UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
For
the fiscal year ended December 31, 2024
or
For
the transition period from ________________ to __________________
Commission
file number: 001-34951
Xtant
Medical Holdings, Inc.
(Exact
name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(406)388-0480
(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, par value $.000001 per share XTNT NYSE American 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.
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 the common stock held by non-affiliates as of June 30, 2024 was approximately $30.1 million (based on the closing
price of the Company’s common stock on the last business day of the Company’s most recently completed second fiscal quarter,
as reported on the NYSE American).
The
number of shares of the Company’s common stock, $0.000001 par value, outstanding as of March 3, 2025 was 139,067,915.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 1
PART I 2
Item 1. Business 2
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 57
Item 1C. Cybersecurity 57
Item 2. Properties 59
Item 3. Legal Proceedings 59
Item 4. Mine Safety Disclosures 59
Item 6. Reserved 60
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 67
Item 8. Financial Statements and Supplementary Data 68
Item 9A. Controls and Procedures 95
Item 9B. Other Information 96
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 96
PART III 96
Item 10. Directors, Executive Officers and Corporate Governance 96
Item 11. Executive Compensation 103
Item 14. Principal Accountant Fees and Services 119
Item 15. Exhibit and Financial Statement Schedules 120
This
Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and are subject to the safe
harbor created by those sections. For more information, see “Cautionary Statement Regarding Forward-Looking Statements.”
As
used in this report, the terms “we,” “us,” “our,” “Xtant,” “Xtant Medical,”
and the “Company” mean Xtant Medical Holdings, Inc. and our consolidated wholly owned subsidiaries, unless the context indicates
another meaning.
We
own various unregistered trademarks and service marks, including our corporate logo. Solely for convenience, the trademarks and trade
names in this report are referred to without the ® and TM symbols, but such references should not be construed as any indicator
that the owner of such trademarks and trade names will not assert, to the fullest extent under applicable law, their rights thereto.
We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement
or sponsorship of us by, any other companies. We include our website address throughout this report for reference only.
The
information contained on or connected to our website is not incorporated by reference into this report.
We
are a “smaller reporting company” as that term is defined in Rule 12b-2 promulgated under the Exchange Act. Accordingly,
this report reflects the scaled reporting requirements of smaller reporting companies as set forth in Regulation S-K, promulgated under
the Exchange Act.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The
statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements include, but are not limited to, statements regarding
our “expectations,” “hopes,” “beliefs,” “intentions,” or “strategies” regarding
the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,”
“possible,” “potential,” “predict,” “project,” “should” and “would,”
as well as similar expressions, may identify forward-looking statements, but the absence of these words does not mean that a statement
is not forward looking.
A
forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances
may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-K.
The forward-looking statements contained in this Form 10-K are based on currently available operating, financial and competitive information
and our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements
involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance
to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include,
but are not limited to, those factors described in the “Part I. Item 1.A. Risk Factors” section of this Form 10-K.
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may
vary in material respects from those projected in these forward-looking statements. We are including this cautionary statement to make
applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking
statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events, or otherwise, except as may be required under applicable securities laws.
PART
I
Item
1. Business
Overview
Xtant
Medical Holdings, Inc. is a global medical technology company focused on the design, development, and commercialization of a comprehensive
portfolio of orthobiologics and spinal implant fixation systems to facilitate spinal fusion in complex spine, deformity, and degenerative
procedures. Our products are used by orthopedic spine surgeons and neurosurgeons to treat a variety of spinal disorders in the cervical,
thoracolumbar, and interbody spine.
We
promote our products in the United States through independent distributors and stocking agents, supported by direct employees. We have
an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all
of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network (“IDNs”)
hospitals and through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive
access to IDNs across the United States for both biologics and spine hardware systems. While our focus is primarily the United States
market, we promote and sell our products internationally through direct sales representatives and stocking distribution partners in Europe,
Canada, Mexico, South America, Australia, and certain Pacific region countries.
Our
strategic focus is currently on digesting and growing the products and businesses we have acquired, producing our own stem cells, growth
factor, amnio and synthetics biologics products, and continuing to focus on the following four key growth initiatives: (1) introduce
new biologics products, including our Cortera®Spinal Fixation System, viable bone matrix, OsteoVive®
Plus, and amniotic membrane allografts, SimpliGraft® and SimpliMaxTM; (2) leverage our distribution network; (3)
penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions.
While
the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful
in implementing these growth initiatives or increasing our future revenues.
Recent
Developments
During
the fourth quarter of 2024, we entered into a license agreement with a distributor granting an exclusive, nontransferable, non-sublicensable,
royalty-bearing right and license to manufacture and commercialize in the United States our SimpliMaxTM product and the trademarks
associated therewith during the term of the agreement and subject to certain limitations as set forth therein. Under the terms of the
agreement, we received a one-time, up front, non-refundable, non-creditable cash payment of $1.5 million. Beginning in 2025, we are entitled
to quarterly royalty payments based on the volume of product sold by the distributor. These royalty payments include guaranteed minimums,
which aggregate to $3.75 million during 2025. The agreement has an initial term of one year and is automatically renewable in one-year
terms unless either party thereto provides written notice of non-renewal six months prior to the then-current term or earlier termination
as provided under the agreement.
During
the first quarter of 2025, we entered into a manufacture and license agreement with a distributor pursuant to which we agreed to manufacture
and supply to the distributor our SimpliGraft® product under the distributor’s name and brand. We appointed the
distributor as the exclusive seller of our SimpliGraft® product to end-users located in the United States during the term
of the agreement and in accordance with the terms and conditions thereof and granted the distributor the right to use our related trademark
in connection therewith. Under the terms of the agreement, we received a one-time, up-front, non-refundable, non-creditable cash payment
of $1.5 million. Additionally, the distributor agreed to purchase our SimpliGraft® product in accordance with certain
specified minimum purchase obligations. The minimum purchase obligations aggregate to $3.9 million during 2025. The agreement has an
initial term of two years and is automatically renewable for six additional one-year terms unless the distributor provides written notice
of non-renewal 90 days prior to the then-current term or earlier termination as provided under the agreement.
The
first license agreement may terminate, and the second license agreement may generate significantly less revenue than anticipated following
a CMS Policy Change, as defined in the agreements. The Centers for Medicare and Medicaid Services recently issued a Local Coverage Determination
implementing significant changes to reimbursement for cellular and tissue-based products, which would impact our SimpliMaxTM and
SimpliGraft® products and constitute a CMS Policy Change under our license agreements. These changes were initially intended
to become effective in February 2025 but have been delayed to April 2025. If these changes are not further delayed or reversed, we may
receive less revenue under the license agreements than anticipated.
Acquisitions
Coflex
and CoFix Product Lines
On
February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc. (“Surgalign SPV”),
a then indirect wholly owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual
property, contractual rights and other assets related to the design, manufacture, sale and distribution of the Coflex and CoFix products
in the United States, for an aggregate purchase price of $17.0 million in cash. The Coflex and CoFix products have been approved by the
U.S. Food and Drug Administration (the “FDA”) for the treatment of moderate to severe lumbar spinal stenosis in conjunction
with decompression and provide minimally invasive, motion preserving stabilization.
Surgalign
Holdings’ Hardware and Biologics Business
On
August 10, 2023, we completed the acquisition of certain assets of Surgalign Holdings and its subsidiaries on an as-is, where-is basis,
including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property,
records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business
of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology, as conducted by
Surgalign Holdings and its subsidiaries, and certain specified liabilities of Surgalign Holdings and its subsidiaries pursuant to an
Asset Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Surgalign Asset Purchase Agreement”).
Pursuant to the Surgalign Asset Purchase Agreement, we were able to acquire Surgalign Holdings’ broad portfolio of spinal hardware
implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, and motion preservation solutions for
the lumbar spine. Additionally, we were able to acquire Surgalign Holdings’ biomaterials portfolio of advanced and traditional
orthobiologics. These offerings complement our portfolio of orthobiologics and spinal implant fixation systems. This transaction was
conducted through a process supervised by the United States Bankruptcy Court in connection with Surgalign Holdings’ bankruptcy
proceedings. We funded the purchase price of $5 million with cash on hand.
RTI
Surgical, Inc.’s nanOss Production Operations
On
October 23, 2023, we acquired the nanOss production operations owned by RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase
Agreement dated October 23, 2023 between us and RTI (the “RTI Asset Purchase Agreement”). Under the terms of the RTI Asset
Purchase Agreement, we acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business
and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina. The purchase price for the assets
was $2 million in cash plus a low single digit royalty on sales prior to October 23, 2028 of next generation nanOss products. We previously
acquired the nanOss distribution rights and nanOss intellectual property with the acquisition of assets related to the biologics and
spinal fixation business of Surgalign Holdings, as described above.
Industry
and Market Overview
The
orthopedic biomaterials market consists of materials that are organic, inorganic or synthetic in nature. These materials are implanted
or applied in or near the indicated bone to aid in healing, encourage bone tissue augmentation, compensate in areas where bone tissue
is depleted, and restore structure to allow for repair. These materials are often used as substitutes to autograft materials, which are
taken from a harvest site in the patient to patch or repair the wounded or unhealthy site.
Fixation
is often instrumental in allowing the body to heal and regenerate tissue. Fixation provides the constructive support necessary for reestablishing
stability, by immobilizing the regenerative site, and relieving stress. Fixation also can help hold the biomaterial in place in order
to achieve a better outcome. Examples of fixation products can include, but are not limited to, plates, screws, pins, rods, spacers,
and staples. Fixation products may be made from various metals and polymer materials.
Conversely,
motion preservation devices are designed predominantly to stabilize the spine and allow for motion of the segments. Spine implants can
be surgically applied via traditional open surgery or via minimally invasive surgery. We provide devices in both the fixation and motion
preservation categories of the spine implant market and via both surgical methodologies.
Our
Orthobiologics Products
Our
biomaterial products include OsteoSponge, OsteoSelect DBM putty, OsteoSelect Plus DBM putty, OsteoWrap, OsteoVive, OsteoFactor, our line
of 3Demin products and our nanOss family of products, as described below, as well as other allografts:
We
recently launched two biologics products for the wound care market. SimpliGraft® and SimpliMaxTM are dehydrated,
terminally irradiated, single and dual-layer amniotic membrane sheets intended to serve as a barrier and provide protective coverage
from the surrounding environment when topically applied to chronic and acute wounds.
We
also process and distribute (i) sports allografts which are processed specifically for anterior and posterior cruciate ligament repairs,
anterior cruciate ligament reconstruction, and meniscal repair, (ii) milled spinal allografts which are comprised of cortical bone milled
to desired shapes and dimensions, and (iii) traditional allografts for multi-disciplinary applications including orthopedics, neurology,
podiatry, oral/maxillofacial, genitourinary, and plastic/reconstructive.
During
2025, we plan to release FibreX next generation advanced DBM Fiber, OsteoFactor Pro internally produced solubilized allogenic growth
factor cocktail stabilized by native human collagen, and TriviumFX, designed for bone regeneration, combining advanced science with practical
application. Its unique formulation combines our PurLoc® Fiber Technology and superior handling properties and is designed to deliver
dependable performance for reliable outcomes.
Our
Spinal Implant Products
We
offer a comprehensive line of products that are used to treat a variety of spinal and sacroiliac conditions, including trauma, degeneration,
deformity and tumor, including use of minimally invasive surgery techniques. Some of our key spinal implant product lines include:
Cervical
Products
Thoracolumbar
Products
Sacroiliac
Joint Products
Interbody
Products
Interlaminar
Stabilization Products
Sales
and Marketing
We
distribute our products in the United States through an extensive distribution network of commissioned independent sales agents and stocking
agents. As of December 31, 2024, we had over 670 independent sales agents and stocking agents. We also maintain a national accounts program
to enable our agents to gain access to IDN hospitals and through GPOs. We have biologics contracts with major GPOs, including Vizient,
Premier, and HealthTrust Purchasing Group, as well as extensive access to IDNs across the United States for both biologics and spine
hardware systems.
Our
international footprint includes direct sales representatives and distribution partners in Canada, Mexico, South America, Australia,
and certain Pacific region countries. Additionally, as a result of our August 2023 Surgalign Holdings asset acquisition, we gained distribution
partners in the European Union. Our European Union business is based in Wurmlingen, Germany.
Donor
Procurement
Xtant’s
mission with respect to donor procurement is: “Honoring the gift of donation, by helping our patients live as full, and complete
a life as possible.”
In
furtherance of our mission, we have agreements with multiple recovery agencies, and we continue to explore options to expand our network
for access to donor tissue in anticipation of increased demand for our biologics products. We expect to be able to continue to build
our network for donor tissue as our processing capabilities and sales increase.
Competition
There
are various public and private organizations that offer both fixation and orthobiologics to their customers. Our primary competitors
include Medtronic plc, Johnson and Johnson, Zimmer Biomet Holdings, Inc., Stryker Corporation, Bioventus Inc., Globus Medical, Inc.,
OrthoFix Medical Inc., Alphatec Holdings, Inc., Highridgek Inc., SI-Bone Inc., as well as dozens of privately-owned companies. We also
compete with tissue banks that do not offer spinal fixation products, such as AlloSource International, Inc., LifeNet Health, and MTF
Biologics.
Intellectual
Property
We
rely upon patents, trademarks, trade secrets and other proprietary rights to maintain and improve our competitive position. We review
third-party proprietary rights, including patents and patent applications, as available, to develop an effective intellectual property
strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property
owned by others.
We
protect our proprietary rights through a variety of methods. As a condition of employment, we generally require employees to execute
an agreement relating to the confidential nature of and company ownership of proprietary information and assigning intellectual property
rights to us. We generally require confidentiality agreements with vendors, consultants, and others who may have access to proprietary
information. We generally limit access to our facilities and review the release of company information in advance of public disclosure.
There can be no assurances, however, that confidentiality agreements with employees, vendors, and consultants will not be breached, adequate
remedies for any breach would be available, or competitors will not discover or independently develop our trade secrets. Litigation also
may be necessary to protect trade secrets or techniques we own.
Patents
Although
we believe that, in the aggregate, our patents are valuable, and patent protection is beneficial to our business and competitive positioning,
our patent protection will not necessarily deter or prevent competitors from attempting to develop similar products. There can be no
assurances that our patents will provide competitive advantages for our products or that competitors will not challenge or circumvent
these rights. In addition, there can be no assurances that the United States Patent and Trademark Office (“USPTO”) or foreign
patent offices will issue any of our pending patent applications. The USPTO and foreign patent offices may deny or require a significant
narrowing of the claims in our pending patent applications and the patents issuing from such applications. Any patents issuing from the
pending patent applications may not provide us with significant commercial protection. We could incur substantial costs in proceedings
before the USPTO or foreign patent offices, including opposition and other post-grant proceedings. These proceedings could result in
adverse decisions as to the patentability, priority of our inventions, and the narrowing or invalidation of claims in issued patents.
Additionally, the laws of some of the countries in which our products are or may be sold may not protect our intellectual property to
the same extent as the laws in the United States or at all.
Our
policy is to file patent applications in the United States and other countries when we believe it is commercially advantageous to do
so. We do not consider our business to be materially dependent upon any individual patent. As of December 31, 2024, our biologics patent
portfolio included 50 issued patents that expire between 2028 and 2041, 26 of which are issued U.S. patents. Our fixation portfolio is
patent protected globally and includes 289 issued patents that expire between 2025 and 2043, 191 of which are issued U.S. patents, and
14 pending patent applications, 5 of which are U.S. patent applications. We expect that additional patent applications will be filed
and prosecuted as inventions are discovered, technological improvements and processes are developed, and specific applications are identified.
There can be no assurance that we will be able to obtain final approval of any patents.
Trademarks
We
have registered, and continue to seek registration, of trademarks and continuously monitor and aggressively pursue users of names and
marks that potentially infringe upon our registered trademarks. We currently own the following registered trademarks: OsteoSponge®,
OsteoVive®, OsteoWrap®, BacFast®, OsteoSelect®, 3Demin®, Circle of Life®, Coflex®, CoFix®, ARANAX®,
ASPECT®, ATRIX-C®, ATRIX-C UNION®, BACJAC®, BACFUSE®, BIGFOOT®, CLARITY®, CONTACT®, CROSS-FUSE®,
INTERLAMINAR STABILIZATION®, INTICE®, LAT-FUSE®, NANOSS®, NUNEC®, PAC PLATE®, QUANTUM®, RELEASE®, SLIMFUSE®,
STREAMLINE®, X-LINK®, XPRESS®, XSPAN®, ZYFIX®, ELEMAX®, UNISON®, FORTILINK®, TETRAFUSE®, CERVALIGN®,
NANOSS 3D®, DCI®, DSS®, HPS®, PARADIGM SPINE®, the Paradigm Spine design logo, THE MOVEMENT IN SPINE CARE®, TIPLUS®,
FIBREX®, MAXFUSE®, BIOMAX®, CORTERA®, ELEVATE YOUR BONE GRAFT®, and ELEVATED PROCEDURAL SOLUTIONS®. Under the
X-spine name, we own the following registered trademarks: SILEX®, IRIX®, CERTEX®, CALIX®, H-GRAFT®, SPIDER, X90®,
BUTREX®, FORTEX®, AXLE®, FIXCET®, XTANT®, and X-spine’s square design logo.
Trade
Secrets and Other Proprietary Rights
To
safeguard our proprietary knowledge and technology, we rely upon trade secret protection and non-disclosure/confidentiality agreements
with employees, consultants and third-party collaboration partners with access to our confidential information. Although we believe our
proprietary technology has value, because of rapid technological changes in the medical industry, we also believe that proprietary protection
is of less significance than factors such as the intrinsic knowledge and experience of our management, advisory board, consultants and
personnel and their ability to identify unmet market needs and to create, invent, develop and market innovative and differentiated products.
License
Agreements
As
described earlier under “Recent Developments,” we recently entered into two license agreements with distributors granting
exclusive rights and licenses to commercialize in the United States, and in one case, manufacture, certain of our products and the trademarks
associated therewith during the term of the respective agreement.
Government
Regulation
We
are ISO 13485 and MDSAP Certified and registered with the FDA as a manufacturer of human cellular and tissue products (“HCT/Ps”)
as well as medical devices. ISO 13485 is a global standard that establishes quality management systems (“QMS”) for medical
devices. Medical Device Single Audit Program (“MDSAP”) is a program that allows third-party auditors to evaluate a medical
device manufacturer’s quality management system. The program is based on ISO 13485, and participating regulatory authorities include:
Australia, Brazil, Canada, Japan and the United States of America. We are an accredited member in good standing of the American Association
of Tissue Banks (“AATB”). In addition, we comply with all licensing requirement for distributing HCT/Ps in states with such
regulations, including Florida, California, Delaware, Illinois, Louisiana, Maryland, Oregon, and New York. As our industry is highly
regulated, we cannot predict the impact of future regulations on our operations or those of our customers.
Our
stabilization and fusion products, along with our instrumentation systems, are classified as medical devices and are therefore subject
to rigorous regulation by the FDA, as well as by other domestic and international regulatory authorities. These regulations apply to
a wide range of activities carried out by Xtant and our suppliers, licensors and partners both now and in the future. These regulated
activities include but are not limited to, product design and development, testing, manufacturing, labeling, storage, safety, premarket
clearance, advertising and promotion, product marketing, sales and distribution, post-market surveillance and post-market adverse event
reporting. All products currently marketed by Xtant are regulated as HCT/Ps and/or have received 510(k) clearances from the FDA. Our
Coflex product is our only PMA approved product.
Human
Tissue
The
FDA defines HCT/Ps as articles containing or consisting of human cells or tissues that are intended for implantation, transplantation,
infusion, or transfer into a human recipient. Current Good Tissue Practices (CGTP) requirements govern the methods used in, and the facilities
and controls used for, the manufacture of HCT/Ps in a way that prevents the introduction, transmission, or spread of communicable diseases
by HCT/Ps. CGTPs include but are not limited to, any or all steps in the recovery, processing, storage, labeling, packaging or distribution
of any human cell or tissue, and the screening or testing of the cell or tissue donor.
Core
CGTP requirements are those requirements that directly relate to preventing the introduction, transmission, or spread of communicable
disease by HCT/Ps. The core CGTP requirements include requirements for:
● Facilities
● Environmental control
● Equipment
● Supplies and reagents
● Recovery
● Processing and process controls
● Labeling controls
● Storage
● Receipt, predistribution shipment, and distribution of an HCT/P
● Donor eligibility determinations, donor screening, and donor testing
An
HCT/P is regulated solely under section 361 of the Public Health Service Act (“PHSA”) and 21 CFR Part 1271 if it meets the
following four criteria:
1) The HCT/P is minimally manipulated;
4) Either
i)
The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function;
or
ii)
The HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function and: is for autologous
use; is for allogeneic use in a first-degree or second-degree blood relative; or is for reproductive use.
Failure
to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions such as warning
or untitled letters, injunctions, or other action.
There
are many HCT/P products that must undergo regulatory review and licensure by the FDA. The approval process for a Biologics License Application
(“BLA”) includes a rigorous review of the safety and efficacy of the biological product. Successful applications typically
require testing and validation through a series of clinical and non-clinical studies taking place over multiple years of product development.
We refer to all of our HCT/P products as biologics. In the future, Xtant may decide to strategically commercialize products in the United
States that would require a BLA, but there are no plans to do so at the present time.
Medical
Devices
The
Center for Devices and Radiological Health oversees the clearance and approval of medical devices, including our stabilization and fusion
products, as well as certain HCT/Ps regulated as medical devices, such as our OsteoSelect DBM putty. In the United States, medical devices
are heavily regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its associated regulations,
as well as other relevant federal and state laws. These regulations cover various aspects, including design, manufacture, storage, record
control, approval, labeling, promotion, post-approval monitoring and reporting, distribution and import and export of medical devices.
Non-compliance with these requirements can result in administrative actions such as FDA refusal to approve pending PMAs, 510(k)s, issuance
of warning letters, mandatory product recalls, import detentions, civil monetary penalties, and/or judicial sanctions, such as product
seizures, injunctions, and criminal prosecution.
Under
the FDCA, medical devices are classified into one of three classes based on the risk associated with the device and the level of control
necessary to provide a reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject to
the fewest regulatory controls. Class III devices are generally the highest risk devices and are subject to the highest level of regulatory
control to provide reasonable assurance of safety and effectiveness. Class III devices must typically be approved by the FDA before they
are marketed.
Most
Class I devices and a minority of Class II devices are completely exempt from premarket review by the FDA. Most Class II devices and
a minority of Class I devices require 510(k) clearance. Devices that pose the highest risk, including life sustaining, life-supporting
or implantable devices, or devices deemed not substantially equivalent to a previously 510(k)-cleared device or a “pre-amendment”
Class III device in commercial distribution before May 28, 1976 for which PMA applications are not required, are placed in Class III
requiring PMA approval. A novel device is placed in Class III by default, but it may be eligible to be placed in Class I or Class II
via “de novo” classification if it can be shown to pose only low to moderate risk with appropriate regulatory controls.
The
PMA approval pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The 510(k)-clearance
pathway is much less burdensome and time-consuming than the PMA approval pathway. The de novo pathway has an enhanced burden compared
to the 510(k)-clearance pathway but is much less burdensome than a PMA approval process.
Under
the 510(k)-clearance pathway, the applicant must submit to the FDA a premarket notification demonstrating that the medical device is
substantially equivalent to a legally marketed predicate device. A predicate device may be a previously 510(k) cleared device, Class
II de novo device, or a pre-amendment device (unless the FDA has issued a regulation calling for PMA applications for this device type).
To be substantially equivalent, the proposed device must have the same intended use as the predicate device, and either have the same
technological characteristics as the predicate device or have different technological characteristics and be shown to be equally safe
and effective and not raise different questions of safety and effectiveness than the predicate device.
After
the FDA accepts the 510(k) premarket notification, it begins a substantive review. By statute, the FDA is required to complete its review
within 90 days of receiving the 510(k) notification. As a practical matter, clearance often takes longer, typically ranging from three
to nine months or more, and clearance is never assured. The FDA’s 510(k) review generally compares a proposed device to a predicate
device with respect to intended use and technology. The information necessary to show substantial equivalence will depend on the differences
between the proposed device and the predicate device, which may include bench, animal, and/or clinical studies. The discussion of what
data is needed is sometimes conducted in a voluntary process called the pre-submission process whereby companies meet with the FDA to
discuss the data needed for clearance.
If
the FDA finds the applicant’s device is substantially equivalent to the predicate device, it will send a letter to the applicant
stating that fact. This allows the applicant’s device to be commercially distributed in the United States. Otherwise, the applicant
must fulfill the much more rigorous premarketing requirements of the PMA approval process or seek reclassification of the device through
the de novo process.
After
a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute
a major change in its intended use, requires a new 510(k) clearance or could require reclassification through the de novo process or
a PMA approval. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such
decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may require the manufacturer
to seek 510(k) clearance, de novo classification, or PMA approval. The FDA can also require a manufacturer to cease marketing and/or
recall the modified device until 510(k) clearance, de novo classification, or PMA approval is obtained.
Another
procedure for obtaining marketing authorization for a medical device is the “de novo classification” procedure. Devices of
a new type that the FDA has not previously classified based on risk are automatically classified into Class III, regardless of the level
of risk they pose. Additionally, in response to a 510(k) premarket notification, 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.
The
advantage of the de novo classification is that it generally requires less data than a PMA. The disadvantage is that it may require more
data than a 510(k) and most often will include human clinical data. A request for de novo classification also has a longer review time.
If the de novo application is denied, the device remains in Class III and PMA approval may be required before the device may be legally
marketed in the United States. The FDA is increasingly moving devices with slightly different proposed indication statements or different
technological features off the 510(k) path and onto the de novo path, resulting in more time and expense for the company.
A
device not eligible for 510(k) clearance or de novo classification must follow the PMA approval pathway, which requires proof of the
safety and effectiveness of the device to the FDA’s satisfaction. The cost of preparing and submitting a PMA is substantial and
a PMA application must provide extensive preclinical and clinical trial data and also detailed information about the device and its components
regarding, among other things, device design, manufacturing and labeling. Under federal law, the submission of most PMAs is additionally
subject to a substantial annually adjusted application user fee. Satisfaction of FDA PMA requirements typically take years, and the actual
time required may vary substantially based upon the type, complexity, and novelty of the device or disease. We currently market Coflex
Interlaminar Technology under the PMA approval pathway.
After
a medical device enters commercial distribution, General Controls for Medical Devices apply. General Controls are the basic provisions
(authorities) of the May 28, 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act, that provide the FDA with the
means of regulating devices to ensure their safety and effectiveness. The General Controls in the Amendments apply to all medical devices.
They include provisions that relate to adulteration; misbranding; device registration and listing; premarket notification; banned devices;
notification, including repair or replacement, or refund; records and reports; restricted devices; and good manufacturing practices.
The
FDA has broad post-market and regulatory enforcement privileges. Medical device manufacturers are subject to unannounced inspections
by the FDA and other state, local and foreign regulatory authorities to assess compliance with the QMSR and other applicable regulations,
and these inspections may include the manufacturing facilities of any suppliers. Failure to comply with applicable regulatory requirements
can result in enforcement action by the FDA, which may include sanctions such as: warning letters, fines, injunctions, consent decrees
and civil penalties; unanticipated expenditures, repair, replacement, refunds, recall or seizure of our devices; operating restrictions,
partial suspension or total shutdown of manufacturing; the FDA’s refusal of our requests for 510(k) clearances, de novo classification,
or premarket approvals of new devices, new intended uses or modifications to existing devices; the FDA’s refusal to issue certificates
to foreign governments needed to export devices for sale in other countries; and withdrawing 510(k) clearances, de novo marketing authorization,
or premarket approvals that have already been granted; and criminal prosecution.
In
February 2024, the FDA issued a final rule replacing the QSR with the Quality Management System Regulation, or QMSR, which incorporates
by reference the quality management system requirements of ISO 13485:2016. The FDA has stated that the standards contained in ISO 13485:2016
are substantially similar to those set forth in the existing QSR. This final rule does not go into effect until February 2026.
International
Regulation
International
distribution is governed by foreign government regulations, which can vary between countries. The time needed for approval in a foreign
country may be longer or shorter than that required for FDA approval process, and the specific requirements may differ. Some countries
accept MDSAP Certificates, CE Marking, and/or FDA clearances as part of their medical device marketing approval process,
Healthcare
Fraud and Abuse
Healthcare
fraud and abuse laws apply to Xtant’s business when a customer submits a claim for an item or service that is reimbursed under
Medicare, Medicaid or most other federally-funded healthcare programs. 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 health care programs, such as by Medicare or Medicaid. The concerns that the
Anti-Kickback Statute addresses are multiple, but primary among them are, first, that the federal government pays/reimburses health care
providers for the true acquisition cost of goods and services provided to patients served by government programs. The government does
not want, for example, health care providers obtaining manufacturer discounts which are not disclosed to the government on cost report
forms submitted for reimbursement to the government. The government wants to be the beneficiary of such discounts. Second, for that reason,
the government wants transparency in the billing process which discloses such discounts to the government. Third, the government does
not want purchasing, prescription or referral decisions for medical devices biased by economics unrelated to the best choices for a patient.
The
Federal 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. Remunerative relationships with physicians in which manufacturers give
health care providers gifts or pay for entertainment, sporting events, trips or other perquisites, may be viewed as an attempt to buy
loyalty to the manufacturer’s products. A number of states also have anti-kickback laws that establish similar prohibitions that
may apply to items or services reimbursed by government programs as well as any third-party payors, including commercial insurers. Further,
federal legislation, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively
“PPACA”), among other things, clarified the intent requirements of the Federal Anti-Kickback Statute and the federal criminal
statutes governing healthcare fraud. Specifically, a person or entity can be found to have violated the statutes without actual knowledge
of these statutes or specific intent to violate them. In addition, the PPACA amended the Social Security Act to provide that the government
may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false
or fraudulent claim for purposes of the Federal False Claims Act or federal civil money penalties statute. Amendments to the Federal
False Claims Act provide that a violation of the Federal Anti-Kickback Statute is also a violation of the Federal False Claims Act, subjecting
healthcare entities to treble damages and mandatory penalties for each false claim or statement.
Additionally,
the civil Federal False Claims Act prohibits, among other things, knowingly presenting or causing the presentation of a false, fictitious
or fraudulent claim for payment of federal funds, or knowingly making, or causing to be made, a false record or statement material to
a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. The purpose of the Federal
False Claims Act is to prevent manufacturers from causing or inducing inappropriate prescriptions leading to an inappropriate government
reimbursement. It often comes into play where a manufacturer suggests or assists a health care provider to bill for an off-label, uncovered
use. It also can occur when the reimbursement advice given by a manufacturer results in inappropriate reimbursement claims from “upcoding,”
miscoding, “stretched” coding, the use of inappropriate modifiers or inappropriate care settings. These behaviors can result
in the government paying for products or procedures that should not be reimbursed by the federal government. The manufacturer must be
truthful and not misleading in the reimbursement advice it gives to customers.
Actions
under the Federal False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name
of the government. Violations of the Federal False Claims Act can result in very significant monetary penalties and treble damages. The
federal government is using the Federal False Claims Act, and the accompanying threat of significant liability, in its investigations
of healthcare companies throughout the country for a wide variety of Medicare billing practices, as well as federal Anti-Kickback Statute
violations and certain marketing practices, including off-label promotion, and has obtained multi-million and multi-billion dollar settlements
under the Federal False Claims Act in addition to individual criminal convictions under applicable criminal statutes. Given the significant
size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating
healthcare providers’ and suppliers’ compliance with the healthcare reimbursement rules and fraud and abuse laws.
The
Federal Physician Payments Sunshine Act imposes annual reporting requirements on device manufacturers for payments and other transfers
of value provided by them, directly or indirectly, to physicians (including physician family members) and teaching hospitals, as well
as ownership and investment interests held by physicians. Device manufactures are also required to collect information on payments or
transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists,
and certified nurse midwives for reporting to the Centers for Medicare & Medicaid Services (“CMS”). A manufacturer’s
failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment
interests may result in civil monetary penalties. Certain states also mandate implementation of commercial compliance programs, impose
restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other remuneration
to healthcare professionals and entities.
Our
operations are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”). We are required to comply with the FCPA,
which generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign
officials for the purpose of obtaining or retaining business or other benefits. In addition, the FCPA imposes accounting standards and
requirements on publicly traded United States corporations and their foreign affiliates, which are intended to prevent the diversion
of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books”
slush funds from which such improper payments can be made. We also are subject to similar anticorruption legislation implemented in certain
foreign jurisdictions.