TransMedics Group, Inc. 10-K

Item 1. Business. Overview We are a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. We developed the OCS, to replace a decades-old standard of care that we believe is significantly limiting access to life-saving transplant therapy for hundreds of thousands of patients worldwide. Our innovative OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. We believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes. Incidence of end-stage organ failure has been rapidly rising worldwide due to demographic trends that contribute to chronic diseases. Organ transplantation is the treatment of choice for addressing end-stage organ failure due to its positive clinical outcomes and favorable health economics. However, transplant volumes have been significantly restricted by the limitations of cold storage, the standard of care for solid organ transplantation. Cold storage is a rudimentary approach to organ preservation in which a donor organ is flushed with cold pharmaceutical solutions, placed in a plastic bag on top of ice and transported in a cooler. Cold storage subjects organs to significant injury due to a lack of oxygenated blood supply, or ischemia, does not allow physicians to assess organ viability and lacks the ability to optimize an organ’s condition once it has been retrieved from the donor. Time-dependent ischemic injury has been shown to result in short- and long-term post-transplant clinical complications and, together with the inability to assess or optimize organs, contributes to the severe underutilization of donor organs. While there are approximately 67,000 potential donors annually in the United States, Canada, the European Union and Australia, which we refer to as our key geographies, the majority of lungs and hearts donated after brain death, or DBD, go unutilized, and almost no available lungs and hearts donated after circulatory death, or DCD, are utilized. We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. We designed the OCS technology platform to perfuse donor organs with warm, oxygenated, nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. Because the OCS significantly reduces injurious ischemic time on donor organs as compared to cold storage and enables the optimization and assessment of donor organs, it has demonstrated improved clinical outcomes relative to cold storage and offers the potential to significantly improve donor organ utilization. We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs. To date, we have developed three OCS products, one for each of lung, heart and liver transplantations, making the OCS the only multi-organ technology platform. Our OCS products have been used for over 1,800 human organ transplants. The OCS Lung has been approved by the FDA, for commercial use in the United States since March 2018 for donor lungs that are currently utilized for transplantation and since May 2019, for donor lungs currently unutilized for transplantation. We also have commercialized the OCS Lung and OCS Heart outside of the United States. We submitted a Pre-Market Approval, or PMA, application to the FDA in December 2018 for the use of the OCS Heart for donor hearts currently utilized and unutilized for transplantation based on the results of our OCS Heart EXPAND Trial, OCS Heart EXPAND Continued Access Protocol, or CAP, Trial and OCS Heart PROCEED II Trial. The FDA will convene an advisory committee meeting, typical for novel technologies, to discuss our OCS Heart PMA application. The FDA advisory committee panel was initially set for April 2020 but was delayed due to the COVID-19 pandemic, and we currently expect it to be held on April 6, 2021. It is possible that the FDA decides that the data from our clinical trials does not support PMA approval or any of the claims we wish to make, or the FDA could require us to gather significant additional clinical data or conduct additional non-clinical testing. In addition, we completed enrollment of the 300 patient OCS Liver PROTECT trial in October 2019, and we submitted a PMA application for the OCS Liver in June 2020 and it is currently under review by the FDA. We also completed enrollment of the 180 patient OCS Heart DCD trial in September 2020. We expect to submit a PMA supplement application for the use of OCS Heart for DCD hearts in 2021. 3 We are focused on establishing the OCS as the standard of care for solid organ transplantation. Because we believe cold storage is the primary factor limiting donor organ utilization today, we estimate our opportunity based on the existing donor pools and the potential for significantly expanded utilization with the OCS. We estimate the potential pool of DBD and DCD donors in our key geographies to be approximately 67,000 annually, with each donor having the capacity to donate more than one organ, including lung, heart and liver. However, the industry in which we operate is subject to a high degree of uncertainty and risk, and these estimates could change. Based on the utilization rates in our clinical trials and our commercial experience outside the United States, we estimate the potential annual addressable commercial opportunity for the OCS to be approximately $8 billion for lung, heart and liver transplantation combined. Our clinical trials have demonstrated that the OCS may result in improved post-transplant outcomes as compared to cold storage, and we believe this will enable us to capture a significant portion of the expanded transplant opportunity. The majority of transplant procedures are performed at a relatively small number of hospitals that have specialized organ transplant centers. For example, we estimate that approximately 50 to 55 transplant centers in the United States perform over 70% of the lung, heart and liver transplant volume. The lead transplant surgeons at each of these centers are the primary decision-makers on most aspects of the transplant programs. These surgeons rely primarily on clinical evidence to drive changes in their programs. During our clinical trials, we established relationships with over 65 leading transplant programs in our key geographies and have generated a substantial body of clinical evidence. Our commercial strategy is focused on leveraging these relationships to drive deeper adoption of the OCS at the leading, large-volume academic transplant institutions. We have also initiated a national OCS program that provides turnkey organ retrieval and OCS perfusion services to transplant centers in order to assist transplant programs in overcoming logistical hurdles. We believe this program has the potential to accelerate adoption of the OCS. We believe the OCS will drive significant benefits to all stakeholders in the field of organ transplantation. For patients, we believe the OCS provides more patients with access to life-saving transplants and allows for quicker recovery following transplantation. For hospitals, we believe the OCS provides a means to increase transplant volume, treat more patients, enhance provider status and improve transplant program economics. Finally, we believe the OCS provides payors with a more cost-effective treatment for end-stage organ failure and reduces exposure to significant post-transplant complication costs and extended hospital stays. Our OCS products are reimbursed in the United States through existing, standard commercial transplant billing mechanisms. The Medicare program and private payors have been providing reimbursement for the OCS Lung, OCS Heart and OCS Liver during the U.S. pivotal trials and have been providing reimbursement for the OCS Lung following our first FDA approval in March 2018. We believe these established channels will continue to facilitate commercial reimbursement for the OCS Lung and, if they are approved by the FDA, for the OCS Heart and OCS Liver. We are in the process of seeking long-term reimbursement for our products outside of the United States. Our corporate headquarters, manufacturing and clinical training facilities are located in Andover, Massachusetts. We have additional distribution and commercial operations in Europe and Asia-Pacific. As of December 31, 2020, we employed 110 people, globally, most of which were full-time employees. We generated $25.6 million of net revenue during the fiscal year ended December 31, 2020 and $23.6 million of net revenue during the fiscal year ended December 28, 2019, representing a 9% increase. Growth in our business was negatively impacted by the global COVID-19 pandemic after net revenue growth of 81% in 2019 compared to 2018. Our business model is characterized by a high level of recurring revenue, which is derived primarily from sales of our single-use, organ-specific disposable sets that are required for each transplant using the OCS. Commercial Opportunity Demand for Organ Transplants Incidence of end-stage organ failure has been rapidly rising worldwide due to demographic trends that contribute to chronic disease, including an aging population and obesity. Key disease states resulting in organ failure include chronic obstructive pulmonary disease, or COPD, chronic heart failure, diabetes, chronic liver disease and end-stage renal disease. 4 Organ Transplantation Represents the Treatment of Choice for End-Stage Organ Failure We believe organ transplantation is the most effective treatment for end-stage organ failure in terms of both clinical outcomes and health economics. For example, the therapeutic options for end-stage heart failure include optimum medical management with pharmaceutical treatments, or OMM, mechanical support with a left ventricular assist device, or LVAD, and heart transplantation. Heart transplantation is associated with materially longer survival rates as compared to OMM and LVADs, which are either used as a bridge to transplant or as destination therapy, an alternative to transplant. These improved survival rates, in turn, result in favorable economics for transplantation on the basis of quality-adjusted life years. Despite the large and growing incidence of organ failure worldwide, and the significant clinical and economic benefits of organ transplantation, the number of transplants severely lags demand due to the limitations of traditional methods of organ preservation prior to transplantation. Donor Organs for Transplantation The supply of donor organs for transplantation comes from two primary sources: Donation After Brain Death—DBD Donors : DBD donors suffered irreversible brain damage. Because hearts continue to beat naturally for a few days in these donors, the organs continue to be perfused with oxygenated blood until retrieval, allowing transplant clinicians the opportunity to assess organ viability. We estimate that the pool of DBD donors is approximately 19,000 DBD donors annually in our key geographies, with approximately 8,400 DBD donors annually in the United States. While DBD donors represent the vast majority of donor organs transplanted, only approximately 23% of donated lungs and 32% of donated hearts were utilized in the United States in 2016, which we believe is primarily due to the limitations of current organ preservation methods. Donation After Circulatory Death—DCD Donors : DCD donors suffered cardiac and circulatory arrest. Because hearts cease to beat in these donors, the organs do not receive oxygenated blood and transplant clinicians are unable to assess organ viability. We estimate that the potential DCD donor pool is approximately 48,000 donors annually in our key geographies, with over 22,000 DCD donors annually in the United States. Despite the large size of this donor pool, we estimate that DCD donor organs are used in fewer than 5% of lung transplants and are not used for heart transplants because current methods for organ preservation are unable to overcome the challenges presented by the lack of perfusion. Annual Lung and Heart DBD Donor Utilization United States, Canada, European Union, Australia Estimated Annual Lung and Heart DCD Donor Utilization United States, Canada, European Union, Australia Sources: Organ Procurement Transplantation Network; Global Observatory on Donation and Transplantation Source: Institute of Medicine of the National Academy of Science (2006) 5 Limitations of Current Organ Preservation Methods In recent years, significant innovations have been implemented in most aspects of organ transplantation surgery. However, organ preservation remains primarily limited to cold storage. Cold storage involves flushing the organs with cold pharmaceutical solutions designed to reduce organ temperature and arrest organ function. The donor organ is then placed in a sterile plastic bag and stored on ice in a cooler. This process adversely impacts clinical outcomes and leads to underutilization of viable donor organs due to the following inherent challenges: • Time-dependent ischemic injury: Cold storage subjects donor organs to significant injury due to a lack of oxygenated blood supply, or ischemia. Ischemia has been reported to be an independent predictor of mortality after heart transplantation and development of short-term severe primary graft dysfunction, or PGD, which is associated with long-term complications in lung transplantation. A long-term consequence of PGD3, the most severe form of PGD, is chronic lung allograft dysfunction. Published data from the thoracic transplant registry of the International Society for Heart and Lung Transplantation shows that the risk for post-transplant patient mortality increases dramatically after approximately 190 minutes of injurious ischemic time in heart transplantation. This data highlights that the longer an organ spends on ice, the higher the risk of poor clinical outcomes, including mortality. In addition to resulting in poor transplant outcomes, time-dependent ischemic injury limits the acceptable time that transplant centers permit between organ retrieval and transplantation to four to six hours, resulting in restrictions on geographical distance between donors and transplant recipients. Ischemic Times Correlates Positively with Increased Risk for Patient Mortality After Heart Transplantation Dotted lines represent upper and lower confidence bound for the data plotted. Correlation between Ischemic Injury and Development of Long-Term Complications after Lung Transplantation— Results of the OCS Lung INSPIRE Trial A p-value is a statistical calculation that relates to the probability that a difference between groups happened by chance. Typically, a p-value less than 0.05 represents statistical significance. 6 • Lack of diagnostic assessment of organ viability or function: Cold storage does not support the assessment of organ function or viability because the organs are not functioning or metabolically active during cold storage. This lack of diagnostic assessment largely limits the donor pool to DBD donors, whose organs can be assessed for viability prior to retrieval because their hearts continue to beat. The lack of diagnostic assessment of organ viability during cold storage is the primary reason that DCD organs are rarely used for lung transplants and never used for heart transplants. • Lack of therapeutic or optimization capabilities: Clinical studies have demonstrated the clinical benefits of replenishing donor organs with glucose, oxygen, hormones and electrolytes that are significantly altered or depleted during the donation process. Cold storage, however, does not allow for therapeutic intervention to optimize the condition of donor organs, which results in suboptimal post-transplant outcomes. In addition, transplant programs are less likely to accept organs that may appear compromised if they are unable to treat or optimize the organ, which prevents utilization of the vast majority of organs from DBD and DCD donors. We believe the limitations of cold storage are directly responsible for the severe shortage in donor organ supply, which results in nearly all lungs and hearts from DCD donors, and the majority of lungs and hearts from DBD donors, going unutilized each year. In 2016, approximately 77% of donated lungs and approximately 68% of donated hearts went unutilized in the United States. In addition, we believe the limitations of cold storage are the primary driver of the high rate of severe post-transplant complications that negatively impact both patients’ clinical outcomes and transplant economics for payors and providers. We developed the OCS technology platform to comprehensively address the major limitations of cold storage. The OCS represents a paradigm shift that transforms organ preservation with a dynamic technology that replicates many aspects of an organ’s natural state outside of the human body and enables new capabilities of organ optimization and assessment. Because the OCS reduces injurious ischemic time significantly and enables the optimization and assessment of donor organs, it offers the potential to significantly improve organ utilization relative to cold storage and could lead to improved clinical outcomes. Our Commercial Opportunity We believe organ transplantation is severely supply constrained by the limitations of cold storage. While there is a national transplant waiting list that represents a snapshot of demand, we believe this waiting list significantly underrepresents the true clinical demand for organ transplants. Because the supply of donor organs has historically been constrained, the waiting list is fairly static, with annual additions to the waiting list typically matching closely the number of transplants performed or patients otherwise removed from the list. We believe that with increased utilization of donor organs for transplant, the waiting list will grow to match any increase in global supply. We estimate our commercial opportunity based on the existing donor pools and the potential for significantly improved utilization resulting from the use of our OCS technology. We estimate that the potential pool of donors in our key geographies includes approximately 67,000 DBD and DCD donors annually. Our estimates of the potential pools of donors are only estimates and subject to uncertainty, risk and change. Because the OCS reduces injurious ischemic time significantly, allows for therapeutic optimization of the organ’s condition and enables diagnostic assessment, we believe the OCS could allow surgeons to utilize the vast majority of the donor pool that is currently unutilized due to the limitations of cold storage. 7 Estimated Transplant Pool Underutilization United States, Canada, European Union, Australia Sources: Organ Procurement and Transplantation Network; Global Observatory on Donation and Transplantation; Institute of Medicine of the National Academy of Science (2006) We are focused on establishing the OCS as the standard of care for solid organ transplantation. Our clinical trial results have demonstrated that the OCS may result in improved post-transplant outcomes as compared to cold storage. In addition, our clinical trial results and commercial experience outside the United States have demonstrated a significant improvement in donor organ utilization to approximately 87% of DBD and DCD donor lungs, approximately 81% of DBD donor hearts and approximately 80% of DCD donor hearts, with improved post-transplant outcomes compared to cold storage. As a result, we believe that the OCS will also expand the existing pool of utilizable donor organs to include a significant share of the 67,000 potential annual donors and increase the overall number of transplants performed each year. We believe the OCS could be adopted for use in a significant share of transplants; however, certain factors may limit the actual utilization of the OCS, including the need to continue to educate surgeons, transplant centers and private and public payors of the merits of the OCS as compared with cold storage, the requisite training of surgeons prior to their use of the OCS and the overall capacity of transplant centers to perform organ transplants due to factors such as the availability of surgeons. See “Item 1A. Risk Factors—Risks Related to Research and Commercialization—We depend heavily on the success of the OCS and achieving market acceptance. If we are unable to successfully commercialize the OCS, our business may fail” and “—We must continue to educate surgeons, transplant centers and private and public payors and demonstrate the merits of the OCS compared with cold storage or new competing technologies. Surgeons, transplant centers and private and public payors may require additional clinical data prior to adopting or maintaining coverage of the OCS”. 8 Lung Opportunity Only 4,800 donor lungs are utilized annually for transplantation in our key geographies, resulting in approximately 62,200 organs, comprised of 14,400 from potential DBD donors and 47,800 from potential DCD donors, going unutilized each year due to the limitations of cold storage. Our OCS Lung EXPAND Trial demonstrated that the use of the OCS Lung in the types of organs that currently are not transplanted resulted in a blended DBD and DCD utilization rate of approximately 87%, based on 90% DBD utilization and 81% DCD utilization. Applying this 90% utilization rate to DBD donor lungs and 81% utilization rate to DCD donor lungs implies a total potential addressable opportunity of approximately $2.5 billion annually, of which approximately $215 million represents currently transplantable lungs, approximately $585 million represents improved utilization of DBD donors and the remaining approximately $1.7 billion represents utilization of DCD donors. Estimated Addressable Lung Opportunity United States, Canada, European Union, Australia 9 Heart Opportunity Only 5,800 donor hearts are utilized annually for transplantation in our key geographies, resulting in approximately 61,200 organs, comprised of 13,200 from potential DBD donors and 48,000 from potential DCD donors, going unutilized each year due to the limitations of cold storage. Results from our OCS Heart EXPAND Trial demonstrated that the use of the OCS Heart in the types of organs that are currently unutilized resulted in a DBD utilization rate of approximately 81%. In addition, the results of the OCS Heart DCD commercial activities in Europe and Australia have resulted in a utilization rate of approximately 80% of DCD donor hearts. Applying this 81% utilization rate to DBD donor hearts and 80% utilization rate to DCD donor hearts implies a total addressable opportunity of approximately $2.5 billion annually, of which approximately $260 million represents currently transplantable hearts, approximately $480 million represents improved utilization of DBD donors and the remaining approximately $1.7 billion represents utilization of DCD donors. Estimated Addressable Heart Opportunity United States, Canada, European Union, Australia Liver Opportunity Only 16,700 donor livers are utilized annually for transplantation in our key geographies, resulting in approximately 50,300 organs, comprised of 3,300 from potential DBD donors and 47,000 from potential DCD donors, going unutilized each year due to the limitations of cold storage. To support an FDA PMA for the OCS Liver, we have completed a pivotal trial, OCS Liver PROTECT, to preserve and assess donor livers from both DBD and DCD donors. The results of the OCS Liver PROTECT Trial demonstrated that the OCS Liver resulted in approximately 98% utilization of DBD and DCD donor livers. Final results from the OCS Liver European REVIVE Trial demonstrated that the OCS Liver resulted in approximately 100% utilization of DBD and DCD donor livers. Applying this 100% utilization rate implies a total potential addressable opportunity of approximately $3.0 billion annually, of which approximately $750 million represents currently transplantable livers, approximately $150 million represents improved utilization of DBD donors and the remaining approximately $2.1 billion represents utilization of DCD donors. 10 Estimated Addressable Liver Opportunity United States, Canada, European Union, Australia Our Technology and Solution We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. The OCS was designed to perfuse donor organs with warm, oxygenated and nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. 11 The OCS Technology Platform We developed the OCS, the first and only multi-organ platform, to leverage proprietary core technologies across multiple organs. For each OCS product, we supplement the platform with organ-specific, customized and proprietary technologies. To date, we have developed three OCS products, one for each of lung, heart and liver transplantation. OCS products for additional organs, including kidneys, are under development. Each OCS product consists of three primary components customized for each organ: • OCS Console: The OCS Console is a highly portable electromechanical medical device that houses and controls the function of the OCS and is designed to fit in the current workflow for organ transplantation. • OCS Perfusion Set: The OCS Perfusion Set is a sterile, biocompatible single-use disposable set that stores the organ and circulates blood. The OCS Perfusion Set includes all accessories needed to place the organ on the system. • OCS Solutions: The OCS Solutions are a set of nutrient-enriched solutions used with blood to replenish depleted nutrients and hormones needed to optimize the organ’s condition outside of the human body. The OCS technology platform is equipped with the following core technologies that we designed to comprehensively address the limitations of cold storage and improve transplant outcomes: • proprietary pulsatile blood pump to simulate beating heart perfusion in organs outside of the human body; • proprietary software-controlled titanium blood warmer to maintain blood at body temperature while maximizing portability; • gas exchanger to maintain organ oxygenation outside of the human body; • customized hemodynamics sensors to monitor and assess organ function outside of the human body; • proprietary software-controlled, miniaturized, electromechanical system with universal power supply and hot-swappable batteries to maximize portability and travel distance for organ retrieval; • proprietary wireless monitor and control software to provide an intuitive user interface for monitoring critical organ function; and • customized carbon fiber OCS console structure to reduce the overall weight of the system and maximize portability. 12 For each organ product, the OCS core technologies are supplemented with additional customized and proprietary organ-specific features to meet each organ’s requirements. The following table summarizes the key features of our current commercial products. OCS Lung OCS Heart OCS Liver Console Perfusion set / Solution Regulatory status FDA—PMA approved for donor lungs currently utilized and currently unutilized for transplantation FDA—Pivotal trial enrollment completed for currently utilized and unutilized DBD donor hearts; PMA application submitted in December 2018. Expect FDA Advisory Committee meeting on April 6, 2021. Pivotal trial enrollment completed for DCD hearts. Expect PMA for DCD hearts to be submitted in 2021. FDA—Pivotal trial completed enrollment in October 2019. PMA submitted in June 2020 and currently under review. Expect FDA Advisory Committee meeting in 2021. CE Marked for console, perfusion set and solutions CE Marked for console, perfusion set and solutions CE Marked for console, perfusion set Key features Proprietary and customized ventilation circuit and method allows the lung to breathe outside of the human body, while maximizing portability Proprietary organ chamber maintains critical valve heart function with embedded EKG sensors to monitor heart viability during preservation Proprietary perfusion circuit enables physiologic dual blood supply of the liver using a single pump and a bile collection system assesses liver function during organ preservation Customized cannulation enables the lung to be maintained and assessed using standard clinical diagnostics Proprietary automated solution delivery system optimizes condition of the heart perfusion during preservation Proprietary automated solution delivery optimizes condition of the liver perfusion during preservation Proprietary nutrient-rich, lung-specific solution improves lung condition from negative effects of brain death Proprietary nutrient- and hormone-rich physiologic solutions replenish and optimize the heart with depleted nutrients Customized OCS bile salt solution replenishes the liver to continue to produce bile 13 Key Advantages of the OCS Platform We believe the OCS platform provides significant benefits relative to cold storage. Improved Clinical Outcomes Use of the OCS has demonstrated a substantial reduction in injurious ischemic time in all of our clinical trials. The results of our OCS Lung INSPIRE Trial, which compared the use of the OCS Lung to cold storage, demonstrated a statistically significant reduction of approximately two hours in the amount of time the organ went without oxygenation, or ischemic time. These results were achieved while allowing for an average of 1.5 incremental hours between donor and recipient. This decrease in injurious ischemic time resulted in an approximately 50% reduction relative to cold storage in the most common and severe form of lung transplant complication called primary graft dysfunction grade 3, or PGD3. PGD3 is a dangerous and costly complication as patients with it typically experience longer time on mechanical ventilation and in the intensive care unit, as well as potential long-term negative consequences. We believe these results are consistent with those of our other clinical trials and will support adoption of the OCS. Use of OCS Lung Significantly Reduced Incidence of PGD3 In Lung Transplant Recipients—INSPIRE Trial Results Increased Donor Organ Utilization In our OCS Lung EXPAND Trial, we evaluated the use of the OCS Lung for donor organs from both DBD and DCD donors that would not otherwise have been utilized, and in the OCS Heart EXPAND Trial, we evaluated the use of the OCS Heart for donor organs from DBD donors that would not otherwise have been utilized. The lungs and hearts that were transplanted in these studies were rejected an average of 35 and 66 times, respectively, by other institutions using cold storage due to a variety of clinical and logistical reasons that may have included donor organ quality, donor age, expected injurious ischemic time or travel distance, or type of donor. In these trials, the use of the OCS resulted in an 87% utilization rate of DBD and DCD donor lungs and an 81% utilization rate of DBD donor hearts that otherwise would have been unutilized. The results of these trials support our belief that the OCS can significantly expand the number of organs that can be transplanted and better serve the large population of patients who need an organ transplant to survive. OCS Lung EXPAND Trial Utilization Results OCS Heart EXPAND Trial Utilization Results 14 Benefits of the OCS Platform for Key Stakeholders We believe the OCS platform provides significant benefits to key constituents across the transplant continuum. Value to Patients We believe the OCS increases patients’ access to what we believe is the best treatment option for end-stage organ failure, which results in improved quality of life and longer life expectancy. In addition, we believe improved clinical outcomes from use of the OCS will allow patients to recover more quickly following a transplant. Value to Providers We believe the OCS allows providers to improve clinical outcomes and increase the number of patients who receive organ transplants. Improvements in clinical outcomes could enable providers to meet the Centers for Medicare & Medicaid Services, or CMS, post-transplant survival metrics required for reimbursement coverage and improve the overall financial profile of their transplant programs. In addition, we believe the increase in transplant volumes enabled by the OCS will help providers achieve “Center of Excellence” designations with payors and thus drive significant revenue growth for their transplant programs. Value to Payors We believe organ transplantation is a cost-effective treatment for end-stage organ failure as it provides the longest life expectancy, and better quality of life, compared to other treatments like mechanical support or medical therapy. We believe the OCS will enable payors to benefit from these favorable health economics and limit their exposure to the high cost of severe post-transplantation complications and extended hospital stays. Our Strategy We are committed to our goal of transforming organ transplantation with our OCS platform by establishing the OCS as the standard of care for solid organ transplantation, increasing the utilization of donor organs and improving clinical outcomes. The key elements of our strategy are: • Target and drive deeper adoption of the OCS at leading transplant institutions. We are focused on driving adoption at leading, high volume transplant programs where we have established strong relationships during our clinical trials. We believe we are well-positioned to leverage these centers’ familiarity with the value of the OCS to increase the number of transplants they perform and increase our penetration of their case volumes. • Grow our National OCS Program, a turnkey organ retrieval and OCS perfusion service to overcome logistical hurdles and deliver better clinical outcomes. We have initiated a service program that leverages our clinical and logistical capabilities to provide access to and use of the OCS for transplant centers in certain regions of the United States. We believe we could become a national clinical service provider of organ retrieval and perfusion service to transplant centers throughout the United States. We believe this program has the potential to accelerate adoption of the OCS, maximize utilization of donor organs for transplantation and, by standardizing the quality of use of the OCS, deliver better clinical outcomes. • Expand the existing pool of utilizable donor organs by securing additional FDA PMA supplements and new PMAs for expanded indications. We secured our first PMA approval for the OCS Lung in March 2018 and our second PMA approval for the OCS Lung in May 2019. We have submitted additional PMA applications for the OCS Heart and OCS Liver. • Continue to build clinical evidence in the pre- and post-market settings to substantiate the benefits of the OCS and expand clinical transplant indications. Surgeons affiliated with leading academic transplant centers rely primarily on clinical evidence to drive changes in their practice. We have developed a substantial body of clinical evidence to support our PMA applications, potential PMA applications and other regulatory approvals for the use of the OCS technology in the field of organ transplantation. We plan to expand this body of clinical evidence in the pre- and post-market settings, for example with our ongoing post-market Thoracic Organ Perfusion Registry. 15 • Develop the next generation OCS technology platform to improve user experience and facilitate our National OCS Program. We have initiated the development of the next generation multi-organ platform to improve the usability, incorporate new technology and automation, and facilitate the use of OCS in our n ational OCS p rogram. • Leverage the established commercial reimbursement process and billing mechanisms to accelerate U.S. commercial traction. Medicare and private payors provided reimbursement for the OCS Lung, OCS Heart and OCS Liver during our U.S. pivotal trials using existing commercial billing and reimbursement processes for organ transplant procedures and have provided reimbursement for the OCS Lung following our first FDA approval in March 2018. We believe these established methods will continue to facilitate commercial reimbursement for the OCS Lung and, if they are approved by the FDA, for the OCS Heart and OCS Liver. We are in the process of seeking long-term reimbursement for our OCS products in several other countries. Commercialization Strategy & Business Model Organ Transplant Opportunity Characteristics The majority of transplant procedures are performed at a relatively small number of hospitals that have specialized organ transplant centers. For example, we estimate that approximately 50 to 55 transplant centers in the United States perform over 70% of the lung, heart and liver transplant volume. Furthermore, there is a high degree of overlap within each center. For example, the top 30 U.S. lung transplant centers, which were responsible for 77% of the total adult lung transplant volume in 2017, also performed a significant portion of heart and liver transplants. The field of organ transplantation is driven by leading clinical academic institutions. The lead transplant surgeon at each of these institutions is often the primary decision-maker on most aspects of the transplant program, including preservation technology, threshold for accepting donor organs and travel distance for accepting organs. Unlike other specialties for which hospital administrators are more likely to exercise control over purchasing decisions, lead transplant surgeons are typically the primary purchasing decision-makers for new transplant technologies. To effect these changes in their programs, lead transplant surgeons rely primarily on clinical evidence and are focused on the following major factors: • Improving post-transplant clinical outcomes in order to: • enhance patients’ quality of life, • meet CMS post-transplant survival metrics required for reimbursement coverage, and • support the financial health of programs; and • Increasing the volume of organ transplantation in order to: • facilitate more patients receiving an organ transplant, • achieve “Center of Excellence” designation with payors, and • drive revenue growth. Our Commercial Strategy In light of these dynamics, we designed our commercialization strategy to drive adoption of the OCS at the leading, large-volume academic transplant institutions that were involved with the OCS trials as well as to expand our presence to new centers. We believe our substantial body of clinical evidence has demonstrated the potential benefits of the OCS and we are also focused on continuing to increase our clinical evidence in the post-market setting to maintain a high level of engagement with transplant program directors and enable further penetration of the OCS at transplant programs. We believe the concentrated nature of organ transplant activity in the United States and the reputation we established during our clinical trials will enable us to rely on a focused commercial team. The sales and clinical adoption team sells our OCS products and provides clinical education for their use in leading academic transplant centers in our key geographies during our clinical trials and commercially where our OCS products are approved. In addition, our team targets new leading transplant centers to expand our user base. We believe the team has established deep knowledge and credibility with our clinical users and customers. We believe the close relationship between transplant surgeons and our team provides us with unparalleled customer access that should enable us to further penetrate these transplant centers. 16 In addition, we have initiated a n ational OCS p rogram, which allows us to partner with transplant centers and organ procurement organizations to provide logistical and perfusion solutions to reduce inefficient burdens on both organizations. We believe this program has the potential to accelerate the adoption of the OCS technology throughout the United States. Business Model Our business model is characterized by a high level of recurring revenue, which is derived primarily from sales of our single-use OCS Perfusion Sets and OCS Solutions, which we refer to collectively as a disposable set, that are required for each transplant using the OCS. Each OCS product is comprised of three components: the OCS Console, the OCS Perfusion Set and the OCS Solutions. The OCS Console is either purchased by or loaned to a transplant program depending on individual center arrangements. Given the independent buying power of each transplant program within an institution, as well as the unique organ-specific characteristics of each OCS product, a multi-organ transplant center will require at least one OCS Console for each organ transplant program within the same center. For example, there are several centers that use both the OCS Lung and OCS Heart and centers that use all three of the OCS Lung, OCS Heart and OCS Liver. Our recurring revenue stream is derived primarily from sales of our single-use OCS disposable sets. In light of the unscheduled nature of transplant procedures, our users replenish OCS disposable sets to maintain a minimum stock of three to five units per OCS product, on average. We generate a significant amount of our net revenue from a limited number of customers. For the fiscal year ended December 31, 2020, Massachusetts General Hospital accounted for 14% of our net revenue and Duke University accounted for 10% of our net revenue. We expect that sales to relatively few customers will continue to account for a significant percentage of our net revenue in future periods. See “Item 1A. Risk Factors—Risks Related to Research and Commercialization—We depend on a limited number of customers for a significant portion of our net revenue and the loss of, or a significant shortfall in demand from, these customers could have a material adverse effect on our financial condition and results of operations” in this Annual Report on Form 10-K Reimbursement Medicare’s reimbursement for organ transplant procedures is well-established and involves two payment mechanisms. The first is the inpatient hospital prospective payment system, which reimburses the transplant hospital for operating costs incurred during the inpatient stay in which the transplant procedure is performed. The payment for this stay is determined by the Medicare Severity-Diagnosis Related Group, or MS-DRG, into which the case is assigned. The second mechanism involves a separate payment, in addition to the MS-DRG-based payment, for organ acquisition costs, which include organ preservation and transportation costs. Medicare reimburses hospitals for allowable organ acquisition costs on a reasonable cost basis. The OCS is reimbursed under this second mechanism. For Medicaid transplant recipients, reimbursement to a transplant hospital for the incurred cost of the OCS is determined based on the applicable state Medicaid program. Some states establish a global payment for the transplant and organ acquisition costs, and some states have separate payments for the inpatient stay based on the MS-DRG system and for organ acquisition costs. Private insurers typically have agreements as to how they reimburse for the transplant costs and the organ acquisition costs, which may be through a global payment for both, or a payment for the transplant and a separate mechanism for paying for organ acquisition costs. Nearly half of U.S. lung, heart and liver transplants are covered under the Medicare and Medicaid programs, with the remainder being reimbursed through private payors. Data from the 2017 Milliman U.S. Organ and Tissue Transplant research report estimates the average billed charges per organ transplant, including costs billed to organ acquisition costs. The report estimates that in the United States the overall billed charges for a double-lung transplant are approximately $1.2 million, of which only approximately $130,000 is associated with organ acquisition; overall billed charges for a heart transplant are approximately $1.4 million, of which only approximately $100,000 is associated with organ acquisition; and overall billed charges for a liver transplant are approximately $800,000, of which only approximately $95,000 is associated with organ acquisition. Medicare and private payors provided reimbursement for the OCS Lung, OCS Heart and OCS Liver during the U.S. pivotal trials and have provided reimbursement for the OCS Lung following our first FDA approval in March 2018. This has established multiple years of billing precedent. We believe these established methods will continue to facilitate commercial reimbursement for the OCS Lung and, if they are approved by the FDA, for the OCS Heart and OCS Liver. Reimbursement outside of the United States follows a similar overall structure; however, reimbursement decisions are required in each individual country and may require national health systems to review and approve OCS reimbursement for each organ-specific product. Currently, national healthcare systems do not reimburse transplant centers for the use of the OCS and reimbursement in international markets may require us to undertake additional clinical studies. However, international hospitals using the OCS currently pay for the OCS from their hospital budget or charitable funds. We are in the process of seeking long-term reimbursement for our OCS products in several jurisdictions. 17 Clinical Evidence The lead transplant surgeons at transplant centers are clinically focused and rely primarily on clinical evidence to drive changes in their practice of organ transplantation. We have developed a substantial body of global clinical evidence to support our PMA applications, potential PMA applications and other regulatory approvals for the OCS for lung, heart and liver transplantation. Many of these clinical trials and studies have been published in peer-reviewed clinical journals and several additional studies are ongoing. Our clinical trials have evaluated the use of the OCS for transplantation of organs that meet the current criteria for organ transplantation, as well as organs that would otherwise go unutilized from DBD and DCD donors. We believe the results of our clinical trials across lung, heart and liver transplantation may support the potential of the OCS in improving clinical outcomes and increasing utilization of available donor organs. OCS Lung Clinical Trials Below is a summary of our key clinical trials evaluating the OCS Lung. OCS Lung INSPIRE Trial For Current Lung Transplants OCS Lung EXPAND Trial For Currently Unutilized DBD and DCD Donor Lungs FDA Status PMA approved in March 2018 PMA approved in May 2019 Objectives International pivotal trial for FDA approval and market access for current lung transplant market Compare OCS Lung clinical outcomes to cold storage International pivotal trial for FDA approval and market access for currently unutilized DBD and DCD donors Single arm trial to assess the ability of the OCS to improve donor lung utilization from currently unutilized DBD and DCD donors Number of Patients 320 patients in pre-specified cohort and 29 additional patients as administrative extension 79 patients Length of Follow-up 24 months post-transplantation 12 months post-transplantation Number of Centers 21 international centers 8 international centers Summary Outcomes Met primary effectiveness and safety endpoints Demonstrated significant reduction of most severe and common form of post-lung transplant complication, PGD3, compared to cold storage controls Demonstrated significant reduction of injurious ischemic time on donor lungs compared to cold storage controls Did not meet the primary effectiveness endpoint Demonstrated significant increase in donor lung utilization from currently unutilized DBD and DCD donors to 87% utilization Demonstrated good patient survival at one year post-transplantation, comparable to current standard lung transplant outcomes Demonstrated substantial reduction of PGD3 in unutilized DBD and DCD donors, when compared to other published results of similar trials Publication Status Warnecke et al., Lancet Respiratory Medicine, April 2018 Loor et al., Lancet Respiratory Medicine, August 2019 18 Summary Overview of OCS Lung INSPIRE Trial & Results We sponsored the OCS Lung INSPIRE Trial, a randomized, controlled, multi-center study, at 21 leading global academic lung transplant centers. The objective of the OCS Lung INSPIRE Trial was to compare the safety and effectiveness of the OCS Lung to cold storage preservation for lung transplants. The trial inclusion criteria focused on current standard lung transplant donor lung criteria. The trial enrolled 349 patients in total, of which 320 lung transplant recipients were randomized between OCS Lung perfusion and cold storage control. Twenty-nine additional patients were added as an administrative extension. The OCS Lung INSPIRE Trial protocol allowed donor lungs to be perfused on the OCS Lung device with either OCS Lung Solution or a commercial low potassium dextran, or LPD, solution, both supplemented with packed red blood cells. In addition to comparing the outcomes of all transplants performed with the OCS, our results included a subgroup analysis of the transplants that also used the OCS Solutions. We believe this subgroup is the most clinically relevant given it is the product approved by the FDA for exclusive use in the OCS Lung. PGD is a form of acute lung injury that is a common and serious complication after lung transplantation. The most severe form of PGD, PGD3, has been shown to be positively correlated with poor short- and long-term transplant outcomes. Generally, in lung transplant procedures, PGD3 is assessed at four distinct timepoints: within a few hours of the transplantation, and at 24 hours, 48 hours and 72 hours following the transplantation. In the OCS Lung INSPIRE Trial, we assessed the incidence of PGD at the same four timepoints during the initial 72 hours following the transplantation. Summary results of the OCS Lung INSPIRE Trial include: • Significant Reduction of Injurious Ischemic Time on Donor Lungs : OCS Lung significantly reduced the injurious ischemic time on donor lungs, while permitting the organ to remain out of the body for a significantly longer time compared to cold storage. These clinically significant results marked the first time in organ transplant history that a preservation technology demonstrated the ability to reduce the injurious ischemic time on the donated lung, regardless of the travel distance. 19 • Significant Reduction of PGD3 Post-Lung Transplantation: The OCS Lung also significantly reduced PGD3, the most severe and common clinical complication resulting from lung transplantation. PGD3 has been associated with poor short- and long-term outcomes following lung transplantation. We believe the OCS is the only technology or therapy that has demonstrated a significant reduction in this common and severe short-term complication in lung transplantation. Incidence of PGD3 in the per-protocol analysis OCS=Organ Care System; LPD=low potassium dextran; *Superiority test Summary Overview of OCS Lung EXPAND Trial & Results We sponsored the OCS Lung EXPAND Trial, a single arm, multi-center U.S. FDA pivotal trial in eight leading global academic lung transplant centers. The objective of the OCS Lung EXPAND Trial was to demonstrate the ability of the OCS Lung to improve donor lung utilization from currently unutilized DBD and DCD donors and to demonstrate reasonable assurance of effectiveness and safety required for U.S. FDA approval for this indication. The trial inclusion criteria focused on currently unutilized DBD and DCD donor lungs and enrolled 79 lung transplant recipients with donor lungs that would otherwise have been unutilized. In fact, data obtained from the U.S. United Network for Organ Sharing, or UNOS, demonstrated that the U.S. donor lungs used for the OCS Lung EXPAND Trial had been declined for transplantation on average 35 times by other transplant centers before reaching a center participating in the OCS Lung EXPAND Trial due to a variety of clinical and logistical reasons, including donor organ quality, donor age, expected injurious ischemic time or travel distance, or type of donor. The primary effectiveness endpoint in the OCS Lung EXPAND Trial was a composite of patient survival at day 30 post-transplantation and freedom from PGD3 within the initial 72-hour period post-transplantation. The results of the OCS Lung EXPAND Trial did not meet the pre-specified performance goal that 65% of transplants meet the composite endpoint. The key clinical driver for missing the primary endpoint was the 44.3% rate of PGD3 within the initial 72-hour period post-transplantation due to the challenging nature of the donor lung criteria included in the OCS Lung EXPAND Trial. However, patient survival at day 30 post-transplantation was 98.7%. The primary endpoint of the OCS Lung EXPAND trial was established prior to the initiation of the study and was based on the only published data available for PGD3 within the initial 72-hour period post-transplantation, which reflected data from currently utilized donor lungs. Several recently published studies have demonstrated higher rates of PGD3 within the initial 72-hour period post-transplantation when using donor lungs from currently unutilized DBD and DCD donors. We performed a comparative benchmark analysis against these studies with the results of the OCS Lung EXPAND Trial. Although the analysis was not a head-to-head comparison and thus is not definitive evidence of efficacy, the OCS Lung resulted in significantly lower rates of PGD3 within the initial 72-hour period post-transplantation as compared to similar donor cohorts. 20 Summary results of the OCS Lung EXPAND Trial include: • Observed 87% Utilization Rate for Lung Transplantation Using OCS Lung: The OCS Lung EXPAND Trial included several clinical criteria that would typically result in the rejection of lungs from DBD donors, including donor age above 55 years old, lung oxygenation function assessed by fraction oxygenation index, or PaO2/FiO2, below 300 mmHg and injurious ischemic time greater than six hours. In addition, the trial included DCD donor organs that are seldom utilized for transplantation today. Use of the OCS Lung resulted in successful utilization of 87% of these donor lungs that had been rejected for transplantation by other transplant centers using cold storage. The figure below demonstrates the donor lung criteria and observed rates of successful transplantation in the OCS Lung EXPAND Trial. OCS Lung EXPAND Trial Donors Inclusion Criteria OCS Lung EXPAND Trial Utilization Result • The OCS Lung Resulted in Good Short- and Long-Term Patient Survival at One Year and Two Years Post-Lung Transplantation: As indicated in the figure below, the 30-day, 6-month, one-year and two-year survival of patients in the OCS Lung EXPAND Trial was good and compared favorably to the survival rates of patients receiving donor lungs in our OCS Lung INSPIRE Trial as well as to U.S. national averages post-transplantation. 21 OCS Lung Thoracic Organ Perfusion Post-Approval Study Registry As a condition of approval for our OCS Lung PMA, we are conducting a post-approval study known as the OCS Lung Thoracic Organ Perfusion Post-Approval Study Registry, or TOP Registry. The TOP Registry will evaluate the short- and long-term safety and effectiveness of the OCS Lung for lung transplantation in a real-world environment. This registry will enroll all consenting patients who receive preserved double-lung transplants using the OCS Lung. Upon approval of the PMA for the OCS Lung for use with currently unutilized donor lungs, the TOP Registry was expanded to include patients from both OCS Lung indications. There are two analysis populations: one that includes 289 double lung transplant recipients with currently utilized donor lungs preserved on the OCS Lung and a second that includes 266 double lung transplant recipients with currently unutilized donor lungs preserved on the OCS Lung. The primary effectiveness endpoint is 12-month patient and graft survival post double-lung transplant. The safety endpoints are the number of lung graft-related serious adverse events through the longer of 30 days post-transplantation or initial hospital stay per patient, survival rate at 30 days post-transplantation and survival rate through initial transplant surgery hospital stay, if longer than 30 days. Enrollment began in the fourth quarter of 2018, and we had enrolled 144 patients as of February 28, 2021. OCS Heart Clinical Trials Below is a summary of our key clinical trials evaluating the OCS Heart. OCS Heart PROCEED II Trial in Current Donor Hearts OCS Heart EXPAND Trial and OCS Heart EXPAND CAP for Currently Unutilized DBD Donors OCS Heart DCD Trial and OCS Heart DCD CAP FDA Status PMA submission in December 2018 Expect PMA submission in 2021 Objectives International pivotal trial for FDA approval and market access for current heart transplant market Compare OCS Heart clinical outcomes to cold storage and demonstrate non-inferiority of OCS Heart clinical outcomes to cold storage control U.S. pivotal trial for FDA approval and market access for currently unutilized DBD donors Single arm trial to assess the ability of the OCS to improve donor heart utilization from currently unutilized DBD donors Continued Access Protocol (CAP) to allow access to the OCS Heart System for the same currently unutilized DBD donors while PMA is under review U.S. pivotal trial for FDA approval and market access for DCD donors. Prior to this trial DCD hearts were never utilized for transplant Randomized trial vs. standard hearts transplanted with ice Number of Patients 128 patients 150 patients 270 patients Length of Follow-up 30 days post-transplantation 12 months post-transplantation 12 months post-transplantation Number of Centers 10 U.S. and international centers 9 U.S. centers 25 U.S. centers 22 OCS Heart PROCEED II Trial in Current Donor Hearts OCS Heart EXPAND Trial and OCS Heart EXPAND CAP for Currently Unutilized DBD Donors OCS Heart DCD Trial and OCS Heart DCD CAP Summary Outcomes Met primary effectiveness and safety endpoints Demonstrated significant reduction of injurious ischemic time on donor hearts compared to cold storage controls In a post-hoc observational analysis of all-cause mortality, through 60 months post-transplant, graft-related deaths in the OCS group were similar to the number in the standard of care group, but overall deaths were higher in the OCS group. Met the primary effectiveness endpoint of 30-day patient survival and freedom from severe PGD within 24 hours post-transplant Demonstrated significant increase in donor heart utilization from currently unutilized DBD donors to 81% to 84% utilization Demonstrated good patient survival at 6 months and 12 months post-transplantation Low incidence of severe left ventricular or right ventricular PGD Results to be reported in 2021 Publication Status Pre-specified trial results published in Ardehali et al., The Lancet Journal, April 2015 Pre-publication Pre-publication The OCS Heart PROCEED II Trial was the first FDA trial for machine perfusion technologies for solid organ transplantation and helped identify several trial design and device technology implementation opportunities. These opportunities were addressed in the modified design of the OCS Heart and the design of the OCS Heart EXPAND Trial. As a result, we voluntarily withdrew our original PMA application for the OCS Heart prior to approval in an effort to expand our data to include OCS Heart EXPAND Trial results as well as supplement our OCS Heart PROCEED II Trial results with long-term follow-up data that was not collected as part of the original trial protocol. Summary Overview of OCS Heart PROCEED II Trial & Results We sponsored the OCS Heart PROCEED II Trial, a randomized, controlled, multi-center study at 10 leading global academic heart transplant centers. The purpose of this trial was to demonstrate non-inferiority of the OCS Heart compared to cold storage. The trial inclusion criteria focused on current routine donor heart transplant criteria and the trial enrolled 128 heart transplant recipients randomized between the OCS Heart and the control arm, which used cold storage. Summary results of the OCS Heart PROCEED II Trial include: • Met Primary Effectiveness Endpoint of Patient Survival at Day 30 post-Heart Transplantation: The OCS met the primary effectiveness endpoint in all analysis populations, demonstrating a greater than 90% survival rate at day 30 post-transplantation. These survival rates were not statistically different from those of the control arm, which potentially support that the OCS is effective in preserving donor hearts for transplantation. • Met Principal Safety Endpoint of Cardiac-Graft Related Serious Adverse Events Relative to the Control Arm: The OCS Heart PROCEED II Trial met the secondary endpoint of cardiac-graft related serious adverse events, with no statistically significant difference relative to the control arm. These results support the safety of the OCS Heart for donor heart preservation. 23 Summary Overview of OCS Heart EXPAND Trial & Results We sponsored the OCS Heart EXPAND Trial, a single arm, multi-center U.S. FDA pivotal trial at nine leading academic U.S. heart transplant centers. The objective of the OCS Heart EXPAND Trial was to demonstrate the ability of the OCS Heart to improve donor heart utilization from currently unutilized DBD donors and to demonstrate reasonable assurance of effectiveness and safety required for U.S. FDA approval for this indication. The trial inclusion criteria focused on currently unutilized DBD donor hearts and enrolled 75 heart transplant recipients with donor hearts that would otherwise have been unutilized from DBD donors. In fact, data obtained from UNOS demonstrated that U.S. donor hearts used for the OCS Heart EXPAND Trial had been declined for transplantation an average of 66 times by other transplant centers before reaching a center participating in the OCS Heart EXPAND Trial due to variety of clinical and logistical reasons, including donor organ quality, donor age, expected injurious ischemic time or travel distance, or type of donor. After conclusion of enrollment of the OCS Heart EXPAND Trial, we began enrollment of the OCS Heart EXPAND CAP trial. A CAP trial is approved by the FDA to allow continued usage of a medical technology for those hospitals that were in the original clinical trial, using the same protocol as the original EXPAND trial. This allows patients to receive access to this critical lifesaving technology during the review of the PMA. As of February 28, 2021, we have enrolled 62 patients in the OCS Heart EXPAND CAP trial. Summary results of the OCS Heart EXPAND Trial: • Observed 81% Utilization Rate for Heart Transplantation Using OCS Heart Technology : The OCS Heart EXPAND Trial included several clinical criteria that would typically result in the rejection of hearts from DBD donors, including older donor age, lower than acceptable cardiac ejection fraction, or EF, donor with prolonged cardiac arrest/down time requiring resuscitation, donor hearts with thick left ventricle hypertrophy, or LVH, donor hearts with non-specific coronary artery disease, or CAD, and long injurious ischemic time greater than four hours. Use of the OCS Heart resulted in successful utilization of 81% of these donor hearts that had been rejected for transplantation by other transplant centers using cold storage. The figure below demonstrates the donor heart characteristics and observed rates of successful transplantation in the OCS Heart EXPAND Trial. When the patients transplanted in the OCS Heart EXPAND CAP are combined with the OCS Heart EXPAND patients, the utilization rate was 84% OCS Heart EXPAND Trial Donors Type OCS Heart EXPAND Trial Utilization Results • Good Short- and Mid-Term Patient Survival at Six Months Post-Heart Transplantation: Despite the higher risk profile associated with the donor hearts used in the OCS Heart EXPAND Trial, the trial demonstrated short- and mid-term survival rates of 94.7%, 88.0% and 83.8% at 30 days, six months and 12 months, respectively. When the results for the OCS Heart EXPAND CAP are combined with the results for the OCS Heart EXPAND Trial, the survival rates were 94.7%, 88.0% and 83.8% at 30 days, six months and 12 months, respectively. • Low Incidence of Severe Primary Graft Dysfunction: In addition to good rates of survival, patients in the OCS Heart EXPAND Trial experienced 10.7% severe left ventricular, or LV, or right ventricular, or RV, PGD. Recently published studies of standard heart transplants have demonstrated higher rates of severe LV or RV PGD. 24 We have received FDA approval for a CAP for the OCS Heart EXPAND Trial . This trial follows the same protocol as the OCS Heart EXPAND Trial and is intended to allow patient access to the OCS Heart while the OCS Heart PMA is under review. As of February 2 8 , 202 1 , we have enrolled 62 out of 75 patients in this study. OCS Heart DCD Trial In September 2020, we completed enrollment of 180 patients in the first U.S. trial of DCD hearts for transplantation. The objective of the study is to evaluate the effectiveness of the OCS Heart to resuscitate, preserve, and assess hearts donated after circulatory death for transplantation to increase the pool of donor hearts available for transplantation. The primary endpoint is a non-inferiority comparison of patient survival at 6 months post-transplant between recipients of DCD donor hearts preserved on the OCS Heart and concurrent recipients of standard criteria donor hearts preserved using cold storage, adjusting for risk factors. We have completed enrollment in this trial and have transplanted 90 patients with DCD donor hearts and 90 patients with standard of care hearts preserved on cold storage. This trial is currently in the follow-up phase and we anticipate submission of a PMA supplement for this trial in 2021. Similar to the OCS EXPAND Heart trial, once enrollment was complete, we initiated the OCS DCD Heart CAP trial. As of February 28, 2021, we have enrolled 28 patients in the OCS Heart DCD CAP trial. Summary of Key Ex-U.S. Studies Supporting OCS Heart for DCD Donors The OCS Heart is the only portable medical technology capable of resuscitating, preserving and assessing hearts from DCD donors. Outside of the United States, the OCS has been used to successfully transplant over 140 hearts from DCD donors. As such, in addition to our clinical trials that potentially support the FDA approval process for the OCS Heart, there are several scientific and clinical publications from Australia and the U.K. that may provide additional support for demonstrating the safety and efficacy of the OCS Heart in the transplantation of DCD donor hearts. A single-center observational matched cohort study in the U.K. compared the outcomes of consecutive patients who received transplants of DCD donor hearts between February 1, 2015 and March 31, 2017 to matched recipients who received transplants of DBD donor hearts between February 1, 2013 and March 31, 2017. The DCD donor hearts were transported and perfused on the OCS Heart, while the DBD hearts were preserved with cold storage. There was no difference in the protocol for implant technique or immunosuppressive regimens during this period. In this study, the use of the OCS Heart resulted in an 87% rate of successful utilization of DCD donor hearts for transplantation and resulted in one-year post-transplantation survival rates that were comparable to those of the matched DBD donor hearts that were transplanted with cold storage. This study was published in the Journal of Heart and Lung Transplantation in December 2017. Similarly, a publication by Dhital et al. in April 2015 in The Lancet Journal described the experience of using the OCS Heart to preserve DCD donor hearts at St. Vincent’s Hospital in Sydney, Australia. The DCD program at this institution began in July 2014 with all DCD donor hearts being perfused with the OCS Heart. As reported in October 2018, there had been 17 DCD donor heart transplants utilizing 71% of DCD donor hearts. Of the reported results available on 16 of the 17 patients, all 16 patients were alive and had normal biventricular function. Chew, et al. 2019 reported on the use of the OCS Heart to preserve 23 DCD donor hearts. A total of 33 DCD donor hearts were retrieved for potential transplant and of these, 23 were transplanted, yielding a utilization rate of 70%. Overall survival of these transplant recipients was 95% at each of one month, one year and two years. OCS Liver Clinical Trials Summary Overview of OCS Liver PROTECT Trial & Results In October 2019, we completed enrollment of patients in our U.S. pivotal Investigational Drug Exemption, or IDE trial, the OCS Liver PROTECT Trial, to support U.S. FDA approval and market access for the OCS Liver. The OCS Liver PROTECT Trial is a prospective, randomized trial to evaluate the effectiveness of the OCS Liver to preserve and assess donor livers intended for transplantation. This is a two-armed, multi-center, randomized, controlled pivotal trial with participants assigned to the OCS treatment arm or the control arm, which uses cold storage. Summary Results of the OCS Liver PROTECT Trial: • Observed a 98.1% utilization rate. • Lower incidence of EAD compared to control across both DBD donor and DCD donor cohorts in the trial. 25 We have received FDA approval for a CAP for the OCS Liver PROTECT Trial. This study follows the same protocol as the OCS Liver PROTECT Trial and is intended to allow patient access to the OCS Liver while the OCS Liver PMA is under preparation and review. As of February 28, 2021, we have enrolled 74 patients in this trial. Summary Overview of OCS Liver REVIVE Trial Additionally, our OCS Liver European REVIVE Trial, which was a single arm, prospective trial of 25 transplanted liver recipients, evaluated the safety and performance of the OCS Liver. The primary performance endpoint was the number of donor livers preserved by the OCS Liver in a near-physiologic state. The primary safety endpoint was the number of events directly related to the use of the OCS Liver that led to the donor liver being deemed not clinically acceptable and, consequently, not transplanted. Results from the OCS Liver European REVIVE Trial demonstrated that the OCS Liver resulted in 100% utilization of DBD and DCD donor livers. Intellectual Property Patents and Trade Secrets We rely on a combination of patent, trademark, copyright, trade secret and other intellectual property laws, nondisclosure and assignment of inventions agreements and other measures to protect our intellectual property. Our patent portfolio includes patents and patent applications that we own or license from third parties. As of December 31, 2020, our owned and licensed patent portfolio consisted of approximately 248 issued patents and pending patent applications worldwide, including in the United States, Australia, Europe, Canada, China, Israel, New Zealand and Japan. Our licensed portfolio includes one issued unexpired United States patent licensed from the Veteran’s Administration, or VA. Several other licensed U.S. and international patents expired in 2018. The issued unexpired licensed VA patent includes claims directed to portable perfusion apparatus for preserving a harvested donor organ in a viable state. Our owned portfolio includes patents and applications related to one or more of the OCS Lung, OCS Heart, OCS Liver and solutions. In the United States, our owned portfolio includes about 27 issued patents and 9 pending applications. Outside the United States, our owned portfolio includes about 161 issued patents and 51 pending applications. Issued patents in our portfolio are expected to expire between 2020 and 2036, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. If granted, the pending U.S. and foreign patent applications in our portfolio are expected to expire between 2025 and 2036, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. As of December 31, 2020, our patent portfolio relating to the OCS Lung includes a family comprised of patents and patent applications with claims that are generally directed to certain methods and systems for preserving a lung ex vivo using both perfusion and ventilation. Such patents are issued in the United States, Australia, Belgium, Canada, China, Denmark, Europe, France, Germany, Ireland, Israel, Italy, Japan, Hong Kong, Netherlands, New Zealand, Spain, Sweden, and United Kingdom, and patent applications are pending in the United States, Australia, Canada, China, Europe, Hong Kong, Israel, Japan and New Zealand. These patents, and any patents issued from pending patent applications, are expected to expire in 2029, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. As of December 31, 2020, our patent portfolio relating to the OCS Heart includes a family comprised of patents and patent applications with claims that are generally directed to certain methods and systems for preserving a heart ex vivo . Such patents are issued in the United States, Australia, Belgium, Canada, China, Denmark, Europe, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Spain, Sweden, and United Kingdom, and patent applications are pending in the United States, Australia, Canada, China, Europe, Hong Kong, Israel, Japan, and New Zealand. These patents, and any patents issued from pending patent applications, are expected to expire in 2025, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. As of December 31, 2020, our patent portfolio relating to the OCS Liver includes a family of issued and pending patent applications with claims that are generally directed to certain systems, including perfusion circuits for perfusing a liver ex vivo . Such patents are issued in the United States and Australia, and applications are pending in the United States, Australia, Canada, China, Europe, Hong Kong, Israel, Japan and New Zealand. This patent and any patents issued from pending patent applications are expected to expire in 2035, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. 26 As of December 31, 2020, our patent portfolio relating to the OCS Solutions includes a family comprised of patents and patent applications with claims that are generally directed to compositions of certain perfusion fluids. Such patents are issued in the United States, Australia, China, Israel, Japan, New Zealand and patent applications are pending in the United States, Canada, China, Europe, Hong Kong, and New Zealand. These patents, and any patents issued from pending patent applications, are expected to expire in 2025, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. The term of individual patents depends on the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest filing date of a non-provisional patent application in the applicable country. We cannot assure you that patents will be issued from any of our pending applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection for our technology. Notwithstanding the scope of the patent protection available to us, a competitor could develop methods or devices that are not covered by our patents. Furthermore, numerous U.S. and foreign issued patents and patent applications owned by third parties exist in the fields in which we are developing products. Because patent applications can take many years to issue, there may be applications unknown to us, which applications may later result in issued patents that our existing or future products or proprietary technologies may be alleged to infringe. There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. In the future, we may need to engage in litigation to enforce patents issued or licensed to us, to protect our trade secrets or know-how, to defend against claims of infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Litigation could be costly and could divert our attention from other functions and responsibilities. Adverse determinations in litigation could subject us to significant liabilities to third parties, could require us to seek licenses from third parties and could prevent us from manufacturing, selling or using the OCS, any of which could severely harm our business. For more information, see “Item 1A. Risk Factors—Risks Related to Our Intellectual Property” in this Annual Report on Form 10-K. Department of Veterans Affairs License In August 2002, we entered into a license agreement with the VA under which the VA granted us an exclusive, worldwide license under specified patents to make, use, sell and import perfusion apparatuses for our portable organ preservation systems and disposable perfusion modules for use in these apparatuses and a non-exclusive, worldwide license to make, use, sell and import solutions for use in or with those systems. Prior to September 23, 2017, our license rights under the VA patents included at least 20 issued United States and international patents and patent applications pending in the United States, Canada and Japan. Dr. Hassanein, our President and Chief Executive Officer and founder, is a co-inventor on all of these patents. During his cardiac surgery research fellowship at West Roxbury VA Medical Center prior to founding TransMedics, Dr. Hassanein performed much of the research and other work that resulted in the inventions and claims that subsequently became the subject of patents and patent applications currently held by the VA. The majority of the licensed U.S. patents expired in 2017, and the foreign patents expired in September 2018. However, we have requested patent term extension for one U.S. patent covered by the VA license agreement, U.S. Patent No. 6,100,082. We have been granted an interim patent term extension until September 23, 2021 for this patent and have requested an extension to May 2022. However, the length of the patent term extension is currently being determined by the United States Patent and Trademark Office (USPTO) based on input from the FDA. On February 8, 2021, the FDA provided to the USPTO a determined regulatory review period for the OCS Lung. Under the FDA’s analysis, the patent term extension of the ’082 patent would be until November 6, 2021. Our rights under the license agreement will continue until the expiration of the last to expire of the licensed patents, which will be the ’082 patent. Our license includes the right to grant sublicenses, subject to approval by the VA and other restrictions, and is subject to the U.S. government’s right to practice the licensed patents on its own behalf without payment of a royalty and an obligation to grant certain sublicenses as necessary to fulfill public health, welfare and safety needs. During its term, our license agreement with the VA also requires us to make our products covered by the licensed patents available to the public on reasonable terms and to provide the U.S. government such products at the lowest price. During the term, we must manufacture our products covered by the licensed patents in the United States to the extent practicable. 27 As consideration for the licenses granted by the VA, we paid a one-time five figure amount to the VA and are obligated to pay tiered royalties ranging from a low single-digit to a mid single -digit percentage on net sales of each product covered by a licensed patent (subject to a minimum aggregate royalty payment of less than $0.1 million per year during each of the first five years after the first commercial sale, after which no minimum is required). Royalties will be paid by us on a licensed product-by-licensed product and country-by-country basis, beginning on the first commercial sale of such licensed product in such country until expiration of the last valid patent claim covering such licensed product in such country. Our license agreement with the VA provides that so long as our license remains exclusive, we have the first right to amend, prosecute and maintain the licensed patents at our own expense, and, subject to prior written approval of the U.S. Department of Justice or, if required by law, jointly with the VA, the first right to enforce the licensed patents with respect to infringement relating to perfusion apparatuses. Our license agreement with the VA can be terminated by us or the VA only if the other party fails to cure its material breach within a specified period after receiving notice of such breach. Research, Development and Clinical Trial Operations Our research, development and clinical trial operations function consists of a dedicated clinical trial team that has trial management, data collection and biostatistics expertise. Our product engineering function consists of a multi-disciplinary engineering team that has electrical, mechanical, systems and software engineering expertise. Our regulatory function includes a team with both U.S. and international medical device regulatory expertise and is supported by senior FDA regulatory advisors and legal counsel. For the fiscal years ended December 31, 2020 and December 28, 2019 our research, development and clinical trials expenses were $18.8 million and $19.9 million, respectively. This team is focused on the following research, development and clinical trial activities: • expanding the body of clinical evidence supporting the use of the OCS platform through pre-market clinical trials, post-market registries and scientific publications; • improving incrementally the technology and manufacturing efficiency of our current platform; • developing the next generation OCS; and • conducting research to investigate new clinical applications and uses for the OCS platform. Competition Competition in organ preservation for transplantation can be classified into two main segments: (1) cold storage and cold perfusion technologies and (2) warm perfusion technologies. In both cold storage and cold perfusion, the organs are not functioning or metabolically inactive. The characteristics of cold storage and cold perfusion described above significantly limit donor organ utilization and are a primary driver of post-transplant complications. Supply of cold storage and cold perfusion products is fragmented with a number of companies mainly providing undifferentiated flush and perfusion solutions. Warm perfusion preservation for solid organ transplant is an emerging alternative designed to address the limitations of cold storage and cold perfusion. In warm perfusion, the organs are functioning and metabolically active. We are aware of only two other companies providing warm perfusion systems, OrganOx Limited and XVIVO Perfusion AB, both of which offer single-organ systems for the liver and lung, respectively. We believe that our principal competitive factors include: • strong clinical evidence from large trials demonstrating safety, effectiveness and clinical benefits; • regulatory approvals for broad clinical indications of use; • ease of integration into current organ retrieval workflow, including system portability across all modes of transportation; • platform capabilities designed to support multiple organ transplant programs; • brand recognition among leading transplant programs worldwide; • established clinical relationships and a core of committed clinical users; • commercial reimbursement; and • sophisticated clinical training and support program to users worldwide. 28 Manufacturing, Supply and Operations We design and assemble our OCS Consoles and disposable OCS Perfusion Sets at our facility in Andover, Massachusetts. We believe our current facility’s capacity using a single shift is sufficient to cover the next two to three years of forecast demand, and we also have the ability to increase capacity significantly with additional shifts. We manufacture our sterilized disposable OCS Perfusion Sets in a class 10,000 cleanroom. We source many of the components for the OCS Console and OCS Perfusion Sets from third-party suppliers that are required to manufacture and test them according to our specifications. We purchase some of the components of the OCS Console and OCS Perfusion Set from single-source suppliers and, in a few cases, sole-source suppliers. We source the OCS Solutions using our proprietary formulas from third-party suppliers. Fresenius is our single-source supplier of OCS Solutions for the OCS Lung and OCS Heart. Our agreement with Fresenius for the supply of OCS Lung Solution expires in April 2022 and automatically extends for subsequent periods of 24 months each, unless terminated by either party at least 12 months prior to the end of the initial term or the then-current extension term. We may also terminate this agreement with 12 months’ notice if we request that Fresenius qualifies a second manufacturing plant or qualifies a reputable third party to manufacture the OCS Lung Solution and Fresenius fails to respond to this request. Our agreement with Fresenius includes an obligation to meet certain annual minimum purchase commitments based upon rolling order forecasts that we provided to Fresenius in accordance with this agreement. Our agreement with Fresenius for the supply of OCS Heart Solution has one-year evergreen terms, terminable by either party at least 12 months prior to the end of the then-current term. Our operations team includes production and test employees, manufacturing engineers and field service technicians. REGULATION Our OCS products and our operations are subject to extensive regulation by the FDA and other federal and state authorities in the United States, as well as comparable authorities in the European Union. EU laws in relation to CE marking also apply in Norway, Lichtenstein and Iceland. EU laws in relation to Conformité Européenne marking, or CE, will apply in Switzerland and Turkey at least until May 26, 2021 due to mutual recognition agreements, and thereafter it is anticipated that a new mutual recognition agreement with Switzerland and a Customs Union with Turkey will allow application to continue, although potentially with some interruption. Our products are subject to regulation as medical devices under the Federal Food, Drug and Cosmetic Act, or FDCA, as implemented and enforced by the FDA. The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, effectiveness, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA. In addition to U.S. regulations, we are subject to a variety of regulations in the European Union and other countries, governing medical devices, clinical investigations and commercial sales and distribution of our products. Whether or not we have or are required to obtain FDA clearance or approval for a product, we will be required to obtain authorization before commencing clinical trials and to obtain marketing authorization or approval of our products under the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials or commercialize our products in those countries. The approval processes outside the European Union, although to a significant extent harmonized across the European Union, will vary from country to country and the time may be longer or shorter than that required for FDA clearance or approval. FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a PMA or issuance of a de novo classification order. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent and regulatory controls needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents. While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting a substantial equivalence determination that provides permission to commercially distribute the device. The 29 FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or a device that was reclassified from Class III to Class II or I, or another commercially available device that was cleared through the 510(k) process or that was granted marketing authorization through the De Novo classification process under section 513(f)(2) of the FDCA. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting and most implantable devices, or devices that have been found not substantially equivalent to a legally marketed Class I or Class II predicate device, are placed in Class III, requiring approval of a PMA. Pre-amendment Class III devices require a PMA only after FDA publishes a regulation calling for PMA submissions, and prior to the PMA effective date are subject to the FDA’s 510(k) premarket notification and clearance process in order to be commercially distributed. Each of our OCS products is a Class III device. We received PMA approval for the OCS Lung in March 2018 for the preservation of donor lungs currently utilized for double-lung transplantation, and we received PMA approval for the OCS Lung for preservation of donor lungs currently unutilized for double-lung transplantation in May 2019. In the future, we also hope to obtain PMA approvals for the OCS for preservation of donor hearts currently utilized and unutilized for transplantation, and donor livers currently utilized and unutilized for transplantation. PMA Pathway Class III devices require an approved PMA before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities and controls used for manufacturing, and proposed labeling. Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review generally takes one year, or even longer, from the time the PMA application is submitted to the FDA until an approval is obtained. An advisory committee of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a preapproval inspection of the applicant or its third-party manufacturers’ and/or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR and, in some cases, will audit the applicant and clinical sites as part of its Bioresearch Monitoring program. During the PMA review, the FDA assesses whether the data and information in the PMA constitute valid scientific evidence to support a determination that there is a reasonable assurance that the device is safe and effective for its intended use(s) based on the proposed labeling. Grounds for PMA denial include the lack of a showing of reasonable assurance that the device is safe or effective under the conditions of use prescribed, recommended or suggested in the proposed labeling; a finding that the methods used in, or the facilities or controls used for, the manufacture, processing, packing or installation of such device do not conform to the requirements of the QSR; or a finding that the proposed labeling is false or misleading in any particular. If none of the grounds for PMA denial identified in FDA’s laws and regulations exist, the FDA will approve the PMA. The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported a PMA or requirements to conduct additional clinical studies post-approval. The FDA may condition a PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and effectiveness data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. For our currently marketed OCS Lung, as part of the conditions of approval, we must complete three PMA post-approval studies, or PAS: the OCS Lung INSPIRE Continuation PAS, which is a two-arm observational study intended to evaluate long-term outcomes of the OCS Lung INSPIRE Trial patients, the OCS Lung EXPAND Continuation PAS, which is a single-arm study intended to evaluate long-term outcomes of the OCS Lung EXPAND Trial patients, and our TOP Registry, which is a prospective, single-arm, multi-center, observational study designed to evaluate short- and long-term safety and effectiveness of the OCS Lung for both donor lungs currently utilized and unutilized for transplantation. The OCS Lung INSPIRE Continuation PAS, the OCS Lung EXPAND Continuation PAS and the TOP Registry entail submission of regular reports to the FDA. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval. 30 Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission and approval of a PMA supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory committee. Certain other changes to an approved device require the submission and approval of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. Clinical Trials Clinical trials are almost always required to support a PMA. All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE, regulations that govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. To be approved, an IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board, or IRB. The IRB is responsible for the initial and continuing review of the study and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device to support marketing approval or clearance, or to warrant the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects. During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits or protocol violations. Currently, we are conducting, under IDEs, a Continued Access Protocol to the OCS Heart Study for the preservation of certain donor hearts that do not meet the current standard donor heart acceptance criteria for transplantation, a Continued Access Protocol to the OCS Heart DCD study for the preservation of hearts donated after circulatory death, and a Continued Access Protocol to the OCS Liver study for the preservation of currently utilized donor livers and certain donor livers that are currently unutilized for transplantation. 31 Post-market Regulation After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; • approval of a PMA supplement for certain modifications to PMA-approved devices that affect the safety or effectiveness of the device, or clearance of a new 510(k) premarket notification for modifications to 510(k) cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of the device; • medical device reporting regulations, which require that a manufacturer report to the FDA information that reasonably suggests a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • complying with the federal law and regulations requiring Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations if the FDA finds that there is a reasonable probability that the device would cause serious, adverse health consequences or death; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device. Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master record, device history file, and complaint files. As a manufacturer, our facilities, records and manufacturing processes are subject to periodic scheduled or unscheduled inspections by the FDA. Our failure to maintain compliance with the QSR or other applicable regulatory requirements (for example, if we fail to re-certify our products under the new Medical Devices Regulation in time) could result in the shutdown of, or restrictions on, our manufacturing operations and the recall or seizure of our products. The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls. The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: • warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties; • recalls, withdrawals, or administrative detention or seizure of our products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying requests for approvals of PMAs of new products or modified products; • withdrawing a PMA approval that has already been granted; • refusal to grant export or import approvals for our products; or • criminal prosecution. 32 Regulation of Medical Devices in the European Union In the European Union, our products are regulated as medical devices. Regulation of our medical devices in the European Union is harmonized such that EU countries follow the standards set out in the applicable medical devices directive (93/42/EEC). However, the competent authorities in each member state have the right to enforce the standards set out in that directive against the manufacturer selling medical devices in the member state. All medical devices placed on the market in the European Union must meet the applicable essential requirements laid down in Directive 93/42/EEC concerning medical devices, or the Medical Devices Directive. Similar to the U.S. system, medical devices are classified into one of four classes: I, IIa, IIb and III, with class I representing the lowest risk products and class III the highest risk products. The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured and packaged in a suitable manner. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment, and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is often viewed as the easiest way to satisfy the essential requirements as a practical matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement. To demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product and post-market experience in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts that relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body. Notified bodies are private entities and are authorized or licensed to perform such assessments by government authorities. The notified body must audit and examine a product’s technical dossiers and the manufacturers’ quality system. If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the European Union. Once the product has been placed on the market in the European Union, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device. The notified body has on-going audit rights and must be notified of all significant changes to the device. On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), or MDR, which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EU member states, the regulations would be directly applicable without the need for adoption of EU member state laws implementing them, in all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the European Union for medical devices and ensure a high level of safety and health while supporting innovation. While the regulatory process is essentially the same as described above, the requirements of MDR are significantly more onerous than under the EU Medical Devices Directive and requires much preparatory work by our regulatory team in advance of May 26, 2021. The increased regulation includes the following: • strengthening of the rules on placing devices on the market, by requiring more evidence substantiating safety and efficacy of the device and more detailed content in the technical documentation for each device; • requiring a structured post-market clinical follow-up program for every medical device; • necessitating more thorough post-market surveillance program, with an emphasis on active gathering and analyzing the data; • establishing explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market and new responsibilities for distributors and importers; • improving the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; 33 • setting up a central database into which manufacturers and other economic operators are required to input data with the goal of providing EU competent authorities as well as provide patients, healthcare professionals and the public with comprehensive information on products available in the European Union; and • strengthening rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market. Our regulatory function is working toward being compliant with MDR prior to May 26, 2021. Because of the permitted transition periods under MDR, each of our medical devices will require recertification prior to September 19, 2022. Clinical Investigations In order to demonstrate safety and efficacy for their medical devices, manufacturers must conduct clinical investigations in accordance with the requirements of Annex X to the Medical Devices Directive, and applicable European and International Organization for Standardization standards, as implemented or adopted in the European Union member states. Clinical trials commencing after May 26, 2021 will be regulated under the more onerous provisions of MDR. Clinical investigations for medical devices cannot proceed without a positive opinion of an ethics committee and approval by or notification to the national regulatory authorities. Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report. Post-marketing Requirements In the European Union, we are currently required to comply with strict post-marketing obligations that accompany the affixing of the CE Mark to medical devices and which will be even stricter beginning on May 26, 2021. These include the obligation to report serious adverse events within a specified time period and to provide periodic safety reports and updates. Serious adverse events will, in the future, have to also be reported via the EU database, which will enable EU competent authorities to be alerted more quickly and across the whole of the EU and will enable the competent authorities to act more in concert than is currently the case. Authorities in the European Union also closely monitor the marketing programs implemented by device companies. The obligations that companies must fulfill concerning premarketing approval of promotional material vary among member states of the European Union as advertising and promotion law is not harmonized in the European Union. New Developments: Brexit Our notified body, BSI, previously issued from its U.K. entity the certificates which allow CE marking of the OCS products. Following the U.K.’s withdrawal from the European Union, certificates issued by U.K. notified bodies will no longer be recognized. Our notified body is based in the Netherlands and issues the certificates that allow CE marking of the OCS products. In addition, we have engaged with a new Authorized Representative covering both the U.K. as well as Europe in separate arrangements in compliance with both region regulations. Regulations Applicable to Transport of Organs Intended for Transplantation In the European Union, the Directive 2010/53/EU (formerly Directive 2010/45/EU) sets out certain standards which the EU member states should apply in respect of procurement, preservation and transport of organs intended for transplantation. While we are not directly affected by this directive, our EU customers are, and our products may either help or impede their compliance with this Directive. 34 Regulation in Other Countries We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of: • design, development, manufacturing and testing (including with respect to significant changes to the products); • product standards; • product safety; • product safety reporting; • marketing, sales and distribution; • packaging and storage requirements; • labeling requirements; • content and language of instructions for use; • clinical trials; • record keeping procedures; • advertising and promotion; • recalls and field corrective actions; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; • import and export restrictions; • tariff regulations, duties and tax requirements; • registration for reimbursement, agreement of prices with government; and • necessity of testing performed in country by distributors for licensees. The time required to obtain clearance by foreign countries may be longer or shorter than that for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements. Adverse events and potential adverse events are monitored closely by regulatory authorities. For example, if, as a result of manufacturing error, the efficacy of our products does not meet the standards claimed in the accompanying instructions for use, regulatory authorities could prevent our products from being placed on the market in the European Union. Internationally, the approaches to product defects will vary. A product may be recalled in one country but not in others. However, within the European Union, competent authorities share adverse event information and cooperate with each other and a recall in one EU member state is more likely to lead to recalls in the rest of the European Union. Federal, State and Foreign Fraud and Abuse and Physician Payment Transparency Laws In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal, state, international laws, as well as laws with extra-territorial effect and market practices restrict our business practices. These laws include, without limitation, U.S. and foreign laws intended to prohibit or otherwise regulate activities that might result in fraud, abuse and bribery. U.S. Laws U.S. federal healthcare fraud and abuse laws generally apply to our activities because our products are covered under federal healthcare programs such as Medicare and Medicaid. The principal U.S. federal healthcare fraud and abuse laws applicable to us and our activities include: (1) the Anti-Kickback Statute, which prohibits the knowing and willful offer, solicitation, payment or receipt of anything of value in order to generate business reimbursable by a federal healthcare program; (2) the False Claims Act, which prohibits the submission of false or otherwise improper claims for payment to a federally-funded healthcare program, including claims resulting from a violation of the Anti-Kickback Statute; and (3) healthcare fraud statutes that prohibit false statements and improper claims to any third-party payor. There are also similar state anti-kickback and false claims laws that apply to activities involving state-funded Medicaid and other healthcare programs as well as to private third-party payers. 35 The Anti-Kickback Statute is particularly relevant because of its broad applicability. Specifically, the Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for, or to induce, either the referral of an individual, or the furnishing, arranging for or recommending a good or service for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Almost any financial interaction with a healthcare provider, patient or customer will implicate the Anti-Kickback Statute. Statutory exceptions and regulatory safe harbors protect certain interactions if specific requirements are met. Only those interactions that represent fair market value exchanges, however, are generally protected by an exception or safe harbor. The government can exercise enforcement discretion in taking action against unprotected activities. Many interactions in which we commonly engage, such as the provision of business courtesies to healthcare practitioners, could implicate the Anti-Kickback Statute and may not be protected by an exception or safe harbor. If the government determines that these activities are abusive, we could be subject to enforcement action. Penalties for Anti-Kickback Statute violations may include both criminal penalties such as imprisonment and civil sanctions such as fines and possible exclusion from Medicare, Medicaid, and other federal healthcare programs. Exclusion would mean that our products were no longer eligible for reimbursement under federal healthcare programs. Laws and regulations have also been enacted by the federal government and various states to regulate the sales and marketing practices of medical device and pharmaceutical manufacturers. The laws and regulations generally limit financial interactions between manufacturers and healthcare providers; require pharmaceutical and medical device companies to comply with voluntary compliance standards issued by industry associations and the relevant compliance guidance promulgated by the U.S. federal government; and/or require disclosure to the government and/or public of financial interactions, so-called “sunshine laws”. The healthcare laws and regulations applicable to us, including those described above, contain ambiguous requirements and are subject to evolving interpretations and enforcement discretion. Manufacturers must adopt reasonable interpretations of requirements if there is ambiguity and those interpretations could be challenged. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil financial penalties, including, for example, exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid. Any failure to comply with laws and regulations relating to reimbursement and healthcare goods and services could adversely affect our reputation, business, financial condition and cash flows. International Laws Many foreign countries have similar laws relating to healthcare fraud and abuse. Foreign laws and regulations may vary greatly from country to country. For example, the advertising and promotion of our products is subject to EU Directives concerning misleading and comparative advertising and unfair commercial practices, as well as other EU member state legislation governing the advertising and promotion of medical devices. Sometimes the relevant rules are found in industry guidance rather than legislation—for example, relationships with healthcare professionals in the U.K. are governed by the code of Association of British Healthcare Industries, and rules may limit or restrict the advertising and promotion of our products to the general public and impose limitations on our promotional activities with healthcare professionals. In the European Union the consequences for failing to comply with advertising and promotional laws might lead to reputational damage, fines, exclusions from public tenders and actions for damages from competitors for unfair competition. Laws with Extra-territorial Effect Many countries in which we operate have laws with extra-territorial effect—those laws apply to our operations outside the relevant country, to the extent they are breached. Examples of such laws include the Foreign Corrupt Practices Act, or the FCPA, the UK Bribery Act 2010 and the General Data Protection Regulation, or the GDPR. The extra-territorial effect of those laws affects our sales and marketing strategy, since in many countries healthcare professionals are officers of the state. This is particularly important in the context of bribery offences, which in the U.K. and in the United States include the offence of bribing a foreign public official. Data Privacy and Security Laws We are, or in the future may, become subject to various U.S. federal and state as well as foreign laws that protect the confidentiality of certain patient health information, including patient medical records, and restrict the use and disclosure of patient health information by healthcare providers. 36 The Health Insurance Portability and Accountability Act of 1996, or HIPAA, proscribes the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities, to handle and protect, among other things, the privacy and security of protected health information, or PHI, in certain ways. HIPAA also requires business associates to enter into business associate agreements with covered entities and to safeguard a covered entity’s PHI against improper use and disclosure. HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a business associate. These regulations also set forth certain rights that an individual may have with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, or to request restrictions on the use or disclosure of PHI. HIPAA security regulations set forth requirements for safeguarding the confidentiality, integrity, and availability of protected health information that is electronically transmitted or electronically stored. The Health Information Technology for Economic and Clinical Health Act, among other things, provides certain health information security breach notification requirements. Under these laws, the covered entity must notify any individual whose PHI is breached as required under the breach notification rule. Although we believe that we currently are neither a “covered entity” nor a “business associate” directly under HIPAA, a business associate relationship may be imputed from facts and circumstances even in the absence of an actual business associate agreement. In addition, HIPAA may affect our interactions with customers who are covered entities or their business associates. The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that may be more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their health and other personal information. States are increasingly regulating the privacy and security of individually identifiable information, including financial information and health information. For example, the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, gives California consumers (defined to include all California residents) certain rights, including the right to ask covered companies to disclose the types of personal information collected and delete a consumer’s personal information, and imposes several obligations on covered companies to provide notice to California consumers regarding their data processing activities and limitations on covered companies’ ability to sell personal information. We expect additional federal and state legislative and regulatory efforts to regulate consumer privacy in the future. In the European Economic Area, or EEA, we may be subject to laws relating to our collection, control, processing and other use of personal data, such as data relating to an identifiable living individual. We process personal data in relation to our operations. We process data of both our employees and our customers, including health and medical information. The data privacy regime in the EEA includes the GDPR, regarding the processing of personal data and the free movement of such data, which became applicable on May 25, 2018, the E-Privacy Directive 2002/58/EC and national laws implementing each of them. Each EU member state has transposed the requirements laid down by the Data Protection Directive and E-Privacy Directive into its own national data privacy regime and therefore the laws may differ by jurisdiction, sometimes significantly. In addition, many EEA member states have passed legislation addressing areas where the GDPR permits member states to derogate from the regulation’s requirements, thus leading to divergent requirements between member states in spite of the GDPR’s stated goal of creating a uniform privacy law for the entire EEA. We need to ensure compliance with the rules in each jurisdiction where we are established or are otherwise subject to local privacy laws. For example, we may be subject to the GDPR for processing personal data in connection with offering goods or services to persons located in the EEA or monitoring the behavior of persons located in the EEA. GDPR requirements include that personal data may only be collected for specified, explicit and legitimate purposes based on a certain legal bases set forth in GDPR, and may only be processed in a manner consistent with those purposes. Processing of personal data also needs to be adequate, relevant, not excessive in relation to the purposes for which it is collected, secure, not be transferred outside of the EEA unless certain steps are taken to ensure an adequate level of protection and not be kept for longer than necessary for the purposes of collection. To the extent that we process, control or otherwise use sensitive data relating to living individuals (for example, patients’ health or medical information), more stringent rules may apply, limiting the circumstances and the manner in which we are legally permitted to process that data and transfer that data outside of the EEA. In particular, in order to process such data, explicit consent to the processing (including any cross-border transfer) usually may be required from the data subject (being the person to whom the personal data relates), though in certain cases, and depending on the jurisdiction in which the data originate or are processed, such data may be processed absent explicit consent for purposes of medical diagnosis, public interest in the area of public health or scientific research. 37 The GDPR also imposes potentially onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and policies. It requires data controllers to be transparent and disclose to data subjects (in a concise, intelligible and easily accessible form) how their personal information is to be used, imposes limitations on retention of information, increases requirements pertaining to pseudonymized (i.e., key-coded) data, introduces mandatory data breach notification requirements and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. Fines for non-compliance with the GDPR may be significant. The GDPR provides that EEA member states may introduce further conditions, including limitations, to the processing of genetic, biometric or health data, which could limit our ability to collect, use and share personal data, or could cause our compliance costs to increase, ultimately having an adverse impact on our business. The July 2020 invalidation by the Court of Justice of the European Union of the EU-U.S. Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the U.S., has led to increased scrutiny on data transfers from the EEA to the U.S. generally and may increase our costs of compliance with data privacy legislation. We are subject to the supervision of local data protection authorities in those jurisdictions where we are established or otherwise subject to applicable law. We depend on third parties in relation to provision of our services, a number of which process personal data on our behalf. With such providers we have a practice of entering into contractual arrangements to ensure that they process personal data only according to our instructions, and that they have adequate technical and organizational security measures in place. Where personal data is being transferred outside the EEA, our policy is that it is done so in compliance with applicable data export requirements. Any failure by us or third parties to follow these policies or practices, or otherwise comply with applicable data laws, could lead to a security or privacy breach, regulatory enforcement, or regulatory or financial harm. U.S. Healthcare Reform The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. Additional healthcare reform efforts have sought to address certain issues related to the COVID-19 pandemic. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products. The implementation of the Affordable Care Act in the United States, for example, has changed healthcare financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The Affordable Care Act imposed, among other things, a 2.3% federal excise tax, with limited exceptions, on any entity that manufactures or imports Class I, II and III medical devices offered for sale in the United States that began on January 1, 2013, however the tax was suspended in 2016 and permanently repealed in 2019. The Affordable Care Act also implemented payment system reforms, including bundled payment models and Medicare value-based purchasing plans. Additionally, the Affordable Care Act has expanded eligibility criteria for Medicaid programs and provided incentives to programs that increase the federal government’s comparative effectiveness research, including the creation of a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. There have been ongoing judicial and Congressional challenges seeking to repeal, modify or invalidate some or all of the provisions of the Affordable Care Act, and we expect additional challenges and amendments in the future. In November 2020, the U.S. Supreme Court heard argument in Texas v. Azar, which challenges the constitutionality of the Affordable Care Act. Pending resolution of the litigation, all of the Affordable Care Act but the individual mandate to buy health insurance remains in effect. The effect of the transition from the Trump administration to the Biden administration in January 2021 on the Affordable Care Act is unknown at this time. If the Affordable Care Act is repealed, replaced or modified, additional regulatory risks may arise and our future financial results could be adversely and materially affected. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, the Budget Control Act of 2011, as amended, among other things, included reductions to Medicare (but not Medicaid) payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 (except May 1, 2020 to March 31, 2021) unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. 38 We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. We cannot, however, predict the ultimate content, timing or effect of any healthcare reform legislation or action, or its impact on us, and healthcare reform could increase compliance costs and may adversely affect our future business, operations and financial results . Employees As of December 31, 2020, we employed 110 people globally, most of which were full-time employees. Except for certain European employees, our employees are not subject to collective bargaining agreements, and we believe that we have good relations with our employees. Corporate Information and Organizational Transactions TransMedics Group, Inc., was incorporated in the Commonwealth of Massachusetts in October 2018 to facilitate our IPO. TransMedics, Inc., an operating company and wholly-owned subsidiary of TransMedics Group, Inc., was incorporated in the State of Delaware in August 1998. Our principal executive offices are located at 200 Minuteman Road, Andover, Massachusetts 01810, and our telephone number at that address is (978) 552-0900. On May 6, 2019, immediately prior to the completion of our initial public offering, the Company engaged in a series of transactions whereby TransMedics, Inc. became a wholly owned subsidiary of TransMedics Group, Inc. As part of the transactions, shareholders of TransMedics, Inc. exchanged their shares of TransMedics, Inc. for shares of TransMedics Group, Inc. on a 3.5-for-one basis. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 1. Nature of the Business and Basis of Presentation” to the consolidated financial statements included in Part II, Item 8 in this Annual Report on Form 10-K for more information about the above-mentioned transactions. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We are also a “smaller reporting company,” as defined in Regulation S-K. We may continue to be a smaller reporting company if either (i) market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of the last business day of our second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Prior to 2020, our fiscal year ended on the last Saturday in December, and we reported fiscal years using a 52/53-week convention. Under this convention, certain fiscal years contained 53 weeks. Each fiscal year was typically composed of four 13-week fiscal quarters, but in years with 53 weeks, the fourth quarter was a 14-week period. The fiscal year ended December 28, 2019 included 52 weeks. In February 2020, we changed the end of its fiscal year end from the last Saturday in December to December 31. 39 Available Information Our Internet address is www.transmedics.com. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the “Investors” portion of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, our filings with the SEC may be accessed through the SEC’s Electronic Data Gathering, Analysis and Retrieval system at http://www.sec.gov . All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.