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Item 1. Business

2023-03-23 compared with 2022-03-08 · 332 added, 402 removed, 531 unchanged (58% of the section changed)

We are a commercial-stage regenerative medicine company focused on creating the next generation of differentiated products and improving outcomes in patients undergoing surgery, concentrating on patients receiving implantable medical devices.

From our proprietary tissue processing platforms, we have developed a portfolio of advanced regenerative medical products that are designed to be very similar to natural biological material.

Our proprietary products, which we refer to as our Core Products, are designed to address the implantable electronic device/cardiovascular, orthopedic/spinal repair and soft tissue reconstruction markets, which represented a combined $3 billion market opportunity in the United States in 2020.

To expand our commercial reach, we have commercial relationships with major medical device companies, such as Boston Scientific and Biotronik, to promote and sell some of our Core Products.

We believe our focus on our unique regenerative medicine platforms and our Core Products will ultimately maximize our probability of continued clinical and commercial success and will create a long-term competitive advantage for us.

We are a commercial-stage regenerative medicine company focused on creating the next generation of differentiated products and improving outcomes in patients undergoing surgery.

We seek to leverage our unique understanding of biologics to improve the interaction between medical devices and patients, with the goal of reducing complications and improving healing.

From our proprietary tissue processing platforms, we have developed a portfolio of advanced regenerative medical products that are designed to mimic the healing response of natural biological material.

Our proprietary products are designed to address the device protection, women’s health, orthobiologics and cardiovascular markets, which we believe represent a combined $3 billion market opportunity in the United States.

To expand our commercial reach, we have commercial relationships with major medical device companies, such as Boston Scientific, Biotronik and beginning in March 2023, Sientra, to promote and sell some of our products.

We believe our focus on our unique regenerative medicine platforms will ultimately maximize our probability of continued clinical and commercial success and will create a long-term competitive advantage for us.

We estimate that, over the past two years, approximately two million patients per year in the United States were implanted with either medical devices, such as pacemakers, defibrillators, neuro-stimulators, spinal fusion and trauma fracture hardware or tissue expanders for breast reconstruction.

This number has been driven by advances in medical device technologies and an aging population with a growing incidence of comorbidities, including diabetes, obesity and cardiovascular and peripheral vascular diseases.

These comorbidities can exacerbate various immune responses and other complications that can be triggered by a device implant.

Our Core Products are targeted to address unmet clinical needs with the goal of promoting healthy tissue formation and avoiding complications associated with medical device implants, such as scar-tissue formation, capsular contraction, erosion, migration, non-union of implants and implant rejection.

We believe that we have developed the only biological envelope, which is covered by a number of patents, that forms a natural, systemically vascularized pocket for holding implanted electronic devices.

We have a proprietary processing technology for manufacturing bone regenerative products for use in orthopedic/spinal repair that preserves a cell’s ability to regenerate bone and decelerates cell apoptosis, or programmed cell death.

We have a patented cell removal technology that produces undamaged extracellular matrices for use in soft tissue reconstruction.

In pre-clinical and clinical studies, our products have supported and, in some cases,

accelerated tissue healing, and thereby improved patient outcomes.

Our Core and Non-Core product portfolio is highlighted in the table below.

Our growth strategy is focused on increasing penetration in our target markets.

We believe we can expand our commercial penetration in these markets and thereby grow our business by increasing our direct sales force and developing and launching more clinically relevant products from our pipeline and, when possible and appropriate, from acquisitions.

This number has been driven by advances in medical device technologies, reimbursement models focused on patient outcomes, and an aging population with a growing incidence of comorbidities, including diabetes, obesity and cardiovascular and peripheral vascular diseases.

These comorbidities can exacerbate various immune responses and contribute to other complications upon device implant.

Our products are targeted to address unmet clinical needs with the goal of promoting healthy tissue formation and avoiding complications associated with medical device implants, such as infection, scar-tissue formation, capsular contraction, erosion, migration, non-union of implants and implant rejection.

We have products in each of our four priority markets:

device protection, cardiovascular, orthobiologics and women’s health.

In device protection, we sell the only biological envelope, protected by a global patent portfolio, that forms a natural, systemically vascularized pocket for holding implanted electronic devices.

In cardiovascular, we sell our specialized porcine small intestine submucosa (“SIS ECM”) for use as an intracardiac and vascular patch.

In orthobiologics, we have a proprietary processing technology for manufacturing a comprehensive portfolio of bone regenerative products designed to promote the body’s ability to regenerate healthy bone, osteogenesis, while decreasing cell apoptosis, or programmed cell death.

In women’s health, we have a patented cell removal technology that produces undamaged extracellular dermal matrices with superior handling, designed to promote faster healing and reduce inflammation.

In pre-clinical and clinical studies, our products have supported and, in some cases, accelerated tissue healing, which has contributed to improved patient outcomes.

We operate in four segments that align with our major product groupings – Device Protection, Women’s Health, Orthobiologics and Cardiovascular.

Our product portfolio and contract manufacturing capabilities within each of these segments are highlighted in the table below.

Our growth strategy is focused on increasing penetration in each of the device protection, women’s health, orthobiologics and cardiovascular markets.

We believe we can grow our business by increasing our commercial footprint, developing clinically exceptional products and, when possible and appropriate, through inorganic opportunities.

Our go-to-market strategy includes a hybrid of a direct sales force, commercial partners and independent sales agents.

As of December 31, 2022, we had 24 direct sales representatives who focus on gaining additional market access and driving market penetration, not only by selling our products, but also, where appropriate, by managing our commercial partners and providing technical assistance for selling our products.

Through our direct sales force and leveraging our existing commercial partners, we believe we can expand our customer base and further strengthen our existing customer relationships and increase penetration in our target markets.

We have a well-established and scalable manufacturing platform, consisting of two facilities that are supported by our corporate headquarters.

We have a well-established and scalable manufacturing platform, consisting of two facilities that are supported by our corporate headquarters and other administrative location.

Our Silver Spring, Maryland location is our headquarters and functions as a research and development and corporate support center.

Our Roswell, Georgia location is our processing, production and distribution facility for all our implantable electronic device/cardiovascular products.

Our Richmond, California location is our human tissue products facility.

Our Roswell, Georgia location is our processing, production and distribution facility for all of our implantable electronic device protection and cardiovascular products.

Our Richmond, California location is our human tissue processing and distribution facility for our orthobiologics and soft tissue reconstruction products.

Our San Diego, California location provides additional administrative oversight and support.

We believe we have sufficient operating capacity at both our Roswell and Richmond facilities to support future growth.

Net sales from our Core Products grew from $36.2 million for the year ended December 31, 2020 to $37.6 million for the year ended December 31, 2021, representing an annual growth rate of 4%.

Our total net sales increased from $42.7 million for the year ended December 31, 2020 to $47.4 million for the year ended December 31, 2021, representing annual growth of 11%.

Our gross margins declined from 48% in the year ended December 31, 2020 to 40% in the year ended December 31, 2021.

Our gross margins, excluding intangible asset amortization, decreased from 56% in the year ended December 31, 2020 to 47% in the year ended December 31, 2021.

We incurred a net loss of $21.8 million for the year ended December 31, 2020 and $24.8 million for the year ended December 31, 2021.

Gross margin, excluding intangible asset amortization, is a non-GAAP financial measure.

See “Non-GAAP Financial Measures” under Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion regarding our use of gross margin, excluding intangible asset amortization, including its limitations and a reconciliation to the most directly comparable GAAP financial measure.

Our Competitive Strengths

Our mission is to provide advanced regenerative care products that improve the outcomes in patients primarily undergoing implantable device-related surgery.

To accomplish this mission, we intend to establish our Core Products as the standard of care for treating patients undergoing such procedures.

To accomplish this mission, we intend to establish our products as the standard of care for treating patients undergoing such procedures.

We believe our key competitive strengths position us well to execute on our growth strategy.

Our key competitive strengths are:

Our Integrated Company.

Our end-to-end capabilities spanning research and development (R&D), manufacturing and commercialization enables us to continually advance our product portfolio and drive commercial growth.

For example, our integrated structure allows us to receive market feedback from our sales team on unmet physician and patient needs, providing us with invaluable direction on our innovation priorities.

It is this feedback that allowed us to refine our SimpliDerm product to what we believe to have industry-leading handling properties.

Our integrated structure also allows us to leverage our R&D capabilities to continually improve our manufacturing processes to lower our production costs.

Well-positioned in Large, Attractive and Growing Markets .

We believe that the implantable electronic devices/cardiovascular, the orthopedic/spinal repair and the soft tissue reconstruction markets, which represented a combined $3 billion market opportunity in the United States in 2020, will continue to experience accelerated growth, given advancements in implantable medical device technologies to treat more medical conditions and shifting global demographics that include an aging population;

a greater incidence of comorbidities, such as diabetes, obesity and cardiovascular and peripheral vascular diseases;

and increasing numbers of mastectomies and lumpectomies.

We believe there is growing adoption of regenerative medicine products by the medical community as physicians become aware of the benefits of natural products, including reduced inflammation, scar-tissue formation and foreign body response.

We believe that the device protection, women’s health, orthobiologics and cardiovascular markets, which we believe represent a combined $3 billion market opportunity in the United States, will continue to experience accelerated growth, given advancements in implantable medical device technologies and surgical techniques;

shifting global demographics that include an aging population with a greater incidence of comorbidities, and increasing procedure volumes.

We believe there is growing adoption of regenerative medicine products by the medical community as physicians become aware of the benefits of natural products, including improved healing and reduced inflammation, scar-tissue formation and foreign body response.

Regenerative Medicine Technology Focus .

Our scientific expertise and know-how in regenerative medicine technology has allowed us to develop our proprietary platforms to create differentiated biomaterials, including our Core Products:

CanGaroo, ProxiCor, Tyke, VasCure, Fiber VBM, ViBone, OsteGro V and SimpliDerm.

These types of products, which are designed to more closely resemble natural products than similar traditionally processed products, have enabled us to advance the science of regenerative medicine as well as to process tissue and produce products at commercial scale.

Broad Portfolio of Core Products to Address the Needs of Physicians, Patients and Providers.

Our scientific expertise, commercial-scale manufacturing and know-how in regenerative medicine technology has allowed us to develop and process our proprietary platforms to create differentiated biomaterials, including our CanGaroo, ProxiCor, Tyke, VasCure, Fiber VBM, ViBone, OsteGro V and SimpliDerm product lines.

These types of products, which are designed to more closely resemble natural products than highly processed or synthetic substitutes, have enabled us to advance the science of regenerative medicine as well as to process tissue and produce products at commercial scale.

Broad Portfolio of Regenerative Medicine Products to Address the Needs of Physicians, Patients and Providers.

Physicians use our broad portfolio of regenerative medicine products to meet the needs of individual patients.

The breadth of our current portfolio, which includes products used in implantable electronic devices/cardiovascular, orthopedic/spinal repair and soft tissue reconstructive procedures, gives us the flexibility to target a broad set of procedures, each with a full suite

of products to accommodate both the clinical and economic factors that may affect purchasing decisions.

Our experienced contracting and direct sales force teams are highly trained to assist clinicians in effectively using the full complement of our products.

Large and Growing Body of Clinical Data and FDA Cleared Products .

We have significant regulatory experience in obtaining FDA clearance for regenerative medicine products requiring 510(k) clearance and in navigating the comprehensive regulatory framework that applies to human cells, tissues and cellular and tissue-based products, or HCT/Ps.

We have and continue to develop a body of pre-clinical, clinical and patient outcomes data, including third-party publications that reviewed the technical and clinical attributes of our products.

The breadth of our current portfolio, which includes products used in device protection, women’s health, orthobiologics and cardiovascular markets, gives us the flexibility to target a broad set of procedures, each with a full suite of products to accommodate both the clinical and economic factors that may affect purchasing decisions.

Our experienced contracting and direct sales force teams are highly trained to assist clinicians in effectively selecting and using the full complement of our products.

Large and Growing Body of Clinical Data .

We have and continue to develop a body of pre-clinical, clinical and patient outcomes data, including third-party publications and patient registries that provide evidence supporting the technical and clinical attributes of our products.

We believe that our extensive in vivo and clinical data give us a competitive advantage.

Relationships with Care Providers.

Our medical and commercial teams have established extensive customer relationships in the healthcare industry.

We have developed excellent relationships with physicians, nurses and hospital administrators.

We believe we are well-positioned to leverage these relationships to increase our penetration in our target markets.

Commercial Relationships with Major Medical Device Companies.

We have commercial agreements with major medical device companies, including Boston Scientific, Biotronik, Surgalign Holdings and others, which we collectively refer to as our commercial partners, to promote or commercialize some of our products.

Our commercial partners use their own network of more than 1,400 sales representatives, clinical specialists and independent sales agents, including approximately 1,200 of which are focused on our CanGaroo product.

We have commercial agreements with major medical device companies, including our strategic relationships with Boston Scientific, Biotronik and beginning in March 2023, Sientra, which, along with others, we collectively refer to as our commercial partners, to promote or commercialize some of our products.

These commercial partners use their own network of more than 1,400 sales representatives, clinical specialists and independent sales agents, including approximately 1,200 of which are focused on our CanGaroo product.

We leverage this additional presence in targeted markets to significantly increase our opportunity to cost-effectively penetrate these large markets.

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Executive Management Team with Extensive Experience in Regenerative Medicine.

Our executive management team has extensive experience in the regenerative medicine and medical device industries.

Our executive management team has extensive experience in the regenerative medicine and medical device industries, spanning R&D, operations, manufacturing and commercial.

This experience allows us to operate with a deep understanding of the underlying trends in regenerative medicine and the intertwined scientific, clinical, regulatory, commercial and manufacturing functions that drive success in this industry.

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Robust Pipeline of Innovative Core Products from Our Proven Research and Development Capabilities.

We have brought to market three commercial Core Products in the past three years.

In addition to our current core commercial products, we have a pipeline of products being developed for the implantable electronic devices/cardiovascular

market, the orthopedic/spinal repair market and the soft tissue reconstruction market that we expect to launch in the future.

We have brought to market two commercial products in the past three years.

We intend to continue to pursue FDA clearance for the next generation of our flagship CanGaroo product, the CanGaroo RM.

CanGaroo RM is a device-protection pouch designed to combine the regenerative properties of biological materials with the antibacterial effects of two antibiotics.

If cleared by the FDA, we plan to launch CanGaroo RM in collaboration with our commercial partners and maximize market penetration.

In addition to our current commercial products and our intended path involving CanGaroo RM, we intend to develop additional product candidates for the device protection, women’s health and orthobiologics markets.

We will continue to conduct pre-clinical and clinical studies, gather patient data and perform other research to support the further adoption of our products in the marketplace.

Expanding the Reach of Our Direct Sales Force .

As of December 31, 2021, we had 31 direct sales representatives who focus on gaining additional market access and driving market penetration, not only by selling our products, but also, where appropriate, by managing our commercial partners and providing technical assistance for selling our products.

Our sales team provides the critical knowledge of the advantages that our biological products provide for patients over those of our competitors.

We plan to grow our sales organization in order to launch new products, expand our network of hospital and physician customers, drive deeper penetration in current accounts and provide additional technical assistance to our commercial partners.

We believe there is a significant opportunity to grow our business through this continued expansion of our commercial footprint.

Additional Growth through Selective Acquisitions.

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We will continue to evaluate possible acquisitions that complement our existing portfolio and leverage our established commercial and manufacturing infrastructure.

Our Core Products/Solutions

Our portfolio of regenerative medicine Core Products has been developed to address the following specific markets:

Implantable Electronic Devices/Cardiovascular Market

Our Proprietary Products/Solutions

Our portfolio of regenerative medicine products has been developed to address the following specific markets:

WOMEN’S HEALTH RECONSTRUCTION

ORTHOBIOLOGICS

Device Protection and Cardiovascular Markets

Market Opportunity

In 2019, we estimate, based on industry sources and other third-party estimates, that there were more than 600,000 procedures in the United States to install or replace implantable electronic devices, such as pacemakers, pulse generators and defibrillators, as well as spinal cord neuromodulators and vagus nerve, deep brain and sacral nerve stimulators, which represents an estimated $600 million opportunity.

In 2019, we estimate, based on industry sources and other third-party estimates, that there were more than 600,000 procedures in the United States to install or replace implantable electronic devices (“IED”), such as pacemakers, pulse generators and defibrillators, as well as spinal cord neuromodulators and vagus nerve, deep brain and sacral nerve stimulators, which represents an estimated $600 million opportunity.

Limitations of Existing Solutions

Implantable electronic devices are now the standard of care for patients suffering from cardiac arrhythmias and heart failure.

Such devices are implanted in soft tissue, which is not heavily vascularized, and its implantation may trigger a biologic response that results in inflammation and fibrosis, leading to the device and its wire leads being encased in dense or calcified fibrous material.

IEDs are now the standard of care for patients suffering from cardiac arrhythmias and heart failure.

Such devices, cardiac implantable electronic devices (“CIED”), are implanted in soft tissue, which is not heavily vascularized, and its implantation may trigger a biologic response that results in inflammation and fibrosis, leading to the device and its wire leads being encased in dense or calcified fibrous material.

In 2015, a group of third-party researchers published a systematic review and meta-analysis of 60 published reports, consisting of 21 prospective, nine case-control and 30 retrospective cohort studies published between 1981 and 2013, each of which examined the rate of infection associated with the implantation of electronic devices.

The average rate of infection was between 1.0 and 1.3% and the reported rates of infection ranged from 0.3% to 16.4%.

In 2019, a different group of third-party researchers published the results of a global, prospective randomized clinical study focused on infection complications of implantable electronic cardiovascular devices which identified a 1.2% mean infection rate during 12-month follow-up in the control arm (3,488 patients), and this was later reported by other third-party researchers in 2020 to rise to 1.9% at the 36 months follow-up.

In 2019, a different group of third-party researchers published the results of a global, prospective randomized clinical study focused on infection complications of implantable electronic cardiovascular devices which identified a 1.2% infection rate during 12-month follow-up in the control arm (3,488 patients), and this was later reported by other third-party researchers in 2020 to rise to 1.9% at the 36 months follow-up.

However, infection is not the only significant complication associated with implantation.

Data from third-party studies published in 2011 and 2016 indicated that migration occurred in 0.5 to 10.9% of such procedures, and data from third-party studies published in 2001 and 2007 indicated that erosion of the device through the skin occurred in 0.2 to 5.0% of such procedures.

Data from third-party studies published in 2011 and 2016 indicated that migration occurred in 0.5% to 10.9%

of such procedures, and data from third-party studies published in 2001 and 2007 indicated that erosion of the device through the skin occurred in 0.2% to 5.0% of such procedures.

Thus, migration and erosion have been shown to be similarly frequent and can both result in infection or require replacement of the device.

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In 2014, Medtronic acquired TyRx and now sells this totally bioresorbable synthetic product under the name TYRX.

TYRX is a relatively stiff synthetic mesh with rough edges, which may require the surgeon to make a larger incision than is needed only to implant the electronic device.

TYRX is a relatively stiff synthetic mesh with rough edges available in only two sizes, which may require the surgeon to make a larger incision than is needed only to implant the electronic device.

The larger incision can lead to longer surgery times and complications at the time of replacement or upgrade of the implantable device.

Third-party studies have shown that the synthetic TYRX mesh is broken down and reabsorbed within approximately nine weeks.

According to published literature, synthetic mesh, unlike biological mesh, is not associated with the biological signaling needed to mitigate the anticipated and well-documented foreign body response that results in the production of scar tissue to form a capsule surrounding an implantable device.

According to published literature, synthetic mesh, unlike biological mesh, does not promote biological signaling needed to mitigate the anticipated and well-documented foreign body response that results in the production of scar tissue to form a capsule surrounding an implantable device.

TYRX’s primary benefit is to dispense antibiotics to reduce the rate of infection associated with device implantation.

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The SIS ECM is designed to mitigate the biologic foreign body response that normally occurs around the electronic device.

CanGaroo is remodeled into a surrounding layer of vital, vascularized tissue, potentially reducing the risk of capsular formation, migration and erosion of the implantable device through the skin, and complications associated with Twiddler’s syndrome.

CanGaroo is remodeled into a surrounding layer of vital, vascularized tissue, potentially reducing the

risk of capsular formation, migration and erosion of the implantable device through the skin, and complications associated with Twiddler’s syndrome.

CanGaroo may also facilitate the process of implantation and of device removal during its replacement, as well as enhance patient comfort.

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Development Pipeline

We are currently developing a version of CanGaroo that combines the envelope with antibiotics and is designed to reduce the risk of infection following surgical implantation of an electronic device.

As a first step, we recently completed a feasibility study that demonstrated the targeted release of antibiotics for CanGaroo.

Based on feedback from the FDA, we believe that this product candidate will require clearance of a 510(k) submission to be marketed in the United States.

In 2021, we completed both the product design and manufacturing validation for the CanGaroo with antibiotics.

We anticipate submitting the required 510(k) by the end of the first quarter of 2022.

We are currently developing a version of the CanGaroo Envelope, the CanGaroo RM, that combines the envelope with antibiotics and is designed to reduce the risk of infection following surgical implantation of an electronic device.

Based on feedback from the FDA, CanGaroo RM will require clearance of a 510(k) submission to be marketed in the United States.

We submitted the required 510(k) in April 2022 and, in March 2023, received a Not Substantially Equivalent (“NSE”) letter from FDA requiring us to address questions relating to drug testing, primarily a request by FDA to modify an in vitro drug release assay employed as a manufacturing control.

We intend to address the questions raised in the NSE letter and continue to work with FDA for potential clearance via the 510(k) pathway.

Commercial Approach

We sell CanGaroo in the United States using our direct sales force and our commercial partners, Boston Scientific and Biotronik, which act as sales agents and give us access to approximately 1,200 sales representatives and clinical specialists to further expand our footprint and accelerate our sales.

We sell CanGaroo in the United States and globally using our direct sales force and our commercial partners, Boston Scientific and Biotronik, which act as sales agents and give us access to approximately 1,200 sales representatives and clinical specialists to further expand our footprint and accelerate our sales.

Our primary customers are electrophysiologists, cardiac surgeons and neurosurgeons.

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We ship the product directly to hospitals.

Additional Cardiovascular Products

Cardiovascular Products

Through our direct sales force and independent sales agents, we also sell additional cardiovascular products derived from our specialized SIS ECM, all of which received 510(k) regulatory clearance as medical devices:

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Tyke is cleared for use in neonates and infants for the repair of pericardial structures;

as an epicardial covering for damaged or repaired cardiac structures;

as an epicardial covering for damaged or

repaired cardiac structures;

and as a patch material for intracardiac defects, septal defect and annulus repair, suture-line buttressing and cardiac repair.

We believe that Tyke is the only extra cellular material that has been specifically cleared for use in neonates and infants to repair pericardial structures.

We believe that Tyke is the only extracellular material that has been specifically cleared for use in neonates and infants to repair pericardial structures.

● VasCure is cleared for use, and is used by, cardiovascular, vascular and general surgeons as, a patch material to repair or reconstruct the peripheral vasculature, including the carotid, renal, iliac, femoral and tibial blood vessels, by modeling into site-specific tissue and conforming to repair defects easily.

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Unlike synthetic or cross-linked materials, VasCure approximates normal tissue and, we believe, is, therefore, less likely to provoke an immune response.

Orthopedic/Spinal Repair Market

Market Opportunity

According to industry sources, in the United States in 2019, there were an estimated 1.5 million surgical procedures for orthopedic and spinal repair, which, excluding the cost for spinal and orthopedic hardware, used bone repair products valued at more than $2 billion.

The number of such surgeries has increased over the last several years, driven, in part, by a higher incidence of comorbidities and chronic inflammatory and degenerative conditions, including osteoarthritis.

Spinal fusion, the leading application for bone fusion surgeries in the United States, involves the use of grafting material to cause two vertebrae to grow together into one.

In the United States in 2019, medical facilities performed 695,000 spinal fusion surgeries, of which approximately 400,000 were lumbar operations.

Lower extremity applications, including ankle arthrodesis, or surgical immobilization of a joint by fusion of the adjacent bones, now represent a bone fusion market of approximately 165,000 fusions.

With improving fixation methods, success rates have improved across these applications.

Limitations of Existing Solutions

Although success rates for orthopedic and spinal fusion have improved, inadequate bone healing remains one of the leading causes of failure for any fusion procedure.

Fusion is especially challenging in patients who have underlying healing deficiencies because of such comorbidities as diabetes and obesity.

The addition of a bone material to sites of fixation for repair of defects or for creating fusion acts synergistically with hardware devices to enhance and accelerate the achievement of boney union.

Autologous bone, which is harvested from the patient, is considered the gold standard for bone fusions.

However, obtaining sufficient autologous material may not always be possible, may not yield good quality material, may cause donor site morbidity and pain and has an additional cost associated with its harvest.

Bone morphogenetic protein-2 (“BMP-2”) is currently the only FDA-approved osteoinductive growth factor for use as a bone graft substitute.

However, with increasing clinical use of BMP-2, a growing and well-documented side effect profile has emerged.

This profile includes postoperative inflammation and associated adverse effects, bone formation in unusual locations, bone resorption and inappropriate formation of fat cells.

Human graft products, sourced from a different individual than the patient receiving the tissue, are called allografts.

These allograft products are typically processed using techniques that damage the extracellular matrix and induce cellular apoptosis, which results in premature cellular death.

This cellular death results in less cells, prevents osteogenic differentiation and impedes the activity of osteoblasts, cells which form new bone.

Synthetic materials and damaged allogenic bone lack or have diminished osteogenic properties.

Our bone regenerative products are processed by a proprietary method designed to protect and preserve the native bone cells (osteogenic) needed for bone formation and to decelerate cell apoptosis.

Our products, besides being osteogenic, are also osteoinductive (ability to recruit cells and to signal the need for bone formation) and osteoconductive (three-dimensional scaffold appropriate for bone formation).

These products, which have handling properties that support their placement by the surgeon and their integration with the patient’s bone, are intended for use in patients mainly receiving orthopedic and spinal implants to enhance the bone repair process and include Fiber VBM, ViBone and OsteGro V, all of which are viable, cellular bone matrices.

Fiber VBM is a fiber-based bone repair product made from human tissue and engineered to be like natural tissue.

It is marketed for use in orthopedic or reconstructive bone grafting procedures in combination with autologous bone or other forms of allograft bone or alone as a bone graft.

Fiber VBM provides handling properties that are critical for use as a bone void filler in various orthopedic and spinal procedures.

Fiber VBM contains cancellous bone particles with preserved living cells and demineralized cortical bone fibers to facilitate bone repair and healing.

ViBone is a particle-based bone repair product designed to perform and handle in a manner similar to an autograft and is marketed for use as allograft bone.

ViBone contains cancellous and demineralized cortical bone particles.

OsteGro V, our newest product, leverages our proprietary process designed to protect and preserve native bone cells.

OsteGro V is marketed for use for the repair, replacement or reconstruction of bone defects and contains cancellous bone particles as well as demineralized cortical bone particles and fibers designed to enhance product handling.

Regulatory Pathway

Fiber VBM, ViBone and OsteGro V

Allografts that perform and handle similarly to an autograft as a result of proprietary processing designed to protect the tissue environment and the cells

Development Pipeline

We are currently developing new bone fusion and repair products that offer features that we believe are either an improvement to currently available technologies or offer new features or enhancements, such as improved delivery or handling properties.

These products are currently in development, and we expect these products to be regulated by the FDA as HCT/Ps.

Commercial Approach

Our commercial approach to the orthopedic/spinal repair market has been to leverage commercial partners with existing sales and marketing infrastructure in these areas, while we focus on research and development and the manufacturing of products.

We currently have an agreement with Surgalign Holdings for the sale of ViBone and ViBone Moldable and have agreements in place with many other commercial partners for the sale of Fiber VBM and OsteGro V, or such private label offering of each.

Under the terms of those agreements, these commercial partners purchase products from us at specified prices and resell such products in the United States to the primary customers, which are hospitals and other healthcare facilities.

We fulfill most orders from our commercial partners by shipping these products directly to these hospitals and other healthcare facilities.

Soft Tissue Reconstruction Market

Women’s Health Market

Market Opportunity

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a range of aesthetic surgeries;

and reconstructions of the breast, which is one of the most common applications of biologic matrices.

and reconstructions of the breast.

One of the most common applications of biologic matrices in plastic and reconstructive surgery is breast reconstruction surgery during or after mastectomy.

Mastectomy is a method of tumor removal for breast cancer in which all breast tissue, including the cancerous cells, is surgically removed.

In the United States in 2020, there were more than 100,000 post-mastectomy breast reconstructions, of which approximately 66% were bilateral operations, that is, both breasts were reconstructed.

Breast reconstruction surgery is a surgical procedure generally used to restore a breast to near normal shape and appearance and can be performed using either a prosthetic breast implant, referred to as implant-based reconstruction, or the patient’s own tissue, referred to as autologous reconstruction.

Additional reconstructive surgeries may be required following the initial breast reconstruction, including breast lift, also known as mastopexy, or breast revision surgery, in which the surgeon adjusts the position and shape of the breast.

In 2020, plastic surgeons used human acellular dermal matrices (“HADMs”) in approximately 59,000 women (approximately 98,000 breasts).

The use of these materials is well-characterized in the clinical literature and recommended by recent U.S.

and European consensus guidelines for certain surgical techniques.

However, as of March 6, 2023, no biologic matrix or any other soft tissue reinforcement material, including our product, had been approved or cleared by the FDA specifically for use in breast reconstruction surgery.

Limitations of Existing Solutions

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Implantation of products not recognized by the body as “self” may trigger a foreign body reaction.

The result of this signaling cascade is encapsulation of the foreign body in fibrotic tissue, which may impede tissue healing and cause pain or other complications.

The result of this signaling cascade is encapsulation of the foreign body in fibrotic tissue, which may impede tissue healing

and cause pain or other complications.

Other major issues are damage to the surrounding soft tissue, altering of the mechanical properties or appearance of the original tissue and increased risk of infection.

Active infections are also typically a contraindication to using a synthetic graft.

HADM products offer an “off the shelf” biologic choice for reconstructive procedures, but they have their own limitations.

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SimpliDerm is a pre-hydrated, HADM manufactured with our patented cell removal technology, a process that maintains the biological and structural integrity of the tissue’s extracellular matrix components and is designed to allow for rapid integration, cellular repopulation and revascularization at the surgical site.

Its structurally intact extracellular matrix is designed to closely resemble that which occurs naturally.

Its structurally intact extracellular matrix is designed to closely resemble natural, healthy tissue.

Regulatory Pathway

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Development Pipeline

One of the most common applications of biologic matrices in plastic and reconstructive surgery is breast reconstruction surgery during or after mastectomy.

Mastectomy is a method of tumor removal for breast cancer in which all breast tissue, including the cancerous cells, is surgically removed.

In the United States in 2019, there were more than 100,000 post-mastectomy breast reconstructions, of which approximately 68% were bilateral operations, that is, both breasts were reconstructed.

Breast reconstruction surgery is a surgical procedure generally used to restore a breast to near normal shape and appearance, following a mastectomy, and can be performed using either a prosthetic breast implant, referred to as implant-based reconstruction, or the patient’s own tissue, referred to as autologous reconstruction.

In 2019, plastic surgeons used HADMs in approximately 66,000 women (approximately 109,000 breasts).

The use of these materials is well-characterized in the clinical literature and recommended by recent U.S.

and European consensus guidelines for certain surgical techniques.

However, as of March 12, 2021, no biologic matrix or any other soft tissue reinforcement material, including our product, had been approved or cleared by the FDA specifically for use in breast reconstruction surgery.

Breast implants are generally placed below the pectoral muscle, known as subpectoral positioning.

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Changes in mastectomy techniques, including the preservation of more sub-dermal tissue on skin flaps, as well as advances in fat grafting and the availability of acellular dermal matrix (“ADM”), for augmenting the tissue pocket have all created the opportunity to place the implant above the pectoral muscle, known as prepectoral positioning, and, in doing so, address complications arising from subpectoral placement.

While the use of ADM is a key enabler for these prepectoral procedures, the sizes of ADMs required for these procedures may be three to four times the magnitude used for subpectoral reconstructions, exposing the patient to greater quantities of ADM and adding proportional additional expense to the procedure.

Our goal is to develop SimpliDerm for these prepectoral procedures in larger size pieces with possibly reduced production costs.

Given the market potential and if required by the FDA, we would evaluate the anticipated regulatory and investment requirements for a specific indication for prepectoral procedures.

While the use of ADM to support and reinforce the skin has a strong scientific rationale for these prepectoral procedures, the sizes of ADMs required may be three to four times the magnitude used for subpectoral reconstructions, exposing the patient to greater quantities of ADM and adding proportional additional expense to the procedure.

The use of ADM for these prepectoral procedures requires optimization of larger size pieces with uniform thickness, pliability and elasticity.

Given the market potential and current FDA guidance, we would evaluate the anticipated regulatory and investment requirements for a specific indication for prepectoral procedures.

Commercial Approach

SimpliDerm is sold through independent sales agents to plastic and reconstructive surgeons, and we ship this product directly to hospitals.

Our Non-Core Products:

Contract Manufacturing

We fulfill tissue processing contracts through our contract manufacturing services at our Richmond, California facility in order to utilize as much as possible of the starting human biological material from which we produce our core orthopedic/spinal repair and soft tissue reconstruction products, leverage our existing overhead and improve our cash flow.

Orthobiologics Market

Market Opportunity

The number of such surgeries has increased over the last several years, driven, in

part, by an increase in minimally invasive surgical procedures, an aging population, increasing sports injuries and a higher incidence of comorbidities and chronic inflammatory and degenerative conditions, including osteoarthritis.

Spinal fusion, the leading application for bone fusion surgeries in the United States, involves the use of biological grafting material to cause two vertebrae to grow together into one unit.

In the United States in 2019, medical facilities performed 695,000 spinal fusion surgeries, of which approximately 400,000 were lumbar operations.

Lower extremity applications, including ankle arthrodesis, or surgical immobilization of a joint by fusion of the adjacent bones, now represent a bone fusion market of approximately 165,000 fusions.

With improving fixation methods, success rates have improved across these applications.

Limitations of Existing Solutions

Although success rates for orthopedic and spinal fusion have improved, inadequate bone healing remains one of the leading causes of failure for any fusion procedure.

Fusion is especially challenging in patients who have underlying healing deficiencies because of comorbidities, such as diabetes and obesity.

The addition of a biological bone material to sites of defects or for creating fusion acts synergistically with hardware devices to enhance and accelerate the achievement of boney union.

Autologous bone, which is harvested from the patient, is considered the gold standard for bone fusions.

However, obtaining sufficient autologous material may not always be possible, may not yield good quality material, may cause donor site damage and pain and has an additional cost associated with its harvest.

Bone morphogenetic protein-2 (“BMP-2”) is currently the only FDA-approved osteoinductive growth factor for use as a bone graft substitute.

However, with increasing clinical use of BMP-2, a growing and well-documented side effect profile has emerged.

This profile includes postoperative inflammation and associated adverse effects, bone formation in unusual locations, bone resorption and inappropriate formation of fat cells.

Human graft products, sourced from a different individual than the patient receiving the tissue, are called allografts.

These allograft products are typically processed using techniques that damage the extracellular matrix and induce cellular apoptosis, which results in premature cellular death.

This cellular death impairs osteogenic differentiation and impedes the activity of osteoblasts, cells which form new bone.

Synthetic materials and damaged allogenic bone lack or have diminished osteogenic properties.

Our bone regenerative products are processed by a proprietary method designed to protect and preserve the native bone cells (osteogenic) needed for bone formation and to decelerate cell apoptosis.

Our products, besides being osteogenic, are also osteoinductive (ability to recruit cells and to signal the need for bone formation) and osteoconductive (provide a three-dimensional scaffold to promote bone formation).

These products, which have beneficial handling properties, support integration with the patient’s bone, and are used to enhance the bone repair process.

The inflammatory response and unintended bone formation observed with BMP-2 has not been observed with our products.

We offer three viable cellular bone matrixes, including Fiber VBM, ViBone and OsteGro V.

Our viable cellular bone matrixes are bone repair products made from human tissue and engineered to be like natural tissue.

Each formulation is marketed for use in orthopedic or reconstructive bone grafting procedures in combination with autologous bone or other forms of allograft bone or alone as a bone graft.

Each product is designed to provide superior handling properties that are critical for use as a bone void filler in various orthopedic and spinal

We have also developed a proprietary processing methodology, optimized to protect and preserve the critical bone elements required for regenerative bone formation.

Regulatory Pathway

Fiber VBM, ViBone and OsteGro V

Allografts that perform and handle similarly to an autograft as a result of proprietary processing designed to protect the tissue environment and the cells

Development Pipeline

We are currently developing new bone fusion and repair product candidates that offer features that we believe could improve upon currently available technologies or offer new features.

These product candidates are currently in development, and we believe these product candidates will be regulated by the FDA as HCT/Ps.

Commercial Approach

We currently have agreements in place with many spine and orthopedic companies for the distribution of our viable bone matrix products.

Under the terms of those agreements, these customers purchase products from us at specified prices and resell such products in the United States to the primary customers, which are hospitals and other healthcare facilities.

We fulfill most orders from our commercial partners by shipping these products directly to these hospitals and other healthcare facilities.

Additional Orthobiologics Products/Contract Manufacturing

In addition to our proprietary products, we fulfill tissue processing contracts based on product specifications established by our customers through contract manufacturing services at our Richmond, California facility.

We provide these services in order to utilize as much as possible of the starting human biological material from which we produce our proprietary orthobiologic products, leverage our existing overhead and improve our cash flow.

The resulting processed materials, including particulate bone, precision milled bone, cellular bone matrix, acellular dermis and other soft tissue products, are sold to medical/surgical companies as finished products and as a subcomponent of their products.

Additionally, we process amniotic membrane as finished product for select customers and have multiple customers for most of our products.

For the year ended December 31, 2021, our net sales from contract manufacturing was approximately $9.8 million, representing approximately 21% of our total net sales.

Additionally, we process amniotic membrane as finished product for select customers.

Clinical Data

We have accumulated a substantial body of clinical and pre-clinical data for our Core Products.

We believe that the reported outcomes from our studies help to differentiate our Core Products in the marketplace.

Implantable Electronic Device

We have accumulated a substantial body of clinical and pre-clinical data for our proprietary products.

We believe that the reported outcomes from our studies help to differentiate our products in the marketplace.

Device Protection

Pre-clinical Studies

In a pre-clinical rabbit model, the CanGaroo Envelope was more successful in providing a barrier surrounding a cardiovascular implantable electronic device (“CIED”) compared to a pacemaker canister alone.

Substantial tissue ingrowth was observed in the CanGaroo Envelopes, which were observed to promote stabilization of the device when compared to implantation with only standard fixation methods, such as sutures through the CIED header or no fixation at all.

Recently published pre-clinical data from a rabbit model showed that the CanGaroo Envelope was more successful in providing a barrier surrounding a CIED compared to a pacemaker canister alone.

When implanted with a pacemaker, CanGaroo Envelopes were observed to promote significantly greater stabilization of the device and more vascularized tissue ingrowth within the pocket compared to implantation with only standard fixation methods, such as

sutures through the CIED header or no fixation at all.

These data were initially presented as a live podium presentation at the ASAIO 2022 annual conference and published in abstract form in ASAIO Journal.

Clinical Studies

To evaluate our CanGaroo Envelope, we have conducted three post-market studies involving 1,577 patients.

We are also conducting a retrospective study of approximately 100 patients and an additional 500-patient retrospective registry study.

The SECURE Study was a prospective, single arm, observational, post-market study assessing patients who underwent the implantation of a CIED in a CanGaroo Envelope.

The endpoints of the study were to determine:

To evaluate our CanGaroo Envelope, we have conducted multiple post-market studies and are currently conducting retrospective studies including over 2,000 patients in total.

We believe the results from the completed studies provide evidence supporting the safety of the CanGaroo Envelope when used for the implantation of CIEDs in humans.

CARE Study and SECURE Study

The CARE Study was a retrospective, post market study.

Data from 96 consecutive patients who underwent simultaneous CIED and CanGaroo Envelope implantation at a single institution were retrospectively reviewed for the occurrence of CIED-related complications and infection.

The SECURE Study was a prospective, single arm, observational, post-market study assessing 1,026 patients enrolled at 39 centers who underwent the implantation of a CIED in a CanGaroo Envelope.

The endpoints of the studies were to evaluate:

(a) the proportion of patients with CanGaroo-related adverse events and (b) the incidence of major infections observed in the pocket.

A total of 1,026 patients were enrolled at 39 centers.

The mean number of risk factors for CIED complications was 2.2 and the most common risk factors included congestive heart failure, obesity, device replacement/revision, diabetes and use of an oral systemic anticoagulant.

There were 16 patients categorized as having had possible (n=14, 1.4%) and probable (n=2, 0.2%) CanGaroo-related events.

Fourteen (1.4%) were in the former and two (0.2%) were in the latter category.

The specific treatment-related adverse events included the following:

one fever (0.1%);

five hematomas (0.5%);

one implantable cardiac device pocket erosion (0.1%);

one pain (0.1%);

four major pocket infections (0.4%);

one superficial cellulitis (0.1%);

and three superficial CIED infections (0.3%).

In the total study population, twelve (1.2%) patients developed a major pocket infection.

Even though migration was not an endpoint in the study, no such events were reported.

A total of 231 patients received CanGaroo Envelopes hydrated in an antibiotic solution containing gentamicin.

The hydration solution was not recorded for nine patients enrolled in the study.

The remaining 786 patients received a CanGaroo Envelope hydrated in saline alone or with another antibiotic.

A post-hoc, subgroup analysis of the SECURE Study data prepared for the 2020 Heart Rhythm Society scientific sessions showed that after a mean follow-up time of 267 ± 180 days, the pocket infection rate was 0% in subjects with envelopes hydrated in a solution containing gentamicin (n = 73) and 0.6% in the subset of patients who received envelopes hydrated only with saline (n = 160).

We believe these results provide evidence supporting the safety of the CanGaroo Envelope when used for the implantation of CIEDs in humans.

The CARE Study was a retrospective, consecutive case series, post market study.

Data from 96 consecutive patients, who underwent simultaneous CIED and CanGaroo Envelope implantation at a single institution, were retrospectively reviewed for the occurrence of CIED-related complications and infection over a three-month follow-up period of time.

All envelopes were hydrated using sterile saline prior to implantation.

The most common risk factors among enrolled patients included systemic anticoagulants, obesity, diabetes, congestive heart failure and renal insufficiency.

After a mean follow-up time of 98 ± 64 days, five patients (5.2%) developed a hematoma requiring intervention, and one patient (1.1%) developed a pocket infection.

None of these events were deemed to be related to the CanGaroo Envelope.

The low rates of CanGaroo Envelope complications observed in the CARE Study support the safety of the product when used in a human CIED implantation.

Data from these two studies were combined to determine overall clinical outcomes and adverse events, and resulted in a large dataset from 40 centers throughout the United States of 1,102 total patients with an average number of 2.3 infection risk factors and mean follow up time of 223 days.

The most common risk factors among enrolled patients included oral systemic anticoagulants, obesity, diabetes, congestive heart failure, device replacement/revision, and renal insufficiency.

This real-world dataset revealed physician practice patterns for usage of the CanGaroo Envelope, and the type of hydration solutions that were chosen by the treating physician.

Physicians demonstrated a preference for usage of an antibiotic hydration solution in higher infection risk patients (p<.05), particularly gentamicin, and those patients had an equivalent major infection rate to lower risk patients receiving a saline soaked CanGaroo (p=NS).

Of the total sample population, 14 patients (1.3%) developed hematoma requiring intervention, and 12 patients (1.1%) developed a pocket infection - 10 of which (0.9%) came from the antibiotic without gentamicin hydration group.

The use of gentamicin was associated with a threefold reduction in infection risk (OR 3.0, 95% CI, 1.0 – 10.0).

A major contributing factor to pocket infection rate was whether the site also employed guideline recommended preoperative intravenous antibiotics (IV ABX) alongside use of an antibacterial envelope;

sites utilizing IV ABX on ≥80% of their patients had significantly lower infection rates than sites that used it on <80% of their patients (0.8% vs.

5.6%, p=.008).

There were no reports of device migration in the total dataset.

These results were presented and published as separate sub-analyses of the dataset at multiple national conferences between 2017 – 2022, and collectively in a recent publication, and highlight the importance of evaluating real world evidence for CIED envelopes, and conjunctive use alongside other guideline recommendations for high infection risk patients.

We believe the low rates of CanGaroo Envelope complications observed in the CARE and SECURE Studies support the safety of the product when used clinically in human CIED implantation.

CARE Plus Study

The CARE Plus Study was a single-center, post-market, retrospective cohort study of the outcomes in patients who received a CanGaroo Envelope, Medtronic’s synthetic TYRX envelope or no envelope during their CIED implantation.

Planned assessments will evaluate adverse patient outcomes and any adverse events that occurred following implantation.

An interim analysis was published as an abstract in Circulation and presented at the American Heart Association (AHA) 2021 Conference which compared the patient risk profiles and outcomes of 248 patients from the CARE Plus study who received either no envelope (n=57), a CanGaroo (biologic) Envelope (n=89) hydrated in antibiotics, or a TYRX (non-biologic) Envelope (n=102) during their CIED implantation procedure as of a cutoff date of December 31, 2020.

As of the cutoff date, patients who received antibacterial envelopes (biologic or non-biologic) were younger (p=0.017), received higher power devices more often (37.2% vs.

15.8%, p=0.004), were undergoing more reoperative procedures (47.1% vs.

0.0%, p<0.001), and had more infection risk factors (81.2% vs.

49.1%, p<0.001) than patients who received no envelope with their CIED procedure.

Biologic envelopes tended to be used at a greater frequency in higher infection risk patients (84.3% vs.

78.4%) and more reoperative procedures (62.2% vs.

37.8%) than non-biologic envelopes.

Total CIED implant site infection rates were low (0.4%, in accordance with the WRAP-IT study reported rate of 0.7%) with no difference between the higher infection risk envelope group and lower infection risk no envelope group (envelope 0.5% vs.

The CARE Plus Study was a single-center, post-market, retrospective cohort study to evaluate outcomes in patients who received a biologic CanGaroo Envelope, Medtronic’s non-biologic TYRX envelope, or no envelope during CIED implantation.

Adverse patient outcomes and any adverse events that occurred following implantation out to 12 months were analyzed.

The results of 455 patients (165 CanGaroo, 219 TYRX and 71 no envelope) were published in Cureus in May 2022.

The results indicated that most patients with at least two infection risk factors received an antibacterial envelope (77.9% any envelope vs.

52.1% no envelope, p<.001 ).

There was also no discernable difference in infection rates between biologic and non-biologic antibacterial envelopes.

No significant difference between the envelope and no envelope groups were seen in hematomas (p=0.176), or the incidence of other adverse events such as lead dislodgement/revision, pocket revision, device migration or erosion, Twiddler’s Syndrome, erythema/fever, or site drainage (p=0.722).

The HEAL Study is an ongoing retrospective cohort study of approximately 100 CIED patients who are presenting for their latest reoperation after a previous implantation that is designed to identify and compare the characteristics of soft tissue healing surrounding cardiovascular implantable electronic device implants, including those used with a CanGaroo Envelope.

We enrolled our first patient in this study in February 2021.

Patients evaluated in the study will be from one of three cohorts based on whether a CanGaroo Envelope, Medtronic’s synthetic TYRX Envelope or no envelope was used during the prior implantation.

At reoperation, the current implant pockets of the patients will be examined and compared by a blinded histological biopsy and visually by using photographs.

The overall rate of adverse events was 9.2% (n = 42).

Rates of pocket infection (0.4%) and hematoma (2.6%) were low, with no significant differences between groups in overall or individual adverse event rates.

We believe these data support the use of antibiotic eluting CIED envelopes to limit infection risk in high-risk patients.

A decision tree was proposed by the author based on their patient selection criteria for real world envelope usage and other supporting data that may aid clinical decision-making when considering CIED envelope usage .

The HEAL Study is an ongoing retrospective cohort study of CIED patients who are presenting for their latest reoperation after a previous implantation that is designed to identify and compare the characteristics of soft tissue healing surrounding cardiovascular implantable electronic device implants.

As of December 31, 2022 there were 45 patients enrolled.

Patients evaluated in the study will be from one of three cohorts based on whether a biologic CanGaroo Envelope, Medtronic’s non-biologic TYRX Envelope, or no envelope was used during the prior implantation.

At reoperation, the current implant pockets of the patients will be examined and compared by a blinded histological biopsy and visually using photographs.

An interim analysis was performed in May 2022 on 21 patients that were enrolled at the time (9 CanGaroo and 12 no envelope) as of a cutoff date of April 25, 2022, and the results were presented as a poster at the American Heart Association (AHA) Conference in November 2022 and published in Circulation .

The CanGaroo cohort required 63% fewer capsulectomies, and treating physicians scored capsular lead adhesion classification as significantly less severe than the no envelope cohort ( p=.02 ).

On a 10-point scale, physicians scored CanGaroo reoperations as significantly less difficult in generator mobilization (39% easier, p=.04 ), lead mobilization (43% easier, p=.01 ), and overall procedural difficulty (45% easier, p=.01 ).

On average, CanGaroo capsules were found via blinded histologic assessment to have a 39% thinner fibrotic capsule compared to the no envelope capsules ( p=.05 ).

Although the study is ongoing, we believe these interim results suggest that use of a biologic CanGaroo Envelope at initial CIED implantation has the potential to prevent operative complications, facilitate reoperative procedures, and enhance clinical outcomes.

CanGaroo S-ICD Pilot Study

A retrospective, single-center, post-market pilot study was designed to evaluate whether low voltage lead impedance (LVZ), as routinely measured by subcutaneous implantable cardioverter defibrillators (S-ICDs), could be a clinically relevant assessment.

These devices sense changes in impedance, which could be influenced by fibrotic tissue surrounding the S-ICD.

Such encapsulation could complicate future procedures for patients.

LVZ changes from 0 to 4 years post implantation of a S-ICD were analyzed in 24 patients, half of whom received CanGaroo Envelope and half received no envelope.

LVZ measurements reliably detected changes in impedance over time and between groups.

After an initial decrease in both groups in the first month, impedance changes appeared to increase more slowly in the CanGaroo cohort compared to patients in the no envelope cohort out to 30 months.

The data, presented at the European Society of Cardiology 2022 Congress and published in European Heart Journal , suggest that LVZ may provide a non-invasive assessment of surrounding tissue quality.

Further study is needed to determine whether use of a CanGaroo Envelope may stabilize impedance changes long-term.

CanGaroo Registry Study

The CanGaroo Registry Study is a prospective, multi-center registry of up to 500 participants.

The objective is to explore the participant clinical profiles, procedural details, and post-implant outcomes of participants who receive the CanGaroo Envelope or no envelope at time of initial ( de novo ) implantation.

We enrolled our first patient in this study in June 2021 and have enrolled approximately 250 patients as of February 25, 2022.

Patients aged 65 years or younger at time of enrollment have the option to participate in an extended follow-up period for up to five years.

Orthopedic/Spinal Repair

Pre-clinical Studies

In vitro and in vivo characterization studies were conducted to compare whether the manufacturing processes for our viable bone matrices improve certain product characteristics versus traditional viable bone matrix manufacturing processes.

The characteristics evaluated addressed the three key elements for bone formation:

osteogenesis, osteoconduction and osteoinduction.

The assays included those for apoptosis, cell proliferation, osteogenic potential and osteoinduction, as well as for specific bone morphogenic proteins, bone formation factors, alkaline phosphatase and chemotaxis.

Compared to viable bone matrices prepared with traditional processing methods, our viable bone matrices were superior in all of the characteristics examined, including less cell death.

For example, ViBone exhibited 58% less apoptosis and had a 2.1-fold greater cell proliferation capability as compared to allografts processed by traditional methods.

The cells from ViBone produced increased levels of the bone forming protein markers osteocalcin (20%), osteopontin (50%) and collagen type 1 (40%), when incubated in osteogenic cell culture media, compared to traditionally processed allografts, suggesting greater osteogenic potential.

ViBone was tested for osteoinductive properties and was observed to have 9.1-fold higher levels of bone morphogenic protein 2 and 3.8-fold higher levels of bone morphogenic protein 7 than traditionally processed allografts.

Additional growth factor testing for ViBone demonstrated higher amounts of transforming growth factor beta 1 (10.8-fold);

insulin-like growth factor 1 (9.5-fold);

and basic fibroblast growth factor (4.1-fold).

An alkaline phosphatase (“ALP”) assay was used as an indicator to determine cellular activity after exposure to C2C12 cells, which are model cells used for evaluating differentiation to bone forming cells.

The ALP activity of cells exposed to ViBone was 6.1-fold greater than traditionally processed allografts.

Also, there was a 1.9-fold increase in chemotaxis, or stem cell migration, toward ViBone as compared to traditionally processed allografts, supporting ViBone’s enhanced osteoinductive properties.

In order to evaluate the osteoinductivity in vivo, ViBone was implanted in athymic rats.

At 28 days, new bone formation was observed.

Clinical Studies

A prospective, multi-center, post-market clinical study was conducted to evaluate outcomes in patients undergoing cervical or lumbar interbody fusion surgery using ViBone.

One hundred eighteen patients were enrolled in the cervical and lumbar groups and followed for 12 months post-procedure.

The CanGaroo Registry Study is a prospective, multi-center registry with 500 patients enrolled (329 CanGaroo and 171 no envelope) as of December 31, 2022.

The objective is to explore clinical profiles, procedural details, and post-implant outcomes of patients who received the CanGaroo Envelope or no envelope at time of initial ( de novo ) CIED implantation.

All patients will be followed for three months postoperatively, and a subgroup of patients aged 65 years or younger at time of enrollment will undergo extended follow-up for up to five years.

Soft Tissue Reconstruction

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In vitro studies were conducted to evaluate and compare SimpliDerm to native human dermis and two other commercially available HADMs, in terms of morphological structure, composition, physical characteristics and chemical and thermal stability.

Histological slides of SimpliDerm and native dermal matrix were prepared for microscopic examination, using hematoxylin and eosin (“H&E”), Verhoff-Van Gieson (“VVG”), and collagen type IV stains.

Histology slides of SimpliDerm and native dermal matrix were examined microscopically, using three different stains.

Stained samples of SimpliDerm retained the collagen structure (density and orientation), elastin, blood vessels and basement membrane complex that was observed in the native dermal matrix.

Transmission electron microscopy demonstrated intact collagen fibril structures in native dermis and SimpliDerm, supporting the conclusion that the decellularization process used to produce SimpliDerm did not damage the ultrastructural architecture of the collagen matrix.

Transmission electron microscopy demonstrated intact collagen fibril structures in native dermis and SimpliDerm, supporting the conclusion that

the decellularization process used to produce SimpliDerm did not damage the ultrastructural architecture of the collagen matrix.

Additional testing was performed that compared the properties of SimpliDerm, AlloDerm RTU and DermACELL to native Dermis.

These tests included Glycosaminoglycan content, matrix protein stability and differential scanning

These tests included glycosaminoglycan content, matrix protein stability and differential scanning calorimetry.

The glycosaminoglycan content of SimpliDerm and Alloderm RTU was similar, with a substantial reduction in the amount of glycosaminoglycans observed in DermACELL.

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Clinical Studies

Currently, we are collecting clinical data in an Investigational Review Board (“IRB”) approved, retrospective, multi-center study evaluating patients who have undergone breast reconstruction post-mastectomy with SimpliDerm and patients receiving other HADMs.

These data will inform us as to the design of future clinical feasibility and pivotal studies to support potential regulatory applications for a breast reconstruction indication for SimpliDerm.

An interim analysis of 59 patients (108 breasts) was published which reported initial 30-day follow up data on patients who received either SimpliDerm or AlloDerm RTU acellular dermal matrices (ADMs) during their immediate 2-stage breast reconstruction following mastectomy as of October 31, 2020.

Reconstructions were primarily prepectoral (95.4%), used tissue expanders (100%), and followed a skin sparing approach to mastectomy (64%).

Procedural technique and postprocedural follow up did not differ between groups.

There were no significant differences between ADM groups in patient demographics, medical history, operative procedure, or clinical outcomes.

The collective adverse event rate (22%) aligned with previous ADM literature, did not differ between the groups in this dataset, and none of the AEs in this dataset were considered serious.

The interim results from this study suggested comparable initial clinical outcomes with SimpliDerm and AlloDerm RTU after immediate 2-stage breast reconstruction.

A subsequent analysis was performed of patients from four sites as of July 2021 who underwent immediate, 2-stage reconstruction with either SimpliDerm (n=38) or AlloDerm RTU (n=69) after mastectomy and were followed out to exchange to permanent implant(s), tissue expander(s) explant, or death.

Immediate breast reconstruction with tissue expanders and ADM was performed on 107 patients (181 breasts).

Overall mean patient age was 51.4 ± 12.4 years, and mean Body Mass Index was 28.0 ± 5.8 kg/m2.

Significantly more patients in the SimpliDerm group were of Hispanic or Latino ethnicity (34.2% vs.

A retrospective, multi-center study evaluating patients who have undergone breast reconstruction post-mastectomy with SimpliDerm and patients receiving other HADMs was published.

A total of 107 patients (181 breasts) who underwent immediate, 2-stage breast reconstruction with tissue expanders and either SimpliDerm (n=38) or AlloDerm RTU (n=69) after mastectomy, were followed to exchange to permanent implant(s) or tissue expander(s) explant.

Reconstructions were predominantly prepectoral (82.3%).

A total of 35 adverse events (AEs) occurred in 27 (25.2%) patients, with no difference in AE type, classification, or rates between ADM groups.

No AEs were considered related to either ADM.

The observed AE profiles and rates are similar to those published for other ADMs in immediate breast reconstruction.

These results demonstrate comparable clinical outcomes with SimpliDerm and AlloDerm RTU through a median of 133.5 days (~four months) following immediate 2-stage breast reconstruction.

Patients were followed for a median of 134 days.

A total of 35 adverse events (AEs) occurred in 27 (25.2%) patients, with no difference in AE type or rates between ADM groups, and no AEs deemed related.

The observed AE profiles and rates were similar to those published for other ADMs in breast reconstruction.

These results demonstrate comparable clinical outcomes of SimpliDerm and AlloDerm RTU following 2-stage breast reconstruction.

Orthobiologics

Pre-clinical Studies

The characteristics evaluated addressed the three key elements for bone formation:

osteogenesis, osteoconduction and osteoinduction.

Compared to viable bone matrices prepared with traditional processing methods, our viable bone matrices were superior in all of the characteristics examined, including less cell death.

For example, our viable bone matrix formulations exhibited 58% less apoptosis and had a two-fold greater cell proliferation capability as compared to allografts processed by traditional methods, suggesting greater osteogenic potential.

One particular viable bone matrix formulation was tested for osteoinductive properties and was observed to have at least four-fold higher levels of bone morphogenic protein-2 and bone morphogenic protein-7 than traditionally processed allografts.

An alkaline phosphatase (“ALP”) assay

was used as an indicator to determine cellular activity after exposure to C2C12 cells, which are model cells used for evaluating differentiation to bone forming cells.

The ALP activity of cells exposed to this viable bone matrix formulation was 6-fold greater than traditionally processed allografts.

Clinical Studies

A prospective, multi-center, post-market clinical study was conducted to evaluate outcomes in 95 patients undergoing 1 – 3 level cervical (n=48) or lumbar (n=47) interbody fusion surgery using ViBone.

Patients were evaluated clinically and radiographically at baseline, 6- and 12-months.

Clinical assessment included Visual Analog Scale for pain (VAS-pain), the Neck Disability Index (NDI) for patients with cervical pathologies, and the Oswestry Disability Index (ODI) for patients with lumbar pathologies.

Fusion success defined by an independent radiologist was determined radiographically by plain films.

All patients reached the minimum clinically significant mean reduction in subjective pain and disability scores at 12 months.

Spinal fusion rates as measured by independent radiologic evaluation were found to be comparable to the published rates of iliac crest bone autograft and other viable bone matrix grafts:

at 12 months, the fusion rate per patient averaged 88.1% in cervical and 97.6% in lumbar patients, while per-level fusion was 98.5% for cervical and 100% for lumbar segments.

We operate in highly competitive markets that are subject to rapid technological change.

Success in these markets depends primarily on product efficacy, ease of product use, product price, availability of payor coverage and adequate third-party reimbursement, customer support services for technical, clinical and reimbursement support and customer preference for, and loyalty to, the products.

Success in these markets depends on product efficacy, ease of product use, product price, availability of payor coverage and adequate third-party reimbursement, customer support services for technical, clinical and reimbursement support and customer preference for, and loyalty to, the products.

We believe that the demonstrated clinical efficacy of our products, the breadth of our product portfolio, our in-house customer support services, our customer relationships and our reputation offer us advantages over our competitors.

Our Core Products compete primarily with implantable electronic device envelopes and other cardiovascular repair products, other orthobiologics and human-derived acellular dermis products.

Our products compete primarily with implantable electronic device envelopes and other cardiovascular repair products, other orthobiologics and human-derived acellular dermis products.

The CanGaroo Envelope competes with the synthetic envelope TYRX from Medtronic.

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We also compete in the marketplace to recruit and retain qualified scientific, management and sales personnel, as well as to acquire technologies and technology licenses complementary to our products or advantageous to our business.

Our competitors’ products in the soft tissue repair market have been approved and available for use for multiple years.

Our competitors’ products in the soft tissue repair market have been approved or certified and available for use for multiple years.

During this time, private payors have developed policies for coverage based on available data and literature.

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Our additional cardiovascular products, ProxiCor, Tyke and VasCure, are sold using our direct sales force and other independent sales agents.

Our commercial approach to the orthobiologics market has been to leverage commercial partners with existing sales and marketing infrastructure in these areas, while we focus on research and development and the manufacturing of products.

We currently have an agreement with many commercial partners for the sale of our viable bone matrix products.

We fulfill most orders from our commercial partners by shipping these products directly to these hospitals and other healthcare facilities.

SimpliDerm, our soft tissue reconstruction product, is sold using independent sales agents.

As of December 31, 2021, we had 31 direct sales representatives who focus on gaining additional market access and driving market penetration, not only by selling our products, but also, where

appropriate, by managing our commercial partners and providing technical assistance for selling our products.

SimpliDerm, our women’s health product, is sold using independent sales agents which beginning in March 2023, includes Sientra.

We may also explore additional distribution partnerships across our other product categories.

These sales representatives are supported by teams of professionals focused on sales management, sales operations, ongoing training, analytics and marketing.

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However, we have obtained marketing registrations, developed commercial and distribution capabilities and are currently selling CanGaroo and cardiovascular products in several countries outside of the United States.

Independent sales agents in Argentina, Australia, the European Economic Area, the European Union, Latin America, Kuwait, Mexico and Saudi Arabia sell our products.

Independent sales agents in Argentina, Australia, the European Economic Area, the European Union, Latin America and Mexico sell our products.

Sales generated in the United States represented greater than 98% of our net sales in 2022.

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Our research and development team has extensive experience in developing regenerative medicine products and works to design products that are intended to improve patient outcomes, simplify techniques, shorten procedures, reduce hospitalization and rehabilitation times, and, as a result, reduce costs.

We have recruited and retained staff with significant experience and skills, gained through both industry experience and training at leading colleges and universities with regenerative medicine graduate programs.

We have recruited and retained staff with significant experience and skills, gained through both industry experience and training at leading colleges and universities.

In addition to our internal staff, our external network of development laboratories, testing laboratories and physicians aids us in our research and development process.

Manufacturing and Suppliers

We manufacture our orthopedic/spinal repair and soft tissue reconstruction products in our Richmond, California facility.

We manufacture our orthobiologics and soft tissue reconstruction products in our Richmond, California facility.

We manufacture CanGaroo and our cardiovascular products in our Roswell, Georgia facility and use Cook Biotech as our sole porcine tissue supplier for these products.

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Manufacture of all of our products is dependent on the availability of sufficient quantities of source tissue, which is the primary component of our products.

Source tissue includes donated human tissue and porcine tissue.

Source tissue includes porcine tissue and donated human tissue.

We acquire donated human tissue directly through tissue procurement firms engaged by us.

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We have also obtained additional rights through license agreements for additional products and technologies.

As of December 31, 2021, we owned

approximately 15 U.S.

patents, six U.S.

patent applications, three foreign patents (in Australia, Europe, and Hong Kong), and four foreign patent applications (in Thailand and India, as well as applications with the World Intellectual Property Organization);

and we in-licensed four U.S.

patents, five foreign patents (in Australia, Canada, Japan, and Europe), and two U.S.

and two foreign patent applications (in China, as well as an application with the European Patent Office).

As of December 31, 2022, we owned approximately 15 U.S.

patents, seven U.S.

patent applications, six foreign patents (in Australia, Germany, Spain, France, Great Britain and Italy), and four foreign patent applications (in Australia, Canada, and Europe, as well as applications with the World Intellectual Property Organization);

and we in-licensed three U.S.

patents, 12 foreign patents (in Australia, Canada, Japan, Denmark, Germany, Great Britain, Ireland, Italy and the Netherlands), and two U.S.

and five foreign patent applications (in Brazil China, Japan as well as an application with the European Patent Office).

Our owned patent portfolio includes 14 U.S.

patents and three U.S.

patents and six U.S.

patent applications that relate to our technology for CanGaroo, including issued claims covering biological envelopes and pending claims covering their use.

In addition, we own one patent that relates to our technology for SimpliDerm that claims a method of preparing an acellular dermal matrix.

Excluding any patent term adjustment or patent term extension, our issued patents relating to our technology for CanGaroo are anticipated to expire starting in 2027, and our issued patent that relates to our technology for SimpliDerm is anticipated to expire in 2033.

Excluding any patent term extension, our issued patents relating to our technology for CanGaroo are anticipated to expire starting in 2027, and our issued patent that relates to our technology for SimpliDerm is anticipated to expire in 2033.

There can be no assurance that any pending patent applications will ultimately be issued as patents.

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In the future, we expect to apply for patent term extensions on certain issued patents covering our products, depending upon the length of the clinical studies for each product and other factors.

There can be no assurance that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.

There can be no assurance that we will benefit from any patent term extension or favorable adjustment to the term

of any of our patents.

As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

For more information, see Part I, Item IA.

For more information, see Part I, Item 1A.

“Risk Factors - Risks Related to Intellectual Property.”

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There can be no assurance that the obligations of our employees, consultants, independent sales agents and third parties, with whom we have entered into confidentiality agreements, will effectively prevent disclosure of our confidential information or provide meaningful protection for our confidential information if there is unauthorized use or disclosure, or that our trade secrets or proprietary information will not be independently developed by our competitors.

See Part I, Item IA.

See Part I, Item 1A.

“Risk Factors - Risks Related to Intellectual Property” for additional information regarding these and other risks related to our intellectual property portfolio and their potential effect on us.

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As consideration for the license, we paid Cook Biotech a $200,000 license fee in 2018 and a $100,000 license fee in years 2019 through 2022, and are responsible for a yearly license fee of $100,000 until 2026.

Upon a change in control transaction, which includes an acquisition of 50% or more of our then outstanding capital stock, we will be responsible to pay Cook Biotech the total amount of all license fees that have not yet been paid within a specified period after the consummation of such change in control transaction.

Upon a change in control transaction, which includes an acquisition of 50% or more of our then outstanding capital stock, we will be obligated to pay Cook Biotech the total amount of all license fees that have not yet been paid within a specified period after the consummation of such change in control transaction.

The Cook License Agreement continues in effect until the date of expiration of the last to expire of the licensed patents, including any renewals or extensions.

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In the United States, our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) or as biological products or HCT/Ps under the Public Health Service Act (the “PHSA”), each as implemented and enforced by the FDA.

The FDA and other United States and foreign governmental agencies regulate, among other things, the development, design, nonclinical and clinical research, manufacturing, safety, efficacy, labeling,

packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices and biological products to ensure that such products distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA or PHSA.

The FDA and other United States and foreign governmental agencies regulate, among other things, the development, design, nonclinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices and biological products to ensure that such products distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA or PHSA.

FDA Premarket Clearance and Approval Requirements

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To obtain 510(k) clearance, a product sponsor must submit to the FDA a premarket notification submission demonstrating that the proposed device is “substantially equivalent” to a predicate device already on the market.

A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 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.

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.

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Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.

Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products.

For example, in November 2018, FDA officials announced steps that the FDA intended to take to modernize the premarket notification pathway under Section 510(k) of the FDCA.

Among other things, the FDA announced that it planned to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates.

These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old.

These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation.

More recently, in September 2019, the FDA issued revised guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process.

The FDA continues to develop and maintain a list of device types appropriate for the “safety and performance based” pathway and to develop product-specific guidance documents that identify the performance criteria and recommended testing methods for each such device type.

PMA Approval Pathway

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intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.

None of our products are currently marketed pursuant to a PMA, though we may decide to seek a PMA for our SimpliDerm product for use in breast reconstruction indications.

None of our products are currently marketed pursuant to a PMA.

Clinical Studies

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

Unlike 361 HCT/Ps, HCT/Ps regulated as “351” HCT/Ps are subject to premarket review and/or approval by the FDA.

Unlike 361 HCT/Ps, HCT/Ps regulated as “351” HCT/Ps are subject to premarket review and approval by the FDA.

International Requirements

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Regulation of Medical Devices in the European Union

Prior to April 2017, the European Union (“EU”) required that all medical devices placed on the market in the EU must meet the relevant requirements laid out in Directive 93/42/EEC (“the Medical Devices Directive”) and/or Directive 90/385/EEC (“the Active Implantable Medical Devices Directive”) (collectively the “Directives”).

In April 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repealed and replaced the aforementioned EU Directives.

The Medical Devices Regulation, among other things, is intended to establish 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.

The Medical Devices Regulation entered into application on May 26, 2021.

Medical devices that were CE marked under the Directives prior to May 26, 2021 may continue to be placed on the EU market until their certifications expire or on May 26, 2024, whichever occurs first.

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”).

We have CE mark for four of our cardiovascular products and in January 2021, we obtained certification for updated labeling of our CanGaroo Envelope to allow for the addition of the antibiotic gentamicin.

Our current CE certificates have been granted under the Medical Devices Directive.

However, as of May 26, 2021, some of the Medical Devices Regulation requirements apply in place of the corresponding requirements of the Medical Devices Directive, including 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 require that our devices be certified under the new regime set forth in the Medical Devices Regulation when our current certificates expire.

Our current CE certificates have been granted under the 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 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 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.

Under the 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.

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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 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.

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.

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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).

A notified body would typically audit and examine a product’s technical dossiers and the manufacturer’s 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.

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The regulatory landscape related to medical devices in the EU recently evolved.

On April 5, 2017, the Medical Devices Regulation was adopted with the aim of ensuring better protection of public health and patient safety.

The Medical Devices Regulation establishes a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensures a high level of safety and health while supporting innovation.

Unlike the EU Medical Devices Directive, the 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 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 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.

The 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.

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 ensures 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.

The EU Medical Devices Regulation became effective on May 26, 2021.

Devices lawfully placed on the market pursuant to the 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 and no substantial modification must be made to the device.

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.

Recently, t he European Parliament voted to extend the Medical Devices Regulation (MDR) transition period.

The conformity assessment process for MDR needs to be completed by the end of 2027 for high-risk devices and the end of 2028 for lower-risk devices.

Our products for implantation would be in the category of high-risk devices.

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 Medical Devices 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.

The EU Medical Devices 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.

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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 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 on the market in the EU must comply with the EU medical device vigilance system which has been reinforced by the Medical Devices Regulation.

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 on the market in the EU must comply with the EU medical device vigilance system which has been reinforced by the EU Medical Devices Regulation.

Under this system, serious incidents and Field Safety Corrective Actions (“FSCAs”) must be reported to the relevant authorities of the EU member states.

These reports will have to be submitted through Eudamed – once functional – and aim to ensure that, in addition to reporting to the relevant authorities of the EU member states, other actors such as the economic operators in the supply chain will also be informed.

Until Eudamed is fully functional, the corresponding provisions of the Medical Devices Directive continue to apply.

A serious incident is defined as any malfunction or deterioration in the characteristics or performance of a device made available on the market, including use-error due to ergonomic features, as well as any inadequacy in the information supplied by the manufacturer and any undesirable side-effect, which, directly or indirectly, might have led or might lead to the death of a patient or user or of other persons or to a temporary or permanent serious deterioration of a patient's, user's or other person's state of health or a serious public health threat.

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.

Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply.

Manufacturers are required to take FSCAs, which are 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.

A serious incident is any malfunction or deterioration in the characteristics or performance of a device on the market (e.g., inadequacy in the information supplied by the manufacturer, undesirable side-effect), which, directly or indirectly, might lead to either the death or serious deterioration of the health of a patient, user, or other persons, or to a serious public health threat.

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 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.

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.

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Certain countries also mandate implementation of commercial compliance programs.

In the EU, regulatory authorities have the power to carry out announced and, if necessary, unannounced inspections of companies, as well as suppliers and/or sub-contractors and, where necessary, the facilities of professional users.

Failure to comply with regulatory requirements (as applicable) could require time and resources to respond to the regulatory authorities’ observations and to implement corrective and preventive actions, as appropriate.

Regulatory authorities have broad compliance and enforcement powers and if such issues cannot be resolved to their satisfaction can take a variety of actions, including untitled or warning letters, fines, consent decrees, injunctions, or civil or criminal penalties

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.

Regulation of Medical Devices in the United Kingdom

Following a national referendum and enactment of legislation by the government of the United Kingdom (the "UK"), the UK formally withdrew from the European Union on January 31, 2020, commonly referred to as "Brexit,"

and, following the expiry of the Brexit transitional period on December 31, 2020, the UK now operates under a distinct regulatory regime and certain European Union laws now only apply to the UK in respect of Northern Ireland (as laid out in the Protocol on Ireland and Northern Ireland).

The Medicines and Healthcare products Regulatory Agency ("MHRA''), is now the UK's standalone regulator.

Although the UK and European Union have now reached an agreement on its future trading relationship (implemented in the EU-UK Trade and Cooperation Agreement from January 1, 2021, ("TCA")), the agreement does not cover all regulatory areas regarding medical devices, which may be subject to future bilateral discussions going forward and could further change the relationship between the UK and the European Union in this regard.

European Union laws which were directly applicable before the end of the transitional period or have been transposed into UK law through secondary legislation continue to be applicable as "retained EU law."

legislation such as Medical Devices Regulation (Regulation 2017/745) will not be applicable.

The Medicines and Healthcare products Regulatory Agency ("MHRA''), is now the standalone regulator in the United Kingdom (“UK”).

Although the UK and EU have now reached an agreement on its future trading relationship (implemented in the EU-UK Trade and Cooperation Agreement from January 1, 2021, ("TCA")), the agreement does not cover all regulatory areas regarding medical devices, which may be subject to future bilateral discussions going forward and could further change the relationship between the UK and the EU in this regard.

EU laws which were directly applicable before the end of the transitional period or have been transposed into UK law through secondary legislation continue to be applicable as "retained EU law."

However, under the Retained EU Law (Revocation and Reform) Bill 2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic law or extended by ministerial regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023.

In addition, new legislation such as the EU Medical Devices Regulation is not applicable.

The UK government has introduced a new Medicines and Medical Devices Act which seeks to address regulatory gaps through implementing regulations and delegated powers covering the fields of human medicines, clinical studies of human medicines, and medical devices.

Significantly, under the TCA there is no mutual recognition of regulatory regimes and certifications between the European Union and the UK.

CE marks issued by EU-based Notified Bodies will continue to be recognized by the UK until June 30, 2023, but from July 1, 2023, new devices placed on the Great Britain market will need to conform with the new UK Conformity Assessment (UKCA) marking requirements.

Since January 1, 2021, medical devices placed on the market in the UK must be registered with the MHRA, following a grace period ranging from four to 12 months.

Significantly, under the TCA there is no mutual recognition of regulatory regimes and certifications between the EU and the UK.

Since January 1, 2021, all medical devices placed on the market in the UK must be registered with the MHRA.

Manufacturers based outside the UK will also need to appoint a UK Responsible Person (which may be an individual or a corporate entity).

Only a manufacturer established in the UK or a UK Responsible Person will be able to place a device on the market in Great Britain.

Under the terms of the Protocol on Ireland and Northern Ireland, products placed on the market in Northern Ireland will continue to be subject to the European Union regulatory regime.

A public consultation by the UK Medicines and Healthcare products Regulatory Agency (“MHRA”) was opened until end of November 2021 on the post-Brexit regulatory framework for medical devices and diagnostics.

The consultation proposes amendments to the UK Medical Devices Regulations 2002 (which are based on EU legislation, primarily the Medical Devices Directive), in particular to create new access pathways to support innovation, create an innovative framework for regulating software and artificial intelligence as medical devices, reform in vitro diagnostic regulation, and foster sustainability through the reuse and remanufacture of medical devices.

The regime is expected to come into force in July 2023, coinciding with the end of the acceptance period for EU CE marks in Great Britain, subject to appropriate transitional arrangements.

The consultation indicated that the MHRA will publish guidance in relation to the changes to the regulatory framework and may rely more heavily on guidance to add flexibility to the regime.

Under the terms of the Ireland/Northern Ireland Protocol, products placed on the market in Northern Ireland will continue to be subject to the EU regulatory regime.

On June 26, 2022, the MHRA published its response to a 10-week consultation on the post-Brexit regulatory framework for medical devices and diagnostics.

The MHRA proposes amendments to the UK Medical Devices Regulations 2002 (which are based on EU legislation, primarily the EU Medical Devices Directive), in particular to create new access pathways to support innovation, create an innovative framework for regulating software and artificial intelligence as medical devices, reform in vitro diagnostic regulation, and foster sustainability through the reuse and

remanufacture of medical devices.

Regulations implementing the new regime were originally scheduled to come into force in July 2023, but the UK Government has recently confirmed that this date has been postponed until July 2024.

Devices which have valid certification issued by EU notified bodies under the EU Medical Devices Regulation or EU Medical Devices Directive are subject to transitional arrangements.

In its consultation response, the MHRA indicated that the future UK regulations will allow devices certified under the EU Medical Devices Regulation to be placed on the market in Great Britain under the CE mark until either the certificate expires or for five years after the new regulations take effect, whichever is sooner.

Devices certified under the EU Medical Devices Directive could continue to be placed on the market until either the certificate expires or for three years after the new regulations take effect, whichever is sooner.

Following these transitional periods, it is expected that all medical devices will require a UK Conformity Assessment ("UKCA") mark.

Manufacturers may choose to use the UKCA mark on a voluntary basis prior to the regulations coming into force.

However, from July 2024, products which do not have existing and valid certification under the EU Medical Devices Directive or EU Medical Devices Regulation and are therefore not subject to the transitional arrangements will be required to carry the UKCA mark if they are to be sold into the market in Great Britain.

UKCA marking will not be recognized in the EU.

The rules for placing medical devices on the market in Northern Ireland, which is part of the UK, differ from those in Great Britain (England, Scotland and Wales) and continues to be based on EU law.

Our CE mark cardiovascular products are registered with the MHRA and are legally marketed in the UK.

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The Anti-Kickback Statute is particularly relevant because of its broad applicability.

Specifically, the Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for, or to induce, either the referral of an individual, or the furnishing, arranging for or recommending a good or service

for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs.

Statutory exceptions and regulatory safe harbors protect certain interactions if specific requirements are met.

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and state and local laws which require tracking gifts and other remuneration and transfer of value provided to physicians, other healthcare providers and entities.

Violations of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which

impose, among other things, rigorous operational and monitoring requirements on companies.

Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies.

Anti-Bribery Laws

Compliance with complex foreign and United States laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions and could expose us or our employees to fines and penalties in the United States and abroad.

These numerous and sometimes conflicting laws and regulations include the United States Foreign Corrupt Practices Act of 1977 (the “FCPA”).

The FCPA prohibits United States companies, companies whose securities are listed for trading in the United States and other entities, and their officers, directors, employees, shareholders acting on their behalf and agents from offering, promising, authorizing or making payments to foreign officials for the purpose of influencing official decisions or obtaining or retaining business abroad or other benefits or otherwise obtaining favorable treatment.

The FCPA also requires companies to maintain records that fairly and accurately reflect transactions and maintain a system of internal accounting controls sufficient to assure management’s control, authority and responsibility over our assets.

In many countries, hospitals are government-owned and healthcare professionals employed by such hospitals, with whom we regularly interact, may meet the definition of a foreign official for purposes of the FCPA.

Additionally, recently enacted U.S.

legislation increases the monetary reward available to whistleblowers who report violations of federal securities laws, including the FCPA, which may result in increased scrutiny and allegations of violations of these laws and regulations.

We maintain and update our policies and procedures and internal controls designed to provide reasonable assurance that we, our employees, partners and other intermediaries comply with the anti-corruption laws to which we are subject.

However, there can be no assurance that such policies or procedures or internal controls will work effectively at all times or protect us against liability under these or other laws for actions taken by our employees, partners or other intermediaries with respect to our business.

Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, financial condition, results of operations, cash flows and damage to our reputation.

In addition, investigations of any potential, actual or alleged violations of such laws or policies related to us, including any such investigation by U.S.

authorities, could harm our business.

Laws and Regulations Governing Data Privacy and Security

Our international operations are subject to compliance with a variety of complex foreign and United States laws that increase our costs of doing business in internal jurisdictions and could expose us or our employees to fines and penalties in the United States and abroad.

Among others, we are subject to the United States Foreign Corrupt Practices Act of 1977 (the “FCPA”), which prohibits us, our officers, directors, employees, shareholders and agents acting on our behalf

from offering, promising, authorizing or making corrupt payments to foreign officials for the purpose of influencing official decisions or securing an improper advantage to obtain or retain business.

Data Privacy and Security Laws

Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information.

In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners.

We may also be subject to U.S.

federal rules, regulations and guidance concerning data security for medical devices, including guidance from the FDA.

State laws may be more stringent, broader in scope or offer greater individual rights with respect to protected health information (“PHI”) than HIPAA, and state laws may differ from each other, which may complicate compliance efforts.

Entities that are found to be in violation of HIPAA, as the result of a breach of unsecured 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.

California recently enacted the California Consumer Privacy Act (the “CCPA”), which creates new individual privacy rights for California consumers, as defined in the law, and places increased privacy and security obligations on entities handling certain personal information of consumers or households.

The CCPA requires covered companies to provide new disclosures to consumers about such companies’ data collection, use and sharing practices, provide such consumers new ways to opt-out of certain sales or transfers of personal information, and provide consumers with additional causes of action.

The CCPA went into effect on January 1, 2020, and as of July 1, 2020, the California Attorney General may bring enforcement actions for violations.

Although there are limited exemptions for certain health-related information, including certain clinical study data, as currently written, the CCPA may impact our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to health-related and other personal information.

Additionally, a new California ballot initiative, the California Privacy Rights Act, was voted into law by

California residents in November 2020.

It imposes additional data protection obligations on companies doing business in California, including additional consumer rights processes and opt outs for certain uses of sensitive data.

It also creates a new California data protection agency specifically tasked to enforce the law, which will likely result in increased regulatory scrutiny of California businesses in the areas of data protection and security.

Similar laws have been proposed in other states and at the federal level, and if passed, such laws may have potentially conflicting requirements that would make compliance challenging.

EU member states, Switzerland, and other countries have also adopted data protection laws and regulations, which impose significant compliance obligations.

For instance, the collection and use of personal health data in the EEA is governed by the provisions of the General Data Protection Regulation (the “GDPR”).

The GDPR became effective on May 25, 2018, repealing its predecessor directive and increasing responsibility and liability of medical device companies in relation to the processing of personal data of individuals within the EEA.

The GDPR imposes strict obligations and restrictions on the ability to collect, analyze, and transfer personal data, including health data from clinical studies and adverse event reporting.

In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, the transfer of personal data out of the EEA, security breach notifications, security and confidentiality of the personal data, and the imposition of substantial potential fines for breaches of the data protection obligations.

Data protection authorities from the different EU and EEA member states may interpret the GDPR and national laws differently and impose additional requirements, which add to the complexity of processing personal data in the EU and the EEA Guidance on implementation and compliance practices are often updated or otherwise.

The United Kingdom has mirrored the GDPR in domestic law with the amended Data Protection Act 2018 (the "UK GDPR").

On June 28, 2021, the European Commission adopted an adequacy decision for the UK that will enable data transfers from European Union member states to the UK for a four-year period, subject to subsequent extensions.

Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules.

If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations.

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

In addition, certain foreign laws govern the privacy and security of personal data, including health-related data.

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

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Some third-party payors must approve coverage for new or innovative devices or procedures before they will reimburse healthcare providers who use the products or therapies.

Even though a new product may have been cleared for commercial distribution by the FDA, we may find limited demand for the product unless and until reimbursement approval has been obtained from governmental and private third-party payors.

Even though a new product may have been cleared for commercial distribution

by the FDA, we may find limited demand for the product unless and until reimbursement approval has been obtained from governmental and private third-party payors.

The Centers for Medicare & Medicaid Services (“CMS”) is responsible for administering the Medicare program and sets coverage and reimbursement policies for the Medicare program in the United States.

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In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product lines and procedures.

There can be no assurance that procedures using our products will be covered for a specific indication, that our products will be considered cost-effective by third party payors, that an adequate level of reimbursement will be available or that the third-party payors’ reimbursement

policies will not adversely affect our ability to sell our products profitably.

Local, product specific reimbursement law is increasingly being applied as an overlay to medical device regulation, which has provided an additional layer of clearance requirement.

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It is unclear how other healthcare reform measures of the Biden administration will impact our business.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers.

The Coronavirus Aid, Relief and Economic Stability Act (the “CARES Act”), which was signed into law on March 27, 2020, and subsequent legislative amendments suspended the reductions from May 1, 2020, through March 31, 2022, and extended the sequester through 2030.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted, including aggregate reductions of Medicare payments to providers, which went into effect on April 1, 2013 and will remain in effect through 2032, with the exception of a temporary suspension from May 1, 2020, through March 31, 2022, unless additional Congressional action is taken.

Moreover, there has recently been heightened governmental scrutiny, including increasing legislative and enforcement interest, over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed, among other things, to bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

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Human Capital

As of December 31, 2021, we had 176 employees, 100% of whom were full-time employees.

As of December 31, 2022, we had 164 employees, with nearly 100% of whom were full-time employees.

We believe our employee relations are good.

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We believe that we have been successful in attracting and retaining qualified personnel with the appropriate background and skills to support our business and its growth.

We monitor recruiting efforts using a variety of metrics such

as internal placement rates, employee referrals, information on the retention of business critical hires, and the percentage of budgeted openings filled on time and on budget.

We monitor recruiting efforts using a variety of metrics such as internal placement rates, employee referrals, information on the retention of business critical hires, and the percentage of budgeted openings filled on time and on budget.

We also track voluntary and involuntary turnover rates.

Although we believe our recruiting efforts have been successful to date, headcount reductions taken as part of cost saving initiatives and as our business strategy evolves may negatively impact our ability to attract qualified personnel in the future.

Risk Factors - Risks Related to Our Business - Our success depends on our ability to retain and motivate key management personnel and other employees and consultants, to attract, retain and motivate additional qualified personnel and to effectively navigate changes in our senior management team.

Compensation and Benefits

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We benchmark our benefits program against others in our industry to help us make decisions on the size and elements of our compensation program.

We continue to closely monitor the impact of the pandemic related to COVID-19 and its variants on our business.

In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended various containment and mitigation measures worldwide.

Since that time, the number of procedures performed using our products has decreased significantly, as governmental authorities in the United States have recommended, and in certain cases required, that elective, specialty and other non-emergency procedures and appointments be suspended or canceled and the access of our sales representatives to the associated healthcare facilities has been curtailed in order to avoid patient exposure to medical environments and the risk of potential infection with COVID-19, and to focus limited resources and personnel capacity on the treatment of COVID-19 patients.

As a result, beginning in March 2020, a significant number of procedures using our products have been postponed or cancelled, which has negatively impacted sales of our products.

These measures and challenges will likely continue for the duration of the pandemic, which is uncertain, and will likely continue to reduce our net sales and negatively impact our business, financial condition and results of operations.

In addition, numerous state and local jurisdictions, including those where our facilities are located, imposed, and others in the future may impose or re-impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19 and its variants.

Such orders or restrictions resulted in reduced operations at our manufacturing facilities, travel restrictions and cancellation of events, and have restricted the ability of our sales representatives and those of our commercial partners and independent sales agents to attend procedures in which our products are used, among other effects, thereby significantly and negatively impacting our operations.

The extent to which the COVID-19 pandemic impacts our future financial condition and results of operations will depend on future events and developments, which are highly uncertain and cannot be predicted, including the severity and spread of the disease, emergence of new variants, and the effectiveness of actions to contain the disease or treat its impact, among others.

As new information regarding COVID-19 and its variants continues to emerge, it is difficult to predict the degree to which this disease will ultimately affect our business.

FiberCel Recall

On June 2, 2021, we issued a voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix, a bone repair product formerly distributed by Medtronic, after learning of post-surgical infections reported in several patients treated with the product, including some patients that tested positive for tuberculosis.

Since issuing the recall, we have been working with the U.S.

After the recall, we worked with the U.S.

Food and Drug Administration (“FDA”) and the U.S.

Centers for Disease Control and Prevention (“CDC”) to identify and secure all unused product, ascertain the medical status of patients treated with the recalled product, understand whether there is any relationship between the post-surgical infections and the recalled product lot and determine the medical cause of these infections.

We have identified the 154 units comprising the single product lot in question.

We identified the 154 units comprising the single product lot in question.

Based on information from the CDC, 136 units within this product lot were implanted into 113 patients and the remaining 18 units were returned to either us or the CDC.

Of these 113 patients, CDC has identified at least 75 patients who have exhibited clinical or diagnostic findings consistent with tuberculosis infection.

The CDC has advised us that the CDC, working with state health agencies, has contacted all patients treated with the recalled lot of FiberCel to help ensure they are directed to appropriate medical treatment and has informed us that all patients were started on standard four-drug treatment for tuberculosis.

We have learned from the CDC that eight patients who received the product from the recalled lot have died;

however, the cause of death for each patient is still being investigated through the review of medical records.

Samples of the recalled product have now undergone PCR analysis by a lab contracted by the CDC and tested positive for the presence of Mycobacterium tuberculosis.

The CDC advised us that the CDC, working with state health agencies, contacted all patients treated with the recalled lot of FiberCel to help ensure they were directed to appropriate medical treatment and informed us that all patients were started on standard four-drug treatment for tuberculosis.

Samples of the recalled product underwent PCR analysis by a lab contracted by the CDC and tested positive for the presence of Mycobacterium tuberculosis.

Cell culture testing of the recalled product was also conducted by the same lab that showed the presence of Mycobacterium tuberculosis, and this testing corroborated the PCR testing results.

Twelve lots of FiberCel produced both before and after the single donor lot at issue have undergone PCR analysis and cell culture testing and have all tested negative for Mycobacterium tuberculosis.

Based on these findings, we have no reason to believe that other units of FiberCel have been affected.

As part of our continuing cooperation with the FDA and CDC and our efforts to conduct a prompt and fulsome investigation into this matter, we have reviewed the processes for screening donors and producing FiberCel and have not identified any deviations from our established protocols, which are designed to comply with industry standards established by the American Association of Tissue Banks (“AATB”) as well as applicable FDA requirements and guidelines.

Twelve lots of FiberCel produced both before and after the single donor lot at issue underwent PCR analysis and cell culture testing and all tested negative for Mycobacterium tuberculosis.

Based on these findings, we have no reason to believe that other units of FiberCel were affected.

As part of our cooperation with the FDA and CDC and our efforts to conduct a prompt and fulsome investigation into this matter, we reviewed the processes for screening donors and producing FiberCel and did not identify any deviations from our established protocols, which are designed to comply with industry standards established by the American Association of Tissue Banks (“AATB”) as well as applicable FDA requirements and guidelines.

Our investigation into the available medical records for the donor at issue indicated:

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and (5) a CT abdominal scan taken prior to the donor deceasing was interpreted as showing no evidence of swelling of lymph nodes.

To help ensure the safety of future production lots, we have implemented a number of potential safeguards against Mycobacterium tuberculosis that we believe exceed applicable industry standards and currently available FDA-approved testing.

We have implemented additional donor screening procedures to include screening for any donor utilizing hemodialysis for an extended period of time and to request additional background and information on any time spent by the donor outside the United States.

In addition, we have developed and begun utilizing a methodology for testing processed viable cell bone matrix tissue products for Mycobacterium tuberculosis as a further enhancement to our donor screening.

To help ensure the safety of future production lots, we implemented a number of potential safeguards against Mycobacterium tuberculosis that we believe exceed applicable industry standards and currently available FDA-approved testing.

the donor outside the United States.

In addition, we developed and utilize a methodology for testing processed viable cell bone matrix tissue products for Mycobacterium tuberculosis as a further enhancement to our donor screening.

As far as we are aware, there are no commercially available testing methods authorized by the FDA for detecting the presence of Mycobacterium tuberculosis in these products.

For an update on the legal proceedings related to the FiberCel Recall, see Part I, Item 3, “Legal Proceedings” and Note 17 to the consolidated financial statements included elsewhere in this Annual Report.

Corporate History

We were incorporated in Delaware in August 2015 as a subsidiary of TBI, now KeraLink.

In November 2015, all of the assets and substantially all of the liabilities of the musculoskeletal division of TBI were contributed to us and 75% of the ownership interests in us were transferred to HighCape Partners QP, L.P.

(“HighCape Partners QP”), certain of its affiliates, and Deerfield Private Design Fund III, L.P.

(“Deerfield”).

Available Information

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Securities and Exchange Commission (the “SEC”).

Our SEC filings are available to the public over the Internet at the SEC’s website at

Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov.

Our SEC filings are also available free of charge under the Investor Relations section of our website at www.aziyo.com as soon as reasonably practicable after they are filed with or furnished to the SEC.

Our website and the information contained on available through our website is not incorporated into this Annual Report.

Our website and the information contained on or available through our website is not incorporated into this Annual Report.

We may use our website as a distribution channel of material information about the Company.

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

What changed 10-K

Item 1. Business