UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2023
or
For
the transition period from ________ to ________
Commission
File Number 001-39678
SANARA
MEDTECH INC.
(Exact
name of Registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200
Summit Ave, Suite 414, Fort Worth, Texas76102
(Address
of principal executive offices)
(817)529-2300
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value SMTI The Nasdaq Capital Market
Securities
registered pursuant to Section 12(g) of the Exchange 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.
☐ ☐ ☒ ☒ ☐
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 U.S.C.7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2023, based
on the $40.10 closing price as of such date was approximately $151,156,822.
As
of March 22, 2024, 8,622,805 shares of the Issuer’s common stock, $0.001 par value per share, were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by reference
to the registrant’s Definitive Proxy Statement on Schedule 14A relating to the 2024 Annual Meeting of Shareholders which will be
filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form
10-K relates.
SANARA
MEDTECH INC.
Form
10-K
For
the Year Ended December 31, 2023
Page
PART I.
ITEM 1 BUSINESS 4
ITEM 1A RISK FACTORS 18
ITEM 1B UNRESOLVED STAFF COMMENTS 40
ITEM 1C CYBERSECURITY 40
ITEM 2 PROPERTIES 40
ITEM 3 LEGAL PROCEEDINGS 40
ITEM 4 MINE SAFETY DISCLOSURES 40
PART II.
ITEM 6 RESERVED 41
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 51
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
ITEM 9A CONTROLS AND PROCEDURES 52
ITEM 9B OTHER INFORMATION 52
ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 52
PART III.
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 53
ITEM 11 EXECUTIVE COMPENSATION 53
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES 53
PART IV.
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 54
Sanara,
Sanara MedTech, our logo and other trademarks or service marks appearing in this report are the property of Sanara MedTech Inc. Trade
names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for
convenience, the trademarks, service marks and trade names included in this report are without the ®, TM or other applicable
symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable
law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
Unless
otherwise indicated, “Sanara MedTech,” “Sanara,” the “Company,” “our,” “us,”
or “we,” refer to Sanara MedTech Inc. and its consolidated subsidiaries.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate
to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because
they contain words such as “aims,” “anticipates,” “believes,” “contemplates,” “continue,”
“could,” “estimates,” “expects,” “forecast,” “guidance,” “intends,”
“may,” “plans,” “possible,” “potential,” “predicts,” “preliminary,”
“projects,” “seeks,” “should,” “target,” “will” or “would” or
the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy,
plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors
that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:
● shortfalls in forecasted revenue growth;
● our ability to meet our future capital requirements;
● our ability to retain and recruit key personnel;
● the failure of our products to obtain market acceptance;
● the effect of security breaches and other disruptions;
● our ability to maintain effective internal controls over financial reporting;
● the impact of competitors inventing products that are superior to ours;
● our ability to manage product inventory in an effective and efficient manner;
All
forward-looking statements speak only as of the date on which they are made. For a more detailed discussion of these and other factors
that may affect our business, see the discussion in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this report. We caution that the foregoing list of factors is
not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We do not undertake
any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this report, except
to the extent required by applicable securities laws.
PART
I
Item
1. BUSINESS
Overview
We
are a medical technology company focused on developing and commercializing transformative technologies to improve clinical outcomes and
reduce healthcare expenditures in the surgical, chronic wound and skincare markets. Our products, services and technologies are designed
to achieve our goal of providing better clinical outcomes at a lower overall cost for patients regardless of where they receive care.
We strive to be one of the most innovative and comprehensive providers of effective surgical, wound and skincare solutions and are continually
seeking to expand our offerings for patients requiring treatments across the entire continuum of care in the United States.
We
currently market several products across surgical and chronic wound care applications and have multiple products in our pipeline. On
August 1, 2023, we acquired, among other things, the underlying intellectual property of, as well as the rights to manufacture and sell,
CellerateRX Surgical Activated Collagen (“CellerateRX Surgical”), our primary product, and HYCOL Hydrolyzed Collagen (“HYCOL”)
from Applied Nutritionals, LLC (“Applied”) for human wound care use (such transaction, the “Applied Asset Purchase”).
Prior to such time, we had licensed the rights to these products through a sublicense agreement (the “Sublicense Agreement”)
with CGI Cellerate RX, LLC (“CGI Cellerate RX”), an affiliate of The Catalyst Group, Inc. (“Catalyst”), both
of which are related parties. In connection with the asset purchase, Applied assigned its license agreement with CGI Cellerate RX to
a wholly owned subsidiary of the Company. We also license certain products from Rochal Industries, LLC (“Rochal”) and Cook
Biotech Inc. (“Cook Biotech”).
In
April 2022, we entered into a merger agreement through which Precision Healing Inc. (“Precision Healing”) became a wholly
owned subsidiary of the Company. Precision Healing is developing a diagnostic imager and lateral flow assay (“LFA”) for assessing
a patient’s wound and skin conditions. This comprehensive wound and skin assessment technology is designed to quantify biochemical
markers to determine the trajectory of a wound’s condition to enable better diagnosis and treatment protocol. In December 2023,
we received 510(k) clearance from the U.S. Food and Drug Administration (“FDA”) for the Precision Healing diagnostic imager.
We are evaluating regulatory pathways for the Precision Healing LFA.
In
July 2022, we entered into a membership interest purchase agreement with Scendia Biologics, LLC (“Scendia”) and Ryan Phillips
(“Phillips”) pursuant to which we acquired 100% of the issued and outstanding membership interests in Scendia from Phillips.
Since our acquisition of Scendia, we have been selling a full line of regenerative and orthobiologic technologies including (i) TEXAGEN
Amniotic Membrane Allograft (“TEXAGEN”), (ii) BiFORM Bioactive Moldable Matrix (“BiFORM”), (iii) ACTIGEN Verified
Inductive Bone Matrix (“ACTIGEN”) and (iv) ALLOCYTE Advanced Cellular Bone Matrix (“ALLOCYTE”).
In
November 2022, we established a partnership with InfuSystem Holdings, Inc. (“InfuSystem”) focused on delivering a complete
wound care solution targeted at improving patient outcomes, lowering the cost of care, and increasing patient and provider satisfaction.
The partnership enables InfuSystem to offer innovative products including negative pressure wound therapy (“NPWT”)
devices and supplies and our advanced wound care product line and associated services to new customers.
In
November 2023, we launched BIASURGE Advanced Surgical Solution (“BIASURGE”). BIASURGE is a no-rinse, advanced surgical solution
used for wound irrigation. It contains an antimicrobial preservative effective against a broad spectrum of pathogenic microorganisms.
BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including microorganisms, from surgical wounds.
Comprehensive
Value-Based Care Strategy
In
June 2020, we formed a subsidiary, United Wound and Skin Solutions, LLC (formerly known as “WounDerm”), to hold certain investments
and operations in wound and skincare virtual consult services. In 2023, WounDerm was renamed and is now doing business as “Tissue
Health Plus” (“THP”). THP is continuing its mission to simplify skin health, starting with wound care through a refined
business plan. Through THP, we plan to offer a first of its kind value-based wound care program to payers and risk-bearing entities such
as accountable care organizations and value-based care (“VBC”) primary care companies, with Medicare Advantage payers as
the initial target segment for this program.
THP’s
programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality
of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans
a variety of settings including physician offices, skilled nursing homes, assisted living facilities and senior living facilities. THP
programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.
We
anticipate that THP’s customer contracts will have three-to-five-year terms. These contracts are expected to incorporate a mix
of value-based pricing methodologies including episodic, “per member per month”, and “fee for value” pricing.
We believe this approach is aligned with the financial goals of the payers and will help deliver outstanding clinical outcomes for the
patients.
Our
vision for our comprehensive approach consists of three key sets of planned capabilities:
We are seeking a partner to facilitate commercialization
of Tissue Health Plus and share in the cost of development of the program.
Market
Scale
A
study by a physician at the Department of Surgery for the Indiana University Health Comprehensive Wound Center found that approximately
8.2 million patients suffer from surgical and chronic wounds each year in the United States. Furthermore, according to an article published
by the American College of Surgeons and Surgical Infection Society, in the United States, the annual treatment cost projections for all
wounds is approximately $28 billion with the estimated annual cost of surgical site infections ranging from $3.5 billion to $10 billion.
Looking at the target markets for our specific products, according to SmartTRAK Advanced Wound Care, the U.S. advanced dressings market
is estimated to be $1.3 billion and the U.S. wound biologics market is estimated to be $2 billion. The U.S. teledermatology market alone
is estimated to grow from $5 billion in 2019 to $45 billion by 2027 according to a research report by Fortune Business Insights.
Summary
of Our Product, Service and Technology Offerings and Development Programs
We
are committed to developing and commercializing innovative products that address the challenges physicians face in diagnosing and treating
wound and skincare ailments. Our surgical products, CellerateRX Surgical, TEXAGEN, BiFORM, ACTIGEN, ALLOCYTE, ALLOCYTE Plus Advanced
Viable Bone Matrix (“ALLOCYTE Plus”), BIASURGE, FORTIFY TRG Tissue Repair Graft (“FORTIFY TRG”), and FORTIFY
FLOWABLE Extracellular Matrix (“FORTIFY FLOWABLE”) are used in a wide range of surgical specialties to help promote patient
healing and reduce the risk of complications. CellerateRX Surgical products, TEXAGEN products, FORTIFY TRG, and FORTIFY FLOWABLE are
used in specialties including cardiothoracic, colorectal, general surgery, hand, head and neck, high-risk obstetrics and gynecology,
Mohs surgery, neurosurgery, oncology, orthopedic (hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology),
plastic/reconstructive, podiatric, urology, and vascular. BiFORM, ACTIGEN, ALLOCYTE, and ALLOCYTE Plus are used in orthopedic specialties
including hip and knee, sports, spine, joint, foot and ankle, ortho trauma and ortho oncology. Currently, substantially all of our revenue
is derived from the sale of surgical products.
In
2021, we launched FORTIFY TRG and FORTIFY FLOWABLE, which we license from Cook Biotech. FORTIFY TRG and FORTIFY FLOWABLE, are currently
510(k) cleared for use in the surgical segment. We believe that both products are a complementary offering to CellerateRX Surgical and
we are working to increase both the number of contract opportunities and facility approvals to drive further sales growth.
In
July 2022, through the acquisition of Scendia, we expanded our surgical product offerings to include regenerative and orthobiologic technologies.
We chose to focus our sales and marketing on four key products: TEXAGEN, BiFORM, ACTIGEN and ALLOCYTE. As part of the integration of
Scendia into Sanara, we are continuing to work to add facility approvals for these products.
During
the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. From the fourth quarter of 2022 through
September of 2023, we were unable to fill certain orders for this product, which negatively impacted our sales growth. The supply constraint
was caused by significant supplier limits on qualifying eligible donor tissue and supplier necessity to subcontract all processing to
secondary suppliers. We have since expanded the ALLOCYTE product line with the release of ALLOCYTE Plus, which is processed by an alternative
supplier with in-house processing capabilities. Our first sales of ALLOCYTE Plus occurred in October 2023.
In
November 2023, we launched BIASURGE. BIASURGE is a no-rinse, advanced surgical solution used for wound irrigation. It contains an antimicrobial
preservative that is effective against a broad spectrum of pathogenic microorganisms. BIASURGE is indicated for use in mechanical cleansing
and removal of debris, including microorganisms, from surgical wounds.
In
December 2023, we entered into an exclusive license agreement with Tufts University (“Tufts”) to develop and commercialize
certain new bioactive collagen peptide-based applications using patented technology licensed from Tufts. We believe the licensed technology,
supported by the expertise of our research and development team, will help us expand our product offering of collagen products.
Our
post-acute wound care products, HYCOL, BIAKŌS Antimicrobial Skin and Wound Cleanser (“BIAKŌS AWC”) and BIAKŌS
Antimicrobial Wound Gel (“BIAKŌS AWG”), are targeted for use across the continuum of care, including home health, hospice,
physician offices, retail, skilled nursing facilities (“SNFs”), and wound care clinics. Our post-acute wound care products
are indicated for use on stage I-IV pressure ulcers, diabetic foot ulcers (“DFUs”), venous stasis, arterial, post-surgical
wounds, first- and second-degree burns and donor sites. BIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial
Skin and Wound Irrigation Solution) that can be used in conjunction with NPWT instillation and dwell as well as other wound irrigation
needs.
Further,
we have a robust pipeline of products under development to further expand our position in the surgical and wound care markets. We
believe our pipeline initiatives will deepen our comprehensive portfolio of offerings and allow us to build product and technology
platforms related to hydrolyzed collagen, wound bed preparation, and antimicrobials in the surgical and wound care
markets.
Strategy
●
Drive additional market penetration as well as geographic expansion for our products. We are actively working to expand our geographic
footprint across the entire United States. We also intend to leverage our comprehensive product, services and technology-based offerings
portfolio and relationships with key constituents to deepen our presence in the surgical, wound and skincare markets. We believe the
breadth and flexibility of the products we offer allow us to address a wide variety of surgical site needs, wound types and sizes and
offer significant new opportunities for sales growth. In addition, we believe that as we continue to offer new products, services and
technology-based offerings, our salesforce’s ability to reach additional customers in new and existing geographic regions while
penetrating further in existing customer accounts will be enhanced.
●
Launch new innovative products. We are actively developing additional proprietary products for the surgical and chronic wound
and skincare markets. We expect these products and services to deepen our portfolio of technologies to improve surgical site outcomes
and treat chronic wounds. We are focused on offering additional products and services that are more efficacious than competing products
and services and provide a stronger value proposition (lower total cost to heal and less time to heal, leading to reduced costs to the
healthcare system).
●
Seek and establish partnerships and product, services and/or technology acquisitions. We plan to continue to seek and establish
partnerships in the United States and internationally to provide innovative products, services and technologies. We believe that partnerships
will be a key driver of our growth in the future. We also intend to selectively pursue acquisitions of businesses and technologies that
complement our existing strategy and footprint.
●
Seek and establish partnerships with Medicare Advantage, at-risk payors and other types of healthcare at-risk models. We believe
we have assembled the products, services and technologies to offer a comprehensive strategy to help improve outcomes and lower wound
care costs across the continuum of care. Looking ahead, we plan to leverage these capabilities to partner with value-based care models
to aid in the treatment of their wound care patients who currently are a significant cost for the healthcare system and challenging population
to heal.
●
Capture patients throughout the entire continuum of care. We intend to continue expanding our platform to aid in treating wound
and skincare patients as they progress through the healing process in all care settings. We formed Tissue Health Plus to hold certain
investments in technologies and operations in wound and skincare virtual consult services. We believe our service offerings will allow
us to collect and analyze large amounts of data on patient conditions and outcomes that will improve treatment protocols and ultimately
lead to more evidence-based healing formularies to improve outcomes in the future. We anticipate that this data will also enable us to
participate in the creation of new standards of care that promote patient compliance and enable direct dialogue between patients, clinicians
and payors, resulting in greater satisfaction for patients, their caregivers, clinicians and payors.
Competitive
Strengths
●
Attractive markets for surgical and chronic wound care. We believe the surgical and chronic wound care markets will continue to
see accelerated growth given favorable global tailwinds that include an aging population, increasing costs of health care, recognition
of difficult-to-treat infection threats such as biofilms, and the increasing prevalence of diabetes and obesity. We believe there will
be growing adoption of our products due to their clinical efficacy and cost effectiveness for all key constituents compared to traditional
wound care products.
●
Comprehensive solution for improved wound care outcomes. We are dedicated to offering a comprehensive portfolio of products, services
and technologies to improve wound care treatment outcomes. We believe we are the only company that will be able to provide a comprehensive
solution for wound care which includes a wound and skin specific electronic medical record (“EMR”), virtual consult services with expert wound care providers and dermatologists,
propriety diagnostics and highly efficacious proprietary products allowing us to effectively treat wound care patients in any care setting.
●
Wound care products for all care settings. Our wound care product portfolio allows clinicians to personalize solutions to meet
the needs of individual wound care patients in all care settings including acute (hospitals and long-term acute care hospitals) and post-acute
(wound care clinics, physician offices, SNFs, home health, hospice, podiatrists and retail).
●
Innovative pipeline and proven clinical performance. We have a robust pipeline of surgical, wound and skincare products that we
expect to market in the near term. We believe the efficacy of our offerings will be proven via statistically significant collected and
analyzed clinical and health economic outcomes data, resulting in expanded adoption of our products at a lower overall cost to payors.
●
Proven executive leadership team with a long-term track record of value creation. We are led by a dedicated and seasoned management
team with significant industry experience who have successfully executed our strategic implementation to date by launching new products
and technologies through investment in new areas of growth. We believe our management team has the vision and experience to implement
our future growth strategy.
Market
Opportunities for Our Products, Services and Technology-Based Offerings
According
to a study published by the Value in Health journal, roughly 15% of the Medicare beneficiary population has chronic nonhealing wounds.
Chronic wounds do not advance through the phases of healing in a normal progression and do not show significant progress toward healing
in 30 days. Factors contributing to the chronicity of the wound may include pressure/friction, trauma, insufficient blood flow and oxygenation
in locations such as the lower extremities, increased bacterial load, excessive proteases, degraded growth factors, matrix metalloproteinases,
senescent/aberrant cells or inappropriate treatment. Examples of chronic wounds include DFUs, venous leg ulcers (“VLUs”),
arterial ulcers, pressure ulcers and hard-to-heal surgical/traumatic wounds. In each of the various wound types, the presence of biofilms
is a frequent cause for chronicity of wounds and the removal of biofilms is a crucial step to commence healing. Biofilms need to be eradicated
to prevent further deterioration of the wound that may result in additional negative patient outcomes. If not effectively treated, these
wounds can lead to potentially severe complications, including further infection, osteomyelitis, fasciitis, amputation and increased
mortality. Chronic wounds are primarily seen in the elderly population. For example, a 2019 study published in Advances in Wound Care
reported that in the United States, 3% of the population over the age of 65 had open wounds. According to the same study, in 2020, the
U.S. government estimated that the elderly population totaled 55 million people, suggesting that chronic wounds will continue to be an
increasingly persistent problem in this population. Four common chronic and other hard-to-heal wounds are:
●
Surgical/traumatic wounds. Surgical wounds form as a result of various types of surgical procedures such as investigative or corrective,
minor or major, open (traditional) or minimal access surgery, elective or emergency, and incisions (simple cuts) or excision (removal
of tissue), among others. Traumatic wounds form as a result of cuts, lacerations or puncture wounds, which have caused damage to the
skin and underlying tissue. Severe traumatic wounds may require surgical intervention to close the wound and stabilize the patient. Surgical/traumatic
hard-to-heal wounds develop for various reasons, such as local surgical complications, suboptimal closure techniques, presence of foreign
materials, exposed bones or tendons and infection. In the United States, millions of people receive post-surgical wound care annually,
and the typical operative patient has comorbidities that create challenges with post-operative wound healing.
●
Diabetic Foot Ulcers. Diabetes can lead to a reduction in blood flow, which can cause patients to lose sensation in their feet
and may prevent them from noticing injuries, sometimes leading to the development of DFUs, which are open sores or ulcers on the feet
that may take several weeks to heal, if ever. According to the 2020 National Diabetes Statistics Report by the Center for Disease Control
and Prevention, in the United States alone, over 34 million people, or approximately 10% of the population, suffer from diabetes, a chronic,
life-threatening disease.
●
Venous Leg Ulcers. VLUs develop as a result of vascular insufficiency, or the inability for the vasculature of the leg to return
blood back toward the heart properly and, according to a 2013 report published by the International Journal of Tissue Repair and Regeneration,
VLUs affect approximately 600,000 people per year in the United States alone. These ulcers usually form on the sides of the lower leg,
above the ankle and below the calf, and are slow to heal and often recur if preventative steps are not taken. The risk of VLUs can be
increased as a result of a blood clot forming in the deep veins of the legs, obesity, smoking, lack of physical activity or work that
requires many hours of standing.
●
Pressure Injury/Ulcers. Pressure injury/ulcers are injuries to the skin and underlying tissue resulting from prolonged pressure,
or pressure in combination with shear or friction. Constant pressure on an area of skin reduces blood supply to the area and over time
can cause the skin to break down and form an open ulcer. These often occur in patients who are hospitalized or confined to a chair or
bed and most often form on the skin over bony areas, where there is little cushion between the bone and the skin, such as heels, ankles,
hips and the tailbone. Annually, 2.5 million pressure injury/ulcers are treated in the United States in acute care facilities alone,
according to a 2006 study published in the Journal of the American Medical Association.
Sanara
Products
We
market and distribute surgical, wound and skincare products and services to physicians, hospitals, clinics, and post-acute care settings.
Our products are primarily sold in the U.S. surgical tissue repair and advanced wound care markets. We believe we have the ability to
drive our product pipeline from concept to preclinical and clinical development while meeting quality and regulatory requirements. We
are constantly seeking long-term strategic partnerships with a focus on products that improve outcomes at a lower overall cost.
CellerateRX Surgical is a medical hydrolysate of Type I bovine collagen indicated for the management of surgical, traumatic, and partial-
and full-thickness wounds as well as first- and second-degree burns. It is manufactured with a proprietary process. CellerateRX Surgical
powder is sterilized, packaged and designed specifically for use in the operating room or other sterile environment. CellerateRX Surgical
products are primarily purchased by hospitals and ambulatory surgical centers for use by surgeons on surgical wounds. The predominance
of CellerateRX Surgical products are used for a variety of surgical wounds, including those associated with orthopedic, spine, trauma
and oncologic procedures. Additional surgical wounds that may benefit from the use of CellerateRX Surgical include cardiovascular, gynecologic,
urologic and plastic/reconstructive related procedures.
CellerateRX
Surgical is used in operative cases where patients might have trouble healing normally due to underlying health complications. There
is always a risk of complication with surgical wounds. This is especially true in patients with certain comorbidities, including obesity,
diabetes and hypertension. These complications can include surgical wound infections, dehiscence (where an incision opens after primary
closure) and necrosis. Surgeons use CellerateRX Surgical to complement the body’s normal healing process. By supporting the body
to heal normally without complications, improved patient outcomes are achieved, thereby reducing downstream costs related to complications
(such as re-operation, longer hospitalization, re-admittance, extended rehabilitative care and other additional treatments). Surgical
wound complications have become increasingly problematic due to the high rates of surgical patient comorbidities and the financial strain
on insurance payors as well as hospitals who suffer exorbitant costs for readmission of these patients within 30 days of surgery.
HYCOL
products are a medical hydrolysate of Type I bovine collagen intended for the management of full and partial thickness wounds
including pressure ulcers, venous and arterial leg ulcers and DFUs. HYCOL is primarily used in or targeted to post-acute care
settings such as home health, SNFs, wound clinics and physician offices and is currently eligible for reimbursement under Medicare
Part B. HYCOL provides the benefit of hydrolyzed collagen directly in the wound bed. Therefore, unlike with the body’s own
native collagen or native collagen products, the body does not have to break HYCOL down before use, which is extremely beneficial
when treating elderly and otherwise compromised patients with comorbidities such as diabetes and peripheral vascular
disease.
BIAKŌS
AWC is a 510(k) cleared, patented product that contains synergistic ingredients that have been shown to impact mature biofilm
microbes. BIAKŌS AWC is indicated for the mechanical removal of debris, dirt, foreign materials, and microorganisms from
wounds including stage I-IV pressure ulcers, DFUs, post-surgical wounds, first- and second-degree burns, as well as grafted and
donor sites. BIAKŌS AWC is effective in killing planktonic microbes and immature and mature bacterial and fungal biofilms
within the wound. In addition, safety studies demonstrated that BIAKŌS AWC is biocompatible and supports the wound healing
environment. BIAKŌS AWC is also available in an irrigation bottle (BIAKŌS Antimicrobial Skin and Wound Irrigation
Solution) that can be used in conjunction with NPWT instillation and dwell as well as other wound irrigation needs.
BIAKŌS
AWG is an antimicrobial hydrogel wound dressing that can be used alone or in combination with BIAKŌS AWC. The BIAKŌS AWG
is also 510(k) cleared and the product launched in November 2020 to complement BIAKŌS AWC.
BIAKŌS
AWC and BIAKŌS AWG are effective against planktonic microbes as well as immature and mature biofilms within the wound. When used
together, the cleanser can be used initially to clean a wound and disrupt biofilms (removing 99% in 10 minutes). The gel can then be
applied and remains in the wound for up to 72 hours, helping to continue disrupting biofilm microbes. In a study conducted in 2020, BIAKŌS
AWG, in combination with BIAKŌS AWC, was compared to a number of commercially available wound cleansers to treat chronic wounds
such as pressure, diabetic and venous ulcers. The BIAKŌS combination of cleansing and gel dressing demonstrated a reduction in
the biofilm microbes by 7.5 logs (>99.99% reduction).
BIASURGE
is a no-rinse advanced surgical solution used for wound irrigation. It contains an antimicrobial preservative effective against a broad
spectrum of pathogenic microorganisms. BIASURGE is indicated for use in the mechanical cleansing and removal of debris, including microorganisms,
from surgical wounds. First sales of BIASURGE occurred in early November 2023.
FORTIFY
TRG is a freeze-dried, multi-layer small intestinal submucosa extracellular matrix sheet. The graft is 510(k) cleared for implantation
to reinforce soft tissue, is terminally sterilized, has a thin profile, is available in multiple sizes, and can be cut to size to accommodate
the patient’s anatomy. FORTIFY TRG is provided sterile and can be hydrated with autologous blood fluid. First sales of this product
occurred in the fourth quarter of 2021.
FORTIFY
FLOWABLE is an advanced wound care device that presents Small Intestine Submucosa Extracellular Matrix technology in a way that can fill
irregular wound shapes and depths. FORTIFY FLOWABLE is indicated for the management of wounds including: partial and full-thickness wounds,
pressure ulcers, venous leg ulcers, diabetic foot ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds (donor
sites/grafts, post-Mohs surgery, post-laser surgery, podiatric, wound dehiscence sites), traumatic wounds (abrasions, lacerations, second-degree
burns, and skin tears) and draining wounds. FORTIFY FLOWABLE is provided sterile and is intended for one-time use. It is a 510(k) cleared
product. First sales of this product occurred in the first quarter of 2022.
TEXAGEN
is a multi-layer amniotic membrane allograft used as an anatomical barrier with robust handling that can be sutured for securement if
needed. BiFORM is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site. It can be hydrated
and used as a strip or molded into a putty to fill a bone defect. ACTIGEN is a verified inductive allograft putty with conformable handling
properties. ALLOCYTE and ALLOCYTE Plus are human allograft cellular bone matrices containing bone-derived progenitor cells and conformable
bone fibers. These viable cellular allografts are ready to use upon thawing and have fibrous handling properties.
Recent
Published Studies on CellerateRX Surgical
CellerateRX
Surgical is a medical hydrolysate of Type I bovine collagen indicated for the management of surgical, traumatic, and partial- and full-thickness
wounds as well as first- and second-degree burns. CellerateRX Surgical is sterilized, packaged and designed, specifically for use in
the operating room (or sterile field), including additional sterility validation. It can be applied in the operating room to surgical
wounds that may result from a wide variety of surgical procedures to support the wound healing environment.
An animal study model by the Indiana University Center
for Regenerative Medicine and Engineering and the McGowan Institute for Regenerative Medicine was published in Advances in Wound Care
in September of 2023. The study, titled “Hydrolyzed Collagen Powder Dressing Improves Wound Inflammation, Perfusion, and Breaking
Strength of Repaired Tissue,” demonstrated the effects of CellerateRX Surgical powder on resolution of wound inflammation, perfusion,
closure, and breaking strength of the repaired skin. Moreover, the study provided translational research validating published clinical
case series and further highlighting mechanistic effects of hydrolyzed collagen. Future empirical and clinical research revealing the
unique support hydrolyzed collagen provides the wound environment is currently ongoing.
Several
research findings involving CellerateRX Surgical powder have been noted in scientific literature. For example, in November 2021, Dr.
William Hotchkiss published a retrospective study of 154 patients in JSM Neurosurgery and Spine, in which patients underwent spinal surgery
and CellerateRX Surgical was utilized in the surgical wound. The study found a lower wound dehiscence rate in a high-risk patient population,
when compared to previously published wound complication rates in the literature. Another retrospective case study regarding the use
of CellerateRX Surgical was recently published by Dr. Alex Gitelman in November 2022. This study of 54 patients undergoing spinal surgery
demonstrated no incidence of surgical wound complication.
In
a retrospective study published in the Journal of Surgery in October 2023, the impact of CellerateRX Surgical collagen on surgical site
infection rates in elective multispecialty surgical procedures was case matched 1:3 for a total of 5,335 patients and demonstrated an
overall reduction of 59% in surgical site infection rates. This reduction was most pronounced in the clean cases with a 69% decrease
in surgical site infection rates.
Intellectual
Property
Since
the acquisitions of Rochal and Precision Healing and the Applied Asset Purchase, our research and development activities have included
internally developing additional proprietary products, services and technologies for the surgical and chronic wound and skincare markets
and actively working with third-party research and development partners from which we license products. For our internally developed
products, we seek patent protection for our inventions in order to protect and differentiate our products and technologies and establish
a defense against third-party infringement claims. With the aim of optimizing commercial and regulatory success, our proprietary technology
and innovative applications thereof are protected by product, system, process, and method-of-use patent claims. We believe that our granted
patents and pending applications collectively protect our internally developed intellectual property, both in terms of our existing products,
as well as our anticipated pipeline of new offerings.
In
July 2021, we acquired certain assets from Rochal, including intellectual property. With respect to the assets we acquired from Rochal
and products developed following the Rochal acquisition, our patent portfolio includes, among others, eight issued U.S. patents, including
U.S. Patent No. 8,829,053 entitled “Biocidal Compositions and Methods of Using the Same” (expiring December 7, 2031) relating
to BIAKŌS AWC, BIAKŌS AWG and BIASURGE Surgical Wash, as well as over 100 issued patents in foreign jurisdictions. Following
our acquisition by merger of Precision Healing in April 2022, described in further detail below, our patent portfolio now includes, among
others, five pending U.S. patent applications as well as one pending international patent application. Following the Applied Asset Purchase
in August 2023, described in further detail below, our portfolio also now includes, among others, nine additional U.S. patent applications,
five trademarks, four 510(k) clearances and various domain names.
In
addition to the above patents, our pending patent applications and new filings are representative of our ongoing efforts to broaden our
portfolio as we continue developing new products for the surgical and chronic wound and skincare markets. We intend to further grow our
patent portfolio by continuing to patent new products as they are developed, to defend intellectual property as we believe necessary
by actively pursuing any infringements, to pursue the commercial opportunities our patents provide for our innovations, and to continue
to develop our brands and trademarks.
Sales
and Marketing
As
of December 31, 2023, we employed 39 field sales representatives covering 42 states. Our field sales representatives are recruited based on their
previous industry experience and professional performance. We constantly evaluate new markets and sales opportunities to add to our
sales teams as warranted.
Field
sales representatives are initially trained through an internal learning management system, “SanaraU”, which gives them further
product and surgical specialty training including wound etiology, operating room etiquette and credentialing requirements. After completing
their internal training, new hire field sales representatives participate in field training with experienced field trainers to get insights
into best practice as well as real world training. The initial training period lasts approximately eight weeks. Field sales representatives
are supported by regular updated training modules on product information and best practices.
A
key component of our sales and marketing efforts involves working with physicians and clinicians to champion our products in their facilities.
We work closely with surgeons and health system stakeholders to demonstrate the efficacy and beneficial impact of our surgical products
and successfully navigate the hospital value analysis committee approval process, allowing our products to be sold in those facilities.
Similarly, we work with clinicians to demonstrate the efficacy of our wound care products in their respective care settings. If our sales
and marketing efforts are successful, the clinicians then advocate for the use of our products when medically necessary.
Manufacturing,
Supply and Production
We
do not own or operate our own manufacturing facilities. We rely on contract
manufacturing for our products. Our contract manufacturing strategy is intended to drive cost leverage through scale and avoid the high
capital outlays and fixed costs associated with constructing and operating manufacturing facilities. Our manufacturing partners have
internal compliance processes to maintain the high quality and reliability of our products. We do source some packaging and marketing
materials separate from our licensing partners.
During
the third quarter of 2022, we began to experience supply issues with the ALLOCYTE product line. The supply constraint was caused by significant
supplier limits on qualifying eligible donor tissue and supplier necessity to subcontract all processing to secondary suppliers. From
the fourth quarter of 2022 through September 2023, we were unable to fill certain orders for this product, which negatively impacted our
sales. We have since expanded the ALLOCYTE product line with the release of ALLOCYTE Plus, which is processed by an alternative supplier
with in-house processing capabilities. Our first sales of ALLOCYTE Plus occurred in October 2023. We have a sufficient supply of ALLOCYTE
Plus to meet currently expected demand and believe we have measures in place to regularly stock the product in the future.
Reimbursement,
Clinical Validation and Clinical Utility
We
do not promote our products based on their reimbursement status, however, we are mindful of the benefits of a favorable reimbursement
coverage status to increase patient access and support our research and development efforts to supply the highest efficacy solutions.
Three
of our chronic wound care products (BIAKŌS AWG, HYCOL Hydrolyzed Collagen Powder and HYCOL Hydrolyzed Collagen Gel) have Healthcare
Common Procedure Coding System A codes and are eligible for reimbursement through Medicare Part B. There is currently no reimbursement
for BIAKŌS AWC and BIAKŌS Antimicrobial Skin and Wound Irrigation Solution.
We
anticipate that our THP strategy, once launched, will provide a significant amount of patient data to help us measure our products’
effectiveness on improving patient outcomes while simultaneously reducing healthcare costs. We believe our reimbursement strategy, including
establishing the clinical validation, clinical utility and health economics of our products, will allow us to drive improved reimbursement
coverage for our products and technologies.
Competition
The
wound care market is served by several large, multi-product line companies as well as a number of small companies. Our products compete
with primary dressings, advanced wound care products, collagen matrices and other biopharmaceutical products. Manufacturers and distributors
of competitive products include Smith & Nephew plc, Medline Industries, Inc., ConvaTec Group plc, Mölnlycke Health Care AB,
3M Company, Integra LifeSciences Holdings Corporation and numerous others. Many of our competitors are significantly larger than we are
and have greater financial and personnel resources.
With
respect to our comprehensive value-based care strategy, THP plans to offer a comprehensive wound care and dermatology strategy to expand
cost-effective, high-quality wound and skincare to all patients throughout the care setting continuum. Although novel in its comprehensive
offerings and solutions, there are existing competitors for each of the verticals in which THP plans to offer services and solutions.
Any clinical wound care or dermatology physician provider group that has incorporated telemedicine into their practice could be considered
competitive. However, most of these groups are not offering VBC contracts to payers, integrating prevention into their programs, or enabling
continuity across the different settings of care. Examples of large wound care specialty practices may include Vohra Physician Group,
Healogics Specialty Physicians and WoundTech.
Licensing
and Distribution Agreements
CellerateRX
Surgical Activated Collagen
In
August 2018, we entered into an exclusive, world-wide Sublicense Agreement with CGI Cellerate RX to distribute CellerateRX Surgical and
HYCOL products into the surgical and wound care markets. Pursuant to the Sublicense Agreement, we paid royalties of 3-5% of annual collected
net sales of CellerateRX Surgical and HYCOL. In August 2023, we acquired the underlying intellectual property of, as well as the rights
to manufacture and sell, CellerateRX Surgical and HYCOL products from Applied. In connection with this acquisition, Applied assigned
its license agreement with CGI Cellerate RX to a wholly owned subsidiary of the Company and no further royalties are due to Applied thereunder.
BIAKŌS
Antimicrobial Wound Gel and BIAKŌS Antimicrobial Skin and Wound Cleanser
In
July 2019, we executed a license agreement with Rochal pursuant to which we acquired an exclusive world-wide license to market, sell
and further develop antimicrobial products for the prevention and treatment of microbes on the human body utilizing certain Rochal patents
and pending patent applications (the “BIAKŌS License Agreement”). Currently, the products covered by the BIAKŌS
License Agreement are BIAKŌS AWG and BIAKŌS AWC. Both products are 510(k) cleared. Our Executive Chairman is a director of
Rochal, and indirectly a significant shareholder of Rochal, and through the potential exercise of warrants, a majority shareholder of
Rochal. Another one of our directors is also a director and significant shareholder of Rochal.
Future
commitments under the terms of the BIAKŌS License Agreement include:
Unless
previously terminated by the parties, the BIAKŌS License Agreement expires with the related patents in December 2031. Under this
agreement, we paid $130,000 and $120,000 in royalties for the years ended December 31, 2023 and 2022, respectively.
CuraShield
Antimicrobial Barrier Film and No Sting Skin Protectant
In
October 2019, we executed a license agreement with Rochal pursuant to which we acquired an exclusive world-wide license to market, sell
and further develop certain antimicrobial barrier film and skin protectant products for use in the human health care market utilizing
certain Rochal patents and pending patent applications (the “ABF License Agreement”). Currently, the products covered by
the ABF License Agreement are CuraShield Antimicrobial Barrier Film and a no sting skin protectant product.
Future
commitments under the terms of the ABF License Agreement include:
Unless
previously terminated or extended by the parties, the ABF License Agreement will terminate upon expiration of the last U.S. patent in
October 2033. No commercial sales or royalties have been recognized under this agreement as of December 31, 2023.
Debrider
License Agreement
In
May 2020, we executed a product license agreement with Rochal, pursuant to which we acquired an exclusive world-wide license to market,
sell and further develop a debrider for human medical use to enhance skin condition or treat or relieve skin disorders, excluding uses
primarily for beauty, cosmetic, or toiletry purposes (the “Debrider License Agreement”).
Future