What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-06 · 107 added, 100 removed, 296 unchanged (41% of the section changed)

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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.

We have commercialized the OCS Lung and OCS Heart outside of the United States and received our first Pre-Market Approval (“PMA”) from the Food and Drug Administration (the “FDA”) in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation and a PMA from the FDA in May 2019 for the use in the United States of the OCS Lung for donor lungs currently unutilized for transplantation.

We have commercialized the OCS Lung and OCS Heart outside of the United States.

We received our first Pre-Market Approval (“PMA”) from the Food and Drug Administration (the “FDA”) in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation and a PMA from the FDA in May 2019 for the use in the United States of the OCS Lung for donor lungs currently unutilized for transplantation.

In September 2021, we received a PMA from the FDA for the use in the United States of the OCS Heart for donors after brain death indication and a PMA from the FDA for the use in the United States of the OCS Liver for use with organs from donors after brain death and after circulatory death.

Since our inception, we have focused substantially all of our resources on designing, developing and building our proprietary OCS technology platform and organ-specific OCS products;

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developing our market and distribution chain and providing general and administrative support for these operations.

To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, proceeds from the sale of common stock in our initial public offering, or IPO, the sale of our common stock in follow-on equity offerings, and revenue from clinical trials and commercial sales of our OCS products.

To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, proceeds from the sale of common stock in our initial public offering (“IPO”), the sale of our common stock in follow-on equity offerings, and revenue from clinical trials and commercial sales of our OCS products.

Since our inception, we have incurred significant operating losses.

Our ability to generate net revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our products.

We generated net revenue of $15.2 million and incurred a net loss of $18.6 million for the six months ended June 30, 2021.

We generated net revenue of $20.6 million and incurred a net loss of $31.5 million for the nine months ended September 30, 2021.

We generated net revenue of $25.6 million and incurred a net loss of $28.7 million for the year ended December 31, 2020.

As of June 30, 2021, we had an accumulated deficit of $416.8 million.

As of September 30, 2021, we had an accumulated deficit of $429.8 million.

We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the United States and select non-U.S.

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scaling our manufacturing operations;

building our commercial operations;

continuing research, development and clinical trial efforts;

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See “—Liquidity and Capital Resources”.

The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

The impact of the COVID-19 pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Impacts to our business as a result of COVID-19 include:

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restrictions on or delays of our clinical trials and studies;

delays of reviews and approvals by the FDA and other health authorities , including with respect to the Company’s OCS Heart PMA application ;

delays of reviews and approvals by the FDA and other health authorities ;

limitations on our employees’ and customers’ ability to travel;

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These actions included transitioning most employees to a remote work environment, except for those who are deemed essential to product supply, and reducing near-term expenses, such as reducing non-essential discretionary expenses and deferring a portion of executive and employee compensation from April 2020 through August 31, 2020.

OCS product sales were negatively impacted by the COVID-19 pandemic from the second quarter of 2020 through the second quarter of 2021 and we anticipate a negative impact to OCS product sales to continue through 2021.

We have observed recovery in the overall frequency of transplant procedures to pre-pandemic levels in most countries during the most recent quarter.

After seeing recovery in transplant volumes in the second quarter of 2021, the Delta variant of the virus that causes COVID-19 has had a negative impact on overall transplant volumes in the third quarter of 2021 as compared to the previous quarter, with lung transplants impacted more heavily than heart and liver transplants.

Therefore, we expect the negative impact on OCS product sales due to the COVID-19 pandemic to continue through 2021 and into 2022.

In addition, while the number of transplant procedures performed declined during the COVID-19 pandemic, organ transplantations are non-elective, life-saving procedures and we believe that the need for these procedures has persisted and will continue to persist as demonstrated by procedure recovery.

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In particular, the speed of the continued spread of COVID-19 globally, and the magnitude, duration and frequency of interventions to contain the spread of the virus, such as government-imposed quarantines, including shelter-in-place mandates, sweeping restrictions on travel, mandatory shutdowns for non-essential businesses, requirements regarding social distancing, and other public health safety measures, will determine the impact of the pandemic on our business.

While the FDA approved emergency use authorization of vaccines starting in December 2020 and vaccination efforts have been ongoing in the United States, it is not yet fully known how vaccination efforts will impact the COVID-19 pandemic, including with respect to the duration of the efficacy of the vaccines, their effectiveness against the Delta variant or any other variants as new strains of the virus evolve.

While vaccination efforts are ongoing in the United States, it is not yet fully known how the availability and administration of vaccines will impact the ongoing COVID-19 pandemic, including with respect to vaccination rates, the duration of the efficacy of the vaccines and their effectiveness against the Delta variant or any other variants as new strains of the virus evolve.

Recent Developments

On July 14, 2021, the FDA’s Gastroenterology and Urology Devices Panel of the Medical Devices Advisory Committee convened for an advisory committee meeting to review our clinical evidence from the OCS Liver PROTECT Trial and to provide the FDA with non-binding recommendations with respect to our OCS Liver PMA application.

At the advisory committee meeting, the panel voted:

14 to zero that the OCS Liver is safe for patients;

14 to zero that the OCS Liver is effective for use in patients;

and 12 to one (with one panel member abstaining) that the benefits of the OCS Liver outweigh its risks.

We anticipate the FDA will issue a decision regarding whether to approve or deny approval of our OCS Liver PMA application within three to four months following the advisory committee meeting, which decision may or may not follow the advisory committee’s recommendation.

On July 30, 2021, the FDA provided a 510(k) clearance for use of the OCS Lung Solution in lung transplantations using cold storage.

On September 3, 2021 we received a PMA from the FDA for the use in the United States of the OCS Heart for use with organs from donors after brain death.

The PMA for the OCS Heart was supported by our clinical evidence from the OCS Heart EXPAND Trial, the associated Continued Access Protocol results, as well as the clinical evidence from our OCS Heart PROCEED II Trial.

On September 28, 2021 we received a PMA from the FDA for the use in the United States of the OCS Liver for use with organs from donors after brain death and after circulatory death.

The PMA for the OCS Liver was supported by our clinical evidence from the OCS Liver PROTECT Trial.

Components of Our Results of Operations

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Because some of these payments do not provide us with a separately identifiable benefit, we record such payments as a reduction of revenue from the customer, resulting in our net revenue presentation.

We recorded reimbursable clinical trial costs as a reduction of revenue of $0.5 million and $1.1 million for the three and six months ended June 30, 2021, respectively, and $0.5 million and $1.2 million for the three and six months ended June 30, 2020.

We recorded reimbursable clinical trial costs as a reduction of revenue of less than $0.1 million and $1.1 million for the three and nine months ended September 30, 2021, respectively, and $0.9 million and $2.1 million for the three and nine months ended September 30, 2020.

In March 2018, we received our first FDA PMA for the OCS Lung, and we began commercial sales of this product in the United States during the fourth quarter of 2018.

In May 2019, we received an FDA PMA for the OCS Lung for additional clinical indications.

Therefore, our net revenue in the United States for the OCS Lung is now derived from commercial sales and consists of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles.

In the United States, we expect to continue to only have clinical trial sales for our OCS Heart and OCS Liver products until we receive similar FDA PMAs for those products.

Our net revenue in the United States for OCS Heart and OCS Liver products fluctuates from period to period as a result of the timing of patient enrollment in our clinical trials.

Historically, our net revenue during periods of patient enrollment has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolling.

Our OCS Heart EXPAND CAP trial began patient enrollment in May 2019 and is currently enrolling patients.

Our OCS Liver PROTECT CAP trial began patient enrollment in February 2020 and completed initial enrollment in the first quarter of 2021.

Our net revenue may continue to fluctuate from period to period as a result of the timing of ongoing clinical trials in which our OCS products are used.

Through June 30, 2021, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials) and our net revenue has been generated primarily from sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles.

In May 2019, we received a FDA PMA for the OCS Lung for additional clinical indications.

Therefore, our net revenue in the United States for the OCS Lung is now derived from commercial sales and consists of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Lung consoles.

For the nine months ended September 30, 2021, our net revenue in the United States for the OCS Heart was derived from sales for use in clinical trials.

On September 3, 2021, we received an FDA PMA for the use in the United States of the OCS Heart for use with organs from donors after brain death.

We expect to begin commercial sales of this product in the fourth quarter of 2021, and that our net revenue in the United States for the OCS Heart will be derived primarily from commercial sales and will consist of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Heart consoles.

For the nine months ended September 30, 2021, our net revenue for the OCS Liver was derived from sales for use in clinical trials.

On September 28, 2021, we received an FDA PMA for the use in the United States of the OCS Liver for use with organs from

donors after brain death and after circulatory death .

We expect to begin commercial sales of this product in the fourth quarter of 2021 , and that our net revenue in the United States for the OCS Liver will be derived primarily from commercial sales and will consist of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Liver consoles.

Our net revenue in the United States for the OCS Heart and OCS Liver has historically fluctuated from period to period as a result of the timing of patient enrollment in our clinical trials and has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolling.

Through September 30, 2021, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials) and our net revenue has been generated primarily from sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles.

Commercial sales of OCS disposable sets generally have a higher average selling price than clinical trial sales of OCS disposable sets.

We expect that our net revenue will increase over the long term as a result of receiving our first two FDA PMA s for the OCS Lung in the United States in March 2018 and May 2019 and any potential future FDA approvals in the United States for OCS Heart and OCS Liver .

We expect to receive decision s from the FDA regarding whether to approve the PMA for the use of the OCS Heart and OCS Liver in the United States in 2021 following the advisory committee meeting s held on April 6, 2021 and July 14, 2021, respectively .

We expect that our net revenue will increase over the long term as a result of receiving FDA PMAs for the OCS Lung in the United States in March 2018 and May 2019 and for the OCS Heart and OCS Liver in the United States in September 2021.

We also expect that our net revenue will increase over the long term as a result of anticipated growth in non-U.S.

sales if national healthcare systems begin to reimburse transplant centers for the use of the OCS, in all served geographies, if transplant centers utilize the OCS in more transplant cases, and if more transplant centers adopt the OCS in their programs.

sales if national healthcare systems begin to reimburse transplant centers for the use of the OCS, if transplant centers utilize the OCS in more transplant cases, and if more transplant centers adopt the OCS in their programs.

We expect that net revenue will continue to be negatively impacted in 2021 a result of the COVID-19 pandemic.

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We calculate gross margin as gross profit divided by net revenue.

Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing overhead costs, headcount, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses.

Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing overhead costs, direct labor, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses.

We expect that cost of revenue as a percentage of net revenue will decrease and gross margin and gross profit will increase over the long term as our sales and production volumes increase and our cost per unit of our OCS disposable sets decreases due to economies of scale.

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Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

(in thousands)

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Provision for income taxes

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

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Total net revenue

Net revenue from customers in the United States was $5.8 million in the three months ended June 30, 2021 and increased by $3.3 million compared to the three months ended June 30, 2020, primarily due to higher sales volumes of our OCS Lung and OCS Heart disposable sets.

Net revenue from sales of OCS Lung disposable sets in the United States increased from $0.4 million in the three months ended June 30, 2020 to $3.5 million in the three months ended June 30, 2021.

The increase was due primarily to higher sales volume of OCS Lung disposable sets as the adverse impact of COVID-19 had less of an impact in the 2021 period.

Net revenue from OCS Heart disposable sets in the United States increased by $1.0 million.

The increase in net revenue from OCS Heart disposable sets is attributed to a higher volume of OCS Heart disposable sets sold to customers for use in the OCS Heart DCD CAP Trial in the United States.

We did not have revenue from OCS Liver disposable sets during the three months ended June 30, 2021 as we had completed enrollment in our OCS Liver Protect CAP Trial in the first quarter of 2021.

Net revenue from customers outside the United States was $2.4 million in the three months ended June 30, 2021 compared to $1.0 million in the three months ended June 30, 2020.

Net revenue from customers in the United States was $3.1 million in the three months ended September 30, 2021 and decreased by $2.8 million compared to the three months ended September 30, 2020, primarily due to lower sales volumes of our OCS Heart and OCS Liver disposable sets, partially offset by increased sales of our OCS Lung disposable sets.

Net revenue from sales of OCS Lung disposable sets in the United States increased from $0.6 million in the three months ended September 30, 2020 to $2.3 million in the three months ended September 30, 2021.

The increase was due primarily to higher sales volume of OCS Lung disposable sets as the comparable three months ended September 30, 2020 were highly impacted by the COVID-19 pandemic.

Net revenue from OCS Heart disposable sets in the United States decreased by $3.5 million.

The decrease in net revenue from OCS Heart disposable sets is attributed to lower sales volumes of OCS Heart disposable sets arising from the conclusion of enrollment in our OCS Heart DCD CAP Trial in the United States in the second quarter of 2021.

We did not have revenue from OCS Liver disposable sets during the three months ended September 30, 2021 as we had completed enrollment in our OCS Liver PROTECT CAP Trial in the first quarter of 2021.

The FDA approved the OCS Heart and OCS Liver products for commercial sale in September 2021 and, as a result, revenue from OCS Heart and OCS Liver in the future will be earned from commercial sales.

Net revenue from customers outside the United States was $2.3 million in the three months ended September 30, 2021 compared to $1.2 million in the three months ended September 30, 2020.

The increase in net revenue from customers outside the United States was primarily due to higher sales volumes of OCS Heart and OCS Lung disposable sets.

Net revenue from sales of OCS Lung disposable sets outside the United States increased by $0.1 million from the three months ended June 30, 2020 to the three months ended June 30, 2021.

Net revenue from sales of OCS Heart disposable sets outside of the United States increased by $1.4 million from the three months ended June 30, 2020 to the three months ended June 30, 2021.

Net revenue from sales of OCS Lung disposable sets outside the United States increased by $0.2 million from the three months ended September 30, 2020 compared

to the three months ended September 30, 2021.

N et revenue from sales of OCS Heart disposable sets outside of the United States increased by $ 0.9 million from the three months ended September 30, 2020 to the three months ended September 30, 2021 .

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $1.1 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Gross profit increased by $3.7 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Gross margin was 68% and 56% for the three months ended June 30, 2021 and 2020, respectively.

Gross margin increased primarily as a result of higher margin OCS disposable sets sold and improvements in the efficiency of the production process.

Cost of revenue decreased by $0.5 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Gross profit decreased by $1.3 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The declines in cost of revenue and gross profit were primarily attributable to lower revenue.

Gross margin was 70% and 71% for the three months ended September 30, 2021 and 2020, respectively.

Operating Expenses

Research, Development and Clinical Trials Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

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Total research, development and clinical trials expenses

Total research, development and clinical trials expenses increased by $2.4 million from $3.9 million in the three months ended June 30, 2020 to $6.3 million in the three months ended June 30, 2021 .

Clinical trial costs increased by $0.3 million due to an increase in ongoing trial enrollment activity primarily related to the OCS Heart DCD CAP Trial.

Consulting and third-party testing increased by $0.8 million due to increased regulatory activity, including costs related to preparation for both the OCS Heart FDA advisory committee panel in April and the OCS Liver FDA advisory committee panel in July.

The increase in laboratory supplies and research materials costs of $0.9 million and other costs of $0.3 million is due primarily to increased research activities, product development and other activities as restrictions implemented in response to the COVID-19 pandemic were eased.

Total research, development and clinical trials expenses increased by $1.0 million from $4.2 million in the three months ended September 30, 2020 to $5.2 million in the three months ended September 30, 2021.

Personnel related costs, consulting and third-party testing and other costs increased by $0.2 million, $0.5 million and $0.5 million respectively, due primarily to new product development activity and stock compensation.

Clinical trial costs and laboratory supplies and research materials costs each decreased by $0.1 million due to a reduction in activity in our OCS Heart DCD CAP Trial and our OCS Liver PROTECT CAP Trial.

Selling, General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

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Total selling, general and administrative expenses

Total selling, general and administrative expenses increased by $3.3 million from $5.9 million in the three months ended June 30, 2020 to $9.2 million in the three months ended June 30, 2021 due to an increase in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Personnel related costs increased primarily due to the continued expansion of our commercial team to support commercial sales of our OCS Lung product in the United States.

Total selling, general and administrative expenses increased by $4.8 million from $5.5 million in the three months ended September 30, 2020 to $10.3 million in the three months ended September 30, 2021 due to an increase in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Personnel related costs increased primarily due to the continued expansion of our commercial team to support commercial sales of our OCS Lung, OCS Heart and OCS Liver products in the United States.

Stock-based compensation expense also increased by $1.1 million due primarily to additional grants to new and existing employees and an increase in the respective grant date fair values due to the increased market price of our stock.

The increase in professional and consultant fees, trade shows and conferences and other costs is a result of an increase in activities as restrictions implemented in response to the COVID-19 pandemic were eased.

The increase in professional and consultant fees and other costs is a result of additional public company compliance costs associated with becoming a Large Accelerated Filer.

The increase in tradeshows and conferences is a result of an increase in activities as restrictions implemented in response to the COVID-19 pandemic were eased.

Other Income (Expense)

Interest Expense

Interest expense was $1.0 million for each of the three months ended June 30, 2021 and 2020.

Interest expense was $1.0 million for each of the three months ended September 30, 2021 and 2020.

Other Income (Expense), Net

Other income (expense), net for the three months ended June 30, 2021 and 2020 included interest income of less than $0.1 million and $0.2 million, respectively, resulting from interest earned on invested cash balances, and $0.1 million and $0.2 million of realized and unrealized foreign currency transaction gains, respectively.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

Other income (expense), net for the three months ended September 30, 2021 and 2020 included interest income of less than $0.1 million and $0.1 million, respectively, resulting from interest earned on invested cash balances, and $0.3 million of realized and unrealized foreign currency transactions losses and $0.4 million of realized and unrealized foreign currency transaction gains, respectively.

Comparison of the Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

(in thousands)

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Provision for income taxes

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Total net revenue

Net revenue from customers in the United States was $11.5 million in the six months ended June 30, 2021 and increased by $3.9 million compared to the six months ended June 30, 2020, primarily due to higher sales volumes of our OCS Lung and OCS Heart disposable sets.

Net revenue from sales of OCS Lung disposable sets in the United States increased from $2.3 million in the six months ended June 30, 2020 to $5.8 million in the six months ended June 30, 2021.

The increase was due primarily to higher sales volume of OCS Lung disposable sets.

Net revenue from OCS Heart disposable sets sold to customers for use in our ongoing clinical trials in the United States increased by $2.1 million, while net revenue from OCS Liver disposable sets sold in the United States decreased by $1.7 million.

The increase in net revenue from OCS Heart disposable sets is attributed to higher volume of OCS Heart disposable sets sold in the OCS Heart DCD CAP Trial.

Net revenue from customers in the United States was $14.6 million in the nine months ended September 30, 2021 and increased by $1.1 million compared to the nine months ended September 30, 2020, primarily due to higher sales volumes of our OCS Lung disposable sets, partially offset by lower sales volumes of the OCS Heart and OCS Liver disposable sets.

Net revenue from sales of OCS Lung disposable sets in the United States increased from $2.9 million in the nine months ended September 30, 2020 to $8.1 million in the nine months ended September 30, 2021.

The increase was due primarily to higher sales volume of OCS Lung disposable sets as the comparable nine months ended September 30, 2020 were highly impacted by the COVID-19 pandemic.

Net revenue from OCS Heart disposable sets sold to customers for use in our ongoing clinical trials in the United States decreased by $1.4 million, while net revenue from OCS Liver disposable sets sold in the United States decreased by $2.7 million.

The decrease in net revenue from OCS Heart disposable sets is attributed to lower sales volumes of OCS Heart disposable sets sold in the OCS Heart DCD CAP Trial which completed enrollment during the second quarter of 2021.

The lower sales volume of OCS Liver disposable sets was primarily a result of the completion of enrollment of approved patients in our OCS Liver PROTECT CAP Trial early in the first quarter of 2021.

Net revenue from customers outside the United States was $3.7 million in the six months ended June 30, 2021 compared to $3.3 million in the six months ended June 30, 2020.

The increase in net revenue from customers outside the United States was primarily due to higher sales volumes of OCS Lung and OCS Heart disposable sets.

Net revenue from sales of OCS Lung disposable sets outside the United States increased by $0.1 million and net revenue from OCS Heart disposable sets increased by $0.3 million from the six months ended June 30, 2020 to the six months ended June 30, 2021.

Net revenue from customers outside the United States was $6.0 million in the nine months ended September 30, 2021 compared to $4.4 million in the nine months ended September 30, 2020.

The increase in net revenue from customers outside the United States

was primarily due to higher sales volume s of OCS Lung and OCS Heart disposable sets.

Net revenue from sales of OCS Lung disposable sets outside the United States increased by $0.3 million and net revenue from OCS Heart disposable sets increased by $ 1.3 million from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 .

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $0.7 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Gross profit increased by $3.6 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Gross margin was 68% and 62% for the six months ended June 30, 2021 and 2020, respectively.

Gross margin increased primarily as a result of increased activity, higher margin OCS disposable sets sold and improvements in the efficiency of the production process.

Cost of revenue increased by $0.2 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Gross profit increased by $2.4 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Gross margin was 69% and 66% for the nine months ended September 30, 2021 and 2020, respectively.

Gross margin increased primarily as a result of increased sales volume, higher margin OCS disposable sets sold and improvements in the efficiency of the production process.

Operating Expenses

Research, Development and Clinical Trials Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Total research, development and clinical trials expenses

Total research, development and clinical trials expenses increased by $0.7 million from $10.1 million in the six months ended June 30, 2020 to $10.8 million in the six months ended June 30, 2021.

Clinical trial costs decreased by $0.7 million due to a reduction in ongoing trial enrollment activity primarily related to the OCS Heart DCD CAP Trial and completion of our OCS Liver Protect Trial.

Consulting and third-party testing costs increased by $0.4 million due primarily to increased regulatory activity, including costs related to preparation for both the OCS Heart FDA advisory committee panel in April and the OCS Liver FDA advisory committee panel in July.

The increase in laboratory supplies and research materials costs of $0.7 million is due primarily to increased research activities, product development and other activities as restrictions implemented in response to the COVID-19 pandemic were eased.

Total research, development and clinical trials expenses increased by $1.7 million from $14.3 million in the nine months ended September 30, 2020 to $16.0 million in the nine months ended September 30, 2021.

Clinical trials costs decreased by $0.8 million due to the completion of enrollment in the OCS Heart DCD CAP Trial and completion of our OCS Liver PROTECT Trial.

Consulting and third-party testing costs increased by $0.9 million due primarily to increased regulatory activity, including costs related to preparation for both FDA advisory committee panels in April and July 2021 for the OCS Heart and OCS Liver, respectively.

The increase in laboratory supplies and research materials costs of $0.6 million and other costs of $0.7 million is due primarily to increased product development activities.

Selling, General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Total selling, general and administrative expenses

Total selling, general and administrative expenses increased by $3.4 million from $12.5 million in the six months ended June 30, 2020 to $15.9 million in the six months ended June 30, 2021 due to increases in personnel related costs, tradeshows and conferences and other expenses.

Personnel related costs increased from the continued expansion of our commercial team to support commercial sales of our OCS Lung product in the United States.

Total selling, general and administrative expenses increased by $8.3 million from $18.0 million in the nine months ended September 30, 2020 to $26.3 million in the nine months ended September 30, 2021 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and other expenses.

Personnel related costs increased by $5.0 million as a result of the continued expansion of our commercial team to support commercial sales of our OCS Lung, OCS Heart and OCS Liver products in the United States.

Stock-based compensation expense also increased by $2.6 million due primarily to additional grants to new and existing employees and an increase in the respective grant date fair values from the increased price of our stock.

The increase in tradeshows and conferences and other expenses was due to a gradual return to normal activity as restrictions implemented in response to the COVID-19 pandemic were eased, which resulted in higher activity levels for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 and a resulting increase in related expenses.

Professional and consultant fees increased by $0.8 million as a result of additional public company compliance costs associated with becoming a Large Accelerated Filer.

Tradeshows and conferences costs increased by $0.5 million due to a return of some activity as restrictions implemented in response to the COVID-19 pandemic were eased, which resulted in higher activity levels for the nine months ended

September 30, 2021 as compared to the nine months ended September 30, 2020 and a resulting increase in related expe nses .

O ther costs increased by $2.0 million a s a result of the increase in our commercial activity.

Other Income (Expense)

Interest Expense

Interest expense was $1.9 million and $2.0 million for the six months ended June 30, 2021 and 2020, respectively.

Interest expense was $2.9 million and $3.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Other Income (Expense), Net

Other income (expense), net for the six months ended June 30, 2021 and 2020 included interest income of $0.1 million and $0.5 million, respectively, resulting from interest earned on invested cash balances, and $0.4 million of realized and unrealized foreign currency transaction losses and $0.1 million of realized and unrealized foreign currency transaction gains, respectively.

Other income (expense), net for the nine months ended September 30, 2021 and 2020 included interest income of $0.1 million and $0.6 million, respectively, resulting from interest earned on invested cash balances, and $0.6 million of realized and unrealized foreign currency transaction losses and $0.5 million of realized and unrealized foreign currency transaction gains, respectively.

Liquidity and Capital Resources

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The follow-on public offering was completed on May 26, 2020 and resulted in net proceeds of $75.1 million.

As of June 30, 2021, we had cash, cash equivalents, and marketable securities of $112.2 million.

As of September 30, 2021, we had cash, cash equivalents, and marketable securities of $102.9 million.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Operating Activities

During the six months ended June 30, 2021, operating activities used $12.9 million of cash, primarily resulting from our net loss of $18.6 million, partially offset by net cash provided by changes in our operating assets and liabilities of $0.6 million and net non-cash charges of $5.2 million.

Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2021 consisted primarily of a decrease in accounts receivable of $0.6 million and an increase in accounts payable and accrued expenses and other current liabilities of $2.9 million, partially offset by a $1.9 million increase in inventory and a $1.2 million increase in prepaid expenses and other current assets .

During the six months ended June 30, 2020, operating activities used $16.7 million of cash, primarily resulting from our net loss of $17.3 million and net cash used by changes in our operating assets and liabilities of $1.3 million, partially offset by net non-cash charges of $1.9 million.

Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2020 consisted primarily of a $3.2 million decrease in accounts payable and accrued expenses and other current liabilities, a $1.4 million increase in inventory and a $0.3 million increase in prepaid expenses and other current assets, partially offset by a $2.1 million decrease in accounts receivable, a $0.8 million increase in deferred revenue and a $0.6 million increase in deferred rent.

During the nine months ended September 30, 2021, operating activities used $22.2 million of cash, primarily resulting from our net loss of $31.5 million, partially offset by net cash provided by changes in our operating assets and liabilities of $1.0 million and net non-cash charges of $8.3 million.

Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2021 consisted primarily of a decrease in accounts receivable of $2.7 million and an increase in accounts payable and accrued expenses and other current liabilities of $3.6 million, partially offset by an increase in inventory of $4.0 million and an increase in prepaid expenses and other current assets of $1.4 million.

During the nine months ended September 30, 2020, operating activities used $23.1 million of cash, primarily resulting from our net loss of $22.4 million and net cash used by changes in our operating assets and liabilities of $3.7 million, partially offset by net non-cash charges of $3.0 million.

Net cash used by changes in our operating assets and liabilities for the fiscal nine months ended September 30, 2020 consisted primarily of a $3.1 million decrease in accounts payable and accrued expenses, a $2.4 million increase in inventory and a $0.7 million increase in prepaid expenses and other current assets, partially offset by a $1.2 million increase in deferred revenue and a $0.5 million decrease in accounts receivable.

Changes in accounts receivable, inventory, accounts payable, and accrued expenses and other current liabilities in each reporting period are generally due to growth in our business and timing of invoices and payments.

Investing Activities

During the six months ended June 30, 2021, net cash provided by investing activities of $13.1 million consisted of proceeds from sales and maturities of marketable securities of $58.8 million, partially offset by purchases of marketable securities of $45.5 million and purchases of property and equipment of $0.3 million.

During the six months ended June 30, 2020, net cash used in investing activities of $28.0 million consisted of $63.6 million in purchases of marketable securities and $0.4 million in purchases of property and equipment, partially offset by proceeds from sales and maturities of marketable securities of $36.0 million.

During the nine months ended September 30, 2021, net cash provided by investing activities of $19.3 million consisted of proceeds from sales and maturities of marketable securities of $86.3 million, partially offset by purchases of marketable securities of $66.7 million and purchases of property and equipment of $0.3 million.

During the nine months ended September 30, 2020, net cash used in investing activities of $51.5 million consisted of $101.5 million in purchases of marketable securities and $0.5 million in purchases of property and equipment, partially offset by proceeds from sales and maturities of marketable securities of $50.5 million.

Financing Activities

During the six months ended June 30, 2021, net cash provided by financing activities of $0.8 million consisted of proceeds from the issuance of common stock in connection with the employee stock purchase plan of $0.2 million and proceeds from the issuance of common stock upon exercise of stock options of $0.6 million.

During the six months ended June 30, 2020, net cash provided by financing activities of $75.7 million consisted primarily of proceeds from the issuance of common stock in our public offering and employee share ownership plans of $76.0 million, partially offset by payments of offering costs of $0.3 million.

We also received proceeds from the Paycheck Protection Loan of $2.2 million, which we then fully repaid in the same period.

During the nine months ended September 30, 2021, net cash provided by financing activities of $1.3 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $0.9 million and proceeds from the issuance of common stock in connection with the employee stock purchase plan of $0.4 million.

During the nine months ended September 30, 2020, net cash provided by financing activities of $75.5 million consisted primarily of proceeds from the issuance of common stock in our May 2020 public offering and employee share ownership plans of $76.2 million, partially offset by payments of offering costs of $0.7 million.

Long-Term Debt

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The obligations under the Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to governmental approvals (if such events could cause a material adverse change in our business), failure to comply with certain covenants, including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in our business, operations or other financial condition.

As of June 30, 2021, we were in compliance with all of the covenants under the Credit Agreement.

As of September 30, 2021, we were in compliance with all of the covenants under the Credit Agreement.

Upon the occurrence of an event of default and until such event of default is no longer continuing, the Applicable Margin will increase by 4.0% per annum.

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the degree of success we experience in commercializing our OCS products for additional indications;

the costs, timing and outcomes of any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

the costs, timing and outcomes of post-approval studies or any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

the emergence of competing or complementary technologies;

the number and types of future products we develop and commercialize;

the costs associated with building our commercial operations;

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

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As of June 30, 2021, the market value of our common stock held by non-affiliates exceeded $700 million.

As a result, we will no longer be an emerging growth company as of December 31, 2021 and will be a large accelerated filer beginning January 1, 2022.

As a result, we will become a large accelerated filer beginning January 1, 2022 and will no longer be an emerging growth company.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis