What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-09 · 98 added, 219 removed, 184 unchanged (63% of the section changed)

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As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment.

We believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes.

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 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.

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

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

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

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, as follows:

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);

OCS Heart for the ex vivo reanimation, functional monitoring, and beating-heart preservation of DCD hearts (FDA approval received on April 28, 2022), and

OCS Liver for the preservation of DBD and DCD donor livers < 55 years old, macrosteatosis <15% and with < 30 mins of warm ischemia time.

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

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

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

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

Since our inception, we have incurred significant operating losses.

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

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

We generated net revenue of $15.9 million and incurred a net loss of $10.6 million for the three months ended March 31, 2022.

We generated net revenue of $30.3 million and incurred a net loss of $44.2 million for the year ended December 31, 2021.

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

As of March 31, 2022, we had an accumulated deficit of $453.0 million.

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

markets, including growing our sales and clinical adoption team, which will pursue increasing commercial sales and clinical adoption of our OCS products;

markets, including growing our commercial team, which will pursue increasing commercial sales of our OCS products;

scaling our manufacturing operations;

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continuing research, development and clinical trial efforts;

seeking regulatory clearance for new products and product enhancements, including new indications, in both the United States and select non-U.S.

seeking regulatory clearance for new products and product enhancements, including new indications, in both the

U nited States and select non-U.S.

and operating as a public company.

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If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.

We believe that our cash and cash equivalents and marketable securities will be sufficient for us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months.

As of March 31, 2022, we had cash, cash equivalents and marketable securities of $72.0 million.

Our credit facility of $35.0 million with OrbiMed matures on June 22, 2023.

We believe that our cash, cash equivalents and marketable securities will be sufficient for us to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months following the filing of our Quarterly Report on Form 10-Q.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

See “—Liquidity and Capital Resources”.

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

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

the temporary disruption of transplant procedures at many of the organ transplant centers who purchase OCS products;

The COVID-19 pandemic, including efforts to contain the spread of the coronavirus, has impacted, and may continue to impact, our business, financial condition, operating results and cash flows, including as a result of the impact of new variants.

Impacts to our business as a result of COVID-19 have included the temporary disruption of transplant procedures at many of the organ transplant centers who purchase OCS products;

customer delays or reductions in customer capital expenditures and operating budgets and the related impact on our product sales;

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decreased productivity and unavailability of materials or components;

restrictions on or delays of our clinical trials and studies;

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

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

and delays in product installations, trainings or shipments to and from affected countries and within the United States.

In addition, o ur sales and clinical adoption team was restricted in visiting many transplant centers in person between April 2020 and September 2020.

In response to the pandemic, healthcare providers have, and may need to further, reallocate resources, such as physicians, staff, hospital beds and intensive care unit facilities, and these actions significantly delay the provision of other medical care such as organ transplantation and reduce the number of transplant procedures that are performed, which has a negative impact on our revenue and clinical trial activities.

In April 2020, we announced several steps to respond to the COVID-19 pandemic intended to protect the health and safety of our employees, to establish a process to support the continuous supply of our OCS products at transplant centers globally and to maintain financial flexibility.

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

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

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

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

We continue to monitor developments regarding the COVID-19 pandemic and its impact on our business, financial condition, results of operations and prospects.

The extent of the future impact on our operations and financial condition is difficult to predict and will depend on the length and severity of the pandemic, its consequences, and containment and vaccination efforts.

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

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

delays in our clinical trial enrollment;

limitations on our employees’ and customers’ ability to travel, and delays in product installations, trainings or shipments to and from other affected countries and within the United States.

These actions significantly delay the provision of other medical care such as organ transplantation and reduce the number of transplant procedures that are performed, which negatively impacts our revenue and cash flows.

These measures and challenges may continue for the duration of the COVID-19 pandemic.

The COVID-19 pandemic has also impacted, and may continue to impact, our third party suppliers, including through the effects of facility closures, reductions in operating hours, staggered shifts and other social distancing efforts, labor shortages, decreased productivity and unavailability of materials or components.

In addition, inflation, changes in trade policies, and the imposition of duties and tariffs could adversely impact the price or availability of raw materials, the components of our products as well as shipping and transportation costs.

While we maintain an inventory of finished products and raw materials used in our OCS products, a further prolonged pandemic could lead to shortages in the raw materials necessary to manufacture our products.

The extent to which COVID-19 impacts operations of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

If we experience a prolonged disruption in our manufacturing, supply chains, or commercial operations, we would expect to experience a material adverse impact on our business, financial condition, results of operations and prospects.

Recent Developments

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

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

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

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

On April 28, 2022, we received a PMA from the FDA for the use in the United States of the OCS Heart for use with organs from donors after circulatory death.

The PMA for the OCS Heart was based on the results of the OCS DCD Heart Trial.

Components of Our Results of Operations

We generate revenue primarily from sales of our single-use, organ-specific disposable sets (i.e., our organ-specific OCS Perfusion Sets sold together with our organ-specific OCS Solutions) used on our organ-specific OCS Consoles, each being a component of our OCS products.

We generate revenue primarily from sales of our single-use, organ-specific disposable sets used on our organ-specific OCS Consoles.

To a lesser extent, we also generate revenue from the sale of OCS Consoles to customers and from the implied rental of OCS Consoles loaned to customers at no charge.

For each new transplant procedure, customers purchase an additional OCS disposable set for use on the customer’s existing organ-specific OCS Console.

All of our revenue has been generated by sales to transplant centers in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries.

All of our revenue has been generated by sales to transplant centers and Organ Procurement Organizations, not-for-profit organizations responsible for recovering organs from deceased donors for transplantation, in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries.

Substantially all of our customer contracts have multiple-performance obligations that contain promises consisting of OCS Perfusion Sets and OCS Solutions.

In some of those contracts, the promises also include an OCS Console, whether sold or loaned to the customer.

Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under arrangements referred to as customer clinical trial agreements.

Under most of these customer clinical trial agreements, we place an organ-specific OCS Console at the customer site for its use free of charge for the duration of the clinical trial, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure during the clinical trial.

We have customer agreements under which we loan our OCS Consoles to the customer for the duration of the agreement.

In such cases, we place an organ-specific OCS Console at the customer site for its use free of charge, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure.

When we loan the OCS Console to the customer, we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any OCS products.

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For these reasons, we have determined that part of the selling price for the disposable set is an implied rental payment for use of the OCS Console.

We continue to loan OCS Consoles to some of our customers during commercialization of our OCS products.

Because all promises of a customer contract are delivered and recognized as revenue at the same time and because revenue allocated to promises other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all performance obligations from customer contracts are classified as a single category of revenue in our consolidated statements of operations.

Under some of our customer clinical trial agreements, we make payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products.

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

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

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

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

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

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

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

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

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

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

donors after brain death and after circulatory death .

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

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

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

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

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

Under some of our customer clinical trial agreements, we made payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products.

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

We did not record any reimbursable clinical trial costs as a reduction of revenue for the three months ended March 31, 2022.

We recorded reimbursable clinical trial costs as a reduction of revenue of $0.6 million for the three months ended March 31, 2021.

Through March 31, 2022, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials).

We expect that our net revenue will increase over the long term as a result of receiving PMAs for the OCS Lung, OCS Heart and OCS Liver in the United States.

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

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

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

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

Cost of Revenue, Gross Profit and Gross Margin

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

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

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

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

We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin.

As utilization by customers of our OCS products increases, we expect that a greater number of OCS disposable sets will be used per year on the same OCS Console, thereby driving overall gross margin improvement.

Because we expect that the number of OCS disposable sets sold over time will be significantly greater than the number of OCS Consoles sold or loaned to customers over that same period, we expect that our gross margin improvement will not be significantly affected by the number of OCS Consoles that we sell or loan to customers.

While we expect gross margin to increase over the long term, it will likely fluctuate from quarter to quarter .

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Research, Development and Clinical Trials Expenses

Research, development and clinical trials expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering, clinical trials to develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include:

Research, development and clinical trials expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering, clinical trials to continue to develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include:

employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research, hardware and software development, regulatory and clinical trial functions;

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our sales and clinical adoption team and personnel in executive, marketing, finance and administrative functions.

Selling, general and administrative expenses also include direct and allocated facility-related costs, promotional activities, marketing, conferences and trade shows as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.

We expect to continue to increase headcount in our sales and clinical adoption team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S.

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our commercial team and personnel in executive, marketing, finance and administrative functions.

Selling, general and administrative expenses also include direct and allocated facility-related costs, promotional activities, marketing, conferences and trade show costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.

We expect to continue to increase headcount in our commercial team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S.

and select non-U.S.

We expect that our selling, general and administrative expenses will increase over the long term as we increase our headcount to support the expected continued sales growth of our OCS products.

We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with our continued operation as a public company.

Other Income (Expense)

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Foreign currency transaction gains and losses result from intercompany transactions as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded.

Provision for Income Taxes

Since our inception, we have not recorded any U.S.

federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

In reporting periods subsequent to 2016, we have recorded provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries.

As of December 31, 2020, we had U.S.

federal and state net operating loss carryforwards of $322.0 million and $252.7 million, respectively, which may be available to offset future taxable income and begin to expire in 2021 and 2030, respectively.

Our federal net operating losses include $108.0 million, which can be carried forward indefinitely.

As of December 31, 2020, we also had U.S.

federal and state research and development tax credit carryforwards of $7.6 million and $5.0 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2021 and 2024, respectively.

As of December 31, 2020, we had no foreign net operating loss carryforwards.

We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Results of Operations

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

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

Three Months Ended September 30,

(in thousands)

Cost of revenue

Operating expenses:

Research, development and clinical trials

Selling, general and administrative

Total operating expenses

Loss from operations

Other income (expense):

Interest expense

Other income (expense), net

Total other expense, net

Loss before income taxes

Provision for income taxes

Three Months Ended September 30,

(in thousands)

Net revenue by geography:

United States

Outside the U.S.

Total net revenue

Net revenue by OCS product:

OCS Lung net revenue

OCS Heart net revenue

OCS Liver net revenue

Total net revenue

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

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

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

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

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

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

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

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

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

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

to the three months ended September 30, 2021.

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

Cost of Revenue, Gross Profit and Gross Margin

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

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

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

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

Operating Expenses

Research, Development and Clinical Trials Expenses

Three Months Ended September 30,

(in thousands)

Personnel related (including stock-based compensation

Clinical trials costs

Consulting and third-party testing

Laboratory supplies and research materials

Total research, development and clinical trials expenses

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

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

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

Selling, General and Administrative Expenses

Three Months Ended September 30,

(in thousands)

Personnel related (including stock-based compensation

Professional and consultant fees

Tradeshows and conferences

Total selling, general and administrative expenses

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

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

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

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

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

Other Income (Expense)

Interest Expense

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

Other Income (Expense), Net

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

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

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

Nine Months Ended September 30,

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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Interest expense

Other income (expense), net

Other expense, net

Total other expense, net

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Provision for income taxes

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Total net revenue

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

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

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

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

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

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

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

The increase in net revenue from customers outside the United States

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

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

Net revenue from customers in the United States was $13.6 million in the three months ended March 31, 2022 and increased by $7.8 million compared to the three months ended March 31, 2021, primarily due to higher sales volumes of our OCS Liver and OCS Heart disposable sets as a result of the FDA approval for these two products in the third quarter of 2021.

This increase was partially offset by lower sales volumes of our OCS Lung disposable sets.

Net revenue from sales of OCS Liver disposable sets in the United States increased by $7.4 million due primarily to higher sales volumes of OCS Liver disposable sets resulting from the recent FDA approval of the OCS Liver product along with the expansion of our National OCS Program to provide a streamlined solution for transplant centers to use the OCS Liver.

Net revenue from sales of OCS Heart disposable sets in the United States increased by $0.7 million also primarily as a result of the FDA approval of the OCS Heart in the third quarter of 2021.

Both the OCS Heart and the OCS Liver were approved for commercial sale in September 2021, which has provided the opportunity for increased sales volumes and pricing.

Net revenue from sales of OCS Lung disposable sets in the United States decreased by $0.4 million due to lower sales volumes of OCS Lung disposable sets, which were negatively impacted by the Omicron variant of COVID-19 in the early part of the first quarter of 2022.

Net revenue from customers outside the United States was $2.3 million in the three months ended March 31, 2022 compared to $1.3 million in the three months ended March 31, 2021.

The increase in net revenue from customers outside the United States was primarily due to a progressive return to pre-COVID-19 volumes of transplant procedures in the European

Net revenue from sales of OCS Heart disposable sets outside the United States increased by $ 0.8 million due to increased sales volume of OCS Heart d isposable sets .

Net revenue from OCS Lung d isposable sets increased by $ 0.2 million from the three months ended March 31, 2021 to the three months ended March 31, 2022 due to higher sales volumes of OCS Lung disposable sets .

Cost of Revenue, Gross Profit and Gross Margin

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

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

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

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

Cost of revenue increased by $1.5 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Gross profit increased by $7.3 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Gross margin was 76% and 68% for the three months ended March 31, 2022 and 2021, respectively.

Gross margin increased primarily as a result economies of scale from higher sales volumes and an increase in pricing.

Operating Expenses

Research, Development and Clinical Trials Expenses

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Total research, development and clinical trials expenses

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

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

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

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

Total research, development and clinical trials expenses increased by $3.0 million from $4.5 million in the three months ended March 31, 2021 to $7.5 million in the three months ended March 31, 2022.

Consulting and third-party testing, laboratory supplies and research materials and other costs increased by $2.2 million, $0.7 million and $0.4 million, respectively, due to increased activity in our next generation program and ongoing existing research activities.

Clinical trial costs decreased by $0.4 million due to the completion of pre-market approval clinical trial enrollment activity following the approval of the OCS Heart and OCS Liver by the FDA in September 2021.

Selling, General and Administrative Expenses

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Total selling, general and administrative expenses

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

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

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

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

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

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

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

Total selling, general and administrative expenses increased by $7.2 million from $6.8 million in the three months ended March 31, 2021 to $13.9 million in the three months ended March 31, 2022 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Personnel related costs increased by $4.5 million primarily due to the continued expansion of our team to support the National OCS Program and commercial growth of our OCS Lung, OCS Heart and OCS Liver products in the United States, as well as an increase in stock-based compensation expense of $1.1 million due primarily to additional grants to new and existing employees.

Professional and consultant fees increased by $0.7 million due to additional sales and administration costs related to the expansion of our National OCS Program.

Tradeshows and conferences costs increased by $0.3 million as a result of an increase in activities as restrictions implemented in response to the COVID-19 pandemic were eased.

Other costs increased by $1.7 million due to increased logistics costs related to the expansion of our National OCS Program.

Other Income (Expense)

Interest Expense

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

Other Income (Expense), Net

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

Interest expense was $1.0 million for each of the three months ended March 31, 2022 and 2021.

Other Expense, Net

Other expense, net for the three months ended March 31, 2022 and 2021 included interest income of less than $0.1 million in each period resulting from interest earned on invested cash balances, and $0.2 million and $0.5 million of realized and unrealized foreign currency transactions losses, respectively.

Liquidity and Capital Resources

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

Since May 2019, we have funded our operations with the proceeds from our 2019 initial public offering of our common stock and our 2020 follow-on public offering.

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

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

As of March 31, 2022, we had cash, cash equivalents, and marketable securities of $72.0 million.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Cash used in operating activities

Cash provided by (used in) investing activities

Cash provided by financing activities

Net cash used in operating activities

Net cash provided by investing activities

Net cash provided by financing activities

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

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Operating Activities

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

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

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

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

During the three months ended March 31, 2022, operating activities used $18.4 million of cash, primarily resulting from our net loss of $10.6 million and net cash used by changes in our operating assets and liabilities of $11.4 million, partially offset by net non-cash charges of $3.6 million.

Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2022 consisted primarily of an increase in accounts receivable of $5.8 million, an increase in inventory of $2.9 million and a decrease in accounts payable and accrued expenses and other current liabilities of $4.0 million, partially offset by an increase in operating lease liabilities of $1.2 million related to the reimbursement of tenant improvement costs.

During the three months ended March 31, 2021, operating activities used $7.3 million of cash, primarily resulting from our net loss of $7.9 million and net cash used by changes in our operating assets and liabilities of $2.0 million, partially offset by net non-cash charges of $2.6 million.

Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2021 consisted primarily of a $0.9 million increase in prepaid expenses and other current assets, a $0.6 million increase in accounts receivable, a $0.4 million increase in inventory and a $0.3 million decrease in accounts payable and accrued expenses and other current liabilities, partially offset by a $0.2 million increase in deferred revenue.

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

Investing Activities

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

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

During the three months ended March 31, 2022, net cash provided by investing activities of $10.5 million consisted of proceeds from sales and maturities of marketable securities of $14.5 million, partially offset by purchases of marketable securities of $2.0 million and purchases of property and equipment of $2.0 million.

During the three months ended March 31, 2021, net cash provided by investing activities of $9.3 million consisted of proceeds from sales and maturities of marketable securities of $21.0 million, partially offset by $11.7 million in purchases of marketable securities.

Financing Activities

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

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

During the three months ended March 31, 2022, net cash provided by financing activities of $0.4 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $0.2 million and proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.2 million.

During the three months ended March 31, 2021, net cash provided by financing activities of $0.6 million consisted of proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.2 million and proceeds from the issuance of common stock upon exercise of stock options of $0.4 million.

Long-Term Debt

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Borrowings under the Credit Agreement are repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest is due and payable.

At our option, we may prepay outstanding borrowings under the Credit Agreement, subject to a prepayment premium that decreased to zero in June 2021.

Our current prepayment premium is zero.

We are also required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment, which we are accreting to interest expense over the term of the Credit Agreement using the effective interest method.

At our option, we may prepay outstanding borrowings under the Credit Agreement.

We are required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment, which we are accreting to interest expense over the term of the Credit Agreement using the effective interest method.

All obligations under the Credit Agreement are guaranteed by us and each of our material subsidiaries.

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

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

As of March 31, 2022, we were in compliance with all of the covenants under the Credit Agreement.

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

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Funding Requirements

As we continue to pursue and increase commercial sales of our OCS products, we expect our costs and expenses to increase in the future, particularly as we expand our sales and clinical adoption team, scale our manufacturing operation, continue research, development and clinical trial efforts, and seek regulatory approval for new products and product enhancements, including new indications, both in the United States and in select non-U.S.

As we continue to pursue and increase commercial sales of our OCS products, we expect our costs and expenses to increase in the future, particularly as we expand our commercial team, grow our National OCS Program, scale our manufacturing operations, continue research, development and clinical trial efforts, and seek regulatory approval for new products and product enhancements, including new indications, both in the United States and in select non-U.S.

In addition, following the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company.

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Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital” in our 2021 Form 10-K.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and commitments from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Form 10-K.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

Our inability or failure to do so could harm our business, financial condition or results of operations.

Critical Accounting Policies and Significant Judgments and Estimates

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There have been no material changes to our critical accounting policies and estimates from those disclosed in our consolidated financial statements and the related notes and other financial information included in our 2021 Form 10-K.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis