What changed in this filing

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Item 1A. Risk Factors

2023-02-28 compared with 2022-02-28 · 113 added, 127 removed, 604 unchanged (28% of the section changed)

12 unchanged sentences

• Our products depend on the availability of tissue from human donors, and any disruption in supply could adversely affect our business.

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

• Public health emergencies, such as the COVID-19 pandemic and the governmental and societal responses thereto have adversely affected our business in the past and future outbreaks could harm our business in the future.

• 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.

• Our revenues depend on adequate reimbursement from public and private insurers and health systems and changes to the way in which our products are reimbursed in various sites of service could adversely impact our financial results.

• Our revenue, results of operations and cash flows may suffer upon the loss of a Group Purchasing Organization or Integrated Delivery Network.

• We contract with independent sales agents and distributors.

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• 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.

• The formation of physician-owned distributorships 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.

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

• Certain of our products no longer 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”), which has resulted in removal of the applicable products from the market, made the introduction of some new tissue products more expensive, significantly delayed the expansion of our tissue product offerings and subjected us to additional post-market regulatory requirements.

• Certain of our products no longer qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act, which has resulted in removal of the applicable products from the market, made the introduction of some new tissue products more expensive, significantly delayed the expansion of our tissue product offerings and subjected us to additional post-market regulatory requirements.

Additional regulatory requirements may be imposed in the future.

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

Our priorities in our advanced wound care and surgical recovery business are to address large, underpenetrated market opportunities, domestically and internationally, including by launching new organic or inorganic products.

Our priorities in our Advanced Wound Care and Surgical Recovery Wound & Surgical business are to address large, underpenetrated market opportunities, domestically and internationally, including by launching new organic or inorganic products.

We intend to implement and maintain rigorous CGMP standards throughout our entire supply chain and continue to advance the scientific body of evidence substantiating clinical efficacy, economic viability and the underlying mechanism of action for our PURION processed placental tissue platform through additional peer-reviewed publications, rigorous scientific research and clinical studies.

We are also focused on pursuing FDA approval for mdHACM as a platform technology to treat musculoskeletal degeneration across multiple indications, beginning with initiating a Phase 3 KOA program.

We are also focused on pursuing FDA approval for mDHACM as a platform technology in our Regenerative Medicine segment to treat musculoskeletal degeneration across multiple indications, and initiated a post-Phase 2B registrational KOA program study in February 2023.

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

4 unchanged sentences

Our business is in a very competitive and evolving field.

Competition from other tissue processors, medical device companies, and biotherapeutic companies, and from research and academic institutions, is intense, expected to increase and subject to rapid change and could be significantly affected by new product introductions.

Established competitors and newer market entrants are investing in additional clinical research that may allow them to gain further clinician usage, adoption and payer coverage of their products.

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Rapid technological change could cause our products to become obsolete and, if we do not enhance our product offerings through our research and development efforts, we may be unable to compete effectively.

The technologies underlying our products are subject to rapid and profound technological change.

The technologies underlying our products are subject to rapid technological change.

Competition intensifies as technical advances in each field are made and become more widely known.

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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.

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.

Our products depend on the availability of tissue from human donors, and any disruption in supply could adversely affect our business.

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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.

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

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.

1 unchanged sentence

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 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 COVID-19 pandemic may continue to adversely affect our operations and increase our costs and expenses in numerous ways.

Public health emergencies, such as the COVID-19 pandemic and the governmental and societal responses thereto have adversely affected our business, results of operations and financial condition in the past, and future outbreaks could harm our business, results of operations, and financial condition in the future.

The COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition and future public health emergencies could have similar and wide-ranging impacts to our business.

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

Public health emergencies such as these have the potential 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.

We may experience shortages of donated placentas if donors or our recovery specialists are excluded from hospitals, or if other disruptions occur.

We experienced interruptions from a portion of our hospitals in certain geographic areas in the first half of 2020, in late 2021 and in early 2022.

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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, including further strains, 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.

Additionally, we may experience shortages of donated placentas if additional testing protocols are implemented for donated tissues based on guidance issued by the AATB, 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 in the initial stages of the pandemic screening employees for COVID-19 prior to entering our facilities, implementing a number of safety protocols, partnering with a testing facility to provide test kits and rapid results for employees that have symptoms or have a known risk of exposure, and supplying appropriate employees with personal protective equipment.

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 widescale infections among our production staff, we may experience a shortage of finished goods.

– Our ability to sell our products was 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.

However, the manufacturing space is a confined space area in which an infected employee may spread viruses such as the flu and COVID-19 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, however, there can be no assurance that our efforts to prevent wide-scale infections among our processing staff will continue to be successful.

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

• Our ability to sell our products was previously hampered by the COVID-19 pandemic.

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

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 2020.

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 earlier waves,

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 subsequently concluded enrollment in and completed our three IND trials, but plan to initiate new trials in 2022.

This had adverse effects on our revenues for periods of time in the past.

We are not able to estimate the future effect of COVID-19 or other public health emergencies 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 have experienced restrictions in their access to hospitals and ability to access other healthcare providers, which has slowed enrollment in our clinical trials in the past.

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

See “ Certain of our products no longer 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”), which has resulted in removal of the applicable products from the market, made the introduction of some new tissue products more expensive, significantly delayed the expansion of our tissue product offerings and subjected us to additional post-market regulatory requirements.

Additional regulatory requirements may be imposed in the future.”

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 taken in connection therewith, 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 affected and may continue to adversely affect our revenues and results of operations.

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

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

We do not yet know the full extent of delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole, or how long such effects will endure.

The effects of the COVID-19 pandemic or other health epidemics could have an adverse impact on our business, results of operations and financial condition.

The effects of the COVID-19 pandemic or other public health emergencies could have an adverse impact on our business, results of operations and financial condition.

We depend on our senior leadership team and may not be able to retain or replace these employees or recruit additional qualified personnel, which would harm our business, results of operations and financial condition.

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 replaced a majority of our senior leadership team, and hired several new senior leaders.

Since June 2018, we have made significant changes to our senior leadership team, and hired several new senior leaders.

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

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

Any disruption of our products on the 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.

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

Any disruption of our products on the FSS 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.

Our revenues depend on adequate reimbursement from public and private insurers and health systems and changes to the ways in which our products are reimbursed in various sites of service could adversely impact our financial results.

Our success depends on the extent to which our customers receive adequate reimbursement for the costs of our products and related treatments from third-party payers, including government healthcare programs, such as Medicare and Medicaid, as well as private insurers and health systems.

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

Although EPIFIX and EPICORD have 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.

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

Although EPIFIX and EPICORD have coverage with the majority of large payers, a significant number of public and private insurers currently do not cover or reimburse our other products.

The reimbursement landscape for our products varies depending upon the site in which the products are administered.

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

Inadequate reimbursement levels would likely also create downward price pressure on our products.

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.

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 four 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 Group Purchasing Order or Integrated Delivery Network.

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

Recently, several wide-ranging proposals have been published for public comment, including relating to payment methodology within the physician office, and are under consideration by the U.S.

Centers for Medicare and Medicaid Services (CMS).

In addition, three Medicare Administrative Contractors (MACs) have recently published for public comment changes to their Local Coverage Determinations (LCDs) that they are considering.

If adopted, these proposals would significantly change Medicare policies

governing the reimbursement of skin substitute products principally when used for wound treatment in the private physician office setting.

The LCDs in the proposals could adopt a new standard of clinical evidence required as a prerequisite to coverage.

In addition, the proposals all require a confirmation that the products are regulated solely under Section 361 of the Public Health Service Act as a prerequisite to continued coverage.

We have the required confirmation for EPIFIX, but not currently for EPICORD.

The proposed LCDs also include language that could lower the number of allowed applications of a product below what is commonly used in standard practice by physicians today (supported by clinical evidence) and reflected by LCDs currently in force with the MACs.

The Company as well as industry stakeholders across the wound care industry do not support lowering the applications.

Changes in the coverage and reimbursement environment as described above could result in declines in our revenue that would adversely affect our business, financial condition and results of operation.

Our revenue, results of operations and cash flows may suffer upon the loss of a Group Purchasing Organization or Integrated Delivery Network.

As with many manufacturers in the healthcare space, the Company contracts with Group Purchasing Organizations ( “ GPOs ” ) and Integrated Delivery Networks ( “ IDNs ” ) to establish contracted pricing and terms and conditions for the members of GPOs and IDNs.

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In 2022, approximately 22% of our sales were through our relationships with independent agents, and we also use a small number of distributors, primarily outside the United States, and may use more in the future.

(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 ” to our consolidated audited consolidated financial statements included in Item 8, Consolidated Financial Statements and Supplementary Data.

(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 12, Revenue to our audited consolidated financial statements included in Item 8, Consolidated Financial Statements and Supplementary Data .

If our relationships with our independent sales agents were terminated for any reason, it could materially and adversely affect our revenues and profits.

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Some of our independent sales agencies and distributors do not sell our products exclusively and may offer similar products from other companies.

Our independent sales agencies and distributors may terminate their contracts with us, may devote insufficient sales efforts to our products or may focus their sales efforts on other products that produce greater commissions for them, which could have an adverse effect on our business, results of operations and financial

We also may not be able to find additional independent sales agencies and distributors who will agree to appropriately and compliantly market or distribute our products on commercially reasonable terms, if at all.

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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 above, 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.

See above, for example, “ - Public health emergencies, such as the COVID-19 pandemic and governmental and societal responses thereto have adversely affected our business, results of operations and financial condition in the past, and future outbreaks could harm our business, results of operations, and financial condition in the future.”

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

For clinical trial requirements of our Section 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, if our processing facilities were to become unavailable, this could have a material adverse effect on our business, financial condition and results of operations during the period of such unavailability.

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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.

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

The utilization of human tissue creates the potential for transmission of communicable disease, including, without limitation, human immunodeficiency virus, viral hepatitis, syphilis and other viral, fungal or bacterial pathogens.

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We also have outsourced significant elements of our operations to third parties, including significant elements of our information technology infrastructure, and, as a result, we are managing many independent vendor relationships with third parties who may or could have access to our confidential information.

The continually changing threat landscape of cybersecurity today makes our systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, partners, and vendors, and from attacks by malicious third parties, including supply chain attacks originating at our third-party partners.

The continually changing threat landscape of cybersecurity today makes our systems potentially vulnerable to service interruptions

or to security breaches from inadvertent or intentional actions by our employees, partners, and vendors, and from attacks by malicious third parties, including supply chain attacks originating at our third-party partners.

Such attacks are of ever-increasing levels of sophistication.

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External factors, such as regulatory compliance obligations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.

Failure to successfully manage these risks in the development and implementation of new lines of

business or new products or services could have an adverse effect on our business, results of operations and financial condition.

Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have an adverse effect on our business, results of operations and financial condition.

Our international expansion and operations outside the U.S.

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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.

operations, as well as unique costs and difficulties of managing international operations, including the relationships and

operations of distributors we elect to work with in these markets.

Adoption of our products in new geographic regions could take longer and cost more than we anticipate.

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 other international regulations.

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Obtaining FDA pre-market clearance or approval involves significant time and investment by the Company.

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 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 final guidance also stated that the FDA intended to exercise enforcement discretion under limited conditions with respect to the IND application and pre-market approval requirements for certain HCT/Ps through November 2020, which was later extended through May 2021.

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

After May 31, 2021, the Company has not marketed or sold its micronized products in the United States, has requested the return of unused consignment inventory as of that date, and does not intend to sell such products in the United States until the FDA grants pre-market approval.

Our sales of such products for all uses was $17.6 million, $31.8 million, and $42.4 million, respectively, in 2021, 2020, and 2019, primarily in the United States.

However, we are pursuing the BLA pre-market approval process for certain of our micronized products, as more fully discussed under “Business - Government Regulation.” The loss of our ability to market and sell our micronized products has had an adverse impact on our revenues, business, financial condition and results of operations.

In accordance with the FDA Guidance, as discussed above in “ Business – Government Regulation ,” after May 31, 2021, the Company no longer markets or sells its products that were impacted by enforcement discretion in the United States, has requested the return of unused consignment inventory as of that date, and does not intend to sell such products in the United States until the FDA grants pre-market approval.

Our sales of such products for all uses was $2.4 million, $17.6 million, and $31.8 million, respectively, in 2022, 2021, and 2020.

Prior to May 31, 2021 these sales were primarily in the United States.

However, we are pursuing the BLA pre-market approval process for certain use of mDHACM, as more fully discussed above in “ Business - Government Regulation .” The loss of our ability to market and sell our micronized products has had an adverse impact on our revenues, business, financial condition and results of operations.

Also, the Company currently markets EPICORD and AMNIOCORD, tissue products derived from the protective covering and extracellular matrix cushioning layers of the human umbilical cord, as providing a protective environment or as a barrier.

In warning letters to several companies marketing human umbilical cord derived products for a variety of uses, the FDA has stated that those products fail to meet one or more of the Section 361 criteria, including the minimal manipulation criterion, the dependence on the metabolic activity of living cells for their primary function criterion, and the homologous use criterion, as “the product is not intended to perform the same basic function or functions of umbilical cord in the recipient as in the donor, such as serving as a conduit.” We are engaged with the FDA regarding the classification of our umbilical cord-derived products.

If the FDA makes a final determination that our umbilical cord products do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval will be required for those products.

If the FDA makes a final determination that our umbilical cord products do not meet the requirements for regulation solely under Section 361, in order to continue to market the products, we would be required to obtain the appropriate FDA approval or clearance.

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 $23.6 million, $16.1 million, $17.9 million, respectively, in 2021, 2020, and 2019, almost entirely in the United States.

Included in net sales were sales of umbilical cord-derived products totaling $23.2 million, $23.6 million, and $16.1 million, respectively, in 2022, 2021, and 2020, almost entirely in the United States.

Any future regulatory changes could also 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.

For example, the FDA may in the future impose conditions, such as labeling restrictions, and the requirement that a 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.

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.

Moreover, increased regulatory scrutiny within the industry in which we operate could lead to increased regulation of HCT/Ps, including Section 361 HCT/Ps, which could ultimately increase our costs and adversely impact our business, results of operations and financial condition.

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

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 .”

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 ” below.

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.

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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.

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.

We have been making enhancements in our fixed plant as well as incurring costs and reduced product yields due to testing against CGMP drug requirements to ensure quality, identity, purity, and potency.

Post-approval requirements for BLA products include:

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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, including costs incurred on top of those fees incurred as part of conducting various clinical studies.

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 trials are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or

prevent regulatory approval.

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.

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Our interpretation of data and results from our clinical trials does not ensure that we will achieve similar results in future clinical trials.

In addition, clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily in earlier clinical trials or retrospective studies have nonetheless failed to replicate results in later clinical trials.

In addition, clinical data are often susceptible to various

interpretations and analyses, and many companies that have believed their products performed satisfactorily in earlier clinical trials or retrospective studies have nonetheless failed to replicate results in later clinical trials.

Products in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials and retrospective studies, and such failures can occur at any stage of clinical testing.

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• patients do not enroll in, or enroll at a lower rate than we expect or need, or do not complete a clinical study;

For instance, in 2020, the time necessary to complete our studies was longer than expected as a result of access restrictions at hospitals and health care provider facilities as a result of the COVID-19 Pandemic;

• patients or investigators do not comply with study protocols;

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Manufacturers of biologic products often encounter difficulties in production, particularly in scaling up initial production as would be the case at any new facility.

These problems

can include difficulties with production costs and yields, quality control (including stability of the product candidate and quality assurance testing), shortages of qualified personnel, and compliance with strictly enforced federal, state and foreign regulations.

These problems can include difficulties with production costs and yields, quality control (including stability of the product candidate and quality assurance testing), shortages of qualified personnel, and compliance with strictly enforced federal, state and foreign regulations.

If we were to encounter any of these difficulties, or otherwise fail to comply with our obligations under applicable regulations, then our ability to provide product candidates to patients in our clinical trials or commercially would be jeopardized, and any delay or interruption in the supply of product could delay the commercial launch of the product or impair our ability to meet demand for the product.

Our products can be manufactured only in a facility that has undergone a satisfactory inspection by the FDA and other relevant regulatory authorities.

While we currently possess redundant manufacturing capacity, we may not be able to replace manufacturing capacity for our products quickly if we were unable to use our manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure, or other difficulty, or if such facilities were deemed not in compliance with the regulatory requirements and such non-compliance could not be rapidly rectified.

We may not be able to replace manufacturing capacity for our products quickly if we were unable to use our manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure, or other difficulty, or if such facilities were deemed not in compliance with the regulatory requirements and such non-compliance could not be rapidly rectified.

An inability or reduced capacity to manufacture our products could have a material adverse effect on our business, financial condition, and results of operations.

Our existing manufacturing facilities have been adequate for the products we currently sell, but may become inadequate for future products if our planned BLA for knee osteoarthritis is approved.

Therefore, we have begun planning for additional manufacturing capacity.

Failure to adequately expand capacity could delay commercialization of our current or future product candidates, depriving us of potential product revenue.

Our existing manufacturing facilities have been adequate for the products we currently sell, but may become inadequate for future products if our planned BLA for mDHACM is approved or if our sales of current and future Wound & Surgical products ramps at a rate faster than we are able to manufacture.

Therefore, we have begun planning changes to our processes to increase manufacturing capacity.

Failure to adequately expand capacity could delay commercialization of our current or

future product candidates, depriving us of potential product revenue.

Any manufacturing problem could be disruptive to our operations and result in lost sales.

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We reimburse tissue banks, hospitals and physicians for their services associated with the recovery and storage of donated human tissue.

Although we have independent third party appraisals that confirm the reasonableness of the service fees we pay, if we were to be found to have violated NOTA’s prohibition on the sale or transfer

of human tissue for valuable consideration, we could potentially be subject to criminal enforcement sanctions, which could adversely affect our results of operations.

Although we have independent third party appraisals that confirm the reasonableness of the service fees we pay, if we were to be found to have violated NOTA’s prohibition on the sale or transfer of human tissue for valuable consideration, we could potentially be subject to criminal enforcement sanctions, which could adversely affect our results of operations.

Finally, we and other manufacturers of skin substitutes are required to provide average ASP information to CMS on a quarterly basis.

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As a general rule, FDA regulations require that the marketing of 361 HCT/Ps only be for appropriate homologous uses, and that the promotion of pre-approved biological products or devices only be 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 as safe or effective for uses other than those specifically approved by the FDA.

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 as safe or effective for uses other than those specifically approved by the FDA.

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 FD&C Act.

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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, under the Guidance, the FDA exercised enforcement discretion under limited conditions with respect to the investigative new drug application and pre-market approval requirements for certain HCT/Ps through May 31, 2021.

We continued to market our micronized products (mdHACM) and our particulate product (AMNIOFILL) under this policy of enforcement discretion in the United States until May 31, 2021, while at the same time pursuing BLAs for certain of our micronized products in specific clinical applications.

After May 31, 2021, we no longer sell our micronized and particulate products in the United States, and do not intend to sell such products in the United States until the FDA grants pre-market approval.

However, under the Guidance, as discussed above in “ Business – Government Regulation ,” after May 31, 2021, the Company no longer markets or sells its products that were impacted by enforcement discretion in the United States, and does not intend to sell such products in the United States until the FDA grants pre-market approval.

We will ultimately only be able to market such products for indications that have been cleared or approved by the FDA.

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Many states have similar fraud and abuse laws, imposing substantial penalties for violations.

A finding of a violation of one or more

of these laws, or even a government investigation or inquiry into the same, would likely result in a material adverse effect on the market price of our Common Stock, as well as on our business, results of operations, and financial condition.

The federal Anti-Kickback Statute is a criminal law that prohibits, among other things, any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward referrals, purchases or orders or arranging for or recommending the purchase, order or referral of any item or service for which payment may be made in whole or in part by a federal healthcare program, such as the Medicare and Medicaid programs.

A finding of a violation of one or more of these laws, or even a government investigation or inquiry into the same, would likely result in a material adverse effect on the market price of our Common Stock, as well as on our business, results of operations, and financial condition.

The federal Anti-Kickback Statute (AKS) is a criminal law that prohibits, among other things, any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward referrals, purchases or orders or arranging for or recommending the purchase, order or referral of any item or service for which payment may be made in whole or in part by a federal healthcare program, such as the Medicare and Medicaid programs.

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.

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.

The PPACA also amended the federal Anti-Kickback Statute to provide that any claims for items or services resulting from a violation of the federal Anti-Kickback Statute are considered false or fraudulent for purposes of the federal FCA .

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

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.

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

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

The PPACA also amended the federal AKS to provide that any claims for items or services resulting from a violation of the federal AKS are considered false or fraudulent for purposes of the federal FCA .

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

Although there are a number of statutory exceptions and regulatory safe harbors to the federal AKS 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.

In addition, some of these physicians own our stock, which they purchased in arm’s-length transactions on terms identical to those offered to non-physicians, or received stock awards from us in the past as consideration for services performed by them.

While we believe these transactions generally meet the requirements of applicable laws, including the federal Anti-Kickback Statute and analogous state laws, it is possible that our arrangements with physicians and other providers may be questioned by regulatory or enforcement authorities under such laws, which could lead us to redesign the arrangements and subject us to significant civil or criminal penalties.

We have designed our policies and procedures to comply with the federal Anti-Kickback Statute, FCA, and industry best practices.

While we believe these transactions generally meet the requirements of applicable laws, including the federal AKS and analogous state laws, it is possible that our arrangements with physicians and other providers may be questioned by regulatory or enforcement authorities under such laws, which could lead us to redesign

the arrangements and subject us to significant civil or criminal penalties.

We have designed our policies and procedures to comply with the federal AKS, FCA, and industry best practices.

In addition, we have conducted training sessions on these principles.

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Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payers if they are deemed to “cause” the submission of false or fraudulent claims.

The PPACA provides that claims tainted by a violation of the federal Anti-Kickback Statute are false for purposes of the FCA.

The PPACA provides that claims tainted by a violation of the federal AKS are false for purposes of the FCA.

The DOJ on behalf of the government has previously alleged that the marketing and promotional practices of pharmaceutical and medical device manufacturers, including the off-label promotion of products or the payment of prohibited kickbacks to doctors, violated the FCA, resulting in the submission of improper claims to federal and state healthcare programs such as Medicare and Medicaid.

In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into onerous corporate integrity agreements with the government that require, among other things, substantial reporting and remedial actions, as well as oversight and review by an outside entity, an Independent Review Organization (“ IRO ”), at substantial expense to the Company.

Under HIPAA criminal federal healthcare fraud statute, it is a crime to knowingly and willfully execute, or attempt to execute, a scheme or artifice to defraud any health care benefit program or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care benefits, items or services.

Under the HIPAA criminal federal healthcare fraud statute, it is a crime to knowingly and willfully execute, or attempt to execute, a scheme or artifice to defraud any health care benefit program or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care benefits, items or services.

There are federal and state laws requiring detailed reporting of manufacturer interactions with and payments to healthcare providers, such as the federal Physician Payments Sunshine Act (Sunshine Act).

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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.

There are state law equivalents to the AKS and FCA.

There are also so-called state “all-payer” anti-kickback laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, as well as when no insurer is involved ( i.e.

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The taxes imposed and the expansion in government’s role in the U.S.

healthcare industry under the

PPACA, if unchanged, may result in decreased revenues, lower reimbursements by payers for our products and reduced medical procedure volumes, all of which could have a material adverse effect on our business, results of operations and financial condition.

healthcare industry under the PPACA, if unchanged, may result in decreased revenues, lower reimbursements by payers for our products and reduced medical procedure volumes, all of which could have a material adverse effect on our business, results of operations and financial condition.

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

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

We currently market our products in a small number of foreign countries, and are actively pursuing international expansion, including in Japan.

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

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Therefore, we cannot be certain that we have not infringed the intellectual property rights of others.

Because patent applications may take years to issue, there also may be applications now pending of which we

are unaware that may later result in issued patent claims that our products or processes infringe.

Because patent applications may take years to issue, there also may be applications now pending of which we are unaware that may later result in issued patent claims that our products or processes infringe.

There also may be existing patents or pending patent applications of which we are unaware that our products or processes may inadvertently infringe.

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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 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.

Negative publicity, including publicity relating to or arising from the Restatement, the Audit Committee Investigation, or related matters, has in the past 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 Audit Committee Investigation, and related matters.

As a result, our customers and others with whom we do business have voiced

concerns regarding our accounting and control environment and our ability to be a long-term provider to our customers.

As a result, our customers and others with whom we do business have voiced concerns regarding 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 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.

Financial Statements and Supplementary Data, Note 14, “ Commitments and Contingencies ” for additional information.

See Item 3, Legal Proceedings and Item 8, Financial Statements and Supplementary Data , Note 16, 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.

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As of December 31, 2022, the Company had an aggregate of $50.0 million of borrowings outstanding under the Hayfin Loan Agreement.

See Item 8, Financial Statements and Supplementary Data, Note 9, “ 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.

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

Holders of shares of our Series B Preferred Stock are currently entitled to cumulative dividends at a rate of 6.0% per annum , compounding quarterly in arrears.

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

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• the declaration of any dividends or any other distributions, or the repurchase or redemption, of any equity securities of the Company ranking junior to or on parity with the Series B Preferred Stock (subject to certain exceptions).

• prior to January 2, 2023, the sale, transfer, or other disposition of any assets, business, or operations for $25 million or more (other than sales of inventory in the ordinary course of business), or the purchase or acquisition of any assets, business, or operations for $75 million or more;

• prior to January 2, 2023, the merger or consolidation of the Company unless either (x) the surviving company will have no class of equity securities ranking superior to or on parity with the Series B Preferred Stock or (y) the holders of shares of the Series B Preferred Stock will receive in connection therewith consideration per share of Series B Preferred Stock valued at 200% or more of the purchase price per share of $1,000;

• prior to January 2, 2023, commencing a voluntary case under any applicable bankruptcy, insolvency, or other similar law or consenting to the entry of an order for relief in an involuntary case under any such law, or effectuating any general assignment for the benefit of creditors;

• prior to January 2, 2023, entering into any settlement agreement regarding the Company’s securities class action litigation.

The interests of our holders of Series B Preferred Stock and our Common Stock may conflict in certain circumstances, and these provisions may constrain the Company from taking certain actions that may be in the best interest of the holders of its Common Stock.

The conversion price of the Series B Preferred Stock is subject to anti-dilution adjustments in the event that the Company sells or issues Common Stock to any third-party investor at any time prior to July 2, 2022 at a price that is less than $3.85 per share of Common Stock (although such adjustments cannot result in a conversion price for the Series B Preferred Stock of less than $3.47).

Additionally, as long as EW Healthcare Partners holds at least 10% of our outstanding Common Stock (calculated on an as converted basis), it has certain preemptive rights to participate in offerings of Common Stock to any person, subject to customary exceptions.

Furthermore, in the event that the Company undergoes a change of control (as defined), the holders of Series B Preferred Stock will have certain redemption rights, which, if exercised, could require us to repurchase all of the outstanding shares of Series B Preferred Stock for cash at the original purchase price of Series B Preferred Stock plus all accrued and unpaid dividends thereon.

Any required repurchase of the outstanding 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.

Any required repurchase of the outstanding 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.

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 8, Financial Statement and Supplementary Data, Note 11, “ 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.

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• The timing of new product introductions;

• Actual or anticipated fluctuations in our operating results, including any restatements of previously reported results;

• Our ability to effectively and consistently manufacture our products and avoid costs associated with the recall of defective or potentially defective products;

• Actual or anticipated fluctuations in our operating results, including as a result of seasonality in our business, as well as any restatements of previously reported results;

• Our ability to effectively and consistently process or manufacture our products and avoid costs associated with the recall of defective or potentially defective products;

• Our ability and the ability of our distribution partners to market and sell our products;

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• The other risks detailed in this Item 1A.

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.

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

Our quarterly operating results have varied substantially in the past and may vary substantially in the future, including as a result of seasonality in our business.

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.

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

However, at this time, only three securities analysts provide coverage on us, and we compensate one of those analyst’s firms.

However, at this time, only four securities analysts provide coverage on us, and we compensate one of those analyst’s firms.

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.

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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