Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations and the consolidated financial statements and the related notes included elsewhere in this Annual Report. In addition to historical financial information, the following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks, uncertainties and assumptions. Our actual results may differ materially from those described in or implied by these forward-looking statements as a result of many factors, including those set forth under the section titled “Risk Factors” and in other parts of this Annual Report.
Overview
We are a commercial-stage medical technology company focused on providing innovative soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy. Our growing product portfolio is purposefully designed to leverage the patient’s natural healing response while minimizing long-term exposure to permanent synthetic materials. We are committed to delivering our advanced technologies with a strong economic value proposition to assist surgeons and institutions in providing next-generation soft-tissue repair solutions to more patients worldwide.
We are dedicated to building true partnerships with surgeons and healthcare providers to deliver solutions that provide both clinical and economic improvements. We believe that genuine collaboration with surgeons and healthcare providers results in the development of new solutions that empower patient care.
Our first portfolio of products, the OviTex Reinforced Tissue Matrix (“OviTex”), which we first commercialized in the U.S. in July 2016 and in Europe in February 2019, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price.
Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million procedures annually. Based on the volume weighted average selling price of our OviTex products, we estimate the annual U.S. total addressable market opportunity for our OviTex products to be approximately $1.5 billion.
Our OviTex portfolio consists of multiple product configurations intended to address various surgical procedures within hernia repair and abdominal wall reconstruction, including ventral, inguinal, and hiatal hernia repair. In addition, we have also designed an OviTex product specifically for use in laparoscopic and robotic-assisted hernia repair, which we market as OviTex LPR and began commercializing this product in November 2018. In February 2023, we launched two new, larger configurations of OviTex LPR, designed for ventral and incisional hernias. More recently, we have designed a set of OviTex products specifically for use in the inguinal hernia repair (“IHR”), which we expect to launch in the second quarter of 2024.
We have also focused on evaluating and publishing clinical data on the effectiveness and safety of our OviTex products. To date, there have been over thirty published or presented works relating to these clinical findings, either by us or a third-party evaluating the OviTex product. In October 2022, the 24-month results of our single arm, multicenter post-market clinical study, which we refer to as our BRAVO study, were published in the Annals of Medicine and Surgery . The BRAVO study was designed to evaluate the clinical performance of OviTex for primary or recurrent ventral hernias using open, laparoscopic, or robotic techniques in 92 enrolled patients. The recurrence rate at the 24-month time point was 2.6%, and surgical site occurrences (“SSOs”) were observed in 38% of the study population. Of the enrolled patients, 78% were characterized as high risk for experiencing an SSO based on at least one known risk factor, which included obesity, active smoking, COPD, diabetes mellitus, coronary artery disease, or advanced age (≥75 years). The results also indicated that BRAVO patients experienced statistically significant and clinically meaningful improvements in their quality of life and perceived health based on patient responses to the EuroQol-5 Dimension (EQ-5D) health assessment and the validated 12-question Hernia-Related Quality of Life survey (HerQLes). In addition to the BRAVO study and other current clinical initiatives, we also commenced enrollment in May 2021 for our BRAVO II study, a prospective study evaluating the use of OviTex in robot-assisted ventral and inguinal hernia repairs.
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Our second portfolio of products, the OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), which we first commercialized in the U.S. in May 2019, addresses unmet needs in plastic and reconstructive surgery. OviTex PRS is indicated for use in implantation to reinforce soft-tissue where weakness exists in patients requiring soft-tissue repair or reinforcement in plastic and reconstructive surgery. Our OviTex PRS portfolio consists of three product configurations with two or three layers of high-quality tissue derived from ovine rumen, which is reinforced with either permanent or resorbable polymer for added strength, stabilization, and controlled stretch. These products are designed to improve outcomes by facilitating functional tissue remodeling while controlling the degree and direction of stretch. In August 2023, we announced the launch of our OviTex PRS Long-Term Resorbable product configuration, which was designed to enhance the OviTex PRS portfolio with specific design features including bi-directional stretch and a fully resorbable, long-term polymer for reinforcement.
Our OviTex PRS portfolio is supported by non-human primate data that demonstrated more rapid tissue integration and tissue remodeling compared to the market leading biologic matrix used in this indication. Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S. current addressable market opportunity for our OviTex PRS products to be approximately $700 million.
Our OviTex products have received 510(k) clearances from the U.S. Food and Drug Administration (“FDA”), which clearances were obtained and are currently held by our exclusive contract manufacturer of these products, Aroa. In April 2019, our first OviTex PRS products received 510(k) clearance from the FDA, which clearance was initially obtained by Aroa and is currently held by us. In March 2023, we received an additional 510(k) clearance for our OviTex PRS Long-Term Resorbable device, which is currently held by us. We have also engaged in discussions with the FDA regarding an Investigational Device Exemption (“IDE”) protocol to study the safety and effectiveness of our OviTex PRS product for an indication in breast reconstruction surgery. The FDA has stated that a premarket approval, rather than 510(k) clearance will be required for such an indication. We have also commenced a retrospective clinical study evaluating the effectiveness and safety of our OviTex PRS products.
We also continue to expand our service offerings and diversify our supplier base as we continue to create a soft tissue preservation and restoration portfolio, including through the development of complimentary solutions in our indications such as atraumatic mesh fixation devices or surgical wound management and infection control. In September 2023, we entered into a distribution agreement with Advanced Medical Solutions Limited, a company registered in England, to be their exclusive distributor of their LiquiFix Hernia Mesh Fixation Devices (LiquiFix FIX8™ and LiquiFix Precision™). In March 2024, we announced the full commercial launch of LiquiFix in the U.S. We previously co-developed and commercialized our NIVIS Fibrillar Collagen Pack (“NIVIS”), an absorbent matrix of Type I and Type III bovine collagen designed to manage moderately to heavily exudating wounds and to control minor bleeding, in partnership with Regenity Biosciences. In March 2024, we sold our distribution rights to MiMedx Group, Inc. in exchange for an initial $5.0 million payment and additional future payments aggregating between a minimum of $3.0 million and a maximum of $7.0 million based on net sales of NIVIS over the next two years. We continue to assess additional strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for new products complimentary to, or related to, existing and future products in our distribution channel.
We have a broad portfolio of intellectual property protecting our products that we believe, when combined with the proprietary manufacturing processes associated with our products and our know-how, provides significant barriers to entry. Our intellectual property applies to our differentiated product construction and materials. In addition, we believe our exclusive manufacturing and long-term supply and license agreement (the “Aroa License”) with Aroa creates a competitive advantage by allowing us to secure an exclusive supply of ovine rumen at a low cost. Ovine rumen, the forestomach of a sheep, is the source of the biologic material used in our OviTex and OviTex PRS products. We use biologic material from ovine rumen because of its plentiful supply, optimal biomechanical profile and open collagen architecture that allows for rapid cellular infiltration. Our OviTex products are manufactured by Aroa at their FDA registered and ISO 13485 compliant facility in Auckland, New Zealand. We purchase product from Aroa at a fixed transfer cost as a percentage of Aroa’s cost of goods sold, and, with the exception of our recent IHR-dedicated products equals 27% of our net sales of licensed products. This revenue sharing arrangement allows us to competitively price our products and pass along cost-savings to our customers.
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We market our products through a single direct sales force, predominantly in the U.S., as augmented by a smaller number of sales representatives and distributors in certain European countries. We have invested in our direct sales and marketing infrastructure to expand our presence and to promote awareness and adoption of our products. As of December 31, 2023, we had 91 sales territories in the U.S. As part of our commercial strategy, we plan to continue to invest in our commercial organization by hiring additional territory managers and administrative and field-based support employees to support and service new accounts for soft-tissue reconstruction procedures. We believe we can enhance the productivity of our sales force by improving customer segmentation and targeting, implementing and further refining our proprietary training programs, leveraging support from our medical education and medical affairs functions to drive physician awareness, education and clinical understanding of our products, and utilizing engagement analytics to support further product development and enhancement opportunities. Additionally, we have contracted with three national group purchasing organizations (“GPOs”) covering our OviTex and OviTex PRS products and plan to continue to contract with additional GPOs and other integrated delivery networks (“IDNs”) to increase access to and penetration of hospital accounts.
We are currently devoting research and development resources to develop additional variations of our OviTex and OviTex PRS product lines, including the additional IHR configurations to further enhance product compatibility in robotic procedures, larger versions of our current product configurations, the development of configurations with longer-acting resorbable polymers and other potential product and packaging enhancements to extend the shelf life of our products. In addition, we also continue to explore the development of lower-cost, higher-margin resorbable polymer-based devices targeting our current indications. We are also exploring additional technologies that may complement our existing products, or expand the number of our product lines, in each case within the hernia, plastic and reconstruction, and broader soft-tissue reconstruction and preservation markets. We intend to continue to make investments in research and development efforts to develop improvements and enhancements to our product portfolio. We are also assessing strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for products complimentary to, or related to, existing and future products in our distribution channel, which could result in the payment by us of single digit percentage royalties or other product acquisition costs.
Our business was directly impacted by the COVID-19 pandemic. We experienced volatility in demand for our products which primarily resulted from government and hospital restrictions, as well as patient health and safety concerns, decreasing the volume of elective procedures using our products. While procedure volumes have continued to normalize to pre-pandemic levels, we continue to monitor any lingering economic effects on labor and hospital staffing levels, procedural volumes and ultimately on our results.
Our revenue for the years ended December 31, 2023 and 2022 was $58.5 million and $41.4 million, respectively, which represents an increase of $17.0 million, or 41% for the year ended December 31, 2023. Our net loss for the same time periods was $46.7 million and $44.3 million, respectively, which represents an increase of $2.4 million, or 5% for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $320.9 million. The vast majority of our revenue to date has been generated from sales of our OviTex and OviTex PRS products in the U.S., with the remainder generated from sales of our OviTex products in Europe and the sale of other products.
Business Update Regarding Macroeconomic Conditions
Our business, results of operations and commercial operations have been impacted by macroeconomic conditions, including the COVID-19 pandemic, as well as, to a lesser extent, inflationary pressures, fluctuations in foreign currency in the jurisdictions in which we operate, banking instability and geopolitical conflicts. These factors have and may continue to impact us in the following ways:
COVID-19 : Our business was directly impacted by the COVID-19 pandemic, including due to government restrictions on elective procedures and surgical staffing challenges that lead to the deferral of elective surgeries and lower surgical procedural volumes overall. We believe that surgical procedures have started to normalize to pre-pandemic levels and that hospital systems have begun to address any remaining backlog of procedures previously delayed due to the COVID-19 pandemic. Additionally, the true economic effects of COVID-19 pandemic may have created other labor and financial strains on healthcare systems that continue to reduce procedural volumes.
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General Economic Uncertainty : Continued concerns about the systemic impact of a potential economic downturn or recession, increasing interest rates, further economic downturn or banking instability and geopolitical issues, including the ongoing Russia-Ukraine conflict and the current conflict in Israel and Gaza (including any escalation or expansion), have contributed to increased market volatility and diminished expectations for economic growth in the world. As a result, we have experienced high volatility in our stock price over the prior year. Continued uncertainty, perception of worsening market conditions and the introduction of new products which may, or may be perceived to, negatively impact the demand for our products now or in the future could result in a decline in our stock price, high inflation, an increase in our cost of capital and an adverse effect on our ability to access the capital markets in the future on terms acceptable to us or at all.
Financial Strain : 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 macroeconomic conditions and financial markets, including the financial strain suffered by hospital customers during the COVID-19 pandemic, 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.
Components of Our Results of Operations
Revenue
Substantially all our revenue consists of direct sales of our products to hospital accounts in the U.S. Depending on the terms of our agreements with our customers, we recognize revenue related to product sales when control transfers, which generally occurs when the product is shipped to the customer, or when the product is utilized in a surgical procedure in the case of consignment agreements. Fees charged to customers for shipping are recognized as revenue. Recent revenue growth has been driven by increasing revenue from product sales due to our expanding customer base, although macroeconomic pressures described in this Annual Report may impair our ability to continue to generate revenue and expand our customer base at historic rates.
Cost of Revenue
Cost of revenue primarily consists of the costs of licensed products, charges related to excess and obsolete inventory adjustments, royalties and costs related to shipping. We purchase product from Aroa at a fixed transfer cost as a percentage of Aroa’s cost of goods, which, with the exception of our recent IHR-dedicated products, equals 27% of our net sales of licensed products. The initial term of our Aroa License terminates on the expiration of the last patent covering bovine and ovine products, with an option to extend for an additional ten-year period. We expect our cost of revenue to increase in absolute dollars as, and to the extent, our sales volume grows. Any delay in volume growth, whether due to macroeconomic pressures or otherwise, could lead to additional charges to excess and obsolete inventory.
Amortization of Intangible Assets
Amortization of intangible assets relates to the amortization of capitalized milestone amounts paid to Aroa related to license fees or commercialization rights after future economic benefit has been established for a product. These capitalized milestone amounts relate to regulatory clearances, the receipt of certain supply quantities of product, and amounts based upon aggregate net sales thresholds within a specified territory, and are amortized over the remaining useful life of the intellectual property.
Gross Profit and Gross Margin
Our gross profit is calculated by subtracting our cost of revenue and amortization of intangible assets from our revenue. We calculate our gross margin percentage as our gross profit divided by our revenue. Our gross margin has been, and we expect it will continue to be, affected by a variety of factors, including sales volume, royalties and inventory excess and obsolescence costs. Our gross profit may increase to the extent our revenue grows.
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Sales and Marketing Expenses
Sales and marketing expenses consist of commercial activities related to the sale of our products, along with the salaries and related benefits, including sales commissions and stock-based compensation for employees focused on these efforts. Other significant sales and marketing expenses include costs incurred with post-market clinical studies, conferences and trade shows, promotional and marketing activities, market research, as well as travel and training expenses.
Over time we expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our commercial organization to both drive and support our planned growth in revenue. We expect our sales and marketing expenses to continue to decrease as a percentage of revenue, as and to the extent, our revenue grows.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for personnel in executive, finance, information technology and administrative functions. General and administrative expenses also include professional service fees for legal, accounting, consulting, investor and public relations, insurance costs and direct and allocated facility-related costs.
We expect that our general and administrative expenses will increase in absolute dollars as we execute our growth initiatives and expand our business and headcount to support these initiatives. We expect our general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.
Research and Development Expenses
Research and development expenses consist primarily of product research, engineering, product development, regulatory compliance and clinical development. These expenses include salaries and related benefits including stock-based compensation, for employees focused on these efforts, consulting services, costs associated with our preclinical studies, costs incurred with our manufacturing partner under development agreements related to technology transfer, costs incurred from license agreements with no alternative future uses, laboratory materials and supplies and an allocation of related facilities costs. We expense research and development costs as they are incurred.
We expect research and development expenses in absolute dollars to increase in the future as we develop new products and enhance existing products. We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of new product development initiatives.
Interest Expense
Interest expense consists of cash interest under our credit facilities and non-cash interest attributable to the amortization of final payment fees and the amortization of deferred financing costs related to our indebtedness.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of the excess consideration paid over the net carrying value of our debt at the time of extinguishment.
Other Income (Expense)
Other income (expense) consists primarily of income earned on our cash and cash equivalents offset by miscellaneous tax expenses and foreign currency exchange gains and losses.
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Results of Operations
Comparison of the Year Ended December 31, 2023 and 2022
Year Ended December 31,
Change
2023
2022
Dollar
Percentage
Revenue
$
58,453
$
41,418
$
17,035
41
%
Cost of revenue (excluding amortization of intangible assets)
17,961
13,570
4,391
32
Amortization of intangible assets
380
804
(424)
(53)
Gross profit
40,112
27,044
13,068
48
Gross margin
69
%
65
%
Operating expenses:
Sales and marketing
59,681
43,252
16,429
38
General and administrative
14,887
13,862
1,025
7
Research and development
9,619
8,937
682
8
Total operating expenses
84,187
66,051
18,136
27
Loss from operations
(44,075)
(39,007)
(5,068)
13
Other expense:
Interest expense
(5,223)
(4,051)
(1,172)
29
Loss on extinguishment of debt
—
(1,228)
1,228
(100)
Other income (expense)
2,634
(10)
2,644
NA
Total other expense
(2,589)
(5,289)
2,700
(51)
Net loss
$
(46,664)
$
(44,296)
$
(2,368)
5
%
Revenue
Revenue increased by $17.0 million, or 41%, to $58.5 million for the year ended December 31, 2023 from $41.4 million for the year ended December 31, 2022. The increase in revenue was primarily driven by an increase in unit sales of our products due to the ongoing expansion of our commercial organization, which resulted in the addition of new customers, increased penetration within existing customer accounts and growing international sales. During the year ended December 31, 2023, we sold 13,675 units of OviTex compared to 10,083 units of OviTex during the year ended December 31, 2022, a 36% increase in unit sales volume. Additionally, we sold 3,544 units of OviTex PRS compared to 2,385 units during the year ended December 31, 2022, a 49% increase in unit sales volume.
Cost of Revenue
Cost of revenue (excluding amortization of intangible assets) increased by $4.4 million, or 32%, to $18.0 million for the year ended December 31, 2023 from $13.6 million for the year ended December 31, 2022. The increase in cost of revenue was primarily the result of an increase in products purchased to support demand from our higher unit sales, partially offset by a lower charge for excess and obsolete inventory.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $0.4 million, or 53%, to $0.4 million for the year ended December 31, 2023 from $0.8 million for the year ended December 31, 2022. In June 2022, we determined that our final milestone target under our licensing agreement with Aroa was probable of being met and recorded the payment obligation as an intangible asset, resulting in an additional amortization charge of $0.5 million.
Gross Margin
Gross margin increased to 69% for the year ended December 31, 2023 from 65% for the year ended December 31, 2022. The increase was primarily due to lower expense recognized for excess and obsolete inventory adjustments as a
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percentage of revenue which resulted from improved inventory management processes and lower amortization of intangible assets.
Sales and Marketing
Sales and marketing expenses increased by $16.4 million, or 38%, to $59.7 million for the year ended December 31, 2023 from $43.3 million for the year ended December 31, 2022. The increase was primarily due to higher compensation costs as a result of the expansion of our commercial organization, increased travel, consulting and marketing expenses and additional employee-related costs due to an increase in headcount.
General and Administrative
General and administrative expenses increased by $1.0 million, or 7%, to $14.9 million for the year ended December 31, 2023 from $13.9 million for the year ended December 31, 2022. The increase was primarily due to higher compensation costs and employee-related expenses due to an increase in headcount and increases in professional fees and bad debt expense, offset by a decrease in insurance expense.
Research and Development
Research and development expenses increased by $0.7 million, or 8%, to $9.6 million for the year ended December 31, 2023 from $8.9 million for the year ended December 31, 2022. The increase was primarily due to higher compensation costs due to an increase in headcount, offset by lower study costs.
Interest Expense
Interest expense increased by $1.2 million, or 29%, to $5.2 million for the year ended December 31, 2023 from $4.1 million for the year ended December 31, 2022 due to the increased levels of borrowings under our Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent and certain lender parties thereto, and an increase to the variable component of our interest rate.
Loss on Extinguishment of Debt
We recorded a loss on the extinguishment of debt of $1.2 million during the year ended December 31, 2022 related to the repayment of borrowings of our credit facilities with OrbiMed. The losses were primarily comprised of the write-off of unamortized debt discounts and prepayment penalties at the time of extinguishment. No losses were recorded during the year ended December 31, 2023.
Other Income (Expense)
Other income (expense) increased by $2.6 million primarily due to higher interest income on increased cash balances and foreign currency translation adjustments.
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Liquidity and Capital Resources
Overview
As of December 31, 2023, we had cash and cash equivalents of $46.7 million, working capital of $54.8 million and an accumulated deficit of $320.9 million. As of December 31, 2022, we had cash and cash equivalents of $42.0 million, working capital of $50.0 million and an accumulated deficit of $274.2 million.
In April 2023, we completed an underwritten public offering in which we issued and sold 5,219,190 shares of our common stock (including 469,190 shares sold pursuant to the underwriters’ overallotment option in May 2023) at a public offering price of $9.50 per share. We received net proceeds of approximately $46.3 million after deducting underwriting discounts, commissions and other offering expenses.
In March 2024, we sold our distribution rights to MiMedx Group, Inc. in exchange for an initial $5.0 million payment and additional future payments aggregating between a minimum of $3.0 million and a maximum of $7.0 million based on net sales of NIVIS over the next two years.
We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to invest in our sales and marketing initiatives to support our growth in existing and new markets and in additional research and development activities. As of December 31, 2023, we had $40.0 million of borrowings outstanding under our Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent and certain lender parties thereto. The MidCap Credit Agreement matures in May 2027 and provides for up to $50.0 million in term loans (the “MidCap Term Loans”), consisting of a $40.0 million Tranche 1 (“Tranche 1”) and a $10.0 million Tranche 2 (“Tranche 2”). Upon closing, we borrowed $40.0 million of Tranche 1 and used a portion of the proceeds to repay borrowings under the OrbiMed Credit Facility and intend to use the remaining proceeds to fund operations and other general corporate purposes. As of December 31, 2023, no additional borrowings were made and our ability to draw from Tranche 2 has since expired.
Based on our current business plan, we believe that our existing cash resources will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months from the issuance of this Annual Report. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell common or preferred equity or debt securities or enter into a new credit facility. In November 2023, we entered into a new Equity Distribution Agreement (the “2023 Equity Agreement”) with Piper Sandler & Co, (“Piper”) in connection with the establishment of an at-the-market offering program under which we may sell shares of our common stock, from time to time through Piper as sales agent, in an initial amount of up to $50 million. The 2023 Equity Agreement supersedes and replaces the Company’s previous Equity Distribution Agreement with the Agent dated December 18, 2020 (the “2020 Equity Agreement”), which is no longer effective. No sales were made under the 2023 Equity Agreement or the 2020 Equity Agreement during the year ended December 31, 2023. If we raise additional funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. We cannot be assured that additional equity, equity-linked or debt financing will be available on terms favorable to us or our stockholders, or at all, including as a result of market volatility stemming from macroeconomic conditions, including those related to banking instability, increasing interest rates or other factors. If we are unable to obtain adequate financing, we may be required to delay or reduce the current development, commercialization and marketing plans for our products.
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Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Year Ended December 31,
(in thousands)
2023
2022
2021
Cash used in operating activities
$
(40,857)
$
(40,748)
$
(30,432)
Cash used in investing activities
(599)
(1,872)
(627)
Cash provided by financing activities
46,267
40,852
585
Effect of exchange rate changes on cash and cash equivalents
164
(144)
11
Net increase (decrease) in cash and cash equivalents and restricted cash
$
4,975
$
(1,912)
$
(30,463)
Operating Activities
During the year ended December 31, 2023, we used $40.9 million of cash in operating activities, resulting from our net loss of $46.7 million and the change in operating assets and liabilities of $2.0 million, offset by non-cash charges of $7.8 million. Our non-cash charges were comprised of stock-based compensation expense of $5.0 million, our excess and obsolete inventory charge of $1.4 million, depreciation and amortization expense of $0.8 million and interest expense of $0.6 million. The change in our operating assets and liabilities was primarily related to increases in accounts receivable and inventory partially offset by increases in accrued expenses and other current and long-term liabilities.
During the year ended December 31, 2022, we used $40.7 million of cash in operating activities, resulting from our net loss of $44.3 million and the change in operating assets and liabilities of $5.3 million, offset by non-cash charges of $8.9 million. Our non-cash charges were comprised of stock-based compensation expense of $4.0 million, our excess and obsolete inventory charge of $1.9 million, loss on extinguishment of debt of $1.2 million, depreciation and amortization expense of $1.2 million and interest expense of $0.7 million. The change in our operating assets and liabilities was primarily related to an increase in our inventory and accounts receivable, partially offset by increases in accrued expenses and other current and long-term liabilities.
During the year ended December 31, 2021, we used $30.4 million of cash in operating activities, resulting from our net loss of $33.3 million and the change in operating assets and liabilities of $3.5 million, offset by non-cash charges of $6.3 million. Our non-cash charges were comprised of stock-based compensation expense of $3.7 million, our excess and obsolete inventory charge of $1.4 million, interest expense of $0.7 million and depreciation and amortization expense of $0.5 million. The change in our operating assets and liabilities was primarily related to an increase in our inventory, accounts receivable and prepaid expenses and other assets, partially offset by increases in accounts payable and accrued expenses and other current and long-term liabilities.
Investing Activities
During the year ended December 31, 2023, cash used in investing activities was $0.6 million consisting of purchases of property and equipment.
During the year ended December 31, 2022, cash used in investing activities was $1.9 million consisting of a $1.0 million payment made for our intangible asset and purchases of property and equipment.
During the year ended December 31, 2021, cash used in investing activities was $0.6 million consisting of purchases of property and equipment.
Financing Activities
During the year ended December 31, 2023, cash provided by financing activities was $46.3 million, consisting primarily of $46.3 million in proceeds received from the sale of our common stock and $0.1 million of proceeds received from the exercise of stock options partially offset by the payment of withholding taxes related to stock-based compensation to employees.
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During the year ended December 31, 2022, cash provided by financing activities was $40.9 million, consisting primarily of $34.4 million in proceeds from an underwritten public offering, $40.0 million in proceeds received from the issuance of long-term debt, partially offset by $30.0 million in repayments of long-term debt and $3.5 million in payments of issuance costs.
During the year ended December 31, 2021, cash provided by financing activities was $0.6 million, consisting primarily of the proceeds received from the exercise of stock options.
Indebtedness
On May 26, 2022, we entered into the MidCap Credit Agreement with MidCap Financial Trust, as agent and certain lender parties thereto. The MidCap Credit Agreement provides for up to $50.0 million in MidCap Term Loans, consisting of a $40.0 million Tranche 1 and a $10.0 million Tranche 2. Upon closing, we borrowed $40.0 million of Tranche 1 and used a portion of the proceeds to fully repay borrowings under the OrbiMed Credit Facility and intend to use the remaining proceeds to fund operations and other general corporate purposes. As of December 31, 2023, no additional borrowings were made and our ability to draw from Tranche 2 has since expired.
Pursuant to the MidCap Credit Agreement, we provided a first priority security interest in all existing and future acquired assets, including intellectual property, owned by us. The MidCap Credit Agreement 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.
The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) termination of a pension plan, (xi) regulatory matters, (xii) material adverse effect and (xiii) breach of material contracts.
In addition, we must maintain minimum net revenue levels tested quarterly. In the event of default under the MidCap Credit Agreement, we would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 2%.
The MidCap Term Loans mature on May 1, 2027 and bear interest at a rate equal to 6.25% plus the greater of one-month Term SOFR (as defined in the MidCap Credit Agreement) or 1.0%. We are required to make 36 monthly interest payments beginning on June 1, 2022 (the “Interest-Only Period”). If we are in covenant compliance at the end of the Interest-Only Period, we will have the option to extend the Interest-Only Period by 12 months to 48 monthly interest payments, followed by 12 months of straight-line amortization, with the entire principal payment due at maturity. If we are not in covenant compliance at the end of the Interest-Only Period, we are required to make 24 months of straight-line amortization payments, with the entire principal amount due at maturity.
Subject to certain limitations, the MidCap Term Loans have a prepayment fee equal to 3.0% of the prepaid principal amount for the first year following the closing date of the MidCap Term Loans, 2.0% of the prepaid principal amount for the second year following the closing date and 1.0% of the prepaid principal amount for the third year following the closing date and thereafter. We are also required to pay an exit fee at the time of maturity or prepayment event equal to 5% of all principal borrowings (or in the event of a prepayment event, the amount of principal being prepaid).
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2023 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:
Payments due by Period
Less than
(in thousands)
Total
1 year
1 to 3 years
3 to 5 years
Thereafter
Principal payments on long-term debt (1)
$
40,000
$
—
$
—
$
40,000
$
—
Interest and end of term charge on long-term debt (2)
17,581
4,677
9,354
3,550
—
Operating lease commitments (3)
3,736
601
1,137
1,153
845
Purchase commitments
7,080
2,250
4,830
—
—
Total
$
68,397
$
7,528
$
15,321
$
44,703
$
845
(1) Assumes extension of Interest-Only Period to 48 months under the MidCap Credit Facilty.
(2) Interest payable reflects the rate in effect as of December 31, 2023. The interest rate on borrowings under the MidCap Credit Facility is variable and resets monthly. End of term fee reflects final payment fee due at maturity.
(3) Reflects payments due for our lease of office and laboratory space in Malvern, Pennsylvania under an operating lease agreement that expires in 2030.