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Item 1A. Risk Factors

2021-03-08 compared with 2020-07-06 · 286 added, 257 removed, 436 unchanged (55% of the section changed)

An investment in our Common Stock involves a substantial risk of loss.

Set forth below are descriptions of those risks and uncertainties that we currently believe to be material, but the risks and uncertainties described below are not the only risks and uncertainties that could materially adversely affect our business, financial condition and operating results.

Set forth below are summary descriptions of those risks and uncertainties that we currently believe to be material.

We caution you to read the following risk factors, which have affected, and/or in the future could affect, our business, prospects, operating results, and financial condition.

Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also affect our business, prospects, operating results, and financial condition.

Additional risks and uncertainties are described under other captions in this report and should also be considered by our stockholders.

If any of these risks materialize, our business, financial condition or operating results could suffer.

In this case, the trading price of our Common Stock could decline, and you may lose part or all of your investment.

Summary of Risk Factors

Risks Related to Our Business and Industry

• If we do not successfully execute our priorities, our business could be adversely affected.

• We are in a highly competitive and evolving field and face competition from well-established tissue processors and medical device manufacturers, as well as new market entrants.

• Rapid technological change could cause our products to become obsolete.

• Our products depend on the availability of tissue from human donors.

• The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business.

• We depend on our senior leadership team and may not be able to retain or replace these employees or recruit additional qualified personnel.

• A portion of our revenues and accounts receivable come from government accounts.

• Our revenues depend on adequate reimbursement from public and private insurers and health systems.

• Our revenue, results of operations and cash flows may suffer upon the loss of a GPO or IDN.

• We contract with independent sales agents and distributors.

• Disruption of our processing could adversely affect our business, financial condition and results of operations.

• To be commercially successful, we must convince physicians, where appropriate, that our products are proper alternatives to existing treatments and that our products should be used in their procedures.

• If we cannot successfully address quality issues that may arise with our products, our brand reputation could suffer, and our business, financial condition, and results of operations could be adversely impacted.

• The formation of physician-owned distributorships (“PODs”) could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or are affiliated with those distributorships.

• We face the risk of product liability claims and may not be able to obtain or maintain adequate product liability insurance.

• Our products are derived from human tissue and therefore have the potential for disease transmission.

• We may implement a product recall or voluntary market withdrawal.

• Significant disruptions of information technology systems or breaches of information security could adversely affect our business.

• We may expand or contract our business through acquisitions, divestitures, licenses, investments, and other commercial arrangements.

• New lines of business or new products and services may subject us to additional risks.

• Our international expansion and operations outside the U.S.

expose us to additional risks.

Risks Related to Regulatory Approval of Our Products and Other Government Regulations

• To the extent our products do not qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act, this could result in removal of certain products from the market.

• If any of the BLAs are approved, the Company would be subject to additional regulation which will increase costs and could result in adverse sanctions for non-compliance.

Obtaining and maintaining the necessary regulatory approvals for certain of our products will be expensive and time consuming and may impede our ability to fully exploit our technologies

• Our business is subject to continuing regulatory compliance by the FDA and other authorities, which is costly.

• We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for unapproved, or off-label, uses.

• We and our sales representatives must comply with various federal and state anti-kickback, self-referral, false claims and similar laws.

• Our results of operations may be adversely affected by current and potential future healthcare reforms.

• We may fail to obtain or maintain foreign regulatory approvals to market our products in other countries.

• Federal and state laws that protect the privacy and security of personal information may increase our costs and limit our ability to collect and use that information and subject us to liability if we are unable to fully comply with such laws.

Risks Related to Our Intellectual Property

• Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain and may be inadequate.

• We may become subject to claims of infringement of the intellectual property rights of others.

• We may be subject to damages resulting from claims that we, our employees, or our independent contractors have wrongfully used or disclosed alleged trade secrets, proprietary or confidential information of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

Risks Related to the Audit Committee Investigation, Consolidated Financial Statements, Internal Controls and Related Matters

• We have identified material weaknesses in our internal control over financial reporting, and we have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2020.

• Negative publicity has had and could continue to have an adverse effect on our business, results of operations and financial condition.

• We are currently, and may in the future be, subject to substantial litigation and ongoing investigations that could cause us to incur significant legal expenses and result in harm to our business.

Risks Related to the Securities Markets and Ownership of Our Common Stock

• Our substantial indebtedness may adversely affect our financial health.

On July 2 , 2020, the Company borrowed an aggregate of $50 million and obtained an additional committed but undrawn $25 million facility pursuant to the Hayfin Loan Agreement.

See Item 9B, “Other Information.” Following the closing of the Preferred Stock Transaction and the Hayfin Loan Transaction, and the repayment of the BT Loan Agreement, as of July 2, 2020, the Company had approximately $110 million of cash and cash equivalents and approximately $50 million of long-term debt.

Our substantial outstanding debt may limit our ability to borrow additional funds or may adversely affect the terms on which such additional funds may be available.

Additionally, a default under certain other indebtedness constitutes an event of default under the Hayfin Loan Agreement.

Consequently, the effects of a default under other debt may be amplified by the lender exercising the remedies available to them in the Hayfin Loan Agreement for events of default, including foreclosure on the collateral securing our obligations and the declaration that all amounts outstanding under the Hayfin Loan Agreement are immediately due and payable.

The limitations on our ability to access additional borrowing and the potential effects of a cross-default under the Hayfin Loan Agreement may limit our liquidity and have an adverse effect on our business, financial condition, and results of operations.

The restrictive covenants in the Hayfin Loan Agreement, and the Company’s obligation to make debt payments under the Hayfin Loan Agreement, limit our operating and financial flexibility and may adversely affect our business, results of operations and financial condition.

The Hayfin Loan Agreement imposes operating and financial restrictions and covenants.

For example, the Hayfin Loan Agreement contains (a) certain covenants that impose certain reporting and/or performance obligations on the Company and its subsidiaries, including (i) a maximum Total Net Leverage Ratio (as defined in the Hayfin Loan Agreement) of 5.0x through December 31, 2020, stepping down to 4.5x through June 30, 2021 and to 4.0x thereafter until July 2 , 2025, in each case tested quarterly;

and (ii) Minimum Liquidity (as defined in the Hayfin Loan Agreement) of $10 million, an at-all-times covenant tested monthly and (b) certain negative covenants that generally limit, subject to various exceptions, the Company and its subsidiaries from taking certain actions, including, without limitation, incurring indebtedness (including with respect to drawdowns under the delayed draw term loan (the “ DD TL ”) if the Total Net Leverage Ratio (pro forma for such drawdowns) exceeds 3.5x), making investments, incurring liens, paying dividends and engaging in mergers and consolidations, sale and leaseback transactions and asset dispositions.

A breach of a financial covenant in the Hayfin Loan Agreement would result in an event of default that would trigger the lenders’ remedies, including the right to accelerate the entire principal balance of the loan under the Hayfin Loan Agreement (the “ Hayfin Term Loan ”).

There can be no assurances that we will be able to repay all such amounts or be able to find alternative financing in case of such or other event of a default.

Even if alternative financing is available in an event of a default under the Hayfin Loan Agreement, it may be on unfavorable terms, and the interest rate charged on any new borrowings could be substantially higher than the interest rate under the Hayfin Loan Agreement, thus adversely affecting our cash flows, liquidity, and results of operations.

Acceleration of the repayment of the loan pursuant to the terms of the Hayfin Loan Agreement, in combination with the Company’s current commitments and contingent liabilities, could also cast doubt on the Company’s ability to continue as a going concern.

Our variable rate indebtedness under the Hayfin Loan Agreement subjects us to interest rate risk, which could result in higher expense in the event of increases in interest rates and adversely affect our business, financial condition, and results of operations.

Borrowings under the Hayfin Loan Agreement bear interest at a per annum rate equal to London Interbank Offered Rate (“ LIBOR, ” subject to a “floor” of 1.5%) plus a margin of 6.75% per annum.

(Such margin is subject to step down after December 31, 2020 to 6.5% or 6.0% based on Total Net Leverage Ratio levels, as defined in the Hayfin Loan Agreement.) As a result, we are exposed to interest rate risk, which we do not hedge.

If LIBOR rises, the interest rate on outstanding borrowings under the Hayfin Loan Agreement will increase.

Therefore, an increase in LIBOR will increase our interest payment obligations under the Hayfin Loan Agreement and have a negative effect on our cash flows and liquidity, and could have a negative effect on our ability to make payments due under the Hayfin Loan Agreement.

• The restrictive covenants in the Hayfin Loan Agreement, and the Company’s obligation to make debt payments under the Hayfin Loan Agreement, limit our operating and financial flexibility.

• Our variable rate indebtedness under the Hayfin Loan Agreement subjects us to interest rate risk.

• EW Healthcare Partners and its interests may conflict with those of our other shareholders.

• Holders of shares of Series B Preferred Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of, our common shareholders.

• Our Series B Preferred Stock is convertible into shares of our Common Stock, and any such conversion may dilute the value of our Common Stock.

• The price of our Common Stock has been, and will likely continue to be, volatile.

• Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the stock price.

• Fluctuations in revenue or results of operations could cause additional volatility in our stock price.

• We do not intend to pay cash dividends on our Common Stock.

• Certain provisions of Florida law and anti-takeover provisions in our organizational documents may discourage or prevent a change of control.

Risks Related to Our Business and Industry

If we do not successfully execute our priorities, our business, operating results and financial condition could be adversely affected.

Our priorities are to participate in the growth in the advanced wound care category, increase the Company’s market share by demonstrating the positive health economics of our products, and accelerate the timeline to achieve our long-range growth objectives, including our BLA pipeline.

We have sought and may continue to seek capital to implement our priorities, which include advancing our BLA programs and seeking FDA approval for micronized dHACM to treat musculoskeletal degeneration across multiple indications.

In developing our priorities, we evaluated many factors including, without limitation, those related to developments in our industry, customer demand, competition, regulatory developments, and the ability of the Company to execute a capital raise and general economic conditions.

Our priorities are, in our core wound care business, to demonstrate the value of our existing portfolio, increasing the effectiveness and efficiency of our sales force using intensive analytics, and deploying clinical support and economic data to educate healthcare professionals on the efficacy of our products;

over the course of 2011, we plan to increase the number of sales personnel by approximately 10%, and to increase the number of Medical Science Liaisons to further support medical education initiatives.

The Company is also focused on advancing our late-stage pipeline and accelerating efforts toward seeking FDA approval for AmnioFix Injectable, also designated as mdHACM, to treat musculoskeletal degeneration across multiple indications, and our plans include investments in Research and Development, publishing additional peer-reviewed clinical, scientific and economic data that further reinforce the differentiation of our products and to expand the utility of the Company’s placentally-derived products in other clinical applications throughout the care continuum;

and enhancing business and product development efforts, targeting new applications and potential products that fit within our framework of innovative technologies backed by rigorous science, that elevate the standard of care.

We have sought and may continue to seek capital to implement our priorities.

Actual conditions may be different from our assumptions, and we may not be able to successfully execute our priorities.

If we do not successfully execute our priorities, or if actual results vary significantly from our assumptions, our business, operating results and financial condition could be adversely impacted.

In addition, managing our growth may be more difficult than we expect.

We anticipate that a period of significant expansion will be required to penetrate and service the market for our existing and anticipated future products and to continue to develop new products.

This expansion will place a significant strain on management and operational and financial resources.

To manage the expected growth of our operations and personnel, we must both modify our existing operational and financial systems, procedures and controls and implement new systems, procedures and controls.

We must also expand our finance, administrative and operations staff.

Management may be unable to hire, train, retain, motivate and manage necessary personnel or to identify, manage and exploit existing and potential relationships and market opportunities.

We are in a highly competitive and evolving field and face competition from well-established tissue processors and medical device manufacturers, as well as new market entrants.

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This would continue to give rise to demands for price concessions, which could have an adverse effect on our business, results of operations and financial condition.

Further, competitors may introduce amniotic membrane products in the future at lower prices, adding new features or gaining additional reimbursement coverage.

Further, competitors may introduce placental-based membrane products in the future at lower prices, adding new features or gaining additional reimbursement coverage, or utilize sales and marketing practices that negatively impact the industry.

Further, they may copy our products outside the United States.

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If we do not develop and, when necessary, obtain regulatory clearance or approval for new products or product enhancements in time to meet market demand, or if there is insufficient demand for these products or enhancements, our results of operations and financial condition will suffer.

Our research and development efforts may require a substantial investment of time and resources before we are adequately able to determine the commercial viability of a new product, technology, material or other innovation.

Our research and development efforts may require a substantial investment of time and

resources, including additional capital, before we are adequately able to determine the commercial viability of a new product, technology, material or other innovation.

In addition, even if we are able to successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not produce sales in excess of the costs of development, or they may never receive required regulatory approval and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.

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The availability of donated tissue could also be adversely impacted by regulatory changes, public opinion of the donor process and our own reputation in the industry.

We may not be successful in our ability to scale tissue recovery efforts to meet the potential future demand of our pipeline.

Obtaining adequate supplies of human tissue involves several risks, including limited control over availability (for example, access to hospital accounts and the number of consenting mothers), quality and delivery schedules.

In addition, any interruption in the supply of any human tissue component could harm our ability to manufacture our products until a new source of supply, if any, could be found.

We also utilize third-party providers of placental donations to mitigate risks but there can be no assurance that these third parties will be able to provide donated tissues at all times.

We also utilize third-party providers of placental donations on an as-needed basis to mitigate risks but there can be no assurance that these third parties will be able to provide donated tissues at all times.

We may be unable to find a sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at all, which would have an adverse effect on our business, results of operations and financial condition.

The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition, and the continuation of COVID-19 or the outbreak of other health epidemics could harm our business, results of operations, and financial condition.

The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition, and the continuation of the pandemic or the outbreak of other health epidemics could harm our business, results of operations, and financial condition.

The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition, and will likely continue to do so.

See Item 7, “ Management’s Discussion and Analysis - Results of Operations.”

The continuation or additional waves of the outbreak of the COVID-19 pandemic has adversely affected, and may continue to adversely affect, our operations and increase our costs and expenses in numerous ways.

Our clinical researchers and customers have experienced restrictions in their access to hospitals and ability to access other healthcare providers.

If our leadership, employees, sales agents, suppliers, medical professionals, or users of our products are impacted by an epidemic, by illness, or through social distancing, quarantine or other precautionary measures, then our manufacturing operations, sales and demand for our product, and clinical trials may be adversely affected.

This risk is particularly acute for our manufacturing operations, which take place in a confined area.

Additionally, if we experience shortages of donated placentas because donors or our recovery specialists are excluded from hospitals, or because additional testing protocols are implemented for donated tissues based on guidance issued by the AATB, FDA, or other standards and are screened as ineligible, our results of operations may be adversely affected.

In many areas, our sales force was excluded from hospitals and the offices of other health care providers from late March until mid-May 2020.

This adversely affected our revenues beginning late in the first quarter of 2020 and continuing into April.

While access to hospitals and healthcare providers by our sales force had been mostly restored by mid-May, future restrictions on access to hospitals by our sales force or patients may have an additional adverse effect on our revenues and results of operations.

See Item 7, “ Management’s Discussion and Analysis - Results of Operations.” The continuation or additional waves of the outbreak of the COVID-19 pandemic may continue to adversely affect our operations and increase our costs and expenses in numerous ways.

– We source raw materials for our products from donated placentas from scheduled C-section births via a large, geographically-diverse network of donor hospitals.

We may experience shortages of donated placentas if donors or our recovery specialists are excluded from hospitals, or if our donor recovery specialists contract COVID-19 and are required to quarantine.

In the second half of March 2020, we experienced interruptions for approximately two months from a portion of our hospitals in certain geographic areas.

To date, we have been successful in mitigating this disruption to our supply by adding additional donor hospitals, increasing efforts at hospitals that did not impose access limits, and using third-party providers of donated placentas (where necessary and in accordance with MiMedx quality standards).

However, there can be no assurance that our efforts to source raw materials for our products will continue to be successful, and we may experience shortages of raw materials, especially if the current pandemic or responses thereto intensify.

Additionally, we may experience shortages of donated placentas if additional testing protocols are implemented for donated tissues based on guidance issued by the American Association of Tissue Banks, the FDA, or other standards, and are screened as ineligible.

– We process donated tissue using aseptic techniques in a controlled environment.

However, the manufacturing space is a confined space area in which an infected employee may spread the virus to other employees despite the use of personal protective equipment required for all areas at MiMedx.

To date, we have been successful in mitigating these risks through a variety of measures, including screening employees for COVID-19 prior to entering our facilities, implementing a number of safety protocols, and partnering with a testing facility to provide test kits and rapid results for employees that have symptoms or have a known risk of exposure.

Additionally, in anticipation of expected disruptions, in the first quarter of 2020 we ran manufacturing at levels greater than demand and were successful in building our inventory of safety stock.

However, there can be no assurance that our efforts to prevent wide scale infections among our processing staff will continue to be successful, especially if the current pandemic or responses thereto intensify.

If we experience wide scale infections among our production staff, we may experience a shortage of finished goods.

– Our ability to sell our products has been hampered by the pandemic.

In many areas of the country, our sales force was excluded from hospitals and the offices of other health care providers.

Additionally, many patients stayed away from hospitals and other medical facilities.

This had an adverse effect on our revenues beginning late in the first quarter of

2020 and continuing into April.

By mid-May, access restrictions to hospitals and offices of healthcare providers had eased for our sales force, and significant numbers of patients began to return for treatment, including for elective procedures.

This trend continued into the third and fourth quarters of 2020, where we saw net sales generally consistent with the comparable periods from 2019 on an “as-shipped” basis.

In certain areas, local or regional surges of COVID-19 have continued, and future sales will depend on patients’ willingness and ability to visit healthcare providers for care, and our sales force’s access to healthcare providers.

The timing, impact, and response to the pandemic has been uneven across the country.

Subsequent waves may have a greater impact than did the first wave depending on a myriad of factors, including, but not limited to, the availability and efficacy of vaccines, the emergence and severity of new variants of the virus, infection rates, mitigation efforts, and societal response.

We are not able to estimate the future effect of COVID-19 on patient behavior and, consequently, future demand or the ability of providers to pay for our products.

– Similarly, our clinical researchers, clinical study coordinators, and their patients experienced restrictions in their access to hospitals and ability to access other healthcare providers, which slowed enrollment in our clinical trials.

For example, from mid-March through mid-May 2020, many patients stayed away from hospitals and other medical facilities, which stalled enrollments in our clinical trials.

We have since concluded enrollment in our three IND trials.

However, if such access were to be restricted again, it might impair or delay the initiation, approval and launch of future products or additional clinical trials.

See “ To the extent our products do not qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act (“Section 361”), this could result in removal of the applicable products from the market, would make the introduction of some new tissue products more expensive and could significantly delay the expansion of our tissue product offerings and subject us to additional post-market regulatory requirements.”

If our leadership, employees, sales agents, suppliers, medical professionals, or users of our products are impacted by an epidemic, by illness, or through social distancing, quarantine or other precautionary measures, then our manufacturing operations, sales, demand for our products, and clinical trials may be adversely affected.

Disruptions to the health care system generally, such as if patients are unable or unwilling to visit health care providers, or if health care providers prioritize treatment of acute or communicable illnesses over wound care, have and may continue to adversely affect our revenues and results of operations.

For example, from mid-March through mid-May 2020, many patients stayed away from hospitals and other medical facilities, which adversely impacted revenues and stalled enrollments in our clinical trials.

Additionally, as of early July 2020, additional restrictions have been put in place in some areas of the country that again limit or postpone elective surgical procedures, and in particular, in areas of the country that contribute a larger portion of our sales.

Also, the severity of the COVID-19 pandemic has been uneven across the country, and additional waves of the outbreak of COVID-19 may have a greater impact on us than did the first wave, depending on where infection rates are highest.

To date, COVID-19 has had only a modest impact on our ability to source and manufacture our products.

However, the negative consequences arising from the pandemic and governmental and societal responses thereto may be more severe the longer COVID-19 continues to circulate domestically or internationally.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

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Our business and success are materially dependent on attracting and retaining members of our senior leadership team to formulate and execute the Company’s business plans.

Since June 2018, we have needed to add or replace a number of our senior leadership team members including our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Accounting Officer, and General Counsel and Secretary.

We have experienced difficulties in recruiting due to legal and business uncertainties resulting from the issues which were the subject of the Audit Committee Investigation.

Since June 2018, we have replaced a majority of our senior leadership team, and hired several new senior leaders including our Chief Executive Officer, Chief Financial Officer, General Counsel and Secretary, Executive Vice President – Research and Development, Executive Vice President and Chief Commercial Officer, and Chief Accounting Officer.

Leadership changes can be inherently difficult to manage and may cause material disruption to our business or management team.

Changes in senior management could also lead to an environment that presents additional challenges in recruiting and retaining employees, which could have an adverse effect on our business, results of operations and financial condition.

Our success will depend, in part, upon our ability to attract and retain skilled personnel, including sales, managerial and technical personnel.

There can be no assurance that we will be able to find and attract additional qualified employees to support our expected growth or retain any such personnel.

Beginning in June 2018 and continuing into 2019, we experienced higher than normal attrition in our general workforce.

Our inability to hire and retain qualified personnel or the loss of services of our key personnel may have an adverse effect on our business, results of operations and financial condition.

A significant portion of our revenues and accounts receivable come from government accounts.

We have significant sales to the government (whether we are selling our products directly to government accounts or through a distributor).

Any disruption of our products on the Federal Supply Schedule (“ FSS ”), or of the use of Indefinite Delivery, Indefinite Quantity contracts, or any change in the way the government purchases products like ours or the price it is willing to pay for our products, could adversely affect our business, results of operations and financial condition.

Similarly, competitive pricing pressures and any non-compliance with applicable guidelines could cause the Company to lose existing or future contracts with the VA, which may result in an overall decline in revenue.

During 2018 and 2019, the Company conducted a comprehensive review of its pre- and post-award VA sales under its FSS contract and identified a potential issue that it self-disclosed to the VA concerning the eligibility of one of its products for inclusion in the Company’s FSS contract.

The Company announced in April 2020 that it had resolved this matter for $6.5 million.

See Note 16, “ Commitments and Contingencies ,” below.

However, any resulting negative impact to our contractual relationship with the VA going forward may adversely affect our business, results of operations and financial condition.

We experienced difficulties in recruiting due to legal and business uncertainties resulting from the issues which were the subject of the Audit Committee Investigation.

Our future success will depend, in part, upon our ability to attract and retain skilled personnel, including sales, managerial and technical personnel.

There can be no assurance that we will be able to continue to find and attract additional qualified employees to support our expected growth or retain any such personnel.

A portion of our revenues and accounts receivable come from government accounts.

Some of our revenues are derived from sales, both direct and through a distributor, to the government.

Any disruption of our products on the Federal Supply Schedule (“ FSS ”), or of the use of Indefinite Delivery, Indefinite Quantity contracts (“ IDIQ ”), or any change in the way the government purchases products like ours or the price it is willing to pay for our products, could adversely affect our business, results of operations and financial condition.

In April 2020, the Company announced that it had resolved an issue for $6.5 million that it self-disclosed to the VA concerning the eligibility of one of its products for inclusion in the Company’s FSS contract.

Any resulting negative impact to our contractual relationship with the VA going forward may adversely affect our business, results of operations and financial condition.

Our revenues depend on adequate reimbursement from public and private insurers and health systems.

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Government and other third-party payers attempt to contain healthcare costs by limiting both coverage and the level of reimbursement of medical products, particularly new products.

Therefore, significant uncertainty usually exists as to the reimbursement status of new healthcare products by third-party payers.

Although EpiFix has coverage with the majority of payers, a significant number of public and private insurers and health systems currently do not cover or reimburse our other products.

Therefore, significant uncertainty may exist as to the reimbursement status of new healthcare products by third-party payers.

Although EpiFix has coverage with the majority of large payers, a significant number of public and private insurers and health systems currently do not cover or reimburse our other products.

If we are not successful in obtaining adequate coverage and reimbursement for our products from these third-party payers, it could have an adverse effect on market acceptance of our products.

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Even if we do succeed in obtaining widespread coverage and reimbursement rates or policies for our products, future changes in coverage or reimbursement rates or policies could have a negative impact on our business, financial condition and results of operations.

For example, through its rule-making process, CMS has requested stakeholder comments on the reimbursement methodology under the Medicare Hospital Outpatient Prospective Payment System for an episode of wound care for future years.

In other words, the Medicare reimbursement payment methodology may change after 2020 in the hospital outpatient setting from the current reimbursement methodology, which is based on a bundled payment amount per wound care application (i.e.

per skin substitute application), to a fixed, global payment to treat the wound until it is healed (i.e.

a lump sum payment that covers the entire wound care episode).

We are unable to assess the potential effects of these reimbursement changes on our business at this time, as it is not clear if any changes will take effect and CMS has not disclosed specific reimbursement details for a wound episode model.

We are and will continue to participate in discussions with CMS on potential solutions for future wound episode reimbursement models.

Further, we have experienced some reluctance by payers to cover products for applications other than those for which we have published clinical trials.

For example, Noridian, the MAC for 13 states, published a Local Coverage Article effective November 8, 2018 that limits coverage for amniotic membrane derived skin substitute products to diabetic foot ulcers and venous stasis ulcers only.

Prior to the published article, Noridian did not have a written policy on the matter, which provided a pathway for physicians to utilize amniotic membrane derived skin substitute products, such as ours, based on medical necessity in a wide variety of wounds.

Currently, there are three MACs that do not have a written medical policy in the form of a Local Coverage Determination (“ LCD ”) or article.

If the three MACs created written medical policy criteria, this could limit providers to the use of products that have published clinical evidence for a specific wound type.

As a result of the Noridian published article, our revenues for 2019 declined significantly compared to 2018.

Our future revenues could experience additional declines if other MACs or other payers further limit their coverage of our products.

Further, we have experienced some reluctance by payers to cover products for applications other than those for which we have published clinical efficacy data.

Currently, there are three MACs that do not have a written medical policy in the form of a Local Coverage Determination (“ LCD ”) or a specific article for skin substitutes.

In the absence of an LCD, MACs will reimburse based on medical necessity.

If these three MACs created written medical policy criteria that limit providers to the use of products that have published clinical evidence for a specific wound type such as Diabetic Foot Ulcer or Venous Leg Ulcer only, we could experience a negative impact on revenue.

Our future revenues could experience additional declines if other MACs or other payers further limit their coverage of our products to specific clinical uses.

This decline would adversely affect our business, financial condition and results of operations.

Our revenue, results of operations and cash flows may suffer upon the loss of a GPO or IDN.

As with many manufacturers in the healthcare space, the Company contracts with GPOs and IDNs to establish contracted pricing and terms and conditions for the members of GPOs and IDNs.

Approximately three-quarters of our sales in the year ended December 31, 2019 came from customers that are members of our main GPOs or IDNs.

As with many manufacturers in the healthcare space, the Company contracts with GPOs and IDNs to establish contracted pricing and terms and conditions for the members of GPOs and IDN s.

Approximately three-quarters of our sales in the year ended December 31, 2020 came from customers that are members of our primary GPOs or IDNs.

Our agreements with GPOs and IDNs allow us to sell our products efficiently to large groups of customers.

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We contract with independent sales agents and distributors.

In 2019, approximately 17% of our sales through our relationships with independent agents and distributors.

In 2020, approximately 20% of our sales were through our relationships with independent agents and distributors.

(Sales agents act directly on behalf of MiMedx to arrange sales, while distributors take title to product and may set their own prices.) See Note 15, “Revenue Date by Customer Type.

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If we are unable to establish new independent sales representative and distribution relationships or renew current sales agency and distribution agreements on commercially acceptable terms, our business, financial condition, and results of operations could be materially and adversely affected.

Disruption of our processing could adversely affect our business, financial condition and results of operations.

Disruption of our processing facilities could adversely affect our business, financial condition and results of operations.

Our business depends upon the continued operation of our processing facilities in Marietta, Georgia and Kennesaw, Georgia.

Risks that could impact our ability to use these facilities include the occurrence of natural and other disasters, the outbreak of pandemics, and the need to comply with the requirements of directives from government agencies, including the FDA.

See, for example, Item 1A, Risk Factors - The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition, and the continuation of COVID-19 or the outbreak of other health epidemics could harm our business, results of operations, and financial condition.

Either of our processing facilities can serve as a redundant processing facility for our Section 361 products in the event the other facility experiences a disaster event.

We have made efforts to transition manufacturing into compliance with cGMPs for commercial production for our Section 351 products.

These efforts are concentrated at our Kennesaw, Georgia facility for tissue processing and at our Marietta, Georgia facility for upstream and downstream supply chain activities.

See below, for example, “ The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition, and the continuation of COVID-19 or the outbreak of other health epidemics could harm our business, results of operations, and financial condition.”

Either of our two processing facilities can serve as a redundant processing facility for our Section 361 products in the event the other facility experiences a disaster event.

For our 351 products, we have transitioned manufacturing to our Kennesaw, Georgia facility to comply with CGMP standards, and implemented these standards for upstream and downstream supply chain activities at our Marietta, Georgia facility.

However, the unavailability of our processing facilities could have a material adverse effect on our business, financial condition and results of operations during the period of such unavailability.

To be commercially successful, we must convince physicians, where appropriate, that our products are proper alternatives to existing treatments and that our products should be used in their procedures.

To be commercially successful, we must educate physicians, where appropriate, how and when our products are proper alternatives to existing treatments and that our products should be used in their procedures.

We believe physicians will only use our products if they determine, based on their independent medical judgment and experience, clinical data, and published peer reviewed journal articles, that the use of our products in a particular procedure is a favorable alternative to other treatments.

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• limited availability of reimbursement from third-party payers;

• more favorable reimbursement for other market-available products;

• the time that must be dedicated to physician training in the use of our products.

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The number and strength of PODs in the industry may continue to grow as economic pressures increase throughout the industry and hospitals, insurers and physicians search for ways to reduce costs, and, in the case of the physicians, identify additional sources to increase their incomes.

These companies and the physicians who own, or partially own, PODs have significant market knowledge, access to and influence on the physicians who use our products and the hospitals that purchase our products, and we may not be able to compete effectively for business from physicians who own PODs.

These companies and the physicians who own, or partially own, PODs may have significant market knowledge, access to and influence on the physicians who use our products and the hospitals that purchase our products, and we may not be able to compete effectively for business from physicians who own PODs.

We face the risk of product liability claims and may not be able to obtain or maintain adequate product liability insurance.

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Claims may be made by patients, healthcare providers or others selling our products.

Defending a lawsuit, regardless of merit, could be costly, divert management attention and result in adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our products in the market.

Although we have product liability insurance that we believe is adequate, this insurance is subject to deductibles and coverage limitations, and we may not be able to maintain this insurance.

Also, it is possible that claims could exceed the limits of our coverage.

Product liability claims can be expensive to defend (regardless of merit), divert our management’s attention, result in substantial damage awards against us, harm our reputation, and generate adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our products in the market.

Although we have product liability insurance that we believe is adequate, this insurance is subject to deductibles and coverage limitations, and we may not be able to maintain this insurance at an acceptable cost or on acceptable terms or be able to secure increased coverage (if needed), nor can we be sure that existing or future claims against us will be covered by our product liability insurance.

Moreover, the existing coverage of our insurance or any rights of indemnification and contribution that we may have may not be sufficient to offset existing or future claims.

If we are unable to maintain product liability insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect ourselves against potential product liability claims or we underestimate the amount of insurance we need, we could be exposed to significant liabilities, which may harm our business.

A product liability claim or other claim with

respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.

A product liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.

Even if a claim is not successful, defending such claim would be time-consuming and expensive, may damage our reputation in the marketplace, and would likely divert our management’s attention.

The products we manufacture and process are derived from human tissue and therefore have the potential for disease transmission.

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We are required to comply with federal and state regulations intended to prevent communicable disease transmission.

We maintain strict quality controls designed in accordance with cGTP to ensure the safe procurement and processing of our tissue, including terminal sterilization of our products.

We maintain strict quality controls designed in accordance wit h CGTPs to ensure the safe procurement and processing of our tissue, including terminal sterilization of our products.

These controls are intended to prevent the transmission of communicable disease.

However, risks exist with any human tissue implantation.

We are also in the process of developing and enhancing cGMP systems to comply with the regulations that will apply to our Section 351 HCT/Ps following the end of the FDA’s enforcement discretion period under the Guidance.

In addition, negative publicity concerning disease transmission from other companies’ improperly processed donated tissue could have a negative impact on the demand for our products and adversely affect our business, financial condition and results of operations.

We are also in the process of implementing CGMP systems to comply with the regulations that will apply to our Section 351 HCT/Ps, and believe this provides an added level of quality throughout our manufacturing process.

However, negative publicity concerning disease transmission from other companies’ improperly processed donated tissue could have a negative impact on the demand for our products and adversely affect our business, financial condition and results of operations.

We may implement a product recall or voluntary market withdrawal, which could significantly increase our costs, damage our reputation, disrupt our business and adversely affect our business, results of operations and financial condition.

The processing and marketing of our tissue products involves an inherent risk that our tissue products or processes do not meet applicable quality standards and requirements.

In that event, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority.

The processing and marketing of our tissue products involves an inherent risk that our tissue products or processes may not meet applicable quality standards and requirements.

In the event that one or more of our products experiences a failure to meet such standards and requirements, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority.

For example, in March 2020, MiMedx submitted to the FDA a biological product deviation report (“BPDR”) regarding tissue recovered from four donors in Palm Beach County, Florida.

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At the time of recovery, Palm Beach County had only just been designated as an area of active Zika transmission by the Center for Disease Control.

Our recovery partner received an FDA 483 observation for recovering and providing this tissue to MiMedx in February 2020.

In February 2020, our recovery partner received an FDA 483 observation for recovering and providing this tissue to MiMedx.

MiMedx contacted each facility that received allografts containing the subject tissues.

Following MiMedx’s submission of the BPDR to the FDA, the FDA notified MiMedx that this event meets the formal definition of a “recall” and will be classified as a Class II recall on the FDA’s recall website.

Following MiMedx’s submission of the BPDR to the FDA, the FDA notified MiMedx that this event meets the formal definition of a “recall” and classified it as a Class II recall on the FDA’s recall website.

As of the date of this filing, there have been no adverse reactions reported as a result of this submission and notification.

A recall or market withdrawal of one of our products could be costly and may divert management resources.

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While we have invested in the protection of our data and technology, there can be no guarantees that our efforts will prevent all service interruptions or security breaches.

Any such interruption or breach of our systems could adversely affect our business operations and result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal and reputational harm to our business, including legal claims and proceedings, liability under laws that protect the privacy of personal information, government enforcement actions and regulatory

penalties, as well as remediation costs.

We maintain cyber liability insurance.

However, this insurance may not be sufficient to cover the financial, legal or reputational losses that may result from an interruption or breach of our systems.

We may expand or contract our business through acquisitions, divestitures, licenses, investments, and other commercial arrangements in other companies or technologies, which may adversely affect our business, results of operations and financial condition.

We periodically evaluate opportunities to acquire or divest companies, divisions, technologies, products, and rights through licenses, distribution agreements, investments, and outright acquisitions to grow our business.

We may expand or contract our business through acquisitions, divestitures, licenses, investments, and other commercial arrangements with other companies or technologies, which may adversely affect our business, results of operations and financial condition.

We periodically evaluate opportunities to acquire companies or divest divisions, technologies, products, and rights through licenses, distribution agreements, investments, and outright acquisitions to grow our business.

In connection with one or more of those transactions, we may, subject to the requirements and limitations set forth in the Hayfin Loan Agreement:

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Inability to recover our investment, or any write off of such investment, associated goodwill or assets could have an adverse effect on our business, results of operations and financial condition.

If any of the BLAs are approved, the Company would be subject to additional regulation which will increase costs and could result in adverse sanctions for non-compliance.

Products subject to the FDA’s BLA requirements must comply with a range of pre- and post-market provisions.

Pre-market compliance includes the conduct of clinical trials in support of BLA approval, the development and submission of a BLA, and the production of product for use in the clinical trials that meets FDA’s quality expectations.

Post-approval requirements for BLA products include:

compliance with cGMPs, which will require us to make enhancements in our fixed plant as well as incur regular costs and reduced product yields from testing products to ensure quality, identity, purity, and potency;

compliance with promotional and labeling requirements, which limit our ability to make claims about regulated products; submission of annual reports in appropriate circumstances; compliance with the FDA’s “Biological Product Deviation Reporting System,” when applicable; “submission of adverse events;” reporting and correcting product problems within established timeframes; recalling or stopping the manufacture of a product if a significant problem is detected; complying with the appropriate laws and regulations relevant to the biologics license; and identifying any changes needed to help ensure product quality.

In some instances, the FDA can also require that applicants conduct post-market studies or trials of the product.

This additional compliance burden may increase costs, and failure to comply with such requirements may subject the Company to sanctions that would have an adverse impact on our business, results of operations and financial condition.

New lines of business or new products and services may subject us to additional risks.

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expose us to risks associated with international sales and operations.

We may consider further expansion outside the U.S.

We are pursuing further expansion outside the U.S.

Managing a global organization is difficult, time consuming and expensive.

Conducting international operations subjects us to risks that could be different than those faced by us in the United States.

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

Our ability to conduct international operations is affected by many of the same risks we face in our U.S.

operations, as well as unique costs and difficulties of managing international operations.

Risks inherent in international operations also include, among others, potential adverse tax consequences, greater difficulty in enforcing intellectual property rights, risks associated with the Foreign Corrupt Practices Act and local anti-bribery law compliance, and the impact of foreign currency exchange rates and fluctuations.

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

and foreign governmental trade, import and export and customs regulations and laws, including, without limitation, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws and regulations administered by the Department of Commerce.

These regulations limit our ability to market, sell, distribute or otherwise transfer our products or technology to prohibited countries or persons.

International regulations on allowable promotional claims also make the promotion of our products more difficult.

International regulations may also limit what promotional claims we may make for our products.

Compliance with these regulations and laws is costly, and failure to comply with applicable legal and regulatory obligations could adversely affect us in a variety of ways that include, without limitation, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities.

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Risks Related to Regulatory Approval of Our Products and Other Government Regulations

To the extent our products do not qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act, this could result in removal of the applicable products from the market, would make the introduction of new tissue products more expensive and would significantly delay the expansion of our tissue product offerings and subject us to additional post-market regulatory requirements.

To the extent our products do not qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act (“Section 361”), this could result in removal of the applicable products from the market, would make the introduction of some new tissue products more expensive and could significantly delay the expansion of our tissue product offerings and subject us to additional post-market regulatory requirements.

The products we manufacture and process are derived from human tissue.

Amniotic and other birth tissue is generally regulated as an HCT/P and is therefore eligible for regulation solely as a Section 361 HCT/P depending on whether the specific product at issue and the claims made for it are consistent with the applicable criteria.

Amniotic and other birth membrane are generally regulated as Human Cells, Tissues and Cellular and Tissue - Based Products (“ HCT/P ”) and are therefore eligible to be subject to regulation solely under Section 361 (“ Section 361 HCT/P ”) depending on whether the specific product at issue and the claims made for it are consistent with the applicable criteria.

HCT/Ps that do not meet these criteria are subject to more extensive regulation as drugs, medical devices, biological products, or combination products.

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In November 2017, the FDA released a guidance document entitled “ Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue - Based Products:

Minimal Manipulation and Homologous Use – Guidance for Industry and Food and Drug Administration Staff.” The document confirmed the FDA’s stance that all micronized amniotic products require a biologics license to be lawfully marketed in the United States.

It also indicated that sheet forms of amniotic tissue are appropriately regulated as solely Section 361 HCT/Ps when manufactured in accordance with 21 CFR Part 1271 and intended for use as a barrier or covering.

The final guidance also stated that the FDA intends to exercise enforcement discretion under limited conditions with respect to the IND application and pre-market approval requirements for certain HCT/Ps for a period of 36 months from the date of the guidance.

Minimal Manipulation and Homologous Use - Guidance for Industry and Food and Drug Administration Staff.

” The document confirmed the FDA’s stance that all micronized amniotic products require a biologics license to be lawfully marketed in the United States.

It also confirmed that sheet forms of amniotic tissue are appropriately regulated as solely Section 361 HCT/Ps when manufactured in accordance with 21 CFR Part 1271 and intended for use as a barrier or covering.

The FDA’s approach is risk-based, and the Guidance clarified that high-risk products and uses could be subject to immediate enforcement action.

MiMedx continues to market AmnioFix Injectable and other micronized products under the policy of enforcement discretion as it works on the transition from Section 361 products to Section 351 products.

Our sales of micronized products for all uses was $45.0 million, $68.4 million, and $42.4 million respectively, in 2017, 2018, and 2019.

At the same time, we are pursuing the BLA pre-market approval process for certain of our micronized products, as more fully discussed under “ Business – Government Regulation.

Following the period of enforcement discretion under the Guidance, we may need to cease selling our micronized products and other products regulated under Section 351 until the FDA approves a BLA, and then we will only be able to market such products for indications that have been approved in a BLA.

MiMedx continues to market our micronized and particulate products under the policy of enforcement discretion as we work to transition certain Section 361 products to Section 351 products.

Our sales of such products for all uses was $32.8 million, and $42.4 million, and $68.4 million, respectively, in 2020, 2019, and 2018.

At the same time, we are pursuing the BLA pre-market approval process for certain of our micronized products, as more fully discussed under “Business - Government Regulation.” Following the period of enforcement discretion under the Guidance, we may need to cease selling our micronized products and other products regulated under Section 351 until the FDA approves a BLA, and then we will only be able to market such products for indications and doses that have been approved in a BLA.

The loss of our ability to market and sell our micronized products would have an adverse impact on our revenues, business, financial condition and results of operations.

In addition, we expect the cost to manufacture our products will increase due to the costs to comply with the requirements that apply to Section 351 biological products such as current cGMP and ongoing product testing costs.

Increased costs relating to regulatory compliance could have an adverse impact on our business, financial condition and results of operations.

In addition, the FDA might, at some future point, modify the scope of its enforcement discretion or change its position on which current or future products qualify as Section 361 HCT/Ps, or determine that some or all of our micronized products may not be lawfully marketed under the FDA’s policy of enforcement discretion.

Also, the Company currently markets EpiCord and AmnioCord, tissue products derived from human umbilical cord, as providing a protective environment or as a barrier.

The Company has become aware that the FDA may view the basic function of human umbilical cord as a conduit, based on warning letters to several companies marketing human umbilical cord derived products for a variety of uses, which raises the risk that the FDA will take the position that MiMedx’s marketing of human umbilical cord products may not be a homologous use.

To our knowledge, the FDA has not indicated this publically or to MiMedx however, if FDA determines that EpiCord and AmnioCord do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval under Section 351 will be required.

While we expect that the enforcement discretion period described in the 2017 Guidance would apply to the umbilical cord tissue derived products, following the period of enforcement discretion, we may need to cease selling our umbilical cord derived products until the FDA grants a pre-market approval or clearance, and then we will only be able to market such products for indications that have been cleared or approved by the FDA.

The loss of our ability to market and sell our umbilical cord derived products would have an adverse impact on our revenues, business, financial condition and results of operations.

Included in net sales were sales of umbilical cord derived products totaling $16.6 million, $17.9 million, and $14.7 million, respectively, in 2020, 2019, and 2018.

In July 2020, the FDA extended its period of enforcement discretion to May 31, 2021.

In doing so, the FDA stated,

This will give manufacturers additional time to determine if they need to submit an investigational new drug (IND) or marketing application and, if such an application is needed, to prepare the IND or marketing application.

Such additional time is warranted in light of the Coronavirus Disease 2019 (COVID-19) public health emergency, which has presented unique challenges in recruiting clinical trial participants and carrying out clinical trials.

In addition, the FDA might, at some future point, modify the scope of its enforcement discretion, or extend the period of enforcement discretion, or change its position on which current or future products qualify as Section 361 HCT/Ps, or determine that some or all of our micronized products may not be lawfully marketed under the FDA’s policy of enforcement discretion.

Any regulatory changes could have adverse consequences for us and make it more difficult or expensive for us to conduct our business by requiring pre-market clearance or approval and compliance with additional post-market regulatory requirements with respect to those products.

It is also possible that the FDA could decide it will not allow the Company to market any form of a micronized product during the rest of the 36-month enforcement discretion period without a biologics license, and it could even require the Company to recall its micronized products.

Further, under the November 2017 guidance, the FDA expressed its expectation that following the expiration of its 36-month enforcement discretion period, sales of micronized amniotic tissue will be limited to those products and indications for which applicants have received a BLA.

In April 2019, we announced that we will need more time to file and commercialize our BLAs with the FDA and that clinical trial protocol enhancements, further resources and additional capabilities and expertise will be required for commercial launch;

see Item 1, “ Business - Clinical Trials.

” While we do not track all uses of our micronized products by physicians, we believe that our micronized product is being used by physicians for more indications than those for which we presently intend to pursue BLAs, as well as in additional sizes (e.g.

If the FDA does allow the Company to continue to market a micronized form of its sheet allografts without a biologics license, the FDA may impose conditions, such as labeling restrictions and the requirement that the product be manufactured in compliance with cGMP.

It is also possible that the FDA could decide it will not allow the Company to market any form of a micronized product during the rest of the enforcement discretion period without the pre-market approval, and it could even require the Company to recall its micronized products.

We expect that following the expiration of its enforcement discretion period, sales of micronized amniotic tissue will be limited to those products and indications for which applicants have received a BLA or other pre-market approval.

Also, our micronized products may be used by healthcare professionals or physicians for more indications than those for which we presently intend to pursue BLAs, as well as in other dosages.

If the FDA does allow the Company to continue to market a micronized form of its sheet allografts within the period of enforcement discretion or any extension, the FDA may impose conditions, such as labeling restrictions, and the requirement that the product be manufactured in compliance with CGMP.

Although the Company is preparing for these requirements in connection with its pursuit of a BLA for certain of its products, earlier compliance with these conditions would require significant additional time and cost investments by the Company.

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See “ If any of the BLAs are approved, the Company would be subject to additional regulation which will increase costs and could result in adverse sanctions for non-compliance .”

If any of the BLAs are approved, the Company would be subject to additional regulation which will increase costs and could result in adverse sanctions for non-compliance.

Products subject to the FDA’s BLA requirements must comply with a range of pre- and post-market provisions.

We have been making enhancements in our fixed plant as well as incurring costs and reduced product yields from testing products to ensure quality, identity, purity, and potency.

Post-approval requirements for BLA products include:

compliance with CGMPs, which will require us to comply with promotional and labeling requirements, which limit our ability to make claims about regulated products; submission of annual reports in appropriate circumstances; compliance with the FDA’s “Biological Product Deviation Reporting System,” when applicable; submission of adverse events; reporting and correcting product problems within established timeframes; recalling or stopping the manufacture of a product if a significant problem is detected; complying with the appropriate laws and regulations relevant to the biologics licensed and identifying any changes needed to help ensure product quality.

In some instances, the FDA can also require that applicants conduct post-market studies or trials of the product.

Obtaining and maintaining the necessary regulatory approvals for certain of our products will be expensive and time consuming and may impede our ability to fully exploit our technologies .

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Additionally, the FDA may take the position that some of the other products that we currently market require a BLA as well.

Some of the future products and enhancements to our current products that we expect to develop and market may require marketing clearance or approval from the FDA.

However, clearance or approval may not be granted with respect to any of our products or enhancements and FDA review will involve delays that may adversely affect our ability to market such products or enhancements.

The process of obtaining an approved BLA requires the expenditure of substantial time, effort and financial resources and may take years to complete.

Some of the future products and enhancements to our current products that we expect to develop or may acquire and market may require marketing clearance or approval from the FDA.

However, clearance or approval may not be granted with respect to any of our products or enhancements and further FDA review may add delays that could adversely affect our ability to market such products or enhancements.

The process of obtaining an approved BLA, including clinical trial development and execution as well as manufacturing processes, requires the expenditure of substantial time, effort and financial resources and may take years to complete.

The fee for filing a BLA and program fees payable with respect to any establishment that manufactures biologics are substantial.

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Clinical trials may not be successful or may return results that do not support approval.

Moreover, data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

The FDA may not grant approval on a timely basis, or at all, or we may decide not to pursue a BLA for certain products or indications.

Moreover, data obtained from clinical trials are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

The FDA may not grant approval on a timely basis, or at all, or we may decide not to pursue a BLA for certain products or indications, or need to conduct additional trials for a given indication.

Additionally, the FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the products.

If we do receive approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Our revenues will be adversely affected if we fail to obtain BLA approvals on a timely basis or at all, if the FDA requires us to stop marketing our products until a BLA is approved, or if the FDA limits the indications for use or places other conditions that restrict the commercial application of our products.

Further, in April 2019, we announced that we will need more time than we originally anticipated to file our BLAs with the FDA.

If we do receive approval, some types of changes to the approved product, such as adding new indications or doses, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Our revenues will be adversely affected if we fail to obtain BLA approvals on a timely basis or at all, if the FDA

requires us to stop marketing our products until a BLA is approved, or if the FDA limits the indications for use or requires other conditions that restrict the commercial application of our products.

Based on a review of the studies and interim results, the Company has instituted several actions with respect to its ongoing and planned clinical trials to address the resources, capabilities, and expertise needed for commercial launch including our strategy around an increased dialogue with the FDA regarding our BLA progress.

For these reasons, we have increased enrollment in our current clinical trials, and will need to initiate additional clinical trials.

This has added expense, time, and additional uncertainty to the overall BLA approval process.

See Item 1, “ Business - Clinical Trials.

If the BLAs we seek are approved, we will incur increased compliance costs on an ongoing basis.

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We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for unapproved, or off-label, uses.

As a general rule, we can only market our 361 HCT/Ps for appropriate homologous uses and we can only promote pre-approved biological products or devices for FDA-approved indications.

Generally, unless the products are approved by the FDA for alternative uses, the FDA contends that we may not make claims about the safety or effectiveness of our products, or promote them, for such uses.

Such limitations present a risk that the FDA or other federal or state law enforcement authorities could determine that the nature and scope of our sales, marketing and support activities, though designed to comply with all FDA requirements, constitute the promotion of our products for an unapproved use in violation of the federal Food, Drug, and Cosmetic Act.

We also face the risk that the FDA or other governmental authorities might pursue enforcement based on past activities that we have discontinued or changed, including sales activities, arrangements with institutions and doctors, educational and training programs and other activities.

As a general rule, FDA regulations require the marketing of 361 HCT/Ps only for appropriate homologous uses, and the promotion of pre-approved biological products or devices for FDA-approved indications.

We also face the risk that the FDA or other governmental authorities might pursue enforcement based on past activities that we have discontinued or changed, including sales activities, prior marketing materials, arrangements with institutions and doctors, educational and training programs and other activities.

Investigations concerning the promotion of unapproved product uses and related issues are typically expensive, disruptive and burdensome and generate negative publicity.

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In addition, as a result of an enforcement action against us or any of our executive officers, we could be excluded from participation in government healthcare programs such as Medicare and Medicaid.

However, the FDA’s Guidance stated that the FDA intends to exercise enforcement discretion under limited conditions with respect to IND application and pre-market approval requirements for certain HCT/Ps through November 2020.

This means that, through November 2020, the FDA does not intend to enforce certain provisions as they currently apply to certain entities or activities.

This means that, through May 31, 2021, the FDA does not intend to enforce certain provisions as they currently apply to certain entities or activities.

During the period of enforcement discretion, we have marketed, and intend to continue to market, our micronized products while at the same time pursuing a BLA for certain of our micronized products.

We have already filed IND applications for three indications for our micronized product:

plantar fasciitis, osteoarthritis knee pain, and Achilles tendonitis.

We also intend to file additional INDs for both AmnioFill and for injectable micronized EpiFix for the treatment of DFUs or other areas of advanced wound care in the second half of 2020, but we have not yet initiated any clinical trials under an IND in furtherance of any regulatory approvals for these indications.

Nevertheless, while we believe we are in compliance with the FDA's Guidance on HCT/Ps and enforcement discretion regarding products that do not meet some or all of the HCT/P requirements, there can be no assurance that we are correct or that the FDA will not suspend its enforcement discretion and, in such cases, we may need to discontinue marketing a product and/or may be subject to fines, penalties, injunctions, and other sanctions if we are deemed to be promoting the use of our products for unapproved uses.

plantar fasciitis, knee osteoarthritis, and Achilles tendonitis.

We also intend to file the appropriate investigative application for both AmnioFill and for EpiFix Micronized, as well as an additional IND for AmnioFix Injectable in the first half of 2021;

we are currently in the clinical trial design and planning stage, but have not yet initiated any clinical trials in furtherance of any additional regulatory approvals for these products.

Nevertheless, while we believe we are in compliance with the FDA's Guidance on HCT/Ps and enforcement discretion regarding products that do not meet some or all of the HCT/P requirements, there can be no assurance that we have correctly interpreted FDA Guidance, or that the FDA will not suspend its enforcement discretion and, in such cases, we may need to discontinue marketing a product and/or may be subject to fines, penalties, injunctions, and other sanctions if we are deemed to be promoting the use of our products for unapproved uses.

Such regulatory penalties by the FDA could adversely affect our business and results of operations.

We and our sales representatives, whether employees or independent contractors, must comply with various federal and state anti-kickback, self-referral, false claims and similar laws, any breach of which could cause an adverse effect on our business, results of operations and financial condition.

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The term “remuneration” has been broadly interpreted to include anything of value.

The Patient Protection and Affordable Care Act (the “ PPACA ”) amended the federal Anti-Kickback Statute to clarify the intent that is required to prove a violation.

The Patient Protection and Affordable Care Act

(the “ PPACA ”) amended the federal Anti-Kickback Statute to clarify the intent that is required to prove a violation.

Under the federal Anti-Kickback Statute as amended, a person or entity need not have actual knowledge of this statute or specific intent to violate it.

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A conviction for violation of the Anti-Kickback Statute results in criminal fines and requires mandatory exclusion from participation in federal health care programs.

are drawn narrowly, and arrangements may be subject to scrutiny or penalty if they do not fully satisfy all elements of an available exception or safe harbor.

Although there are a number of statutory exceptions and regulatory safe harbors to the federal Anti-Kickback Statute that protect certain common industry practices from prosecution, the exceptions and safe harbors are drawn narrowly, and arrangements may be subject to scrutiny or penalty if they do not fully satisfy all elements of an available exception or safe harbor.

We have entered into consulting agreements, speaker agreements, research agreements and product development agreements with physicians, including some who may order or recommend our products or make decisions to use them.

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The Sunshine Act requires, among others, “applicable manufacturers” of drugs, devices, biological products, and medical supplies reimbursed under Medicare, Medicaid or the Children’s Health Insurance Program to annually report to CMS information related to payments and other transfers of value provided to “covered recipients.” The term covered recipients includes U.S.-licensed physicians and teaching hospitals, and, for reports submitted on or after January 1, 2022, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.

While manufacturers of human cell and tissue products regulated solely under Section 361 are not subject to the Sunshine Act, in the future, if we receive a BLA, we will be subject to this law.

There is also risk that CMS or another government agency may take the position that our products are not human cell and tissue products regulated solely under Section 361, and thereby assert that we are currently subject to the Sunshine Act, which could subject us to civil penalties and the administrative burden of having to comply with the law.

While manufacturers of human cell and tissue products regulated

solely under Section 361 are not subject to the Sunshine Act, in the future, if we receive a BLA, we will be subject to this law.

There is the risk that CMS or another government agency may take the position that our products are not human cell and tissue products regulated solely under Section 361, and thereby assert that we are currently subject to the Sunshine Act, which could subject us to civil penalties and the administrative burden of having to comply with the law.

There are state law equivalents to the Anti-Kickback Statute and FCA.

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Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.

We may be subject to fines, penalties, injunctions and even criminal sanctions if we are deemed to have made a misstatement of compliance to a federal agency.

Products that are subject to pre-approval as biologicals must also be manufactured in accord with cGMP.

In August 2013, the FDA sent the Company an Untitled Letter asserting that its micronized amniotic allografts were unapproved biologics.

The Company disputed the FDA’s position at the time and filed various appeals but ultimately agreed during the appeals process to pursue BLAs for certain products, but the transition to cGMP compliance for micronized products sold commercially was a larger task.

In February 2016, the FDA inspected the Company’s Marietta facility against cGMP requirements for the commercially available product.

The transition to cGMP compliance was underway, but the work was in its initial stages.

At the close of the inspection, the FDA issued a Form 483 that included 13 observations.

In response, the Company developed an action plan (the “Action Plan”).

The Action Plan, which was shared with FDA, called for a systematic approach to the work and provided a vehicle to update the FDA on progress.

Over the course of the next year, the site did substantial work to transition to cGMP for the commercially available, micronized product and filed several updates with the FDA.

In February 2017, the Company sent a close-out letter to the FDA that indicated the work under the Action Plan had been completed.

That letter overstated our state of compliance in regard to the commercially available product.

The goal of the letter was to communicate the substantial progress to the FDA and to indicate that the work under the Action Plan had been completed.

The site continues to transition to cGMP compliance for its micronized products, and we expect to complete the work by November 2020 when the FDA’s industry-wide exercise of enforcement discretion for products like our micronized allografts expires.

Exaggeration or misstatement of compliance to a federal agency creates regulatory risk.

If the government were to take issue with the letter, it could take any number of actions adverse to the Company.

These include issuing a warning letter, terminating the current exercise of enforcement discretion with respect to the sale of micronized products and initiating a civil judicial action against the Company and opening a criminal investigation.

Each of these potential actions would be disruptive to the Company’s operations, consume considerable resources and potentially prohibit sales of certain products and adversely affect our business, financial condition and results of operations.

In July 2019, the Company formally notified the FDA that its February 2017 correspondence overstated the Company’s state of cGMP compliance.

In December 2019, the FDA conducted a cGMP audit of each of the Company’s two manufacturing facilities.

At the close of the inspection the FDA issued two Form 483s (one for each facility).

The Company timely responded to the Form 483s.

See the discussion under “Item 1.

Business - Processing (Manufacturing).”

Our results of operations may be adversely affected by current and potential future healthcare reforms.

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In January 2013, the American Taxpayer Relief Act was signed into law, which, among other things, further reduced Medicare payments to several provider types, including hospitals.

The current U.S.

Presidential Administration and certain members of the U.S.

Congress have stated that they will seek to modify, repeal or otherwise invalidate all, or certain provisions of, the PPACA.

In 2017, the U.S.

President signed an executive order which stated that it is the policy of his Administration to seek the prompt repeal of the PPACA and directed executive departments and federal agencies to waive, defer, grant exemptions from or delay the implementation of the provisions of the PPACA to the maximum extent permitted by law.

Additionally, the House and Senate attempted, but failed, to pass legislation to repeal all or portions of the PPACA, and these efforts may be resumed.

In December 2017, the U.S.

President signed the Tax Cuts and Jobs Act, which,

among numerous other actions, repealed the individual mandate of the PPACA, effective on January 1, 2019.

In December 2018, a federal district court in Texas ruled the individual mandate was unconstitutional and could not be severed from the PPACA.

As a result, the court ruled the remaining provisions of the PPACA were also invalid, though the court declined to issue a preliminary injunction with respect to the PPACA.

The court’s ruling was appealed to the U.S.

Court of Appeals for the Fifth Circuit.

On March 25, 2019, the DOJ reversed its prior position and stated in a legal filing with the Fifth Circuit that the district court’s ruling that the PPACA was invalid should be upheld.

In December 2019, the Fifth Circuit agreed that the individual mandate was unconstitutional, but remanded the case back to the district court to reassess how much of the PPACA would be damaged without the individual mandate provision, and if the individual mandate could indeed be severed.

In January 2020, 21 state Attorneys General urged the Supreme Court of the United States to decide whether or not the PPACA should be struck down as unconstitutional, claiming that the Fifth Circuit erroneously remanded the case to the district court.

The House of Representatives filed a similar petition and motion.

The state Attorneys General and the House of Representatives also filed motions to expedite the Supreme Court’s decision to review the case, which the Supreme Court subsequently denied.

This litigation is still ongoing, and places great uncertainty upon the longevity and nature of the PPACA moving forward.

In addition, further legislative changes to and regulatory changes under PPACA remain possible.

In addition to the ACA, the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) repealed the Sustainable Growth Rate formula used to calculate Medicare payment updates for physicians providing services to Medicare beneficiaries.

In its place, MACRA introduced the Quality Payment Program (“QPP”), which is a value-based program that focuses on quality and outcomes as a metric for physician reimbursement.

The Centers for Medicare and Medicaid Services released its final rules for the QPP in October 2016.

The QPP, which impacts more than 600,000 physicians and other practice-based clinicians, represents a fundamental change in physician reimbursement, transitioning from a system that solely rewards volume of care to one that also rewards quality and value of care.

The rule may have an impact on our revenue in the future.

The program’s increased emphasis on quality and cost of care may encourage physicians to merge practices or seek direct employment with hospitals.

In addition, the ACA encourages hospitals and physicians to work collaboratively through shared savings programs as well as other bundled payment initiatives.

These shifts could lead to a consolidation of hospital providers into larger delivery networks with increased price negotiation strength resulting in downward pressure on our selling prices.

Although we believe that we are well positioned to minimize any such impact on our business, our inability to address the consolidation trend could materially and adversely affect our business and results of operations.

There is uncertainty with respect to the impact the U.S.

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We may fail to obtain or maintain foreign regulatory approvals to market our products in other countries.

We currently market our products internationally and intend to consider expansion of our international marketing.

International jurisdictions require separate regulatory approvals and compliance with numerous and varying regulatory requirements.

We currently market our products in a small number of foreign countries, and intend to expand our international marketing.

Foreign jurisdictions require separate regulatory approvals and compliance with numerous and varying regulatory requirements.

The approval procedures vary among countries and may involve requirements for additional testing.

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If we fail to receive necessary approvals, certifications, or reimbursements necessary to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, results of operations and financial condition could be adversely affected.

Further, governmental authorities outside the U.S.

have become increasingly stringent in their regulation of medical devices, and our products may become subject to more rigorous regulation by non-U.S.

governmental authorities in the future.

government regulations may be imposed in the future that may have a material adverse effect on our business and operations.

Federal and state laws that protect the privacy and security of personal information may increase our costs and limit our ability to collect and use that information and subject us to liability if we are unable to fully comply with such laws.

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One relevant state law is the California Consumer Protection Act (“ CCPA ”), which became effective on January 1, 2020.

The CCPA is a privacy bill that requires certain companies doing business in California to disclose information regarding the collection and use of a consumer’s personal data and to delete a consumer’s data upon request.

The CCPA is a privacy law that requires certain companies doing business in California to disclose information regarding the collection and use of a consumer’s personal data and to delete a consumer’s data upon request.

The Act also permits the imposition of civil penalties and expands existing state security laws by providing a private right of action for consumers in certain circumstances where consumer data is subject to a breach.

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Such adverse decisions could negatively impact our business, results of operations, and financial condition.

See Item 3, “ Legal Proceedings ” for information regarding our ongoing patent infringement lawsuits and related inter partes review proceedings.

In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

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This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights.

For example, some foreign countries have compulsory licensing laws

under which a patent owner must grant licenses to third parties.

For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties.

In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors.

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Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties.

Further, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our trade secrets or other confidential information could be compromised by inadvertent or court-ordered disclosure during this type of litigation.

We may be subject to damages resulting from claims that we, our employees, or our independent contractors have wrongfully used or disclosed alleged trade secrets, proprietary or confidential information of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

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We have identified material weaknesses in our internal control over financial reporting, and we have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2020.

If we fail to properly remediate these or any future material weaknesses or deficiencies, further material misstatements in our financial statements could occur and impair our ability to produce accurate and timely financial statements, preclude us from relisting our stock on a securities exchange, require significant expenditure of financial and other resources, give rise to litigation against us and otherwise affect our business, financial condition and operating results.

We have concluded that our internal control over financial reporting was not effective as of December 31, 2019 due to the existence of material weaknesses in such controls and we have also concluded that our disclosure controls and procedures were not effective as of December 31, 2019 due to material weaknesses in our control over financial reporting, all as described in Item 9A, “Controls and Procedures,” of this Form 10-K.While we continued meaningful remediation efforts during 2019 to address the identified weaknesses, we were not able to fully remediate our material weaknesses in internal controls as of December 31, 2019.

If we fail to properly remediate these or any future material weaknesses or deficiencies, further material misstatements in our financial statements could occur and impair our ability to produce accurate and timely financial statements, affect our ability to keep our stock listed on a securities exchange, require significant expenditure of financial and other resources, give rise to litigation against us and otherwise affect our business, financial condition and operating results.

We have concluded that our internal control over financial reporting was not effective as of December 31, 2020 due to the existence of material weaknesses in such controls and we have also concluded that our disclosure controls and procedures were not effective as of December 31, 2020 due to material weaknesses in our control over financial reporting, all as described in Item 9A, “Controls and Procedures,” of this Form 10-K.

While we continued meaningful remediation efforts during 2020 to address the identified weaknesses, we were not able to fully remediate our material weaknesses in internal controls as of December 31, 2020.

In addition, one or more additional material weaknesses in our internal control over financial reporting might arise or be identified in the future.

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If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed.

Failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our Common Stock, subject us to further regulatory investigations and penalties or shareholder litigation, and adversely impact our business, results of operations and financial condition.

Matters relating to and arising out of the Audit Committee Investigation, including the accounting review of our previously issued consolidated financial statements and the audits of fiscal years 2018, 2017 and 2016, have been time consuming and expensive, and may result in additional expense.

We incurred significant expenses in connection with the Investigation, and we are continuing to incur significant expenses, including audit, legal, consulting and other professional fees, in connection with the ongoing review of our accounting practices and systems, the audit of our financial statements and the remediation of deficiencies in our internal control over financial reporting.

Specifically, in connection with the Audit Committee Investigation, audit and compliance efforts and related litigation, the Company incurred Investigation, Restatement and related expenses in the aggregate amount of approximately $60.5 million and $51.3 million for the years ended December 31, 2019 and 2018, respectively.

We expect to incur expenses in 2020 despite the conclusion of the Investigation and completion of the Restatement, because litigation involving the Company and/or its former officers and directors remains unsettled, and we are obligated to advance the costs of defense to our current and former officers and directors in those matters.

See Note 16, “ Commitments and Contingencies.” To the extent our remediation efforts are unsuccessful or incomplete, or we identify additional problems requiring remediation, our management may be required to devote significant additional time to such efforts and we may be forced to incur significant additional expenses, including legal and accounting expenses.

The incurrence of significant additional expense, or the requirement that management devote significant time that could reduce the time available to execute on our business strategies, could have an adverse effect on our business, results of operations and financial condition.

Matters relating to or arising from the Restatement and the Audit Committee Investigation have had and could continue to have an adverse effect on our business, results of operations and financial condition.

We have been and could continue to be the subject of negative publicity focusing on the Restatement and the results of the Investigation.

Failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor confidence in our

management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our Common Stock, subject us to further regulatory investigations and penalties or shareholder litigation, and adversely impact our business, results of operations and financial condition.

Negative publicity, including publicity relating to or arising from the Restatement, the Audit Committee Investigation, or related matters, has had and could continue to have an adverse effect on our business, results of operations and financial condition.

We have been and could continue to be the subject of negative publicity focusing on the Restatement, the results of the Investigation, and related matters.

As a result, our customers and others with whom we do business have voiced concerns regarding the effort required to address our accounting and control environment and our ability to be a long-term provider to our customers.

Further negative publicity could adversely affect our business, financial condition and results of operations.

We are currently, and may in the future be, subject to substantial litigation and ongoing investigations that could cause us to incur significant legal expenses and result in harm to our business.

We have incurred significant legal and accounting expenditures as a result of the Restatement and have become subject to a number of additional risks and uncertainties, including being a party to certain litigation relating to the Restatement.

“Legal Proceedings” and Item 8 -- Note 14, “Commitments and Contingencies” for additional information.

As a result of the Restatement, we may continue to be at risk for further government investigations, shareholder litigation, and additional accounting and legal fees in connection therewith, as well as loss of investor confidence in us, and a negative impact on our stock price.

We are currently, in the past have been, and in the future may be, subject to substantial litigation and ongoing investigations that could cause us to incur significant legal expenses, divert management’s attention, and result in harm to our business.

We are exposed to potential liabilities and reputational risk associated with litigation, regulatory proceedings and government enforcement actions.

See Item 3, “ Legal Proceedings ” and Note 16, “Commitments and Contingencies ” in the Consolidated Financial Statements for information regarding proceedings that we believe may be material to the Company as of the date of the filing of this Form 10-K.

For example, we are party to a securities class action lawsuit alleging, among other things, violations of Section 10(b) of the Securities Exchange Act of 1934.

See Item 3, “Legal Proceedings” and Item 8 -- Note 14, “Commitments and Contingencies” in the Consolidated Financial Statements for information regarding proceedings that we believe may be material to the Company as of the date of the filing of this Form 10-K.

We may be subject to additional lawsuits, including class action or securities derivative lawsuits, and further government investigations as well as incur additional legal fees and may face negative impacts to our stock price and reputation.

In addition, we are obligated to indemnify and advance expenses to certain individuals involved in certain of these proceedings.

Further, volatility in our stock price may also make us vulnerable to future class action litigation.

Any adverse judgment in or settlement of any pending or any future litigation could result in payments, fines and penalties that could adversely affect our business, results of operations and financial condition.

Regardless of the outcome, legal proceedings have resulted in, and may continue to result in, significant legal fees and expenses, diversion of management’s time and other resources, and adverse publicity.

Such proceedings could also adversely affect our business, results of operations and financial condition.

Our Common Stock might not be relisted, or once relisted, it might not remain listed.

Because we are not current in filing our periodic reports with the SEC, we were unable to comply with the listing standards of Nasdaq, and our Common Stock was suspended from trading on The Nasdaq Capital Market effective November 8, 2018 and was subsequently delisted effective March 8, 2019.

We have taken initial steps to relist our Common Stock.

However, we may not be able to complete the requirements to relist in an expeditious manner or at all.

Even if our Common Stock is relisted, an active trading market may not develop or, if one develops, may not continue.

The lack of an active trading market may limit the liquidity of an investment in our Common Stock, meaning you may not be able to sell any shares of Common Stock you own at times, or at prices, attractive to you.

Any of these factors may adversely affect the price of our Common Stock.

Any adverse judgment in or settlement of any pending or any future litigation could result in significant payments, fines and penalties that could have a material adverse effect on our business, results of operations, financial condition and reputation.

Such payments, damages or settlement costs, if any, related to these matters could be in excess of our insurance coverage.

The amount of time that is required to resolve these lawsuits is unpredictable and any litigation or claims against us, even those without merit, may cause us to incur substantial costs, divert management’s attention from the day-to-day operation of our business, and materially harm our reputation.

Risks Related to the Securities Markets and Ownership of Our Common Stock

EW Healthcare Partners may have influence over us, and its interests may conflict with those of our other shareholders.

Our substantial indebtedness may adversely affect our financial health.

On July 2, 2020, the Company borrowed an aggregate of $50 million and obtained an additional committed but undrawn $25 million facility (the “ Hayfin Loan Agreement ”).

See Item 8, Note 8, “ Long-Term Debt .”

Our substantial outstanding debt may limit our ability to borrow additional funds or may adversely affect the terms on which such additional funds may be available.

Additionally, a default under certain other indebtedness constitutes an event of default under the Hayfin Loan Agreement.

The Hayfin Loan Agreement imposes operating and financial restrictions and covenants.

For example, the Hayfin Loan Agreement contains (a) certain covenants that impose certain reporting and/or performance obligations on the Company and its subsidiaries, including (i) a maximum Total Net Leverage Ratio (as defined in the Hayfin Loan Agreement) of 5.0x through the quarter ended December 31, 2020, stepping down to 4.5x through the quarter ending June 30, 2021 and to 4.0x thereafter until maturity at June 30, 2025, in each case tested quarterly;

There can be no assurances that we will be able to repay all such amounts or be able to find alternative financing in case of such or other event of a default.

Borrowings under the Hayfin Loan Agreement bear interest at a per annum rate equal to London Interbank Offered Rate (“ LIBOR ”), subject to a “floor” of 1.5%, plus a margin ranging from 6.0% to 6.75% based on our Total Net Leverage Ratio as defined in the Hayfin Loan Agreement.

As a result, we are exposed to interest rate risk, which we do not hedge.

If LIBOR rises, the interest rate on outstanding borrowings under the Hayfin Loan Agreement will increase.

EW Healthcare Partners and its interests may conflict with those of our other shareholders.

On July 2, 2020, we issued 90,000 shares of Series B Preferred Stock to an affiliate of EW Healthcare Partners (“ EW Healthcare Partners ”) pursuant to the Securities Purchase Agreement.

As of July 2, 2020, EW Healthcare Partners and their affiliates own 90% of the outstanding shares of Series B Preferred Stock which would result, upon conversion, in an ownership interest of approximately 17.2% of our Common Stock (calculated on the basis set forth under Item 12, “ Security Ownership Of Certain Beneficial Owners And Management” below).

Also, for as long as EW Healthcare Partners and its affiliates collectively hold at least (i) 10% of the outstanding shares of our Common Stock (calculated on an as converted basis), EW Healthcare Partners has the right to designate two directors to our board and (ii) (ii) 5% (but less than 10%) of the outstanding shares of our outstanding Common Stock (calculated on an as converted basis), EW Healthcare Partners has the right to designate one individual to serve on our Board.

As of December 31, 2020, EW Healthcare Partners and their affiliates own 90% of the outstanding shares of Series B Preferred Stock which would result, upon conversion into shares of Common Stock, in an ownership interest of approximately 17.2% of our Common Stock (calculated on the basis set forth under Item 12, “ Security Ownership Of Certain Beneficial Owners And Management” below).

Also, for as long as EW Healthcare Partners and its affiliates collectively hold at least (i) 10% of the outstanding shares of our Common Stock (calculated on an as converted basis), EW Healthcare Partners has the right to designate two directors to our Board and (ii) 5% (but less than 10%) of the outstanding shares of our outstanding Common Stock (calculated on an as converted basis), EW Healthcare Partners has the right to designate one individual to serve on our Board.

Such individuals will initially be preferred directors and therefore not subject to election by the holders of Common Stock.

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Holders of shares of Series B Preferred Stock have rights, preferences and privileges that are not held by, and are preferential to, the rights of, our common shareholders.

Holders of shares of Series B Preferred Stock are entitled to cumulative dividends at a rate of 4.0% per annum until July 2 , 2021 and 6.0% per annum thereafter, in each case compounding quarterly in arrears.

Holders of shares of Series B Preferred Stock are entitled to cumulative dividends at a rate of 4.0% per annum until June 30, 2021 and 6.0% per annum thereafter, in each case compounding quarterly in arrears.

The dividends are payable quarterly in whole or in part, in cash.

However, the Company may, at its option, elect to not pay any such dividend and to instead accrue the amount of such dividend.

However, the Company may, at its option, elect not to pay any such dividend in cash and instead to accrue the amount of such dividend.

The payment of regular dividends in cash to the holders of Series B Preferred Stock could impact our liquidity and reduce the amount of cash available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes.

If we elect to accrue the dividends in lieu of paying them in cash, holders of Common Stock could effectively be diluted because such accrual of dividends will increase the number of shares of Common Stock into which the Series B Preferred Stock would then be convertible.

If we elect to accrue the dividends in lieu of paying them in cash, holders of

Common Stock could effectively be diluted because such accrual of dividends will increase the number of shares of Common Stock into which the Series B Preferred Stock would then be convertible.

Our obligations to the holders of Series B Preferred Stock could also limit our ability to obtain additional equity or debt financing or increase our borrowing costs, which could have an adverse effect on our financial condition.

The Series B Preferred Stock ranks senior to our Common Stock with respect to dividends and distributions on liquidation, winding-up, and dissolution.

Upon a liquidation, dissolution, or winding-up of the Company, each share of Series B Preferred Stock will be entitled to receive $1,000 per share (subject to adjustment), plus any accrued and unpaid dividends.

Upon a liquidation, dissolution, or winding-up of the Company, holders of Series B Preferred Stock will be entitled to receive $1,000 per share of Series B Preferred Stock (subject to adjustment), plus any accrued and unpaid dividends.

This amount will be payable prior to any distribution of our available assets to the holders of our Common Stock.

Holders of Series B Preferred Stock generally are entitled to vote together as a single class with the holders of the shares of Common Stock, on an as converted basis, on all matters submitted for a vote of holders of our Common Stock subject to certain limitations on their voting rights contained in the related Articles of Amendment.

Additionally, certain matters will require the approval of the holders of the majority of the outstanding shares of Series B Preferred Stock, voting as a separate class, including the following:

Additionally, certain matters will require the approval of the holders of the majority of the outstanding shares of Series B Preferred Stock, voting as a separate class, including the following actions:

• any changes to the rights, preferences, or privileges of the Series B Preferred Stock;

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The preferential rights of the Series B Preferred Stock could also result in divergent interests between the holders of Series B Preferred Stock and our common shareholders.

See Item 9B - “ Other Information ” for more information regarding our Series B Preferred Stock.

See Item 8, Note 10, “ Equity ” for more information regarding our Series B Preferred Stock.

Our Series B Preferred Stock is convertible into shares of our Common Stock, and any such conversion may dilute the value of our Common Stock.

Holders of shares of Series B Preferred Stock have the right, at their option, to convert each share of Series B Preferred Stock into shares of our Common Stock, except that no holder may convert its shares of Series B Preferred Stock into shares of Common Stock if such conversion would result in such holder and its affiliates holding more than 19.9% of the aggregate voting power of our Common Stock or beneficially owning in excess of 19.9% of our then-outstanding shares of Common Stock.

Additionally, each share of Series B Preferred Stock (including any accrued and unpaid dividends) will automatically convert into shares of our Common Stock at any time after July 2 , 2022, provided that our Common Stock has traded at 200% or more of the then conversion price for 20 out of 30 consecutive trading days preceding, and as of the close of trading on the date immediately prior to conversion.

Additionally, each share of Series B Preferred Stock (including any accrued and unpaid dividends) will automatically convert into shares of our Common Stock at any time after July 2, 2023, provided that our Common Stock has traded at 200% or more of the then conversion price (i) for 20 out of 30 consecutive trading days preceding, and (ii) as of the close of trading on the date immediately prior to conversion.

The conversion of Series B Preferred Stock may significantly dilute our common shareholders and adversely affect both our net income per share of Common Stock and the market price of our Common Stock.

Our Common Stock has been delisted from The Nasdaq Capital Market, which may negatively impact the trading price of our Common Stock and the levels of liquidity available to our shareholders.

The trading of our Common Stock was suspended from the Nasdaq Capital Market in November 2018 and delisted in March 2019.

It is currently quoted on the “over the counter” market operated by the OTC Markets Group, Inc.

under the symbol “MDXG,” which may negatively impact the trading price of our Common Stock and the liquidity available to our shareholders.

Our Common Stock is subject to SEC rules and regulations relating to the market for penny stocks.

A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share.

On June 15, 2020, the last sale price per share of our Common Stock as reported on the OTC Markets was $3.65.

If our Common Stock is or becomes subject to regulation as a penny stock, such regulations may severely affect the market liquidity for our Common Stock and could limit the ability of shareholders to sell securities in the secondary market.

Accordingly, investors in our Common Stock may find it more difficult to dispose of or obtain accurate quotations as to the market value of our Common Stock, and there can be no

assurance that our Common Stock will continue to be eligible for trading or quotation on the over the counter market or any other alternative exchanges or markets.

Further, the delisting of our Common Stock from The Nasdaq Capital Market may adversely affect our ability to raise additional capital through public or private sales of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our Common Stock.

Such delisting may also have other negative effects, including the potential loss of confidence of employees, the loss of institutional investor interest, and fewer business development opportunities.

Furthermore, because of the limited market and low volume of trading in our Common Stock that could occur, the share price of our Common Stock could be disproportionately affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’s perception of our business and announcements made by us, our competitors, parties with whom we have business relationships or third parties.

The price of our Common Stock has been, and will likely continue to be, volatile.

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The market price of our Common Stock could be impacted by a variety of factors, including:

• Our prior delisting from Nasdaq, and then subsequent re-listing on Nasdaq;

• Fluctuations in stock market prices and trading volumes of similar companies or of the markets generally;

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• Removal of our products from the FSS, or changes in how government accounts purchase products such as ours or in the price for our products to government accounts;

• Activities of market participants and investors, including analysts and MiMedx shareholders;

• Material amounts of short-selling of our Common Stock;

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Price volatility or a decrease in the market price of our Common Stock could have an adverse effect on our ability to raise capital, liquidity, business, financial condition and results of operations.

Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the stock price.

We have conducted extensive investor relations outreach to the investment analysts community with the goal of attracting analyst coverage.

However, at this time, only one securities analyst provides coverage on us, and we compensate that analyst’s firm.

T here can be no assurance that any other analysts will cover our stock or, if they do, that they will continue to report on our common stock or that additional analysts will initiate reporting on our common stock.

If we fail to attract the coverage or securities analysts, or if securities analysts discontinue covering our common stock, the lack of research coverage may adversely affect the actual and potential market price of our common stock.

The trading market for our common stock may be affected in part by the research and reports that industry participants, industry analysts or financial analysts publish about our business.

If one or more analysts elect to cover us and then downgrade the stock, the stock price would likely decline rapidly.

If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline.

Fluctuations in revenue or results of operations could cause additional volatility in our stock price.

Any unanticipated shortfall in our revenue in any fiscal quarter could have an adverse effect on our results of operations in that quarter.

The effect on our net income of such a shortfall could be exacerbated by the relatively fixed nature of most of our costs,

which primarily include personnel costs as well as facilities costs.

The effect on our net income of such a shortfall could be exacerbated by the relatively fixed nature of most of our costs, which primarily include personnel costs as well as facilities costs.

These fluctuations could cause the trading price of our stock to be negatively affected.

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Additionally, our organizational documents contain provisions:

authorizing the issuance of blank check preferred stock; restricting persons who may call shareholder meetings; providing for a classified Board; permitting shareholders to remove directors only “for cause” and only by super-majority vote; and providing the Board with the exclusive right to fill vacancies and to fix the number of directors.

• authorizing the issuance of blank check preferred stock;

• restricting persons who may call shareholder meetings;

• providing for a classified Board;

• permitting shareholders to remove directors only “for cause” and only by super-majority vote; and

• providing the Board with the exclusive right to fill vacancies and to fix the number of directors.

These provisions of Florida law and our articles of incorporation and bylaws could negatively affect our share price, prevent attempts by shareholders to remove current management, prohibit or delay mergers or other takeovers or changes of control of the Company and discourage attempts by other companies to acquire us, even if such a transaction would be beneficial to our shareholders.

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

What changed 10-K

Item 1A. Risk Factors