10-K
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10-K
10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
For the Fiscal Year Ended December 31, 2020
OR
Commission File Number: 001-37906
ORGANOGENESIS HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
85 Dan Road
Canton, MA 02021
(Address
of Principal Executive Offices, Including Zip Code)
(781) 575-0775
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of class Trading Symbol(s) Name of exchange on which registered
Class A Common Stock, $0.0001 par value ORGO NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ☐ No ☒
The aggregate
market value of the voting common shares held by non-affiliates of the registrant was approximately $43.3 million, computed by reference to the closing sale price of the Class A common stock as
reported by The Nasdaq Capital Market on June 30, 2020, the last trading day of the registrant’s most recently completed second fiscal quarter. The Company has no non-voting common shares.
The number of shares of the registrant’s Class A common stock outstanding as of February 28, 2021 was 127,985,190.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required to be provided in Part III of this Annual Report on Form 10-K will be
provided by a Definitive Proxy Statement for our 2020 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed with the Securities and Exchange Commission on or before April 30, 2021.
Table of Contents
ORGANOGENESIS HOLDINGS INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 32
Item 1B. Unresolved Staff Comments 68
Item 2. Properties 68
Item 3. Legal Proceedings 68
Item 4. Mine Safety Disclosures 68
PART II
Item 6. Selected Financial Data 70
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 85
Item 8. Financial Statements and Supplementary Data 85
Item 9A. Controls and Procedures 86
Item 9B. Other Information 87
PART III
Item 10. Directors, Executive Officers and Corporate Governance 88
Item 11. Executive Compensation 88
Item 14. Principal Accounting Fees and Services 88
PART IV
Item 15. Exhibits and Financial Statement Schedules 89
SIGNATURES 93
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements. These statements may relate to, but are not limited to, expectations of our future results
of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition, as well as assumptions relating to the foregoing. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can identify
forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ
materially.
As used herein, except as otherwise indicated by context, references to “we,” “us,”
“our,” “the Company,” “Organogenesis” and “ORGO” will refer to Organogenesis Holdings Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS
Overview
Organogenesis is a leading
regenerative medicine company focused on the development, manufacture and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets. Our products have been shown through clinical and scientific
studies to support and in some cases accelerate tissue healing and improve patient outcomes. We are advancing the standard of care in each phase of the healing process through multiple breakthroughs in tissue engineering and cell therapy. Our
solutions address large and growing markets driven by aging demographics and increases in comorbidities such as diabetes, obesity, cardiovascular and peripheral vascular disease and smoking. We offer our differentiated products and in-house customer support to a wide range of health care customers including hospitals, wound care centers, government facilities, ambulatory service centers (“ASCs”) and physician offices. Our mission is
to provide integrated healing solutions that substantially improve medical outcomes and the lives of patients while lowering the overall cost of care.
We offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care. We have and
intend to continue to generate data from clinical trials, real-world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products. Several of our existing and pipeline products in our
portfolio have PMA approval, BLA approval or 510(k) clearance from the FDA. Given the extensive time and cost required to conduct clinical trials and receive FDA approvals, we believe that our data and regulatory approvals provide us a strong
competitive advantage. Our product development expertise and multiple technology platforms provide a robust product pipeline, which we believe will drive future growth.
In the Advanced Wound Care market, we focus on the development and commercialization of advanced wound care products for the treatment of
chronic and acute wounds in various treatment settings. We have a comprehensive portfolio of regenerative medicine products, capable of supporting patients from early in the wound healing process through wound closure regardless of wound type. Our
Advanced Wound Care products include Apligraf for the treatment of venous leg ulcers (“VLUs”) and diabetic foot ulcers (“DFUs”); Dermagraft for the treatment of DFUs; PuraPly AM as an antimicrobial barrier for a broad variety of
wound types; and the Affinity and NuShield wound coverings to address a variety of wound sizes and types. We have a highly trained and specialized direct wound care sales force paired with exceptional customer support services.
In the Surgical & Sports Medicine market, we focus on products that support the healing of musculoskeletal injuries, including
degenerative conditions such as OA and tendonitis. We are leveraging our regenerative medicine capabilities in this attractive, adjacent market. Our Surgical & Sports Medicine products include ReNu for
in-office knee osteoarthritis treatment; NuCel for bony fusion in the lumbar spine; NuShield and Affinity barrier products for surgical application in targeted soft tissue repairs; and PuraPly AM for
management of open wounds in the surgical setting. We currently sell these products through independent agencies and our growing direct sales force.
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On December 10, 2018, Avista Healthcare Public Acquisition Corp., our predecessor
company (“AHPAC”), consummated the previously announced business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger, dated as of August 17, 2018 (as amended, the “Avista
Merger Agreement”), by and among AHPAC, Avista Healthcare Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of AHPAC (“Avista Merger Sub”) and Organogenesis Inc., a Delaware corporation. As a
result of the Business Combination and the other transactions contemplated by the Avista Merger Agreement, Avista Merger Sub merged with and into Organogenesis Inc., with Organogenesis Inc. surviving the merger (the “Avista Merger”). In
addition, in connection with the Business Combination, AHPAC redomesticated as a Delaware corporation (the “Domestication”). After the Domestication, AHPAC changed its name to “Organogenesis Holdings Inc.” As a result of the
Avista Merger, Organogenesis Inc. became a wholly-owned direct subsidiary of Organogenesis Holdings Inc.
As of December 31, 2020, we
had approximately 910 full-time employees worldwide. For the year ended December 31, 2020, we generated revenue of $338.3 million and we incurred operating expenses of $223.6 million.
Competitive Strengths
We believe we have
several unique strengths that have been instrumental to our success and position us well for future growth:
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Our Business
Strategy
We believe the following strategies will play a critical role in our future growth:
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Industry Overview
We focus our efforts on medical conditions that involve difficult to heal wounds and musculoskeletal injuries. Healing difficulties may arise
from a variety of causes and in various types of tissue and anatomic areas. Impaired healing is commonly associated with an inability to move beyond the inflammatory stages of healing, resulting in a chronic wound or injury, an ongoing inflammatory
cycle, and an inability to achieve normal tissue healing. Biofilm and other infectious conditions also play a key role in disrupting wound healing processes. Regenerative medicine is a collection of technologies aimed at generating tissue as close
as possible to native or natural tissue, to replace damaged tissue and to fill or replace defects. Demand for these technologies is increasing as physician understanding of the underlying wound healing processes grows and as demographic and
population health trends result in the increased prevalence of systemic comorbidities that contribute to healing problems throughout the body.
Our products use regenerative medicine technologies to provide solutions in the Advanced Wound Care and Surgical & Sports Medicine
markets. Based on industry reports and management estimates, we believe that our addressable Advanced Wound Care and Surgical & Sports Medicine markets totaled approximately $14.9 billion in 2018, which included an estimated
$8.9 billion addressable market for Advanced Wound Care and an estimated $6.0 billion addressable market for Surgical & Sports Medicine. Within the Advanced Wound Care market in 2018, 54% of treatments were used in advanced wound
dressings, 17% were used in biologics, 20% were used in negative pressure wound therapy and 9% were used in other treatments. The skin substitute market, within biologics, is expected to grow from $1.1 billion in 2019 to $1.4 billion in
2024. Within the Surgical & Sports Medicine market, the bone fusion sub-market accounted for approximately $2.7 billion in 2017, the tendon and ligament
injuries sub-market accounted for approximately $1.0 billion in 2015 and the chronic inflammatory and degenerative
condition sub-market accounted for approximately $2.4 billion in 2017.
Key drivers
of growth in these two markets include:
• favorable global demographics and aging population;
Advanced Wound Care Market
Wounds represent a large and growing burden on the public health as well as a significant cost to the health care system. Wounds are divided
into two primary types, chronic and acute. It is estimated that approximately 80 million patients suffer from chronic and acute wounds globally each year, excluding surgical incisions. Chronic wounds account for most of the expenses due to
their complexity and length of treatment.
Chronic Wounds
Chronic wounds are wounds that have not appropriately closed after four weeks of treatment with traditional treatment such as dressings.
Chronic wounds include:
While the underlying etiology of these chronic wounds is different, at a cellular level many of the problems
that result in failed healing are the same. These include uncontrolled inflammatory processes, shortages of cell types and growth factors secreted by cells that are critical to healing, and that result in disrupted cell signaling pathways.
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Acute Wounds
An acute wound is an injury that causes a rapid break in the skin and sometimes the underlying tissue. Acute wounds can be traumatic wounds,
such as abrasions, lacerations, penetrating injuries and burns, or surgical wounds from surgical incisions. In contrast to chronic wounds, which would normally heal but stall due to biologic factors, acute wounds are so severe that they overwhelm
the body’s normal healing capacity. Biofilm and other infectious conditions, particularly in acute wounds with a high risk of infection such as open fractures, may also pose challenges to the healing of acute wounds. According to
BioMed GPS, in 2016 there were approximately 430,000 open traumatic wounds. In 2016, it is estimated that there were more than 500,000 burns that required medical treatment and approximately 40,000 burns required hospitalization.
Relative Prevalence of Wounds
Our customers in outpatient wound care facilities are faced with a wide variety of types of wounds with different anatomical locations and
underlying causes. Based on a retrospective cohort study of data from wound care centers from June 2008 and June 2012, the distribution of wound types in hospital outpatient wound care centers is detailed below:
Distribution of Wound Types*
Due to the breadth of our wound care portfolio, our products are able to address both chronic and acute wounds across all of these wound
types.
Our Solution
The wound care market includes traditional dressings such as bandages, gauzes and ointments and advanced wound care products such as mechanical
devices, advanced dressings and biologics. These advanced wound care products target chronic and acute wounds not adequately addressed by traditional therapies. Our products are primarily classified as skin substitutes, which fall within the
biologics category of the Advanced Wound Care market.
According to BIS Research, the global Advanced Wound Care market was estimated to
be approximately $8.9 billion in 2018 and is expected to grow at a compound annual growth rate, or CAGR, of 3.6% through 2024. This market consists of several product categories including advanced wound dressings, devices such as negative
pressure wound therapy, or NPWT, and biologics such as skin substitute and growth factors. The approximate breakdown for these product categories in 2018 is set forth below.
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Advanced Wound Care Market
Wound biologics represents one of the smallest segments of the Advanced Wound Care market, but is the
fastest growing and has seen the highest level of innovation. According to BIS Research, the worldwide wound biologics market, which includes skin substitutes and growth factors, was estimated to be approximately $1.5 billion in 2018, of which
skin substitute products are estimated to represent approximately 64%. Skin substitutes, bioengineered or biologic grafts that cover skin defects and support healing, are one of the fastest growing categories of the Advanced Wound Care market. The
skin substitute market, within biologics, is expected to grow from $1.1 billion in 2019 to $1.4 billion in 2024. Going forward, the skin substitute market is projected to continue to grow as patients with hard to heal wounds transition
from other therapies to skin substitute treatment.
We expect this market to continue to grow at a rapid rate as physicians are educated
about the use of these products and understand the benefits as compared to other currently marketed products, payers incentivize doctors to use more cost effective treatments, patients demand more effective treatment solutions and advanced wound
care becomes more common outside of the United States. We also believe that adoption of these products will increase as clinical evidence supporting the benefits of skin substitutes over traditional therapies continues to grow. Skin substitutes have
demonstrated improved chronic and acute wound healing rates at a lower overall cost than the current standard of care. In a matched cohort study we commissioned, Medicare treatment costs for DFUs treated with Apligraf were $5,253 (p=0.49)
lower per patient than the standard of care and for DFUs treated with Dermagraft, these costs were $6,991 (p=0.84) lower per patient than the standard of care. See Rice et al. “Economic outcomes among Medicare patients receiving
bioengineered cellular technologies for treatment of diabetic foot ulcers.” J Med Econ. 2015;18(8):586-95.
Our products compete with other skin substitutes as well as other advanced wound care products such as NPWT and growth factors. Due to its
market position as a skin substitute with antimicrobial properties appropriate for the treatment of wounds with biofilm or otherwise at high risk of infection, our PuraPly AM product also competes with antimicrobial dressings. Antimicrobial wound
products have historically represented a more than $1 billion annual market. We are a market leader in the antimicrobial skin substitute market, and have supported the expansion of that market with our comprehensive marketing and educational
campaigns.
Finally, the skin substitute market remains substantially underpenetrated. According to BioMed GPS, over 8.3 million
wounds require medical care in the United States each year, and over 3.3 million of those wounds are difficult to heal wounds where traditional therapies are unlikely to succeed. Despite this vast need and the proven advantages of advanced
wound care products in general and skin substitutes in particular, only 135,000 patients, or less than five percent, are treated with skin substitutes each year. Our internal estimates indicate that if the potentially addressable market were
completely penetrated today, annual skin substitute revenue in the United States alone could exceed $9 billion.
We believe that we
are well positioned in the skin substitute market as adoption continues to increase. According to BioMed GPS, we are one of the three largest skin substitute companies in the United States and we have an experienced and established sales force
with deep relationships with clinicians, wound care centers and hospitals. We also have a diverse array of products to address the different varieties of wounds throughout the wound healing process.
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Surgical & Sports Medicine Market
The same demographic trends that are driving the growth of the wound care market are also driving growth in the Surgical & Sports
Medicine market. This market has seen an increase in surgical volumes in part due to a higher incidence of comorbidities and chronic inflammatory and degenerative conditions, such as OA and tendonitis. This volume increase is fostering increased
interest in regenerative medicine products, as they can help support healing and improve outcomes in older and more challenging patient populations.
While our products have applicability across a wide variety of surgical specialties, our immediate surgical focus in addition to wound care is
in regenerative orthobiologics. Orthobiologics are substances that orthopedic surgeons use to help injuries to bones, tendons and ligaments heal more quickly. Orthobiologic products are used to treat people with long-term disabling musculoskeletal
disorders and injuries.
We believe our multiple regenerative technology platforms will allow us to build a broad portfolio covering the
full range of needs in the Surgical & Sports Medicine market. We also plan to leverage these platforms to expand into adjacent surgical markets in the near term. In the long-term, we plan to deepen our focus on chronic inflammatory and
degenerative conditions, in particular OA. We intend to address patient needs in the inpatient hospital, ASC and clinic settings. We estimate the immediate addressable Surgical & Sports Medicine market for our products to be approximately
$6.1 billion and is expected to grow at a CAGR of 8%. This market is growing rapidly due to an increase in spinal fusions, bone reconstruction surgeries and musculoskeletal injuries and degenerative conditions.
Bone Fusion
Spine fusion
surgery involves the use of grafting material to cause two vertebral bodies to grow together into one. In the United States, medical facilities performed 667,400 spinal fusion surgeries in 2013, of which 398,300 were lumbar operations. Trauma and
extremities applications, including ankle arthrodesis, now represent a bone fusion market nearly as large as the spine market. With improving fixation methods, success rates have improved across these applications. However, nonunion due to
inadequate bone healing remains one of the leading causes of failure for fusion procedures. Fusion is especially challenging in patients with comorbidities such as diabetes, obesity, and smoking who have underlying healing deficiencies. According to
Technavio, the annual market for orthobiologic products to aid in fusion exceeds $2.7 billion worldwide.
Tendon and Ligament
Injuries
Tendon and ligament injuries are common orthopedic conditions in an active and aging population. There are approximately
250,000 rotator cuff repairs performed in the United States annually. Additionally, in 2015, there were approximately 40,000 outpatient Achilles tendon repairs in the United States. Re-rupture and reoperation
continue to be a significant source of concern with non-operative management, occurring in 4.8% of Achilles tendon repair cases and as many as 25% or more rotator cuff repair cases. Comorbidities such as
diabetes and obesity, as well as age, are correlated with higher risk of failed healing and re-rupture. Regenerative tissue scaffolds may be used to support the healing of tendons, ligaments and other soft
tissues. According to Technavio, the annual regenerative tissue scaffold market is estimated to exceed $1 billion.
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Chronic Inflammatory and Degenerative Conditions
Chronic inflammatory and degenerative orthopedic conditions are increasingly prevalent, driven in part by an aging demographic and higher
levels of comorbidities such as diabetes and obesity. OA is the most common chronic condition of the joints, affecting approximately 27 million individuals in the United States. OA can affect multiple joints in the body, with arthritis of the
knee being the most commonly treated. One in two adults will develop symptoms of knee OA during their lives. Other chronic inflammatory conditions such as Achilles and rotator cuff tendinosis and plantar fasciitis are also increasingly common.
Similar to many of the other conditions that we seek to address, chronic inflammatory and degenerative orthopedic conditions are often correlated with smoking, obesity and diabetes, among other factors. Collectively, these and other related
conditions were treated with an estimated 9 million injections in 2016, including steroids and hyaluronic acid, or HA. According to Technavio, the global chronic inflammatory and degenerative orthopedic market exceeded $2.4 billion in
2018.
Our Solution
Conventional surgical approaches rely on mechanical fixation to temporarily approximate damaged tissues, assuming that the natural healing
process will then result in a permanent repair. Patients with impaired healing may be unable to generate the necessary tissue structures, resulting in unacceptable failure rates over time.
In the case of bony fusion, autograft bone marrow has historically been used as a biologic to support bone healing. However, the use of
autograft suffers from a number of short-comings that include donor site morbidity and varied outcomes due to the underlying health condition of the patient. Furthermore, it is a more invasive procedure leading to potentially slower healing times
and side effects for the patient.
OA and other degenerative conditions, as well as soft tissue injuries such as tendinosis and fasciitis,
are currently treated by injection with steroids or HA. However, steroids offer pain relief for only a limited period and have been shown to further degrade some types of tissues over time, worsening the underlying condition. The evidence of
HA’s efficacy has been questioned, and it is clear that a significant percentage of patients do not respond to HA treatment. Patients who fail these less invasive therapies have limited options and may require surgical intervention, including
total joint replacement.
Orthobiologics have been shown to be an effective alternative to traditional treatments. Due to their
anti-inflammatory and pro-healing effects, they go beyond mechanical intervention to support the healing process in the damaged tissue and often result in faster healing times and shorter hospital stays. The
orthobiologics market includes bone morphogenetic protein, viscosupplementation with HA, synthetic bone graft substitutes and stem cell therapy, in addition to DBM and allograft. The majority of our current and planned products in the
Surgical & Sports Medicine space are based on amniotic technologies. There is a rapidly growing body of clinical and scientific evidence indicating the potential of these products in surgical applications, particularly in orthobiologics,
resulting in increased adoption of these products. According to estimates from BioMed GPS, the amniotic orthobiologics market was $88 million in 2016 and is projected to grow at a CAGR of more than 22% through 2021.
Our Products
Advanced Wound Care
In the Advanced Wound Care market, we focus on the development and commercialization of a broad portfolio of cellular and acellular wound care
offerings that treat patients from the earliest indication of impaired healing to wound closure. Our suite of products helps treat a wide range of wounds, including, but not limited to, chronic wounds such as VLUs, DFUs, and pressure ulcers and
acute wounds such as traumatic wounds and burns.
The breadth and depth of our portfolio allow physicians to tailor solutions to meet the
needs of individual wound care patients. Wounds of all types normally progress through predictable phases of healing, starting with inflammation, progressing to cell proliferation and finally remodeling to form normal skin. Wounds may stall during
this process, typically in the inflammatory phase, for a variety of reasons. These reasons include biofilm or infection, uncontrolled inflammatory processes, shortages of cell types and growth factors secreted by cells that are critical to healing
and disrupted cell signaling pathways.
It is increasingly recognized that addressing biofilm is an important step in healing any wound.
Biofilm is generated by densely packed microbial communities that are attached to the wound surface and enclosed in a matrix of self-produced extracellular polymeric substance, or EPS. Biofilm is present in at least 78% of chronic wounds and can
inhibit healing of all wound types. We engage with the physician at the earliest indication of impaired healing with our PuraPly AM product, which helps control biofilm as an antimicrobial barrier via the broad spectrum antimicrobial PHMB. If
reduction of biofilm and control of the excessive inflammatory response is sufficient to result in healing, as is often the case, PuraPly AM may be the only product required to achieve wound closure. If underlying healing issues persist, we offer an
array of bioactive products and amniotic wound coverings tailored for a wide variety of wound sizes and types.
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Our advanced wound care products are used predominantly in wound clinics that are located in
an outpatient hospital setting as well as in physician offices and ASCs. The table below summarizes our comprehensive advanced wound care product suite:
Product (Launch Year) Description RegulatoryPathway Clinical Application
† Launched by NuTech Medical; acquired by Organogenesis in 2017.
* Launched by Smith & Nephew; acquired by Organogenesis in 2014.
Affinity
Affinity is a
fresh, amniotic allograft wound covering and surgical barrier for application in the care of chronic and acute wounds or surgical implantation in spine, orthopedic and sports medicine applications. We believe Affinity is one of only a few amniotic
tissue products containing viable amniotic cells, and is unique in that it undergoes our proprietary AlloFresh process that hypothermically stores the product in its fresh state, never dried or frozen, which retains its native benefits and
structure. Regulated as a human cells, tissues, and cellular and tissue-based product, or HCT/P, under Section 361 of the PHSA, these products are referred to as Section 361 HCT/Ps, or simply 361 HCT/Ps. Affinity was launched in 2014 by
NuTech Medical and acquired by us in 2017.
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Apligraf
Apligraf is a bioengineered bi-layered skin substitute that is the only product that has, to date,
received PMA approval for the treatment of both VLUs and DFUs. Launched in 1998, Apligraf drives faster healing and more complete wound closure through its tissue engineered structure, which includes an outer layer of protective skin cells (human
epidermal keratinocytes), and an inner layer of cells (human dermal fibroblasts) contained within a collagen matrix. Apligraf is the leading skin substitute product for the treatment of VLUs, and its effectiveness has been established based on an
extensive clinical history with approximately 960,000 units shipped. We believe Apligraf is also the first and only wound-healing therapy to demonstrate in a randomized controlled trial, or RCT, a significant change in patients’ VLU wound
tissue, showing a shift from a non-healing gene profile to a healing-profile. Apligraf plays an active role in healing by providing the wound with living human skin cells, growth factors and other proteins
produced by the cells, and a collagen matrix.
Dermagraft
Dermagraft is a dermal substitute grown from human dermal fibroblasts and has received PMA approval for the treatment of DFUs. Launched in 2001
by Smith & Nephew and acquired by us in 2014, this product helps to restore the compromised wound bed to facilitate healing. The living cells in Dermagraft produce many of the same proteins and growth factors that support the healing
response in healthy skin. In addition to an FDA-monitored RCT demonstrating its superiority to conventional therapy in the healing of DFUs, studies based on real-world electronic health records and Medicare
data have demonstrated its superior clinical efficacy and value as compared to competitive wound care products and conventional therapy. Dermagraft can be applied weekly (up to eight times) over a twelve-week period and does not need to be removed
from the wound during this period because it contains a temporary mesh fabric that is dissolvable and becomes part of the body’s own healing processes. As part of our long-term plan to consolidate manufacturing operations in Massachusetts, we
anticipate that manufacturing of Dermagraft will be suspended in the fourth quarter of 2021 and that sales of Dermagraft will be suspended in the first quarter of 2022. We currently plan to transition our Dermagraft manufacturing to our
Massachusetts based manufacturing facilities following the expiration of the lease for our California based manufacturing facility, which we expect will result in substantial long-term cost savings. In the period when Dermagraft is not available, we
expect our sales force will be able to drive substitution from Dermagraft to Apligraf and our amnion products and that the suspension of Dermagraft sales will not have a material impact on our net revenue.
NuShield
NuShield is a
dehydrated placental tissue wound covering and surgical barrier that is topically or surgically applied to the target tissue to support native healing. Regulated as a 361 HCT/P, NuShield is processed using our proprietary LayerLoc process, which
preserves the native structure of the amnion and chorion membranes, including the intermediate or spongy layer, and their native structural and regulatory proteins. NuShield is available in multiple sizes, can be used as a wound covering to help
support native healing of chronic and acute wounds of many sizes, and can be stored at room temperature with a five-year shelf life. NuShield was launched in 2010 by NuTech Medical and acquired by us in 2017.
PuraPly Antimicrobial
PuraPly Antimicrobial, or PuraPly AM, was developed to address the challenges posed by bioburden and excessive inflammation in the wound.
Functioning as an antimicrobial barrier skin substitute, PuraPly AM is a purified native porcine type I collagen matrix embedded with polyhexamethylene biguanide, or PHMB, a localized broad spectrum antimicrobial. PuraPly AM was launched in
2016 and has received 510(k) clearance for the management of multiple wound types, including partial and full-thickness wounds, pressure ulcers, venous ulcers, diabetic ulcers, chronic vascular ulcers, tunneled/undermined wounds,
surgical wounds, trauma wounds, draining wounds, and first- and second-degree burns. The combination of PHMB with a native collagen matrix helps manage bioburden while supporting healing across a wide variety of wound types, regardless of severity
or duration. We also developed and received 510(k) clearance for PuraPly without PHMB, which we refer to as “PuraPly,” for those patients who do not require an antimicrobial agent. Line extensions include PuraPly XT, which contains
additional layers of collagen matrix and a higher level of PHMB. Extra-fenestrated (EF) versions of the products allow for added conformability and fluid drainage.
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Surgical & Sports Medicine
In the Surgical & Sports Medicine market, we focus on the development and commercialization of products that support the healing of
musculoskeletal injuries, including chronic degenerative conditions such as OA and tendonitis. Our products in this market are used predominantly in the inpatient and outpatient hospital and ASC settings. The table below summarizes the principal
products in our Surgical & Sports Medicine product suite:
Product (Launch Year) Description RegulatoryPathway Clinical Application
† Launched by NuTech Medical; acquired by Organogenesis in 2017.
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NuCel
NuCel is a surgically implanted allograft derived from human amniotic tissue and cells derived from amniotic fluid. NuCel is used primarily in
spinal and orthopedic surgical applications to support tissue healing, including bone growth and fusion. The target indication for NuCel is lumbar spine interbody fusion. The amniotic tissue harvesting process protects key biologic characteristics
of the tissue that support healing. Several published clinical studies have provided preliminary evidence of the clinical efficacy of NuCel. While NuCel is currently marketed as a 361 HCT/P, efforts are ongoing to initiate a clinical program to
secure BLA approval for the product. NuCel was launched in 2009 by NuTech Medical and acquired by us in 2017.
ReNu
ReNu is a cryopreserved suspension derived from human amniotic tissue and cells derived from amniotic fluid, formulated for office use. It has
been used to support healing of soft tissues, particularly in degenerative conditions such as OA and joint and tendon injuries such as tendinosis and fasciitis. The target indication for ReNu is for the treatment of Knee Osteoarthritis. A pilot
clinical study of ReNu for knee OA has been published, which we believe is indicative of its safety. The results of this study also suggest potential efficacy for a period of more than a year. While ReNu is currently marketed as a 361 HCT/P, efforts
are ongoing to secure BLA approval for the product, with a Phase 3 pivotal study currently underway. Management believes BLA approval may facilitate a significant incremental sales opportunity for ReNu. ReNu was launched in 2015 by NuTech Medical
and acquired by us in 2017.
Affinity, NuShield and PuraPly AM
We also market our Affinity and NuShield products for surgical and orthopedic applications. These products may be used as a surgical barrier or
as an on-lay or wrap barrier to support soft tissue repairs. The native biological characteristics of these amniotic tissues when used as barrier membranes may help support the healing of soft tissue defects,
particularly in difficult-to-heal locations or challenging patient populations. In addition, we market our PuraPly AM product as an antimicrobial barrier for the
management of open wounds in the surgical setting.
Bone Allograft Products
Our bone allograft products, which are derived from donated human cadaveric bone, include FiberOS and OCMP. Each of these products is used as a
bone void filler, primarily in orthopedic and neurosurgical applications requiring bony fusion, such as spinal fusions and foot and ankle fusions. FiberOS is a blend of demineralized cortical fibers, mineralized cortical powder, and demineralized
cortical powder and OCMP is a freeze-dried allograft cancellous (spongy or mesh-like) and demineralized cortical mixture. These products are typically sold as an ancillary product together with our amniotic
product NuCel.
Ongoing Clinical Studies
We believe gathering robust and comprehensive clinical and real-world outcomes data is an essential component of developing a competitive
product portfolio and driving further penetration in the markets where we compete. We have six ongoing studies. We continue to invest in generating clinical data for our Advanced Wound Care and Surgical & Sports Medicine products, and
believe such data enhance sales efforts with physicians and reimbursement dynamics with payers over time. The tables below summarize the status of our recent clinical studies for our Advanced Wound Care and Surgical & Sports Medicine
products.
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Advanced Wound Care
Surgical & Sports Medicine
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Recently Published Clinical Studies
PuraPly AM
In a published 24-week study of the use of PuraPly AM in the management of bioburden and treatment of chronic, non-healing wounds (n=63), 90% of wounds demonstrated a reduction in area and
68% of wounds achieved complete closure (mean time to complete closure of 5.0 weeks). The wounds studied included 29% venous ulcers, 22% trauma and laceration, 16% post-surgical wounds, 13% pressure ulcers and 10% diabetic ulcers. The median wound
area was 6.5cm2 and the mean wound duration was 4 months.
Affinity
In a published randomized controlled clinical trial of Affinity for use in diabetic foot ulcers comparing the use of Affinity and the standard
of care (n=38) to the use of the standard of care alone (n=38), 60% of wounds in the Affinity and standard of care group achieved wound closure at 12 weeks compared to 38% of wounds in the standard of care group and 63% of wounds in the Affinity and
standard of care group achieved wound closure at 16 weeks compared to 38% of wounds in the standard of care group. In addition: 82% of wounds in the Affinity and standard of care group achieved a greater than 60% reduction in wound area as compared
to 58% of wounds in the standard of care group; 65% of wounds in the Affinity and standard of care group achieved a greater than 60% reduction in wound depth as compared to 39% in the standard of care group; and 81% of wounds in the Affinity and
standard of care group achieved a greater than 75% reduction in wound volume as compared to 58% in the standard of care group.
NuShield
In a published clinical study of clinical experience using NuShield for the management of 50 wounds (VLUs (n=14), DFUs (n=24) and
other wounds (n=12)), 45 (90%) of the wounds had wound closure percentages between 60% to 100%. The median time to complete wound closure (or healing) for all wounds was 102 days (14.6 weeks), and the percent healing rate of all wounds healed at 16
and 24 weeks was 56% and 73%, respectively. For DFUs treated with NuShield, the median time to healing was 120 days (17.1 weeks) and the percent healing rates at 16 and 24 weeks were 43% and 59%, respectively. For VLUs treated with NuShield, the
median time to healing was 90 days (12.9 weeks), with percent healing rates of 56% and 85% at 16 and 24 weeks, respectively. For all other wounds treated with NuShield (including pressure ulcers, nonhealing surgical, ischemic, mixed etiology, and
nonhealing amputation), the median time to healing was 48 days (6.9 weeks), with percent healing rates of 57% and 100% at 16 and 24 weeks, respectively.
ReNu
In a 200 patient randomized
controlled multicenter single-blind study comparing the treatment of knee OA symptoms with ReNu (n=68), a commercially available hyaluronic acid, or HA (n=64), and saline (n=68), patients treated with ReNu reported a statistically significant
reduction in pain and higher OMERACT-OARSI responder rate at 6 months follow-up than patients treated with HA or saline.
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NuCel
Published preliminary results of a study examining the use of NuCel to achieve one and two-level lumbar
interbody fusion demonstrated that 97% of patients in the one-level lumbar interbody fusion group (n=38) achieved kinematic fusion and 100% of patients in the two-level
lumbar interbody fusion group (n=34) achieved kinematic fusion. Baseline comorbidities were present in 90% of patients in the one-level lumbar interbody fusion group and 88% of patients in the two-level interbody fusion group and no adverse events related to NuCel were reported.
TransCyte
In a published study of the safety and efficacy of TransCyte for the treatment of partial thickness burns, the mean timing to achieve greater
than 90% wound epithelialization was 11 days for patients treated with TransCyte as compared to 18 days for patients treated with silver sulfadiazine cream.
Previously Published Clinical Studies for FDA-Approved Products
We also have accumulated a significant body of clinical evidence demonstrating the efficacy of our FDA approved products, Apligraf and
Dermagraft. We continue to invest in generating similar data for other Advanced Wound Care and Surgical & Sports Medicine products, and believe such data enhance sales efforts with physicians and reimbursement dynamics with payers over
time. Our product Apligraf is the only product that has obtained FDA approval for the treatment of both VLUs and DFUs. Our product Dermagraft has also received FDA approval for DFUs. Below is a summary of the primary data supporting each product,
and a description of the clinical studies that are currently in progress. As used herein, p value is a measure of statistical significance. The lower the p value, the more likely it is that the results of a clinical trial or study are statistically
significant rather than an experimental anomaly. Generally, to be considered statistically significant, such results must have a p value <0.05.
Apligraf
Two pivotal studies were
initially conducted with Apligraf demonstrating the safety and efficacy of the product in the treatment of full- and partial-thickness VLUs and DLUs. As a result, Apligraf obtained FDA approval for these indications. We have conducted a number of
additional studies that provide further clinical evidence of the safety and efficacy of the product, including recent comparative effectiveness, cost effectiveness and mechanism of action studies.
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Pivotal FDA Registration Trials
For the DFU indication, a multi-center prospective RCT of Apligraf for the treatment of DFUs versus standard of care was conducted. Two hundred
eight patients with Type 1 and 2 diabetes were enrolled, who had a plantar DFU of full- or partial-thickness. Patients with a chronic wound that exhibited less than 30% healing prior to treatment were eligible for the clinical trial. All
patients’ ulcers were off-loaded using either crutches or a wheelchair for the first six weeks, followed by customized pressure-relieving footwear for at least four weeks post closure.
Mean ulcer size was 2.97 cm2 and 2.83 cm2 in the Apligraf and the control group, respectively. Mean duration of the ulcer was
12 months in the Apligraf group and 11 months in the control group.
Apligraf was significantly more effective than conventional
therapy for the incidence of complete wound closure over time. By 12 weeks of treatment, 56% (63 of 112 patients) of DFUs treated with Apligraf plus conventional therapy (debridement, saline dressings, total
off-loading) were 100% closed, compared to 38% (36 of 96 subjects) of ulcers treated with conventional therapy alone (p=.0042). The median time to 100% wound closure was 65 days for DFUs
treated with Apligraf plus conventional therapy versus 90 days for ulcers treated with conventional therapy alone (p=.0026).
Recurrence is an important measure of healing durability, and in the study, 96% of ulcers treated with Apligraf remained closed at six
months versus 87% in the control group. An important outcome of the study was an observed reduction in the incidence of reported adverse events of osteomyelitis and amputations/resections. Patients receiving Apligraf had a statistically significant
(p<.05) lower incidence of osteomyelitis at the study ulcer site (2.7% vs. 10.4%) compared to patients treated with conventional therapy at six months. Apligraf-treated patients required significantly fewer amputations or resections
of the study limb (6.3% vs. 15.6%) (p <.05) compared to patients treated with conventional therapy at six months. The primary results of the study are presented in the figures below.
Incidence of 100% Wound Closure Median Time to 100% Wound Closure
Reduction in Osteomyelitis and Amputation / Resection
For the VLU pivotal trial, the efficacy of Apligraf was evaluated in a prospective, parallel-group,
randomized, controlled, multi-center study involving 240 patients with VLUs. Subjects receiving Apligraf in combination with compression therapy were compared with an active treatment concurrent control of zinc paste gauze and compression therapy.
Apligraf plus compression therapy was more effective in achieving complete wound closure by week 24 (57% vs 40%, p=.022). In patients with long-standing VLUs with greater than one year’s duration (n=120), Apligraf plus compression
therapy was more than twice as effective in achieving complete wound closure by week 24 (47% vs 19%, p=.002). The primary results of the study are presented in the figures below.
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All Patients Achieving 100% Closure
Comparative Effectiveness and Economic Studies
We conducted three comparative effectiveness studies with Apligraf utilizing our proprietary access to data collected in Net Health’s
WoundExpert® Electronic Medical Record, or EMR, database. Net Health’s wound care software is utilized by more than 1,000 wound care centers across the United States. In collaboration
with statistical experts and leading clinicians, we analyzed outcomes of treatment with Apligraf versus other skin substitutes including EpiFix (owned by MiMedx), Theraskin (owned by Misonix, Inc.) and Oasis (owned by Smith & Nephew).
All three studies showed that Apligraf improved overall healing rates as well as time to healing. For example, patients treated with Apligraf showed a 53% relative improvement in healing over patients treated with EpiFix at 24 weeks. All three
studies have been published in peer-reviewed journals.
The Analysis Group, a private economics consulting firm, conducted a study to
evaluate the economic outcomes of Medicare patients receiving Apligraf and Dermagraft, assessing the real-world medical services utilization and associated costs compared to patients receiving conventional care. Data for 502 matched Apligraf and
conventional care patient pairs and 222 matched Dermagraft and conventional care patient pairs were analyzed. Increased costs associated with outpatient service utilization relative to matched conventional care patients were offset by lower
amputation rates, fewer days hospitalized and fewer emergency department visits among Apligraf and Dermagraft patients. Consequently, Apligraf and Dermagraft patients with DFUs had per-patient average
healthcare costs during the 18-monthfollow-up period that were lower than their respective matched conventional care counterparts (Apligraf was $5,253 (p=0.49),
lower per patient, while Dermagraft was $6,991 (p=0.84) lower). These findings suggest that use of Apligraf and Dermagraft for treatment of DFU may lower overall medical costs through reduced utilization of costly healthcare services.
Mechanism of Action Clinical Study
To elucidate the mechanisms through which Apligraf promotes healing of chronic VLUs, the University of Miami Miller School of Medicine
Department of Dermatology & Cutaneous Surgery conducted an RCT in which 24 patients with non-healing VLUs were treated with either standard of care (compression therapy) or Apligraf together with
standard of care. Tissue biopsies were collected from the VLU edge before and one week after treatment, and the samples underwent comprehensive analysis of gene expression and protein analyses. The analyses conducted suggest that Apligraf induced a
shift from a non-healing to a healing tissue response, involving modulation of inflammatory and growth factor signaling, keratinocyte activation, and attenuation of signaling involved in the chronic ulcer
impaired state. In these ways, Apligraf application orchestrated a shift from the chronic non-healing ulcer microenvironment to a distinctive healing milieu resembling that of an acute, healing wound.
Dermagraft
Dermagraft was
approved as a Class III medical device for the treatment of DFUs based on the results of a large pivotal clinical trial. Three hundred fourteen patients were enrolled in a prospective RCT to evaluate the safety and efficacy of Dermagraft in
conjunction with conventional therapy compared to a control arm of conventional therapy alone. Conventional therapy involved the sharp debridement and cleaning of the ulcer, application of a wet-to-dry gauze and the use of therapeutic, pressure-reducing footwear. Patients were eligible to be screened for the trial if they had a plantar DFU on the heel or forefoot that was greater than 1cm2 and less than 20cm2. At the screening visit, the patients began receiving conventional therapy. If the DFU had not decreased in size by more than
50% during the next two weeks and the patient met all other inclusion and exclusion criteria, the patient was randomized into one of two treatment groups: Dermagraft plus conventional therapy or conventional therapy alone. Patients in the Dermagraft
group received a weekly application of Dermagraft and conventional therapy for up to eight weeks. The primary endpoint for the trial was superiority in complete DFU closure by 12 weeks.
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Pivotal FDA Registration Trial
In the pivotal clinical trial, the weekly application of Dermagraft and conventional therapy for up to eight weeks increased the proportion of
DFUs that achieved 100% closure at 12 weeks by 64%, when compared to the use of conventional therapy alone. Patients treated in the Dermagraft group were 1.7 times more likely to achieve 100% closure than patients receiving conventional therapy
alone. These results demonstrated statistically significant improvements. The incidence of adverse events among the Dermagraft and control groups was generally consistent across both groups, with the most common adverse events being infection at the
DFU site, infection not at the DFU site, accidental injury and skin dysfunction/blister. However, the percentage of patients who developed an infection at the DFU site was significantly lower in the Dermagraft treatment group as compared with the
control group, 10.4% versus 17.9%, respectively. No adverse laboratory findings were associated with the use of Dermagraft and no adverse device effects were reported in the trial. In addition, no immunological responses or rejections from patients
that received Dermagraft were reported in this trial or in patients treated to date. The primary healing data for the trial is presented in the figure below.
Percent of Patients with Complete Healing by 12 Weeks
In a post-hoc analysis, it was determined that in patients treated
with Dermagraft there was a significant reduction in incidence of amputations or bone resections, as compared to the control group (12.6% versus 5.5%, respectively, p=0.031). No adverse laboratory findings were associated with the use of Dermagraft
and no adverse device effects were reported in the trial. In addition, no immunological responses or rejections from patients that received Dermagraft were reported in this trial or in patients treated to date. The amputation or bone resection data
is presented in the figure below.
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Frequency of Patients Experiencing a Study Ulcer-Related Amputation or
Bone Resection at 12 Weeks
Comparative Effectiveness and Economic Studies
We have conducted one comparative effectiveness study with Dermagraft, which utilizes our proprietary access to data collected in the EMR
database. This study, which was published in a peer-reviewed journal, compared Dermagraft outcomes to EpiFix (owned by MiMedx), and showed a 52% relative improvement in healing over EpiFix by week 24.
The economic study of Dermagraft in a Medicare population conducted by the Analysis Group is described under the heading “—Our
Products— Previously Published Clinical Studies for FDA-Approved Products—Apligraf—Comparative Effectiveness and Economic Studies” above.
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Product Pipeline
We have a robust pipeline of products under development for both the Advanced Wound Care and Surgical & Sports Medicine markets. We
believe our pipeline efforts will deepen our comprehensive portfolio of offerings as well as allow us to address additional clinical applications. The following table summarizes our pipeline products and potential timeline for their commercial
launch:
PuraPly XT
PuraPly XT is a version of PuraPly AM with enhanced thickness and PHMB content that allows for sustained presence of the antimicrobial barrier
in the wound. Like PuraPly AM, PuraPly XT is intended for 510(k) indications for the treatment of chronic and acute wounds (other than 3rd degree burns) and the surgical treatment of open wounds. We commercially launched this product in 2020.
PuraForce
PuraForce is a
bioengineered porcine collagen surgical matrix for use in soft tissue reinforcement applications that is intended for 510(k) indications for the reinforcement of all tendons in the body. PuraForce has high biomechanical strength per unit thickness,
making it ideal for extremities applications. We commercially launched this product in 2019.
PuraPly MZ
PuraPly MZ is a micronized particulate version of PuraPly that allows application in powder or gel form to deep and tunneling wounds. Like
PuraPly, PuraPly MZ is intended for indications for the management of chronic and acute wounds (other than 3rd degree burns) and in conjunction with the surgical treatment of open wounds. A 510k application has been filed, and FDA has
requested additional preclinical biocompatibility testing which is ongoing. Following successful 510k Clearance, we plan to commercially launch this product in late 2021 or early 2022.
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Novachor
Novachor is a fresh chorionic membrane wound covering in which native tissue elements are preserved, including viable cells, growth
factors/cytokines, and extracellular matrix (ECM) proteins. The product is regulated as a 361 HCT/P when promoted and utilized clinically for homologous use as a wound covering or surgical barrier. We expect to commercially launch this product
in 2021 or early 2022, following technology transfer of production to our contract manufacturer.
TransCyte
TransCyte is a bioengineered tissue scaffold that promotes burn healing, and has received PMA approval for the treatment of deep second- and
third-degree burns. We acquired the product from Shire, and it was previously marketed by Smith & Nephew. TransCyte complements our portfolio to address all severities of burn wounds. TransCyte is a flexible, durable product that
provides bioactive dermal components, an outer protective barrier, increased re-epithelialization and pain relief for patients suffering from burns. We believe TransCyte will address a sizable market
opportunity with limited competition, with only one other PMA approved product that would be directly competitive to TransCyte currently on the market. We plan to initiate a market re-introduction program in
late 2021, and will target a full commercial launch in late 2023. We also plan to launch in the same timeframe a complementary biosynthetic wound product, a Class II Medical Device for the management of burns, for which we plan to seek 510(k)
clearance in the second half of 2021.
Gintuit
Gintuit is a surgically applied bioengineered bi-layered living cellular tissue that supports the
healing of oral soft tissue. It is currently the only BLA approved product based on cultured allograft cells and it is indicated for the treatment of mucogingival conditions in adults. We are not currently marketing Gintuit.
Platform Technologies
Our proven
research and development capabilities and established technology platforms support a robust and adaptable product pipeline for future applications. The platform technologies in which we have deep experience include:
Commercial Infrastructure
Sales and Marketing
We have dedicated substantial resources to establish a multi-faceted sales capability in the United States. Our current Advanced
Wound Care portfolio is sold throughout the United States via an experienced direct sales force, which focuses its efforts on wound care in various sites of care. We use a mix of direct sales representatives and independent agencies to service the
Surgical & Sports Medicine market. As of December 31, 2020, we had approximately 300 direct sales representatives and approximately 175 independent agencies who have substantial medical device sales experience in our target end
markets. These sales representatives are supported by teams of professionals focused on sales management, sales operations and effectiveness, ongoing training, analytics and marketing.
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We have historically focused our market development and commercial activities on the United
States, but we have obtained marketing registrations, developed commercial and distribution capabilities, and we are currently selling products in several countries outside of the United States. Our Apligraf productis currently distributed
by our direct sales force in Switzerland, and through independent sales agents in Saudi Arabia and Kuwait. Our NuShield product is also distributed by our direct sales force in Switzerland, and through independent sales agents in Kuwait. We have
obtained marketing registration for our Dermagraft product in Mexico, but we are not currently distributing it. Additionally, we are evaluating the regulatory pathways and market potential for our products in other major markets, including the
European Union. Sales generated by our direct sales forces in the United States have represented, and we anticipate will continue to represent, a majority of our revenues.
Customer Support Services
We
offer our customers in-house customer support services, including services provided by our experienced reimbursement support team, our medical and technical support team and our field-based medical science
liaison team. We believe that we have a competitive advantage by providing these essential support services in-house in that we are able to align the support services closely with our sales efforts as
appropriate and improve the customer’s overall experience.
Research and Development
Our research and development team has extensive experience in developing regenerative medicine products, and works to design products that are
intended to improve patient outcomes, simplify techniques, shorten procedures, reduce hospitalization and rehabilitation times and, as a result, reduce costs. We conduct research and development activities at our laboratory facilities in Canton, MA,
Birmingham, AL and La Jolla, CA. We have recruited and retained staff with significant experience and skills, gained through both industry experience and training at leading colleges and universities with regenerative medicine graduate programs. In
addition to our internal staff, our external network of development labs, testing labs and physicians aid us in our research and development process.
The majority of our product portfolio, including Apligraf, our PuraPly product family, Gintuit, our collagen biomaterial technology platform
product family and all of our amniotic products, were developed by our legacy and NuTech Medical research and development team. We have proven competencies to bring products to market via a broad range of regulatory classifications, as evidenced by
FDA approval or clearance of our products via PMA approval of a Class III medical device; BLA approval of a biologics product; and 510(k) clearance of a Class II medical device, in addition to our 361 HCT/P allograft products and several
products for which we have obtained international registrations.
Manufacturing and Suppliers
We manufacture internally our primary non-amniotic products and use third-party manufacturers for our
amniotic products. We have significant expansion capabilities in our in-house manufacturing facilities and we believe that our contract manufacturers are well positioned to support future expansion.
We have robust internal compliance processes to maintain the high quality and reliability of our products. We use annual internal audits,
combined with external audits by regulatory agencies to monitor our quality control practices. We are registered with the FDA as a medical device manufacturing establishment and a HCT/P registered establishment. We are also accredited by the AATB
and licensed with several states per their tissue banks regulations. All of our contract manufacturers are registered with the FDA as HCT/P establishments and are AATB accredited.
We utilize third-party raw material suppliers to support our internal manufacturing processes. We select all of our suppliers through a
rigorous process to ensure high quality and reliability with the capacity to support our expanding production levels. Only raw material from approved suppliers is used in the manufacture of our products. To confirm quality and identify any risks,
our approved suppliers are audited at pre-determined intervals. Historically, we have not experienced any significant difficulty locating and obtaining the suppliers or materials necessary to fulfill our
production requirements. In the first quarter of 2019, however, we suspended production of our product Affinity due to production issues at one of our suppliers. As this was our sole supplier of Affinity, it resulted in a disruption of our
production capabilities. We identified an alternate supplier and were able to resume commercial-scale production in the second quarter of 2020.
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Manufacture of our products is dependent on the availability of sufficient quantities of
source tissue, which is the primary component of our products. Source tissue includes donated human tissue, porcine tissue and bovine tissue. We acquire donated human tissue directly through institutional review board approved protocols at multiple
hospitals, as well as through tissue procurement firms engaged by us or by our contract manufacturers. We have two qualified porcine tissue suppliers, and currently one source of bovine tissue. Our processing of these tissues is, and our supplier
sources are required to be, compliant with applicable FDA current Good Tissue Practice, or cGTP, regulations, AATB standards and U.S. Department of Agriculture, or USDA, requirements.
Reimbursement
Overview
Our customers primarily consist of hospitals, wound care centers, government facilities, ASCs and physician offices, all of whom rely on
coverage and reimbursement for our products by Medicare, Medicaid and other third-party payers. Governmental insurance programs, such as Medicare and Medicaid, typically have published and defined coverage criteria and published reimbursement rates
for medical products, services and procedures that are established by law or regulation. Non-government payers have their own coverage criteria and often negotiate payment rates for medical products, services
and procedures. Many also require prior authorization as a prerequisite to coverage. In addition, in the United States, an increasing percentage of insured individuals are receiving their medical care through managed care programs, which monitor and
also may require prior authorization for the products and services that a member receives. Coverage and reimbursement from government and commercial payers is not assured and is subject to change.
Medicare, the federally funded program that provides healthcare coverage for senior citizens and the disabled, is the largest third-party
payer in the United States. CMS, administers the Medicare program and uses MACs to process claims, develop coverage policies and make payments within designated geographic jurisdictions. Our products fall under the jurisdiction of the Part A/B
MACs. Medicare coverage for our products is established by each MAC for its specific jurisdiction. CMS does not have a national coverage determination related to skin substitutes. Currently, all the MACs cover our products in the outpatient
hospital, physician office and ASC settings.
Private payers often, but not always, follow the lead of Medicare or other governmental
payers in making coverage and reimbursement determinations. Therefore, achieving favorable Medicare coverage and reimbursement can sometimes be a significant factor in obtaining favorable coverage and reimbursement for products by private payers.
While most private payers currently cover Apligraf and Dermagraft, most of those payers do not cover many of our other products, such as PuraPly, PuraPly AM, NuShield, and Affinity.
Currently, Medicare makes a separate payment for our products when used in the physician office at a payment rate of average sales price (ASP)
plus 6%. Legislation was recently enacted that temporarily discontinued the sequestration rate of 2% of the government portion which resulted in a final payment rate of ASP+4.3%. The sequestration will begin again on April 1, 2021. In the
outpatient hospital and ASC settings, Medicare payment for all our products is bundled into the payment for the application procedure.
All skin substitute products administered in the hospital outpatient department and ASC settings are bundled, except for those products that
have been approved by CMS for pass-through status. Pursuant to the Appropriations Act, PuraPly AM and PuraPly had pass-through status from October 1, 2018 through September 30, 2020 at which time the pass-through status expired. As of
October 1, 2020, payment for PuraPly and PuraPly AM is bundled into the payment rate for the application procedure. The amount of the pass-through payment for PuraPly AM and PuraPly was equal to ASP + 6% for the applicable calendar
quarter.
Skin Substitutes Used for Wound Care
All of our Advanced Wound Care products are classified as “skin substitutes” for Medicare reimbursement purposes. In 2014, CMS
instituted “bundled” payments in the hospital outpatient and ASC setting for skin substitutes using a two-tier payment system. The Medicare payment system bundles payment for our products (and all
skin substitutes) into the payment for the application of the skin substitute, resulting in a single payment to the provider that includes both the application of the product and the product itself. There is one bundled payment amount for procedures
that involve high cost products, i.e., products whose cost exceeds a threshold amount, and another bundled payment amount for procedures that involve low cost products that do not meet the threshold. The bundled payment rate is updated annually
and is also geographically adjusted. Currently, all of our wound care products are assigned to the high cost bundle; it is not possible to predict, however, whether those products will continue to be assigned to the high cost bundle or the rates
that will be paid for each bundle. Further, under the bundling policy there is an inherent incentive to use the cheapest products available, even if those products are less effective.
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The bundled payment rates are also geographically adjusted. This geographic adjustment may
result in significant payment variations among regions; for example, sixty percent of the hospital payment rate is adjusted to take into account the region’s wage-index, which can vary widely from one region to another. The wage-index
adjustment may result in reimbursement being insufficient to account for the cost of skin substitute products and sizes in one geographic area that are fully reimbursed in other geographic areas.
All skin substitute products administered in the hospital outpatient department and ASC settings are bundled, except for those products that
have been approved by CMS for pass-through status. In order to encourage the development of innovative medical devices, drugs and biologics, Congress created pass-through payments to allow payment for new innovative medical products to be added to
the current Medicare rate. For a limited period of time, products with pass-through status are reimbursed through an additional reimbursement amount known as a “pass through payment,” for the medical device, drug or biologic on top of the
bundled payment amount the hospital would receive for performing the service. The additional payment amount is the hospital’s charge for the pass-through product reduced to cost using the hospital’s specific cost to charge ratio, less an
offset for the amount of money already included in the bundle for skin substitute products.
PuraPly AM and PuraPly were included in the
“bundled” payment structure from January 1, 2018 through September 30, 2018. Section 1301 of the Consolidated Appropriations Act of 2018, which was enacted on March 23, 2018, restored the pass-through status of PuraPly
AM and PuraPly effective October 1, 2018 through September 30, 2020. Beginning on October 1, 2018, Medicare resumed making pass-through payments when PuraPly AM and PuraPly were used in outpatient hospital and ASC settings. All other
skin substitute products, including all of our other products, remained in the bundled payment structure. The amount of the pass-through payment for PuraPly AM and PuraPly was equal to ASP + 6% for the applicable calendar quarter. The
Consolidated Appropriations Act applied only to Medicare, and does not apply to Medicaid or any commercial payers. As noted above, as of October 1, 2020, payment for PuraPly and PuraPly AM is once again bundled into the payment rate for the
application procedure.
Furthermore, Medicare has signaled that it may revise its two-tiered
bundled payment policy for skin substitutes. Medicare solicited comments in calendar year 2019 proposed rule related to proposed updates and policy changes under the Medicare Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory
Surgical Center (ASC) Payment System. Medicare specifically solicited comments on whether it should eliminate the two-tiered bundle policy and establish a single bundle for all products. It is possible that
Medicare will revise its payment policy in calendar year 2022 or calendar year 2023. Any revised policy could result in decreased reimbursement for our products which could decrease utilization and reduce our revenues. Moreover, any new policy could
result in a financial incentive for hospitals and ASCs to use our competitor’s products, thereby reducing our market share and revenue.
In the physician office setting, payment for skin substitutes is not bundled into the payment for the administration of the product. Skin
substitutes are paid separately from the application procedure and the Medicare payment rate for all skin substitutes (including ours) is calculated based on the manufacturer’s ASP on a per square centimeter basis with the total payment for the
product being the per square centimeter ASP-based payment rate multiplied by the total number of centimeters. In the physician office setting the Medicare payment rates for all skin substitutes (including
ours) are updated quarterly based on manufacturer reported ASP and are not geographically adjusted. The actual payment rate for skin substitutes is ASP plus 6%, which will be adjusted for the statutorily mandated sequestration starting on
April 1, 2021 resulting in an actual payment of ASP plus 4.3%. This payment methodology applies only to physician offices. Medicare does not require us to report ASP for our products because they are regulated by the FDA as medical devices.
However, starting in January 2022, we will be required to report ASP for all our products because of a provision enacted in the Consolidated Appropriations Act of 2020, signed into law on December 27, 2020. Currently, the local Part A/B MACs