What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-13 · 140 added, 134 removed, 257 unchanged (52% of the section changed)

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At Elutia, our mission is to humanize medicine so that patients can thrive without compromise.

As a commercial-stage company, we seek to leverage our unique understanding of biologics to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries.

These complications include device migration, erosion, non-union of implants as well as implant rejection.

In addition, our products are designed to mitigate the formation of scar and fibrotic capsule formation that commonly occurs with device implants and is linked with additional risk factors including infection and capsular contracture.

As a commercial-stage company, we seek to leverage our unique understanding of biologics combined with local drug delivery to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries.

These complications include infection, device migration, erosion, implant rejection, non-union of implants, fibrosis and scar formation.

We estimate that, over the past two years, more than 700,000 surgical procedures were performed per year in the United States in which the patient was implanted with medical devices such as pacemakers, defibrillators, neuro-stimulators or tissue expanders for breast reconstruction.

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These products currently focus on our priority markets – Device Protection and Women’s Health.

In Device Protection, we sell CanGaroo, a “first-to-market” biological envelope, protected by a global patent portfolio, that is indicated for use with implantable electronic devices including cardiac and neurostimulator devices.

CanGaroo is designed to create a secure pocket to hold the device and mitigate complications such as device migration and erosion.

The CanGaroo product is a biomatrix comprised of extracellular matrix (“ECM”), which has been shown to support healthy wound healing.

Because of this inherent ECM trait, CanGaroo may facilitate re-operative procedures by mitigating scar formation and fibrosis.

The CanGaroo envelope is also the only envelope designed for subcutaneous implantable cardiac defibrillators, a growing market.

Additionally, in June 2024, we received clearance from the U.S.

Food and Drug Administration (“FDA”) for our antibiotic-eluting bioenvelope, EluPro (referred to as CanGarooRM during development).

Specifically designed to prevent post-operative complications for devices such as pacemakers and defibrillators, EluPro provides antibiotic delivery combined with advanced tissue engineering to create a bioenvelope that over time remodels into a protective pocket of the patient's own tissue.

Infection, migration, and skin erosion are some of the most frequently encountered complications of pacemaker surgery, occurring in up to five to seven percent of cases.

EluPro is the only drug-eluting biomatrix (“DEB”) offering in the $600 million U.S.

implantable electronic device protection market.

In Women’s Health, we have developed both patented and proprietary technologies, culminating in the creation of SimpliDerm—a novel biological matrix meticulously designed to leverage the inherent science of natural healing processes.

SimpliDerm’s design uses human acellular dermal matrices with heightened structural integrity and superior handling capabilities, which may mitigate inflammation and tissue incorporation, leading to a better healing experience.

We believe that these acellular dermal matrices represent an optimal choice for tissue repair and reconstruction, finding

applications in fields such as sports medicine, hernia repair, and trauma reconstruction.

These matrices are also useable in breast reconstruction surgeries, particularly for women undergoing mastectomy as part of cancer treatment.

With respect to pipeline products, we are pioneering DEB to help solve problems unaddressed by available options.

As described above, EluPro is our first DEB product offering.

We also intend to leverage our DEB platform technology by developing and commercializing products for markets with similar unmet needs, including neurostimulation, wound care and breast reconstruction.

CanGaroo and EluPro, upon its commercial introduction in the third quarter of 2024, are sold through our internal sales force, independent sales agents and our marketing partner, Boston Scientific.

SimpliDerm is sold through both independent sales agents and our distributor, Tiger Aesthetics Medical after their acquisition of the assets of Sientra in April 2024.

We also sell legacy products into the Cardiovascular market.

In Cardiovascular, we sell our specialized porcine small intestine submucosa, which is also the tissue used to make CanGaroo, for use as an intracardiac and vascular patch as well as for pericardial reconstruction.

In addition, our TYKE product is designed for use in the neonatal patient population.

These cardiovascular products are sold in the United States through an exclusive agreement with LeMaitre Vascular and internationally through distributors.

We process all of our CanGaroo and cardiovascular products at our manufacturing facility in Roswell, Georgia and stock inventory of raw materials, supplies and finished goods at this location.

Device Protection

In Device Protection, we sell EluPro, a unique bioenvelope designed to secure implanted devices, mitigating complications such as migration and erosion.

The bioenvelope features a biomatrix comprised of extracellular matrix (ECM), which supports healthy wound healing and may facilitate re-operative procedures by reducing scar formation and fibrosis.

Additionally, EluPro is embedded with the powerful antibiotics rifampin and minocycline, which are gradually released into the surrounding tissue over several weeks post-implantation to provide antimicrobial protection.

EluPro was cleared for marketing by the U.S.

Food and Drug Administration (“FDA”) in June 2024 and is indicated for use with implantable electronic devices including cardiac and neurostimulator devices.

EluPro is the only drug-eluting biomatrix (“DEB”) offering in the U.S.

implantable electronic device protection market, which is comprised of approximately 600,000 procedures per year in the United States.

EluPro is currently available on a limited basis in advance of its full commercial launch anticipated for the first quarter of 2025.

Alongside EluPro, we continue to market the CanGaroo bioenvelope, our first generation product, which uses the same biomatrix but does not contain antibiotics.

EluPro and CanGaroo are sold primarily through our internal sales force and independent sales agents.

In the nine months ended September 30, 2024, these products generated revenue of $7.3 million.

We produce all of our Device Protection and Cardiovascular (see below) products at our manufacturing facility in Roswell, Georgia and stock inventory of raw materials, supplies and finished goods at this location.

We rely on a single or limited number of suppliers for certain raw materials and supplies.

We have a long-term supply agreement with Cook Biotech (now owned by RTI Surgical), the porcine tissue supplier of our raw materials for our CanGaroo and cardiovascular products.

We have a long-term supply agreement with Cook Biotech (now owned by RTI Surgical), the porcine tissue supplier of our raw materials for our bioenvelope and cardiovascular products.

Women’s Health

In Women’s Health, we have developed both patented and proprietary technologies, culminating in the creation of SimpliDerm—a novel biological matrix that leverages the inherent science of natural healing processes.

SimpliDerm’s design uses human acellular dermal matrix (“hADM”) with heightened structural integrity and superior handling capabilities, which may mitigate inflammation and enhance tissue incorporation, leading to a better healing experience as compared to other hADM products.

We believe that these acellular dermal matrices represent an ideal choice for tissue repair and reconstruction, finding applications in fields such as breast reconstruction, sports medicine, hernia repair and trauma reconstruction.

SimpliDerm is primarily used in breast reconstruction surgeries, of which approximately 150,000 are performed each year in the United States.

SimpliDerm is sold through both independent sales agents and our distributor, Tiger Aesthetics Medical.

In the nine months ended September 30, 2024, SimpliDerm generated revenue of $9.2 million.

SimpliDerm has historically been processed by us at our Richmond, California facility;

however, that facility was included with the sale of the Orthobiologics Business described below, and SimpliDerm is now being provided to us on a go-forward basis through a long-term supply agreement with the purchaser of the Orthobiologics Business, Berkeley Biologics, LLC.

We also intend to develop our own in-house capability for the production of SimpliDerm.

Cardiovascular

We also sell legacy products into the Cardiovascular market.

In Cardiovascular, we sell our specialized porcine small intestine submucosa, which is also the biomatrix used to make EluPro and CanGaroo, for use as an intracardiac and vascular patch as well as for pericardial reconstruction.

In addition, our TYKE product is designed for use in the neonatal patient population.

These cardiovascular products are sold in the United States through an exclusive distribution agreement with LeMaitre Vascular.

This agreement also provided LeMaitre with an option to acquire the Cardiovascular product line through March 2026.

During the nine months ended September 30, 2024, our Cardiovascular products generated revenue of $2.4 million.

Pipeline Products

With respect to pipeline products, we are pioneering DEBs to help solve problems unaddressed by available options.

As described above, EluPro is our first DEB product offering.

We also intend to leverage our DEB platform technology by developing and commercializing products for markets with similar unmet needs, including breast reconstruction and neurostimulation.

Discontinued Operations – Sale of Orthobiologics Business

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The earn-out payments are equal to 10% of the actual revenue earned by Berkeley in each of the five years after the closing of the sale from sales of specified Orthobiologics products under the purchase agreement (including improvements, modifications, derivatives and enhancements related to those products).

There were no earn-out payments earned or paid in the three months ended June 30, 2024.

There were no earn-out payments earned or paid in the nine months ended September 30, 2024.

Additionally, the purchase agreement provides for a customary indemnity holdback in the amount of $1.5 million to be retained by Berkeley for 24 months after close.

We recognized a gain of approximately $6.0 million on the sale of the Orthobiologics Business in the fourth quarter of 2023 and an additional gain of $0.2 million in the second quarter of 2024 from an adjustment payment related to the final working capital received by Berkeley at the sale date.

The indemnity holdback is available as a source of recovery for Berkeley for claims of indemnification under the purchase agreement, and some or all of the holdback may be retained by Berkeley if Berkeley is successful in asserting a claim or claims for indemnification against us.

In the purchase agreement, the Company has retained the liabilities arising out of the VBM and FiberCel matters, as described in Note 10, both of which products were part of the Orthobiologics Business.

We recognized a gain of $6.0 million on the sale of the Orthobiologics Business in the fourth quarter of 2023 and an additional gain of $0.2 million in the second quarter of 2024 from an adjustment payment related to the final working capital received by Berkeley at the sale date.

The indemnity holdback is available as a source of

recovery for Berkeley for claims of indemnification under the purchase agreement, and some or all of the holdback may be retained by Berkeley if Berkeley is successful in asserting a claim or claims for indemnification against us.

Should we receive incremental proceeds in the future through an earn-out payment or payment of the holdback amount, an additional gain will be recorded upon the receipt of such amounts.

Product Recalls

In June 2021, we issued a voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix, a bone repair product formerly manufactured under a contract with Medtronic PLC, which also distributed the

The recall was issued after learning of postsurgical infections reported in several patients treated with the product, including some patients that tested positive for tuberculosis.

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For information about legal proceedings in which we are involved and the possible future financial implications, see Note 10 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

Impact of Inflation

Inflationary factors, such as increases in our cost of goods sold or other operating expenses, may adversely affect our operating results.

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we do not believe inflation had a material effect on our financial condition or results of operations during the three or six months ended June 30, 2024 and 2023.

We cannot assure you, however, that we will be able to increase the selling prices of our products or reduce our operating expenses in an amount sufficient to offset the effects future inflationary pressures may have on our gross margin.

Accordingly, we cannot assure you that our financial condition and results of operations will not be materially impacted by inflation in the future.

Components of Our Results of Operations

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Our device protection products are sold to hospitals and other healthcare facilities primarily through our direct sales force, commercial partners or independent sales agents.

Our cardiovascular products are sold domestically through a distribution agreement with LeMaitre Vascular and internationally through commercial partners.

Our women’s health products are sold directly to hospitals and other healthcare facilities through independent sales agents or through our distribution agreement with Tiger Aesthetics Medical after their acquisition of the assets of Sientra in April 2024.

Our cardiovascular products are sold domestically through a distribution agreement with LeMaitre Vascular and were previously sold internationally through commercial partners.

Our women’s health products are sold directly to hospitals and other healthcare facilities through independent sales agents or through our distribution agreement with Tiger Aesthetics Medical.

In recent years, we have incurred significant costs in the operation of our business.

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Outside of our direct sales force, we incur significant expenses relating to commissions to our CanGaroo and SimpliDerm commercial partners and independent sales agents.

Additionally, this expense category includes distribution

costs as well as market research, trade show attendance, advertising and public relations related to our products, and customer service expenses.

Additionally, this expense category includes distribution costs as well as market research, trade show attendance, advertising and public relations related to our products, and customer service expenses.

General and Administrative Expenses

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We also conduct clinical studies to validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.

FiberCel Litigation Costs

FiberCel litigation costs consist primarily of legal fees and the estimated costs to resolve the outstanding FiberCel litigation cases offset by the estimated and actual amounts recoverable under insurance, indemnity and contribution agreements for such costs.

Litigation Costs, net

Litigation costs, net consist primarily of legal fees and the estimated costs to resolve the outstanding FiberCel and VBM litigation cases offset by the estimated and actual amounts recoverable or recovered under insurance, indemnity and contribution agreements for such costs.

Results of Operations

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2024 and 2023

Three Months Ended September 30,

Change 2023 / 2024

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Research and development

FiberCel litigation costs

Litigation costs, net

Total operating expenses

Loss from operations

Interest expense

Loss on revaluation of warrant liability

Interest expense, net

Gain on revaluation of warrant liability

Other expense (income), net

Loss before provision of income taxes

Income (loss) before provision for income taxes

Income tax expense

Net loss from continuing operations

Net income (loss) from continuing operations

Discontinued operations

Net income (loss)

NM = not meaningful

Net sales information for our products is summarized as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Change 2023 / 2024

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Total Net Sales

Total net sales decreased $0.1 million, or 0.9%, to $6.3 million in the three months ended June 30, 2024 compared to $6.4 million in the three months ended June 30, 2023.

Revenues from Device Protection and Women’s Health increased compared to the prior year’s second quarter due primarily to volume growth, and revenues from Cardiovascular decreased due to the commencement in April 2023 of our distribution agreement with LeMaitre Vascular which provides for sales at a contract price versus sales prior to such agreement being made at end-user pricing.

Total net sales decreased $0.2 million, or 3.3%, to $5.9 million in the three months ended September 30, 2024 compared to $6.1 million in the three months ended September 30, 2023.

Revenues from Women’s Health increased compared to the prior year’s third quarter due primarily to volume growth;

however, such increase was offset by slight volume declines between years in Device Protection and Cardiovascular.

As noted above, our new Device Protection product, EluPro, was approved by the FDA in June 2024 and first sold commercially in September 2024.

EluPro is currently available to our customers on a limited basis in advance of its full commercial launch in the first quarter of 2025.

The decline in Device Protection revenue between years was partially caused by certain of our customers suspending purchases of CanGaroo and waiting to procure EluPro when it becomes more broadly available.

Cost of Goods Sold

Cost of goods sold and gross margin percentage information for our products is summarized as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Change 2023 / 2024

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Total Cost of Goods Sold

Total cost of goods sold decreased $0.1 million to $3.5 million in the three months ended June 30, 2024 compared to $3.6 million in the three months ended June 30, 2023.

Gross margin was 44.5% in the three months ended June 30, 2024 compared to 42.7% in the three months ended June 30, 2023.

Gross margin, excluding intangible asset amortization, was 58.0% in the three months ended June 30, 2024 compared to 56.1% in the three months ended June 30, 2023.

The improvement in gross margin was primarily due to the Women’s health business which experienced certain non-recurring production issues in the 2023 period which had a negative impact on gross margins.

As noted above, with the sale of the Orthobiologics Business in November 2023, we no longer internally produce our women’s health product, SimpliDerm.

Total cost of goods sold decreased $0.1 million to $3.2 million in the three months ended September 30, 2024 compared to $3.3 million in the three months ended September 30, 2023.

Gross margin was 46.3% in the three months ended September 30, 2024 consistent with the 46.4% in the three months ended September 30, 2023.

Gross margin, excluding intangible asset amortization, was 60.6% in the three months ended September 30, 2024 compared to 60.2% in the three months ended September 30, 2023.

Operating Expenses

Sales and Marketing

Sales and marketing expenses increased $0.3 million, or 10.2%, to $3.3 million in the three months ended June 30, 2024 compared to $3.0 million in the three months ended June 30, 2023.

As a percentage of sales, sales and marketing expenses increased to 52.9% in the three months ended June 30, 2024 from 47.6% in the three months ended June 30, 2023.

Sales and marketing expenses increased $0.2 million, or 6.7%, to $3.0 million in the three months ended September 30, 2024 compared to $2.8 million in the three months ended September 30, 2023.

As a percentage of sales, sales and marketing expenses increased to 50.5% in the three months ended September 30, 2024 from 45.7% in the three months ended September 30, 2023.

The increase in expense was largely attributable to the non-cash equity compensation grants made in January 2024.

General and Administrative

G&A expenses increased $0.8 million, or 21.4%, to $4.7 million in the three months ended June 30, 2024 compared to $3.9 million in the three months ended June 30, 2023.

As a percentage of net sales, G&A expenses increased to 74.5% in the three months ended June 30, 2024 from 60.8% in the three months ended June 30, 2023.

G&A expenses increased $1.7 million, or 64.0%, to $4.5 million in the three months ended September 30, 2024 compared to $2.8 million in the three months ended September 30, 2023.

As a percentage of net sales, G&A expenses increased to 76.3% in the three months ended September 30, 2024 from 45.0% in the three months ended September 30, 2023.

The increase in expense was primarily driven by the non-cash equity compensation grants made in January 2024.

Research and Development

R&D expenses were essentially flat between years slightly increasing to $1.0 million in the three months ended June 30, 2024 compared to $0.9 million in the three months ended June 30, 2023.

Over the last several years, our R&D efforts have primarily related to activities associated with the development of EluPro (referred to as CanGarooRM during development).

The June 2024 FDA approval of EluPro is discussed in further under the heading "Overview" above..

FiberCel Litigation Costs

FiberCel litigation costs increased to $2.3 million in the three months ended June 30, 2024 compared to $1.3 million in the three months ended June 30, 2023.

The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability.

See further discussion in Note 10 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

R&D expenses increased $0.2 million, or 39.7% to $0.8 million in the three months ended September 30, 2024 compared to $0.6 million in the three months ended September 30, 2023.

The increase in expense was largely attributable to the non-cash equity compensation grants made in January 2024.

Over the last several years, our R&D efforts have primarily related to activities associated with the development of EluPro.

With the FDA approval of EluPro in June 2024, our development efforts are focused on the areas described under the heading "Overview" above.

Litigation Costs, net

Litigation costs, net increased to $4.7 million in the three months ended September 30, 2024 compared to $4.1 million in the three months ended September 30, 2023.

The continued evaluation of our contingent liability for legal proceedings resulted in higher expenses in the 2024 period.

Such increase was partially offset by our recovery in September

2024 of $1.6 million in connection with the settlement of certain disputed indemnity and contribution amounts related to the FiberCel Litigation.

See further discussion in Note 10 to condensed consolidated financial statements.

Interest Expense

Interest expense was approximately $1.3 million in the three months ended June 30, 2024 compared to $1.4 million in the three months ended June 30, 2023.

Interest expense was approximately $1.1 million in the three months ended September 30, 2024 compared to $1.4 million in the three months ended September 30, 2023.

The decrease was primarily due to lower principal outstanding on the SWK debt in the current year period as a result of mandatory repayments in connection with our sale of the Orthobiologics Business in November 2023.

Discontinued Operations

Income from discontinued operations for the three months ended June 30, 2024 was $0.2 millon and loss from discontinued operations for the three months ended June 30, 2023 was $2.9 million.

See Notes 1 and 4 to condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion.

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30,

Comparison of the Nine Months Ended September 30, 2024 and 2023

Nine Months Ended September 30,

Change 2023 / 2024

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Research and development

FiberCel litigation costs

Litigation costs, net

Total operating expenses

Loss from operations

Interest expense

Loss on revaluation of warrant liability

Interest expense, net

(Gain) loss on revaluation of warrant liability

Other expense (income), net

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Net sales information for our products is summarized as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Change 2023 / 2024

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Total Net Sales

Total net sales increased $0.3 million, or 1.9%, to $13.0 million in the six months ended June 30, 2024 compared to $12.7 million in the six months ended June 30, 2023.

Revenues from Device Protection and Women’s Health increased compared to the prior year period due primarily to volume growth, and revenues from Cardiovascular decreased due to the commencement in April 2023 of our distribution agreement with LeMaitre Vascular which provides for sales at a contract price versus sales prior to such agreement being made at end-user pricing.

Total net sales were $18.9 million in both the nine months ended September 30, 2024 and 2023.

Revenues from Device Protection and Women’s Health increased compared to the prior year period due primarily to volume growth, but such increases were offset by declines in revenues from Cardiovascular due to the commencement in April 2023 of our

distribution agreement with LeMaitre Vascular which provides for sales at a contract price versus sales prior to such agreement being made at end-user pricing.

Cost of Goods Sold

Cost of goods sold and gross margin percentage information for our products is summarized as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Change 2023 / 2024

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Total Cost of Goods Sold

Total cost of goods sold increased $0.6 million to $7.3 million in the six months ended June 30, 2024 compared to $6.7 million in the six months ended June 30, 2023.

Gross margin was 43.5% in the six months ended June 30, 2024 compared to 47.8% in the six months ended June 30, 2023.

Gross margin, excluding intangible asset amortization, was 56.5% in the six months ended June 30, 2024 compared to 61.1% in the six months ended June 30, 2023.

Total cost of goods sold increased $0.6 million to $10.5 million in the nine months ended September 30, 2024 compared to $9.9 million in the nine months ended September 30, 2023.

Gross margin was 44.3% in the nine months ended September 30, 2024 compared to 47.3% in the nine months ended September 30, 2023.

Gross margin, excluding intangible asset amortization, was 57.8% in the nine months ended September 30, 2024 compared to 60.8% in the nine months ended September 30, 2023.

The decline in gross margin was primarily due to the Cardiovascular business which decreased due to the commencement of the LeMaitre Vascular distribution agreement described above.

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Sales and Marketing

Sales and marketing expenses decreased $1.1 million, or 13.9%, to $6.6 million in the six months ended June 30, 2024 compared to $7.7 million in the six months ended June 30, 2023.

As a percentage of sales, sales and marketing expenses decreased to 51.1% in the six months ended June 30, 2024 from 60.5% in the six months ended June 30, 2023.

Sales and marketing expenses decreased $0.9 million, or 8.4%, to $9.6 million in the nine months ended September 30, 2024 compared to $10.5 million in the nine months ended September 30, 2023.

As a percentage of sales, sales and marketing expenses decreased to 50.9% in the nine months ended September 30, 2024 from 55.7% in the nine months ended September 30, 2023.

The decrease in expense was largely attributable to the previously announced reduction in force which occurred at the end of the first quarter of 2023 and primarily impacted certain members of sales and marketing management.

General and Administrative

G&A expenses increased $2.3 million, or 32.0%, to $9.7 million in the six months ended June 30, 2024 compared to $7.4 million in the six months ended June 30, 2023.

As a percentage of net sales, G&A expenses increased to 75.0% in the six months ended June 30, 2024 from 57.9% in the six months ended June 30, 2023.

G&A expenses increased $4.1 million, or 40.7%, to $14.3 million in the nine months ended September 30, 2024 compared to $10.1 million in the nine months ended September 30, 2023.

As a percentage of net sales, G&A expenses increased to 75.5% in the nine months ended September 30, 2024 from 53.7% in the nine months ended September 30, 2023.

The increase in expense resulted largely from the non-cash equity compensation grants made in January 2024.

Research and Development

R&D expenses decreased to $2.2 million in the six months ended June 30, 2024 compared to $2.5 million in the six months ended June 30, 2023.

R&D expenses were $3.0 million in both the nine months ended September 30, 2024 and 2023.

Over the last several years, our R&D efforts have primarily related to activities associated with the development of EluPro (referred to as CanGarooRM during development).

See above for discussion of the June 2024 FDA approval of EluPro.

Such related costs were less in the first half of 2024 versus the prior year’s comparable

period due to the reduction of efforts needed and expenses incurred as the development progressed toward anticipated completion.

FiberCel Litigation Costs

FiberCel litigation costs increased to $4.1 million in the six months ended June 30, 2024 compared to $3.2 million in the six months ended June 30, 2023.

The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability.

See further discussion in Note 10 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

With the FDA’s approval of EluPro in June 2024, such related costs were less in the first nine months of 2024 versus the prior year’s comparable period, but such decrease was offset by non-cash equity compensation recognized in the 2024 period.

See “Overview” above for discussion of future development projects.

Litigation Costs, net

Litigation costs, net increased to $8.8 million in the nine months ended September 30, 2024 compared to $7.3 million in the nine months ended September 30, 2023.

The continued evaluation of our contingent liability for legal proceedings resulted in higher expenses in the 2024 period.

Such increase was partially offset by our recovery in September 2024 of $1.6 million in connection with the settlement of certain disputed indemnity and contribution amounts related to the FiberCel Litigation.

See further discussion in Note 10 to condensed consolidated financial statements.

Interest Expense

Interest expense was approximately $2.6 million in the six months ended June 30, 2024 compared to $2.8 million in the six months ended June 30, 2023.

Interest expense was approximately $3.7 million in the nine months ended September 30, 2024 compared to $4.3 million in the nine months ended September 30, 2023.

Discontinued Operations

Income from discontinued operations for the six months ended June 30, 2024 was $0.2 millon and loss from discontinued operations for the six months ended June 30, 2023 was $1.1 million.

Income from discontinued operations for the nine months ended September 30, 2024 was $0.2 millon and loss from discontinued operations for the nine months ended September 30, 2023 was $2.3 million.

See Notes 1 and 4 to condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion.

Non-GAAP Financial Measures

This Quarterly Report presents our gross margin, excluding intangible asset amortization, for the three and six months ended June 30, 2024 and 2023.

This Quarterly Report presents our gross margin, excluding intangible asset amortization, for the three and nine months ended September 30, 2024 and 2023.

We calculate gross margin, excluding intangible asset amortization, as gross profit, excluding amortization expense relating to intangible assets we acquired in the CorMatrix Acquisition, divided by net sales.

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In addition, other companies, including companies in our industry, may use other measures to evaluate their performance, which could reduce the usefulness of this non-GAAP financial measure as a tool for comparison.

The following table presents a reconciliation of our gross margin, excluding intangible asset amortization, for the three and six months ended June 30, 2024 and 2023 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

The following table presents a reconciliation of our gross margin, excluding intangible asset amortization, for the three and nine months ended September 30, 2024 and 2023 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of goods sold

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Liquidity and Capital Resources

As of June 30, 2024, we had cash of approximately $18.2 million.

As of September 30, 2024, we had cash of approximately $25.7 million.

Since inception, we have financed our operations primarily through amounts borrowed under our credit facilities, proceeds from our initial public offering (“IPO”), sales of our products and more recently, the sale of our Orthobiologics Business and proceeds from a follow-on offering and private placements of our common stock and warrants.

Our historical cash outflows have primarily been associated with acquisitions and integration, manufacturing and administrative costs, general and marketing, research and development, clinical activity, purchase of property and equipment used in our production activities, litigation costs and investing in our commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to promote awareness and adoption of our products.

As of June 30, 2024, our accumulated deficit was $221.8 million.

As of September 30, 2024, our accumulated deficit was $220.5 million.

On June 18, 2024, we sold, in a registered direct offering (“Registered Offering”) an aggregate of (i) 3,175,000 shares (“Common Shares”) of the Company’s Class A common stock and (ii) prefunded warrants (“2024 Prefunded Warrants”) to purchase up to an aggregate of 725,000 shares of Class A Common Stock.

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The Common Units were sold at a purchase price of $1.4275 per unit, and the 2023 Prefunded Units were sold at a purchase price of $1.4265 per unit, for aggregate gross proceeds of approximately $10.5 million, before deducting offering expenses.

Each Common Warrant is exercisable at any time until the earlier of (a) 30 trading days after the clearance by the FDA of our CanGarooRM antibiotic-eluting biologic envelope or (b) five years from the

date of the offering, at an exercise price per share of $1.4275.

Each Common Warrant was exercisable until July 31, 2024, the date which was 30 trading days after the clearance by the FDA of the Company’s EluPro product, at an exercise price per share of $1.4275.

All Common Warrants were exercised by such date yielding exercise proceeds of $13.8 million in July 2024.

Certain of these exercises ultimately resulted in their conversion to 2023 Prefunded Warrants.

Each 2023 Prefunded Warrant is exercisable at any time at a nominal exercise price per share of $0.001 (with the remainder of the exercise price per share of Class A Common Stock having been prefunded to us).

With the FDA’s approval of EluPro in June 2024 (referred to as CanGarooRM during development), the last exercise date for the Common Warrants was July 31, 2024.

All Common Warrants outstanding as of June 30, 2024 were exercised by such date yielding exercise proceeds of $13.8 million in July 2024.

We expect our losses to continue for the foreseeable future and these losses will continue to have an adverse effect on our financial position.

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Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.

Cash Flows for the Six Months Ended June 30, 2024 and 2023

Six Months Ended

Cash Flows for the Nine months ended September 30, 2024 and 2023

Nine Months Ended

September 30,

(in thousands)

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Cash Flows From Operating Activities

Net cash used in operating activities for the six months ended June 30, 2024 was $7.0 million compared to $7.6 million for the six months ended June 30, 2023.

Net cash used in operating activities for the nine months ended September 30, 2024 was $10.4 million compared to $12.7 million for the nine months ended September 30, 2023.

The year-over-year decrease was primarily due to a lower net loss (excluding non-cash items) as well as reductions in inventory held.

Cash Flows From Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2024 was $0.2 million compared to net cash used in investing activities of $0.3 million for the six months ended June 30, 2023.

The current year period reflects the receipt of $0.2 million in the second quarter of 2024 from an adjustment payment related to the final working capital received by Berkeley at the sale date.

Net cash provided by investing activities for the nine months ended September 30, 2024 was $0.4 million compared to net cash used in investing activities of $0.3 million for the nine months ended September 30, 2023.

The current year period reflects the purchase of property and equipment for our production facilities and the receipt of $0.2 million from an adjustment payment related to the final working capital received by Berkeley at the sale date.

The prior year period use of cash is related to the purchase of property and equipment for our production activities.

Cash Flows From Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2024 was $5.7 million compared to $0.1 million for the six months ended June 30, 2023.

The year-over-year increase was caused primarily by the Registered Offering and warrant exercises which yielded proceeds of $14.1 million offset by repayments of long-term debt and

payments on the revenue interest obligation which collectively totalled $7.2 million.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $17.2 million compared to $10.5 million for the nine months ended September 30, 2023.

The year-over-year increase was caused primarily by warrant exercises which yielded proceeds of $15.7 million offset by repayments of long-term debt and payments on the revenue interest obligation which collectively totalled $8.3 million.

No such activity occurred in the 2023 period.

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O n August 10, 2022 (the “Closing Date”), we entered into a senior secured term loan facility with SWK Funding LLC (“SWK”), as agent, and other lenders party thereto (as amended and modified subsequent to the Closing Date, the “SWK Loan Facility”) for an aggregate principal amount of $25 million.

An initial draw of $21 million was made on the Closing Date with the additional $4 million drawn on December 14, 2022 upon satisfaction of the amended terms enabling such receipt.

An initial draw of $21 million was made on the Closing Date with the additional $4 million drawn on December 14, 2022.

The SWK Loan Facility also allows for the establishment of a separate, new asset-based revolving loan facility of up to $8 million, which has not been entered into to date.

As of June 30, 2024, we had $23.0 million of indebtedness outstanding under our SWK Loan Facility, with such balance being net of $0.7 million of unamortized discount and deferred financing costs.

As of September 30, 2024, we had $22.6 million of indebtedness outstanding under our SWK Loan Facility, with such balance being net of $0.6 million of unamortized discount and deferred financing costs.

Interest Rates

All of the SWK Loan Facility borrowings take the form of Secured Overnight Financing Rate (“SOFR”) loans and bear interest at a rate per annum equal to the sum of an applicable margin of (i) 7.75% and the “Term SOFR Rate” (based upon an interest period of 3 months), or (ii) if we have elected the PIK Interest option (as defined below), 3.75% and the “Term SOFR Rate.” We may elect a portion of the interest due, to be paid in-kind at a rate per annum of 4.5% (“PIK Interest”), and such election may be made (x) until November 15, 2024 if certain conditions, as defined, have not been met, or (y) if such conditions have been satisfied, until November 17, 2025.

The “Term SOFR Rate” is subject to a floor of 2.75%.

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The closing of the sale of the Orthobiologics Business in November 2023 triggered the mandatory prepayment of $4.0 million.

Of such amount, $2.0 million wa s paid shortly after closing of the divestiture of the Orthobiologics Business and the remainder was paid on February 15, 2024 based on mutual agreement between the parties.

No such mandatory prepayments were required in the six months ended June 30, 2023.

Of such amount, $2.0 million wa s paid shortly after closing of the divestiture of the Orthobiologics Business in 2023 and the remainder was paid on February 15, 2024 based on mutual agreement between the parties.

No such mandatory prepayments were required in the nine months ended September 30, 2023.

Optional Prepayment

The agreement, as amended, governing the SWK Loan Facility also includes an exit fee equal to 6.5% of the aggregate principal amount funded prior to termination plus $62,500 and prepayment penalties equal to:

(i) if such prepayment occurs prior to the first anniversary of the Closing Date, 2% of the aggregate principal amount funded prior to the termination plus remaining unpaid interest payments scheduled to be paid during the first year of the loan or (ii) if such prepayment occurs after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, 2% of the aggregate principal amount funded prior to the termination.

The agreement, as amended, governing the SWK Loan Facility also includes an exit fee equal to 6.5% of the aggregate principal amount funded prior to termination plus $112,500.

Amortization and Final Maturity

The SWK Loan Facility matures on August 10, 2027 and accrues interest, payable quarterly in arrears.

Principal amortization of the SWK Loan Facility starts on November 15, 2024, which amortization may be extended to November 17, 2025 if the Extension Conditions (as defined in the SWK Loan Facility Agreement) have been satisfied.

Principal amortization of the SWK Loan Facility starts on November 15, 2025.

Principal payments during the amortization period will be limited based on revenue-based caps.

As of June 30, 2024, quarterly

principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5% of the outstanding principal on such principal payment commencement date with the balance paid at maturity.

As of September 30, 2024, quarterly principal payments will be in an amount equal to 5% of the aggregate principal amount funded with the balance paid at maturity.

All obligations under the SWK Loan Facility are, and any future guarantees of those obligations will be, secured by, among other things, and in each case subject to certain exceptions, a first priority lien on and security interest in, upon, and to all of our assets, whether now owned or hereafter acquired, wherever located.

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On March 27, 2024, we entered into an amendment to the SWK Loan Facility Agreement, which modified the Minimum Aggregate Revenue covenant under the SWK Facility to provide that as of the last business day of each fiscal quarter of the Company beginning with the first fiscal quarter of 2024, our required Minimum Aggregate Revenue (as defined in the SWK Facility) for the trailing twelve-month period must be equal to or greater than $20.0 million.

On September 30, 2024, we entered into an amendment to the SWK Loan Facility Agreement, which (i) deferred the commencement of principal repayment under the SWK Facility from November 15, 2024 to November 15, 2025, (ii) extended the date until which the Company may elect a portion of the interest due under the SWK Facility to be paid in-kind from November 15, 2024 to November 15, 2025, and (iii) modified the exit fee upon termination of the SWK Facility from (a) 6.50% of the aggregate amount of Term Loan funded prior to such termination date plus $62,500 to (b) 6.50% of the aggregate amount of Term Loan funded prior to such termination date plus $112,500.

The SWK Loan Facility Agreement contains events of default, including, most significantly, a failure to timely pay interest or principal, insolvency, or an action by the FDA or such other material adverse event impacting the operations of Elutia.

As of June 30, 2024, we were in compliance with the financial covenants and all other covenants.

As of September 30, 2024, we were in compliance with the financial covenants and all other covenants.

Funding Requirements

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In addition, we expect to continue to incur significant costs and expenses associated with operating as a public company.

As of June 30, 2024, we had $22.3 million of indebtedness outstanding, consisting of $23.0 million outstanding under our SWK Loan Facility, net of $0.7 million of unamortized discount and deferred financing costs.

As of September 30, 2024, we had $22.6 million of indebtedness outstanding, consisting of $23.2 million outstanding under our SWK Loan Facility, net of $0.6 million of unamortized discount and deferred financing costs.

Such indebtedness currently has a principal payment commencement date of November 15, 2025, with quarterly principal payments in an amount equal to 5% of the outstanding principal.

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Our present and future funding requirements will depend on many factors, including, among other things:

● the cost of fully commercializing our EluPro product;

● continued patient, physician and market acceptance of our products;

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The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures.

We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report, and, during the three and six months ended June 30, 2024, there were no material changes to those previously disclosed other than those outlined in Note 2, “Summary of Significant Accounting Policies.”

We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report, and, during the three and nine months ended September 30, 2024, there were no material changes to those previously disclosed other than those outlined in Note 2, “Summary of Significant Accounting Policies.”

Recent Accounting Pronouncements

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(ii) the last day of 2025;

(iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second

fiscal quarter;

(iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common

equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter;

or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

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-Q

Item 2. Management’s Discussion and Analysis