What changed in this filing

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Item 1A. Risk Factors

2022-03-01 compared with 2021-03-01 · 163 added, 161 removed, 249 unchanged (57% of the section changed)

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Among the key factors that may have a direct bearing on our business, operations or financial condition are the factors identified below:

COVID-19 Pandemic Risks

The COVID-19 pandemic has negatively impacted our business and operations around the world and may continue to materially and adversely impact our business, operations and financial results .

The COVID-19 pandemic has created significant disruption and uncertainty in the global economy, has negatively impacted our business, results of operations and financial condition, and we anticipate that it may continue to negatively impact our business, results of operations and financial condition for the foreseeable future.

Numerous national, international, state and local jurisdictions have imposed, and others in the future may impose, a variety of government orders and restrictions for their residents to control the spread of COVID-19.

Such orders or restrictions may cause significant alteration of our operations, work stoppages, slowdowns and delays, travel restrictions and event cancellations, among other effects, thereby significantly and negatively impacting our operations.

Other disruptions or potential disruptions include (i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support; (ii) reductions in spending by our customers;

(iii) delays in approvals by regulatory bodies; (iv) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (v) reductions in our sales team, including through layoffs, furloughs or other losses of sales representatives; (vi) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers' capacity to manufacture our products;

(vii) disruption of our research and development activities;

and (viii) delays in ongoing studies and pre-clinical trials.

In addition, elective procedures that use our products significantly decreased in number during 2020 as health care organizations around the world prioritized the treatment of patients with COVID-19 and reduced spending in other areas.

For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients.

Specifically, many of these procedures that use our products have been suspended or postponed.

While certain of these procedures have resumed in certain locations, it is unclear when or if all procedures in all locations will resume.

While we have seen increases in demand for certain product lines during the pandemic, including our Cultura™ nasopharyngeal swab and test kit, this increased demand has not been, and may not be, sufficient to offset the revenue declines in other areas.

We also expect continued pressure on our margins due to decreased demand for products with gross margins that are higher than the company average.

In addition, most of the hospitals and clinics that purchase our products have instituted strict procedures at their facilities in an effort to prevent the spread of COVID-19, including restrictions on sales representatives entering these facilities.

This has been, and currently remains, a major impediment to our sales efforts, as supporting existing customers and acquiring new customers is much more difficult in this environment.

These restrictions have had a significant adverse effect on our sales and, until they are lifted, our business, operations and financial results will continue to be adversely impacted.

Further, once the pandemic subsides, we anticipate there will be substantial backlog of patients seeking appointments with physicians and surgeries to be performed at hospitals and ambulatory surgery centers relating to a variety of medical conditions, and as a result, patients seeking procedures that use our products will have to navigate limited provider capacity.

On the other hand, we do not know if demand for these postponed, elective procedures will return to the levels we experienced prior to the pandemic.

We believe this limited provider, hospital and ambulatory surgery center capacity,

and a decline in demand for the procedures that use our products, could have a significant adverse effect on our business, operations and financial results following the end of the pandemic.

These challenges and restrictions will likely continue for the duration of the pandemic, which is uncertain, and may even continue beyond the pandemic.

Many areas are relaxing restrictions and resuming business operations, but a resurgence in infections or mutations of the coronavirus that causes COVID-19 could cause authorities to reinstate such restrictions or impose additional restrictions.

All of these factors also may cause or contribute to disruptions and delays in our logistics and supply chain.

The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on future developments that are uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of the virus and the actions by government entities, our customers and other parties to contain the virus or treat its impact, among others.

To the extent the COVID-19 pandemic adversely affects our business, operations and financial results, it may also have the effect of heightening other risks described herein, such as those relating to general economic conditions, demand for our products, relationships with suppliers and sales efforts.

Business, Economic, Industry and Operational Risks

Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies and other factors beyond our control may adversely impact our business and operating results.

Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.

Our operations and performance depend significantly on global, regional and U.S.

economic and geopolitical conditions.

In recent years, there has been discussion and dialogue regarding potential significant changes to U.S.

trade policies, legislation, treaties and tariffs, including the replacement of the North American Free Trade Agreement (“NAFTA”) with the United States Mexico Canada Agreement (“USMCA”) which became effective on July 1, 2020.

At this time, it is unknown whether the current administration will attempt to renegotiate the terms of the USMCA or implement its own policies and regulations to replace those established by the Trump Administration.

In addition, with changes in the balance of power between the parties in the U.S.

Congress, new legislation could be passed into law.

It is unclear what the effect of any such action would have, either positively or negatively, on our industry or our Company.

If any new legislation and/or regulations are implemented, or if existing trade agreements are renegotiated, it may be inefficient and expensive for us to alter our business operations in order to adapt to or comply with such changes.

In addition, any changes in U.S.

trade policy could trigger retaliatory actions by affected countries, such as China, resulting in a “trade war.” A trade war could result in increased costs for raw materials we use in our manufacturing and could result in foreign governments imposing tariffs on products that we export outside the U.S.

Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S.

and European leaders.

These events are currently escalating and creating increasingly volatile global economic conditions.

Resulting changes in U.S.

trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” A trade war could result in increased costs for raw materials we use in our manufacturing and could result in Russia and other foreign governments imposing tariffs on products that we export outside the U.S.

or otherwise limiting our ability to sell our products abroad.

Furthermore, regulations and trade policies implemented by foreign governments to reduce the costs of healthcare or promote business in their countries could also cause our sales to decline in such countries.

For example, China has implemented a volume-based procurement process designed to decrease prices for medical devices and other products.

These events could result in increased costs, lower margins and lower sales than we would otherwise expect, which could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Our customers and suppliers may also be affected by these events, so even if we are not directly impacted, we may still experience lower demand for our products and increases in our manufacturing costs because of the effects these events may have on our customers and suppliers.

These increased costs would have a negative effect on our financial condition and profitability.

Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.

The United Kingdom’s (“UK”) departure from the European Union (“EU”) (commonly known as “Brexit”) has created uncertainties affecting business operations in the UK, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products we sell in these markets.

While we have taken proactive steps to mitigate possible disruption to our operations, we could face increased costs, volatility in exchange rates, market instability and other risks, depending on the effects of existing and future agreements between the UK and EU regarding Brexit and the future EU/UK trading relationship.

While we have taken proactive steps to mitigate possible disruption to our operations, we still could face increased costs, volatility in exchange rates, market instability and other risks, depending on the effects of existing and future agreements between the UK and EU regarding Brexit and the future EU/UK trading relationship.

The above factors, including a number of other economic and geopolitical factors both in the U.S.

and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:

● a global or regional economic slowdown in any of our market segments;

● postponement of spending, in response to tighter credit, financial market volatility and other factors;

● effects of significant changes in economic, monetary and fiscal policies in the U.S.

and abroad including significant income tax changes, currency fluctuations and inflationary pressures;

● rapid material escalation of the cost of regulatory compliance and litigation;

and abroad including currency fluctuations, inflationary pressures and significant income tax changes;

● a global or regional economic slowdown in any of our market segments;

● changes in government policies and regulations affecting the Company or its significant customers;

● industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether;

● difficulties protecting intellectual property;

● new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S.

trade policies and tariffs;

● postponement of spending, in response to tighter credit, financial market volatility and other factors;

● rapid material escalation of the cost of regulatory compliance and litigation;

● difficulties protecting intellectual property;

● longer payment cycles;

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● the impact of each of the foregoing on outsourcing and procurement arrangements.

Consolidation in the healthcare industry, group purchasing organizations and public procurement policies have lead to demands for price concessions, which reduces our revenues and may harm our ability to sell our products at prices necessary to support our current business strategies.

Healthcare costs have risen significantly over the past decade, which has resulted in or led to numerous cost reform initiatives by legislators, regulators and third-party payers.

Cost reform has triggered a consolidation trend in the healthcare industry to aggregate purchasing power, which has created more requests for pricing concessions and is expected to continue in the future.

Additionally, many of our customers belong to group purchasing organizations or integrated delivery networks that use their market power to consolidate purchasing decisions for these hospitals and healthcare service providers.

These customers are often able to obtain lower prices and more favorable terms because of the potential sales volume they represent, which has lead to lower revenues and required us to take on additional liability.

We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to change the healthcare industry worldwide, resulting in further business consolidations and alliances among our customers, which may exert further downward pressure on the prices of our products.

Termination or interruption of, or a failure to monitor, our supply relationships and increases in labor costs and the price of our component parts, finished products, third-party services or raw materials, particularly petroleum-based products, could have an adverse effect on our business, operations or financial condition .

Termination or interruption of our supply relationships and increases in labor costs and the prices of our component parts, finished products, third-party services and raw materials, particularly petroleum-based products, is negatively impacting our business and could have a further adverse effect on our business, operations or financial condition .

We rely on raw materials, component parts, finished products and third-party services in connection with our business.

For example, substantially all of our products are sterilized by only a few different entities.

If any of these sterilizers goes out of business or fails to comply with quality or regulatory requirements, we may be unable to find a suitable supplier to replace them.

If any of these sterilizers goes

out of business or fails to comply with quality or regulatory requirements, we may be unable to find a suitable supplier to replace them.

This could significantly delay or stop production and cause sales of such products to materially decline.

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Additionally, there is no assurance that crude oil supplies will be uninterrupted or that petroleum-based manufacturing materials will be available for purchase in the future.

Any interruption to the supply of polymers or petroleum-based resins could have an adverse effect on our ability to produce, or on the cost to produce, our products.

The military conflict between Russia and Ukraine may increase the likelihood of supply interruptions and further hinder our ability to find the materials we need to make our products.

Supply disruptions are making it harder for us to find favorable pricing and reliable sources for the materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials and services we need to continue to make certain products.

The availability and price of these materials, parts, products and services are affected by a variety of factors beyond our control, including the willingness of suppliers to sell into the medical device industry, changes in supply and demand, general economic conditions, labor costs, fuel-related transportation costs, liability concerns, climate change (including new and existing laws and regulations to address climate change), competition, import duties, tariffs, currency exchange rates and political uncertainty around the world.

Our suppliers often pass some of their cost increases on to us, and if such increased costs are sustained or increase further, our suppliers may pass further cost increases on to us.

In addition to the effect on resin prices, transportation costs generally increase based on the effect of higher crude oil prices, and these increased transportation costs are often passed on to us.

In addition to the effect on resin prices, transportation costs have generally increased and may further increase if crude oil prices increase.

Our transportation and service providers are typically able to pass any significant increases in oil prices on to us.

Our costs may also be impacted by laws to increase minimum wages, including the potential increase to the federal minimum wage in the United States that has been recently proposed by the current administration.

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These events may also delay or prevent product manufacturing and shipment during the time required to repair, rebuild or replace the damaged facilities or systems.

We have recently closed certain facilities, and the resulting consolidation may further exacerbate the effects of these events or make it more difficult for us to respond to the effects of these events.

We have recently closed certain facilities and moved operations and resources to other facilities.

As a result, this concentration of resources may further exacerbate the adverse effects of these events or make it more difficult for us to respond to the effects of these events.

Climate change may increase both the frequency and severity of natural disasters and, consequently, risks to our operations and growth.

Although we maintain property damage and business interruption i nsurance coverage on our facilities , our insurance might not cover all losses under such circumstances, and we may not be able to renew or obtain such insurance in the future on acceptable terms with adequate coverage or at reasonable costs.

Healthcare costs have risen significantly over the past decade, which has resulted in or led to numerous cost reform initiatives by legislators, regulators and third-party payers.

We may be unable to compete in our markets, particularly if there is a significant change in relevant practices or technology.

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A reduction in the demand for a significant number of our products, or a few key products, could have a material adverse effect on our business, operations or financial condition.

COVID-19 Pandemic Risks

The COVID-19 pandemic has negatively impacted our business and operations around the world and may continue to materially and adversely impact our business, operations and financial results .

The COVID-19 pandemic has created significant disruption and uncertainty in the global economy, has negatively impacted our business, results of operations and financial condition, and we anticipate that it will continue to negatively impact our business, results of operations and financial condition for the foreseeable future.

Numerous national, international, state and local jurisdictions have imposed, and may further impose, a variety of government orders and restrictions for their residents to control the spread of COVID-19.

In 2020, such orders and restrictions caused significant alterations of our operations, work stoppages, slowdowns and delays, travel restrictions and event cancellations, among other effects, thereby significantly and negatively impacting our financial condition.

In 2021, these conditions continued at varying levels throughout the year.

Other disruptions that we experienced, which persist in various regions throughout the world, include (i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support; (ii) supply chain delays and disruptions, logistical challenges and increased freight, transportation and other expenses;

(iii) delays in regulatory approvals by governmental and regulatory bodies;

(iv) reductions in spending by our customers;

(v) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (vi) fluctuations in the availability of employees and potential employees; (vii) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers' capacity to manufacture our products;

(viii) disruption of our research and development activities;

and (ix) delays in ongoing studies and pre-clinical trials.

Although some of these disruptions diminished in 2021, they may again return or further intensify their effect on our operations, whether as a direct result of the COVID-19 pandemic or other factors exacerbated by the effects of the COVID-19 pandemic.

In addition, elective procedures that use our products significantly decreased in number during much of 2020 as health care organizations around the world prioritized the treatment of patients with COVID-19 and reduced spending in other areas.

For example, in the United States, governmental authorities recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments (many of which use our products), be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients.

In 2021, these procedures resumed in many locations, and overall, we saw significant improvement in our business during 2021;

however, it is

unclear when or if a resurgence of COVID-19, or increased spread of its variants, may again cause a rise in severe infections and force authorities and customers to impose restrictions that will negatively impact our operations.

All of these factors have also caused or contributed to disruptions and delays in our logistics and supply chain, and we may continue to experience these disruptions and delays.

The full extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on future developments that are uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of the virus and its variants.

To the extent the COVID-19 pandemic continues to adversely affect our business, operations and financial results, it may also have the effect of heightening other risks described herein, such as those relating to general economic conditions, demand for our products, relationships with suppliers and sales efforts.

Strategic, Business Development and Employee Attraction and Retention Risks

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As the Company grows, we are often faced with decisions to (i) expand certain product lines and discontinue others, (ii) open or expand new facilities and close others, (iii) allocate resources between new and established markets, or (iv) allocate resources between the expansion of organic business and the acquisition of new product lines.

The outcome of each choice in these decisions is uncertain, and even with the exercise of excellent business judgment, results may not align with expectations because of the many factors listed in this section.

The outcome of each of these decisions is uncertain, and even with the exercise of excellent business judgment, results may not align with expectations because of the many factors listed in this section.

In addition, our management will need to continue to implement changes in certain aspects of our business, improve our information systems, infrastructure and operations to respond to increased demand, attract and retain qualified personnel, and develop, train, and manage an increasing number of employees.

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In addition, we may not realize competitive advantages, synergies or other benefits anticipated in connection with any such acquisition or other transaction.

If we do not adequately identify and value targets for, or manage issues related to, acquisitions and strategic transactions, such transactions may not produce the anticipated benefits and have an adverse effect on our business, operations or financial condition.

If we do not adequately identify and value targets for, or manage issues related to,

acquisitions and strategic transactions, such transactions may not produce the anticipated benefits and have an adverse effect on our business, operations or financial condition.

We will be required to expend significant resources for research, development, testing and regulatory approval or clearance of our products under development, and these products may not be developed successfully or approved for commercial use .

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In addition, although our contract terms require our distributors to comply with all applicable laws regarding the sale of our products, including anti-competition, anti-corruption, anti-money laundering and sanctions laws, we may not be able to ensure proper compliance.

If our distributors fail to effectively market and sell our products in full compliance with applicable laws, our results of operations and business could be impacted.

Actions of activist shareholders, including a proxy contest, could be disruptive and potentially costly and the possibility that activist shareholders may contest, or seek changes that conflict with, our strategic direction could cause uncertainty about the strategic direction of our business.

On May 26, 2020, we entered into an agreement with Starboard Value and Opportunity Master Fund Ltd (“Starboard”).

Starboard is a significant shareholder and had previously informed us that it intended to nominate up to seven individuals to stand for election as directors at our 2020 Annual Meeting of Shareholders.

Pursuant to the agreement, Starboard agreed to withdraw its slate of directors and we agreed to nominate three new directors.

These three directors were elected to our Board of Directors at the 2020 Annual Meeting of Shareholders.

Additional terms of the agreement with Starboard can be found in our Current Report on Form 8-K, filed with the SEC on May 27, 2020.

While our Board of Directors and management team strive to maintain constructive, ongoing communications with all of our shareholders, including Starboard, and we welcome constructive input from all shareholders toward the shared goal of enhancing stakeholder value, activist campaigns that contest, or seek to change, our strategic direction could have an adverse effect on us because:

(i) responding to actions by activist shareholders could disrupt our operations, be costly and time consuming, and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition;

(ii) perceived uncertainties as to our future direction may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, cause concern to our current or potential customers, cause concern in the minds of our employees and lead to the departure of critical employees, result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners;

and (iii) these types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

If our distributors

fail to effectively market and sell our products in full compliance with applicable laws, our results of operations and business could be impacted.

We are dependent upon key personnel .

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Our success also depends on, among other factors, the successful recruitment and retention of key operating, manufacturing, sales and other personnel.

Intellectual Property

We may not be able to effectively protect our intellectual property, which could harm our business and financial condition .

Our ability to remain competitive is dependent, in part, upon our ability to protect our intellectual property rights and prevent other companies from using our intellectual property to produce competing products.

We seek to protect our intellectual property rights through a combination of confidentiality and license agreements, and through registrations under patent, trademark, copyright and trade secret laws.

However, these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties.

Additionally, these measures may not prevent competitors from duplicating our products or gaining access to our proprietary information and technology.

Third parties may copy all or portions of our products or otherwise use our intellectual property without authorization, and we may not be able to prevent the unauthorized disclosure or use of our intellectual property by consultants, vendors, former employees and current employees.

Despite our efforts to restrict such unauthorized disclosure or use through nondisclosure agreements and other contractual restrictions, we may not be able to enforce these contractual provisions or we may incur substantial costs enforcing our legal rights.

Third parties may also develop similar or superior technology independently or by designing around our patents.

In addition, the laws of some foreign countries do not offer the same level of protection for our intellectual property as the laws of the U.S.

Further, no assurances can be given that any patent application we have filed or will file will result in a patent being issued, or that any existing or future patents will afford adequate or meaningful protection against competitors or against similar technologies.

All of our patents will eventually expire and some of our patents, including patents protecting significant elements of our technology, will expire within the next several years.

Filing, prosecuting and defending our intellectual property in countries throughout the world may be impractical and prohibitively expensive.

Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or to determine the validity and scope of proprietary rights claimed by others.

Any such lawsuits that we might initiate could be expensive, take significant time and divert management’s attention from our business.

Litigation also puts our patents at risk of being invalidated or interpreted narrowly.

Additionally, we may provoke third parties to assert claims against us.

Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patents and other intellectual property protections, which makes it difficult to stop infringement.

We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially valuable.

Third parties claiming that we infringe their intellectual property rights could cause us to incur significant legal or licensing expenses and prevent us from selling our products .

Our commercial success will depend in part on not infringing or violating the intellectual property rights of others.

From time to time, third parties may claim that we have infringed their intellectual property rights, including claims regarding patents, copyrights, trademarks, and trade secrets.

We may not be aware of whether our products do or will infringe existing or future patents or the intellectual property rights of others.

Because of constant technological change in the medical device industry in which we compete, the extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow.

In addition, former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of such former employers.

Any such claim, with or without merit, could result in costly litigation, distract management from day-to-day operations and harm our brand or reputation, which in turn could harm our business or results of operations.

If we are not successful in defending such claims, we could be required to (i) stop selling our products, (ii) redesign our products, (iii) discontinue the use of related trademarks, technologies or designs, (iv) pay damages or indemnification obligations, or (v) enter into royalty or licensing arrangements.

Royalty or licensing arrangements that we may seek in such circumstances may not be available to us on commercially reasonable terms or at all and we may not be able to redesign applicable products in a way to avoid infringing the intellectual property rights of others.

We have made and expect to continue making significant expenditures to investigate, defend and settle claims related to the use of technology and intellectual property rights as part of our strategy to manage this risk.

Regulatory, Litigation, Tax and Legal Compliance Risks

Regulations and trade policies implemented by foreign governments to reduce the costs of healthcare or promote business in their countries have caused, and are likely to continue to cause our sales to decline in such countries.

These regulations and policies result in increased costs, lower margins and lower sales than we would otherwise expect, which have a material adverse effect on our business, financial condition, results of operations, or cash flows.

For example, China has implemented a volume-based procurement process designed to decrease prices for medical devices and other products.

This process has had a negative impact on our revenues in China and we expect it will continue to cause a decrease in the revenue we are able to generate in China.

The FDA regulatory clearance process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products .

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In addition, the FDA may not approve or clear our products for the indications that are necessary or desirable for successful commercialization.

In particular, w e are currently conducting a large, multinational pivotal human clinical trial of the Wrapsody™ Stent Graft.

In particular, w e are currently conducting a large, multinational pivotal human clinical trial of the Wrapsody Endoprosthesis.

A successful outcome of this trial is required to obtain approval from the FDA and some international regulatory agencies.

However, there is no assurance that we will be able to obtain the necessary regulatory clearances or approvals for the Wrapsody™ Stent Graft or any other products on a timely basis or at all.

However, there is no assurance that we will be able to obtain the necessary regulatory clearances or approvals for the Wrapsody Endoprosthesis or any other products on a timely basis or at all.

Further, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently cleared products on a timely basis.

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We cannot provide assurance that we will successfully maintain the clearances or approvals we have received or may receive in the future.

The loss of previously received clearances or approvals, or the failure to comply with existing or future regulatory requirements, could also have a material adverse effect on our business.

Our products are generally subject to regulatory requirements in foreign countries in which we sell those products.

We will be required to expend significant resources to obtain regulatory approvals or clearances of our products, and there may be delays and uncertainty in obtaining those approvals or clearances .

The loss of previously received clearances or

approvals, or the failure to comply with existing or future regulatory requirements, could also have a material adverse effect on our business.

Our products are generally subject to regulatory requirements in foreign countries in which we sell them.

We have experienced delays and expended significant resources in obtaining those approvals and clearances and we will likely continue to experience delays and uncertainty, and incur significant expenses, in obtaining those approvals or clearances .

In order to sell our products in foreign countries, generally we must obtain regulatory approvals and comply with the regulations of those countries.

These regulations, including the requirements for approvals or clearances and the time required for regulatory review, vary from country-to-country.

The EU requires that manufacturers of medical devices obtain the right to affix the CE mark, for compliance with the MDD, to medical devices before selling them in member countries of the EU.

The CE mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives.

In order to obtain the authorization to affix the CE mark to products, a manufacturer must obtain certification that its processes and products meet certain European quality standards.

In May 2017, the EU adopted the MDR, which will repeal and replace the MDD with effect from May 26, 2021.

Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2021 may continue to be placed on the market for the remaining validity of the certificate, until May 26, 2024 at the latest.

After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be placed on the market in the EU.

The MDR includes increasingly stringent requirements in multiple areas, such as pre-market clinical evidence (some of which are now in effect), review of high-risk devices, labeling and post-market surveillance.

Under the MDR, pre-market clinical data will now be required to obtain CE Mark approval for high-risk, new and modified medical

We plan to be fully compliant with the MDR ahead of expiry dates, however for multiple reasons, including but not limited to changing business strategies, costs of obtaining MDR certification, availability of necessary data and Notified Body capacity, there may be some products that we will discontinue in the EU or which may not be fully compliant at the time of expiry.

China and some of its provinces have also implemented policies and regulations to reduce prices for medical devices, such as a volume-based procurement process.

China-based companies may also have certain competitive advantages because of these policies and regulations.

Complying with and obtaining regulatory approval in foreign countries, including compliance with the MDR when effective, have caused and will likely continue to cause us to experience more uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse impact our net sales, market share and operating profits from our international operations.

See our related discussion under Item 1.

“Business – Regulation - Regulatory Approvals.”

In general, we intend to obtain MDR approvals for our principal products sold in the EU ahead of expiry dates;

however for multiple reasons, including but not limited to changing business strategies, limited labor pool and contract resources, administrative delays, increased costs of obtaining MDR certification, availability of necessary data and Notified Body capacity, there will be some products that will not be fully compliant at the time of expiry.

The additional time and resources required to obtain MDR certification has been a significant factor in, and will likely continue to influence, our decisions to discontinue sales and distribution of certain products in the EU.

Complying with and obtaining regulatory approval in foreign countries, including our efforts to comply with the requirements of the MDR, have caused and will likely continue to cause us to experience more uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse impact our net sales, market share and operating profits from our international operations.

The medical device industry is subject to extensive scrutiny and regulation by governmental authorities and we are currently operating under a Corporate Integrity Agreement.

If governmental authorities determine that we have violated laws, regulations or our Corporate Integrity Agreement, our company or our employees may be subject to various penalties, including civil or criminal penalties .

Our medical devices and business activities are subject to rigorous regulation by the FDA and other federal, state and foreign governmental authorities.

Our products and business activities are subject to rigorous regulation by the FDA and other federal, state and foreign governmental authorities.

These authorities and domestic and foreign legislators continue to scrutinize the medical device industry.

In recent years, the U.S.

Congress, DOJ, the OIG and the Department of Defense, as well as foreign counterparts, have issued subpoenas and other requests for information to medical device manufacturers, primarily related to financial arrangements with healthcare providers, regulatory compliance and product promotional practices.

Congress, DOJ, OIG, SEC and the Department of Defense, as well as foreign counterparts, have issued subpoenas and other requests for information to medical device manufacturers, primarily related to financial arrangements with healthcare providers, regulatory compliance and product promotional practices.

In October 2020, we entered into a Settlement Agreement with the DOJ to resolve their investigation into our past marketing transactions and practices.

Under the Settlement Agreement and related agreements, we paid approximately $18.7 million (which includes interest and certain fees) in exchange for a release from liability for the alleged conduct.

The settlement was also conditioned upon our entering into a CIA with the OIG, see “Regulation – DOJ Settlement and Corporate Integrity Agreement” in Item 1 of this report.

Even if we fully comply with the CIA, we have incurred, and anticipate that we will continue to incur, substantial costs in connection with the settlement and compliance with the CIA.

Under the Settlement Agreement and related agreements, we paid $18.7 million (which includes interest and certain fees) in exchange for a release from liability for the alleged conduct.

The settlement was also conditioned upon our entering into the CIA.

Please refer to the discussion in Item 1.

“Business - Regulation - Corporate Integrity Agreement.” Even if we fully comply with the CIA, we have incurred, and anticipate that we will continue to incur, substantial costs in connection with the settlement and compliance with the CIA.

It is unclear what impact the settlement has had and may have on our reputation.

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We anticipate that government authorities will continue to scrutinize our industry closely, and that additional regulation by government authorities may increase compliance costs, exposure to litigation and other adverse effects on our operations.

If we fail to comply with applicable regulatory requirements and the terms of the CIA, we may be subjected to a wide variety of sanctions and enforcement actions, including warning letters that require corrective action, injunctions, product seizures or recalls, suspension of product manufacturing, revocation of approvals, import or export prohibitions, exclusion from participation in government healthcare programs, civil fines and/or criminal penalties, which in turn may have a negative impact our business, results of operations, financial condition and ability to obtain financing on reasonable terms.

If we fail to comply with applicable regulatory requirements, including the terms of the CIA, we may be subjected to a wide variety of sanctions and enforcement actions, including warning letters that require corrective action, injunctions, product seizures or recalls, suspension of product manufacturing, revocation of approvals, import or export prohibitions, exclusion from participation in government healthcare programs, civil fines and/or criminal penalties, which in turn may have a negative impact our business, results of operations, financial condition and ability to obtain financing on reasonable terms.

We are subject to laws targeting fraud and abuse in the healthcare industry, the violation of which could adversely affect our business or financial results .

Our operations are subject to various state and federal laws targeting fraud and abuse in the healthcare industry, including the federal Anti-Kickback Statute and other anti-kickback laws, which prohibit any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing or arranging for an item or service, for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs.

Violations of these fraud and abuse-related laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid, any of which could harm our business or financial results.

Allegations of such violations could lead to expensive and time-consuming investigations by government authorities and result in conviction

of these violations or settlement costs and additional restrictions, like a CIA, as was the outcome of our DOJ investigation discussed above.

We are also subject to the FCPA, the U.K.

Allegations of such violations could lead to expensive and time-consuming investigations by government authorities and result in conviction of these violations or settlement costs and additional restrictions, like the CIA discussed above under Item 1.

“Business – Regulation - Corporate Integrity Agreement.”

Furthermore, our contracts with government-sponsored healthcare entities are subject to specific procurement requirements.

Failure to comply with applicable rules or regulations or with contractual or other requirements may result in monetary damages and criminal or civil penalties as well as termination of our government contracts or our suspension or debarment from government contract work.

Our international operations make us subject to the U.S.

Foreign Corrupt Practices Act and similar anti-bribery laws in non-U.S.

jurisdictions, and our failure, or the failure of our distributors and agents, to comply with these laws could subject us to civil and criminal penalties and adversely affect our business.

We currently conduct our business in various foreign countries, and we expect to continue to expand our foreign operations.

As a result, we are subject to the FCPA, the U.K.

Bribery Act, and similar anti-corruption laws in non-U.S.

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These laws generally prohibit companies and their intermediaries from illegally offering things of value to any individual for the purpose of obtaining or retaining business.

As we continue to expand our business activities internationally, compliance with the FCPA and other anti-corruption laws presents greater challenges to our operations.

If our employees or agents violate the provisions of the FCPA or other anti-corruption laws, we may incur fines or penalties, which could have a material adverse effect on our operating results or financial condition.

Compliance with the FCPA and other anti-bribery laws presents challenges to our operations.

Our policies mandate compliance with the FCPA and all other applicable anti-bribery laws.

Further, we expect our employees, distributors, agents and others who work for us or on our behalf to comply with these anti-bribery laws.

Despite our training and compliance programs, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees, distributors or agents.

If our employees, distributors or agents violate the provisions of the FCPA or other anti-bribery laws, or even if there are allegations of such violations, we could be subject to investigations or civil and criminal penalties or other sanctions, which could have a material, adverse effect on our reputation, business, results of operations, financial condition or cash flows.

Limits on reimbursement imposed by governmental and other programs may adversely affect our business and results of operation.

We sell our products to hospitals and other healthcare providers around the world that typically receive reimbursement for the services provided to patients from third-party payers such as government programs (e.g., Medicare and Medicaid in the U.S.) and private insurance programs.

The ability of our customers to obtain appropriate reimbursement for the cost of our products from governmental and private third-party payers is critical to our business.

Limits on reimbursement imposed by such programs may adversely affect the ability of hospitals and others to purchase our products, which could adversely affect our business and results of operations.

We sell our products to hospitals and other healthcare providers around the world that typically receive reimbursement for the services provided to patients, which incorporate the use of our products, from third-party payers such as government programs (e.g., Medicare and Medicaid in the U.S.) and private insurance programs.

The ability of our customers to obtain adequate reimbursement for the health care procedures that use our products, such that the cost of our products is covered, is critical to our business.

Limits on reimbursement imposed by such third-party payers may adversely affect our customers, such as hospitals, physicians and other healthcare providers, to purchase our products, which could adversely affect our business and results of operations.

Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs.

In general, a third-party payer covers a medical procedure only when the plan administrator is satisfied that the product or procedure is reasonable and necessary to the patient’s treatment;

however, the cost-effectiveness of the treatment may also be a condition.

however, for certain payers (such as foreign governments and some commercial insurers) the cost-effectiveness of the treatment may also be a condition.

In addition, in the U.S., no uniform policy of coverage and reimbursement for procedures using our products exists among third-party payers.

Therefore, coverage and reimbursement for procedures using our products can differ significantly from payer to payer.

In addition, payers continually review new and existing technologies for possible coverage and can, without notice, deny or reverse coverage or alter pre-authorization requirements for new or existing products and procedures.

We cannot provide assurance that we will be successful in any efforts we may potentially undertake to reverse such non-coverage decisions.

If we are not successful in reversing non-coverage policies, or if third-party payers that currently cover or reimburse certain procedures reverse or limit their coverage of such procedures in the future, or if other third-party payers issue similar policies, our business could be adversely impacted.

Further, we believe that future coverage and reimbursement may be subject to increased restrictions, such as additional preauthorization requirements, both in the U.S.

Therefore, coverage and reimbursement for procedures using our products can differ significantly from payer to payer and, in some cases, jurisdiction to jurisdiction.

payers continually review new and existing technologies for possible coverage and can, without notice, deny, change or reverse coverage decisions or alter prior authorization requirements for new or existing products and procedures.

We cannot provide assurance that we will be successful in any efforts we may potentially undertake to reverse such non-coverage or unfavorable coverage decisions.

If we are not successful in reversing non-coverage or unfavorable coverage policies, or if third-party payers that currently cover or reimburse certain procedures involving the use of our products reverse, change or limit their coverage of such procedures in the future, or if other third-party payers issue similar policies or adopt similar practices, our business could be adversely impacted.

Further, we believe that future coverage and reimbursement may be subject to increased restrictions, such as additional prior authorization requirements, both in the U.S.

and in international markets.

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These laws and regulations have been, and may continue to be, inconsistent with each other, requiring different approaches in different jurisdictions.

In addition, the interpretation and application of medical and personal data protection laws and regulations in the U.S., Europe, China and elsewhere are

often uncertain and in flux.

In addition, the interpretation and application of medical and personal data protection laws and regulations in the U.S., Europe, China and elsewhere are often uncertain and in flux.

Further, we have incurred, and will likely continue to incur, significant expense in connection with our efforts to comply with those applicable laws and regulations.

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Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

Legal developments in Europe have created compliance uncertainty regarding certain transfers of personal data from the EU to the U.S.

and other non-EU jurisdictions (in particular taking into account the recent decision of the European Court of Justice in Case C-311/18 (Schrems II)).

For example, the GDPR, which came into application in the EU on May 25, 2018, applies to our activities conducted from an establishment in the EU or related to products and services that we offer to EU users.

The GDPR created a range of new compliance obligations, which could cause us to change our business practices, and significantly increases financial penalties for noncompliance (including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements).

Legal developments in foreign countries have created compliance uncertainty regarding certain transfers of personal data from certain countries to the U.S.

or other foreign countries.

For example, the GDPR, applies to the processing of personal data related to the activities of an establishment in the EU or to the processing of personal data of data subjects who are in the EU where this is related to products and services that we offer to EU users.

The GDPR created a range of new compliance obligations, which could cause us to change our business practices, and significantly increases financial penalties for noncompliance (including possible fines of up to 4% of the total worldwide global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements).

In addition, as discussed under Item 1.

“Business – Regulation - Privacy and Security,” the PIPL, similar to the GDPR, applies to personal information processing activities outside of China if companies provide products or services to individuals in China or analyze and evaluate the behavior of individuals in China.

If we fail to comply with the requirements of the PIPL, we could incur severe penalties, including a fine of up to RMB 50 million or 5% of our annual turnover in the preceding year and revocation of our license to do business in China.

If we incur any of these penalties in the EU or China for violations of the GDPR or PIPL, our business and operations in those areas could be adversely affected and have a material adverse effect on our financial results.

Our failure to comply with applicable environmental, health and safety laws and regulations could affect our business, operations or financial condition.

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Moreover, climate change and sustainability efforts and potential climate change regulations could lead to business interruption, significantly increased costs and other adverse consequences to our business.

While the cost of compliance with such laws and regulations has not had a material adverse effect on our results of operations historically, compliance with future regulations may require additional capital investments.

Additionally, because we use a limited amount of hazardous and other regulated materials in our manufacturing processes, we are subject to certain risks of future liabilities, lawsuits and claims resulting from any substances we manufacture, dispose of or release.

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Consequently, claims may be asserted by the FDA or other enforcement agencies that we are not in compliance with applicable laws or regulations or have improperly promoted our products for uncleared or unapproved uses.

The FDA or such other agencies could require a recall of products or allege that our promotional activities misbrand or adulterate our

products or violate other legal requirements, which could result in investigations, prosecutions, fines or other civil or criminal actions.

The FDA or such other agencies could require a recall of products or allege that our promotional activities misbrand or adulterate our products or violate other legal requirements, which could result in investigations, prosecutions, fines or other civil or criminal actions.

Our products may be subject to product liability claims and warranty claims .

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Product liability claims may be brought by individuals or by groups seeking to represent a class.

We have previously faced claims by patients claiming injuries from our products.

We have previously faced, and currently face, claims by patients claiming injuries from our products.

To date, these claims have not resulted in material harm to our operations or financial condition.

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however, there is no assurance that this coverage will be sufficient to satisfy any claim made against us.

Moreover, any product liability claim brought against us could result in significant costs, divert our management’s attention from other business matters or operations, increase our product liability insurance rates, or prevent us from securing insurance coverage in the future.

coverage in the future.

As a result, any lawsuit seeking significant monetary damages may have a material adverse effect on our business, operations or financial condition.

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We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or if the product characteristic that caused the adverse event is removed in time from our products.

If we fail to comply with our medical device reporting obligations, the FDA could issue warning letters or untitled letters, take administrative actions, commence criminal prosecution, impose civil monetary penalties, demand or initiate a product recall, seize our products, or delay the clearance of our future products.

Inspections by the FDA or other regulators may reveal violations or instances of noncompliance under the QSRs and other post-market requirements.

If we fail to comply with our medical device reporting obligations or commit a violation of these requirements, the FDA could issue warning letters or untitled letters, take administrative actions, commence criminal prosecution, impose civil monetary penalties, demand or initiate a product recall, seize our products, or delay the clearance of our future products.

Other regulatory authorities could take similar actions within their jurisdictions.

Our employees, independent contractors, consultants, manufacturers and distributors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, independent contractors, consultants, manufacturers and distributors may engage in fraudulent conduct or other illegal activity.

Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates healthcare laws and regulations of the FDA and other federal, state and international authorities, manufacturing standards, and laws that require the true, complete and accurate reporting of financial information or data.

We have adopted a code of business conduct and ethics, and a global anti-corruption policy, but it is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from

governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

Misconduct by these parties could include intentional, reckless or negligent conduct, or unauthorized activities that violate the healthcare laws and regulations of the FDA and other federal, state and international authorities, manufacturing standards, and laws that require the true, complete and accurate reporting of financial information or data.

If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties.

We may be a party to litigation in the course of our business or otherwise, which could affect our financial condition and results of operations .

We may become party to or otherwise involved in legal proceedings, claims or other legal matters, arising in the course of our business.

In particular, our company, our Chief Executive Officer and our Chief Financial Officer have been named in a complaint filed in the Central District of California, which alleges violations of certain federal securities laws.

Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control.

We are routinely a party to or otherwise involved in legal proceedings, claims or other legal matters, arising in the course of our business.

In particular, our company, our Chief Executive Officer and our Chief Financial Officer have been named in a complaint filed in the U.S.

District Court for the Central District of California, which alleges violations of certain federal securities laws, and our company and certain of our officers and directors have been named in a related shareholder derivative proceeding filed in the U.S.

District Court of the State of Utah.

Legal proceedings can be complex and take

many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control.

Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations.

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If a legal proceeding is resolved against us, it could result in significant compensatory damages or injunctive relief that could materially adversely affect our financial condition, results of operations and cash flows.

Intellectual Property

We may not be able to effectively protect our intellectual property, which could harm our business and financial condition .

Our ability to remain competitive is dependent, in part, upon our ability to protect our intellectual property rights and prevent other companies from infringing our intellectual property rights to produce competing products.

We seek to protect our intellectual property rights through a combination of confidentiality and license agreements, maintaining certain trade secrets, and through registrations under patent, trademark, and copyright laws.

However, these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties.

Additionally, these measures may not prevent competitors from duplicating our products or gaining access to our proprietary information and technology.

Third parties may also develop similar or superior technology independently or by designing around our patents.

In addition, the laws of some foreign countries do not offer the same level of protection for our intellectual property as the laws of the U.S.

All of our patents and copyrights will eventually expire and some of our patents, including patents protecting significant elements of our technology, will expire within the next several years.