UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
☒ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal
year ended December 31, 2023
or
☐TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
Number 001-41364
TENON MEDICAL,
INC.
(Exact name of
registrant as specified in its charter)
104 Cooper Court
Los Gatos, CA95032
(Address of principal
executive offices) (Zip Code)
(408)649-5760
(Registrant’s
telephone number, including area code)
Securities registered
pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common stock, par value $0.001 per share TNON The Nasdaq Stock Market LLC
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 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 the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
No ☒
The aggregate market
value of voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2023 (the last business day of
the registrant’s most recently completed second quarter) was approximately $4,891,898, which is based on a closing price per share
of $2.75 on such date.
As of March 29,
2024, the registrant had a total of 3,726,974 shares of its common stock, $0.001 par value per share, outstanding.
Tenon Medical, Inc.
Annual Report on Form 10-K
For the Fiscal Year ended December 31,
2023
TABLE OF CONTENTS
PART I 1
Item 1 Business 1
Item 1A Risk Factors 17
Item 1B Unresolved Staff Comments 46
Item 1C Cybersecurity 46
Item 2 Properties 46
Item 3 Legal Proceedings 46
Item 4 Mine Safety Disclosures 46
Item 6 [Reserved] 49
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 58
Item 8 Financial Statements and Supplementary Data F-1
Item 9A Controls and Procedures 59
Item 9B Other Information 60
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 60
PART III 61
Item 10 Directors, Executive Officers and Corporate Governance 61
Item 11 Executive Compensation 67
Item 14 Principal Accounting Fees and Services 72
Item 15 Exhibit and Financial Statement Schedules 73
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report on Form 10-K contains “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). We have based these forward-looking statements largely on our current expectations and projections about future events and
financial trends impacting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future
performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will
be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s
good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance
or results to differ materially from those expressed in or suggested by the forward-looking statements.
Forward-looking statements include all statements
that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “could,” “would,” “expect,” “intend,” “seek,” “plan,”
“anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,”
“might,” “forecast,” “continue,” or the negative of those terms, and similar expressions and comparable
terminology intended to reference future periods. Forward-looking statements include, but are not limited to, statements about:
● Our ability to effectively operate our business segments;
Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed,
estimated, expected, intended or planned.
Factors or events that could cause our actual
results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results,
levels of activity, performance or achievements. Accordingly, the forward-looking statements in this Annual Report on Form 10-K should
not be regarded as representations that the results or conditions described in such statements will occur or that our objectives and plans
will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements.
Use of Certain Defined Terms
Except where the context otherwise requires and
for the purposes of this report only:
● “year” or “fiscal year” means the year ending December 31st;
● “Exchange Act” refers the Securities Exchange Act of 1934, as amended;
● “SEC” refers to the Securities and Exchange Commission; and
● “Securities Act” refers to the Securities Act of 1933, as amended.
ii
Risk Factors Summary
Our business is subject to
numerous risks and uncertainties, any one of which could materially adversely affect our results of operations, financial condition or
business. These risks include, but are not limited to, those listed below. This list is not complete, and should be read together with
Item 1A, “Risk Factors” and should not be relied upon as an exhaustive summary of the material risks we face.
iii
iv
PART I
Item 1. Business
Introduction
Tenon Medical, Inc. (the “Company”),
was incorporated in the State of Delaware on June 19, 2012 and was headquartered in San Ramon, California until June 2021 when it relocated
to Los Gatos, California. The Company is a medical device company that has developed The CatamaranTM SI Joint Fusion System (“the
Catamaran System”) that offers a novel, less invasive approach to the sacroiliac joint (the “SI Joint”) using a single,
robust, titanium implant for treatment of the most common types of SI Joint disorders that cause lower back pain. The Company received
U.S. Food and Drug Administration (“FDA”) clearance in 2018 for The Catamaran System and is currently focused on the US market.
Since the national launch of the Catamaran System in October 2022, the Company is focused on three commercial opportunities: 1) Primary
SI Joint procedures, 2) Revision procedures of failed SI Joint implants and 3) SI Joint fusion adjunct to a spine fusion construct.
The Opportunity
We estimate that over 30 million American adults
have chronic lower back pain. Published clinical studies have shown that 15% to 30% of all chronic lower back pain is associated with
the SI-Joint. For patients whose chronic lower back pain stems from the Sacroiliac Joint (“SI-Joint”), our experience in both
clinical trials and commercial settings indicates the system to be introduced by Tenon could be beneficial for patients who are properly
diagnosed and screened for surgery by trained healthcare providers.
In 2019, approximately 475,000 patients in the
United States were estimated to have received an aesthetic injection to temporarily alleviate pain emanating from the SI-Joint and/or
to diagnose SI-Joint pain. Additionally, several non-surgical technologies have been introduced in the past 10 years to address patients
who do not respond to conservative options, including systemic oral medications, opioids, physical therapy and injection therapy.
To date, the penetration of a surgical solution
for this market has been relatively low (5-7%). We believe this is due to complex surgical approaches and suboptimal implant design of
existing options. The penetration of this market with an optimized surgical solution is Tenon’s focus.
We believe the SI-Joint is the last major joint
to be successfully addressed by the spine implant industry. Studies have shown that disability resulting from disease of the SI-Joint
is comparable to the disability associated with a number of other serious spine conditions, such as knee and hip arthritis and degenerative
disc disease, each of which has surgical solutions where an implant is used, and a multi-billion-dollar market exists.
The SI-Joint
The SI-Joint is a strong weight bearing synovial
joint situated between the lumbar spine and the pelvis and is aligned along the longitudinal load bearing axis of the human spine when
in an upright posture. It functions as a force transfer conduit where it transfers axial loads bi-directionally from the spine to the
pelvis and lower extremities and allows forces to be transmitted from the extremities to the spine. It also provides load sharing between
the hip and spine to contribute towards attenuation of impact shock and stress from activities of daily living.
1
The SI-Joint is a relatively immobile joint that
connects the sacrum (the spinal segment that is attached to the base of the lumbar spine at the L5 vertebra) and the ilium of the pelvis.
Each SI-Joint is approximately 2-4mm wide and irregularly shaped.
Motion of the SI-Joint features vertical shear
and rotation. Although the rotational forces about the SI-Joint are relatively low, repetitive motions created by daily activities such
as walking, jogging, twisting at the hips, and jumping can increase the stresses on the SI-Joint. If the SI-Joint is compromised through
injury or degeneration, the load bearing and motion restraints from the surrounding anatomical structures of the SI-Joint will be compromised
resulting in abnormal stress transfers across the joint to these structures, thereby further augmenting the degenerative cascade of the
SI-Joint. Eventual pain and cessation of an individual’s normal activities due to a painful and unstable SI-Joint have led to an
increase in the recent development of SI-Joint stabilization devices.
Non-Surgical Treatment of Sacroiliac Joint
Disease
Several non-surgical treatments exist for suspected sacroiliac
joint pain. These conservative steps often provide desired relief for the patient. Non-surgical treatments include:
● Physical Therapy: which can involve exercises as well as massage.
When conservative steps fail to deliver sustained
pain relief and return to quality of life, specific diagnostic protocols are utilized to explore if a surgical option should be considered.
Diagnosis
Historically, diagnosing pain from the SI-Joint
was not routinely a focus of orthopedic or neurosurgery training during medical school or residency programs. Due to its invasiveness,
post-operative pain, and muscle disruption along with a difficult procedure overall, the open SI-Joint fusion procedure was rarely taught
in these settings.
The emergence of various SI-Joint surgical technologies
has generated a renewed discussion of SI-Joint issues. Of particular focus is the diagnostic protocol utilized to properly select patients
for SI-Joint surgery. Patients with low back pain typically start with primary care physicians who often refer to pain specialists. Here,
the patient will undergo traditional physical therapy combined with oral medications (anti-inflammatory, narcotic, etc.). If the patient
fails to respond to these steps the pain specialist may move to therapeutic injections of the SI-Joint. These injections may serve to
lessen inflammation to the point that the patient is satisfied. However, the impact from these injections is often transient. In this
case the patient is often referred to a clinician to determine if the patient may be a candidate for surgical intervention. A series of
provocative tests in clinic, combined with a specific injection protocol to isolate the SI-Joint as the pain generator is then utilized
to confirm the need for surgical intervention. Published literature has shown this technique to be a very effective step to determine
the best treatment to alleviate pain.
Limitations of Existing Treatment Options
Surgical fixation and fusion of the SI-Joint with
an open surgical technique was first reported in 1908, with further reports in the 1920s. The open procedure uses plates and screws, requires
a 6 to 12-inch incision and is extremely invasive. Due to the high invasiveness and associated morbidity, the use
of this procedure is limited to cases involving significant trauma, tumor, etc.
Less invasive surgical options along with implant
design began to emerge over the past 15 years. These options feature a variety of approaches and implant designs and have been met with
varying degrees of adoption. Lack of a standard and accepted diagnostic approach, complexity of approach, high morbidity of approach,
abnormally high complication rates and inability to radiographically confirm fusion have all been cited as reasons for low adoption of
these technologies.
2
Commercialization
Tenon initiated its national commercial launch
of the Catamaran System in October 2022 to address what we believe is a large market opportunity. The Catamaran System includes instruments
and implants designed to prepare and fixate the SI-Joint for fusion. The Catamaran System is distinct from other competitive offerings
in the following ways:
● Transfixes the SI-Joint
● Inferior / Posterior Sacroiliac Fusion Approach
● Reduced Approach Morbidity
● Direct And Visualized Approach to the SI-Joint
● Single Implant Technique
● Insertion Trajectory Away from the Neural Foramen
● Insertion Trajectory Away from Major Lateral Vascular Structures
● Autologous Bone Grafting in the Ilium, Sacrum and Bridge
● Radiographic Confirmation of Bridging Bone Fusion of the SI-Joint
The fixation device and
its key features are shown below:
The Catamaran System is a singular implant designed
with several proprietary components which allow for it to be explicitly formatted to address the SI-Joint with a single approach and implant.
This contrasts with several competitive implant systems that require multiple approach pathways and implants to achieve fixation. In addition,
the inferior-posterior approach is designed to be direct to the joint and through limited anatomical structures which may minimize the
morbidity of the approach. The implant features a patented dual pontoon open cell design which enables the clinician to pack the pontoons
with the patient’s own autologous bone designed to promote bone fusion across the joint. The Catamaran System is designed specially
to resist vertical shear and rotation of the joint in which it was implanted, helping stabilize the joint in preparation for eventual
fusion.
The instruments we have developed are proprietary
to the Catamaran System and specifically designed to transfix the SI-Joint and facilitate an inferior-posterior approach that is unique
to the system.
Tenon also has developed a proprietary 2D placement
protocol as well as a protocol for 3D navigation utilizing the latest techniques in spine surgery. These Tenon advancements are intended
to further enhance the safety of the procedure and encourage more physicians to adopt the procedure.
In October 2022, we received Institutional Review
Board (“IRB”) approval from WCG IRB for two separate Tenon-sponsored post market clinical studies of the Catamaran System.
The approval by WCG allows designated Catamaran study centers to begin recruiting and enrolling patients into the clinical studies. The
first approval from WCG IRB will support a prospective, multi-center, single arm post market study that will evaluate the clinical outcomes
of patients with sacroiliac joint disruptions or degenerative sacroiliitis treated with the Catamaran System. Patients will be followed
out to 24 months assessing various patient reported outcomes, radiographic assessments, and adverse events. The second prospective, multi-center,
Catamaran study will evaluate 6-to-12-month radiographic outcomes to assess fusion of patients that have already undergone treatment with
the Catamaran System. In addition, retrospective and prospective clinical outcomes will be evaluated. We anticipate completing enrollment
by the end of the second quarter of 2024.
3
The Market
Based on market research and internal estimates,
Tenon believes the potential market for surgical intervention of the SI-Joint to be 279,000 procedures annually in the U.S. alone, for
a potential annual market of approximately $2.0 billion. These estimates are driven by coding data for SI-Joint injections to treat pain
and informed assumptions relative to surgical intervention candidacy
Based on public information, we believe that the
largest clinical device supplier in this market does approximately 16,000 SI-Joint fixations a year representing the largest market share.
The other competitive devices that are offered are all products generally part of much larger companies with a variety of orthopedic devices
and as such do not specifically call out the number of specific SI-Joint procedures performed with their products. It is our belief that
all other competitive devices represent approximately another 5,000 potential SI-Joint procedures.
Based on this analysis we believe the market is
vastly underserved and only penetrated 5-7%, leaving tremendous upside for a next generation device that meets the needs of this market.
Competitive Landscape
We believe Tenon is the first company to develop
and manufacture a novel Inferior-Posterior approach featuring a dual pontoon fixation technology cleared by the FDA expressly for SI-Joint
fusion. The approach, referred to as Inferior Posterior Sacroiliac Fusion is focused on these critical aspects of the surgical procedure:
Note the trajectory used in the Inferior Posterior
approach:
The following are the primary factors on which companies compete in
our industry:
● product and clinical procedure effectiveness;
● ease of surgical technique and use of associated instruments;
4
● safety;
● published clinical outcomes and evidence;
● sales force knowledge and service levels;
● product support and service, and customer service;
● comprehensive training, including disease, anatomy, diagnosis, and treatment;
● product innovation and the speed of innovation;
● intellectual property;
● accountability and responsiveness to customers’ demands;
● pricing and reimbursement;
● scientific (biomechanics) data; and
● attracting and retaining key personnel.
Tenon believes that refined approaches and improved
implant design will open the door to enhanced adoption and further penetration of this important market.
The CatamaranTM SI-Joint Fusion System
Solution
Until October 2022, Tenon sold the Catamaran
System to a limited number of clinician advisors to refine the product for a full commercial launch. In October 2022, Tenon initiated
a full commercial launch at the NASS meeting in Chicago. The Catamaran System includes instruments and implants designed to prepare and
fixate the SI-Joint for fusion. We believe the Catamaran System will address a large market opportunity with a superior product and is
distinct from other competitive offerings in the following ways:
● Transfixes the SI joint
● Inferior-Posterior Sacroiliac Fusion Approach
● Reduced Approach Morbidity
● Direct And Visualized Approach to the SI-Joint
● Single Implant Technique
● Insertion Trajectory Away from the Neural Foramen
● Insertion Trajectory Away from Major Vascular Structures
● Autologous Bone Grafting in the Ilium, Sacrum and Bridge
● Radiographic Confirmation of Bridging Bone Fusion of the SI-Joint
5
The fixation device and its key features are shown
below:
The Catamaran System is a singular implant designed
with several proprietary components which allow for it to be explicitly formatted to transfix the SI-Joint with a single approach and
implant. This contrasts with several competitive implant systems that require multiple approach pathways and implants to achieve fixation.
In addition, the Inferior-Posterior approach is designed to be direct to the joint and through limited anatomical structures which may
minimize the morbidity of the approach. The implant features a patented dual pontoon open cell design which enables the clinician to pack
the pontoons with the patient’s own autologous bone designed to promote bone fusion across the joint. The Catamaran System is designed
specially to resist vertical shear and rotation of the joint in which it was implanted, helping stabilize the joint in preparation for
eventual fusion.
The instruments we have developed are proprietary
to The Catamaran System and specifically designed to facilitate an Inferior Posterior approach that is unique to the system.
Tenon also has developed a proprietary 2D placement
protocol as well as a protocol for 3D navigation utilizing the latest techniques in spine surgery. These Tenon advancements are intended
to further enhance the safety of the procedure and encourage more physicians to adopt the procedure.
The Catamaran System, as mentioned previously,
is placed in the densest aspect of the SI-Joint as confirmed by the pre-op planning images below:
The Procedure
We believe the Catamaran System and its differentiated
characteristics allow for an efficient and effective procedure designed to deliver short-term stabilization and long-term fusion that
can be confirmed radiographically. Shown below is an illustration demonstrating the unique placement of the Catamaran System inserted
Inferior-Posterior and coming directly down to and transfixing the joint
6
The Catamaran System procedure is typically performed
under general anesthesia using a specially designed instrument set we provide to prepare for the Inferior-Posterior access to the SI-Joint.
Specially designed imaging and navigation protocols are designed to ensure the clinician has the proper entry point, trajectory, angle
and depth so that the pontoons of the Catamaran System are placed for maximum fixation. The Catamaran System incorporates two pontoons
and is designed so that when the system is impacted into the bone one pontoon is on the Illum side and the other is in the Sacrum side
with the bridge spanning the joint, preventing shear and rotation of the joint. The device also features an open cell design where the
patient’s own (autologous) bone is packed into the pontoons and the bridge to facilitate fusion across the joint. The leading edge
of the bridge is designed to act as an osteotome, providing a self-created deficit upon insertion. These features are designed to create
an ideal environment for bone ingrowth and fusion. Below is a fluoroscopic image of an implanted Catamaran Fixation Device spanning the
SI-Joint.
Tenon believes the surgical approach and implant
design it has developed, along with the 2D and 3D protocols for proper implantation will be received well by the clinician community who
have been looking for a next generation device. Our initial clinical results indicate that the Catamaran System is promoting fusion across
the joint as evidenced by post-op CT scans (the recognized gold standard widely accepted by the Clinical community).
A preliminary 18 case series (Michael Joseph Chaparro,
MD, F.A.A.N.S., F.A.C.S.) has documented that the Catamaran System does in fact promote fusion across the SI-Joint, which many of our
competitors have not been able to demonstrate. While products from some of our competitors use screws and triangular wedges to treat the
SI-Joint, most do not effectively resist the vertical shear and twisting within the joint. This 18 patient series was presented at the
North American Spine Society Annual Meeting in Chicago, IL in October 2022.
An independent biomechanical study (Lisa Ferrara,
Ph.D. OrthoKinetic Technologies, LLC now part of Element) demonstrated that a single Catamaran SIJ Fixation Device was superior to predicate
device in the areas of Fixation Strength, Shear Stiffness, Dynamic Endurance and Pullout Strength. We hold issued patents on the Catamaran
System and its unique features including the dual pontoons and the open cell structure for bone graft packing. We also hold an issued
patent for the method of placing the Catamaran System into the SI-Joint where one pontoon is in the ilium and the other in the sacrum.
7
The Catamaran System’s unique design has
already demonstrated radiographically confirmed fusion in initial patients. We believe that this beneficial advantage along with a simpler,
safer, and less painful procedure will make this the procedure of choice for most physicians. Tenon has initiated post market, IRB controlled
clinical trials to demonstrate this technology delivers on these advantages.
Coverage and Reimbursement
When a Tenon procedure utilizing the Catamaran
System is performed, the healthcare facility, either a hospital (inpatient or outpatient clinic), and the clinician submit claims
for reimbursement to the patient’s insurer. Generally, the facility obtains a lump sum payment, or facility fee, for SI-Joint fusions.
Our products are purchased by the facility, along with other supplies used in the procedure. The facility must also pay for its own fixed
costs of operation, including certain operating room personnel involved in the procedure, ICD and other medical services care. If these
costs exceed the facility reimbursement, the facility’s managers may discourage or restrict clinicians from performing the procedure
in the facility or using certain technologies, such as the Catamaran System, to perform the procedure.
The Medicare 2022 national average hospital inpatient
payment for SI-Joint procedures ranges from approximately $25,000 to approximately $59,000 depending on the procedural approach and the
presence of Complication and Comorbidity/Major Complication and Comorbidity.
The Medicare 2022 national average hospital outpatient
clinic payment is $21,897. We believe that insurer payments to facilities are generally adequate for these facilities to offer the Catamaran
System procedure.
Physicians are reimbursed separately for their
professional time and effort to perform a surgical procedure. Depending on the surgical approach, the incision size, type and extent
of imaging guidance, indication for procedure, and the insurer, the Catamaran System procedure may be reported by the physician using
any one of the applicable following CPT® codes 27279, 27280, 27299. The Medicare 2022 national average payment for CPT®
27279 is $807 and $1,352 for 27280. CPT® 27299 has no national valuation. Clinicians, however, can present a crosswalk
to another procedure believed to be fairly equivalent and/or comparison to a code for which there is an existing valuation.
For some governmental programs, such as Medicaid,
coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for the procedures
performed with our products, if any payment is made at all. Similar to Medicaid, many private payors’ coverage and payment may differ
from one payer to another.
We believe that some clinicians view the current
Medicare reimbursement amount as insufficient for current SI-Joint procedures, given the work effort involved with the procedure, including
the time to diagnose the patient and obtain prior authorization from the patient’s health insurer when necessary. Many private payors
require extensive documentation of a multi-step diagnosis before authorizing SI-Joint fusion for a patient. We believe that some private
payors apply their own coverage policies and criteria inconsistently, and clinicians may experience difficulties in securing approval
and coverage for sacroiliac fusion procedures. Additionally, many private payors limit coverage for open SI-Joint fusion to trauma, tumors
or extensive spine fusion procedures involving multiple levels.
We believe the unique design of the Catamaran
System and the fact the Catamaran System may be placed both via an open procedure based on the clinician’s determination of trauma
induced SI-Joint pain or as a minimally invasive approach provides a unique and differentiated approach for the clinician to determine
the reimbursement code that best fits the clinical problem. We believe this is a significant advantage over competitive devices by providing
the clinician the clinical flexibility of offering the best clinical solution and approach for patients.
Sales and Marketing
We market and sell the Catamaran System primarily
through independent distributors and sales representatives specializing in spine sales. Our target customer base includes approximately
12,000 physicians who perform spine and/or pelvic surgical procedures.
We provide general sales and marketing training
to our independent sales representative along with comprehensive, hands-on cadaveric and dry-lab training sessions focusing on the clinical
benefits of the Catamaran System and the importance of using the 2D and 3D protocols we have developed. We believe many clinicians have
already been trained using one of the alternative products but have not been satisfied with the approach and technology. This provides
Tenon with an opportunity to demonstrate to an already-trained-clinician the unique attributes of the Catamaran System.
8
Our business objective is to introduce the Next
Generation Implant for SI-Joint Fixation. The past 10 years has seen an acceleration in recognition and discussion of the SI-Joint as
a cause of pain that can be treated. However, adoption has been hindered by complexity of the procedure as evidenced by the significant
number of reported Medical Device Records (MDR’s). The need for multiple implants and resulting post-op pain has also contributed
to low adoption numbers. Our strategy is to provide a safer, faster, and better surgical experience and a significant pain reduction benefit
for the patient. Our goals are simple but impactful and as such we plan on the following:
● Continue to grow our existing intellectual property portfolio.
Regulatory Status
Tenon has received FDA 510(k) clearance to market
and sell the Catamaran System for sacroiliac joint fusion for conditions including sacroiliac joint disruptions and degenerative sacroiliitis.
Research & Development
Our initial development of the Catamaran System
has incorporated several differentiating features which we believe will make an important contribution for many patients suffering from
SI-Joint pain. To our knowledge, no other competitive product incorporates these Next Generation features:
● Dual Pontoon implant that transfixes the targeted joint;
● Bridge design between the dual pontoons for enhanced strength;
The Tenon development plan is to expand the Catamaran
System offering by introducing a series of implant lengths so that the clinician has a full complement of sized implants to choose from
depending on the patient’s anatomy. These product enhancements will enable the clinician to optimize the size of each implant to
ensure full fixation based on anatomy. Tenon believes, based on literature searches of prior SI-Joint fixation technologies, that adverse
event incidence where the implant has loosened or been misplaced thereby requiring a revision surgery could reach 20%. Tenon believes
that its ability to make the Catamaran System a specifically sized fixation device will benefit many patients requiring a revision surgery.
9
The Catamaran System shown below has been cleared
by the FDA for commercialization. This patented titanium implant incorporates the Catamaran SI-Joint Fixation Device pontoon design and
the open cell configuration which we believe, when filled with the patient’s autologous bone, promotes fusion. The two images below
show a comparison of a competitive implant requiring three implants and the Catamaran System unique pontoon design showing the need of
only one implant to cover the same amount of the SI-Joint.
The CatamaranTM SIJ Fusion System Single Implant SI Bone iFuse® Three Implants
Our mission will be to continue developing enhancements
to the Catamaran System to meet our customers’ changing needs and to improve the surgery’s effectiveness. This includes revision
surgery options as well as options as an adjunct to long fusion constructs in the lumbar spine.
Additionally, Tenon will initiate various post
marketing clinical studies in accordance with FDA cleared indications for use. Since we have already received FDA 510(k) clearance to
market the Catamaran System, our clinical study activities will be focused on capturing post-market safety and efficacy data. Tenon has
received IRB approval for two post-market trials, including a 50 patient, 10 center multi-center trial and a prospective CT trial to demonstrate
fusion in patient who have already been treated with the Catamaran System. Clinical study endpoints may include but are not limited to;
pain scoring, length of surgical procedure, blood loss, post-op pain, length of stay, duration of non-weight-bearing post-op, radiographic
confirmation of fusion and surgical complication rates. Statistical analysis plans may be designed to demonstrate non-inferiority to historical
control, as reported in published literature, which may be used for submission to peer reviewed articles / posters / presentations and
the like.
Intellectual Property
Developing and maintaining a strong intellectual
property position is an important element of our business. We maintain the intellectual property through a combination of patent protection,
trademarks, and trade secrets. We have sought, and will continue to seek, patent protection for our technology, for improvements to our
technology, as well as for any of our other technologies where we believe such protection will be advantageous.
As of March 29, 2024, we own four (4) issued
U.S. utility patents, sixteen (16) pending U.S. utility patent applications, four (4) issued foreign utility patents in Australia, Canada,
Japan and Israel, and two (2) pending foreign utility patent applications in the European Community, Brazil and Japan. We also have thirteen
(13) registered trademarks (seven (7) U.S. and six (6) foreign) and twelve (12) pending trademark applications in the U.S.
Our utility patents and patent applications are
directed to several different aspects of our sacroiliac (SI) joint stabilization technology and related patent platform. By way of example,
our granted patents and pending patent applications cover various structural features of our unique Catamaran SI-Joint prosthesis and
means for employing same to stabilize a dysfunctional SI-Joint.
The term of individual patents depends on the
legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term for
a utility patent is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable
country. Our issued U.S. and foreign utility patents are anticipated to naturally expire around 2031, and our U.S. pending utility patent
applications, if issued into patents, are similarly anticipated to naturally expire around 2031, excluding any additional patent term
adjustment(s) or extension(s), and assuming payment of all applicable maintenance or annuity fees. Once a patent expires, patent protection
ends and an invention enters the public domain allowing anyone to commercially exploit the invention without infringing the patent.
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We cannot guarantee that patents will be issued
from any of our pending applications or that issued patents will be of sufficient scope or strength to provide meaningful protection for
our technology. Notwithstanding the scope of the patent protection available to us, a competitor could develop methods or devices that
are not covered by our patents or circumvent these patents. Furthermore, although, at present, we are unaware of any patent applications
that may result in one or more issued patents that our existing products or technologies may be alleged to infringe, since U.S. and foreign
applications can take many months to publish, there may be applications unknown to us that may result in one or more issued patents that
our existing products or technologies may be alleged to infringe.
As of March 29, 2024, we also have priority rights
in and to several significant trademarks that support our products and brand, including seven (7) registered U.S. trademarks, twelve
(12) U.S. trademark applications and six (6) foreign trademark applications in the European Community (excluding the United Kingdom),
Australia and Japan.
Regulation
Domestic Regulation of Our Products and
Business. Our research, development and clinical programs, as well as our manufacturing and marketing operations, are subject
to extensive regulation in the United States and other countries. Most notably, all of our products sold in the United States are subject
to the federal Food, Drug and Cosmetic Act (the “FDCA”), as implemented and enforced by the FDA. The FDA governs the following
activities that we perform or that are performed on our behalf, to ensure that medical products distributed domestically or exported internationally
are safe and effective for their intended uses:
● product design, development, and manufacture;
● product safety, testing, labeling, and storage;
● record keeping procedures;
● product marketing, sales, distribution and export; and
There are numerous FDA regulatory requirements
governing the clearance or approval and marketing of our products. These include:
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● regulations pertaining to voluntary recalls; and
● notices of corrections or removals.
The FDA has broad post-market and regulatory enforcement
powers. We and our contract manufacturers are subject to announced and unannounced inspections by the FDA to determine our compliance
with the QSR and other regulations and these inspections may include the manufacturing facilities of our suppliers. Tenon has a robust
Supplier Qualification and Audit process as part of our quality system that ensures contract manufacturers, and their suppliers meet all
requirements.
An FDA pre-approval inspection is not required
for the Catamaran System due to its lower device classification, class II versus the higher class III. As is the case for most medical
device firms, Tenon is subject to routine and “for cause” FDA inspections. Routine inspectionsare mandated by
law every 2 years for class II and class III device manufacturers and make up the majority of FDA’s inspections. If a serious public health
risk is identified during a routine inspection, the inspection may convert to a “for cause” inspection. In the current
environment, FDA has limited compliance resources and has not been able to perform routine inspections in accordance with the 2-year mandate. Therefore,
FDA uses a risk-based approach when deciding which firms should be selected for a routine inspection. Using the Establishment Registration
and Device Listing databases, FDA identifies who manufactures and/or distributes which devices. The firms are then prioritized by risk,
class III > class II > class I. Firms that have recently introduced a new device to the market also are given higher priority, as
well as those that have had significant prior violations and complaints. At present, Tenon has not been selected for an FDA inspection. Tenon
uses best practices to secure and maintain regulatory compliance by engaging with suppliers and contract manufacturing firms that are
ISO 13485 (or equivalent) compliant and by periodically performing internal, external, and third-party inspections and audits of the facilities
and systems to assess compliance.
FDA Premarket Clearance and Approval Requirements.
Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either premarket
notification, or 510(k), clearance or approval of a PMA from the FDA. The FDA classifies medical devices into one of three classes. Devices
deemed to pose lower risks are placed in either Class I or II, which typically requires the manufacturer to submit to the FDA a premarket
notification requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Some low-risk
devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life- supporting
or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III,
requiring a PMA. If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will
grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent”
to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill
more rigorous PMA requirements or can request a risk-based classification determination for the device in accordance with the “de
novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent
to a predicate device. All of our currently marketed products are Class II devices, subject to 510(k) clearance.
After a device receives 510(k) marketing clearance,
any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification
in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval. The determination
as to whether or not a modification could significantly affect the device’s safety or effectiveness is initially left to the manufacturer
using available FDA guidance. Many minor modifications today are accomplished by a “letter to file” in which the manufacture
documents the rationale for the change and why a new 510(k) is not required. However, the FDA may review such letters to file to evaluate
the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified
device until 510(k) clearance or PMA approval is obtained. The manufacturer may also be subject to significant regulatory fines or penalties.
Clinical Trials. Clinical trials
are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials for implanted devices
such as the Catamaran SIJ Fixation Device generally require an investigational device exemption application, or IDE, approved in advance
by the FDA for a specified number of subjects and study sites, unless the product is deemed a nonsignificant risk device eligible for
more abbreviated IDE requirements. Clinical trials are subject to extensive monitoring, recordkeeping, and reporting requirements. Clinical
trials must be conducted under the oversight of an institutional review board, or IRB, for the relevant clinical trial sites and must
comply with FDA regulations, including but not limited to those relating to good clinical practices. To conduct a clinical trial, we also
are required to obtain the subjects’ informed consent in form and substance that complies with both FDA requirements and state and
federal privacy and human subject protection regulations. We, the FDA, or the institutional review board, or IRB, could suspend a clinical
trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Even if
a trial is completed, the results of clinical testing may not adequately demonstrate the safety and effectiveness of the device or may
otherwise not be sufficient to obtain FDA clearance or approval to market the product in the United States.
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Pervasive and Continuing Regulation. After
a device is placed on the market, numerous regulatory requirements continue to apply. These include:
● regulations pertaining to voluntary recalls; and
● notices of corrections or removals.
The FDA has broad post-market and regulatory enforcement
powers. We are subject to unannounced inspections by the FDA to determine our compliance with the QSR and other regulations, and these
inspections may include the manufacturing facilities of some of our subcontractors. Failure by us or by our suppliers to comply with applicable
regulatory requirements can result in enforcement action by the FDA or other regulatory authorities, which may result in sanctions including,
but not limited to:
● unanticipated expenditures to address or defend such actions
● customer notifications for repair, replacement, refunds;
● Recall, detention, or seizure of our products;
● operating restrictions or partial suspension or total shutdown of production;
● operating restrictions;
● withdrawing 510(k) clearances or PMA approvals that have already been granted:
● refusal to grant export approval for our products; or
● criminal prosecution.
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The FDA has not yet inspected our contract manufacturer’s manufacturing
facilities.
Promotional Materials “Off-Label”
Promotion. Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the
Federal Trade Commission and by state regulatory and enforcement authorities. If the FDA determines that our promotional materials or
training constitutes promotion of an unapproved use, it could request that we modify our training or promotional materials or subject
us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine,
or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action if they consider
our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties
under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged,
and adoption of the products would be impaired.
In addition, under the federal Lanham Act and
similar state laws, competitors, and others can initiate litigation relating to advertising claims.
Healthcare Fraud and Abuse
Federal and state governmental agencies and equivalent
foreign authorities subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement
efforts. These laws constrain the sales, marketing and other promotional activities of medical device manufacturers by limiting the kinds
of financial arrangements we may have with hospitals, physicians and other potential purchases of our products. Federal healthcare fraud
and abuse laws apply to our business when a customer submits a claim for an item or service that is reimbursed under Medicare, Medicaid,
or other federally funded healthcare programs. Descriptions of some of the laws and regulations that may affect our ability to operate
follows.
The federal Anti-Kickback Statute prohibits, among
other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, items or services
for which payment may be made, in whole or in part, under federal healthcare programs. The term “remuneration” has been broadly
interpreted to include anything of value, and the government can establish a violation of the Anti-Kickback Statute without proving that
a person or entity had actual knowledge of, or a specific intent to violate, the law. The Anti-Kickback Statute is subject to evolving
interpretations and has been applied by government enforcement officials to a number of common business arrangements in the medical device
industry. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; however,
those exceptions and safe harbors are drawn narrowly, and there is no exception or safe harbor for many common business activities. Failure
to meet all of the requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal