What changed in this filing

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Item 1. Business

2022-03-03 compared with 2021-03-11 · 188 added, 182 removed, 510 unchanged (42% of the section changed)

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was converted to a Delaware corporation on November 30, 2007.

We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc TM , Pediguard, Pediatric Nailing Platform | Femur, Orthex, QuickPack TM and ApiFix ® Mid-C System, to various hospitals and medical facilities throughout the United States and various international markets.

We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc TM , Pediatric Nailing Platform | Femur, Orthex, QuickPack TM and ApiFix ® Mid-C System, to various hospitals and medical facilities throughout the United States and various international markets.

We currently use a contract manufacturing model for the manufacturing of implants and related surgical instrumentation.

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We were previously the sole licensee of the purchased assets under a license agreement with Band-Lok.

In December 2018, the Company completed a follow-on offering of shares of common stock, in which it sold 1,725,000 shares at an offering price of $27.00 per share, raising a total of $43.4 million in net proceeds after deducting underwriting commissions and offering expenses.

On October 20, 2021, we purchased certain intellectual property assets and product inventory from Devise Ortho, Inc., related to its Drive Rail external fixation system for $0.9 million in total consideration.

In addition to acquisitions, we also look for partnerships which can provide us with complementary enabling technologies.

For example, in 2021 we extended our license agreement for our exclusive distribution rights of the FIREFLY Technology.

Additionally in 2021, we entered into a license agreement resulting in exclusive distribution rights of the 7D Surgical FLASH TM Navigation platform for pediatric applications.

These partnerships allow for exclusive distribution in children's hospitals across the United States and serve as supporting avenues for us to focus on high-volume children's hospitals.

In December 2019, the Company completed a follow-on offering of shares of common stock, in which it sold 1,755,500 shares at an offering price of $36.50 per share, raising a total of $60 million in net proceeds after deducting underwriting commissions and offering expenses.

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Our largest investor is Squadron, a private investment firm based in Granby, Connecticut.

All intercompany transactions are eliminated in the consolidated financial statements.

As of December 31, 2021, the Company had consolidated total assets of $304.3 million, consolidated total liabilities of $78.9 million and stockholders’ equity of $225.4 million.

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Despite the impact COVID-19 has had on our business, we continued to invest in research and development, invest in our people, and take steps to position ourselves for long-term success.

During 2020, we raised additional capital to solidify our financial foundation.

In 2020, we raised additional capital to solidify our financial foundation.

We continued to train and educate our sales team and our surgeons on our products.

During 2021, we continued to focus on developing innovative solutions, acquired multiple enabling technologies and continued to deploy additional consigned instrument and implant sets in furtherance of our strategy.

Environmental, Social and Governance ("ESG")

OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions.

Since inception we have impacted the lives of over 234,000 children.

We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance.

We believe these areas are central to our business philosophy and ultimately generate increased shareholder value.

AVAILABLE INFORMATION

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Historically, there have been a limited number of implants and instruments specifically designed for the unique needs of children.

As a result, pediatric orthopedic surgeons often improvise with adult implants repurposed for

use in children, resort to freehand techniques with adult instruments and use implants that can be difficult to remove after being temporarily implanted.

As a result, pediatric orthopedic surgeons often improvise with adult implants repurposed for use in children, resort to freehand techniques with adult instruments and use implants that can be difficult to remove after being temporarily implanted.

These improvisations may lead to undue surgical trauma and morbidity.

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Outside of the United States, our sales organization consisted of 40 independent stocking distributors and 14 independent sales agencies in 45 countries.

In addition, beginning in 2017, we began to supplement the use of stocking distributors with direct sales programs in select international markets where we work through sales agencies that are paid a commission.

Beginning in 2017, we began to supplement the use of stocking distributors with direct sales programs in select international markets where we work through sales agencies that are paid a commission.

These new arrangements have generated an increase in revenue and gross margin.

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We are a major sponsor of continuing medical education, or CME, courses in pediatric spine and pediatric orthopedics, which are focused on fellows and young surgeons.

In 2020, we conducted numerous training workshops.

conducted over 300 training workshops.

We believe these workshops help surgeons recognize our commitment to their field.

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We have grown our revenue from approximately $10.2 million for the year ended December 31, 2011 to $98.0 million for the year ended December 31, 2021.

The average annual growth rate for the Company exceeded 20% from 2009 through 2019, partially obtained through strategic acquisitions.

For the years ended December 31,

2020, 2019 and 2018, our revenue was $71.1 million, $72.6 million and $57.6 million, respectively.

The compound annual growth rate for the Company from 2011 through 2021 is 25.4%.

This growth was partially obtained through strategic acquisitions.

For the years ended December 31, 2021, 2020 and 2019, our revenue was $98.0 million, $71.1 million and $72.6 million, respectively.

As of December 31, 2021, our accumulated deficit was $178.0 million.

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Complex disorders such as cerebral palsy, scoliosis, brittle bone disease and hip disorders can pose significant challenges for surgical treatment.

The most common such disorder is cerebral palsy, which affects approximately 500,000 children under the age of 18 in the United States and approximately three out of every 1,000 live births.

The most common such disorder is cerebral palsy, which affects approximately 500,000 children under the age of 18 in the United States and approximately three

out of every 1,000 live births.

Spastic cerebral palsy is the most common form, making up the majority of all cerebral palsy cases.

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We currently serve a portion of the pediatric orthopedic implant market that we estimate represents a $3.3 billion opportunity globally, including over $1.5 billion in the United States.

The chart below provides the estimated sizes of the four categories of our U.S.

The chart below provides the estimated sizes of the categories of our U.S.

addressable market opportunity, based on third-party data (including data compiled by IMS Health, Inc.

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in studies that we commissioned) regarding the number of procedures performed in 2015 and our average revenue per procedure or, in the case of smart implants, our estimated average revenue per procedure based on industry data.

We then updated this data in 2020 based on typical industry growth rates.

We then updated this data in 2021 based on management estimates and typical industry growth rates.

Trauma and Deformity Scoliosis Sports Medicine Smart Implants

Pediatric Orthopedic Implant Market $609 Million $315 Million $187 Million $382 Million

Fusion Non-Fusion

Pediatric Orthopedic Implant Market $609 Million $315 Million $200 Million $187 Million $140 Million

We estimate that the United States represented approximately 45% of the total global orthopedic implant market, both adult and pediatric, and that this geographic segmentation similarly applies to the global pediatric orthopedic implant market.

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Smart Implants

over the course of treatment to accommodate the clinical needs of patients with early onset scoliosis and limb length discrepancies, or LLDs, as they heal, grow and age.

We are developing a new generation of adjustable implant systems, which we refer to as our Active Growing Implants, which will utilize a mechanized motor and are adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the clinical needs of patients with early onset scoliosis and limb length discrepancies, or LLDs, as they heal, grow and age.

Early onset scoliosis refers to severe spinal deformities in skeletally immature patients under the age of ten.

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According to IMS Health, Inc., 3,425 hospitals performed pediatric trauma and deformity or scoliosis procedures in the United States in 2015.

Only 268 of these hospitals performed 62% of all pediatric trauma and deformity and scoliosis procedures.

Further, of these hospitals, 62 are children’s hospitals and performed 21% of all pediatric trauma and deformity and scoliosis procedures.

Approximately 300 of these hospitals performed over 62% of all pediatric trauma and deformity and scoliosis procedures.

We believe that this high concentration of pediatric trauma and deformity and scoliosis procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner.

In the future, we expect to expand our market opportunity by addressing additional categories of the pediatric orthopedic market, such as craniomaxilloacial, elbow, humerus, pelvis and other sports-related injuries.

We estimate that these 300 U.S.

pediatric centers represent a target market of $0.8 billion.

The table below provides the estimated sizes of the categories of this target market, based on third-party data (including data compiled by IMS Health, Inc.

and Life Science Intelligence, Inc.

in studies that we commissioned) which was then updated in 2021 with management estimates based on typical industry growth rates.

Trauma and Deformity Fusion Non-Fusion Sports Medicine

High-Volume Children's Hospitals Target Market $378 Million $195 million $180 million $17 million

In the future, we expect to expand our market opportunity by addressing additional categories of the pediatric orthopedic market, such as craniomaxilloacial, upper extremity, pediatric orthopedic oncology, pelvis, and other sports-related injuries.

Our Exclusive Focus on Pediatric Orthopedic Surgery

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• Participation of Pediatric Orthopedic Surgeons in New Product Development.

With the assistance of our Chief Medical Officer, or CMO, a highly respected former pediatric orthopedic surgeon, we engage with pediatric orthopedic surgeons to understand their clinical needs and develop new implants, instruments and surgical techniques that will allow them to better serve their patients.

With the assistance of our Medical Director, a highly respected former pediatric orthopedic surgeon, we engage with pediatric orthopedic surgeons to understand their clinical needs and develop new implants, instruments and surgical techniques that will allow them to better serve their patients.

We also respond to surgeons’ requests for customized implants and instruments to improve their workflows and enhance their clinical outcomes.

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We believe we are the first diversified orthopedic company to focus exclusively on the pediatric market.

Our core competencies are the

development and commercialization of innovative products and technologies specifically designed to address the unmet clinical needs of pediatric orthopedic patients and satisfy the demands of the surgeons who treat them.

Our core competencies are the development and commercialization of innovative products and technologies specifically designed to address the unmet clinical needs of pediatric orthopedic patients and satisfy the demands of the surgeons who treat them.

We have developed and sell the broadest product offering specifically designed for pediatric orthopedic patients.

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We have developed a comprehensive portfolio of implants and instruments specifically designed to treat children with orthopedic conditions.

Last year, we estimate that our products were used in surgeries for 31,400 children, and 196,000 since inception.

In 2021, we estimate that our products were used in surgeries for approximately 38,000 children, and 234,000 since inception.

We currently market 37 surgical systems consisting of more than 8,600 stock keeping units, which address pediatric trauma and deformity, scoliosis and sports medicine procedures.

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We have devoted significant time and resources to developing deep relationships with pediatric orthopedic surgeons and supporting clinical education to advance the practice of pediatric orthopedic medicine.

We believe we are the only orthopedic company with a non-founding former pediatric orthopedic surgeon serving as CMO.

This enables us to engage and collaborate with thought-leading surgeons and academic institutions around the world in order to develop products and technologies specifically designed to meet the needs of pediatric orthopedic surgeons and their patients.

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Outside of the United States, we work with 40 independent stocking distributors and 14 independent sales agencies in 45 countries.

We estimate that 62% of U.S.

pediatric trauma and deformity and scoliosis procedures in 2015 were performed in only 268 hospitals.

We estimate that over 62% of U.S.

pediatric trauma and deformity and scoliosis procedures in 2015 were performed in approximately 300 hospitals.

We believe that this high concentration of procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner.

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Our senior management team provides engaging leadership and believes that the only hierarchy is that of good ideas, which can come from everywhere in our company.

Our Trauma and Deformity and Scoliosis business are each led by a vice president, who chairs a business team composed of representatives from research and development, quality and

regulatory, operations, sales and finance functions.

Our Trauma and Deformity and Scoliosis businesses are each led by a senior vice president, who chairs a business team composed of representatives from the research and development, quality and regulatory, operations, sales, human resources and finance functions.

These teams meet frequently and make decisions regarding new products, inventory builds and promotional activities, thus enhancing our agility and the speed of decision making.

We believe this culture allows us to attract and retain talented, high performing professionals.

For five years we have been named one of the Best Companies to work for in Indiana.

For six years we have been named one of the Best Companies to work for in Indiana.

We believe our focus and commitment to pediatric orthopedics has also enhanced our reputation among pediatric orthopedic surgeons as the only diversified orthopedic company focused on their specialty.

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Our goal is to continue to enhance our leadership in the pediatric orthopedic surgery market and thereby improve the lives of children with orthopedic conditions.

To achieve this goal, we have implemented a strategy that has five elements:

• Increase Investment in Consigned Implant and Instrument Sets to Accelerate Revenue Growth.

To achieve this goal, we have implemented a strategy that has five pillars:

• Continue our laser focus on high-volume children’s hospitals that treat the majority of pediatric patients.

According to IMS Health, Inc., 3,425 hospitals performed pediatric trauma and deformity or scoliosis procedures in the United States in 2015.

Approximately 300 of these hospitals performed over 62% of all pediatric trauma and deformity and scoliosis procedures.

This high concentration of procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner.

• Provide a broad product portfolio uniquely designed to treat children by surrounding pediatric orthopedic surgeons with all the products they need.

We intend to leverage our market knowledge and our relationships with leading pediatric orthopedic surgeons to continue developing innovative technologies and bringing them to market quickly.

When appropriate, we will also partner with complimentary, enabling technology which will allow for greater coverage of orthopedic surgeon needs.

We believe broadening our product offering will strengthen our position as the comprehensive solution provider for pediatric orthopedic surgeons, deepen our relationships with existing customers, lead to the conversion of new customers and enhance our reputation.

• Deploy instrument sets and provide unparalleled sales support.

We intend to increase our investment in implant and instrument sets consigned to hospitals in the United States and select international markets to satisfy market demand and accelerate our product sales worldwide.

Due to the high concentration of pediatric orthopedic surgeons in comparatively few hospitals, we believe we can accelerate the penetration of our addressable market efficiently.

• Capitalize on Our Efficient Product Development Process to Expand Our Innovative Products.

Due to the high concentration of pediatric orthopedic surgeons in comparatively few hospitals, we believe we can accelerate the penetration of our addressable market efficiently while supporting our customers with the only global sales and distribution channel focused exclusively on pediatric orthopedics.

• Expand addressable market through aggressive investment in R&D and select acquisition opportunities.

We have a track record of introducing innovative products that meet the clinical needs of pediatric orthopedic surgeons and their patients.

We believe many of these products are becoming the standard of care in pediatric orthopedic surgery, and we intend to increase our investment in research and development of new products to 7-9% of sales.

We aim to surround our customers with all the important surgical systems they need to do their work, and our product pipeline includes a number of new systems and product line extensions.

We believe many of these products are becoming the standard of care in pediatric orthopedic surgery, and we intend to increase our investment in research and development of new products.

We aspire to launch at least one new surgical system and multiple product line extensions in our trauma and deformity and scoliosis businesses each year for the foreseeable future.

We intend to leverage our market knowledge and our relationships with leading pediatric orthopedic surgeons to continue developing innovative technologies and bringing them to market quickly.

We believe broadening our product offering will strengthen our position as the comprehensive solution provider for pediatric orthopedic surgeons, deepen our relationships with existing customers, lead to the acquisition of new customers and enhance our reputation.

• Strengthen Our Global Sales and Distribution Infrastructure.

We believe there is significant opportunity for us to leverage our exclusive focus on pediatric orthopedic surgery and expand our market penetration and share.

We intend to continue investing in our global sales and distribution organization by increasing the number and upgrading the quality of our independent sales agencies and distributors through recruitment and adding clinical and sales training programs.

Starting in 2017, we also began to supplement our use of sales agencies with direct sales programs in the United Kingdom, Ireland, Australia and New Zealand.

We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021.

Additionally, in March 2019, we established an operating company in the Netherlands to further enhance our operations in Europe.

In these markets, we work through sales agencies that are paid a commission, and we consign sets to hospitals, ship replacement products, bill and collect receivables.

This has generated an increase in revenue and gross margin.

Many experienced sales agencies and distributors have been impacted by ongoing consolidation in the orthopedic industry and, as a result, we believe are eager to adopt new product lines like ours.

We believe these continued investments will strengthen our relationships with pediatric orthopedic surgeons, expand our presence in the hospitals where pediatric orthopedic surgery is performed and leverage our proprietary technologies to enhance the field of pediatric orthopedic surgery.

• Deepen Our Partnerships With Pediatric Orthopedic Surgeons Through Clinical Education and Research.

We want pediatric orthopedic surgeons to view us as their partner in advancing the field of pediatric orthopedic surgery.

Beyond working with them to develop innovative products, we intend to deepen our partnership with surgeons by leveraging the experience of our senior management team, including our CMO, to expand our clinical education programs and partnerships with teaching hospitals, sponsor surgical workshops for residents and fellows and support worthwhile clinical research projects.

We will also continue to seek partnership and select acquisition opportunities that expand our total available market and serve new unmet needs in pediatric orthopedics.

• Train the next generation of pediatric orthopedic surgeons.

We want pediatric orthopedic surgeons to view us as their partner in advancing the entire field of pediatric orthopedic surgery.

Beyond working with them to develop innovative products, we intend to deepen our partnership with surgeons by leveraging the experience of our senior management team, including our Medical Director, to expand our clinical education programs and partnerships with teaching hospitals, sponsor surgical workshops for residents and fellows and support worthwhile clinical research projects.

We believe our commitment to clinical education and research enables us to advance the practice of pediatric orthopedic surgery and provides surgeons with access to sophisticated training in pediatric orthopedics that is not available through traditional residents’ training programs.

We believe these efforts will continue to promote familiarity with our products and loyalty among fellows and young surgeons and generate new product ideas that will contribute to growth, enhance our competitive position, and expand our market opportunity.

• Continue to Develop an Engaging Culture of Continuous Improvement.

We believe that culture can be a company’s most powerful source of competitive advantage.

Cultures are unique, cannot be reverse-engineered and are impossible to duplicate.

We have established a corporate culture that is results-oriented and people-focused.

It is built on the cause of improving the lives of children with orthopedic conditions.

We believe our higher corporate purpose captures the hearts and minds of our employees and empowers them to be committed to doing everything better, faster and at lower cost.

We intend to continue developing this engaging culture of continuous improvement with the goal of building a different kind of orthopedic company:

one that is committed to children, works with agencies and distributors as partners and aims to address the market’s unmet needs.

Our Product Portfolio

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Trauma and Deformity Correction

Our trauma and deformity correction product line includes more than 5,200 implants and bone fixation devices for the femur, tibia, upper and lower extremities and external fixation.

Our global revenue from this category for the year ended December 31, 2020 was $47.7 million, or 67% of total revenue, which represented a reduction of 3% over the prior year.

Our trauma and deformity correction product line includes more than 5,600 implants, external fixation, and bone graft substitutes for the femur, tibia, upper and lower extremities.

Our global revenue from this category for the year ended December 31, 2021 was $65.8 million, or 67% of total revenue, which represented an increase of 38% over the prior year.

In December 2020, the Company recorded a $2.7 million revenue reduction due to the repurchase of inventory from a stocking distributor in Germany, Austria and Switzerland that we converted to a sales agency.

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Our scoliosis product category includes our RESPONSE TM systems for treating spinal deformity in children, the BandLoc TM 5.5mm/6.0mm sub-laminar banding system, FIREFLY ® Pedicle Screw Navigation Guides, and ApiFix ® Mid-C System.

Our global revenue from this category for the year ended December 31, 2020 was $20.7 million, or 29% of total revenue, which represented a reduction of 3% over the prior year.

Our global revenue from this category for the year ended December 31, 2021 was $28.0 million, or 29% of total revenue, which represented an increase of 35% over the prior year.

Global revenue from this category for the years ended December 31, 2020 and 2019 was $20.7 million and $21.5 million or 29% and 30% of total revenue, respectively.

In addition to our direct product offering, we also invest in complementary enabling technologies that allow us to better serve the children's hospitals in which we sell.

Enabling technologies in our scoliosis space include the FIREFLY ® Technology, a 3D printed and patient-specific Pedicle Screw Navigation Guide as well as the 7D FLASH TM Navigation image guidance system.

We have exclusive distribution rights to both of these complementary technologies, allowing for exclusive distribution in children's hospitals across the United States.

Sports Medicine/Other

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Our global revenue from this category for the year ended December 31, 2021 was $4.2 million, or 4% of total revenue, which represented growth of 57% over the prior year.

Global revenue from this category for the years

ended December 31, 2019 and 2018 was $1.7 million and $1.2 million or 2% and 2% of total revenue, respectively.

Global revenue from this category for the years ended December 31, 2020 and 2019 was $2.7 million and $1.7 million or 4% and 2% of total revenue, respectively.

Our revenue is typically higher in the summer months and holiday periods, driven by higher sales of our trauma and deformity and scoliosis products, which is influenced by the higher incidence of pediatric surgeries during these periods due to recovery time provided by breaks in the school year.

Product Pipeline

We have three product development objectives:

(i) develop innovative new systems that enable surgeons to advance the field of pediatric orthopedics and allow us to focus on categories of the pediatric orthopedic market we are not currently addressing such as spinal implants used in treating adolescent idiopathic, early onset, and neuromuscular scoliosis, active growing implants for early onset scoliosis and limb length discrepancies, trauma implants and non-surgical devices and limb deformity implants;

Generally speaking, we have three product development objectives across the organization:

(ii) build-out our current portfolio of products with line extensions that allow these systems to be used in more types of surgeries;

and (iii) make improvements to our current implants and instruments that reduce their cost and improve their effectiveness.

We have a large number of new product ideas under development, and we aspire to launch at least one new system and multiple line extensions and product improvements every year.

and (iii) make improvements to our current implants and instruments that improve quality and reduce their cost.

We have a large number of new product ideas under development within the areas of spinal implants, active growing smart implants, trauma implant systems, limb deformity implant systems, and non-surgical devices.

We aspire to launch at least one new system and/or line extension/product improvement every quarter across the Company.

We have a deep pipeline of new systems that are currently under development, including the following projects.

Slipped Capital Femoral Ephiphysis, or SCFE

In early 2021, we will launch a system to treat slipped capital femoral ephiphysis.

This system will consist of a line of implants and enhanced instrumentation to treat this common injury to the ball of the upper femur.

RESPONSE TM Neuromuscular

In the first half of 2021, we will launch the full complement of RESPONSE TM Neuromuscular system implants which will provide surgeons with additional implants to our RESPONSE TM systems to treat the complex deformities associated with neuromuscular scoliosis.

Pediatric Nailing Platform | Tibia

In the second half of 2022, we plan to submit a 510(k) for an innovative Pediatric Nailing Platform | Tibia, that will use a similar instrument platform to the Pediatric Nailing Platform | Femur system, which was introduced in 2018.

This new to the market system will treat deformities and traumatic injuries of the tibia.

We expect the full-scale launch to occur in 2023.

Active Growing Implants

We are developing a new generation of smart implants, which we refer to as our Active Growing Implants.

Our Active Growing Implants will utilize a power source of significantly greater strength and control than current magnetic technology and will be adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the changing clinical needs of patients as they heal, grow and age.

We made significant development progress on this in 2021.

This new technology will be available for early onset scoliosis and limb deformity.

RESPONSE TM Rib and Pelvic System

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Brittle bone disease poses a number of challenges for orthopedic surgeons.

We are developing a passive growing nail that will maximize rotational stability, addressing the primary deficiency of the product that has historically been used to perform this surgery.

This system is currently in late-stage development with the goal of a 510(k) submission to the FDA in 2021.

Pediatric Nailing Platform | Tibia

In late 2022, we plan to launch the Pediatric Nailing Platform | Tibia, which will utilize the same enhanced instrumentation in the Pediatric Nailing Platform | Femur system, which was introduced in 2018.

This system will treat deformities and traumatic injuries of the tibia.

Active Growing Implants

We are developing a new generation of adjustable implant systems, which we refer to as our Active Growing Implants.

Our Active Growing Implants will utilize a non-magnetic power source of significantly greater strength and control than the current technology and will be adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the changing clinical needs of patients as they heal, grow and age.

We are developing our Active Growing Implants for the treatment of early onset scoliosis and limb length

discrepancies.

We believe these products will be a natural complement to our current product offering.

While we have an active program underway in the development of these systems, the dates of completion, 510(k) submission to the FDA and market introduction are uncertain at this time.

We are developing a passive growing nail system that will have a comprehensive offering for the continuum of multiple surgical treatments relating to this disease.

In addition, this implant will have improved strength characteristics, addressing the primary deficiency of the product that has historically been used to perform this surgery.

Growth Guidance for Scoliosis

We are developing a next-generation growth guidance technology for treating certain forms of early onset scoliosis.

This procedure uses rods and pedicle screws attached to specific points in the spine and configured similar to a “track and trolley” system which allows the spine to grow naturally while correcting a spinal curve.

Development of Operative Planning Software

We have a number of initiatives underway involving the development of both pre-operative planning and intraoperative use software to assist surgeons in the treatment of spinal, trauma and deformity correction conditions as well as the utilization of the Company’s product solutions for these conditions.

These projects encompass both educational and software as a medical device type offering.

External Fixation Systems

We plan to launch additional external fixation products, which will bolster and round out our entire external fixation portfolio of products.

In the first half of 2022, we plan to launch a Drive Rail system that complements the mini rail product offering.

In addition to a suite of innovative features, this system will be compatible for use with the Orthex frame.

Research and Product Development

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New products are developed by teams of engineers, commercial personnel and surgeon advisors, who work closely together through the design, prototype and market-testing phases of a product’s development.

Our clinical and regulatory affairs personnel support our product design teams to facilitate regulatory clearances and market registrations.

Since inception, our average clearance time with the FDA has been 93 days, which we believe is less than half of the average approval time for all medical devices over the past five years.

This is in part due to the impact of the Pediatric Medical Device Safety and Improvement Act of 2007, which encourages pediatric medical device research and development and aids the FDA in tracking the number and types of medical devices approved specifically for children.

Sales and Marketing

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We have developed intensive training programs for our global sales organization.

We expect our sales agencies and distributors to continue to deepen their knowledge of pediatric clinical conditions, surgical procedures and our products, thus increasing their effectiveness.

We expect our sales agencies and distributors to continue to deepen their knowledge of pediatric clinical conditions, surgical procedures and

our products, thus increasing their effectiveness.

Our domestic and international sales representatives are usually present in the operating room during surgeries in which our products are used.

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We want pediatric orthopedic surgeons throughout the world to view us as their partner in advancing their field.

Therefore, we

utilize surgeon input when developing products and clinical education programs.

These efforts are aided by our CMO, a highly respected former pediatric orthopedic surgeon.

Therefore, we utilize surgeon input when developing products and clinical education programs.

These efforts are aided by our Medical Director, a highly respected former pediatric orthopedic surgeon.

Our entire organization, including our senior executive team and sales representatives, maintains an extensive network of contacts with pediatric orthopedic surgeons.

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We are also a major sponsor of CME courses in pediatric spine and pediatric orthopedics.

In 2018 and 2019, we sponsored the fourth and fifth Annual International Children's Spine Symposium, respectively, each of which was held in Orlando, Florida, and we prepared the third and fourth Annual Pediatric Orthopedic Surgical Techniques Course, respectively, each of which was held at The Medical Education and Research Institute in Memphis, Tennessee.

We also sponsor the annual Akron Pediatric Orthopedic Residents Review Course for over 100 residents from hospitals across the Midwest and the second annual PediOrthoWest resident review program that attracted more than 30 residents from hospitals in Northern California.

Annually, we sponsor the largest industry meetings including the Annual International Children's Spine Symposium, Annual Pediatric Orthopedic Surgical Techniques Course, Akron Pediatric Orthopedic Residents Review Course and the annual PediOrthoWest resident review program.

We have a growing commitment to the clinical research performed by surgeons.

This commitment ranges from providing our products for clinical outcome studies to providing advanced research grants.

Cumulatively, we are the largest financial contributor to the five primary pediatric orthopedic surgical societies that conduct pediatric clinical education and research:

Cumulatively, we are one of the largest financial contributors to the five primary pediatric orthopedic surgical societies that conduct pediatric clinical education and research:

the Pediatric Orthopaedic Society of North America, the International Pediatric Orthopaedic Symposium, the European Pediatric Orthopaedic Society, the American Academy for Cerebral Palsy and Developmental Medicine and the Pediatric Research in Sports Medicine Society.

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We believe this support enhances our reputation as the category leader in pediatric orthopedics.

Additionally, during 2018, 2019 and 2020, we funded the The Foundation for Advancing Pediatric Orthopaedics ("Foundation") as a 501(c)3 public charity.

The Foundation is led by the Company's Chief Medical Officer and a board composed of nine eminent pediatric orthopedic educators.

The Foundation channels OrthoPediatrics' clinical education funding together with contributions from the general public to support non-commerical education programs and clinical research.

Additionally, during 2019, 2020 and 2021, we funded The Foundation for Advancing Pediatric Orthopaedics ("Foundation") as a 501(c)3 public charity.

The Foundation is led by the Company's previous Chief Medical Officer and a board composed of eminent pediatric surgeons and other industry leaders.

The Foundation channels OrthoPediatrics' clinical education funding together with contributions from the general public to support non-commercial education programs and clinical research.

Manufacturing and Suppliers

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We maintain certain long-term contracts with our key suppliers.

Our suppliers do not require guaranteed minimum purchases.

The majority of our suppliers do not require guaranteed minimum purchases.

In most cases, we have redundant manufacturing capabilities for each of our products.

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They also require a dedicated selling organization that is viewed by pediatric orthopedic surgeons as a consultative resource that can attend surgery.

Human Capital and Community Support

We believe that maintaining a sufficient number of skilled employees in all departments of our Company is a key focus of our human capital.

We employ a number of strategies to best enable us to attract, retain, and

engage our employees.

As of December 31, 2021, we employed 133 full-time employees, 23 of whom were engaged in research and development and 38 of whom were engaged in sales and marketing.

None of our employees are subject to a collective bargaining agreement, and we consider our employee relations to be good.

We strive to provide an inclusive, diverse, and safe workplace, filled with opportunities for our employees to grow and develop.

We believe that culture can be a company’s most powerful source of competitive advantage.

Cultures are unique, cannot be reverse-engineered and are impossible to duplicate.

We have established a corporate culture that is results-oriented and people-focused.

It is built on the cause of improving the lives of children with orthopedic conditions.

We believe our culture is bolstered not only by our compensation and benefits plans, but also by programs that support our local communities.

This is demonstrated by both the Company's and its associates' regular participation in philanthropic causes.

We recognize that building connections between our employees, their families, and the communities we serve creates a fulfilling and positive workplace.

We also partner with organizations around the world that provide pediatric orthopedic care for the disadvantaged.

Specifically, we have partnered with the World Pediatric Project, to whom we provide surgical products and treatment for children in developing countries, some of whom are flown to the United States for surgery.

In 2020, we were named as "Corporate Partner of the Year" by the World Pediatric Project and we continued our support of this cause in 2021.

We encourage you to review our Environmental, Social and Governance ("ESG") page under the "About" section of our corporate website for more detailed information regarding our ESG efforts and current initiatives, including a link to our Diversity & Inclusion Policy.

Nothing on our website, including our Diversity & Inclusion Policy, shall be deemed part of or incorporated by reference into this Annual Report on Form 10-K.

Government Regulation

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

Our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act ("FDCA"), as

implemented and enforced by the FDA.

Our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act ("FDCA"), as implemented and enforced by the FDA.

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

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regulations, we are subject to a variety of regulations in other jurisdictions governing clinical trials and commercial sales and distribution of our products.

Whether or not we obtain FDA clearance or approval for a product, we must obtain authorization before commencing clinical trials or obtain marketing authorization or approval of our products under the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials or commercialize our products in those countries.

The approval process varies from country to country and the time may be longer or shorter than that required for FDA clearance or approval.

FDA Premarket Clearance and Approval Requirements

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

Regulation of Medical Devices in the United States

Premarket Clearance and Approval Requirements

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

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

Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation (QSR), facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.

Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device.

Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA.

These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.

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

Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.

Our currently marketed products are Class I and exempted from premarket notification, or Class II/ or unclassified devices subject to 510(k) clearance with the exception of the ApiFix Mid-C System which is an unclassified, approved device under the Humanitarian Device Exemption, or HDE, regulation.

Our currently marketed products are Class I and exempted from premarket notification, or Class II devices subject to 510(k) clearance with the exception of the ApiFix Mid-C System which is an unclassified, approved device under the Humanitarian Device Exemption ("HDE") regulation.

Approval under the HDE regulation is contingent upon the submission of periodic reports at intervals of one year (unless otherwise specified) from the date of approval of the original HDE (August 2019).

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The FDA may grant an HDE, which is an exemption from the effectiveness requirements of sections 514 and 515 of the FDCA Act, if the FDA determines that the device meets certain criteria.

After HDE approval, the medical device may only be used after IRB approval has been obtained.

After HDE approval, the medical device may only be used after Institutional Review Board ("IRB") approval has been obtained.

Under FDA regulations, an IRB is an appropriately constituted group that has been formally designated to review and monitor biomedical research involving human subjects.

In accordance with FDA regulations, an IRB has the authority to approve, require modifications in (to secure approval), or disapprove research.

This group review serves an important role in the protection of the rights, safety and welfare of human research subjects.

The purpose of IRB review is to assure, both in advance and by periodic review, that appropriate steps are taken to protect the rights, safety and welfare of humans participating as subjects in the research.

510(k) Marketing Clearance Pathway

Our Class II products are subject to premarket notification and clearance under section 510(k) of the FDCA.

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

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

The FDA’s 510(k) clearance process usually takes from nine to twelve months, but may take significantly longer.

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

If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device.

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

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

After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, a de novo classification or PMA approval.

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

Our Class II products are subject to 510(k) clearance under the FDCA.

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

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

The FDA’s 510(k) review process usually takes from three to six months.

The FDA may require additional information following their review.

If the FDA agrees that the device is substantially equivalent to the predicate device presented in the 510(k) submission, it will grant clearance to commercially market the device.

If the FDA determines that the device is “not substantially equivalent” to the predicate device, we may be required to fulfill more rigorous requirements, including those associated with the PMA process, to gain approval to commercialize.

Minor modifications may be accomplished by a manufacturer documenting the change in an internal letter-to-file.

The FDA can always review these letters to file during an inspection.

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

If the FDA disagrees with a manufacturer’s determination on major versus minor modifications, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until additional actions are completed.

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

Post-Market Regulation

After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.

Numerous and pervasive regulatory requirements apply to commercialized devices.

These include:

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

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

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

• the federal Physician Sunshine Act and various state and foreign laws on reporting remunerative relationships with healthcare providers (HCPs);

prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling;

• the federal Open Payments ("Sunshine") program and various state and foreign laws on reporting remunerative relationships with healthcare providers (HCPs);

• the federal Anti-Kickback Statute (and similar state laws) prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as Medicare or Medicaid;

A person or entity does not have to have actual knowledge of this statute or specific intent to violate it to have committed a violation;

transmit money or property to the federal government or knowingly concealing, or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to the federal government.

• the federal False Claims Act (and similar state laws) prohibiting, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing, or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to the federal government.

The government may assert that claim includes items or services resulting from a violation of the federal Anti-Kickback Statute and constitutes a false or fraudulent claim for purposes of the false claims statute;

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

We may be subject to similar foreign laws that may include applicable post-marketing requirements such as safety surveillance.

Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use.

The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files.

As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA.

Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods, facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use.

Our failure to maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of our products.

The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.

The FDA has broad regulatory compliance and enforcement powers.

If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:

Enforcement Powers

The FDA has broad regulatory enforcement powers.

If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of actions, which may result in any of the following sanctions:

• warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;

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

• refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;

• refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;

• withdrawing 510(k) clearances or PMA approvals that have already been granted;

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Regulation of Medical Devices in the EEA

There is currently no premarket government review of medical devices in the EEA (which is comprised of the 27 Member States of the EU plus Norway, Liechtenstein and Iceland).

However, all medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices, or the Medical Devices Directive.

All medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices, or the Medical Devices Directive ("MDD").

There is also a directive specifically addressing Active Implantable Medical Devices (Directive 90/385/EEC).

The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others.

In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured and packaged in a suitable manner.

In addition, the device must achieve the performance intended by the manufacturer and be designed, manufactured and packaged in a suitable manner.

The European Commission has adopted various standards applicable to medical devices.

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There are also harmonized standards relating to design and manufacture.

While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter.

Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement.

To demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.

While not mandatory, compliance with these standards is viewed as benchmarks to satisfy the essential requirements.

To demonstrate compliance with the essential requirements laid down in Annex I to the MDD, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.

Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product and post-market experience in respect of similar products already marketed.

Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body.

Notified bodies are often separate entities and are authorized or licensed to perform such assessments by government authorities.

The notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system.

If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.

Notified bodies are separate entities from government that are authorized by government authorities to perform conformity assessments.

The notified body also audits and examines a product’s technical dossiers and the manufacturers’ quality system.

If satisfied that the assessed devices conform to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.

The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EEA.

Once the product has been placed on the market in the EEA, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device.

In order to demonstrate safety and performance for their medical devices, manufacturers must evaluate applicable clinical data in accordance with the requirements of Annex X to the Medical Devices Directive and applicable European and International Organization for Standardization standards, as implemented or adopted in the EEA member states.

In order to demonstrate safety and performance for their medical devices, manufacturers must evaluate applicable clinical data in accordance with the requirements of Annex X to the MDD and applicable European and International Organization for Standardization standards, as implemented or adopted in the EEA member states.

Clinical data may be in the form of relevant scientific literature of an equivalent device, clinical investigations of the device, or both.

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Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report.

The Medical Devices Regulation, or MDR, entered into force in May 2017 and, due to the COVID-19 pandemic, was postponed from its original application date of May 2020 to May 2021.

The MDR among other things, imposes additional reporting requirements on manufacturers of high risk medical devices, impose an obligation on manufacturers to appoint a “qualified person” responsible for regulatory compliance, and provide for more strict clinical evidence requirements.

The Medical Devices Regulation ("MDR") entered into force in May 2017 and, due to the COVID-19 pandemic, was postponed from its original application date of May 2020 to May 2021.

The MDR imposes significant additional reporting requirements on manufacturers of all medical devices, imposes an obligation on manufacturers to appoint a “qualified person” responsible for regulatory compliance, and provides for more strict

clinical evidence requirements.

Our Class I devices are now regulated under the MDR and eventually all other device classifications will be regulated under the MDR, thereby replacing the MDD as the paradigm for conformity assessments described above.

The MDR includes further controls and requirements on the following activities:

• high level of request for premarket clinical evidence for high risk devices;

• increased scrutiny of technical files for implantable devices;

• monitoring of notified bodies, by independent auditors;

• increased requirements regarding vigilance and product traceability (specifically related to labeling requirements);

• increased regulation for non-traditional roles such as importer and distributor;

• Post-Market Clinical Follow-up that requires significantly greater clinical data specific to

our devices, which leads to greater costs for collecting such data than under the MDD.

Regulations in the United Kingdom

Effective January 31, 2020, the United Kingdom of Great Britain and Northern Ireland, or the UK, withdrew from the European Union, or EU.

New regulations specific to the UK went into effect beginning January 1, 2021 with a transitional period through June 30, 2023.

These regulations may impact our ability to sell our products in the UK.

During the transition period, devices with CE Markings may continue to be sold within the UK.

Devices sold in Northern Ireland will be required to keep the CE Marking after the transition period ends.

In order to comply with the new regulations and continue selling medical devices in the UK following the transition period, the Company must appoint a UK Responsible Person and register the medical devices with the UK's Medicines and Healthcare product Regulatory Agency, or MHRA.

A new conformity assessment must be completed by a UK Approved Body, or UKAB.

The UKAB will audit and examine a product’s technical dossiers and the manufacturers’ quality system.

If satisfied that the relevant product conforms to the relevant essential requirements, the UKAB issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.

The manufacturer may then apply the UKCA Mark to the device, which allows the device to be placed on the market throughout the UK.

Once the product has been placed on the market in the UK, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device.

Regulation of Medical Devices in Other Foreign Countries

We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of:

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• necessity of testing performed in country by distributors for licensees.

The time required to obtain clearance by foreign countries may be longer or shorter than that required for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements.

The MDR includes further controls and requirements on the following activities:

• high level of request for premarket clinical evidence for high risk devices;

• increased scrutiny of technical files for implantable devices;

• monitoring of notified bodies, by independent auditors;

• increased requirements regarding vigilance and product traceability (specifically related to labeling requirements);

• increased regulation for non-traditional roles such as importer and distributor.

Regulations in the United Kingdom

Effective January 31, 2020, the United Kingdom of Great Britain and Northern Ireland, or UK, withdrew from the European Union, or EU.

New regulations specific to the UK went into effect beginning January 1, 2021 with a transitional period through June 30, 2023.

These regulations may impact our ability to sell our products in the UK.

During the transition period, devices with CE Markings may continue to be sold within the UK.

Devices sold in Northern Ireland will be required to keep the CE Marking after the transition period ends.

In order to comply with the new regulations and continue selling medical devices in Great Britain (England, Wales and Scotland) following the transition period, the Company must appoint a UK Responsible Person and register the medical devices with the UK's Medicines and Healthcare product Regulatory Agency, or MHRA.

A new conformity assessment must be completed by a UK Approved Body, or UKAB.

The UKAB will audit and examine a

product’s technical dossiers and the manufacturers’ quality system.

The manufacturer may then apply the UKCA Mark to the device, which allows the device to be placed on the market throughout Great Britain.

Once the product has been placed on the market in Great Britain, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device.

Healthcare Regulations

Federal, State and Foreign Fraud and Abuse and Physician Payment Transparency Laws

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Violations of the federal Anti-Kickback Statute can result in imprisonment, exclusion from Medicare, Medicaid or other governmental programs, as well as civil and criminal penalties, including criminal fines.

Civil penalties for such conduct can further be assessed under the federal False Claims Act, including penalties of up to three times the amounts paid for such claims.

Civil penalties for such conduct can further be assessed under the federal False Claims Act, including penalties of

up to three times the amounts paid for such claims.

Conduct and business arrangements that do not fully satisfy one of these safe harbor provisions may result in increased scrutiny by government enforcement authorities.

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Additionally, there has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals or entities.

The federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians (including physician family members) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

The federal Open Payment ("Sunshine") program imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians (including physician family members) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

A manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties.

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We may also become subject to various federal, state and foreign laws that protect the confidentiality of certain patient health information, including patient medical records, and restrict the use and disclosure of patient health information by healthcare providers, such as HIPAA, as amended by HITECH, in the United States.

Under HIPAA, the DHHS has issued regulations to protect the privacy and security of protected health information used or disclosed by covered entities including certain healthcare providers and their business

HIPAA also regulates standardization of data content, codes and formats used in healthcare transactions and standardization of identifiers for health plans and providers.

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Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably.

Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access.

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The Affordable Care Act imposed, among other things, a new federal excise tax on the sale of certain medical devices (which was permanently repealed December 20, 2019), provided incentives to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.

Additionally, the Affordable Care Act has expanded eligibility criteria for Medicaid programs and

created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

Additionally, the Affordable Care Act has expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

Since its enactment, there have been judicial, Congressional and executive branch challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future.

While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the Affordable Care Act such as removing or delaying penalties, starting January 1, 2019, for not complying with the Affordable Care Act’s individual mandate to carry health insurance and delaying the implementation of certain Affordable Care Act-mandated fees.

Additionally, on December 15, 2018, a Texas U.S.

District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the individual mandate was repealed by Congress.

Further, on December 18, 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well.

On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari and held oral arguments on November 10, 2020.

Accordingly, we continue to evaluate the effect that the Affordable Care Act has on our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.

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However, the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which was signed into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030.

The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, extends the suspension period to March 31, 2021.

The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, extended the suspension period to March 31, 2021.

In April 2021 it was suspended again through December 31, 2021.

Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

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

the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably.

There can be no assurance that procedures using our products will be covered for a specific indication, that our products will be considered cost-effective by third party payors, that an adequate level of reimbursement will be available or that the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably.

More and more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional layer of clearance requirement.

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

What changed 10-K

Item 1. Business