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Item 5. Market for Registrant’s Common Equity

2021-03-25 compared with 2020-03-30 · 12 added, 308 removed, 14 unchanged (96% of the section changed)

MARKET FOR REGISTRANTS’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “TELA”

since November 8,

Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “TELA” since November 8,

As of March 19, 2021, the Company had approximately 76 record holders of its common stock.

2 unchanged sentences

Securities Authorized for Issuance Under Equity Compensation Plans

The information under the heading “Securities Authorized for Issuance Under Equity Compensation Plans”

will be filed in the Company’s definitive proxy statement for the 2020 annual meeting of stockholders and is incorporated herein by reference.

Resent Sales of Unregistered Securities

Except as previously reported in our quarterly report on Form 10-Q filed with the SEC on December 18, 2019, there were no unregistered sales of equity securities during the period.

The information under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” will be filed in the Company’s definitive proxy statement for the 2021 annual meeting of stockholders and is incorporated herein by reference.

Recent Sales of Unregistered Securities

Use of Proceeds

1 unchanged sentence

333-234217) relating to the IPO of shares of our common stock, became effective on November 7, 2019.

The registration statement registered the offer and sale of 4,000,000 shares of our common stock (including 600,000 shares of our common stock subject to the underwriters’

option to purchase additional shares).

In November 2019, we completed the sale of 4,398,700 of the shares of our common stock registered thereunder at an initial public offering price of $13.00 per share for an aggregate offering price of approximately $57.2 million, which included 398,700 shares of our common stock pursuant to the underwriters’

option to purchase additional shares.

The registration statement registered the offer and sale of 4,000,000 shares of our common stock (including 600,000 shares of our common stock subject to the underwriters’ option to purchase additional shares).

The underwriters of the offering were Jefferies LLC, Piper Jaffray & Co., Canaccord Genuity LLC and JMP Securities LLC.

2 unchanged sentences

No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates.

As of December 31, 2019, we have not used any of the proceeds from our IPO.

There has been no material change in the planned use of proceeds from our IPO from that described in the Prospectus filed with the SEC on November 8, 2019 pursuant to Rule 424(b)(4).

As of December 31, 2020, we have used approximately $21.9 million of the net proceeds from our IPO for working capital and general corporate purposes, including hiring additional sales and marketing personnel and expanding marketing activities to support the ongoing commercialization of our OviTex and OviTex PRS product lines and to fund product development and research and development activities.

No amount of the net proceeds from our IPO have been paid directly or indirectly to (i) our directors, officers or any of their associates;

(ii) persons owning 10% or more of our common stock;

or (iii) our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors as compensation for board and board committee service.

There has been no material change in the planned use of proceeds from our IPO from that described in the prospectus dated November 7, 2019 as filed with the SEC pursuant to Rule 424(b)(4).

Issuer Purchases of Equity Securities

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and our consolidated financial statements and the related notes included elsewhere in this Annual Report.

The selected consolidated financial data included in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and the related notes included elsewhere in this Annual Report.

We derived the selected consolidated financial data from our audited consolidated financial statements for each of the periods presented.

Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Year Ended December 31,

(in thousands, except share and per share data)

Statement of Operations:

Cost of revenue (excluding amortization of intangible assets)

Amortization of intangible assets

Operating expenses:

Sales and marketing

General and administrative

Research and development

Gain on litigation settlement

Total operating expenses

Loss from operations

Other (expense) income:

Interest expense

Loss on extinguishment of debt

Change in fair value of preferred stock warrant liability

Total other (expense) income

Accretion of redeemable convertible preferred stock to redemption value

Net loss attributable to common stockholders

Net loss per common share, basic and diluted

Weighted average common, shares outstanding, basic and diluted

As of December 31,

Balance Sheet Data (in thousands):

Cash, cash equivalents and short-term investments

Working capital (1)

Long-term debt

Redeemable convertible preferred stock

Total stockholders’

equity (deficit)

We define working capital as current assets minus current liabilities.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Consolidated Financial Data”

and the consolidated financial statements and the related notes included elsewhere in this Annual Report.

In addition to historical financial information, the following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those described in or implied by these forward-looking statements as a result of many factors, including those set forth under the section titled “Risk Factors”

and in other parts of this Annual Report.

We are a commercial stage medical technology company focused on designing, developing and marketing a new category of tissue reinforcement materials to address unmet needs in soft tissue reconstruction.

We offer a portfolio of advanced reinforced tissue matrices that improve clinical outcomes and reduce overall costs of care in hernia repair, abdominal wall reconstruction and plastic and reconstructive surgery.

Our products are an innovative solution that integrate multiple layers of minimally-processed biologic material with interwoven polymers in a unique embroidered pattern, which we refer to as a reinforced tissue matrix.

Our first portfolio of products, OviTex, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price.

Our OviTex products have received 510(k) clearance from the FDA, which clearance was obtained and is currently held by Aroa and have demonstrated safety and clinical effectiveness in our BRAVO study.

The first 32 patients who reached one year follow-up in the BRAVO study had experienced no ventral hernia recurrences, no explantations and no surgical site occurrences requiring follow-up surgery.

Our second portfolio of products, OviTex PRS, addresses unmet needs in plastic and reconstructive surgery.

We began commercialization of our OviTex products in the U.S.

in July 2016 and they are now sold to more than 250 hospital accounts.

In the first half of 2017, we began scaling our U.S.

direct commercial presence and we initiated our BRAVO study in April 2017.

Our OviTex portfolio consists of multiple products for hernia repair and abdominal wall reconstruction, inguinal hernia repair and hiatal hernia repair.

In addition, to address the significant increase in the number of robotic-assisted hernia repairs over the last several years we have designed an OviTex product for use in laparoscopic and robotic-assisted surgery called OviTex LPR which we began commercializing in November 2018.

We introduced additional sizes of our OviTex products in both 25 ×

30 cm and 25 ×

40 cm sizes in January 2019.

In April 2019, our OviTex PRS products received 510(k) clearance from the FDA for plastic and reconstructive surgery, which clearance was obtained by Aroa and is currently held by us.

We commenced a limited launch in May 2019 and expect to continue commercializing in a controlled manner to gradually expand our surgeon network throughout 2020.

Our commercial efforts are predominantly focused on the U.S.

market where we have established strong relationships in the U.S.

with key constituencies, including hospitals, ambulatory surgery centers, GPOs, IDN, third-party payors and other key clinical and economic decision makers by offering a unique high quality, cost-effective product.

We market our products through a single direct sales force, predominantly in the U.S.

We plan to continue to invest in our commercial organization by adding account managers, clinical development specialists, business managers and administrative support staff in order to cover the highest potential of accounts for soft tissue reconstruction procedures.

We plan to continue to contract with GPOs and IDNs to increase access to and penetration of hospital accounts.

We plan to adjust our commercial expansion plan as appropriate as we continue to better understand the effects of COVID-19 pandemic on our sales and marketing efforts, which could be negatively impacted by a potential decrease in the number of patients seeking procedures which utilize our products and by restrictions on the ability of our sales professionals to effectively market to physicians, as hospitals defer elective surgeries, reduce and divert staffing, divert resources to patients suffering from the infectious disease and limit hospital access for non-patients.

Prior to obtaining FDA clearance for our first OviTex product, we devoted substantially all of our resources to the design and development of our reinforced tissue matrices.

Our development efforts to date have included an extensive non-

human primate preclinical research data set for OviTex.

In addition to our current portfolio, we are developing new product features and designs for both our OviTex and OviTex PRS portfolios.

We intend to continue to make investments in research and development efforts to develop improvements and enhancements.

Substantially all of our revenue to date has been generated by the sale of our OviTex products.

Our revenue for the years ended December 31, 2019 and 2018 was $15.4 million and $8.3 million, respectively, an increase of $7.2 million, or 87% in the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Net loss increased from $21.1 million in the year ended December 31, 2018 to $22.4 million in the year ended December 31, 2019.

We have not been profitable since inception and as of December 31, 2019, we had an accumulated deficit of $167.9 million.

We expect to incur losses for the foreseeable future.

During 2019, we received net proceeds of $14.4 million from the issuance of Series B preferred stock and then, in November 2019, we closed our IPO and received net proceeds of $50.6 million after deducting underwriting discounts, commissions and other offering expenses.

Our products are manufactured by Aroa at their FDA registered and ISO 13485 facility in Auckland, New Zealand.

We maintain our Aroa License for the exclusive supply of ovine rumen and manufacture of our reinforced tissue matrices under which we purchase product from Aroa at a fixed cost equal to 27% of our net sales of licensed products.

This revenue sharing arrangement allows us to competitively price our products and pass along cost-savings to our customers.

Components of Our Results of Operations

Substantially all of our revenue consists of direct sales of our products to hospital accounts in the U.S.

Depending on the terms of our agreements with our customers, we recognize revenue related to product sales either when control transfers, which generally occurs when the product is shipped to the customer, or when the product is utilized in a surgical procedure in the case of consignment agreements.

Fees charged to customers for shipping are recognized as revenue.

Recent revenue growth has been driven by, and we expect continued growth as a result of, increasing revenue from product sales due to our expanding customer base.

Cost of Revenue

Cost of revenue primarily consists of the costs of licensed products purchased from Aroa, charges related to excess and obsolete inventory adjustments, and costs related to shipping.

We purchase product from Aroa at a fixed cost equal to 27% of our net sales of licensed products.

The initial term of our Aroa License terminates on the later of (i) August 3, 2022, or (ii) the expiration of the last patent covering bovine and ovine products, with an option to extend for an additional ten year period.

We expect our cost of revenue to increase in absolute dollars as, and to the extent, our sales volume grows.

Amortization of Intangible Assets

Amortization of intangible assets relates to the amortization of capitalized milestone amounts paid or probable to be paid to Aroa related to license fees or commercialization rights after future economic benefit has been established for a product.

These capitalized milestone amounts relate to regulatory clearances, the receipt of certain supply quantities of product, and amounts based upon aggregate net sales thresholds within a specified territory, and are amortized over the remaining useful life of the intellectual property.

Gross Profit and Gross Margin

Our gross profit is calculated by subtracting our cost of revenue and amortization of intangible assets from our revenue.

We calculate our gross margin percentage as our gross profit divided by our revenue.

Our gross margin has been, and we expect it will continue to be, affected by a variety of factors, including sales volume and excess and inventory obsolescence costs.

Our gross profit may increase to the extent our revenue grows.

Sales and Marketing Expenses

Sales and marketing expenses consist of market research and commercial activities related to the sale of OviTex and OviTex PRS and salaries and related benefits, sales commissions and stock-based compensation for employees focused on these efforts.

Other significant sales and marketing expenses include costs incurred with post-market clinical studies, conferences and trade shows, promotional and marketing activities, as well as travel and training expenses.

Over time we expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our commercial organization to both drive and support our planned growth in revenue.

We expect our sales and marketing expenses to continue to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for personnel in executive, finance, information technology and administrative functions.

General and administrative expenses also include professional service fees for legal, accounting, consulting, investor and public relations, insurance costs and direct and allocated facility-related costs.

We expect that our general and administrative expenses will increase in absolute dollars as we expand our headcount to support our growth and incur additional expenses related to operating as a public company, including director and officer insurance coverage, legal costs, accounting costs, costs related to exchange listing and costs related to SEC compliance and investor relations.

We expect our general and administrative expenses to continue to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.

Research and Development Expenses

Research and development expenses consist primarily of product research, engineering, product development, regulatory compliance and clinical development.

These expenses include salaries and related benefits, stock-based compensation, consulting services, costs associated with our preclinical studies, costs incurred with our manufacturing partner under development agreements related to technology transfer, laboratory materials and supplies and an allocation of related facilities costs.

We expense research and development costs as they are incurred.

We expect research and development expenses in absolute dollars to increase in the future as we develop new products and enhance existing products.

We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of new product development initiatives.

Interest Expense

Interest expense consists of cash interest under our credit facilities, non-cash interest attributable to the accrual of final payment fees and the amortization of deferred financing costs related to our indebtedness.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of the excess consideration paid over the net carrying value of our debt at the time of extinguishment.

Change in Fair Value of Preferred Stock Warrant Liability

Prior to our IPO, our outstanding warrants to purchase shares of our preferred stock were classified as liabilities, recorded at fair value and were subject to remeasurement at each balance sheet date until they were exercised, expired or were otherwise settled.

The change in fair value of our preferred stock warrant liability reflected a non-cash charge primarily driven by changes in the fair value of our underlying Series B preferred stock.

All outstanding warrants to purchase shares of our preferred stock were converted into warrants to purchase shares of our common stock after our IPO.

Other income consists primarily of income earned on our cash, cash equivalents and short-term investments.

Results of Operations

Comparison of the Year Ended December 31, 2019 and 2018

Year Ended December 31,

(in thousands except percentages)

Cost of revenue (excluding amortization of intangible assets)

Amortization of intangible assets

Operating expenses:

Sales and marketing

General and administrative

Research and development

Gain on litigation settlement

Total operating expenses

Loss from operations

Other (expense) income:

Interest expense

Loss on extinguishment of debt

Change in fair value of preferred stock warrant liability

Total other (expense) income

Revenue increased by $7.2 million, or 87%, to $15.4 million for the year ended December 31, 2019 from $8.3 million for the year ended December 31, 2018.

The increase in revenue was primarily driven by an increase in unit sales of our products due to the expansion of our commercial organization with increased penetration within existing customer accounts as well as the introduction of larger sizes of OviTex during 2019.

During the year ended December 31, 2019, we sold 3,779 units of OviTex compared to 2,110 units of OviTex during the year ended December 31, 2018, a 79% increase in unit sales volume.

We commenced a limited launch of OviTex PRS in May 2019, selling 240 units during the year ended December 31, 2019.

Cost of Revenue

Cost of revenue (excluding amortization of intangible assets) increased by $1.3 million to $5.9 million for the year ended December 31, 2019 from $4.5 million for the year ended December 31, 2018.

The increase in cost of revenue was primarily the result of higher revenue due to the growth in the number of OviTex and OviTex PRS units sold offset by a lower charge to excess and obsolete inventory of $0.7 million during the year ended December 31, 2019 compared to the prior year.

The larger reserve expense recognized during the year ended December 31, 2018 was primarily due to Aroa reducing the shelf life of a certain product line during the year.

Amortization of Intangible Assets

Amortization of intangible assets was $0.3 million for the year ended December 31, 2019 as compared to $0.8 million for the year ended December 31, 2018.

In May 2018, we achieved one of our regulatory milestones, and we determined

that certain commercial sales milestone targets under our licensing agreement with Aroa became probable of being met.

As a result, we recorded these milestone payments as intangible assets that required a cumulative amortization charge during 2018.

Gross margin increased to 60% for the year ended December 31, 2019 from 36% for the year ended December 31, 2018.

The increase was primarily due to a lower expense recognized for excess and obsolete inventory adjustments as a percentage of revenue during the year ended December 31, 2019 as compared to the prior year and the $0.4 million cumulative amortization charge recognized during the year ended December 31, 2018.

Sales and Marketing

Sales and marketing expenses increased by $4.4 million, or 32%, to $18.1 million for the year ended December 31, 2019 from $13.6 million for the year ended December 31, 2018.

The increase was primarily due to higher salary, benefits and commission costs of $4.4 million due to our sales expansion activities, including the hiring of additional sales personnel.

General and Administrative

General and administrative expenses increased by $1.3 million, or 27%, to $6.2 million for the year ended December 31, 2019 from $4.9 million for the year ended December 31, 2018.

The increase was primarily due to higher salary and benefits costs of $0.7 million, increased insurance costs of $0.4 million and higher professional fees of $0.1 million.

Research and Development

Research and development expenses decreased by $0.2 million, or 4%, to $4.2 million for the year ended December 31, 2019 from $4.3 million for the year ended December 31, 2018.

The decrease in research and development expense primarily relates to a decrease in external development and testing.

Gain on Litigation Settlement

In 2018, we recognized a gain on litigation settlement of $2.2 million related to a litigation claim that we had brought against the former carrier for our directors and officer and employment practices liability insurance for breach of contract and failure to reimburse us for defense costs incurred in litigation against LifeCell that was fully settled in 2016.

Interest Expense

Interest expense increased by $1.8 million, or 100%, to $3.6 million for the year ended December 31, 2019 from $1.8 million for the year ended December 31, 2018.

The increase was primarily due to having a larger principal balance outstanding with a higher interest rate during the year ended December 31, 2019 compared to the prior year.

Loss on Extinguishment of Debt

We recorded a loss on the extinguishment of debt of $1.8 million during the year ended December 31, 2018 related to the repayment of borrowings and cancellation of refinancing of our credit facilities with Hercules and MidCap Financial Trust (“MidCap”) in April and November, respectively.

The losses were primarily comprised of the write-off of unamortized debt discounts and prepayment penalties at the time of extinguishment.

Change in Fair Value of Preferred Stock Warrant Liability

We recognized a loss on the change in the fair value of our preferred stock warrant liability of $5,000 during the year ended December 31, 2019.

All outstanding warrants to purchase shares of our preferred stock were converted into warrants to purchase shares of our common stock and the liability was reclassed to additional paid-in capital in the accompanying consolidated balance sheet.

Other income increased by $0.3 million, which was primarily attributable to having larger cash, cash equivalents and short-term investment balances, which earned more interest income during the year ended December 31, 2019 as compared to the prior year.

Comparison of the Years Ended December 31, 2018 and 2017

Year Ended December 31,

(in thousands, except percentages)

Cost of revenue (excluding amortization of intangible assets)

Amortization of intangible assets

Operating expenses:

Sales and marketing

General and administrative

Research and development

Gain on litigation settlement

Total operating expenses

Loss from operations

Other (expense) income:

Interest expense

Loss on extinguishment of debt

Change in fair value of preferred stock warrant liability

Total other (expense) income

Revenue increased by $4.0 million, or 95%, to $8.3 million for the year ended December 31, 2018 from $4.2 million for the year ended December 31, 2017.

The increase in revenue was primarily driven by an increase in unit sales of our products due to the expansion of our commercial organization and increased penetration within the market.

During 2018, we sold 2,110 units of OviTex as compared to 1,027 units of OviTex during 2017, a 105% increase in unit sales volume.

Cost of Revenue

Cost of revenue (excluding amortization of intangible assets) increased by $2.8 million, or 165%, to $4.5 million for the year ended December 31, 2018 from $1.7 million for the year ended December 31, 2017.

The increase in cost of revenue was primarily the result of an increase in revenue as well as a $1.8 million increase in our excess and obsolete inventory reserve recognized during the year ended December 31, 2018 as compared to the prior year, primarily due to Aroa reducing the shelf life of a certain product line.

Amortization of Intangible Assets

Amortization of intangible assets was $0.8 million for the year ended December 31, 2018.

In May 2018, we determined that certain milestone targets under our licensing agreement with Aroa became probable of being met and recorded the payment obligation as an intangible asset.

There were no intangible assets or related amortization expense during the year ended December 31, 2017.

Gross margin decreased to 36% for the year ended December 31, 2018 from 60% for the year ended December 31, 2017.

The decrease was primarily due to a $1.8 million increase in excess and obsolete inventory adjustments recognized during 2018 as compared to the prior year, primarily due to Aroa reducing the shelf life of a certain product line during 2018.

We also recognized $0.8 million in amortization of intangible assets in 2018.

There was no such expense in 2017.

Sales and Marketing

Sales and marketing expenses increased by $4.9 million, or 57%, to $13.6 million for the year ended December 31, 2018 from $8.7 million for the year ended December 31, 2017.

The increase was primarily due to higher salary and commission costs of $2.6 million as a result of our sales expansion activities, including hiring of additional sales personnel and expansion of marketing activity costs of $2.3 million, consistent with our growth in revenue.

General and Administrative

General and administrative expenses remained flat for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Research and Development

Research and development expenses decreased by $1.4 million, or 25%, to $4.3 million for the year ended December 31, 2018 from $5.8 million for the year ended December 31, 2017.

The decrease in research and development expense was primarily attributable to a decrease in licensing payments of $0.5 million, a decrease in external testing and analysis costs of $0.2 million and a decrease of $0.7 million in overall research and development efforts as we shifted our focus to the commercialization of our approved products.

Gain on Litigation Settlement

Interest Expense

Interest expense decreased by $2.8 million, or 60%, to $1.8 million for the year ended December 31, 2018 from $4.6 million for the year ended December 31, 2017.

The decrease was primarily due to a decrease of $1.4 million related to non-cash accretion expense, and a decrease of $1.4 million related to the recognition of a beneficial conversion feature recognized in 2017.

Loss on Extinguishment of Debt

The losses were primarily comprised of the write-off of unamortized debt discounts and prepayment penalties at the time of extinguishment.

Change in Fair Value of Preferred Stock Warrant Liability

The fair value of our preferred stock warrant liability decreased during both of the years ended December 31, 2018 and 2017, primarily attributable to the decrease in the remaining contractual term of the outstanding warrants.

As a result, we recognized a gain on the change in the fair value of our preferred stock warrant liability of $0.2 million and $54,000 during the years ended December 31, 2018 and 2017, respectively.

Liquidity and Capital Resources

As of December 31, 2019, we had cash, cash equivalents and short-term investments of $54.6 million, working capital of $57.6 and an accumulated deficit of $167.9 million.

As of December 31, 2018, we had cash and cash equivalents of $17.3 million, working capital of $13.7 million and an accumulated deficit of $137.9 million as of December 31, 2018.

On November 13, 2019, we closed our IPO in which we issued and sold 4,398,700 shares of our common stock at a public offering price of $13.00 per share, which included 398,700 shares of our common stock sold pursuant to the underwriters’

option to purchase additional shares.

We received net proceeds of $50.6 million after deducting underwriting discounts and commissions and other expenses.

We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to expand our sales and marketing initiatives to support our growth in existing and new markets and invest funds in additional research and development activities.

We will also incur additional costs of operating as a public company.

As of December 31, 2019, we had $30.0 million of borrowings outstanding under our credit facility (the “OrbiMed Credit Facility”).

This credit facility matures in November 2023 and had $5.0 million of additional capacity through December 31, 2019, which we did not borrow.

This facility requires that we maintain a minimum cash balance of $2.0 million.

Based on our current business plan, we believe that our existing cash resources and short-term investments will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months from the issuance of this Annual Report.

If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional common or preferred equity or debt securities, or enter into a new credit facility.

If we raise additional funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock.

Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt.

We cannot be assured that additional equity, equity-linked or debt financing will be available on terms favorable to us or our stockholders, or at all, including as a result of market volatility following the COVID-19 outbreak.

If we are unable to obtain adequate financing we may be required to delay the development, commercialization and marketing of our products.

The following table summarizes our sources and uses of cash for each of the periods presented:

Year Ended December 31,

(in thousands)

Cash used in operating activities

Cash used in investing activities

Cash provided by financing activities

Effect of exchange rate on cash

Net increase in cash and cash equivalents

Operating Activities

During the year ended December 31, 2019, we used $25.5 million of cash in operating activities, resulting from our net loss of $22.4 million and the change in operating assets and liabilities of $6.3 million, offset by non-cash charges of $3.2 million.

Our non-cash charges were primarily comprised of our excess and obsolete inventory charge of $1.6 million, stock-based compensation expense of $0.5 million, interest expense of $0.5 million, depreciation of $0.3 million and amortization of intangibles of $0.3 million.

The change in our operating assets was primarily related to increases in accounts receivable, inventory and prepaid expenses and other assets.

During the year ended December 31, 2018, we used $19.9 million of cash in operating activities, resulting from our net loss of $21.1 million and the change in operating assets and liabilities of $4.5 million offset by non-cash charges of $5.6 million.

Our non-cash charges were comprised of depreciation of $0.5 million, the amortization of intangibles of $0.8 million, interest expense of $0.7 million, the recognition of a loss on extinguishment of debt of $1.8 million, and our excess and obsolete inventory charge of $2.2 million.

We also had stock-based compensation expense of $0.2 million and a change in the fair value of our warrants of $0.2 million.

The change in our operating assets was primarily related to a $4.8 million increase in inventory, a $0.5 million increase in accounts receivable, and a decrease in accrued expenses and other liabilities of $1.2 million.

These amounts were slightly offset by a $1.9 million increase in accounts payable.

Investing Activities

During the year ended December 31, 2019, cash used in investing activities was $12.0 million, consisting of purchases of short-term investments of $9.3 million, payments made for our intangible assets of $2.5 million and purchases of property and equipment of $0.2 million.

During the year ended December 31, 2018, cash used in investing activities was $1.6 million, consisting of payments made for our intangible assets of $1.5 million, and purchases of property and equipment of $0.1 million.

Financing Activities

During the year ended December 31, 2019, cash provided by financing activities was $65.5 million, consisting primarily from the net proceeds received from our IPO and the net proceeds from the issuance of our Series B preferred stock.

During the year ended December 31, 2018, cash provided by financing activities was $27.4 million, consisting primarily of $30.0 million in proceeds received from the issuance of long-term related party debt with OrbiMed, $8.0 million in proceeds from the issuance of long-term debt with MidCap, $4.0 million in net proceeds received from the issuance of our Series B preferred stock, partially offset by $13.0 million in repayments made on our long-term debt with MidCap and Hercules and $1.6 million in payments of issuance costs related to our debt financings.

In November 2018, we entered into the OrbiMed Credit Facility, which consists of up to $35.0 million in term loans (the “OrbiMed Term Loans”).

The OrbiMed Term Loans consist of two tranches, a $30.0 million Tranche 1 (“Tranche 1”) and a $5.0 million Tranche 2 (“Tranche 2”).

Upon closing, we borrowed $30.0 million of Tranche 1 and used a portion of the proceeds to repay borrowings under our credit facility with MidCap and intend to use the remaining proceeds to fund operations and capital expenditures.

We elected not to borrow Tranche 2 prior to its expiration on December 31, 2019.

Pursuant to the OrbiMed Credit Facility, we provided a first priority security interest in all existing and future acquired assets, excluding intellectual property and certain other assets, owned by us.

The OrbiMed Credit Facility contains a negative pledge on intellectual property owned by us.

The OrbiMed Credit Facility also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (iv) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) key person event, (xi) regulatory matters, (xii) and key contracts.

In addition, we must maintain a minimum cash balance of $2.0 million.

In the event of default under the OrbiMed Credit Facility, we would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 3%.

The OrbiMed Term Loans mature on November 16, 2023 and bear interest at a rate equal to 7.75% plus the greater of one-month LIBOR or 2.0%.

We are required to make 60 monthly interest payments beginning on November 30, 2018 with the entire principal payment due at maturity.

The OrbiMed Term Loans have a prepayment penalty equal to 10.0% of the prepaid principal amount prior to the second anniversary of the OrbiMed Term Loans, 5.0% of the prepaid principal amount after the second anniversary but prior to the third anniversary and 2.5% of the prepaid principal amount

after the third anniversary.

We are also required to pay an administration fee equal to $10,000 on the last day of each quarter until all obligations have been paid in full and an exit fee at the time of maturity or prepayment event equal to $3.0 million.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2019 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

Payments due by Period

(in thousands)

Principal payments on long-term debt

Interest and end of term charge on long-term debt (1)

Operating lease commitments (2)

Purchase commitments with Aroa

Interest payable reflects the rate in effect as of December 31, 2019.

The interest rate on borrowings under the OrbiMed Credit Facility is variable and resets monthly.

End of term fee reflects final payment fee due at maturity.

Reflects payments due for our lease of office and laboratory space in Malvern, Pennsylvania under an operating lease agreement that expires in 2021.

This table does not include (a) any milestone payments that are not deemed probable under license agreements as the timing and likelihood of such payments are not known with certainty and (b) contracts that are entered into in the ordinary course of business that are not material in the aggregate in any period presented above.

Excluded amounts primarily consist of a $1,000 milestone payment due to Aroa when certain sales milestones are met.

As a smaller reporting company, we are not required to provide the information otherwise required by this Item.

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 5. Market for Registrant’s Common Equity