What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-03 · 111 added, 125 removed, 247 unchanged (49% 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 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 believe the use of the OCS has the potential to significantly increase the number of organ transplants and improve post-transplant outcomes.

We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs.

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>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 Heart for the ex vivo reanimation, functional monitoring, and beating-heart preservation of DCD hearts;

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

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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, 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.

To date, we have funded our operations primarily with proceeds from 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 $36.4 million and incurred a net loss of $22.1 million for the six months ended June 30, 2022.

We generated net revenue of $62.1 million and incurred a net loss of $29.5 million for the nine months ended September 30, 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 June 30, 2022, we had an accumulated deficit of $464.5 million.

As of September 30, 2022, we had an accumulated deficit of $472.0 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.

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building our commercial operations;

developing the next generation OCS;

the next generation OCS;

continuing research, development and clinical trial efforts;

seeking regulatory clearance for new products and product

enhancements, including new indications, in both the U nited 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.

As of June 30, 2022, we had cash, cash equivalents and marketable securities of $58.1 million.

On July 25, 2022, we entered into a credit agreement with Canadian Imperial Bank of Commerce, or CIBC, for a loan of $60.0 million of which we used $36.3 million to repay our outstanding debt with OrbiMed Royalty Opportunities II, LP, or OrbiMed.

We believe that our cash, cash equivalents and marketable securities, including net proceeds from the CIBC loan, 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.

As of September 30, 2022, we had cash and cash equivalents of $204.5 million .

We believe that our cash and cash equivalents 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”.

COVID-19 and Economic Impacts

Economic Impacts and COVID-19

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

For example, the global economy has experienced extreme volatility and disruptions, including significant volatility in commodity and market prices, declines in consumer confidence, declines in economic growth, supply chain interruptions, uncertainty about economic stability and record inflation globally.

Unfavorable economic conditions have and could continue to result in a variety of risks to our business, including impacts on demand and pricing for our products and difficulty in forecasting our financial results.

A weak or declining economy also could strain our suppliers, possibly resulting in supply chain disruptions.

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;

disruptions to our manufacturing operations and supply chain caused by facility closures, reductions in operating hours, staggered shifts and other social distancing efforts;

Continued impacts to our business as a result of COVID-19 may include disruptions to our manufacturing operations and supply chain;

labor shortages;

decreased productivity and unavailability of materials or components;

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

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.

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, as they prioritize limited resources and personnel capacity to focus on the treatment of patients with COVID-19.

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.

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.

While we maintain an inventory of finished products and raw materials used in our OCS products, further prolonged pandemic-related disruptions 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.

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.

Unfavorable economic conditions could result in a variety of risks to our business, including demand and pricing for our products and difficulty in forecasting our financial results.

A weak or declining economy also could strain our suppliers, possibly resulting in supply chain disruptions.

Components of Our Results of Operations

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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.

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

In some of those contracts , the promises also include an OCS Console, whether sold or loaned to the customer , as well as organ retrieval and OCS organ management services under our National OCS Program .

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When a customer order includes disposable sets and organ retrieval or OCS organ management services, we have determined that the disposable sets and services constitute separate performance obligations and we recognize revenue as the disposable sets and services are delivered to the customer.

Net revenue relating to organ retrieval and OCS organ management services sold under our National OCS Program represented approximately 13% of net revenue for the three months ended June 30, 2022 and less than 10% of net revenue for the six months ended June 30, 2022.

Net revenue relating to organ retrieval and OCS organ management services sold under our National OCS Program represented approximately 17% of net revenue for the three months ended September 30, 2022 and 13% of net revenue for the nine months ended September 30, 2022.

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 and six months ended June 30, 2022.

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

Through June 30, 2022, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials).

Our sales in the EU are dependent on maintaining the CE Mark certification.

We applied for re-certification of our CE Marks in the EU under the EU Medical Devices Regulation (Regulation 2017/745), or the MDR, for each of the OCS Heart, the OCS Lung and the OCS Liver, which will otherwise expire in September 2022.

Given the delays in processing re-certifications experienced by our notified body as a result of the new MDR process, we believe it is possible that one or more of our CE Marks may not be re-certified by such date.

In that event, we anticipate that sales of our OCS products in the EU would be limited to the level of inventory that was shipped to our EU distribution center prior to that date and would not increase until we obtain the relevant re-certifications.

Failure to recertify the CE Marks prior to their expiration in September 2022 may therefore have a negative impact on our revenue and financial results.

Through September 30, 2022, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials).

Our sales in the EU are dependent on obtaining and maintaining the CE Mark certifications for each of our OCS products.

As required by the EU Medical Devices Regulation (Regulation 2017/745), or the MDR, we received recertification of the CE Mark in September 2022 for each of the OCS Heart and OCS Lung systems, which includes the OCS Console, the OCS disposables, and the OCS solution additives.

We also received the recertification of the CE Mark in September 2022 for the OCS Liver Console and disposables.

We have applied for and expect to receive the CE Mark for the OCS Liver combined with our solution additives under the MDR within the next 12 months.

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.

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, though in the shorter term, non-U.S.

sales could be impacted by any delays in the CE Mark re-certification process.

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 during clinical trials.

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.

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 cost of services provided in the National OCS Program, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses during clinical trials.

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, our product enhancements improve manufacturing efficiency, and our revenue mix continues to change as we provide more services and the efficiency in the provisioning of these services improves due to scale and experience .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.

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

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Interest Expense

Interest expense consists of interest expense associated with outstanding borrowings under our loan agreement as well as the amortization of debt discount associated with such agreement.

We expect our interest expense will increase in connection with a net increase in borrowings under our credit agreement with CIBC, under which we borrowed $60.0 million in July 2022.

At that time, we repaid the remaining $35.0 million of principal that had been outstanding under our prior credit agreement with OrbiMed, thereby increasing our total debt by $25.0 million.

Interest expense consists of interest expense associated with outstanding borrowings under our loan agreements as well as the amortization of debt discount associated with such agreements.

In July 2022, we entered into a credit agreement with Canadian Imperial Bank of Commerce, or CIBC, under which we borrowed $60.0 million.

At that time, we repaid the remaining $35.0 million of principal that had been outstanding under our prior credit agreement with OrbiMed Royalty Opportunities II, LP, or OrbiMed.

Other Income (Expense), Net

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Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:

Three Months Ended September 30,

(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

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

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Total net revenue

Net revenue from customers in the United States was $18.1 million in the three months ended June 30, 2022 and increased by $12.4 million compared to the three months ended June 30, 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 along with the expansion of our National OCS Program to provide a streamlined solution for transplant centers to use the OCS for all FDA-approved indications for lung, heart and liver.

Net revenue from customers who participated in our National OCS Program accounted for approximately 84% of total net revenue from customers in the United States for the three months ended June 30, 2022.

Net revenue for each of our disposable products in the table above includes net revenue from sales of disposable sets as well as service revenue for organ retrieval and OCS organ management services under the National OCS Program.

Net revenue relating to organ retrieval and OCS organ management services sold under our National OCS Program represented approximately 13% of net revenue for the three months ended June 30, 2022.

Net revenue from customers in the United States was $23.3 million in the three months ended September 30, 2022 and increased by $20.2 million compared to the three months ended September 30, 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 along with the expansion of our National OCS Program to provide a streamlined solution for transplant centers to use the OCS for all FDA-approved indications for lung, heart and liver.

The increase in OCS Liver and OCS Heart net revenue was partially offset by lower sales volumes of our OCS Lung disposable sets.

Net revenue from customers who participated in our National OCS Program accounted for approximately 90% of total net revenue from customers in the United States for the three months ended September 30, 2022.

Net revenue from sales of OCS Liver disposable sets in the United States increased by $12.5 million due primarily to higher sales volumes of OCS Liver disposable sets resulting from the recent FDA approval of the OCS Liver product.

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Net revenue from sales of OCS Lung disposable sets in the United States decreased by $0.9 million due to a decrease in sales volumes of OCS Lung disposable sets.

Net revenue from customers outside the United States was $2.4 million in each of the three months ended June 30, 2022 and 2021.

While the sales volumes of disposable sets outside of the United Sets increased from the three months ended June 30, 2021 to the three months ended June 30, 2022, an unfavorable impact of foreign exchange rates of $0.2 million fully offset the increase in sales volumes.

Net revenue from customers outside the United States was $2.4 million in the three months ended September 30, 2022 and increased by $0.1 million compared to the three months ended September 30, 2021.

Net revenue outside of the United States increased for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 due to increased pricing.

This increase was partially offset by an unfavorable impact of foreign exchange rates of $0.3 million.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $3.6 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Gross profit increased by $8.8 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Gross margin was 70% and 68% for the three months ended June 30, 2022 and 2021, respectively.

Gross margin increased primarily as a result of economies of scale from higher sales volumes.

Cost of revenue increased by $6.0 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Gross profit increased by $14.3 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Gross profit in the three months ended September 30, 2022 included a favorable impact of $1.4 million as a result of changes in estimates of certain clinical trial accruals.

Gross margin was 71% and 70% for the three months ended September 30, 2022 and 2021, respectively.

Operating Expenses

Research, Development and Clinical Trials Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

Personnel related (including stock-based compensation

Personnel related (including stock-based

compensation expense)

Clinical trials costs

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Laboratory supplies and research materials

Total research, development and clinical trials expenses

Total research, development and clinical trials expenses increased by $0.4 million from $6.3 million in the three months ended June 30, 2021 to $6.7 million in the three months ended June 30, 2022.

Personnel related, laboratory supplies and research materials and other costs increased by $0.2 million, $0.4 million and $0.3 million, respectively, due to increased activity in our next generation program and ongoing existing research activities.

Clinical trial costs decreased by $0.5 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.

Total research, development and clinical trials

Total research, development and clinical trials expenses increased by $1.6 million from $5.2 million in the three months ended September 30, 2021 to $6.8 million in the three months ended September 30, 2022.

Laboratory supplies and research materials and other costs increased by $1.0 million and $0.5 million, respectively, due to increased activity in our next generation program and ongoing existing research activities.

Selling, General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

Personnel related (including stock-based compensation

Personnel related (including stock-based

compensation expense)

Professional and consultant fees

Tradeshows and conferences

Total selling, general and administrative expenses

Total selling, general and administrative expenses increased by $8.2 million from $9.2 million in the three months ended June 30, 2021 to $17.4 million in the three months ended June 30, 2022 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Total selling, general and administrative

Total selling, general and administrative expenses increased by $6.5 million from $10.3 million in the three months ended September 30, 2021 to $16.9 million in the three months ended September 30, 2022 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Personnel related costs increased by $4.4 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 $0.6 million due primarily to additional grants to new and existing employees.

Professional and consultant fees increased by $0.3 million due to additional sales and administration costs related to the expansion of our National OCS Program.

Tradeshows and conferences costs increased by $0.6 million due to more in-person conferences during 2022 than in 2021.

Tradeshows and conferences costs increased by $0.6 million as a result of an increase in in-person activities as restrictions implemented in response to the COVID-19 pandemic were eased.

Other costs increased by $1.4 million due to increased start-up and logistics costs related to the expansion of our National OCS Program.

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Interest Expense

Interest expense was $1.0 million for each of the three months ended June 30, 2022 and 2021.

Interest expense was $0.8 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively.

The increase in principal under our new debt agreement was more than offset by a lower interest rate on our new debt.

Other Expense, Net

Other expense, net for the three months ended June 30, 2022 and 2021 included interest income of less than $0.1 million in each period resulting from interest earned on invested cash balances, and $0.8 million of realized and unrealized foreign currency transactions losses and $0.1 million of realized and unrealized foreign currency transactions gains, respectively.

Comparison of the Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022:

Six Months Ended June 30,

Other expense, net for the three months ended September 30, 2022 and 2021 included interest income of $0.4 million and less than $0.1 million, respectively, from interest earned on invested cash balances, and $0.9 million and $0.3 million of realized and unrealized foreign currency transactions losses, respectively.

Other expense, net for the three months ending September 30, 2022 also includes a loss on extinguishment of debt of $0.6 million.

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022:

Nine Months Ended September 30,

(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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Total net revenue

Net revenue from customers in the United States was $31.7 million in the six months ended June 30, 2022 and increased by $20.2 million compared to the six months ended June 30, 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 along with the expansion of our National OCS Program to provide a streamlined solution for transplant centers to use the OCS for all FDA-approved indications for lung, heart and liver.

Net revenue from customers who participated in our National OCS Program accounted for approximately 81% of total net revenue from customers in the United States for the six months ended June 30, 2022.

Net revenue relating to organ retrieval and OCS organ management services sold under our National OCS Program represented less than 10% of net revenue for the six months ended June 30, 2022.

Net revenue from customers in the United States was $55.0 million in the nine months ended September 30, 2022 and increased by $40.4 million compared to the nine months ended September 30, 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 along with the expansion of our National OCS Program to provide a streamlined solution for transplant centers to use the OCS for all FDA-approved indications for lung, heart and liver.

The increase in OCS Liver and OCS Heart net revenue was partially offset by lower sales volumes of our OCS Lung disposable sets.

Net revenue from customers who participated in our National OCS Program accounted for approximately 85% of total net revenue from customers in the United States for the nine months ended September 30, 2022.

Net revenue relating to organ retrieval and OCS organ management services sold under our National OCS Program represented 13% of net revenue for the nine months ended September 30, 2022.

Net revenue from sales of OCS Liver disposable sets in the United States increased by $29.6 million due primarily to higher sales volumes of OCS Liver disposable sets resulting from the recent FDA approval of the OCS Liver product.

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Net revenue from sales of OCS Lung disposable sets in the United States decreased by $2.0 million due to a decrease in sales volumes of OCS Lung disposable sets.

Net revenue from customers outside the United States was $4.7 million in the six months ended June 30, 2022 compared to $3.7 million in the six months ended June 30, 2021.

Net revenue from customers outside the United States was $7.1 million in the nine months ended September 30, 2022 compared to $6.0 million in the nine months ended September 30, 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 market.

Net revenue from sales of OCS Heart disposable sets outside the United States increased by $0.7 million due to increased sales volumes of OCS Heart disposable sets.

Net revenue from OCS Lung disposable sets increased by $0.3 million from the six months ended June 30, 2021 to the six months ended June 30, 2022 due to higher sales volumes of OCS Lung disposable sets.

Net revenue from sales of OCS Heart disposable sets and OCS Lung disposable sets outside the United States increased due to higher sales volumes and to a lesser extent price increases.

The increase in net revenue outside of the United States was partially offset by an unfavorable impact of foreign exchange rates of $2.4 million.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $5.1 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Gross profit increased by $16.1 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Gross margin was 73% and 68% for the six months ended June 30, 2022 and 2021, respectively.

Gross margin increased primarily as a result of economies of scale from higher sales volumes.

Cost of revenue increased by $11.1 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Gross profit increased by $30.4 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Gross profit in the nine months ended September 30, 2022 included a favorable impact of $1.4 million as a result of changes in estimates of certain clinical trial accruals.

Gross margin was 72% and 69% for the nine months ended September 30, 2022 and 2021, respectively.

Gross margin increased primarily as a result of economies of scale from higher sales volumes, partially offset by the unfavorable impact of foreign exchange rates.

Operating Expenses

Research, Development and Clinical Trials Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Total research, development and clinical trials

Total research, development and clinical trials expenses increased by $3.4 million from $10.8 million in the six months ended June 30, 2021 to $14.2 million in the six months ended June 30, 2022.

Personnel related costs increased by $0.3 million primarily due to an increase in stock-based compensation expense related to additional grants to new and existing employees.

Total research, development and clinical trials expenses increased by $5.1 million from $16.0 million in the nine months ended September 30, 2021 to $21.1 million in the nine months ended September 30, 2022.

Personnel related costs increased by $0.5 million primarily due to an increase in stock-based compensation expense of $0.3 million related to additional grants to new and existing employees.

Consulting and third-party testing, laboratory supplies and research materials and other costs increased by $2.4 million, $2.1 million and $1.1 million, respectively, due to increased activity in our next generation program and ongoing existing research activities.

1 unchanged sentence

Selling, General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Total selling, general and administrative

Total selling, general and administrative expenses increased by $15.4 million from $15.9 million in the six months ended June 30, 2021 to $31.3 million in the six months ended June 30, 2022 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Personnel related costs increased by $8.8 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 $1.5 million due primarily to additional grants to new and existing employees.

Total selling, general and administrative expenses increased by $21.9 million from $26.3 million in the nine months ended September 30, 2021 to $48.2 million in the nine months ended September 30, 2022 due to increases in personnel related costs, professional and consultant fees, tradeshows and conferences and other costs.

Personnel related costs increased by $13.2 million primarily due to the continued expansion of our team to support the National OCS Program and commercial growth of our OCS Heart and OCS Liver products in the United States, as well as an increase in stock-based compensation expense of $2.2 million due primarily to additional grants to new and existing employees.

Professional and consultant fees increased by $1.1 million due to additional sales and administration costs related to the expansion of our National OCS Program.

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Interest Expense

Interest expense was $1.9 million for each of the six months ended June 30, 2022 and 2021.

Interest expense was $2.7 million and $2.9 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase in principal under our new debt agreement was more than offset by a lower interest rate on our new debt.

Other Expense, Net

Other expense, net for the six months ended June 30, 2022 and 2021 included interest income of less than $0.1 million and $0.1 million, respectively, resulting from interest earned on invested cash balances, and $1.1 million and $0.4 million of realized and unrealized foreign currency transactions losses, respectively.

Other expense, net for the nine months ended September 30, 2022 and 2021 included interest income of $0.4 million and $0.1 million, respectively, resulting from interest earned on invested cash balances, and $1.9 million and $0.6 million of realized and unrealized foreign currency transactions losses, respectively.

Other expense, net for the nine months ending September 30, 2022 also includes a loss on extinguishment of debt of $0.6 million.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

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.

As of June 30, 2022, we had cash, cash equivalents, and marketable securities of $58.1 million.

To date, we have funded our operations primarily with proceeds from 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.

On August 9, 2022 we completed an underwritten public offering of our common stock, which resulted in the sale of 3,737,500 shares of common stock, inclusive of 487,500 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares.

The aggregate net proceeds received by us from the offering were approximately $139.9 million, after deducting underwriting discounts and commissions as well as other offering costs of $0.7 million.

As of September 30, 2022, we had cash and cash equivalents of $204.5 million.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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restricted cash

Net increase in cash, cash equivalents and restricted cash

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

Operating Activities

During the six months ended June 30, 2022, operating activities used $27.5 million of cash, primarily resulting from our net loss of $22.1 million and net cash used by changes in our operating assets and liabilities of $13.4 million, partially offset by net non-cash charges of $8.0 million.

Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2022 consisted primarily of an increase in accounts receivable of $7.1 million, an increase in inventory of $4.2 million, an increase in prepaid expenses of $1.2 million, and a decrease in accounts payable and accrued expenses and other liabilities of $1.9 million, partially offset by an increase in operating lease liabilities of $0.9 million.

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

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

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.

During the nine months ended September 30, 2022, operating activities used $41.8 million of cash, primarily resulting from our net loss of $29.5 million and net cash used by changes in our operating assets and liabilities of $25.4 million, partially offset by net non-cash charges of $13.2 million.

Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2022 consisted primarily of an increase in accounts receivable of $16.3 million, an increase in inventory of $6.1 million, and a decrease in accounts payable and accrued expenses and other current liabilities of $3.5 million, partially offset by an increase in operating lease liabilities of $0.6 million.

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.

Investing Activities

During the six months ended June 30, 2022, net cash provided by investing activities of $32.5 million consisted of proceeds from sales and maturities of marketable securities of $48.3 million, partially offset by purchases of marketable securities of $9.5 million and purchases of property and equipment of $6.2 million.

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

During the nine months ended September 30, 2022, net cash provided by investing activities of $57.3 million consisted of proceeds from sales and maturities of marketable securities of $76.9 million, partially offset by purchases of marketable securities of $10.5 million and purchases of property and equipment of $9.1 million.

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

Financing Activities

During the six months ended June 30, 2022, net cash provided by financing activities of $0.6 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $0.4 million and proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.2 million.

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

During the nine months ended September 30, 2022, net cash provided by financing activities of $164.9 million consisted of net proceeds from our public offering of $140.0 million, proceeds from the issuance of long-term debt, net of issuance costs of $58.5 million, proceeds from the issuance of common stock upon exercise of stock options of $1.9 million and proceeds from the issuance of common stock in connection with the 2019 Employee Stock Purchase Plan of $0.5 million, partially offset by the repayments of long-term debt of $36.1 million.

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.

Long-Term Debt

In July 2022, we entered into a credit agreement with CIBC pursuant to which we borrowed $60.0 million, referred to herein as the CIBC Credit Agreement.

We used $36.3 million of proceeds of the CIBC Credit Agreement to repay all amounts due under a credit agreement with OrbiMed, entered into in June 2018.

plus the higher of a) the prime rate subject to a minimum of 4.0% or b) the Federal Funds Effective Rate , plus 0.5% .

We used proceeds of the CIBC Credit Agreement to repay all amounts due under our credit agreement with OrbiMed, entered into in June 2018.

Borrowings under the CIBC Credit Agreement bear interest at an annual rate equal to either, at our option, (i) the secured overnight financing rate for an interest period selected by us , subject to a minimum of 1.5%, plus 2.0% or (ii) 1.0% plus the higher of a) the prime rate , subject to a minimum of 4.0% or b) the Federal Funds Effective Rate , plus 0.5% .

Borrowings under the CIBC Credit Agreement are payable in monthly interest-only payments for the first 24 months, and then payable in equal monthly principal payments plus accrued interest until the maturity date of the CIBC Credit Agreement in J uly 2027.

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

All obligations of us and each guarantor are secured by substantially all of our and each guarantor’s assets, including their intellectual property, subject to certain exceptions, including a perfected security interest in substantially all tangible and intangible assets of us and each guarantor.

Under the CIBC Credit Agreement, we have agreed to certain affirmative and negative covenants to which we will remain subject until maturity.

The financial covenants include (x) a requirement to maintain a minimum liquidity amount of the greater of either (i) Trailing Four Month EBITDA Burn (as defined in the CIBC Credit Agreement) (only if EBITDA is negative) and (ii) $10.0 million, and (y) a requirement to maintain total net revenue of at least 75% of the level set forth in the total revenue plan presented to CIBC;

the requirement, on an annual basis, to deliver to CIBC annual audited financial statements with an unqualified audit opinion from our independent registered public accounting firm (subject to customary exceptions) and a requirement to deliver monthly and quarterly unaudited financial statements;

and restrictions on our activities, including limitations on dispositions, mergers or acquisitions;

encumbering our intellectual property;

incurring indebtedness or liens;

paying dividends;

making certain investments;

and engaging in certain other business transactions.

The obligations under the CIBC 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 audit opinion covenants, failure to maintain deposit accounts with CIBC, and a material adverse change in our business, operations or financial condition.

All obligations of us and each guarantor are secured by substantially all of our and each guarantor’s assets, including their intellectual property, subject to certain exceptions.

Under the CIBC Credit Agreement, we have agreed to customary representations and warranties, events of default and certain affirmative and negative covenants to which we will remain subject until maturity.

The financial covenants include, among other covenants, (x) a requirement to maintain a minimum liquidity amount of the greater of either (i) the consolidated adjusted EBITDA loss (or gain) for the trailing four month period (only if EBITDA is negative) and (ii) $10.0 million, and (y) a requirement to maintain total net revenue of at least 75% of the level set forth in the total revenue plan presented to CIBC.

The obligations under the CIBC 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 and a material adverse change in our business, operations or financial condition.

As of September 30, 2022, we were in compliance with all covenants of the CIBC Credit Agreement.

During the continuance of an event of default, the interest rate per annum will be equal to the rate that would have otherwise been applicable at the time of the event of default plus 2.0%.

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the level of our selling, general and administrative expenses.

We believe that our existing cash, cash equivalents, and marketable securities, in addition to the net proceeds from our debt financing in July 2022, will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments for at least 12 months following the filing of this Quarterly Report on Form 10-Q.

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

We may need to raise additional funding, which might not be available on favorable terms or at all.

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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