What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-14 · 142 added, 199 removed, 198 unchanged (63% of the section changed)

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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.

We estimate that in 2024, more than 700,000 surgical procedures were performed annually in the United States involving the implantation of medical devices such as pacemakers, defibrillators, neurostimulators or tissue expanders for breast reconstruction.

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 scar tissue formation, capsular contraction, erosion, migration and implant rejection.

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

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.

We currently focus on two priority markets – Device Protection and Women’s Health.

In Device Protection, we sell EluPro, a unique bioenvelope designed to mitigate cardiac implantable electronic device complications including infection, device migration and erosion.

The bioenvelope features a biomatrix comprised of extracellular matrix, 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 bioenvelope and cardiovascular products.

Women’s Health

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

implantable electronic device protection market.

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

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.

SimpliDerm’s design uses human-based hydrated acellular dermal matrix (“ADM”) 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 ADM 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

With respect to pipeline products, we plan to expand our DEB offerings beyond EluPro and are pioneering DEBs to help solve problems unaddressed by available options.

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.

We sell EluPro and CanGaroo in the United States using our direct sales force and our commercial partner, Boston Scientific, which acts as a sales agent and gives us access to approximately 900 sales representatives and clinical specialists to further expand our footprint and accelerate our sales.

Our primary customers are electrophysiologists, cardiac surgeons and neurosurgeons.

Our direct sales force is focused 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 EluPro and CanGaroo provide for patients over those of our competitors.

We ship the product directly to hospitals.

We sell SimpliDerm through independent sales agents to plastic and reconstructive surgeons.

Additionally, in March 2023, we entered into an agreement with Sientra, a medical aesthetics company uniquely focused on plastic surgery, to expand the distribution of SimpliDerm.

In April 2024, the agreement was acquired by Tiger Aesthetics Medical (“Tiger”) in connection with their asset acquisition of Sientra.

Under the agreement terms, Elutia has granted Tiger certain non-exclusive rights in the United States to market, sell and distribute SimpliDerm.

This agreement with Tiger gives us access to approximately 50 sales representatives to further expand our footprint and accelerate our sales.

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 Cardiovascular, we sell our specialized porcine small intestine submucosa, which is based on the same 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.

From May 2017 through March 2023, we sold these products directly to hospitals and other healthcare facilities primarily through our sales force and independent sales agents.

In April 2023, we entered into an exclusive distribution agreement with LeMaitre Vascular through which we sold these products in the United States.

On May 1, 2025, the exclusive distribution agreement terminated and we began selling these products directly to hospitals and other healthcare facilities through independent sales agents.

We produce all of our EluPro, CanGaroo and cardiovascular 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 Evergen, the porcine tissue supplier of our raw materials for EluPro, CanGaroo and our cardiovascular products.

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

however, that facility was included with the divestiture of the Orthobiologics Business, and SimpliDerm is now provided to us through a long-term supply agreement with the purchaser of the Orthobiologics Business, Berkeley Biologics, LLC (“Berkeley”).

We intend to develop our own in-house capability for the production of certain components of EluPro as well as the potential internal production of current and future Women’s Health products.

To this end, in March 2025, we signed a lease for 26,598 square feet in Gaithersburg, Maryland and expect to commence operations there in the second quarter of 2025.

We anticipate being able to internally produce certain components of EluPro in the fourth quarter of 2025.

We have focused much of our attention recently on EluPro, which was cleared for marketing by the FDA in June 2024 and is indicated for use with implantable electronic devices including cardiac and neurostimulator devices.

We believe the Company’s success is highly dependent on the successful commercialization, marketing and sale of EluPro, as well as the extension of our DEB technology into potential adjacent applications.

Furthermore, we believe the commercialization and marketing efforts with respect to EluPro will require significant investments in time and resources.

However, there can be no assurance that we will have or be able to obtain sufficient resources to make the necessary investments in order to increase the sales and market penetration of EluPro, or that if made, such investments will yield the results sought.

Discontinued Operations – Sale of Orthobiologics Business

On November 8, 2023, we completed the sale of substantially all of the assets relating to our former Orthobiologics segment (the “Orthobiologics Business”) to Berkeley Biologics, LLC (“Berkeley”).

On November 8, 2023, we completed the sale of substantially all of the assets relating to our former Orthobiologics Business to Berkeley.

The Orthobiologics Business was comprised of assets relating to researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing our Orthobiologics products, and the business of contract manufacturing of particulate bone, precision milled bone, cellular bone matrix, acellular dermis, soft tissue and other products.

The assets sold represent the entirety of our Orthobiologics segment.

In the sale, we received approximately $14.6 million, and we may earn up to an additional $20 million, in the aggregate, in the form of earn-out payments.

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 nine months ended September 30, 2024.

In the sale, we received $14.6 million, and we may earn up to an additional $20 million, in the aggregate, in the form of earn-out payments.

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 have been no earn-out payments made to date.

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.

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.

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 viable bone matrix (“VBM”) and FiberCel matters, as described in Note 9, 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 2023 and an additional gain of $0.2 million in 2024 from an adjustment payment related to the final working capital received by Berkeley at the sale date.

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.

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Both of these products were part of our Orthobiologics Business, which we have fully divested as described above.

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.

For information about legal proceedings in which we are involved and the possible future financial implications, see Note 9 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.

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 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.

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.

From April 2023 through April 2025, our cardiovascular products were sold through a distribution agreement with LeMaitre Vascular.

In May 2025, we began selling these products directly to hospitals and other healthcare facilities through independent sales agents.

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

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Cost of Goods Sold

Our cost of goods sold relate to purchased raw materials and the processing and conversion costs of such raw materials consisting primarily of salaries and benefits, supplies, quality control testing and the manufacturing overhead incurred at our processing facilities in Roswell, Georgia and our former Orthobiologics facility in Richmond, California.

The Roswell facility has additional capacity, which if utilized, would further leverage our fixed overhead.

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Research and development (“R&D”) expenses consist primarily of salaries and fringe benefits, laboratory supplies, clinical studies and outside service costs.

Over the last several years, our product development efforts have primarily related to activities associated with the development of EluPro (referred to as CanGarooRM during development), our initial DEB product offering.

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

Future development efforts are expected to focus on (i) expanding the EluPro offering with additional sizes and product features and (ii) developing new products within the DEB product portfolio.

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

Over the last several years, our product development efforts have primarily related to activities associated with the development of EluPro, our initial DEB product offering which gained FDA clearance in June 2024.

Future development efforts are expected to focus on (i) expanding our EluPro offering with additional sizes and product features, (ii) developing new products within the DEB product portfolio and (iii) conducting clinical studies to validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.

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.

Litigation costs, net consist primarily of legal fees and the estimated and actual 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 September 30, 2024 and 2023

Three Months Ended September 30,

Comparison of the Three Months Ended March 31, 2025 and 2024

Three Months Ended March 31,

Change 2024 / 2025

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Other expense (income), net

Income (loss) before provision for income taxes

Loss before provision for income taxes

Income tax expense

Net income (loss) from continuing operations

Discontinued operations

Net income (loss)

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Net sales information for our products is summarized as follows:

Three Months Ended September 30,

Three Months Ended March 31,

Change 2024 / 2025

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Total Net Sales

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.

Total net sales decreased $0.7 million, or 9.9%, to $6.0 million in the three months ended March 31, 2025 compared to $6.7 million in the three months ended March 31, 2024.

Revenues from Device Protection increased compared to the prior year’s first quarter due to volume growth from EluPro whose full commercial launch commenced in January 2025 after FDA clearance in June 2024.

Such increase, however, was offset by volume declines in Women’s Health and Cardiovascular.

The decline in Women’s Health was caused by case volume reductions at certain hospital customers, and various physician users of SimpliDerm who transferred to hospitals where SimpliDerm is not yet available.

With respect to Cardiovascular, as noted above, the exclusive distribution agreement with LeMaitre Vascular terminated in April 2025 and we recommenced selling these products directly in May 2025.

We anticipate Cardiovascular sales will increase in future quarters of 2025 both through volume growth and higher unit prices as such sales will be at end-user pricing versus contracted prices.

Cost of Goods Sold

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

Three Months Ended September 30,

Three Months Ended March 31,

Change 2024 / 2025

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Total Cost of Goods Sold

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.

Total cost of goods sold decreased $0.3 million to $3.6 million in the three months ended March 31, 2025 compared to $3.9 million in the three months ended March 31, 2024.

Gross margin was 40.7% in the three months ended March 31, 2025 compared to 42.5% in the three months ended March 31, 2024.

Gross margin, excluding intangible asset amortization, was 54.8% in the three months ended March 31, 2025 consistent with 55.2% in the three months ended March 31, 2024.

While the overall changes between years in the gross margin measures were modest, it included increases to the Women’s Health gross margin due to certain non-recurring write-offs in the prior year quarter, and declines to the Device Protection gross margin due to the addition of EluPro in 2025 which currently carries a lower gross margin than CanGaroo.

We expect the Device Protection gross margin to improve over the course of calendar year 2025 as we increase production volumes and further production efficiencies are achieved.

Operating Expenses

Sales and Marketing

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.

Sales and marketing expenses decreased $0.3 million, or 8.4%, to $3.0 million in the three months ended March 31, 2025 compared to $3.3 million in the three months ended March 31, 2024.

As a percentage of sales, sales and marketing expenses increased to 50.3% in the three months ended March 31, 2025 from 49.4% in the three months ended March 31, 2024.

The modest decrease in expense was largely attributable to lower non-cash equity compensation in the 2025 period.

General and Administrative

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.

G&A expenses decreased $1.2 million, or 23.4%, to $3.9 million in the three months ended March 31, 2025 compared to $5.1 million in the three months ended March 31, 2024.

As a percentage of net sales, G&A expenses decreased to 64.2% in the three months ended March 31, 2025 from 75.5% in the three months ended March 31, 2024.

The decrease in expense was primarily driven by lower non-cash equity compensation and legal fees in the 2025 period.

Research and Development

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.

R&D expenses decreased $0.3 million, or 22.8% to $0.9 million in the three months ended March 31, 2025 compared to $1.2 million in the three months ended March 31, 2024.

The decrease in expense was largely attributable to lower non-cash equity compensation in the 2025 period along with reductions in outside testing services after the FDA‘s clearance of EluPro in June 2024.

Our future development efforts are focused on expanding our EluPro offering with additional sizes and product features, (ii) developing new products within the DEB product portfolio and (iii) conducting clinical studies to validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.

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.

Litigation costs, net increased to $2.6 million in the three months ended March 31, 2025 compared to $1.8 million in the three months ended March 31, 2024.

The current year increase was due to the availability of insurance coverage on the FiberCel Litigation in the 2024 period which allowed for the full recovery of legal defense costs in the prior year’s quarter.

As of March 31, 2025, insurance remains available to cover the cost of the VBM Litigation and related defense costs;

however, we have no more insurance to cover the cost of the FiberCel Litigation and the related defense costs.

See further discussion in Note 9 to the condensed consolidated financial statements.

Interest Expense

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.

Interest expense was approximately $1.1 million in the three months ended March 31, 2025 compared to $1.3 million in the three months ended March 31, 2024.

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.

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

Nine Months Ended September 30,

Change 2023 / 2024

(in thousands, except percentages)

Cost of goods sold

Sales and marketing

General and administrative

Research and development

Litigation costs, net

Total operating expenses

Loss from operations

Interest expense, net

(Gain) loss on revaluation of warrant liability

Other Expense (Income), net

Loss before provision of income taxes

Income tax expense

Net loss from continuing operations

Discontinued operations

NM = not meaningful

Net sales information for our products is summarized as follows:

Nine Months Ended September 30,

Change 2023 / 2024

(in thousands, except percentages)

Device protection

Women's health

Cardiovascular

Total Net Sales

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:

Nine Months Ended September 30,

Change 2023 / 2024

(in thousands, except percentages)

Device protection

Women's health

Cardiovascular

Cost of goods sold, excluding intangible asset amortization

Intangible asset amortization expense

Total Cost of Goods Sold

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.

Operating Expenses

Sales and Marketing

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 $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 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).

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 $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 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.

Other expense (income), net was an expense of $0.1 million in the three months ended March 31, 2025 and was attributable to the transaction fees incurred in connection with the 2025 Registered Offering which were allocated to the 2025 Prefunded Warrants (defined below).

See Note 8 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information.

Other expense (income), net was income of $1.4 million in the three months ended March 31, 2024 attributable to the $1.4 million gain on the revaluation of our Revenue Interest Obligation to Ligand.

See Note 7 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information.

Non-GAAP Financial Measures

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

This Quarterly Report presents our gross margin, excluding intangible asset amortization, for the three months ended March 31, 2025 and 2024.

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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We believe this provides our management and investors with useful information to facilitate period-to-period comparisons of our operating results.

Our management uses this metric in assessing the health of our business and our operating performance, and we believe investors’ understanding of our operating performance is similarly enhanced by our presentation of this metric.

Our management uses this metric and the results of the segments in assessing the health of our business and our operating performance, and we believe investors’ understanding of our operating performance is similarly enhanced by our presentation of this metric.

Although we use gross margin, excluding intangible asset amortization, as described above, this metric has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

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 nine months ended September 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 months ended March 31, 2025 and 2024, to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

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Gross margin, excluding intangible asset amortization

Historically, we have experienced seasonality, with lower sales in our first and second quarters and higher sales in our fourth quarter, and we expect this trend to continue.

Historically, we have experienced seasonality in our first and fourth quarters, and we generally expect this trend to continue but may also see quarter-to-quarter fluctuations that are inconsistent with this trend.

We have experienced and may in the future experience higher sales in the fourth quarter as a result of hospitals in the United States increasing their purchases of our products to coincide with the end of their budget cycles.

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Liquidity and Capital Resources

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 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.

As of March 31, 2025, we had cash of approximately $17.4 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, proceeds from a follow-on offerings and private placements of our common stock and warrants and substitution of certain cash payment obligations with stock issuances.

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 defense and settlement 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.

Such commercial infrastructure costs are likely to become more significant in the future as we further commercialize the newly approved EluPro product.

As of March 31, 2025, our accumulated deficit was $233.5 million.

On February 4, 2025, we sold, in a registered direct offering (“2025 Registered Offering”) an aggregate of (i) 5,520,000 shares of our Class A common stock and (ii) prefunded warrants (“2025 Prefunded Warrants”) to purchase up to an aggregate of 480,000 shares of Class A Common Stock.

The public offering price for each share of Class A Common Stock was $2.50, and the public offering price for each 2025 Prefunded Warrant was $2.499 , for aggregate gross proceeds of approximately $15.0 million, before deducting offering expenses.

The 2025 Prefunded Warrants have an exercise price of $0.001 per share of Class A Common Stock, are exercisable immediately and will expire when exercised in full.

On September 21, 2023, we sold, in a private offering (“Private Offering”) an aggregate of (i) 6,852,811 units (“Common Units”), each comprised of (a) one share of our Class A common stock and (b) a warrant (“Common Warrant”) to purchase one and one half shares of Class A Common Stock, and (ii) 503,058 units (the “Prefunded Units”), each comprised of (a) a prefunded warrant (“2023 Prefunded Warrant”) to purchase one share of Class A Common Stock, and (b) a Common Warrant.

On June 18, 2024, we sold, in a registered direct offering (“2024 Registered Offering”) an aggregate of (i) 3,175,000 shares of our 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.

The public offering price for each share of Class A Common Stock was $3.40, and the public offering price for each 2024 Prefunded Warrant was $3.399 , for aggregate gross proceeds of approximately $13.3 million, before deducting offering expenses.

The 2024 Prefunded Warrants have an exercise price of $0.001 per share of Class A Common Stock, are exercisable immediately and will expire when exercised in full.

(b) a Common Warrant.

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 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.

All Common Warrants were exercised by such date yielding exercise proceeds of $15.7 million in 2024.

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

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Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows.

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, we may seek to raise capital through the issuance of common stock, such as the Registerd Offering and Private Offering described above, pursue asset sale or other transactions, such as the sale of the Orthobiologics Business described above.

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, we may seek to raise capital through the issuance of equity or debt securities, as we did in the 2025 Registered Offering, 2024 Registered Offering and Private Offering described above, issue common stock to satisfy certain obligations in lieu of cash, as we did in the Ligand amendment described below or pursue asset sale or other transactions, such as the sale of the Orthobiologics Business described above.

However, such transactions may not be successful, and we may not be able to raise additional equity, refinance our debt instruments, or sell assets on acceptable terms, or at all.

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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 Nine months ended September 30, 2024 and 2023

Nine Months Ended

September 30,

Cash Flows for the Three Months ended March 31, 2025 and 2024

Three Months Ended

(in thousands)

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Cash Flows From Operating Activities

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.

Net cash used in operating activities for the three months ended March 31, 2025 was $8.9 million compared to $2.6 million for the three months ended March 31, 2024.

The year-over-year increase was primarily due to higher paydowns of current trade obligations in the 2025 quarter as well as FiberCel settlement payments of $3.0 million in the current quarter.

Cash Flows From Investing Activities

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.

Net cash provided by investing activities for the three months ended March 31, 2025 was $0.3 million compared to net cash used in investing activities of $0.02 million for the three months ended March 31, 2024.

Both periods reflect purchases of property and equipment primarily for our production facilities.

Cash Flows From Financing Activities

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.

Net cash provided by financing activities for the three months ended March 31, 2025 was $13.3 million compared to cash used in financing activities of $4.1 million for the three months ended March 31, 2024.

The current year’s cash generation was primarily through the 2025 Registered Offering which yielded net proceeds of $13.8 million.

The cash used in the 2024 period was caused largely by repayments totaling $4.6 million of our long-term debt and revenue interest obligation offset by the proceeds from Common Warrant and Prefunded Warrant exercises of $1.1 million.

Credit Facilities

As of March 31, 2025, we had $24.3 million of indebtedness outstanding, consisting of $23.8 million outstanding under our SWK Loan Facility described below and $1.0 million of exit fee liabilities, net of $0.5 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.

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.

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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 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.

As of March 31, 2025, we had $23.8 million of indebtedness outstanding under our SWK Loan Facility and an exit fee liability to SWK of $1.0 million, with such balances being net of $0.5 million of unamortized discount and deferred financing costs.

Interest Rates

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Mandatory Prepayments

The SWK Loan Facility Agreement requires certain mandatory prepayments, subject to certain exceptions, with:

Prior to the May 2025 amendment described below, the SWK Loan Facility Agreement required certain mandatory prepayments, subject to certain exceptions, with:

(1) 100% of any net casualty proceeds in excess of $250,000 and (2) for non-ordinary course asset sales, an amount equal to the difference between (x) the proportion of divested gross profit (as defined in the SWK Loan Facility) to the Company’s total gross profit (as defined in the SWK Loan Facility) multiplied by the outstanding loans under the SWK Loan Facility, and (y) the difference between $1,000,000 and the aggregate sale proceeds of any assets previously sold during the fiscal year.

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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.

No such mandatory prepayments were required in the three months ended March 31, 2025.

Optional Prepayment

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

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.

As of March 31, 2025, 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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The second covenant requires us to maintain a minimum liquidity (as defined in the SWK Loan Facility) of the greater of (a) $5.0 million and (b) the sum of the operating cash burn for the two prior consecutive fiscal quarters then ended (the “Liquidity Covenant”).

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.

See below for discussion of amendment to the Liquidity Covenant in May 2025.

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

As of March 31, 2025, we were in compliance with the financial covenants and all other covenants.

May 2025 Amendment

In May 2025, we entered into an amendment to the SWK Loan Facility.

The amendment, among other things:

(i) allows for 100% of the interest payment due and owing in May 2025 to be paid as PIK interest, (ii) removed mandatory repayment obligations related to non-ordinary course asset sales, (iii) allows us to request that SWK advance a new term loan in the amount of up to $5.0 million, which advance will be in the sole and absolute discretion of SWK and (iv) fixed the amount of the minimum liquidity covenant to be $8.0 million.

In consideration for the amendment, the Company agreed to issue SWK 50,000 shares of its Class A Common Stock in a private placement.

Ligand Revenue Interest Obligation

We are also a party to a royalty agreement with Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to which we have incurred a long-term obligation to Ligand (the “Revenue Interest Obligation”).

The Revenue Interest Obligation, as amended in January 2024, requires us to pay Ligand 5.0% of future sales of our CanGaroo, ProxiCor, Tyke and VasCure products, and substantially similar products, such as EluPro, through May 31, 2027, subject to annual minimum payments of $4.4 million.

Effective May 8, 2025, we entered into a subscription agreement and further amendment to the Revenue Interest Obligation with Ligand.

Through the amendment, $2.2 million in outstanding royalty obligations (royalty obligations for the fiscal quarters ended December 31, 2024 and March 31, 2025) owed by Elutia to Ligand under the Revenue Interest Obligation as amended was satisfied by the issuance of 1,105,528 shares of Elutia’s Class A common stock to Ligand in a transaction registered with the Securities and Exchange Commission.

Funding Requirements

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we expand our product development and clinical and research activities.

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we further commercialize EluPro and expand our product development and clinical and research activities.

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

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.

In addition, we are party to a royalty agreement with Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to a long-term obligation to Ligand (the “Revenue Interest Obligation”).

The Revenue Interest Obligation, as amended in January 2024, requires us to pay Ligand 5.0% of future sales of our CanGaroo, ProxiCor, Tyke and VasCure products, and substantially similar products, through May 31, 2027, subject to annual minimum payments of $4.4 million.

If our available cash balances and cash flow from operations are insufficient to satisfy our liquidity requirements, we may seek to raise additional capital through equity offerings, debt financings, or asset sale or other transactions.

However, such transactions may not be successful and we may not be able to raise additional equity or debt, or sell or license assets on acceptable terms, or at all.

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● the cost of fully commercializing our EluPro product;

● the costs of defending against or the damages payable in connection with the FiberCel Litigation and VBM Litigation, associated litigation related to indemnity claims by other defendants to the FiberCel Litigation and any future litigation that we may be subject to (to the extent above the applicable insurance coverage);

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

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● the cost of defending, in litigation or otherwise, any claims that we infringe, misappropriate or otherwise violate third-party patents or other intellectual property rights;

● the costs of defending against or the damages payable in connection with the FiberCel Litigation and any future litigation that we may be subject to (to the extent above the applicable insurance coverage);

● the cost and timing of additional regulatory approvals;

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● unanticipated general, legal and administrative expenses;

● the effects on any of the above from any pandemic, epidemic or outbreak of infectious disease.

● the effects on any of the above from any pandemic, epidemic or outbreak of infectious disease or any other public health crisis.

In addition, our operating plans may change as a result of any number of factors, including those set forth above and other factors currently unknown to us, and we may need additional funds sooner than anticipated.

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“Risk Factors — Risks Related to Our Business — Our future capital needs are uncertain and we may need to raise funds in the future, and such funds may not be available on acceptable terms or at all .”

Based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date.

Based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity, cash saved through substitution of cash payment obligations with equity issuances and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date.

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.

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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 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.”

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 months ended March 31, 2025, there were no material changes to those previously disclosed other than those outlined in Note 2, “Summary of Significant Accounting Policies.”

Recent Accounting Pronouncements

Refer to Note 3, “Recently Issued Accounting Standards,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report for information regarding recently issued accounting pronouncements.

See Note 3, “Recently Issued Accounting Standards,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report for information regarding recently issued accounting pronouncements.

Section 107 of the JOBS Act permits us, as an “emerging growth company,” to take advantage of an extended transition period for adopting new or revised accounting standards until those standards would otherwise apply to private companies.

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Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable.

We will remain an emerging growth company until the earliest of:

We will remain an emerging growth company, and will be able to take advantage of the foregoing exemptions, until the earliest of:

(i) the last day of the first fiscal year in which our annual gross revenues are $1.235 billion or more;

(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