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, 2025
or
☐TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 $0.000001 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether 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, 2025 was $45.0 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, $0.000001par value, outstanding as of March 25, 2026 was 140,068,260.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 2
PART I 3
Item 1. Business 3
Item 1 A. Risk Factors 16
Item 1 B. Unresolved Staff Comments 43
Item 1 C. Cybersecurity 43
Item 2. Properties 44
Item 3. Legal Proceedings 44
Item 4. Mine Safety Disclosures 44
Item 6. Reserved 45
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 52
Item 8. Financial Statements and Supplementary Data 52
Item 9A. Controls and Procedures 76
Item 9B. Other Information 76
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 76
PART III 77
Item 10. Directors, Executive Officers and Corporate Governance 77
Item 11. Executive Compensation 83
Item 14. Principal Accountant Fees and Services 97
Item 15. Exhibit and Financial Statement Schedules 98
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. In addition, Xtant’s biologics are utilized in trauma, foot and ankle, sports medicine, total
joint, along with several surgical repair and wound care applications.
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 (“IDN”)
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 the United States market, we
promote and sell our products internationally through stocking distribution partners in Europe, Canada,
Mexico, South America, and certain Pacific region countries. We have recently made and intend to continue to make measured and targeted
investments in the expansion of our commercial team to support our new products and maximize the reach of our broad portfolio of orthobiologics
solutions.
We
have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products, including our
recently launched nanOss StrataTM, an advanced synthetic bone graft designed to closely resemble natural bone;
CollagenXTM, a bovine collagen particulate product for surgical wound closure; OsteoFactor ProTM, an allogenic
growth factor solution; and TriviumTM, a next-generation demineralized bone matrix, in addition to our introductions in 2024:
Cortera® Posterior Fixation System, viable bone matrix; OsteoVive®
Plus, and amniotic membrane allografts, SimpliGraftTM and SimpliMaxTM;
(2) expand 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.
Since
one of our key growth initiatives is to leverage our growth platform with technology and strategic acquisitions and explore other strategic
transactions with respect to our products and our company, including licenses, business collaborations and other business combinations
or transactions with other companies, we, as a matter of course, often engage in discussions with third parties regarding such matters.
As discussed in more detail elsewhere in this report, we recognized $18.7 million in license revenue in 2025 that
likely will not repeat in 2026 due primarily to changes in the reimbursement environment for our SimpliMaxTM product effective January
1, 2026 and which changes also will adversely affect a portion of our product revenue in 2026. The loss of this license and product revenue
will have an adverse impact on our 2026 revenues and other operating results, including in particular, our gross margins.
Sale
of Coflex/CoFix Assets and International Hardware Business
On
December 1, 2025, we completed the sale of certain assets relating to our Coflex and CoFix products (the “Coflex/CoFix
Divestiture”) to Companion Spine, LLC and one of its affiliates, Companion Spine SAS (collectively, “Companion
Spine”), pursuant to an Asset Purchase Agreement dated July 7, 2025 (the “Coflex/CoFix Agreement”). The total
purchase price of the Coflex/CoFix Divestiture was $17.5 million (subject to a closing inventory valuation adjustment set forth in
the Coflex/CoFix Agreement). Of the total purchase price, an aggregate of $7.5 million was paid to us in cash as non-refundable
deposits during third and fourth quarters of 2025, $1.8 million was paid to us in cash at the closing, and $8.2 million was paid to
us as an unsecured promissory note issued by Companion Spine to us at the closing (the “Companion Spine Note”). Pursuant
to subsequent amendments to the Coflex/CoFix Agreement, the maturity date of the Companion Spine Note was extended to January 31,
2026. The outstanding principal balance of the Companion Spine Note, together with the related accrued interest, totaling $8.5
million, was paid to us on February 27, 2026.
Also,
on December 1, 2025, we completed the sale of all of our shares of equity securities of Paradigm Spine GmbH, one of our then wholly owned
subsidiaries engaged in the operation of our hardware business outside of the United States (“Paradigm”), which constituted
100% of the issued and outstanding shares of equity securities of Paradigm (the “Paradigm Divestiture” and together with
the Coflex/CoFix Divestiture, the “Divestitures”), to Companion Spine SAS pursuant to an Equity Purchase Agreement dated
July 7, 2025 between us, Paradigm and Companion Spine (the “Paradigm Agreement” and together with the Coflex/CoFix Agreement,
the “Divestiture Agreements”). The total purchase price of the Paradigm Divestiture was $3.9 million (the “Paradigm
Purchase Price”), $1.7 million of which was paid to us in cash at the closing of the Paradigm Divestiture and $2.2 million of which
was paid to us on February 27, 2026 in settlement of the net working capital and other purchase price adjustments.
The
aggregate purchase price associated with the two Divestitures was $21.4 million.
Industry
and Market Overview
The
orthopedic biomaterials market includes organic, inorganic, and synthetic materials designed for implantation or application in or near
bone to support healing and structural restoration. These materials are used to facilitate bone growth, augment areas with insufficient
bone tissue, and provide structural support during the repair process. Orthopedic biomaterials are commonly used as alternatives to autograft
tissue, reducing the need for harvesting bone from a secondary site in the patient.
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.
Our
Orthobiologics Products
Our
primary biomaterial products are described below, and along with other allografts, are used across a range of orthopedic and clinical
applications.
We
also process and distribute sports allografts prepared for soft-tissue reconstruction applications, milled spinal allografts composed
of cortical bone shaped to defined specifications, and traditional allografts used across multiple clinical specialties, including orthopedics,
neurology, podiatry, oral and maxillofacial care, genitourinary care, chronic wound care, surgical repair, plastic and reconstructive
medicine.
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
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, 2025, 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 distribution partners in Europe, Canada, Mexico, South America, and certain
Pacific region countries.
Donor
Procurement
Our
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.
Competition
There
are various public and private organizations that offer both orthobiologics and fixation products to their customers, including our primary
competitors Medtronic plc, Johnson and Johnson, Bioventus Inc., Globus Medical, Inc., OrthoFix Medical Inc., Alphatec Holdings, Inc.,
Highridge 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, 2025, our biologics patent
portfolio included 46 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 201 issued patents that expire between 2026 and 2043, 150 of which are issued U.S. patents, and
5 pending patent applications, 2 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®, OsteoFactor®, OsteoFactor Pro®, BacFast®, OsteoSelect®, OsteoMax®, 3Demin®, Circle
of Life®, ARANAX®, ASPECT®, ATRIX-C®, ATRIX-C UNION®, BACJAC®, BACFUSE®, BIGFOOT®, CLARITY®, CONTACT®,
CROSS-FUSE®, INTICE®, LAT-FUSE®, MATRIFORM®, NANOSS®, NUNEC®, ORBITALWRAP®, PAC PLATE®, QUANTUM®,
SLIMFUSE®, SimpliGraft®, SimpliMax®, SimpliMix®, STREAMLINE®, X-LINK®, XPRESS®, XSPAN®, ZYFIX®, ELEMAX®,
UNISON®, FORTILINK®, TETRAFUSE®, CERVALIGN®, NANOSS 3D®, 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®, CALIX®, H-GRAFT®, SPIDER®, X90®, BUTREX®, FORTEX®, AXLE®, FIXCET®, and XTANT®.
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
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 in exchange for a one-time
$1.5 million cash payment and minimum SimpliGraft® product purchase obligations of the distributor. During the fourth quarter of
2024, we entered into a license agreement with a distributor granting an exclusive right and license to manufacture and
commercialize in the United States our SimpliMaxTM product in exchange for a one-time $1.5 million cash payment and minimum
quarterly royalty payments based on the volume of product sold by the distributor. Effective January 1, 2026, the Centers for
Medicare & Medicaid Services (“CMS”) implemented a Local Coverage Determination with significant changes to
reimbursement for cellular and tissue-based products, which impacted our SimpliMaxTM and SimpliGraft® products. In
addition, on July 14 and 15, 2025, CMS released the CY 2026 Physician Fee Schedule (“PFS”) proposal and the CY 2026
Hospital Outpatient Prospective Payment System (“OPPS”) proposal. Under these rules, which were implemented on January
1, 2026, CMS instituted a consistent payment approach for skin substitutes across the private office and hospital outpatient
departments settings with a fixed price of $127.14 per square centimeter. Together with the Local Coverage Determination and a
recently announced Wasteful and Inappropriate Service Reduction model, there are several significant potential changes to
reimbursement of skin substitutes that have impacted and will likely continue to impact the industry and the sale of our
SimpliMaxTM and SimpliGraft® products. Because of these regulatory changes, the SimpliGraft® manufacture and license
agreement was terminated effective December 31, 2025 and it is possible that the SimpliMaxTM license agreement may be
terminated, adversely affecting our 2026 and future license revenue.
Government
Regulation
We
are International Organization for Standardization (“ISO”) 13485 and MDSAP Certified and registered with the U.S. Food and Drug Administration (“FDA”) as a manufacturer of human cells, tissues, and cellular and tissue-based
products (“HCT/Ps”), as well as medical devices. ISO 13485 is the internationally recognized quality management systems (“QMS”)
standard specifically designed for organizations involved in the life cycle of medical devices, including design, production, installation,
servicing and distribution. Medical Device Single Audit Program (“MDSAP”) is a program that allows a third-party auditor
to evaluate a medical device manufacturer’s quality management system to satisfy the requirements of multiple regulatory jurisdictions
simultaneously. The program is based on ISO 13485. We are an accredited member in good standing with the Association for Advancing Tissue
and Biologics (“AATB”), formerly known as the American Association of Tissue Banks. In addition, we comply with all licensing
requirements 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, unless
they are exempt.
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.
In
addition, there are regulatory requirements pertaining to 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
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, authorization and approval of medical devices, including our stabilization
and fusion products, as well as certain HCT/Ps regulated as medical devices. 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 Premarket Approvals (“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 that there is a reasonable assurance of safety and effectiveness. 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, a de novo-authorized
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.
By
statute, the FDA is required to complete its review within 90 FDA 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
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. If the device cannot
proceed through the 510(k) pathway, 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 authorization, 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 authorization, 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 process 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 as compared to a 510(k). If the de novo submission 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
reasonable assurance of the device’s safety and effectiveness. 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.
After
a medical device enters commercial distribution, General Controls for Medical Devices apply. General Controls are the basic provisions
(authorities) that provide the FDA with the means of regulating devices to ensure their safety and effectiveness. The General Controls
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 Quality Management System Regulation
(“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.
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. 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.
Coverage
and Reimbursement
Xtant’s
currently approved products are commonly treated as general supplies utilized in spinal and orthopedic surgery and if covered by third-party
payors, are paid for as part of the surgical procedure. Accordingly, healthcare providers in the United States generally rely on third-party
payors, principally private insurers and governmental payors such as Medicare and Medicaid, to cover and reimburse all or part of the
cost of a spine surgery in which Xtant products are used. Sales volumes and fees for Xtant products will continue to depend in large
part on the availability of coverage and reimbursement from such third-party payors. Third-party payors perform analyses on new technologies
to determine if they are medically necessary before providing coverage for them. These third-party payors may still deny reimbursement
on covered technologies if they determine that a device used in a procedure was not used in accordance with the payor’s coverage
policy. Particularly in the United States, third-party payors continue to carefully review, and increasingly challenge, the prices charged
for procedures and medical products.
In
the United States, a large percentage of insured individuals receive their medical care through managed care programs, which monitor
and often require pre-approval of the services that a member will receive. Some managed care programs pay their providers on a per capita
basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined
payment per member per month and, consequently, may limit the willingness of these providers to use Xtant products.
The
overall escalating cost of medical products and services has led to, and will likely continue to lead to, increased pressures on the
healthcare industry to reduce the costs of products and services. Government or private third-party payors cannot be guaranteed to cover
and reimburse the procedures using Xtant products in whole or in part in the future or that payment rates will be adequate. In addition,
it is possible that future legislation, regulation or coverage and reimbursement policies of third-party payors will adversely affect
the demand for Xtant products or the ability to sell them on a profitable basis.
Internationally,
reimbursement and healthcare payment systems vary substantially from country to country and include single-payor, government-managed
systems as well as systems in which private payors and government managed systems exist side-by-side. Xtant’s ability to achieve
market acceptance or significant sales volume in international markets will be dependent in large part on the availability of reimbursement
for procedures performed using company products under the healthcare payment systems in such markets. A number of countries may require
Xtant to gather additional clinical data before recognizing coverage and reimbursement for its products.
ISO
Certification
Xtant
is ISO and MDSAP Certified.
ISO 13485 is the internationally recognized quality management system standard specifically designed for organizations
involved in the life cycle of medical devices, including design, production, installation, servicing and distribution. MDSAP is a program
that allows third-party auditors to evaluate a medical device manufacturer’s quality management system to satisfy the requirements
of multiple regulatory jurisdictions simultaneously. The program is based on ISO 13485.
Achieving
ISO 13485 and MDSAP certification requires building and maintaining a robust, fully implemented QMS that demonstrates consistent control