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Item 7. Management’s Discussion and Analysis

2025-03-21 compared with 2024-03-22 · 109 added, 94 removed, 157 unchanged (56% of the section changed)

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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.

We believe that genuine collaboration with surgeons and healthcare providers results in the development of new solutions that empower patient care and addresses unmet needs within the soft tissue reconstruction market.

Our first portfolio of products, the OviTex Reinforced Tissue Matrix ( “OviTex”) which we first commercialized in the U.S.

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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.

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 in November 2018.

In February 2023, we launched two larger configurations of OviTex LPR, designed for ventral and incisional hernias.

In April 2024, we launched OviTex IHR Reinforced Tissue Matrix, a new OviTex configuration specifically designed to address inguinal hernia procedures performed robotically and laparoscopically.

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.

To date, there have been over forty published or presented works relating to these clinical findings, either by us or a third-party evaluating one or more product configurations in our OviTex portfolio.

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 .

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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).

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, chronic obstructive pulmonary disease (“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.

In addition to the BRAVO study, we have also initiated other clinical data collection initiatives evaluating the use of OviTex across a variety of hernia and abdominal

wall reconstruction procedures.

Among these other initiatives, we continue to enroll patients for our BRAVO II study, a prospective study evaluating the use of OviTex in robot-assisted ventral and inguinal hernia repairs.

Our second portfolio of products, the OviTex PRS Reinforced Tissue Matrix, (“OviTex PRS”) which we first commercialized in the U.S.

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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.

OviTex PRS Long-Term Resorbable, our most recent product configuration, launched in August 2023, and 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.

In addition, there have been a growing number of published or presented works evaluating the use of OviTex PRS in plastic and reconstruction applications.

We also continue to enroll patients in our OPERA study, a retrospective-prospective trial evaluating the safety profile of OviTex PRS in previous pre-pectoral and sub-pectoral implant-based breast reconstructions.

Based on the current sales of biologic matrices in the U.S., we estimate the annual U.S.

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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 May 2024, we received clearance of a Special 510(k) related to minor changes to our OviTex PRS Permanent and Short-Term Resorbable devices.

In October 2024, we received approval from the FDA for our investigational device exemption application relating to the study of the safety and effectiveness of our OviTex PRS product in implant-based breast reconstruction.

We continue to evaluate and finalize the clinical study protocol and anticipate additional FDA interactions related to such to support a pre-market application to obtain approval for an indication for OviTex PRS for use in breast reconstruction.

Historically, we have sought to expand our service offerings beyond our OviTex and OviTex PRS products through commercial partnerships to distribute complimentary soft tissue preservation and restoration solutions.

Some additional product offerings include or have included atraumatic mesh fixation devices or surgical wound management and infection control solutions.

In September 2023, we entered into a distribution agreement with Advanced Medical Solutions Limited, a company registered in England, to distribute 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.

We previously co-developed and commercialized the 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 may assess additional strategic partnerships with medical device companies whereby we may enter into distribution, product development and/or licensing agreements for additional 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

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.

In addition, we believe

our exclusive manufacturing and long-term supply and license agreement with Aroa (the “Aroa License”) 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 both of 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.

Our OviTex and OviTex PRS 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 subject to a true-up adjustment, resulting in an amount equal to 27% of our net sales of our OviTex and OviTex PRS products, with the exception of OviTex IHR product configurations, for which we pay the greater of the initial fixed transfer cost or 27% of our net sales of OviTex IHR.

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

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 primarily market our products through a single direct sales force, predominantly in the U.S., with a small number of sales representatives in the United Kingdom and European Union, and also utilize a smaller number of independent contractors and distributors in the United States and 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, 2024, we had 75 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.

and 13 sales territories in Europe.

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.

Additionally, we have contracted with three national group purchasing organizations (“GPOs”) in the United States 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 for all products we commercialize.

We are currently devoting research and development resources to develop additional variations of our OviTex and OviTex PRS products, including larger versions of our current OviTex PRS product configurations, the development of OviTex 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 are also exploring additional technologies that may complement our existing products, or expand the number of our products, in each case within the hernia, plastic and reconstruction, and broader soft-tissue reconstruction market.

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, 2024 and 2023 was $69.3 million and $58.5 million, respectively, which represents an increase of $10.8 million, or 19% for the year ended December 31, 2024.

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.

Our net loss for the same time periods was $37.8 million and $46.7 million, respectively, which represents a decrease of $8.8 million, or 19% for the year ended December 31, 2024 inclusive of the gain recognized of $7.6 million on the sale of NIVIS to the MiMedx Group, Inc.

As of December 31, 2024, we had an accumulated deficit of $358.7 million.

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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.

Our business, results of operations and commercial operations have been, and may continue to be impacted by macroeconomic conditions outside of our control, including general economic uncertainty, external cybersecurity events impacting our customers, disruptions in supply of critical surgical supplies for procedures utilizing our products, inflationary pressures, tariffs, regulatory changes in the market in which we operate, fluctuations in foreign currency in the jurisdictions in which we operate, banking instability, monetary policy changes and geopolitical conflicts.

These factors have and may continue to impact us in the following ways:

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.

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 concerns about the systemic impact of a potential economic downturn or recession, increasing interest rates, further economic downturn or banking instability, monetary policy including the imposition of tariffs, changes and geopolitical issues, including the ongoing Russia-Ukraine conflict, the current conflict in the Middle East (including any escalation or expansion) and increasing tensions between China and Taiwan, have contributed to increased market volatility and diminished expectations for economic growth in the world.

Due to this uncertainty and other factors, 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.

External Cybersecurity Events :

The sale of our medical products is correlated to the frequency of surgical procedural volumes at current and prospective hospital accounts.

During the second quarter of 2024, we became aware of multiple cybersecurity events, including ransomware attacks and other similar system disruptions and outages, in the U.S.

and Europe that adversely impacted the procedural volumes at current customer accounts, including those affiliated across one of our GPOs.

To the extent current or future cybersecurity events continue to impact the hospital systems we serve, or otherwise affect third-party payors or other vendors within the healthcare industry critical to the patient care, we may experience additional reductions in procedural volumes that lead to lower sales volume for our products.

External Supply Constraints for Critical Surgical Supplies :

Any disruptions to the supply of critical surgical supplies, including, for example, IV fluids, could lead to deferrals of elective surgical procedures, including those utilizing our products.

To the extent that our current and prospective hospital customers experience significant shortages of these critical supplies, whether due to extreme weather events, labor or work stoppages, or other supply chain disruptions, we may experience reductions in procedural volumes that lead to lower sales volume for our products.

Financial Strain :

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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.

The continuing uncertainty surrounding macroeconomic conditions and financial markets, including the financial strain suffered by hospital customers first arising in response to 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

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

The majority of our revenue consists of direct sales of our products to hospital accounts in the U.S.

Depending on the terms of our agreements with our customers, we recognize revenue related to product sales 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.

Recent revenue growth has been driven by increasing revenue from product sales due to our expanding customer base and deeper penetration across procedures in existing customer accounts, although macroeconomic pressures described in this Annual Report may impair our ability to continue to generate revenue, expand our customer base, and increase utilization of our products in existing customer accounts 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.

We purchase product from Aroa at a fixed transfer cost as a percentage of Aroa’s cost of goods, which, subject to a true-up adjustment, results in an amount equal to 27% of our net sales of our OviTex and OviTex PRS products, with the exception of OviTex IHR product configurations, for which we pay the greater of the initial fixed transfer cost or 27% of our net sales of OviTex IHR.

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.

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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 future sales and marketing expenses will primarily depend on our ability to drive operational leverage and efficiencies from our commercial organization.

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

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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 future general and administrative expenses will primarily depend on our ability to efficiently execute on our growth initiatives.

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

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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.

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 and clinical studies undertaken to obtain regulatory clearance for new or expanded product indications, 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.

We expect future research and development expenses will primarily depend on our ability to efficiently develop new products, enhance existing products and conduct research to generate clinical data in support of new or expanded indications for our 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 and clinical trial initiatives.

Gain on Sale of Product Line

In March 2024, we entered into an asset purchase agreement with MiMedx Group, Inc.

to sell certain assets related to NIVIS.

These assets mainly included our existing inventory of NIVIS, with a net carrying value of $0.8 million, and certain intellectual property rights to sell NIVIS, with no carrying value.

We transferred control of the nonfinancial asset group in March 2024 and recognized a gain of $7.6 million on the consolidated statement of operations and comprehensive loss during the year ended December 31, 2024.

At each reporting date, we assess the constraint of variable consideration and record increases in the transaction price in the period that the estimate of variable consideration changes.

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.

Other income consists primarily of income earned on our cash and cash equivalents offset by miscellaneous tax expenses and foreign currency exchange gains and losses.

Results of Operations

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Total operating expenses

Other operating income:

Gain on sale of product line

Loss from operations

Other expense:

Other (expense) income:

Interest expense

Loss on extinguishment of debt

Other income (expense)

Total other expense

Loss before income tax benefit

Income tax benefit

Revenue increased by $10.8 million, or 19%, to $69.3 million for the year ended December 31, 2024 from $58.5 million for the year ended December 31, 2023.

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.

The increase in revenue was primarily driven by an increase in unit sales of our products due to the addition of new customers and growing international sales.

This growth was partially offset by a decrease in average selling prices caused by product mix as the share of smaller-sized units increased.

During the year ended December 31, 2024, we sold 18,121 units of OviTex compared to 13,675 units of OviTex during the year ended December 31, 2023, a 33% increase in unit sales volume.

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Cost of revenue (excluding amortization of intangible assets) increased by $4.5 million, or 25%, to $22.4 million for the year ended December 31, 2024 from $18.0 million for the year ended December 31, 2023.

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.

The increase in cost of revenue was primarily the result of an increase in products purchased to support demand from our higher unit sales and a higher 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 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

percentage of revenue which resulted from improved inventory management processes and lower amortization of intangible assets.

Amortization of intangible assets was $0.4 million for both the years ended December 31, 2024 and 2023.

Gross margin decreased to 67% for the year ended December 31, 2024 from 69% for the year ended December 31, 2023.

The decrease was primarily due to higher expense recognized for excess and obsolete inventory adjustments as a percentage of revenue which resulted from the introduction of newer generation products.

Sales and Marketing

Sales and marketing expenses increased by $5.0 million, or 8%, to $64.6 million for the year ended December 31, 2024 from $59.7 million for the year ended December 31, 2023.

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.

The increase was primarily due to higher compensation costs, primarily from commissions on an increased revenue base and severance costs, increased travel and consulting expense, and additional selling-related expenses related to product sampling and meeting expenses, which were partially offset by decreased marketing expenses.

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.

General and administrative expenses decreased by $0.2 million, or 1%, to $14.7 million for the year ended December 31, 2024 from $14.9 million for the year ended December 31, 2023.

The decrease was primarily due to decreases in professional fees, bad debt and insurance expense, partially offset by higher compensation costs.

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.

Research and development expenses decreased by $0.8 million, or 8%, to $8.8 million for the year ended December 31, 2024 from $9.6 million for the year ended December 31, 2023.

The decrease was primarily due to reduced clinical and preclinical study costs, including associated consulting expense, partially offset by higher compensation costs.

Gain on Sale of Product Line

In March 2024, we entered into an asset purchase agreement with MiMedx Group, Inc.

to sell certain assets related to NIVIS.

These assets mainly included our existing inventory of NIVIS, with a net carrying value of $0.8 million, and certain intellectual property rights to sell NIVIS, with no carrying value.

We transferred control of the nonfinancial asset group in March 2024 and recognized a gain of $7.6 million during the year ended December 31, 2024.

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.

Interest expense increased by $0.1 million, or 1%, to $5.3 million for the year ended December 31, 2024 from $5.2 million for the year ended December 31, 2023 due to increases in the variable component of our interest rate.

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.

Other income (expense) decreased by $1.2 million primarily due to lower interest income on cash balances and foreign currency translation adjustments.

Income Tax Benefit

We recorded a tax benefit of $0.1 million related to our foreign jurisdiction as we released a valuation allowance against our net operating loss tax asset.

Liquidity and Capital Resources

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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.

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.

On October 24, 2024, we completed an underwritten public offering of 14,670,000 shares of our common stock, including the exercise in full of the underwriters’ overallotment option to purchase additional shares of common stock, at a price to the public of $2.25 per share and, in lieu of common stock to investors who so chose, pre-funded warrants to purchase 5,800,000 shares of common stock at a public offering price of $2.2499 per pre-funded warrant, which

represents the per share public offering price for the shares of common stock less the $0.0001 per share exercise price for each pre-funded warrant.

The offering resulted in net proceeds of $42.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses and assuming no subsequent exercise of the pre-funded warrants.

The exercise of the pre-funded warrants, if any, is not expected to provide significant additional funding to the Company.

In March 2024, we sold our distribution rights to MiMedx Group, Inc.

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, 2024, 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.

The MidCap Credit Agreement matures in May 2027.

Upon closing, we used a portion of the proceeds to repay borrowings under a previous credit facility and intend to use the remaining proceeds to fund operations and other general corporate purposes.

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.

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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.

No sales were made under the 2023 Equity Agreement or during the year ended December 31, 2024.

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.

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Cash used in operating activities

Cash used in investing activities

Cash provided by (used in) investing activities

Cash provided by financing activities

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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.

During the year ended December 31, 2024, we used $41.6 million of cash in operating activities, resulting from our net loss of $37.8 million and the change in operating assets and liabilities of $4.9 million, offset by non-cash items of $1.1 million.

Our non-cash items were comprised of the gain on sale of NIVIS of $7.6 million offset by stock-based compensation expense of $4.4 million, our excess and obsolete inventory charge of $3.0 million, depreciation and amortization expense of $1.0 million and noncash 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.

Our non-cash items 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 noncash 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.

Our non-cash items 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 noncash 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, 2024, cash provided by investing activities was $4.5 million, consisting of proceeds received from the sale of NIVIS of $5.4 million, partially offset by $1.0 million in purchases of property and equipment.

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, 2024, cash provided by financing activities was $43.1 million, consisting primarily of $42.9 million in proceeds received from the sale of our common stock and pre-funded warrants.

$0.3 million of proceeds received from the issuance of stock under the employee stock purchase plan and $0.2 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.

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.

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.

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.

The MidCap Credit Agreement provides for up to $40.0 million in MidCap Term Loans.

Upon closing, we 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.

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.

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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.

Subject to certain limitations, the MidCap Term Loans have a prepayment fee equal to 1.0% of the prepaid principal.

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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Operating lease commitments (3)

Purchase commitments

(1) Assumes extension of Interest-Only Period to 48 months under the MidCap Credit Facilty.

(1) Assumes extension of Interest-Only Period to 48 months under the MidCap Credit Facility.

(2) Interest payable reflects the rate in effect as of December 31, 2024.

3 unchanged sentences

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 7. Management’s Discussion and Analysis