontractors’ collection, control, processing and other use of personal data, such as data relating to an identifiable living individual, whether that individual can be identified directly or indirectly.

We and our suppliers, partners and subcontractors process personal data including in relation to our employees, employees of customers, trial patients, health care professions and employees of suppliers including health and medical information.

The data privacy regime in the EU includes the General Data Protection Regulation (GDPR), the E-Privacy Directive (2002/58/EC) and national laws implementing or supplementing each of them.

The GDPR requires that personal data is only collected for specified, explicit and legal purposes as set out in the GDPR or local laws and the data may then only be processed in a manner consistent with those purposes.

The personal data collected and processed must be adequate, relevant and not excessive in relation to the purposes for which it is collected and processed, it must be held securely, not transferred outside of the EEA unless certain steps are taken to ensure an adequate level of protection and must not be retained for longer than necessary for the purposes for which it was collected.

In addition, the GDPR requires companies processing personal data to take certain organizational steps to ensure that they have adequate records, policies, security, training and governance frameworks in place to ensure the protection of data subject rights, including as required to respond to complaints and requests from data subjects.

In addition, to the extent a company processes, controls or otherwise uses ‘special category’ personal data (including patients’ health or medical information, genetic information and biometric information), more stringent rules apply, further limiting the circumstances and the manner in which a company is legally permitted to process that data.

Finally, GDPR provides a broad right for EU Member States to create supplemental national laws.

Such laws and they are increasingly adopting different approaches to the role of the parties in clinical trials.

Such laws, for example may relate to the processing of health, genetic and biometric data, which could further limit our ability to use and share such data or could cause our costs to increase and harm our business and financial condition.

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From January 1, 2021, we are also subject to the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law.

The UK GDPR mirrors the fines under the GDPR, e.g.

fines up to the greater of €20 million (£17.9 million) or 4% of global turnover.

The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term.

Currently there is a four to six-month grace period agreed in the EU and UK Trade and Cooperation Agreement, ending 30 June 2021 at the latest, whilst the parties discuss an adequacy decision.

However, it is not clear whether (and when) an adequacy decision may be granted by the European Commission enabling data transfers from EU member states to the United Kingdom long term without additional measures.

These changes will lead to additional costs and increase our overall risk exposure.

In addition, the United Kingdom’s withdrawal from the European Union means that the United Kingdom will become a “third country” for the purposes of data transfers from the European Union to the United Kingdom following the expiration of the four to six-month personal data transfer grace period (from January 1, 2021) set out in the EU and UK Trade and Cooperation Agreement, unless a relevant adequacy decision is adopted in favor of the United Kingdom (which would allow data transfers without additional measures).

These changes may require us to find alternative solutions for the compliant transfer of personal data into the United Kingdom.

We are also subject to evolving European laws on data export and electronic marketing.

The rules on data export will apply when we transfer personal data to group companies or third parties outside of the EEA.

For example, in 2015, the Court of Justice of the European Union (CJEU) ruled that the U.S.-EU Safe Harbor framework, one compliance method by which companies could transfer personal data regarding citizens of the EU to the United States, was invalid and could no longer be relied upon.

European and U.S.

negotiators agreed in February 2016 to a new framework, the EU-US Privacy Shield framework, which replaced the Safe Harbor framework, however, on July 16, 2020 the CJEU also invalidated the Privacy Shield framework as a method to transfer personal data from the EEA to US.

While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances;

this has created uncertainty.

These changes will require us to review and amend the legal mechanisms by which we make and/ or receive personal data transfers to/ in the U.S.

As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.

We are also subject to evolving EU and UK privacy laws on cookies and e-marketing.

In the European Union and the United Kingdom, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are highly likely to be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance.

In the European Union and the United Kingdom, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing.

The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology.

While the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators’ recent guidance are driving increased attention to cookies and tracking technologies.

If regulators start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.

We are subject to the supervision of local data protection authorities in those jurisdictions where we are established or collecting data from EU residents.

We depend on a number of third parties in relation to our provision of our services, a number of which process personal data on our behalf.

With each such provider we enter into contractual arrangements to ensure that they only process personal data according to our instructions, and that they have sufficient technical and organizational security measures in place.

Where we transfer personal data outside the EEA, we do so in compliance with the relevant data export requirements.

As previously described, following the CJEU’s decision to invalidate Privacy Shield, we are now required to review and amend the legal mechanisms by which we make and/or receive personal data transfers to/in the U.S.

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We take our data protection obligations seriously, as any improper, unlawful or accidental disclosure, loss, alteration or access to, personal data, particularly sensitive personal data, such as special category, could adversely affect our business and/or our reputation.

We may find it necessary or desirable to join self-regulatory bodies or other privacy-related organizations, particularly relating to biopharmacy and/or scientific research that require compliance with certain rules pertaining to privacy and data security.

There are costs and administrative burdens associated with compliance with GDPR and the resultant changes in the EU and EEA Member States’ national laws and the introduction of the e-Privacy Regulation once it takes effect.

Any failure or perceived failure to comply with global privacy laws carries with it the risk of significant penalties and sanctions.

These laws or new interpretations, enactments or supplementary forms of these laws, could create liability for us, could impose additional operational requirements on our business, and could affect the manner in which we use and transmit patient information and could increase our cost of doing business.

Claims of violations of privacy rights or contractual breaches, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Several states in which we operate have also adopted similar fraud and abuse laws as described above.

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.

Some state fraud and abuse laws apply to items or services reimbursed by any payer, including patients, employers and commercial insurers, not just those reimbursed by a federally funded healthcare program.

Violation of any of these laws or any other governmental regulations that apply may result in significant penalties, including, without limitation, administrative civil and criminal penalties, damages, disgorgement, fines, additional reporting requirements and compliance oversight obligations, in the event that a corporate integrity agreement or other agreement is required to resolve allegations of noncompliance with these laws, the curtailment or restructuring of operations, exclusion from participation in government healthcare programs and/or individual imprisonment.

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Foreign Corrupt Practices Act

We are subject to the Foreign Corrupt Practices Act of 1977, as amended (FCPA).

The FCPA prohibits U.S.

companies and their representatives from processing, offering, or making payments of money or anything of value to foreign officials with the intent to obtain or retain business or seek a business advantage.

In certain countries, the health care professionals we or our distributors regularly interact with may meet the definition of a foreign government official for the purposes of the FCPA.

Our international activities create the risk of unauthorized payments or offers of payments by our employees, consultants and agents, including distributors, even though they may not always be subject to our control.

Our existing safeguards may prove to be less than effective, and our employees, consultants, and agents may engage in conduct for which we might be held responsible.

A determination that our operations or activities are not, or were not, in compliance with U.S.

or foreign laws or regulations could result in the imposition of substantial fines, interruptions of business, loss of suppliers, vendor or other third-party relationships, termination of necessary licenses or permits, and legal or equitable sanctions.

Other internal or governmental investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence.

ISO Standards

We also operate and maintain a Quality Management System that is designed to comply with the requirements of International Standards ISO 13485:

2016 Medical Devices – Quality Management Systems.

This system encompasses the principles of enhancing customer satisfaction through the effective application of processes for control, monitoring, and continual improvement, which is designed to ensure that we consistently meet or exceed customer expectations and applicable statutory/regulatory requirements

Privacy and data protection laws

We are subject to a number of federal, state and foreign laws and regulations that govern the collection, use, disclosure, and protection of health-related and other personal information, including health information privacy and security laws, data breach notification laws, and consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act).

For example, HIPAA imposes obligations on “covered entities,” including certain healthcare providers, such as us, health plans, and healthcare clearinghouses, and their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, as well as their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

Entities that are found to be in violation of HIPAA, whether as the result of a breach of unsecured protected health information (PHI), a complaint about privacy practices, or an audit by HHS, may be subject to significant civil, criminal, and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.

In addition, certain state and foreign laws, such as the California Consumer Privacy Act (CCPA) California Privacy Rights Act (CPRA), General Data Protection Regulation (GDPR) and the United Kingdom General Data Protection Regular (UK GDPR) govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation.

Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

Coverage and reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical, biological or medical device product.

In the United States and markets in other countries, patients who are prescribed treatments or undergo procedures for their conditions and the providers performing the services generally rely on third-party payers to reimburse all or part of the associated healthcare costs.

Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products or related procedures.

Sales of any products will therefore depend, in part, on the availability of coverage and adequate reimbursement from third-party payers.

Third-party payers include government authorities, managed care organizations, private health insurers and other organizations.

The process for determining whether a third-party payer will provide coverage for a product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payer will pay for the product once coverage is approved.

Third-party payers may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients.

A decision by a third-party payer not to cover any of our products or product candidates could reduce physician utilization of such products and adversely affect our business, results of operations and financial condition.

Moreover, a third-party payer’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved.

Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

Additionally, coverage and reimbursement for products can differ significantly from payer to payer.

One third-party payer’s decision to cover a particular medical product or service does not ensure that other payers will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate.

As a result, the coverage determination process will often require us to provide scientific and clinical support for the use of our products to each payer separately and can be a time-consuming process.

Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy.

Third-party payers may not consider our products to be medically necessary or cost-effective for certain indications or for all uses, and as a result, may not provide coverage for our products.

In order to obtain and maintain coverage and reimbursement for our products and product candidates, we may need to conduct expensive clinical trials in order to demonstrate the medical necessity and cost-effectiveness of such products, in addition to the costs required to obtain regulatory approvals.

If third-party payers do not consider a product to be cost-effective compared to other available therapies, they may not cover the product as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell our products at a profit.

Any changes in coverage and reimbursement that further restrict coverage of our products or lower reimbursement for procedures using our devices could materially affect our business.

See Part I, Item 1A.

Risk Factors —Risks related to our business—If we are unable to achieve and maintain adequate levels of coverage and/or reimbursement for our products, the procedures using our products, or any future products we may seek to commercialize, the commercial success of these products may be severely hindered.

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Our products may be reimbursed by third-party payors, such as government programs, including Medicare and Medicaid, or private insurance plans and healthcare networks.

As a result, demand for our products is and will continue to be dependent in part on the coverage and reimbursement policies of these payors.

The manner in which reimbursement is sought and obtained varies based upon the type of payor involved and the setting in which the product is furnished and utilized.

Reimbursement from Medicare, Medicaid and other third-party payors may be subject to periodic adjustments as a result of legislative, regulatory and policy changes, as well as budgetary pressures.

Possible reductions in, or eliminations of, coverage or reimbursement by third-party payors, or denial of, or provision of uneconomical reimbursement for new products may affect our customers’ revenue and ability to purchase our products.

Any changes in the healthcare regulatory, payment or enforcement landscape relative to our customers’ healthcare services have the potential to significantly affect our operations and revenue.

The Medicare program is expected to continue to implement a new payment mechanism for certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) items via the implementation of its competitive bidding program.

Bone growth therapy devices are currently exempt from this competitive bidding process.

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Outside of the United States, the pricing of medical devices and prescription pharmaceuticals is subject to governmental control in many countries.

For example, in the EU, pricing and reimbursement schemes vary widely from country to country.

Some countries provide that products may be marketed only after a reimbursement price has been agreed.

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Other countries may allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions.

Efforts to control prices and utilization of medical devices and pharmaceutical products could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU.

There can be no assurance that any country that has price controls or reimbursement limitations for medical devices or pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products, if approved in those countries.

Risk Factors —Risks related to our business—Governments outside the United States may not provide coverage or reimbursement of our products, which may adversely affect our business, results of operations and financial condition.

Exogen reimbursement and order fulfillment

Our Exogen system is classified as durable medical equipment, meaning the product is used by the patient in the home and that the patient and/or insurance company, rather than the physician, is billed for the product.

We bill third-party payers, such as private insurance or Medicare, on behalf of our patients and bill the patient for their co-payment obligations and deductibles.

An internal team and external consultants assist with billing and processing orders for our Exogen system and has been trained in verifying case-by-case benefits, obtaining prior authorization and billing and collecting payments from payers.

We also have a separate dedicated team of employees that provides customer support services for our Exogen system.

We have strong and established payer relationships, including the largest private payers in the United States.

Based on our estimates, we are contracted as a provider with payers covering over 200 million lives.

These contracts allow patients to access our Exogen system at a competitive rate and copay comparable to other suppliers and easing our administrative burden in processing at both authorization and when billing.

Our Exogen system is reimbursed under Healthcare Common Procedure Coding System (HCPCS) code E0760.

Healthcare reform

Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage for the procedures associated with the use of our products, or result in lower reimbursement for those procedures.

The cost containment measures that payers and providers are instituting and the effect of any healthcare reform initiative implemented in the future could significantly reduce our revenues from the sale of our products.

By way of example, the Affordable Care Act substantially changed healthcare financing and delivery by both governmental and private insurers and significantly impacted the pharmaceutical and medical device industries.

The Affordable Care Act imposed, among other things, a new federal excise tax on the sale of certain medical devices, provided incentives to programs that increase the federal government’s comparative effectiveness research and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, including the permanent repeal of the federal excise tax on the sale of certain medical devices effective January 1, 2020.

We expect there will be additional challenges and amendments to the Affordable Care Act in the future.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted.

On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013.

Subsequent legislative amendments related to the COVID-19 pandemic suspended this Medicare sequestration payment reduction from May 1, 2020 through March 31, 2021, but extended sequestration through 2030.

On January 2, 2013, the American Taxpayer Relief Act of 2012, was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals.

Moreover, payment methodologies may be subject to changes due to healthcare legislation and regulatory initiatives.

For example, CMS may develop new payment and delivery models, such as bundled payment models.

In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S.

Congressional inquiries and proposed and enacted federal legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare and review the relationship between pricing and manufacturer patient programs.

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Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, 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.

In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs.

In the EU, similar political, economic and regulatory developments have occurred or are being contemplated.

In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or Member State level may result in significant additional requirements or obstacles that may increase operating costs.

The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy.

National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context.

In general, however, the healthcare budgetary constraints in most EU Member States have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers.

We expect that additional foreign, state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

Employee and Human Capital Resources

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We value our employees and regularly benchmark total rewards we provide, such as short and long term compensation, 401(k) contributions, health, welfare and quality of life benefits, paid time off and personal leave, against our industry peers to ensure we remain competitive and attractive to potential new hires.

Additionally, through our Diversity, Equity and Inclusion Counsel, our employees work directly with our executive management team to address any internal concerns and continuously improve the ways in which we serve our employees and customers.

We seek to create a workplace environment that fosters personal and business successes by offering training and development programs, which further assist our current employees in meeting and exceeding our established standards of performance, and a leadership development program specially designed to help our new leaders be successful in their expanded roles.

Additionally, to build on our culture of treating all individuals fairly and respectfully, we have established a Diversity, Equity and Inclusion (DE&I) Council and formed several Employee Resource Groups (ERGs).

The DE&I Council and ERGs are voluntary, employee-led groups of employees who come together in their workplace based on shared characteristics or life experiences.

The stated mission of the DE&I Council is to foster a culture and identity that drives diversity, equity and inclusion as we engage and develop current employees and recruit future talent, all working together to build a transformative work environment.

Our ERGs are generally intended to provide support, enhance career development, and contribute to personal development in the work environment.

The goals of these and other similar initiatives is to encourage broad and diverse viewpoints to achieve the best outcomes for the patients, healthcare providers, and employees we serve.

Our Organizational Structure

Bioventus Inc.

is a Delaware corporation formed on December 22, 2015 and functions as a holding company with no direct operations and our principal asset is the equity interest in BV LLC.

We are headquartered in Durham, North Carolina.

On February 16, 2021, we closed an initial public offering (IPO).

Our IPO was conducted through what is commonly referred to as an umbrella partnership C corporation (UP-C) structure.

In connection with the IPO and the UP-C structure, we completed a series of organizational transactions including, without limitation, the following:

as the sole managing member of BV LLC;

• the acquisition, by merger, of certain members of BV LLC (Former LLC Owners), for which we issued shares of Class A common stock as merger consideration (Merger).

• We amended and restated its certificate of incorporation to authorize Class A common stock, Class B common stock and undesignated preferred stock.

Class B common stock has voting rights but no economic rights.

We have a majority economic interest, the sole voting interest in, and control the management of, BV LLC.

As a result, we will consolidate the financial results of BV LLC and reports a non-controlling interest representing the LLC Interests held by Smith & Nephew, Inc.

(Continuing LLC Owner).

Refer to Note 1.

Organization of the Notes to the Consolidated Financial Statements within Part II, Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information about the organizational transactions completed as part of the IPO.

Available Information

Our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements for Meetings of Shareholders, any registration statements, and amendments to those reports, are available free of charge on our website as soon as reasonably practicable after they are filed with, or furnished to, the SEC.

Information on our website or connected to our website is not incorporated by reference into this Annual Report.

Our website is located at www.bioventus.com .

Information on our website or connected to our website is not incorporated by references into this Annual Report.

Our SEC filings are also available on the SEC website at www.sec.gov .

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What changed 10-K

Item 1. Business