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Organogenesis (ORGO) - 2024 Q4 - Annual Report

Part I Business Organogenesis is a regenerative medicine company specializing in advanced wound care and surgical/sports medicine products with a focus on leveraging its broad portfolio and expanding market penetration Overview The company develops and sells regenerative medicine products for the advanced wound care and surgical & sports medicine markets - Organogenesis is a regenerative medicine company focused on developing and selling products for the advanced wound care and surgical & sports medicine markets22 - The company's product portfolio includes solutions with Premarket Application (PMA) approval or 510(k) clearance from the FDA, targeting markets driven by an aging population and comorbidities like diabetes and obesity23 Recent Developments Key developments include a $130.0 million financing, a new manufacturing facility lease, and a licensing agreement with Vivex Biologics - In November 2024, the company raised $130.0 million in gross proceeds through the sale of 130,000 shares of Series A Convertible Preferred Stock to Avista Healthcare Partners31 - Approximately $25.5 million of the proceeds from the financing were used to repurchase 7,921,731 shares of Class A common stock from existing stockholders31 - The company entered into a lease for a 122,000-square foot biomanufacturing facility in Smithfield, Rhode Island, with manufacturing of Dermagraft, Apligraf, and PuraPly expected to commence in 202728 - Entered into a trademark license and manufacturing agreement with Vivex Biologics, Inc for its CYGNUS and VIA Matrix products, involving an upfront fee, milestone payments, and royalties2627 Market Overview The company targets a global wound care market estimated at $20 billion and an osteoarthritis market estimated at $7 billion - The global total addressable market for acute and chronic wounds was estimated at approximately $20 billion as of 202137 - The total addressable market for osteoarthritis (OA) was estimated at approximately $7 billion as of 2023, a key target for the company's Surgical & Sports Medicine pipeline41 Our Commercial Products The product portfolio includes PMA-approved, 510(k)-cleared, and Section 361 HCT/P regulated solutions for wound care - Apligraf is the only product with PMA approval for both venous leg ulcers (VLUs) and diabetic foot ulcers (DFUs)44 - Manufacturing and sales of Dermagraft, a PMA-approved product for DFUs, were suspended in 2021-2022, with plans to resume at a new facility in 202745 - The portfolio includes placental allografts such as Affinity, Novachor, and NuShield, which are regulated as Section 361 HCT/Ps4346 - PuraPly AM, a 510(k) cleared product, is a collagen matrix with PHMB antimicrobial for managing various wound types47 Our Business Strategy The business strategy focuses on deepening market penetration, developing the product pipeline, and expanding sales reach - Deepen presence in the Advanced Wound Care market by leveraging a comprehensive product portfolio and investing in clinical data to support physician and payer education53 - Accelerate penetration into the Surgical & Sports Medicine market using placental-based and collagen products, leveraging the existing commercial infrastructure54 - Continue to develop a robust product pipeline for both markets, with new products expected to launch in the next few years55 - Expand sales reach by optimizing the sales organization, broadening geographic footprint, and increasing focus on sales outside the United States5657 Product Pipeline and Clinical Studies The product pipeline includes line extensions and new products, with a Phase 3 study for ReNu in knee osteoarthritis ongoing - The pipeline includes line extensions for PuraPly, Apligraf, and Dermagraft, as well as new products like FortiShield (biosynthetic wound matrix) and TransCyte (bioengineered tissue for burns)60626364 - A Phase 3 clinical study for ReNu in symptomatic knee osteoarthritis (OA) is ongoing, with a biologics license application (BLA) submission expected in the second half of 20252568 - The first Phase 3 trial for ReNu met its primary endpoint, showing a statistically significant reduction in knee pain (p=0.0177) at six months67 Commercial Infrastructure, Manufacturing, and Regulation The company utilizes a large direct and independent sales force, in-house and third-party manufacturing, and navigates multiple FDA regulatory pathways - As of December 31, 2024, the commercial team consisted of 256 direct sales representatives and approximately 160 independent agencies69 - The company manufactures its primary non-placental products in-house and uses third-party manufacturers for placental-based products74 - Products are regulated through various FDA pathways, including PMA (Apligraf, Dermagraft), 510(k) clearance (PuraPly), and as Section 361 HCT/Ps (Affinity, NuShield)4344477883 - Reimbursement is critical and relies on coverage from Medicare, Medicaid, and private payers; Medicare payment for products is bundled in outpatient hospital settings but paid separately based on Average Sales Price (ASP) in physician offices8893 Risk Factors The company faces significant risks from payer reimbursement policies, supplier dependency, regulatory changes, and stockholder concentration - The company's success is highly dependent on coverage and reimbursement from government and private payers, which is unstable and subject to policy changes like Medicare LCDs18 - Finalized Medicare LCDs, with a delayed implementation until April 13, 2025, would render over 200 products, including the company's PuraPly, Novachor, and others, as "non-covered" for DFU and VLU indications, which could materially impact revenue204312 - There is a risk that the FDA may determine that placental products like Affinity, Novachor, and NuShield do not qualify for regulation solely under Section 361 of the PHSA, which could require suspension of sales until more stringent FDA approval is obtained19161163 - The company depends on a limited group of suppliers and manufacturers for key products, and any interruption could cause material delivery delays and impact sales20112 - The Significant Stockholder Group beneficially owns approximately 40% of the Class A common stock, allowing them to effectively determine the outcome of all matters requiring stockholder approval239 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None279 Cybersecurity The company manages cybersecurity risk through a program based on the NIST Framework with oversight from the Audit Committee - The company's cybersecurity strategy is managed by an internal information security team and utilizes the NIST Cybersecurity Framework for assessing and monitoring threats281 - Governance is provided by the Audit Committee of the Board of Directors, which receives quarterly updates on the cybersecurity program285 - The company engages third-party cybersecurity partners for monitoring, penetration testing, and vulnerability assessments283 Properties The company's main operations are in Massachusetts, with a new 122,000-square-foot manufacturing facility being added in Rhode Island | Location | Size (sq. ft.) | Use | Notes | | :--- | :--- | :--- | :--- | | Canton, MA | ~300,000 | Corporate HQ, manufacturing, R&D | Four-building campus. Three buildings leased from related parties. | | Norwood, MA | ~43,850 | Office, lab, manufacturing | Leased facility. | | Smithfield, RI | ~122,000 | Manufacturing, office | New lease signed Nov 2024; manufacturing to start in 2027. | | AL, CA, FL, MA | Smaller | Manufacturing, warehouse, office, lab | Various smaller leased facilities. | Legal Proceedings The company is defending a False Claims Act lawsuit filed by a terminated employee, which it believes is without merit - On January 22, 2025, the company was served with a complaint alleging claims under the U.S. False Claims Act and Texas Medicaid Fraud Prevention Act, brought by a terminated employee291 - The United States and the State of Texas declined to intervene in the case in September 2024; the company believes the claims are without merit291 Mine Safety Disclosures This item is not applicable to the company - Not applicable293 Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq under "ORGO", and 7.9 million shares were repurchased in November 2024 for $25.5 million - The company's Class A common stock is listed on the Nasdaq Capital Market under the symbol ORGO296 - The company has never declared or paid cash dividends and does not expect to in the foreseeable future297 Issuer Purchases of Equity Securities (Q4 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2024 | — | $-- | | November 2024 | 7,921,731 | $3.2163 | | December 2024 | — | $-- | | Total Q4 2024 | 7,921,731 | N/A | Reserved This item is reserved - Reserved304 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2024 saw an 11% revenue increase to $482.0 million, but a net loss from operations of $1.3 million due to impairment charges Results of Operations Revenue growth was driven by Advanced Wound Care, while operating income declined due to impairment and software write-downs Fiscal Year Performance Comparison | Metric | FY 2024 | FY 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net Revenue | $482.0M | $433.1M | +11% | | - Advanced Wound Care | $453.6M | $405.5M | +12% | | - Surgical & Sports Medicine | $28.4M | $27.6M | +3% | | Gross Profit | $366.3M | $326.7M | +12% | | Income (Loss) from Operations | ($1.3M) | $12.5M | -110% | | Net Income | $0.9M | $4.9M | -82% | | Adjusted EBITDA | $49.8M | $42.6M | +17% | - The increase in 2024 revenue was primarily driven by a $48.1 million (12%) increase in Advanced Wound Care product sales from new and existing customers339 - Operating expenses in 2024 included a one-time impairment charge of $18.8 million for property and construction and a $4.0 million write-down of capitalized internal-use software costs334350 - Selling, general and administrative (SG&A) expenses increased by 9% in 2024, mainly due to a $19.8 million increase in royalty expense346 - Research and development (R&D) expenses grew 13% in 2024, driven by increased clinical research and consulting costs for pipeline products348 Liquidity and Capital Resources The company's liquidity improved with $135.6 million in cash, bolstered by a $130 million financing used to repay debt and repurchase stock Key Financial Position Metrics | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $135.6M | $103.8M | | Working Capital | $208.5M | $144.5M | | Total Debt | $1.9M | $69.2M | - In November 2024, the company raised net proceeds of $120.6 million from a Series A Convertible Preferred Stock issuance355 - The company used $66.6 million of the proceeds to fully repay its Term Loan Facility and $25.5 million to repurchase common stock355365 - Net cash provided by operating activities was $14.2 million in 2024, a decrease from $30.9 million in 2023, primarily due to a $31.8 million increase in accounts receivable360361 - The company has $125.0 million available for future borrowing under its Revolving Facility356374 Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risks, primarily foreign currency exchange rates, is not considered material - The company's primary market risk is foreign currency exchange rate variability, but exposure is considered minimal due to the short duration of foreign currency contracts382383 Financial Statements and Supplementary Data This section refers to the consolidated financial statements and auditor's report included elsewhere in the Annual Report - The company's consolidated financial statements and the auditor's report are located in a subsequent section of the 10-K384 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None385 Controls and Procedures Disclosure controls were deemed effective, and a previously identified material weakness in internal control has been remediated - Management concluded that disclosure controls and procedures were effective as of December 31, 2024387 - A previously reported material weakness related to IT general controls and segregation of duties was remediated as of December 31, 2024391392 - Remediation actions included implementing a new ERP system, adding experienced accounting personnel, and designing new IT general controls392 Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading plan in Q4 2024395 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable396 Part III Directors, Executive Officers and Corporate Governance Required information will be provided in the company's Definitive Proxy Statement and is incorporated by reference Executive Compensation Required information will be provided in the company's Definitive Proxy Statement and is incorporated by reference Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Required information will be provided in the company's Definitive Proxy Statement and is incorporated by reference Certain Relationships and Related Transactions, and Director Independence Required information will be provided in the company's Definitive Proxy Statement and is incorporated by reference Principal Accounting Fees and Services Required information will be provided in the company's Definitive Proxy Statement and is incorporated by reference Part IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report, including financial statements and material contracts Form 10-K Summary The company reports no Form 10-K summary - None413 Financial Statements and Notes Report of Independent Registered Public Accounting Firm RSM US LLP issued an unqualified opinion, highlighting Critical Audit Matters related to impairment valuation and preferred stock accounting - The auditor issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting422423 - Two Critical Audit Matters were identified: the determination of fair value for an impaired building and the accounting for the new redeemable convertible preferred stock426427432 Consolidated Financial Statements Total assets grew to $497.9 million while liabilities decreased to $112.6 million following debt repayment, with net income of $0.9 million for FY 2024 Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $135,571 | $103,840 | | Accounts receivable, net | $109,861 | $81,999 | | Total current assets | $285,941 | $225,044 | | Total assets | $497,886 | $460,025 | | Liabilities & Equity | | | | Total current liabilities | $77,477 | $80,509 | | Term loan, net | $0 | $66,231 | | Total liabilities | $112,570 | $181,362 | | Redeemable convertible preferred stock | $122,419 | $0 | | Total stockholders' equity | $262,897 | $278,663 | Consolidated Statement of Operations Summary (in thousands) | | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Net revenue | $482,043 | $433,140 | $450,893 | | Gross profit | $366,302 | $326,659 | $345,874 | | Income (loss) from operations | ($1,283) | $12,525 | $22,304 | | Net income | $861 | $4,945 | $15,532 | | Net income (loss) attributable to common stockholders | ($937) | $4,945 | $15,532 | Notes to Consolidated Financial Statements Notes detail an $18.8 million impairment charge, the issuance of $130 million in preferred stock, and a $25.5 million common stock repurchase - In Q2 2024, the company recorded an impairment charge of $18.8 million on a purchased building and associated construction in Canton, MA, reducing its carrying value to a fair value of $13.6 million; a write-down of $4.0 million for capitalized internal-use software was also recorded513519520 - The company issued 130,000 shares of Series A Redeemable Convertible Preferred Stock for gross proceeds of $130 million; the stock carries an 8.0% dividend (payable in cash or in-kind) and is classified as mezzanine equity due to holder redemption rights542544551 - In November 2024, the company repurchased and retired 7,921,731 shares of its Class A common stock from existing stockholders, including directors and their affiliates, for a total cost of $25.5 million542553554 - The company fully repaid its Term Loan Facility in November 2024; as of December 31, 2024, there were no outstanding borrowings under the Term Loan or the $125 million Revolving Facility534537541