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Item 1. Business

2023-03-01 compared with 2022-03-03 · 91 added, 103 removed, 595 unchanged (25% of the section changed)

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OrthoPediatrics Corp.

is a medical device company committed to designing, developing and marketing anatomically appropriate implants and devices for children with orthopedic conditions, giving pediatric orthopedic surgeons and caregivers the ability to treat children with technologies specifically designed to meet their needs.

is a medical device company committed to designing, developing and marketing anatomically appropriate implants, instruments and specialized braces for children with orthopedic conditions, giving pediatric orthopedic surgeons and caregivers the ability to treat children with technologies specifically designed to meet their needs.

Initially organized as an Indiana limited liability company on August 31, 2006, OrthoPediatrics Corp.

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 , 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.

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, Devise Rail, Orthex ® , The Fassier-Duval Telescopic Intramedullary System ® , ApiFix ® Mid-C System and Mitchell Ponseti ® specialized bracing products 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 while our clubfoot orthopedic products are manufactured in house.

The Company began selling its products in the United States in 2008 and internationally in 2011.

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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 in order to further enhance our operations in Europe.

In order to further enhance our operations in Europe, we established operating companies in the Netherlands and Germany in March 2019 and April 2022, respectively.

The Company routinely explores opportunities to acquire or invest in complementary products, technologies or businesses.

For example, on June 4, 2019, we purchased all the issued and outstanding shares of stock of Vilex in Tennessee, Inc.

("Vilex") and all the issued and outstanding units of membership interests in Orthex, LLC ("Orthex") for $60 million in total consideration.

Vilex and Orthex (collectively, the "Vilex Companies") are primarily manufacturers of foot and ankle surgical implants, including cannulated screws, fusion devices, surgical staples and bone plates, as well as Orthex Hexapod technology which is used to treat pediatric congenital deformities and limb length discrepancies.

On December 31, 2019, we divested substantially all of the assets relating to Vilex's adult product offerings to a wholly-owned subsidiary of Squadron Capital LLC ("Squadron") in exchange for a $25 million reduction in a Term Note owed to Squadron in connection with the initial acquisition.

As part of the sale, we also entered into (i) an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property and (ii) an exclusive mutual distribution agreement with Squadron permitting both companies to distribute certain of the other's products.

We recognized a loss of approximately $1 million on the sale of Vilex.

On March 9, 2020, we purchased all the issued and outstanding membership interest of Telos Partners, LLC ("Telos") for $3 million in total consideration.

Telos is a boutique regulatory consulting firm formed in Colorado.

On April 1, 2020, we purchased all the issued and outstanding membership interest of ApiFix, Ltd.

("ApiFix") for (a) $2 million in cash, and (b) 934,783 shares of the Company's common stock, $0.00025 par value per share, representing approximately $35 million (based on a closing share price of $37.63 on April 1, 2020).

ApiFix, a corporation organized under the laws of Israel, has developed a minimally invasive deformity correction system for patients with adolescent idiopathic scoliosis ("ApiFix System").

In addition, we have also agreed to pay as part of the purchase price the following anniversary payments, subject to certain limitations and adjustments:

(i) approximately $13 million on the second anniversary of the closing date, provided that such payment will be paid earlier if 150 clinical procedures using the ApiFix System are completed in the United States before such anniversary date, (ii) $8 million on the third anniversary of the closing date;

and (iii) $9 million on the fourth anniversary of the closing date.

In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended June 30, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess.

The anniversary payments and system sales payment may each be made in cash or cash and common stock.

On June 10, 2020, we purchased certain intellectual property assets from Band-Lok, LLC, a North Carolina limited liability company ("Band-Lok"), related to its Tether Clamp and Implantation System ("Tether Clamp System") for approximately $3 million in total consideration.

We use the Tether Clamp System in connection with our Bandloc 5.5/6.0 System.

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

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.

For example, in 2020, we acquired Telos, a boutique regulatory consulting firm formed in Colorado, and ApiFix, Ltd., the developer of a minimally invasive deformity correction system for patients with adolescent idiopathic scoliosis ("ApiFix System").

In 2022, we acquired MD Ortho, a manufacturer of orthopedic clubfoot products, and Pega Medical, a medical device company which sells a portfolio of trauma and deformity correction devices for children, including the Fassier-Duval Telescopic Intramedullary System designed to treat osteogenesis imperfecta.

In 2020, we also acquired the intellectual property assets from Band-Lok, LLC, related to its Tether Clamp and Implementation System which we use in connection with our Bandloc 5.5/6.0 System.

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

Also, we purchased certain intellectual assets and product inventory from Devise Ortho, Inc., related to its Drive Rail external fixation system, which compliments our existing external fixation products.

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.

Also 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.

On June 22, 2020, we completed a follow-on offering of our common stock, in which we issued and sold 1,600,000 shares of common stock at a public offering price of $47.00 per share for aggregate gross proceeds of $75.2 million.

We received $70.2 million in net proceeds after deducting $4.5 million of underwriting discounts and commissions and paying $0.5 million in offering costs.

On August 15, 2022, we raised net proceeds of approximately $139.3 million from a public offering of (a) 1,091,250 shares our common stock, and (b) pre-funded warrants exercisable for an aggregate of up to 1,525,000 shares of common stock to Squadron Capital LLC (“Squadron”), our largest investor.

The net proceeds reflect the Company’s payment of $4.3 million in underwriting discounts and commissions and $0.3 million in other offering costs.

A portion of the net proceeds were used to repay $31 million of borrowings previously outstanding under the Company’s revolving credit facility with Squadron.

On September 20, 2022, the Company issued an aggregate of 1,525,000 shares of common stock to Squadron upon exercise of the pre-funded warrants.

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

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As of December 31, 2022, the Company and its subsidiaries had 203 full-time equivalent employees.

A novel strain of the coronavirus disease ("COVID-19") was first identified in Wuhan, China in December 2019, and the related outbreak was subsequently declared a pandemic by the World Health Organization and a national emergency by the President of the United States.

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.

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.

Since inception we have impacted the lives of over 630,000 children, when including those served by our acquired companies.

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.

In 2021, we created an internal ESG team, which reports directly to our Board’s Governance Committee, to identify ESG topics for disclosure by assessing both the impact on our business and the importance to our stakeholders.

We encourage you to review our ESG page and summary report which can be found under the "About" section of our corporate website for more detailed information regarding our ESG efforts and current initiatives.

On our website, among other information, are the following highlights:

• OrthoPediatrics cares about our environmental impact while working in a highly regulated industry and we are certified according to ISO 13485.

Our team in Warsaw, Indiana recently implemented an enhanced recycling program.

• The Company and its associates regularly participate in philanthropic causes important to our local communities.

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

In 2020 we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we work to provide access to medical care for children in developing countries.

• We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community.

• The Company and its Board of Directors understand the value of diversity.

In 2022, the Company added one additional diverse Director and our Board is targeting the addition of another diverse candidate in 2023.

We believe effectively managing our priorities, as well as increasing our transparency related to ESG programs, will help create long-term value for our stakeholders.

We expect to continue to increase our disclosures and communicate our ESG efforts in future SEC filings.

Nothing on our website shall be deemed part of or incorporated by reference into this Annual Report on Form 10-K.

AVAILABLE INFORMATION

The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, available on its website under the Investor Relations tab at

http://www.orthopediatrics.com without charge, as soon as reasonably practicable, after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

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We design, develop and commercialize innovative orthopedic implants and instruments to meet the specialized needs of pediatric surgeons and their patients, who we believe have been largely neglected by the orthopedic industry.

We currently serve three of the largest categories in this market.

We currently serve three of the largest

categories in this market.

We estimate that the portion of this market that we currently serve represents a $3.9 billion opportunity globally, including over $1.7 billion in the United States.

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We address this unmet market need and sell the broadest product offering specifically designed for children with orthopedic conditions.

We currently market 37 surgical systems that serve three of the largest categories within the pediatric orthopedic market:

We currently market 46 surgical and bracing systems that serve three of the largest categories within the pediatric orthopedic market:

(i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine procedures.

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Sales from such sales agencies represented 68% and 76% of our global revenue in 2022 and 2021, respectively.

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

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.

Outside of the United States, our sales organization consisted of more than 70 independent stocking distributors and 14 independent sales agencies in over 70 countries.

We collaborate with pediatric orthopedic surgeons in developing new surgical systems that improve the quality of care.

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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.

conducted over 300 training workshops.

In 2022, we conducted numerous training workshops.

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

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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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Trauma and Deformity Scoliosis Sports Medicine Smart Implants

Fusion Non-Fusion

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

Surgical Implants Specialty Bracing Fusion Non-Fusion

$609 Million $303 Million $334 Million $75 Million $249 Million $162 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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Trauma and Deformity Correction

Trauma and deformity correction procedures involve placing metal plates and screws on the outside of the bone or long nails inside the canal of the bone, known as flexible and rigid intramedullary nails, to stabilize fractures and allow them to heal.

Trauma and deformity correction surgical procedures involve placing metal plates and screws on the outside of the bone or long nails inside the canal of the bone, known as flexible and rigid intramedullary nails, to stabilize fractures and allow them to heal.

Trauma and deformity procedures also include osteotomies, or surgical cutting of the bone, the use of metal implants to correct angular bone deformities or limb length discrepancies and external fixation.

Trauma and deformity also includes specialized bracing products which are non-surgical in nature.

Scoliosis procedures involve the use of spinal implants, such as pedicle screws and rods, to correct curvature of the spine as a result of scoliosis, trauma or tumors.

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in studies that we commissioned) which was then updated in 2022 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

Trauma and Deformity Scoliosis

Surgical Implants Specialty Bracing Fusion Non-Fusion Sports Medicine

High-Volume Children's Hospitals Target Market $378 Million $197 Million $207 Million $68 Million $82 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.

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

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.

In 2022, we estimate that our products were used to help approximately 70,000 children, and over 630,000 since inception, when including those served by our acquired companies.

We currently market 46 surgical and specialized bracing systems consisting of more than 11,200 stock keeping units, which address pediatric trauma and deformity, scoliosis and sports medicine procedures.

Our products include features that provide specific advantages for pediatric orthopedic surgeons and their patients, such as surgical instrumentation specifically designed for use in children, proper anatomical sizes and contouring, and proprietary designs that address the unique skeletal anatomy and physiology of a growing child.

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We estimate that over 62% of U.S.

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

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 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.

Our Trauma and Deformity and Scoliosis businesses are each led by a 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 six years we have been named one of the Best Companies to work for in Indiana.

For seven 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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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.

• Expand addressable market through aggressive investment in research and development, 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.

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We have developed a comprehensive portfolio of implants and instruments specifically designed to treat children with orthopedic conditions within the three categories of the pediatric orthopedic market that we currently serve.

We currently market 37 surgical systems that address pediatric trauma and deformity correction, scoliosis and sports medicine/other procedures.

We currently market 46 surgical and specialized bracing systems that address pediatric trauma and deformity correction, scoliosis and sports medicine/other procedures.

Many of our products are available in a variety of sizes and configurations to address a wide range of patient conditions and surgical requirements.

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Trauma and Deformity Correction

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.

Our trauma and deformity correction product line includes more than 7,900 implants, external fixation, specialized braces and bone graft substitutes for the femur, tibia, upper and lower extremities.

Our global revenue from this category for the year ended December 31, 2022 was $85.1 million, an increase of 29% over the prior year, and represented 70% of total revenue.

Global revenue from this category for the years ended December 31, 2021 and 2020 was $65.8 million and $47.7 million or 67% and 67% of total revenue, respectively.

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, 2022 was $33.4 million, or 27% of total revenue, which represented an increase of 19% over the prior year.

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Our sports medicine/other product category primarily includes our ACL, MPFL Reconstruction system and Telos.

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.

Our global revenue from this category for the year ended December 31, 2022 was $3.8 million, or 3% of total revenue, which represented a decline of 9% over the prior year.

Global revenue from this category for the years ended December 31, 2021 and 2020 was $4.2 million and $2.7 million or 4% and 4% of total revenue, respectively.

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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.

In the first half of 2023, 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.

We expect the beta launch to occur in 2023 and a full-scale launch to occur in 2024.

Active Growing Implants

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We made significant development progress on this in 2022.

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

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

RESPONSE TM Rib and Pelvic System

Our RESPONSE TM Rib and Pelvic System is designed to aid surgeons in the treatment of early onset scoliosis, a debilitating form of scoliosis that affects very young children.

Osteogenesis Imperfecta Nail System

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

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.

We expect to beta launch the system in 2023.

Growth Guidance for Scoliosis

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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.

We plan to continue development to support the strengthening of our external fixation product portfolio.

Throughout 2022, we launched the Drive Rail system that complements the Mini Rail and Orthex product offering.

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

Further development will focus on hardware and software upgrades as well as a completely new system for emergency fracture management.

Research and Product Development

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Sales to customers from such agencies represented 68% of our global revenue in 2022 and 76% in 2021.

Outside of the United States, our sales organization consisted of 40 independent stocking distributors and 14 independent sales agencies in 45 countries, including the largest markets in the European Union, Latin America and the Middle East, as well as South Africa, Australia and Japan.

Outside of the United States, our sales organization consisted of over 70 independent stocking distributors and 14 independent sales agencies in over 70 countries, including the largest markets in the European Union, Latin America and the Middle East, as well as South Africa, Australia and Japan.

We believe our distributors are well regarded by pediatric orthopedic surgeons in their respective markets.

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In the near term, we expect to selectively expand the number of international markets we serve, as well as to deepen our penetration of important existing markets such as Brazil and Germany.

In 2017, we began to supplement our use of independent stocking distributors 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 in order to enhance our operations in Europe.

In these markets, we work through sales agencies that are paid a commission.

We consign sets to hospitals, ship replacement products, bill and collect receivables.

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

We plan to continue to make similar transitions in select international markets that we believe would benefit from a sales agency model.

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

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.

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 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.

Cumulatively, we are one of the largest financial contributors to 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 and the American Academy for Cerebral Palsy and Developmental Medicine.

Additionally, we are a sponsor of the two major spine deformity organizations, the Scoliosis Research Society and the International Meeting on Advanced Spine Techniques.

We are also the founding and leading sponsor of the Pediatric Research in Sports Medicine Society and have significantly increased our sponsorship of the Baltimore Limb Deformity Course.

Our support of these organizations demonstrates our commitment to the clinical training and research these organizations sponsor.

In addition to these organizations, we also support eight pediatric orthopedic fellowships.

Our support of these organizations and fellowships demonstrates our commitment to the clinical training and research they sponsor.

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

Additionally, during 2020, 2021 and 2022, 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

Our products are manufactured to our specifications by third-party suppliers who meet our manufacturer qualification standards.

Our products are primarily manufactured to our specifications by third-party suppliers who meet our manufacturer qualification standards.

MD Ortho's specialized bracing products are manufactured on-site in our Iowa facility.

Our third-party manufacturers meet FDA and other country-specific quality standards, supported by our internal specifications and procedures.

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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.

We employ a number of strategies to best enable us to attract, retain, and engage our employees.

As of December 31, 2022, we employed 203 full-time employees, 27 of whom were engaged in research and development and 64 of whom were engaged in sales and marketing.

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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.

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 and 2022.

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.

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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 Institutional Review Board ("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.

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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;

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

• 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;

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

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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 application date refers to the time by which the MDR goes into effect.

On January 6, 2023, the European Commission sent a proposal to the European Parliament for extending the application date to December 31, 2027 for the Class III and IIb implantable devices.

The proposal also seeks to extend the application date to December 31, 2028 for select Class IIb, Class IIa and Class I devices.

On February 16, 2023, the European Parliament approved, in part, the extension of the application date for Class III and IIb implantable devices to December 31, 2027.

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

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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.

52 unchanged sentences

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

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.

2 unchanged sentences

The implementation of the Affordable Care Act in the United States, for example, has changed healthcare financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly.

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.

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.

23 unchanged sentences

Based on our experience to date, third-party payors generally reimburse for the surgical procedures in which our products are used only if the patient meets the established medical necessity criteria for surgery.

Some payors are moving toward a managed care system and control their healthcare costs by limiting authorizations for surgical procedures, including elective procedures using our devices.

are moving toward a managed care system and control their healthcare costs by limiting authorizations for surgical procedures, including elective procedures using our devices.

Although no uniform policy of coverage and reimbursement among payors in the United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor, reimbursement decisions by particular third-party payors may depend upon a number of factors, including the payor’s determination that use of a product is:

22 unchanged sentences

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.

Specifically, Australia now requires clinical data for clearance and reimbursement be in the form of prospective, multi-center studies, a high bar not previously applied.

Specifically, Australia now requires clinical

data for clearance and reimbursement be in the form of prospective, multi-center studies, a high bar not previously applied.

In addition, in France, certain innovative devices have been identified as needing to provide clinical evidence to support a “mark-specific” reimbursement.

5 unchanged sentences

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