What changed in this filing

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Item 1A. Risk Factors

2023-02-21 compared with 2022-02-17 · 56 added, 58 removed, 700 unchanged (14% of the section changed)

12 unchanged sentences

 Our sales and operating results may be negatively affected and we may not grow if we are unable to compete successfully.

 We are dependent on a limited number of third-party suppliers for our Musculoskeletal Solutions products and components used in our Enabling Technologies products.

 We are dependent on a limited number of third-party suppliers, and the loss of any of these suppliers, or their inability to provide us with an adequate supply of products or materials in a timely manner could harm our business.

 The proliferation of physician-owned distributorships (“PODs”) could result in increased pricing pressure on our products or harm our ability to sell our products to physicians.

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 We and our distributor sales representatives might be subject to claims for failing to comply with U.S.

federal, state and foreign fraud and abuse laws.

federal, state, local and foreign fraud and abuse laws.

Risks Related to our International Operations

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Hospitals and other healthcare providers that purchase our Musculoskeletal Solutions products generally rely on third-party payors to cover all or part of the costs associated with the procedures performed with these products, including the cost to purchase the product.

Our customers’ access to adequate coverage and reimbursement for the procedures performed with our Musculoskeletal Solutions products by government and private insurance plans is central to the acceptance of our current and future products.

Our customers’ access to adequate coverage and reimbursement for the procedures performed with our Musculoskeletal Solutions

products by government and private insurance plans is central to the acceptance of our current and future products.

We may be unable to sell our Musculoskeletal Solutions products on a profitable basis, or at all, if third-party payors deny coverage or reduce their current levels of payment.

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We face significant challenges and risks in managing our geographically dispersed distribution network and retaining the individuals who make up that network.

If any of our direct sales representatives were to leave us, or if any of our independent distributors were to cease to do business with us, our sales could be adversely affected.

If certain of our direct sales representatives were to leave us, or if certain of our independent distributors were to cease to do business with us, our sales could be adversely affected.

Some of our independent distributors account for a significant portion of our sales volume, and if any such independent distributor were to cease to distribute our products, our sales could be adversely affected.

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As we launch new products and increase our marketing efforts with respect to existing products, we will need to expand the reach of our marketing and sales networks.

Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled direct sales representatives and independent distributors with significant technical knowledge in various areas.

Our future success will depend largely on our ability to continue to hire, train, retain and

motivate skilled direct sales representatives and independent distributors with significant technical knowledge in various areas.

New hires require training and take time to achieve full productivity.

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If we are unable to do so, our sales or margins could decrease, thereby harming our business.

We are dependent on a limited number of third-party suppliers for our Musculoskeletal Solutions products and components used in our Enabling Technologies products, and the loss of any of these suppliers, or their inability to provide us with an adequate supply of materials, could harm our business.

We rely on third-party suppliers to supply many of our Musculoskeletal Solutions products and the components used in our Enabling Technologies products.

For us to be successful, our suppliers must be able to provide us with products and components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis.

We are dependent on a limited number of third-party suppliers, and the loss of any of these suppliers, or their inability to provide us with an adequate supply of products or materials in a timely manner, could harm our business.

We rely on third-party suppliers to supply many of our finished products and also various components and materials used to manufacture other products.

For us to be successful, our suppliers must be able to provide us with products, components, and materials in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis.

Our anticipated growth could strain the ability of our suppliers to deliver an increasingly large supply of products, materials and components.

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Furthermore, under our supplier agreements, our suppliers generally have no obligation to manufacture for us or sell to us any specific quantity of products.

If we are unable to obtain sufficient

quantities of high-quality components to meet demand on a timely basis, we could lose customers, our reputation may be harmed and our business could suffer.

We generally use a small number of suppliers for each of our products and components.

If we are unable to obtain sufficient quantities of high-quality components to meet demand on a timely basis, we could lose customers, our reputation may be harmed, and our business could suffer.

We generally use a small number of suppliers for our products, materials and components.

Our dependence on such a limited number of suppliers exposes us to risks, including limited control over pricing, availability, quality and delivery schedules.

If any one or more of our suppliers cease to provide us with sufficient quantities of manufactured products in a timely manner or on terms acceptable to us, or cease to manufacture components of acceptable quality, we would have to seek alternative sources of supply.

Because of the nature of our internal quality control requirements, regulatory requirements and the custom and proprietary nature of the parts, we cannot quickly engage additional or replacement suppliers for many of our critical components.

Failure of any of our third-party suppliers to deliver products at the level our business requires would limit our ability to meet our sales commitments to our customers and could have a material adverse effect on our business.

Our suppliers may be impacted by equipment failure or economic, environmental, or geopolitical factors that disrupt manufacturing capacities.

If any one or more of our suppliers cease to provide us with sufficient quantities of products or materials in a timely manner or on terms acceptable to us, or cease to manufacture components of acceptable quality, we would have to seek alternative sources of supply.

Because of the nature of our internal quality control requirements, regulatory requirements and the custom and proprietary nature of components, we cannot quickly engage additional or replacement suppliers for many of our critical components.

Failure of any of our third-party suppliers to deliver products or materials at the level our business requires would limit our ability to meet our sales commitments to our customers and could have a material adverse effect on our business.

We may also have difficulty obtaining similar components from other suppliers that are acceptable to the FDA or other foreign regulatory authorities.

We could incur delays while we locate and engage qualified alternative suppliers, and we may be unable to engage alternative suppliers on favorable terms or at all.

Any such disruption or increased expenses could harm our commercialization efforts and adversely affect our ability to generate sales.

We cannot guarantee that disruptions will not occur, and any such disruption may result in decreased inventory, increased overhead costs, product shortages and decreased sales, any of which could have a material adverse effect on our business, results of operations and financial condition, and could harm our commercialization efforts and adversely affect our ability to generate future sales.

The proliferation of PODs could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or are affiliated with those distributorships.

PODs are medical device distributors that are owned, directly or indirectly, by physicians.

These physicians derive a proportion of their revenue from selling or arranging for the sale of medical devices for use in procedures they perform on their own patients at hospitals that agree to purchase from or through the POD, or that otherwise furnish ordering physicians with income that is based directly or indirectly on those orders of medical devices.

These physicians derive a proportion of their revenue from selling or arranging for the sale of medical devices for use in procedures at hospitals that agree to purchase from or through the POD.

We do not sell or distribute any of our products through PODs.

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In particular, we are highly dependent on the skills and leadership of our Executive Chairman, David C.

Paul, and our Chief Executive Officer, David M.

Paul, and our Chief Executive Officer, Daniel T.

The loss of any one of these individuals could disrupt our operations or our strategic plans.

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In addition, even if we are able to successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not produce sales in excess of the costs of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.

We introduced the ExcelsiusGPS ® platform as well as orthopedic trauma products.

Prior to launching, we had no prior experience marketing these new products and we may launch new products in the future that we have no prior experience marketing.

We continue to introduce new products and services related to our the ExcelsiusGPS ® platform and orthopedic trauma products.

We recently launched the Excelsius3D™ imaging system.

Prior to launching these platforms, we had no prior experience marketing these new products and we may launch new products in the future that we have no prior experience marketing.

We will need to convince a new audience of surgeons and hospital personnel that our new products are attractive alternatives to competing products for use in applicable procedures.

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Many of our Musculoskeletal Solutions products come in sets, which feature components in a variety of sizes to satisfy the particular patient’s anatomical needs.

In order to market our Musculoskeletal Solutions products effectively, we often must maintain implant sets consisting of the full range of product sizes.

In order to market our Musculoskeletal Solutions products effectively, we often must maintain implant sets consisting

of the full range of product sizes.

For each surgery, fewer than all of the components of the set are used, and therefore certain portions of the set, like uncommon sizes, may become obsolete before they can be used.

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Our business therefore depends on the continuous, effective, reliable, and secure operation of our computer hardware, software, networks, Internet servers, and related infrastructure.

Although our computer and communications hardware is protected through physical and software safeguards, it is still vulnerable to system malfunction, computer viruses, and cyber-attacks.

These events could lead to the unauthorized access of our information technology systems and result in the misappropriation or unauthorized disclosure of confidential information belonging to us, our employees, patients, partners, customers, or our suppliers.

The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world.

Although our computer and communications hardware is protected by reasonable physical, technical, and administrative safeguards, it is still vulnerable to system malfunction, computer viruses, and cybersecurity breaches – including ransomware, phishing DDoS, malware, brute force, insider threats, and other cyber attacks and security incidents.

These events could lead to the unauthorized access to information systems maintained by us or our service providers or customers and result in the misappropriation or unauthorized disclosure of confidential information belonging to us, our employees, patients, partners, customers, or our suppliers.

The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world, including countries that engage in state-sponsored cyber attacks.

As a result, we may not be able to address these techniques proactively or implement adequate preventative measures.

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More privacy and security laws and regulations are being adopted, and more are being enforced, with potential for significant financial penalties.

In the European Union (“E.U.”), increasingly stringent data protection and privacy rules that will have substantial impact on the use of patient data across the healthcare industry became effective in May 2018.

General Data Protection Regulation

(“GDPR”) applies uniformly across the E.U.

and includes, among other things, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances and significant fines for non-compliance.

The GDPR also requires companies processing personal data of individuals residing in the E.U.

to comply with E.U.

privacy and data protection rules.

Although there is a consistency mechanism in the GDPR, data protection authorities from different EU member states may interpret and apply the GDPR somewhat differently, and the GDPR also permits EU member states to create supplemental national laws, which increases the complexity for compliance.

Failure to comply with GDPR requirements could result in penalties of up to €20 million or 4% of worldwide revenue, whichever is greater, for serious breaches.

While we have invested significant time and resources in preparing for and complying with the GDPR, the GDPR and other similar laws and regulations (including potential new data privacy laws and regulations in the U.S.), as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines, demands or orders that we modify or cease existing business practices.

In addition, on January 1, 2021 the UK left the European Union.

The UK Data Protection Act 2018 is closely aligned with the GDPR but while the EU-UK Trade and Cooperation Agreement (“Agreement”) did not address the issue, the European Commission subsequently determined that the UK’s data protection regime is “adequate” (i.e.

equivalent to the EU’s), so as to permit free movement of data from the EEA to the UK.

In the European Union (“E.U.”), stringent data protection and privacy rules impact the use of patient data across the healthcare industry.

General Data Protection Regulation (“GDPR”) applies across the E.U., with similar requirements applying to the United Kingdom and European Economic Area countries, and includes, among other things, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances and imposes significant fines for non-compliance.

Data protection authorities from different EU member states may interpret and apply the GDPR somewhat differently, and the GDPR also permits EU member states to create supplemental national laws, which increases the complexity for compliance.

Failure to comply with GDPR requirements could result in penalties of up to €20 million or 4% of worldwide revenue, whichever is greater, for serious

Within the U.S., a number of states have enacted more onerous privacy laws, such as the California Consumer Privacy Act (the “CCPA”), which also impose stricter privacy requirements and are enforced by state attorneys general and other state agencies.

Any investigations or any other government actions related to the GDPR, CCPA, and other privacy laws may be costly to respond to, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines, demands or orders that we modify or cease existing business practices.

Private litigation, including class actions, related to privacy and cybersecurity issues is also on the rise in the U.S.

and other countries.

If we experience significant disruptions in our information technology systems, our business, results of operations and financial condition could be adversely affected.

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Customers may also purchase a supplemental service plan for technical and other services for any required service beyond the initial warranty and service period.

If product warranty claims or required service under the service plans exceed our expectations, we may

incur additional expenditures for parts and service.

If product warranty claims or required service under the service plans exceed our expectations, we may incur additional expenditures for parts and service.

In addition, our reputation could be damaged and our products may not achieve market acceptance and could result in reductions in sales.

We experience long and variable capital sales cycles for our Enabling Technologies products, which may cause fluctuations in our financial results.

The sales and purchase order cycle of our Enabling Technologies capital equipment products, currently the ExcelsiusGPS ® platform, is lengthy because they are major capital items and their purchase generally requires the approval of senior management of hospitals, their parent organizations, purchasing groups, and government bodies, as applicable.

The sales and purchase order cycle of our Enabling Technologies capital equipment products is lengthy because they are major capital items and their purchase generally requires the approval of senior management of hospitals, their parent organizations, purchasing groups, and government bodies, as applicable.

In addition, sales to some of our customers are subject to competitive bidding or public tender processes.

These approval and bidding processes can be lengthy.

Further, the introduction of new products could adversely impact our sales cycle as customers take additional time to assess the benefits and costs of such products.

Further, the introduction of new products could adversely impact

our sales cycle as customers take additional time to assess the benefits and costs of such products.

As a result, it is difficult for us to predict the length of capital sales cycles and, therefore, the exact timing of capital sales.

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If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, our product introductions or modifications could be delayed or canceled, which could cause our sales to decline and potentially harm our ability to compete.

In addition, if the FDA disagrees with our determination that a product we currently market is subject to an exemption from pre-market review, the FDA may require us to submit a 510(k), de novo , or PMA and may require us to cease distribution of the product

and/or recall the product unless and until we obtain 510(k) or de novo clearance or PMA.

Further, even with respect to those future products where a PMA is not required, we cannot assure you that we will be able to obtain the 510(k) or de novo clearances with respect to those products.

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The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision.

The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary.

FDA may not agree with our decisions regarding whether new clearances or approvals are necessary.

We have modified some of our 510(k)-cleared products, and have determined based on our review of the applicable FDA guidance that in certain instances new 510(k) clearances or PMAs are not required.

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Outside the United States, our products and operations are also often required to comply with standards set by industrial standards bodies, such as the ISO.

Foreign regulatory bodies may evaluate our products or the testing that our products undergo against

these standards.

Foreign regulatory bodies may evaluate our products or the testing that our products undergo against these standards.

The specific standards, types of evaluation and scope of review differ among foreign regulatory bodies.

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Physicians may use our products off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine.

However, if the FDA determines that our promotional efforts constitutes promotion of an off-label use, it could request that we modify our training or promotional efforts or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine and criminal penalties.

It is also possible that other federal, state or foreign enforcement authorities, such as DOJ or HHS, might take action if they consider our promotional or training materials to constitute promotion of an unapproved/off-label use, which could result in significant criminal and/or civil fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement (e.g., the FCA).

It is also possible that other federal, state or foreign enforcement authorities, such as DOJ or HHS, might take action if they consider our promotional or training materials to constitute promotion of an unapproved/off-label use, which could result in significant criminal and/or civil sanctions under other statutory authorities, such as laws prohibiting false claims for reimbursement (e.g., the FCA).

In that event, our reputation could be damaged and adoption of the products would be impaired.

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The processing of human tissue into our regenerative biologics products is very labor-intensive and it is therefore difficult to maintain a steady supply stream.

In addition, due to seasonal changes in mortality rates, some scarce tissues used in our regenerative biologics products are at times in particularly short supply.

In addition, due to seasonal changes in mortality rates, some scarce tissues used in our regenerative biologics products are at

times in particularly short supply.

We cannot be certain that our current supply of human tissue and allograft implants, plus any additional source that we identify in the future, will be sufficient to meet our needs.

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We and our distributor sales representatives might be subject to claims for failing to comply with U.S.

federal, state and foreign fraud and abuse laws, including anti-kickback laws and other anti-referral laws.

federal, state, local and foreign fraud and abuse laws, including anti-kickback laws and other anti-referral laws.

There are numerous U.S.

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state law and code equivalents of each of the above federal laws, such as anti-kickback and false claims laws and disclosure of transfers of value and gift bans with respect to healthcare professionals, some of which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

Possible sanctions for violation of these laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of such prohibitions.

Possible sanctions for violation of these laws include monetary penalties and other civil and criminal sanctions, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of such prohibitions.

Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.

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In addition, there has been a recent trend of increased federal and state regulation on payments and other transfers of value made to healthcare professionals related to marketing and other activities.

Some states mandate implementation of healthcare compliance programs, impose gift bans, and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.

Some states mandate implementation of healthcare compliance programs, impose gift bans, and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians and certain other US-licensed healthcare professionals and US teaching hospitals.

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

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Any such challenges by regulatory authorities directly or by Relators suing on behalf of the government could have a material adverse effect on our reputation, business, results of operations and financial condition.

In addition to the penalties described above, any state or federal regulatory review

or FCA lawsuit, regardless of the outcome, would be costly and time-consuming and could have a material adverse effect on our business, financial condition and results of operations.

In addition to the sanctions described above, any state or federal regulatory review or FCA lawsuit, regardless of the outcome, would be costly and time-consuming and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to our International Operations

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In addition, on January 1, 2021 the UK left the European Union.

While EU CE markings will continue to be recognized in Great Britain until June 30, 2023, certificates issued by EU-recognized Notified Bodies will continue to be valid for the Great Britain market until June 30, 2023 and the EU no longer recognizes UK Notified Bodies.

EU CE markings for medical devices will continue to be recognized in Great Britain until June 30, 2024, and certificates issued for medical devices by EU-recognized Notified Bodies will continue to be valid for the Great Britain market until June 30, 2024 and the EU no longer recognizes UK Notified Bodies.

The UK has given no commitment to follow the new EU medical devices legislation (Regulation EU 2017/745) and has recently consulted on the form and content of new UK legislation which may result in divergence from the EU regime.

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Expansion into international markets is an element of our business strategy and involves risk.

The sale and shipment of our products across international borders, as well as the purchase of components and products from international sources, subject us to extensive U.S.

The sale and shipment of our products across international borders, as well as the purchase of components and products from international sources, subject us to

extensive U.S.

and foreign governmental trade, import and export and customs regulations and laws.

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We have experienced rapid growth since our inception and have increased our net sales to $1,022.8 million in 2022.

Our ability to achieve future growth will depend upon, among other things, the success of our growth strategies, which we cannot assure will be successful.

Our ability to achieve future growth will depend upon, among other things, the success of our growth strategies, which we cannot assure

will be successful.

In addition, we may have more difficulty maintaining our historical or prior rate of growth of revenues, profitability or cash flows.

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The continuing preventative and precautionary measures that hospitals and federal, state, local, and international governments have taken to mitigate the spread of the disease has led to restrictions on, disruptions in, and other related impacts on elective procedure rates.

We expect elective procedure rates to continue to vary and could be impacted by regional COVID-19 case volumes, hospital and clinical occupancy rates, staffing levels, a patient’s willingness to schedule deferrable procedures, travel and quarantine restrictions, as well as new COVID-19 variants.

Further, worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in slight delays and component shortages that have and may continue to impact our ability to manufacture our products.

Further, worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in delays and component shortages that have and may continue to impact our ability to manufacture our products by extending our lead times.

These disruptions may, among other things, impact our ability to satisfy customer demand, which could negatively impact our results of operations.

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

What changed 10-K

Item 1A. Risk Factors