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Item 1A. Risk Factors

2023-03-23 compared with 2022-03-23 · 182 added, 185 removed, 887 unchanged (29% of the section changed)

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The realization of any of these risks could have a material adverse effect on our business, financial condition, results of operations, and our ability to accomplish our strategic objectives.

Risks Related to COVID-19

The ongoing COVID-19 pandemic is negatively impacting certain aspects of our business and, depending on the severity and duration of the pandemic, could have a material adverse effect on our business, results of operations and financial condition.

The ongoing COVID-19 pandemic has negatively impacted our business, results of operations and financial condition, and we expect the pandemic to continue to negatively impact our business, results of operations and financial condition.

Extraordinary actions have been taken by federal, state and local governmental authorities to combat the spread of COVID-19, including issuance of “stay-at-home” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

However, while many restrictions have since eased with COVID-19 vaccines now widely available, the elective surgery market faced additional pandemic-related challenges in 2021 due to regional surges in COVID-19 Delta variant cases, staffing shortages and fatigue from care teams addressing significant procedure backlogs.

In December 2021, the COVID-19 Omicron variant prompted some government restrictions on elective procedures and surgical staffing challenges which began to ease in January 2022.

While these challenges have recently begun to subside, it is unknown how long it will take the elective surgery market to normalize, or if restrictions on elective procedures will recur due to COVID-19 variant strains or otherwise.

We do not know if, and how, future restrictions may affect the surgical communities’ return to, or redefining of, normal operations, whether due to governmental restrictions, institutional, patient or clinical decisions or general economic conditions.

New or prolonged suspensions of elective surgeries by governmental restrictions or action would cause net sales of our products to decrease.

The health of our workforce is our top concern and we have implemented safety protocols in an effort to maintain the health and safety of our employees.

Similar to many other employers in the U.S., we have and may continue to require employees to work remotely.

Remote work arrangements could increase operational risk, including, but not limited to, cybersecurity risks.

Increased levels of remote access may create additional opportunities for cybercriminals to attempt to exploit vulnerabilities, and our employees may be more susceptible to phishing and social engineering attempts.

Hospitals have reduced and diverted staffing and diverted resources to patients suffering from COVID-19 and have limited hospital access for non-patients, including our sales professionals.

In addition, travel restrictions due to COVID-19 have impacted our sales professionals’ ability to travel to customers.

These circumstances have negatively impacted our sales professionals’ efforts to market to physicians in person and caused us to develop virtual marketing and sales solutions.

If our sales professionals’ efforts to market to physicians in person continue to be negatively impacted, or our virtual marketing and sales solutions prove to be of limited utility or unsuccessful, the sales and market penetration of our OviTex and OviTex PRS products could be negatively impacted.

In addition, the spread of COVID-19 has had, and may continue to have, an impact on the number of patients seeking and receiving hernia repair, abdominal wall reconstruction or plastic and reconstructive surgeries, as hospitals cancel elective surgeries and patients postpone these procedures due to COVID-19 concerns, which may reduce demand for our OviTex and OviTex PRS products and negatively impact our sales and results of operations.

Even after the pandemic has subsided and/or governmental orders no longer prohibit or recommend against performing such procedures, patients may continue to defer such procedures out of concern of being exposed to COVID-19 or for other reasons.

COVID-19 has and may continue to have an impact on ports and trade globally.

We currently rely on Aroa, which is headquartered in New Zealand, for supply of our products.

While there have been minimal disruptions to our supply chain,

there is a risk that in the future supplies of our products may be significantly delayed or may become unavailable as a result of COVID-19 and the resulting impact on Aroa’s labor force and operations, including as a result of governmental restrictions on business operations and the movement of people and goods in an effort to curtail the spread of the virus.

There can be no assurance that we would be able to timely implement any mitigation plans relating to our supply chain.

Disruptions in our supply chain, whether as a result of restricted travel, quarantine requirements or otherwise, could negatively impact our ability to supply and sell our products.

The continued spread of COVID-19 has led to periods of severe disruption and volatility in the global credit or financial markets, and may cause such periods of disruption and volatility in the future, which could result in a decline in our stock price, high inflation, increase our cost of capital and adversely affect our ability to access the capital markets in the future even after local conditions improve.

In addition, trading prices on the public stock market have experienced periods of high volatility as a result of the ongoing COVID-19 pandemic.

The full extent to which the ongoing COVID-19 pandemic will further, directly or indirectly, impact our business, results of operations and financial condition, including our sales, expenses, manufacturing capability, supply chain integrity, research and development activities, and employee-related matters, including compensation, will depend on future developments that are highly uncertain, including, variant strains of the virus and the degree of their vaccine resistance and as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

Information pertaining to the impact of the ongoing COVID-19 pandemic and associated economic disruptions on our operations to date can be found in “Management's Discussion and Analysis of Financial Position and Results of Operations” in this Annual Report on Form 10-K.

Risks Related to Achieving or Sustaining Profitability, Financial Position and Capital Requirements

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As of December 31, 2022, we had an accumulated deficit of $274.2 million.

We expect to continue to incur significant sales and marketing, research and clinical development, regulatory and other expenses as we expand our sales and marketing efforts to increase adoption of our products, expand existing relationships with our customers, obtain regulatory clearances or approvals for our planned or future products, conduct clinical trials on our existing and planned or future products and develop new products or add new features to our existing products.

We expect to continue to incur significant sales and marketing, research and clinical development, regulatory and other expenses as we expand our sales and marketing efforts to increase adoption of our products, expand existing relationships with our customers, obtain regulatory clearances or approvals for our planned or future products, conduct clinical trials on our existing and planned or future products, develop, acquire or license complimentary products for our product portfolio, or add new features to our existing products.

As a result, we expect to continue to incur operating losses for the foreseeable future and may never achieve profitability.

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Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and competitive position.

As of December 31, 2021, we had $30.0 million of indebtedness outstanding under our credit facility with OrbiMed Royalty Opportunities II, LP (“OrbiMed”) that matures in November 2023.

As of December 31, 2022, we had $40.0 million of indebtedness outstanding under our credit facility with MidCap Financial Trust (“MidCap”) that matures in May 2027.

To service this indebtedness and any additional indebtedness we may incur in the future, we need to generate cash from our operating activities.

Our ability to generate cash is subject, in part, to our ability to successfully execute our business strategy, as well as general economic, financial, competitive, regulatory, and other factors beyond our control.

We cannot assure you that our business will be able to generate sufficient cash flow from operations or that future

borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs.

We cannot assure you that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs.

To the extent we are required to use cash from operations or the proceeds of any future financing to service our indebtedness, our ability to plan for, or react to, changes in our business, industry and the economy generally will be limited.

In addition, the OrbiMed credit facility contains certain covenants that limit our ability to engage in certain transactions that may be in our long-term best interests.

Subject to certain limited exceptions, these covenants limit our ability to, among other things:

● create, incur, assume or permit to exist any additional indebtedness, or create, incur, allow or permit to exist any additional liens;

● enter into any amendment, supplement, waiver or other modification of, or enter into any forbearance from exercising any rights with respect to, the terms or provisions contained in certain agreements without consent;

● effect certain changes in our business, fiscal year, management, entity name, business locations;

● liquidate or dissolve, merge with or into, consolidate with, or acquire all or substantially all of the capital stock or assets of, any other company;

● pay cash dividends on, make any other distributions in respect of, or redeem, retire or repurchase, any shares of our capital stock;

● make certain investments;

● enter into transactions with our affiliates.

In addition, the MidCap credit facility contains certain covenants that limit our ability to engage in certain transactions that may be in our long-term best interests, including the incurrence of additional indebtedness, effecting certain corporate changes, making certain investments, acquisitions or dispositions and paying dividends.

We have not previously breached and are not currently in breach of these or any of the other covenants;

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and 9 employees in Europe.

To generate future revenue growth, we plan to expand the size and geographic scope of our direct sales organization.

To generate future revenue growth, we plan to expand the size and geographic scope of our direct sales

organization.

This growth may require us to split or adjust existing sales territories, which may adversely affect our ability to retain customers in those territories.

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If we are unable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our products, which could have an adverse effect on our business, financial condition and results of operations.

Macroeconomic conditions, including the ongoing response to the COVID-19 pandemic, may negatively impact certain aspects of our business, our prospects, results of operations and financial condition.

Macroeconomic conditions, including the COVID-19 pandemic, have negatively impacted our business, results of operations and financial condition, and, if continued or exacerbated by inflationary pressures, geopolitical conflict or other macroeconomic events, may adversely impact our business, financial condition and prospects.

In the first quarter of 2022, regional surges of the COVID-19 Omicron variant resulted in some government restrictions on elective procedures and surgical staffing challenges leading to the deferral of elective surgeries.

While the initial challenges from COVID-19 and its variants have begun to subside, we cannot predict the severity of any long-term impact stemming from strains on the healthcare system, labor and staffing in the hospital sector, fatigue on healthcare workers, and hospital capacity for elective procedures, that resulted from measures taken to address the COVID-19 pandemic.

We do not know when, and how, hospitals will return to normal surgical procedural volumes and also reduce the substantial backlog in elective procedures deferred in response to the COVID-19 pandemic.

Any prolonged delays in normalized levels of elective surgeries by governmental, hospital or payor actions would continue to impair net sales of our products.

General supply chain disruptions, initially arising from COVID-19, have also continued to interrupt trade globally and weakened supply systems.

We currently rely on Aroa, which is headquartered in New Zealand, for supply of our products.

While there have been minimal disruptions to our supply chain to date, there is a risk that in the future supplies of our products could be disrupted or delayed based on competition within a tightening supply chain or otherwise affected by substantial inflationary pressures due to macroeconomic conditions.

There can be no assurance that we would be able to timely implement any mitigation plans relating to our supply chain.

Continued concerns about the systemic impact of potential long-term and wide-spread recession, liquidity constraints, failures and instability in the U.S.

and international financial banking systems, and geopolitical issues, including the war in Ukraine, have contributed to increased market volatility and diminished expectations for economic growth in the world.

These conditions may lead to continued volatility in the future, which could result in a decline in our stock price, high inflation, increase our cost of capital and adversely affect our ability to access the capital markets in the future even after local conditions improve.

Market acceptance of our medical products in the U.S.

and other countries is dependent upon the procurement practices of our customers, patient need for our products and procedures and the reimbursement of patients’ medical expenses by government healthcare programs and third-party payors.

The continuing uncertainty surrounding global economic conditions and financial markets, including the lingering economic impact of the COVID-19 pandemic on our customers, may adversely affect demand for our products and procedures and result in lower reimbursement rates or coverage for our products, resulting in lower sales volume and downward pricing pressure on our products and slower adoption of new products.

The full extent to which the global economic forces, including the COVID-19 pandemic, will further, directly or indirectly, impact our business, results of operations and financial condition, including our sales, expenses, manufacturing capability, supply chain integrity, research and development activities, and employee-related matters, will depend on future developments that are highly uncertain.

Information pertaining to the impact of the COVID-19 pandemic and these macroeconomic pressures on our operations to date can be found in “Management's Discussion and Analysis of Financial Position and Results of Operations” in this Annual Report on Form 10-K.

Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our product or a decrease in consumer spending results in lower volumes of elective surgeries.

In addition, if our costs increase and we are not able to pass along these price increases, our profitability would be adversely affected, and the adverse impact may be material.

Inflation rates, particularly in the U.S., have increased recently to levels not seen in years.

Increased inflation may result in decreased demand for our products, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.

In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation.

Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks.

In an inflationary environment, we may be unable to raise the prices of our products at or above the rate at which our costs increase, which could/would reduce our profit margins and have a material adverse effect on our financial results.

We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing.

A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.

Events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.

Most recently, on March 10, 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (“SVB”) and appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp.

were each swept into receivership.

Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder.

Even though we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general.

These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.

The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations.

These factors could include, but may not be limited to, the following:

● Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;

● Loss of access to working capital sources and/or the inability to refund, roll over or extend the maturity of, or enter into new credit facilities or other working capital resources;

● Potential or actual breach of financial covenants in our credit agreements or credit arrangements;

● Potential or actual cross-defaults in other credit agreements, credit arrangements or operating or financing agreements;

● Termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management arrangements.

In addition, investor concerns regarding the U.S.

or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.

Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws.

Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations.

Risks Related to the Commercialization of our Products

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We first commercialized OviTex products in the U.S.

in 2016 and have introduced our larger sized OviTex products, our OviTex LPR product for use in laparoscopic and robotic-assisted hernia surgical

repairs and OviTex PRS products for use in surgery for soft-tissue repair or reinforcement in plastic and reconstructive procedures.

We expect that sales of our OviTex products and our OviTex PRS products, will account for all of our revenue for the foreseeable future.

in 2016 and have introduced our larger sized OviTex products, our OviTex LPR product for use in laparoscopic and robotic-assisted hernia surgical repairs, larger configurations of our LPR product, OviTex PRS products for use in surgery for soft-tissue repair or reinforcement in plastic and reconstructive procedures and recently our NIVIS Fibrillar Collagen Pack for the management of surgical wounds.

We expect that sales of our OviTex products and our OviTex PRS products, will account for the majority of our revenue for the foreseeable future.

Our failure to successfully increase sales of these products or any other event impeding our ability to sell these products would result in a material adverse effect on our business, financial condition and results of operations.

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If our products are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients.

Product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

Product liability claims could divert management’s attention from our core business, be expensive to defend

and result in sizeable damage awards against us that may not be covered by insurance.

In addition, any of the events described above could harm our business.

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Our OviTex PRS products are reconstructive reinforced tissue matrices designed for implantation to reinforce soft-tissue where weakness exists in patients requiring soft tissue repair or reinforcement in plastic and reconstructive surgery.

In connection with the March 2019 meeting of the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Committee, the FDA stated that no surgical mesh device, including OviTex PRS, has been cleared or approved for use in breast surgery, and that to obtain such indication, the product sponsor must obtain an approved PMA.

Our OviTex PRS products are not cleared or approved for breast reconstruction surgery and thus we are prohibited from marketing them for that use.

OviTex PRS or any other product we may develop for use in breast reconstruction surgery will need to be approved specifically for that indication and there can be no guarantee that it will be approved.

In connection with the March 2019 meeting of the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Committee, the FDA stated that no surgical mesh device has been cleared or approved for use in breast surgery, and that to obtain such indication, the product sponsor must obtain an approved PMA.

This statement applies to our OviTex PRS products as they are not cleared or approved for use in breast surgery and thus, we are prohibited from marketing them for that use.

OviTex PRS or any other product we may develop for use in breast surgery will need to be approved specifically for that indication and there can be no guarantee that it will be approved.

We have engaged in discussions with the FDA regarding an IDE protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery.

There can be no assurance that we will be able to secure an IDE in a timely manner, or at all.

There can be no assurance that we will be able to secure a PMA approval in a timely manner, or at all.

Any marketing for OviTex PRS or any other product for a use in breast reconstruction surgery would be deemed off-label promotion of that product if it has been cleared for a general indication of use to reinforce or repair soft-tissue and has not received an approval specifically for use in breast surgery.

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The primary customers for our products are hospitals and ambulatory surgery centers who will then seek reimbursement from third-party payors for the procedures performed using our products.

While some third-party payors currently cover and provide reimbursement for procedures using our currently cleared or approved products, we can give no assurance that these third-party payors will continue to provide coverage and adequate reimbursement for the procedures using our products, to permit hospitals and surgeons to offer procedures using our products to patients requiring treatment, or that current reimbursement levels for procedures using our products will continue.

While some third-party payors currently cover and provide reimbursement for procedures using our currently cleared or approved products, we can give

no assurance that these third-party payors will continue to provide coverage and adequate reimbursement for the procedures using our products, to permit hospitals and surgeons to offer procedures using our products to patients requiring treatment, or that current reimbursement levels for procedures using our products will continue.

Additionally, no uniform policy for coverage and reimbursement exists in the U.S.

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

Our long-term growth depends on our ability to enhance our product offerings.

Our long-term growth may depend on our ability to enhance our product offerings.

It is important to our business that we continue to enhance our OviTex and OviTex PRS products and develop and introduce new reinforced tissue matrix products.

Developing products is expensive and time-consuming and could divert management’s attention away from other aspects of our business.

The success of any new reinforced tissue matrix

product offering or product enhancements to our OviTex and OviTex PRS products will depend on several factors, including our ability to:

The success of any new reinforced tissue matrix product offering or product enhancements to our OviTex and OviTex PRS products will depend on several factors, including our ability to:

● properly identify and anticipate surgeon and patient needs;

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● ensure the quality, manufacture and supply of new products by Aroa;

● demonstrate, if required, the safety and efficacy of new products with data from preclinical studies and clinical trials;

● demonstrate, if required, the safety and efficacy of new products with data from preclinical studies, clinical trials and post-market clinical studies;

● obtain the necessary regulatory clearances or approvals for expanded indications, new products or product modifications;

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● receive adequate coverage and reimbursement for procedures performed with our new products;

● develop an effective and dedicated sales and marketing team.

● develop and expand an effective and dedicated sales and marketing team.

If we are not successful in introducing new product indications and developing and commercializing new products and product enhancements, our ability to increase our revenue may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.

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certification and regulatory clearance or approval requirements;

● difficulties in developing effective marketing campaigns in unfamiliar non-U.S.

● the impact of the exit of the United Kingdom from the European Union;

● difficulties in developing effective marketing campaigns in unfamiliar countries;

● customs clearance and shipping delays;

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● political, social, and economic instability abroad, terrorist attacks, and security concerns in general;

● the global impact of the ongoing COVID-19 pandemic;

● the impact of the macroeconomic factors, including COVID-19 pandemic, inflationary pressures and geopolitical conflicts like the war in Ukraine;

● natural disasters and global pandemics like COVID-19, which result in lock-downs, travel restrictions and other restrictions on our ability to operate internationally;

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Risks Related to Our Reliance on Third Parties

We are highly dependent upon Aroa, as the exclusive manufacturer and supplier of our products.

We are highly dependent upon Aroa, as the exclusive manufacturer and supplier of our OviTex portfolio products.

In August 2012, we entered into our Aroa License which was amended and restated in July 2015.

The Aroa License grants us an exclusive license in North America, the EU, United Kingdom, Norway, Switzerland, Russia and former Soviet satellite countries to certain intellectual property rights, including patents relating to the use of bovine and ovine rumen as a source of extracellular matrix.

Under the Aroa License, Aroa is our exclusive manufacturer and supplier of our products.

Under the Aroa License, Aroa is our exclusive manufacturer and supplier of our OviTex portfolio products, consisting of OviTex, OviTex LPR and OviTex PRS.

We are reliant upon the intellectual property we license from Aroa for the development and commercialization of our products.

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If we fail to comply with our obligations under the Aroa License, Aroa will have the right to terminate the Aroa License, in which event we would not be able to develop and market our products.

We are obligated to pay Aroa up to an aggregate of $4.0 million in revenue-based milestone payments upon our achievement of certain net sales thresholds for sales of our products within the specified licensed territory, of which we have already paid $3.0 million.

Aroa is required under the Aroa License to manufacture all of our products at its manufacturing and warehousing facility in Auckland, New Zealand.

The production of all of our products in a single location exposes us to the risk of Aroa’s facility being harmed or rendered inoperable by natural or man-made disasters or pandemics, which may render it difficult or impossible for Aroa to perform its manufacturing and assembly activities for some time.

Aroa is required under the Aroa License to manufacture all of our OviTex portfolio products at its manufacturing and warehousing facility in Auckland, New Zealand.

The production of all of our OviTex portfolio products in a single location exposes us to the risk of Aroa’s facility being harmed or rendered inoperable by natural or man-made disasters or pandemics, which may render it difficult or impossible for Aroa to perform its manufacturing and assembly activities for some time.

Although we and Aroa intend to establish redundant production facilities to lessen the risk of production disruptions, we will need to ensure that any manufacturing facility complies with our quality expectations and applicable regulatory requirements.

If we are unable to establish redundant manufacturing facilities in a timely manner, any disruption in the manufacture of our products at Aroa’s manufacturing and warehouse facility, the continued commercialization of our products, the supply of our products to customers and the development of any new reinforced tissue matrix products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.

Under the Aroa License, Aroa provides all of the raw materials and components used in the manufacture and assembly of our products.

If Aroa is unable to supply the raw materials and components or to manufacture and assemble our products reliably and at the levels we anticipate or that are required by the market, we may be unable to acquire a substitute supply of raw materials and components on a timely basis, if at all.

Under the Aroa License Aroa also holds the FDA clearances under which we commercialize our products, and maintains ultimate responsibility for all regulatory interactions with FDA relating to our products and decisions made with respect to changing or updating those clearances.

If Aroa fails to comply with all applicable regulatory requirements and maintain the FDA clearances related to our products, we may be unable to commercialize our products on a timely basis, or at all.

Our ability to supply our products commercially and to develop any future products depends, in part, on our ability to obtain these materials, components and products in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing.

If we are unable to establish redundant manufacturing facilities in a timely manner, any disruption in the manufacture of our OviTex portfolio products at Aroa’s manufacturing and warehouse facility, the continued commercialization of our OviTex portfolio products, the supply of our OviTex portfolio products to customers and the development of any new reinforced tissue matrix products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.

Under the Aroa License, Aroa is responsible for supplying all of the raw materials and components used in the manufacture and assembly of our OviTex portfolio products.

If Aroa is unable to supply the raw materials and components or to manufacture and assemble our OviTex portfolio products reliably and at the levels we anticipate or that are required by the market, we may be unable to acquire a substitute supply of raw materials and components on a timely basis, if at all.

Under the Aroa License Aroa also holds the FDA clearances under which we commercialize our OviTex and OviTex LPR products, and maintains ultimate responsibility for all regulatory interactions with FDA relating to our OviTex and OviTex LPR products and decisions made with respect to changing or updating those clearances.

If Aroa fails to comply with all applicable regulatory requirements and maintain the FDA clearances related to our OviTex and OviTex LPR products, we may be unable to commercialize our OviTex and OviTex LPR products on a timely basis, or at all.

Our ability to supply our OviTex portfolio products commercially and to develop any future products depends, in part, on our ability to obtain these materials, components and products in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing.

While Aroa has historically met our demand for its products and services on a timely basis in the past, we cannot guarantee that it will always be able to meet our demand for its products.

If Aroa fails to meet demand or notifies us that it believes it will fail to meet demand for our products, we are required under the Aroa License to work with Aroa to cure its supply failure and may, only in certain circumstances and on a temporary basis, engage a replacement contract manufacturer to mitigate a failure by Aroa to meet demand for our products.

As such, we are highly dependent upon Aroa’s continued ability to supply our products at the levels we require and any production shortfall that impairs the supply of our products could have a material adverse effect on our business, financial condition and results of operations and adversely affect our ability to satisfy demand for our products, which could adversely affect our product sales and operating results materially.

If Aroa fails to meet demand or notifies us that it believes it will fail to meet demand for our OviTex portfolio products, we are required under the Aroa License to work with Aroa to cure its supply failure and may, only in certain circumstances and on a temporary basis, engage a replacement contract manufacturer to mitigate a failure by Aroa to meet demand for our OviTex portfolio products.

As such, we are highly dependent upon Aroa’s continued ability to

supply our OviTex portfolio products at the levels we require and any production shortfall that impairs the supply of our OviTex portfolio products could have a material adverse effect on our business, financial condition and results of operations and adversely affect our ability to satisfy demand for our OviTex portfolio products, which could adversely affect our product sales and operating results materially.

We, or our partners, may experience development or manufacturing problems, capacity constraints, or delays in the production of our products that could limit the potential growth of our revenue or increase our losses.

We may encounter unforeseen situations in Aroa’s manufacturing and assembly of our products that would result in delays or shortfalls in its production.

We may encounter unforeseen situations in Aroa’s manufacturing and assembly of our OviTex portfolio products that would result in delays or shortfalls in its production.

For example, Aroa was unable to supply us with our products from September 2017 to December 2017 due to a quality testing process failure identified by Aroa.

Personnel shortages and reduced manufacturing capacity due to the ongoing COVID-19 pandemic may also result in a disruption in production.

Personnel shortages and reduced manufacturing capacity due to the COVID-19 pandemic may also result in a disruption in production.

Based upon our current planned market adoption we believe we will reach our capacity limitations in the Aroa facility.

Aroa is in the process of expanding manufacturing capacity, with approximately 15,000 square feet of additional manufacturing space being constructed in a neighboring facility, available in 2022.

However, there can be no assurance that the new manufacturing facility will be completed on time or at all.

Aroa expanded its manufacturing capacity, with approximately 15,000 square feet of additional manufacturing space being constructed in a neighboring facility, in 2022.

If we are unable to successfully expand capacity, we may not be able to meet the demand for our products.

In addition, Aroa’s production processes and assembly methods may have to change in order to accommodate any significant future expansion of its manufacturing capacity, which may increase our manufacturing costs, delay production of our products and adversely impact our business.

Conversely, if demand for our products shifts such that Aroa’s manufacturing facility is operated below its capacity for an extended period, it may adjust its manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period.

If Aroa’s manufacturing activities are adversely impacted or if it is otherwise unable to keep up with demand for our products by successfully manufacturing, assembling, testing and shipping our products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead

purchase our competitors’ products, which would have a material adverse effect on our business, financial condition and results of operations.

Conversely, if demand for our OviTex portfolio products shifts such that Aroa’s manufacturing facility is operated below its capacity for an extended period, it may adjust its manufacturing operations to reduce fixed costs, which could lead to uncertainty and delays in manufacturing times and quality during any transition period.

If Aroa’s manufacturing activities are adversely impacted or if it is otherwise unable to keep up with demand for our OviTex portfolio products by successfully manufacturing, assembling, testing and shipping our OviTex portfolio products in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors’ products, which would have a material adverse effect on our business, financial condition and results of operations.

Our products contain materials derived from animal sources and may become subject to additional regulation.

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Regulatory authorities are concerned about the potential for the transmission of disease, particularly progressive neurodegenerative disorders, from animals to humans via those materials.

In addition, the ongoing COVID-19 pandemic has heightened public awareness of animals and animal products as a disease vector.

In addition, the COVID-19 pandemic has heightened public awareness of animals and animal products as a disease vector.

Products that contain materials derived from animals, including our products, may become subject to additional regulation, or even be banned in certain countries, because of concern over the potential for the transmission of infectious agents.

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Expedited, reliable shipping is essential to our operations.

We rely heavily on providers of transport services for reliable and secure point-to-point transport of our OviTex and OviTex PRS products (and would rely heavily on such providers for any other products we may commercialize and ship in the future) to our customers and for tracking of these shipments.

Should a carrier encounter delivery performance issues such as loss, damage or destruction of any of our products, it would be costly to replace such products in a timely manner and such occurrences may damage our reputation and lead to decreased demand for our OviTex and OviTex PRS products (or any other products we commercialize in the future) and increased cost and expense to our business.

We rely heavily on providers of transport services for reliable and secure point-to-point transport of our OviTex portfolio products (and would rely heavily on such providers for any other products we may commercialize and ship in the future) to our customers and for tracking of these shipments.

Should a carrier encounter delivery performance issues such as loss, damage or destruction of any of our products, it would be costly to replace such products in a timely manner and such occurrences may damage our reputation and lead to decreased demand for our OviTex portfolio products (or any other products we commercialize in the future) and increased cost and expense to our business.

In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations.

Similarly, strikes, severe weather, natural disasters, disease or other service interruptions affecting delivery services we use would adversely affect our ability to deliver our OviTex and OviTex PRS products (or any other products we commercialize in the future) on a timely basis.

For example, disruptions to transportation infrastructure as a result of the ongoing COVID-19 pandemic may impact our ability to provide our products to our customers.

Similarly, strikes, severe weather, natural disasters, disease or other service interruptions affecting delivery services we use would adversely affect our ability to deliver our OviTex portfolio products (or any other products we commercialize in the future) on a timely basis.

For example, disruptions to transportation infrastructure as a result of macroeconomic conditions, including COVID-19 pandemic, may impact our ability to provide our products to our customers.

Risks Related to Intellectual Property Matters

We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

We may need to obtain licenses from third parties to advance our research or allow commercialization of our products, and we cannot provide any assurances that third-party patents do not exist which might be enforced against our products

in the absence of such a license.

The licensing and acquisition of third-party intellectual property rights is a competitive practice and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our products.

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Our license and other agreements impose, and any future collaboration agreements or license agreements we enter into are likely to impose various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement or other obligations on us.

If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology, having to negotiate new or reinstated licenses on less favorable terms, or enabling a competitor to gain access to the licensed technology.

covered by the licensed technology, having to negotiate new or reinstated licenses on less favorable terms, or enabling a competitor to gain access to the licensed technology.

If we are unable to adequately protect our intellectual property rights, or if we are accused of infringing on the intellectual property rights of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.

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If we do not adequately protect our intellectual property and proprietary technology, competitors may be able to use our technologies or the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.

We own twelve issued or allowed U.S.

patents and have eight pending U.S.

We own fifteen issued or allowed U.S.

patents and have nine pending U.S.

patent applications.

As of December 31, 2021, we had rights, whether through ownership or licensing, to fourteen issued or allowed U.S.

patents, eight pending U.S.

patent applications, five issued non-U.S.

As of December 31, 2022, we had rights, whether through ownership or licensing, to seventeen issued or allowed U.S.

patents, nine pending U.S.

patent applications, three issued non-U.S.

patents and four pending non-U.S.

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It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

We cannot provide any assurances that any of our patents, or patents to which we have ownership rights through licensing

agreements, have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our OviTex and OviTex PRS products, any additional features we develop for our OviTex and OviTex PRS products or any new products we seek to develop in the future.

Other parties may have developed technologies that may be related or competitive to our OviTex or OviTex PRS products, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position.

We cannot provide any assurances that any of our patents, or patents to which we have ownership rights through licensing agreements, have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our OviTex portfolio products, any additional features we develop for our OviTex portfolio products or any new products we seek to develop in the future.

Other parties may have developed technologies that may be related or competitive to our OviTex portfolio products, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position.

The patent positions of medical device companies, including our patent position, may involve complex legal, scientific and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty.

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Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of those patents are invalid or otherwise unenforceable.

If any of the patents covering our OviTex or OviTex PRS products are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.

If any of the patents covering our OviTex portfolio products are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.

Third parties may assert ownership or commercial rights to inventions we develop.

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Significant litigation regarding patent rights occurs in our industry.

Our competitors may have applied for or obtained, or

may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products.

Our competitors may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products.

We do not always conduct independent reviews of patents issued to third parties.

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Patents may be subjected to opposition, post-grant review or comparable proceedings lodged in various foreign, both national and regional, patent offices.

The legal threshold for initiating litigation or contested proceedings may be low, so that even lawsuits or proceedings with a low probability of success might be initiated.

The legal threshold for initiating litigation or contested proceedings may be low, so that even lawsuits or proceedings with a low probability of success might be

Litigation and contested proceedings can also be expensive and time-consuming, and our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can.

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Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation.

If we are found to infringe the intellectual property rights of third parties, we could be required to pay

substantial damages (which may be increased up to three times of awarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid infringement.

If we are found to infringe the intellectual property rights of third parties, we could be required to pay substantial damages (which may be increased up to three times of awarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid infringement.

In addition, we may choose to seek, or be required to seek, a license from a third party, which may not be available on acceptable terms, if at all.

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Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Additionally, in the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands.

marketing new brands.

Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks.

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Congress, the U.S.

federal courts, and the USPTO, the

laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future.

federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future.

Similarly, changes in patent law and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.

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As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

We may be unable to patent term extension in the U.S.

We may be unable to obtain a patent term extension in the U.S.

under the Hatch-Waxman Act and in foreign countries under similar legislation.

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We and our products are subject to extensive regulation in the U.S.

and internationally including by the FDA and European Medicines Agency (“EMA”).

The FDA, EMA and other foreign equivalents regulate, among other things, with respect to medical devices:

and internationally including by the FDA and competent authorities of the EU member states.

The FDA and other foreign equivalents regulate, among other things, with respect to medical devices:

design, development and manufacturing;

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marketing, sales and distribution;

pre-market clearance and approval;

premarket clearance and approval;

record keeping procedures;

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recalls and field safety corrective actions;

post-market surveillance, including

reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;

post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury;

post-market approval studies;

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The regulations to which we are subject are complex, have become more stringent over time and are subject to further change.

There is additional uncertainty in light of the new Presidential administration in the U.S.

Failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as:

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An element of our strategy is to continue to add new features and expand the indications and uses for our current products.

In the U.S., before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the FDCA or approval of a PMA from the FDA, unless an exemption applies.

In the U.S., before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive marketing authorization, such as either clearance under Section 510(k) of the FDCA or approval of a PMA from the FDA, unless an exemption applies.

Our products are cleared with the FDA, through clearances obtained and, with the exception of the clearances relating to our OviTex PRS products, held by Aroa, under Section 510(k) of the FDCA, which permits marketing of a device if it is “substantially equivalent” to an already legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (preamendments device), a device that was originally on the U.S.

market pursuant to an approved PMA and later downclassified, or a 510(k)-exempt device.

To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device.

To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device,

and either have the same technological characteristics as the predicate device or have different technological characteristics and the information in the premarket notification demonstrates that the device is as safe and effective and does not raise different questions of safety or effectiveness than the predicate device.

Clinical data are sometimes required to support substantial equivalence.

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In addition, 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 future products under development.

For example, in January 2019, the agency finalized guidance outlining the framework for the Safety and Performance Based Pathway.

This option for 510(k) clearance will allow manufacturers to use objective performance criteria established or recognized by the FDA to facilitate demonstration of substantial equivalence of their new products to legally marketed devices.

This new pathway will ensure that the performance characteristics of new devices are evaluated against a set of objective, transparent and well-validated safety and performance metrics.

Devices using this pathway will still have to meet current standards for reasonable assurance of safety and effectiveness before they can be marketed.

Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations.

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In addition, regulators may determine that our financial relationships with our principal investigators resulted in a perceived or actual conflict of interest that may have affected the interpretation of a study.

Principal investigators for our clinical trials may serve as speakers or consultants to us from time to time and receive compensation in connection with

such services.

Principal investigators for our clinical trials may serve as speakers or consultants to us from time to time and receive compensation in connection with such services.

Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory authority.

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This could result in a delay in approval, or rejection, of our marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our future products.

To sell our products in member countries of the EEA our products must comply with the essential requirements of the EU Medical Devices Regulation (Regulation 2017/745) (“MDR”), which was passed by the EU Parliament on April 5, 2017, and became effective on May 26, 2021.

To sell our products in member countries of the EEA our products must comply with the general safety and performance requirements of the EU Medical Devices Regulation (Regulation 2017/745) (“MDR”), which was passed by the EU Parliament on April 5, 2017, and became effective on May 26, 2021.

The MDR repeals and replaces the former Medical Devices Directive (Council Directive 93/42/EEC) and the Active Implantable Medical Devices Directive (Council Directive 90/385/EEC).

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Failure to submit such reports, or failure to submit the reports in a timely manner, could result in enforcement action by the FDA.

promotion, sampling, record-keeping, recalls and field safety corrective actions, conduct of post-marketing studies and submission of safety, effectiveness and other post-market information, including both federal and state requirements in the U.S.

Even after we have obtained the proper regulatory approval to market our products, they will be subject to ongoing regulatory requirements for design, development, manufacturing, testing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, recalls and field safety corrective actions, conduct of post-marketing studies and submission of safety, effectiveness and other post-market information, including both federal and state requirements in the U.S.

and requirements of comparable non-U.S.

regulatory authorities.

Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, EMA and applicable state regulatory authorities, which may include any of the following sanctions:

Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA and applicable state regulatory authorities, which may include any of the following sanctions:

● issue warning or untitled letters that would result in adverse publicity or may require corrective advertising;

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● operating restrictions or partial suspension or total shutdown of production;

● delays in or refusal to grant our requests for future clearances under Section 510(k) or pre-market approvals or EU regulatory approvals of new products, new intended uses, or modifications to existing products;

● delays in or refusal to grant our requests for future clearances under Section 510(k) or premarket approvals or EU regulatory approvals of new products, new intended uses, or modifications to existing products;

● withdrawal or suspension of regulatory clearances or approvals;

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Our clearances under Section 510(k) of the FDCA are based on current soft-tissue reconstruction surgery guidelines.

If the guidelines change so that different surgeries or products become desirable, the clinical utility of one or more of our OviTex and OviTex PRS products or other products we may commercialize in the future could be diminished and our business could be adversely affected.

If the guidelines change so that different surgeries or products become desirable, the clinical utility of one or more of our OviTex portfolio products or other products we may commercialize in the future could be diminished and our business could be adversely affected.

If any of our products cause or contribute to a death, serious injury, or other adverse medical events, or malfunction in certain ways, we will be required to report these events to FDA and other comparable regulatory authorities under applicable medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

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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 removed in time from the use of the product.

If we fail to comply with our reporting obligations, the FDA could take action, including untitled letters, warning letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of related approvals, seizure of our products or delay in clearance or approval of future products.

If we fail to comply with our reporting obligations, the FDA could take action, including untitled letters, warning letters, administrative actions, criminal

prosecution, imposition of civil monetary penalties, revocation of related approvals, seizure of our products or delay in clearance or approval of future products.

The FDA and foreign regulatory agencies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health.

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The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.

There is additional uncertainty in light of the new Presidential administration.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S.

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In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

There is additional uncertainty in light of the new Presidential administration.

Disruptions at the FDA and other agencies may also slow the time necessary for new devices to be reviewed and/or approved or cleared by necessary government agencies, which would adversely affect our business.

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federal and state healthcare laws and regulations.

These laws impact, among other things, our proposed sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with third-party payors, surgeons and other healthcare professionals.

These laws impact, among other things, our proposed sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with third-party

payors, surgeons and other healthcare professionals.

The laws are described in greater detail in the section below under “Business — Government Regulation,” and include, but are not limited to:

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similar to the U.S.

federal Anti-Kickback Statute, a

person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

● the Physician Payments Sunshine Act, implemented as the Open Payments program, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare and Medicare Services, or CMS, information related to certain payments made in the preceding calendar year and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

● the Physician Payments Sunshine Act, implemented as the Open Payments program, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare and Medicare Services, or CMS, information related to certain payments made in the preceding calendar year and other transfers of value to physicians, certain other licensed healthcare practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

● state laws and regulations, including state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers;

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Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the U.S.

Foreign Corrupt Practices Act, or the

FCPA, and other federal statutes and regulations, including those established by the Office of Foreign Assets Control.

Foreign Corrupt Practices Act, or the FCPA, and other federal statutes and regulations, including those established by the Office of Foreign Assets Control.

In addition, the U.K.

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In the U.S., HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information.

Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA.

Certain states have also adopted comparable privacy and security laws and regulations,

some of which may be more stringent than HIPAA.

Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners.

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Additionally, a new privacy law, the California Privacy Rights Act, or the CPRA, was approved by California voters in the election of November 3, 2020.

The CPRA, which will take effect in most material respects on January 1, 2023, modifies the CCPA significantly, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses to comply.

The CPRA, which took effect in most material respects on January 1, 2023, modifies the CCPA significantly, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses to comply.

A failure to comply with these current or future federal and state laws and regulations and industry standards relating to data privacy and security could lead to investigatory or regulatory action, private litigation or class actions that could result in exposure to civil or criminal penalties, monetary or statutory damages, attorney fee awards and/or exposure to adverse publicity that could negatively affect our operating results and business.

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For example, the GDPR imposes higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention of information, increased requirements pertaining to special categories of personal data and pseudonymised (i.e., key-coded) data and additional obligations when we contract third-party processors in connection with the processing of the personal data.

This risk is increased because the GDPR provides that EU member states may make their own laws and regulations limiting the processing of personal data, including special categories of data

(e.g., racial or ethnic origin, political opinions, religious or philosophical beliefs) and profiling and automated individual decision-making of individuals, which could limit our ability to use and share personal data or other data and could cause our compliance costs and liability risks to increase, harming our business and financial condition.

The GDPR also regulates cross-border transfers of personal data and requires transferee countries to have protections equivalent to protections available in the EU.

Because of the uncertainty created by the Court of Justice of the European Union’s decision invalidating the EU/US Privacy Shield (the primary mechanism to effectuate the flow of data from the EU to the United States), there continues to be uncertainty as to appropriate transfer mechanism for the transfer of data from the EU to the United States.

This risk is increased because EU member states have made their own laws and regulations limiting the processing of personal data, including special categories of data (e.g., racial or ethnic origin, political opinions, religious or philosophical beliefs) and profiling and automated individual decision-making of individuals, which limits our ability to process personal data or other data and could cause our compliance costs and liability risks to increase, harming our business and financial condition.

Further, the United Kingdom’s exit from the European Union, referred to as Brexit, has created uncertainty regarding data protection regulation in the United Kingdom.

The United Kingdom has transposed the GDPR into domestic law with a United Kingdom version of the GDPR that took effect in January 2021 (UK GDPR).

The UK GDPR could expose us or our collaborators to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for violations.

In addition, uncertainties related to compliance with the GDPR exist with respect to the UK GDPR.

Non-compliance with GDPR is subject to significant penalties, including fines of up to €20.0 million or 4% of total worldwide revenue, whichever is greater.

The implementation and enforcement of the GDPR may subject us to enforcement risk and requirements to change certain of our data collection, processing and other policies and practices.

Currently, the EU GDPR and UK GDPR remain largely aligned, but the UK has announced plans to reform the country’s data protection legal framework in its Data Reform Bill, which will introduce significant changes from the EU GDPR.

This may lead to additional compliance costs and could increase our overall risk exposure as we may no longer be able to take a unified approach across the EEA and the UK, and we will need to amend our processes and procedures to align with the new framework.

Non-compliance with GDPR, and UK GDPR, is subject to significant penalties, including fines of up to €20.0 million (£17.5 million under UK GDPR) or 4% of total worldwide revenue, whichever is greater.

The implementation and enforcement of the GDPR (and UK GDPR) may subject us to enforcement risk and requirements to change certain of our data collection, processing and other policies and practices.

We could incur significant costs investigating and defending such claims and, if we are found liable, significant damages.

If any of these events were to occur, our business and financial results could be adversely affected.

Other jurisdictions outside the EU are similarly introducing or enhancing laws and regulations relating to privacy and data security, which enhances risks relating to compliance with such laws.

Other jurisdictions outside the EU and the United Kingdom are similarly introducing or enhancing laws and regulations relating to privacy and data security, which enhances risks relating to compliance with such laws.

The GDPR also regulates cross-border transfers of personal data and requires transferee countries to have protections equivalent to protections available in the EU.

The GDPR imposes strict rules on the transfer of personal data to countries outside the EEA, Switzerland or the United Kingdom, including the United States, to other countries in respect of which the European Commission or the United Kingdom government has not issued a so-called “adequacy decision” or “ adequacy regulation” (known as “third countries”), unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data.

This includes putting in place the European Commission’s Standard Contractual Clauses (SCCs) for transfers outside of the EEA and a similar transfer mechanism for transfers of personal data outside of the United Kingdom, the International Data Transfer Agreement or Addendum (IDTA).

Under both the GDPR and the UK GDPR, exporters are also required to assess the risk of the data transfer on a case-by-case basis,

including conducting an analysis of the laws in the destination country.

The SCCs had to be in place by December 27, 2022, whereas the IDTA must be implemented in all existing contracts by March 21, 2024.

Finalizing the implementation of the updated SCCs and UK IDTA, and conducting the required risk assessments, may continue to necessitate significant contractual overhaul of our data transfer arrangements with customers, sub-processors and vendors.

On June 28, 2021, the European Commission published its decision recognizing the United Kingdom as having adequate laws to the protect the rights and freedoms of data subjects such that personal data may transfer to from the EU to the United Kingdom without an approved transfer mechanism.

The decision is effective for four years and its continuing effect is dependent on United Kingdom and regulation on data privacy not diverging materially from the GDPR.

The United Kingdom Government also confirmed that data transfers to the EU remain free flowing.

Compliance with U.S.

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The Affordable Care Act and any changes in healthcare law may increase the difficulty and cost for us to successfully commercialize our products and affect the prices we may obtain.

In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the healthcare industry.

In the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the healthcare industry.

The Affordable Care Act is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.

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Subsequent litigation extended the 2% reduction, on average, to 2030 unless additional Congressional action is taken.

The Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, which was

designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 to December 31, 2021.

The Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, which was designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 to December 31, 2021 , later extended through March 31, 2022.

Following the suspension, a 1% payment reduction began April 1, 2022, and remained through June 30, 2022.

The 2% payment reduction resumed on July 1, 2022.

The sequester will remain in place through 2030.

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On December 18, 2019, the Fifth Circuit U.S.

Court of Appeals held that the individual mandate is unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire Affordable Care Act.

Court of Appeals held that the individual mandate is unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire

Affordable Care Act.

An appeal was taken to the U.S.

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● recalls or other field safety corrective actions by Aroa;

● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters such as earthquakes, floods or public health emergencies such as the ongoing COVID-19 pandemic;

● positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry.

Because our quarterly and annual results may fluctuate, period-to-period comparisons may not be the best indication of the underlying results of our business.

In particular, we cannot predict at this time the extent of the impact that the ongoing COVID-19 pandemic will have on our sales and financial results.

In particular, we cannot predict at this time the extent of the impact that the COVID-19 pandemic will have on our sales and financial results.

These fluctuations may also increase the likelihood that we will not meet our forecasted performance, which could negatively affect the market price for our common stock.

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Our competitors also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, as well as in acquiring technologies complementary to, or necessary for, our products.

Because of the complex and technical nature of our products and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could

materially harm our ability to develop and commercialize our products, which would have a material adverse effect on our business, financial condition and results of operations.

Because of the complex and technical nature of our products and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our products, which would have a material adverse effect on our business, financial condition and results of operations.

In the U.S., we currently compete with LifeCell Corporation, a subsidiary of AbbVie, and Davol Inc., a subsidiary of Becton, Dickinson and Company, which produce, among other things, soft-tissue reconstruction surgery products, including Strattice and Phasix, respectively.

In the EEA, we compete with Bard, a subsidiary of Becton, Dickinson and Company, who produces other soft-tissue reinforcement products.

Many of these competitors are large, well-capitalized companies with significantly greater market share and resources than us.

As a consequence, they are able to spend more on product development, marketing, sales and other product initiatives than we can.

We believe other emerging businesses are in the early stages of developing similar products designed for soft-tissue reconstruction surgery.

Many of these competitors are large, well-capitalized companies with significantly greater market share and resources than us, selling products that have been on the market prior to the commercialization of our products.

As a consequence, they are able to spend more on product development, marketing, sales and other product initiatives than we can, while benefiting from greater brand awareness.

We believe other emerging businesses are in the early stages of developing similar products designed for soft-tissue reconstruction

Although we are the only ovine-derived implantable product designed for soft-tissue reconstruction surgery, there are other soft tissue reconstruction surgery products derived solely, or in part, from other biological sources.

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Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing of medical devices.

This risk exists even if a product is cleared or approved for commercial sale by the FDA or EMA, and manufactured in facilities licensed and regulated by the FDA or EMA.

This risk exists even if a product is cleared or approved for commercial sale by the FDA, and manufactured in facilities licensed and regulated by the FDA.

Any side effects, manufacturing defects or misuse associated with our products could result in patient injury or death.

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We may be subject to product liability claims if our products cause, or merely appear to have caused, patient injury or death.

In addition, an injury that is caused by the activities of Aroa may be the basis for a claim against us.

In addition, an injury that is caused by the activities of Aroa may be the basis for a claim

Product liability claims may be brought against us by patients, healthcare providers or others selling or otherwise coming into contact with our products.

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Additional information regarding the laws impacting our relationships with surgeons and other healthcare professionals can be found above under “Risks Related to Government Regulation.”

We have limited data and experience regarding the safety and efficacy of our products.

We have limited data and experience regarding the safety and efficacy of certain of our products.

Results of earlier studies may not be predictive of future clinical trial results, or the safety or efficacy profile for such products.

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We conducted this study to support the marketing of our OviTex products for their cleared indicated uses, and do not currently have any clinical data for use of our OviTex PRS products in patients.

The long-term effects of using our products in a large number of patients have not been studied and the results of short-term clinical use of such products do not necessarily predict long-term clinical benefits or reveal long-term adverse effects.

The long-term effects of using certain of our products in a large number of patients have not been studied and the results of short-term clinical use of such products do not necessarily predict long-term clinical benefits or reveal long-term adverse effects.

The results of preclinical studies and clinical studies of our products conducted to date and ongoing or future studies and trials of our current, planned or future products may not be predictive of the results of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.

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

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

results in later clinical trials.

Products in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials.

Interim or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose interim or preliminary data from our BRAVO studies or other clinical studies that we may conduct in the future, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a full analyses of all data related to the particular trial.

From time to time, we may publicly disclose interim or preliminary data from our clinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a full analyses of all data related to the particular trial.

We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data.

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Our estimates of the annual total addressable markets for our current products and products under development are based on a number of internal and third-party estimates, including, without limitation, the number of hernia and soft-tissue reconstruction surgery patients and overall market and the assumed prices at which we can sell our products.

While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the

predictive accuracy of these underlying factors.

As a result, our estimates of the annual total addressable market for our products may prove to be incorrect.

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In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred.

If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, additional integrity reporting and oversight obligations and possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, any of which could adversely affect our ability to operate our business and our results of operations.

If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines

or other sanctions, including the imposition of civil, criminal and administrative penalties, additional integrity reporting and oversight obligations and possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, any of which could adversely affect our ability to operate our business and our results of operations.

Whether or not we are successful in defending against any such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations, which could have a material adverse effect on our business, financial condition and results of operations.

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If our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively compensate on a timely basis, we may experience interruptions in our operations, which could have an adverse effect on our business.

If we fail to maintain or protect our information systems and data integrity effectively, we could lose existing customers, have difficulty attracting new customers, suffer backlash from negative public relations, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy

breach, or suffer other adverse consequences.

Furthermore, any breach in our information technology systems could lead to the unauthorized access, disclosure and use of non-public information from our patient registry or other patient information which is protected by HIPAA and other laws.

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● changes in earnings estimates or recommendations by securities analysts;

● general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors, including any economic downturn as a result of the ongoing COVID-19 pandemic, or macroeconomic factors such as geopolitical tensions or the outbreak of hostilities or war.

● broad trends impacting companies within the pharmaceutical, biotechnology and medical technology industries;

● general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors, including any economic downturn as a result of the COVID-19 pandemic, or macroeconomic factors such as geopolitical tensions or the outbreak of hostilities or war.

In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.

Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance.

Further, on March 10, 2023, the FDIC took control and was appointed receiver of SVB.

The financing uncertainty pharmaceutical, biotechnology and medical technology companies may now face as a result of SVB’s entry into receivership may cause significant volatility with respect to pharmaceutical, biotechnology, and medical technology company stocks, which in turn could negatively impact the trading price of our common stock.

In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price.

Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.

Securities litigation brought against us following volatility in our stock

price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.

We do not intend to pay cash dividends on our common stock for the foreseeable future.

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We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) we will be exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (iii) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (iv) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.

market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.

We may remain an emerging growth company until as late as December 31, 2024, the fiscal year-end following the fifth anniversary of the completion of our IPO, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (i) we have more than $1.235 billion in annual revenue in any fiscal year, (ii) the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.

The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act.

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The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our fourth amended and restated certificate of incorporation to be inapplicable or unenforceable in such action.

Alternatively, if a court were to find the choice of forum provision contained in our fourth amended and restated certificate of incorporation to be inapplicable or unenforceable in an

action, we may incur additional costs associated with resolving such action in other jurisdictions.

Alternatively, if a court were to find the choice of forum provision contained in our fourth amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

This provision will not apply to actions arising under the Securities Act or Exchange Act.

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Section 22 of the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act.

Accordingly, there is

uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act.

General Risk Factors

Unstable markets and economic conditions may adversely affect our business.

Adverse worldwide economic conditions may negatively impact our business.

Our general business strategy may be adversely affected by such economic conditions or the presence of a volatile business environment or unpredictable and unstable market conditions, such as the economic turmoil resulting from the spread of the ongoing COVID-19 pandemic and the current conflict between Russia and Ukraine.

Further, the impacts of political unrest, including as a result of geopolitical tensions, could lead to disruption, instability and volatility in the global markets, which may have an adverse impact on our business or ability to access the capital markets.

Recently, the market has experienced volatility due to the conflict between Russia and Ukraine, and the resulting sanctions and other measures imposed by the U.S.

and other countries against Russia.

There can be no assurances that such situation will not further deteriorate, causing increased disruption, instability and volatility in the global markets.

Adverse worldwide economic conditions may also adversely impact our suppliers’ ability to provide us with materials and components, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to maintain our competitive position depends on our ability to attract and retain senior management and other highly qualified personnel.

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These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some

persons, by collusion of two or more people or by an unauthorized override of the controls.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.

Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

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

What changed 10-K

Item 1A. Risk Factors