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 the use of the OCS has the potential to significantly increase the number of organ transplants and improve post-transplant outcomes. We have developed our National OCS Program, a turnkey solution to provide outsourced organ retrieval and OCS organ management, to provide transplant programs with a more efficient process to procure donor organs with the OCS. 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. By the end of the third quarter of 2021, all three of our products, OCS Lung, OCS Heart, and OCS Liver, have received Pre-Market Approval, or PMA, from the Food and Drug Administration, or FDA. OCS Lung and OCS Liver are approved for both organs donated after brain death, or DBD organs, and organs donated after circulatory death, or DCD organs. The OCS Heart is approved for DBD organs and we have submitted a PMA supplement to the FDA for use of the OCS Heart with DCD organs. 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. With the use of cold storage, the majority of lungs and hearts donated after brain death go unutilized, and almost no available lungs and hearts donated after circulatory death 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 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 had been providing reimbursement for the OCS Lung, OCS Heart 3 and OCS Liver during the U.S. pivotal trials and have continued providing reimbursement for our products following FDA approval. 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 also have a geographically distributed team in the United States supporting our National OCS Program. We have additional distribution and commercial operations in Europe. As of December 31, 2021, we employed 148 people globally, most of whom were full-time employees. We generated $30.3 million and $25.6 million of net revenue during the years ended December 31, 2021 and 2020, respectively, representing an 18% increase. Growth in our business was negatively impacted by the global COVID-19 pandemic during the years ended December 31, 2021 and 2020, following 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. Our Competitive Strengths We believe the continued growth of our company will be driven by the following competitive strengths: • Only FDA approved, portable, multi-organ, warm perfusion platform Our Organ Care System is the only portable, warm perfusion device on the market. It is also the only device that has been approved by the FDA for multiple organ indications. Portability is a critical aspect in reducing the injurious ischemic injury to the organ before transplantation, thereby reducing post-transplant complications and allowing the utilization of more organs for transplant. The multi-organ platform allows for the standardization of use across transplant programs. • National OCS Program Our National OCS Program was developed to provide a more efficient process to procure donor organs with the OCS. As the number of transplants increases and the retrieval distance extends, the field will need alternatives to the current model in which the recipient transplant center sends its team to the donor site for retrieval. Our National OCS Program provides a turnkey solution that leverages the technical advantage of the OCS and provides transplant centers with a more efficient way to increase their volume of transplants without significantly increasing resources. • Significant body of strong clinical evidence In order to receive FDA approval for our PMA products, we have conducted a very large number of clinical trials with very large numbers of patient participants, with the results of these trials published in leading medical journals. We have also initiated post-market registries for all of our products and will continue to provide the scientific results of these registries to the clinical user community. • Strong relationship with the clinical transplant community The transplant community is highly concentrated in the leading academic medical centers around the world. We have developed strong clinical relationships with many of these centers through their participation in our clinical trials. In addition, many transplant surgeons at our clinical trial locations may have moved to new centers, bringing their OCS experience with them and allowing our relationships to grow to these new centers. • Expertise in transplant reimbursement and billing The OCS has been reimbursed by the Centers for Medicare & Medicaid Services, or CMS, and private insurers during our clinical trials and continues to be reimbursed in the commercial setting. Since our customers have been billing for reimbursement for many years, we have developed a high degree of expertise in the area of transplant reimbursement and appropriate billing of insurers. We provide advice and best practices to our customers in compliance with laws and regulations. • Strong research and development capabilities and comprehensive intellectual property portfolio We have a long history and broad experience in the development of warm machine perfusion for organ preservation. During the life of our OCS technology platform we have continued to add technological and usability enhancements to our devices. In the future, we intend to develop newer versions of the technology that continue to improve the ease of use, portability, and capability of the products. 4 Organ Transplant Therapy Benefits and Challenges We believe organ transplantation is the most effective treatment for end-stage organ failure in terms of both clinical outcomes and health economics. Organ transplant provides the longest life expectancy and best quality of life compared to other therapies for end-stage organ failure. 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. However, organ transplant therapy faces two major challenges. First, 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. Second, a high rate of post-transplant clinical complications needs to be reduced to improve outcomes and lower costs. The use of cold static storage for preservation of donor organs contributes to these challenges in three ways: • Subjects the donor organs to severe time-dependent ischemic injury Cold storage deprives the organs from oxygen, resulting in time dependent injury (ischemia). This injury correlates with post-transplant complications and restricts the viable time for organ procurement and transplant, which limits the time and distance possible between donor and recipient and results in low utilization of the donor pool and limits the number of transplant procedures performed annually. • No organ optimization capability Given the non-physiologic environment, cold storage does not allow for any therapeutic interventions to optimize the condition of the donor organs. This further limits utilization of available donor organs for transplantation and could negatively impact post-transplant outcomes. It is well demonstrated that donor organs require some form of optimization to replenish depleted levels of substrates, hormones, and electrolytes that are significantly altered or used up during the donation process. • No organ viability assessment capability During cold storage, the organs are not physiologically active, nor functioning; thus, there are no means for evaluating the suitability of these organs for transplantation. This further limits utilization of available organs as donor populations worldwide are growing older and have concomitant risk factors that require sophisticated diagnostic evaluation capabilities to ensure that the donor organ is suitable and safe to transplant. 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. 5 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. 6 Key Advantages of the OCS Platform We believe the OCS platform provides significant benefits relative to cold storage: • Significant reduction in ischemia Decreases current time and distance limitations on organ transport while also increasing the currently limited time period for retrieval during which high quality transplant outcomes can reliably be obtained. This maximizes organ utilization and enables increased access to organ transplantation, while also meaningfully improving post-transplant outcomes. • Enables organ optimization outside of the human body Allows therapeutic optimization of donor organs from the damaging conditions of brain and circulatory death using clinically proven and safe modalities, thus significantly improving donor organ utilization and patient outcomes. • Allows for organ viability assessment Enables diagnostic evaluation of the donor organ using currently acceptable clinical standards to evaluate the organ’s suitability for transplantation and to maximize the post-transplant outcomes We believe that by comprehensively addressing the three limitations of cold static storage, the use of the OCS will allow for increased utilization of donor organs and improve post-transplant outcomes. 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 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 and thereby 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 7 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 solution to provide outsourced organ retrieval and organ management, to provide transplant programs with a more efficient process to procure donor organs with the OCS. 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 approval for our OCS Heart DCD PMA supplement. We have received FDA PMA approval for OCS Lung and OCS Liver for both DBD and DCD organs. We have received FDA approval for OCS Heart for DBD organs. We submitted a PMA supplement to the FDA for use of the OCS Heart with DCD organs in November 2021 and expect to receive a decision from the FDA in 2022. • 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 National OCS Program. • Expand internationally by accessing national reimbursement for OCS in key European countries. We have begun the early development of submission material to various national healthcare systems throughout Europe. We believe international expansion will be an additional growth driver for us in the long term. Commercialization We commercialize our products through two channels. Our direct acquisition channel is provided for transplant centers who are interested in training their own teams for retrieval and organ management on the OCS. Customer users are certified on the use of OCS at our training facility. Customers in the direct acquisition channel keep inventory of OCS disposables available and order replenishment as they are used. Our National OCS Program provides a second option for transplant centers who would like to outsource the retrieval and organ management process. We provide the full service to the transplant center, allowing the transplant center to focus their internal resources on the transplant surgery and patient care. Utilizing our National OCS Program saves the transplant center from investing in additional resources to support higher volumes and longer distance retrievals. 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. 8 Data from the 20 20 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. 3 million, of which only approximately $130,000 is associated with organ acquisition; overall billed charges for a heart transplant are approximately $1. 7 million, of which only approximately $1 3 0,000 is associated with organ acquisition; and overall billed charges for a liver transplant are approximately $ 0.9 million , of which only approximately $ 100 ,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, 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. 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 FDA PMA approvals and PMA submissions for the OCS for lung, heart and liver transplantation. Many of these clinical trials and studies have been published in peer-reviewed clinical journals. 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. The results of our clinical trials are summarized in the images below. . 9 OCS Clinical Trial Overview Table 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, 2021, our owned and licensed patent portfolio consisted of approximately 274 issued patents and pending patent applications worldwide, including in the United States, Australia, Europe, Canada, China, Israel, New Zealand and Japan. 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 30 issued patents and 9 pending applications. Outside the United States, our owned portfolio includes about 178 issued patents and 57 pending applications. Issued patents 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. 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. 10 As of December 31, 2021, 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, 2021, 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 2036, excluding any potential additional patent term for patent term adjustments or patent term extensions, if applicable. We have requested patent term extension for one patent relating to the OCS Heart, U.S. Patent No. 7,651,835, which, if granted, would expire in 2032. As of December 31, 2021, 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. We have requested patent term extension for one patent relating to the OCS Liver, U.S. Patent No. 10,076,112, which, if granted, would expire in 2035. As of December 31, 2021, 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 2032, 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 11 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 November 6, 2021 for this patent and w e have not received final approval of the patent extensi on beyond the interim patent already requested . The maximum extension granted would be through May 2022. However , the length of the patent term extension is currently being determined by the United States Patent and Trademark Office, or 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. We have not received communication from the USPTO, but expect that the USPTO’s patent term extension for the ‘082 patent will maintain the November 6, 2021 expiration date. 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. The final determination of the length of the patent extension is not expected to impact our financial results. 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. 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. 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 or temperature controlled cold storage devices. 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 warm perfusion 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; • superior technology; • regulatory approvals for broad clinical indications of use; 12 • 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. 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 years ended December 31, 2021 and 2020 our research, development and clinical trials expenses were $22.3 million and $18.8 million, respectively. This team is focused on the following research, development and clinical trial activities: • developing the next generation OCS; • 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, and; • conducting research to investigate new clinical applications and uses for the OCS platform. 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 years of forecasted 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. 13 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 and other countries. 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. Regardless of whether we have or are required to obtain FDA clearance or approval for a product, we will be required to obtain the relevant authorizations/approvals before commencing clinical trials/investigations and to obtain the necessary authorizations, approvals or certifications of our products under the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials/investigations or commercialize our products in those countries. In the European Union, the manufacturer of a device must affix a Conformité Européene mark, or CE Mark, which allows the device to be placed on the market anywhere in the EU and additional Member States of the European Economic Area, or EEA, (i.e ., Norway, Lichtenstein and Iceland). The EU CE mark is also recognized in Turkey and, for a transitional period following the UK’s withdrawal from the European Union, referred to as Brexit, in the United Kingdom. The authorization/approval processes for devices outside 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 or EU CE marking. 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/or the user and are those for which safety and effectiveness can be reasonably 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 device malfunctions, 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 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. We received 510(k) clearance for the OCS Lung Solution for cold flush, storage and transportation of donor lungs in July 2021. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting and many 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. 14 Each of our OCS warm perfusion products is a Class III device. We have received a PMA for each of the following: • OCS Lung for the preservation of standard criteria donor lungs for double-lung transplantation; • OCS Lung for the preservation of donor lungs initially deemed unsuitable due to limitations of cold storage for double-lung transplantation; • OCS Heart for the preservation of DBD donor hearts deemed unsuitable due to limitations of cold storage (e.g. >4 hours of cross-clamp time); and • OCS Liver for the preservation of DBD and DCD donor livers < 55 years old, macrosteatosis < 15% and with < 30 minutes of warm ischemia time. In the future, we also hope to obtain PMA for the OCS Heart for the preservation of DCD donor hearts. PMA Pathway Class III devices require an approved PMA before they can be marketed. 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. 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’ 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. 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. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval. 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 application and may be necessary to support PMA supplements for additional indications or modified versions of a marketed device product. All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations that govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of study review and approval, informed consent, recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk” to human health, as 15 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. 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. 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. 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. Non-significant risk device studies do not require submission of an IDE application to FDA. In the United States, 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. 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. 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. 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 and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product 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; 16 • 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 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. 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 through Regulation (EU) 2017/745, or the MDR, which repealed and replaced the Medical Devices Directive (93/42/EEC) with effect from May 26, 2021. However, the competent authorities in each member state enforce the standards set out in the MDR against relevant economic operators (including the manufacturer, importer, authorized representative and distributors) making medical devices available in the member state (although, under the MDR there are provisions for national competent authorities to inform other competent authorities, the European Commission and Notified Bodies, as applicable, of certain non-compliances). Under the MDR, a medical device placed on the market in the European Union must meet the applicable General Safety and Performance Requirements, or GSPRs, laid down in Annex I of the MDR. Similar to the U.S. system, medical devices are classified into one of four classes based on risk: I, IIa, IIb and III, with class I representing the lowest risk products and class III the highest risk products. One of the most fundamental GSPRs 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 (provided that any risks posed are acceptable when weighted against the benefits). In addition, the GSPRs include (but are not limited to) that the device must achieve the performances intended by the manufacturer, be designed, manufactured and packaged in a suitable manner and the manufacturer must establish, implement, document and 17 maintain a risk management plan . The European Commission has adopted various standards applicable to medical devices , referred to as harmonized standards . While not mandatory, compliance with these harmonized standards is often viewed as the easiest way to satisfy the GSPRs as a practical matter. Compliance with a harmonized standard developed to implement a GSPR also creates a rebuttable presumption that the device satisfies that essential requirement. Currently the European Commission has only harmonized a relatively limited number of standards (these include, for example, standards of sterilization, biological evaluation, the quality management system, etc. ) but the Commission will continue to harmonize more standards. To demonstrate compliance with the GSPRs, 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. For all devices other than low risk devices ( i.e. , Class I non-sterile, non-measuring devices), a conformity assessment procedure requires the intervention of a notified body. 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 affix 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. Although the MDR now applies so all new devices placed on the market must be CE marked under it, under the transition period granted by the MDR, certificates issued by notified bodies for medical devices under the Medical Devices Directive before May 26, 2021 remain valid until the period indicated on the certificate, subject to all certificates becoming void on May 27, 2024. Therefore, so long as there are no significant changes in the design and intended purpose of these devices, the devices can continue to be placed on the market until the date the Medical Devices Directive certificate becomes void. The requirements of MDR are significantly more onerous than under the EU Medical Devices Directive. These apply to both devices CE marked under the MDR and the EU Medical Devices Directive that are benefitting from the transition period. 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; • 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 actively working toward being compliant with MDR and interactions with our notified body are underway. Because of the permitted transition periods under MDR, each of our medical devices will require recertification prior to September 19, 2022 (i.e., the date on which the certificates of conformity under the Medical Devices Directive become void). 18 Clinical Investigations Clinical evidence is required for most medium and high risk devices. In some cases, a clinical study may be required to support a CE marking application. A manufacturer that wishes to conduct a clinical study involving the device is subject to the clinical investigation requirements of the MDR, EU member state requirements, and current good clinical practices defined in harmonized standards and guidance documents. 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 apply after a device is placed on the market. These include the obligation to have in place a post-market surveillance system and vigilance system. These requirements include that the manufacturer must report to the relevant national competent authorities any serious incident involving devices made available on the market and any field safety corrective action in respect of devices made available on the market or undertaken in a third country in relation to a device made available on the market. Additionally, the manufacturer must submit periodic safety update reports. Authorities in the European Union also closely monitor the marketing programs implemented by device companies. The MDR prohibits making misleading claims, including promoting the product for or suggesting a use that is not part of its intended purpose. However, the obligations that companies must fulfill concerning premarketing approval of promotional material vary among member states of the European Union as beyond that requirement, advertising and promotion law is not harmonized in the European Union. 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. Regulation of Medical Devices in the United Kingdom The Medicines and Healthcare products Regulatory Agency, or the MHRA, is responsible for regulating the UK medical devices market. The MHRA performs market surveillance of medical devices on the UK market and is able to take decisions over the marketing and supply of devices in the UK. The MHRA is also responsible for the designation and monitoring of UK conformity assessment bodies. In the United Kingdom medical devices are regulated under the Medical Devices Regulations 2002 (SI 2002 No 618, as amended) (UK MDR 2002) which, prior to the end of the transition period, gave effect in UK law to the directives listed below: • Directive 90/385/EEC on active implantable medical devices (EU AIMDD) • Directive 93/42/EEC on medical devices (EU MDD) • Directive 98/79/EC on in vitro diagnostic medical devices (EU IVDD) This means that the Great Britain route to market and UK Conformity Assessed, or UKCA, marking requirements are based on the requirements derived from the above EU legislation. Since May 26, 2021, the EU Medical Devices Regulation (Regulation 2017/745), or the EU MDR, has applied in EU Member States and Northern Ireland. Further, the in vitro Diagnostic Medical Devices Regulation (Regulation 2017/746), or the EU IVDR, will apply in EU Member States and Northern Ireland from May 26, 2022. As these EU regulations did not take effect during the transition period, they were not EU law automatically retained by the EU (Withdrawal) Act 2018 and therefore do not and will not apply in Great Britain (England, Wales and Scotland). Since January 1, 2021, there have been a 19 number of changes, introduced through secondary legislation, on how medical devices are placed on the market in Great Britain (England, Wales and Scotland). These are: • a new route to market and product marking (the UKCA marking) is available for manufacturers wishing to place medical devices on the Great Britain market; • all medical devices, including in vitro diagnostic medical devices, or IVDs, custom-made devices and systems or procedure packs, need to be registered with the MHRA before they are placed on the Great Britain market; • medical device manufacturers based outside the UK who wish to place a device on the Great Britain market need to appoint a single UK Responsible Person for all devices who will act on their behalf to carry out specified tasks, such as registration; • CE marking will continue to be recognized in Great Britain until June 30, 2023; • certificates issued by EU-recognized Notified Bodies will continue to be valid for the Great Britain market until June 30, 2023; • the EU no longer recognizes UK Notified Bodies; and • UK Notified Bodies are not able to issue CE certificates - and have become UK Approved Bodies. All medical devices, including IVDs, custom-made devices and systems or procedure packs must be registered with the MHRA before being placed on the Great Britain market. In Great Britain, devices must conform to the UK MDR 2002, the EU MDR (until June 30, 2023), or the EU IVDR (until June 30, 2023) in order to be registered with the MHRA. In addition, devices that have been CE marked under the EU MDD, EU AIMDD or EU IVDD will continue to be accepted on the Great Britain market until June 30, 2023 if their certificates remain valid for the EU market under the transitional arrangements in the EU MDR and EU IVDR. Any mandatory third-party conformity assessment for the CE marking must be carried out by an EU Notified Body. This includes both EU-based Notified Bodies and Notified Bodies in countries which are listed on the EU’s NANDO Information System. Certificates issued by EU-recognized Notified Bodies that are valid for the EU market, will continue to be valid for the Great Britain market until 30 June 2023. From July 1, 2023, devices that are placed on the Great Britain market will need to conform with UKCA marking requirements. The UKCA marking is a UK product marking used for certain goods, including medical devices, being placed on the Great Britain market. For the purposes of the UKCA marking, a UK Approved Body must be used in cases where third party conformity assessment is required. Where a manufacturer is not established in the UK, they must appoint a UK Responsible Person to register and act on their behalf. The responsibilities of the UK Responsible Person are set out in the UK MDR 2002. The name and address of the UK Responsible Person, where applicable, must be included on the product labelling or the outer packaging, or the instructions for use in cases where the UKCA marking has been affixed. However, UK Responsible Person details do not need to be included on labelling for CE marked devices, unless the device bears both the CE and UKCA markings. The MHRA Enforcement of Medical Device Regulations in the UK To ensure that medical devices placed on the market and put into service in the UK meet applicable regulatory requirements the MHRA perform the following activities: • assess all allegations of non-compliance brought to them, using a risk-based system; • monitor the activity of UK Approved Bodies designated by MHRA to assess the compliance of manufacturers; and • investigate medical devices as a result of adverse incident reports or intelligence indicating a potential problem If MHRA considers that a person or company has committed a serious offence by failing to comply with applicable regulations or the conditions of a notice issued then a person/company may be subject to prosecution. 20 Clinical Investigations In order to demonstrate compliance with the essential requirements of the UK Medical Devices Regulations 2002 (SI 2002 No 618, as amended)(UK MDR 2002) and the general safety and performance requirements of the (EU) Medical Devices Regulation 2017/745 (MDR) governing safety and performance, and in order to justify the application of UKCA/CE/CE UKNI marking, it will sometimes be necessary for the manufacturer of the device to provide clinical data with which to back up claims made for that device. This may involve the need for a specifically designed clinical investigation to: • verify that under normal conditions of use the performance characteristics of the device are those intended by the manufacturer; and • determine any undesirable side-effects and to assess whether these are acceptable risks when weighed against the intended performance of the device. If such an investigation is necessary, the manufacturer must make an application to the MHRA before the investigation is due to begin, and such a clinical investigation may only proceed provided no grounds for objection are raised by the MHRA within the statutory review time constraint. The MHRA will reach a decision aided by a number of expert assessors. It is the responsibility of the manufacturer both to notify the MHRA and to submit the documentation required by the UK MDR 2002 or EU MDR to the MHRA. The clinical investigator will normally have no direct contact with the MHRA. Post-marketing Requirements Once a medical device has been placed on the UK market, the manufacturer is required to submit vigilance reports to the MHRA when certain incidents occur in the UK that involve their device. They must also take appropriate safety action when required. The manufacturer must also ensure their device meets appropriate standards of safety and performance for as long as it is in use. The advertising and marketing of medical devices is governed in the UK by both legislation and self-regulatory codes of practice. New Developments: Brexit Our notified body, BSI, previously issued from its UK entity the certificates which allow CE marking of the OCS products. Following Brexit, certificates issued by UK notified bodies shall 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 based in the EU to cover Europe in separate arrangements in compliance with regulations. Regulations Applicable Organs Intended for Transplantation The standards for the quality and safety of organs for transplantation has been enacted into UK law through The Quality and Safety of Organs Intended for Transplantation Regulations 2012 and The Quality and Safety of Organs Intended for Transplantation (Amendment) Regulations 2014. This Act allows for the establishment of a Competent Authority for the regulation of organ transplantation. In the UK the Competent Authority is the Human Tissue Authority, which has published the “The Quality and Safety of Organs Intended for Transplantation: a documentary framework” which details mandatory requirements as well as guidance on how those requirements may be met. While we are not directly affected by this Regulation and guidelines, our UK customers are, and our products may either help or impede their compliance with this Regulation. 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; 21 • 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. Internationally, the approaches to product defects will vary. A product may be recalled in one country but not in others. 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. 22 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 UK are governed by the code of Association of British Healthcare Industries, or ABHI, 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 UK and in the United States include the offence of bribing a foreign public official. 23 Data Privacy and Security Laws We are, and 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. 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 gives 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. These protections will be expanded by California Privacy Rights Act of 2020, or CPRA, which will be operational in most key respects in 2023, along with new privacy laws in Virginia and Colorado. 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. Following Brexit, the UK has substantively retained the same privacy rules as it had when a member of the European Union. 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 E-Privacy Directive into its own national data privacy regime and therefore the laws may differ by jurisdiction, sometimes significantly. The GDPR was retained post-Brexit in the UK as the UK GDPR. 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. The UK has done the same. We need to ensure compliance with the rules in each jurisdiction where we are established. Even if not established in the EEA (or the UK), we may otherwise be subject to local privacy laws in those regions. For example, we may be subject to the GDPR even when 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 24 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 (including the safety and efficacy of medical devices) or scientific research. The same rules apply to us in the UK under the UK GDPR and in relation to transfers out of the UK . 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, encourages the use of pseudonymization techniques (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. All these points apply equally to the UK (and in relation to transfers from the UK to the U.S.). 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 (or the UK), 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. Since its enactment, there have been and likely will be judicial, administrative, executive, and legislative challenges to certain aspects of the Affordable Care Act. For example, tax reform legislation was enacted at the end of 2017 that eliminates the tax penalty for individuals who do not maintain sufficient health insurance coverage beginning in 2019 (the so-called “individual mandate”). More recently, on June 17, 2021, the U.S. 25 Supreme Court dismissed the latest judicial challenge to the Affordable Care Act brought by several states without specifically ruling on the constitutionality of the Affordable Care Act. Changes resulting from any successful challenges or other future modifications have a material impact on our business. 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. 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. Human Capital Our human capital strategy is comprehensive and leverages our work practices and collaborative culture. We foster a strong relationship with and among our employees with various efforts such as training and development programs, and other programs, including skill development courses, manager training and leadership development opportunities. As of December 31, 2021, we had approximately 148 employees, most of whom were full-time employees. Except for certain European employees, our employees are not subject to collective bargaining agreements, and we believe we have a strong relationship with our employees. Corporate Information and Organizational Transactions TransMedics Group, Inc., was incorporated in the Commonwealth of Massachusetts in October 2018 to facilitate our initial public offering, or 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. 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. 26