Organogenesis (ORGO) - 2023 Q4 - Annual Report

PART I Business Overview Organogenesis is a leading regenerative medicine company specializing in Advanced Wound Care and Surgical & Sports Medicine, driving growth through its product portfolio, clinical data, and regulatory approvals Company Overview Organogenesis is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets, aiming to improve patient outcomes and lower care costs - Organogenesis is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets, aiming to improve patient outcomes and lower care costs[17] - The company's product portfolio includes solutions with Premarket Application (PMA) approval or 510(k) clearance from the FDA, providing a strong competitive advantage[18] - For the year ended December 31, 2023, the company generated $433.1 million in revenue and incurred $314.1 million in operating expenses[21] Competitive Strengths The company leads in regenerative medicine technology with strong brand recognition, well-positioned in large, growing global markets - The company is a leader in regenerative medicine technology with strong brand recognition for flagship products like Apligraf, Dermagraft, and PuraPly AM, as well as placental-based products such as NuShield, Affinity, and Novachor[22] - Organogenesis is well-positioned in large, attractive, and growing global markets, including Advanced Wound Care and Surgical & Sports Medicine, driven by favorable demographics and increasing comorbidities[22][23] Our Business Strategy Key strategies include market penetration, comprehensive product offerings, leveraging clinical data, and robust customer support - Key strategies include driving penetration in the Advanced Wound Care market, offering a comprehensive suite of products, leveraging a large body of clinical data and FDA-approved products, and maintaining robust relationships across the continuum of care[24] - The company also focuses on differentiated in-house customer support, established and scalable regulatory, manufacturing, and commercial infrastructure, and extensive executive management experience in regenerative medicine[24] Industry Overview The company targets difficult-to-heal wounds and musculoskeletal injuries within a large, growing market driven by demographics - The company focuses on difficult-to-heal wounds and musculoskeletal injuries, with an estimated addressable market of approximately $25 billion in 2021, split between Advanced Wound Care ($10 billion) and Surgical & Sports Medicine ($15 billion)[27] - Key growth drivers for these markets include favorable global demographics, an aging population, increased incidence of comorbidities (e.g., diabetes, obesity), and growing acceptance of advanced technologies[29] Advanced Wound Care Market Chronic wounds pose a significant burden, with biologics being the fastest-growing segment in the $10 billion global market - Chronic wounds (VLUs, DFUs, Pressure Ulcers, Surgical Wounds) represent a significant burden on public health and healthcare costs, often stalling in the inflammatory phase due to factors like biofilm and disrupted cell signaling[30][31][33] - The global Advanced Wound Care market was estimated at $10 billion in 2021, with biologics (including skin substitutes) being the fastest-growing segment, projected to reach $2 billion by 2026[36][38] - Skin substitutes, such as Apligraf and Dermagraft, have demonstrated improved healing rates and lower overall costs compared to traditional therapies, with Medicare treatment costs for DFUs being significantly lower[39] Surgical & Sports Medicine Market The $15 billion Surgical & Sports Medicine market is driven by common injuries and prevalent degenerative conditions with 6% CAGR - The immediate addressable Surgical & Sports Medicine market is estimated at $15 billion, with a CAGR of approximately 6% through 2028, encompassing surgical/acute wounds, tendon/ligament injuries, and chronic inflammatory/degenerative conditions[43][48] - Tendon and ligament injuries are common, with high re-rupture rates, and regenerative tissue scaffolds are used to support healing[45] - Chronic inflammatory and degenerative conditions like osteoarthritis (OA) are increasingly prevalent, with the global market for treatments exceeding $3.8 billion in 2020[47] Our Products The company offers a broad portfolio of cellular and acellular wound care products for Advanced Wound Care and Surgical & Sports Medicine - The company offers a broad portfolio of cellular and acellular wound care products for Advanced Wound Care, treating chronic wounds like VLUs, DFUs, and pressure ulcers[55] - In Surgical & Sports Medicine, products support healing of surgical/acute wounds and musculoskeletal injuries, including tendon repair and chronic degenerative conditions like OA[70] Advanced Wound Care Products The Advanced Wound Care portfolio addresses various wound types and healing phases, with PuraPly AM controlling biofilm - The Advanced Wound Care portfolio includes Affinity, Novachor, Apligraf, Dermagraft, NuShield, PuraPly AM, and CYGNUS Dual, addressing various wound types and healing phases[59][60] - PuraPly AM is used early in the healing process as an antimicrobial barrier to control biofilm, which is present in at least 78% of chronic wounds[57] Affinity & Novachor Affinity and Novachor are fresh, viable cell-containing placental allografts, stored hypothermically for chronic and acute wounds - Affinity (launched 2014) and Novachor (launched 2021) are fresh, viable cell-containing amnion and chorion placental allografts, stored hypothermically via the proprietary AlloFresh process, for chronic and acute wounds[62] Apligraf Apligraf is a bioengineered bi-layered skin substitute with PMA approval for venous leg ulcers and diabetic foot ulcers - Apligraf, launched in 1998, is a bioengineered bi-layered skin substitute with PMA approval for both venous leg ulcers (VLUs) and diabetic foot ulcers (DFUs), and is a leading product for VLU treatment[63] Dermagraft Dermagraft manufacturing and sales were suspended in Q4 2021 and Q2 2022, respectively, pending a manufacturing transition for cost savings - Dermagraft, launched in 2001 and acquired in 2014, is a dermal substitute with PMA approval for DFUs, but its manufacturing was suspended in Q4 2021 and sales in Q2 2022, pending a transition to a new manufacturing facility or third-party manufacturer[64] NuShield NuShield is a dehydrated placental allograft and surgical barrier, providing a protective ECM scaffold with a five-year shelf life - NuShield is a dehydrated placental allograft and surgical barrier, processed with the proprietary LayerLoc process, providing a protective barrier and ECM scaffold for chronic and acute wounds, with a five-year shelf life at room temperature[65] PuraPly Antimicrobial PuraPly AM is an antimicrobial barrier skin substitute cleared for managing various wound types, including partial/full-thickness wounds - PuraPly AM, launched in 2016, is an antimicrobial barrier skin substitute made of purified porcine collagen matrix embedded with broad-spectrum PHMB, cleared for managing various wound types including partial/full-thickness, pressure, venous, diabetic, and surgical wounds[66] CYGNUS Dual CYGNUS Dual is a dual-layered amniotic tissue graft with a five-year shelf life, maintaining inherent extracellular matrices and growth factors - CYGNUS Dual is a dual-layered amniotic tissue graft with a five-year shelf life at room temperature, manufactured to maintain inherent levels of key extracellular matrices, carbohydrates, growth factors, and cytokines[68] Surgical & Sports Medicine Products The Surgical & Sports Medicine suite targets surgical wounds and musculoskeletal injuries with products like PuraForce and PuraPly MZ - The Surgical & Sports Medicine product suite includes NuShield, Affinity, Novachor, PuraPly AM, PuraForce, and PuraPly MZ, targeting surgical/acute wounds and musculoskeletal injuries[70] - PuraForce is a bioengineered porcine collagen surgical matrix for soft tissue reinforcement, indicated for all tendons in the body[70] - PuraPly MZ is a micronized particulate version of PuraPly, allowing application in powder or gel form for deep and tunneling wounds in surgical settings[70] NuShield, Affinity, Novachor, PuraPly AM, PuraPly SX, PuraForce, and PuraPly MZ These products are marketed for surgical and orthopedic applications, serving as barriers, placental allografts, or antimicrobial solutions - NuShield is marketed for surgical and orthopedic applications as a barrier to support soft tissue repairs, particularly in difficult-to-heal locations[72] - Affinity and Novachor are marketed as placental allografts for acute surgical wounds, while PuraPly AM and PuraPly SX serve as antimicrobial barriers in surgical settings[72] - PuraForce is a bioengineered porcine collagen surgical matrix for soft tissue reinforcement, and PuraPly MZ is a micronized particulate for managing open surgical wounds[72] Product Pipeline The company maintains a robust product pipeline for Advanced Wound Care and Surgical & Sports Medicine, deepening its portfolio - The company has a robust product pipeline for both Advanced Wound Care and Surgical & Sports Medicine markets, aiming to deepen its portfolio and address additional clinical applications[73] - Pipeline efforts include line extensions for PuraPly and PuraPly AM, expansion of the placental portfolio, and development of smaller Apligraf and Dermagraft sizes[73][74][75] - Key pipeline products include FortiShield (510(k) cleared for second-degree burns), TransCyte (PMA approved for deep burns, awaiting manufacturing), and ReNu (cryopreserved amniotic suspension in Phase III for knee OA, RMAT designated, commercial distribution suspended pending BLA approval)[76][77][78] PuraPly and PuraPlyAM Line Extensions The PuraPly portfolio is developing line extensions to leverage existing collagen matrix expertise for additional sites of care - The PuraPly portfolio is developing line extensions to leverage existing collagen matrix expertise and meet the specific needs of additional sites of care[73] Placental Portfolio Expansion The R&D team is developing larger placental grafts and assessing in-licensing or acquisition opportunities to expand the portfolio - The R&D team is developing larger placental grafts to meet the needs of advanced wound care and surgical wound markets, and is also assessing in-licensing or acquisition opportunities[74] Apligraf and Dermagraft Line Extensions Development projects are underway to create smaller Apligraf and Dermagraft sizes for optimal clinical utilization on smaller wounds - Two development projects are underway to create additional smaller sizes of Apligraf and Dermagraft to optimize clinical utilization for smaller wounds like DFUs, requiring significant development and FDA PMA Supplement approval[75] FortiShield FortiShield, a biosynthetic wound matrix, received 510(k) clearance in May 2023 for temporary protective covering, primarily for second-degree burns - FortiShield, a biosynthetic wound matrix, received 510(k) clearance in May 2023 for use as a temporary protective covering and moist wound healing environment, primarily for second-degree burns[76] TransCyte TransCyte, a bioengineered tissue scaffold, has PMA approval for deep second- and third-degree burns, awaiting manufacturing for full launch - TransCyte, a bioengineered tissue scaffold, has PMA approval for deep second- and third-degree burns, offering bioactive dermal components and pain relief, with full launch dependent on manufacturing capabilities[77] ReNu ReNu, a cryopreserved amniotic suspension, is in clinical studies for knee OA, received RMAT designation, but commercial distribution is suspended - ReNu, a cryopreserved amniotic suspension, is undergoing clinical studies to support BLA approval for managing knee osteoarthritis symptoms, having received RMAT designation from the FDA[78] - Commercial distribution of ReNu was suspended on May 31, 2021, following the end of the FDA's enforcement grace period for certain 361 HCT/Ps[78] Ongoing Clinical Studies The company actively invests in generating robust clinical and real-world outcomes data for its products to enhance sales and reimbursement - The company is actively investing in generating robust clinical and real-world outcomes data for its Advanced Wound Care and Surgical & Sports Medicine products to enhance sales and reimbursement[79] Advanced Wound Care Studies Advanced Wound Care Clinical Studies Status | Product | Wound Type | Design | Completion Date | Data Presentation Date | | :------------------ | :--------- | :------------------------------------------ | :-------------- | :--------------------- | | Organogenesis PuraPlyAM | DFU | CEA, NetHealth EMR Database of PPAM vs Theraskin (NI) | Q1 2020 | Q2 2020 ISPOR, Q1 2024 Accepted for Publication | | Organogenesis PuraPlyAM | DFU | HEOR-CEA, Medicare Claims, PPAM vs SOC | Q4 2022 | Q4 2021-SAWC Fall, Q2 2023-SAWC Spring | | Organogenesis Apliara | PRI | CEA, NetHealth EMR Database of Apligraf vs Primatrix | Q4 2019 | Q3 2020 SAWC Spring, Published Q1 2024 | | Organogenesis Apliara | PRI | CEA, NetHealth EMR Database of Apligraf vs Epifix | Q1 2020 | Q2 2020 ISPOR | | Organogenesis NuShield | DFU | Prospective Multicenter RCT, NuShield vs SOC | Q1 2023 | Q3 2024 | | Organogenesis NuShield | DFU | HEOR-CEA, Medicare Claims, NuShield vs SOC | Q4 2022 | Q2 2023-SAWC Spring | | Organogenesis Affinity | VLU | Prospective, Multicenter RCT Affinity vs SOC | Q1 2025 | Q4 2025 | | Organogenesis Affinity | DFU | HEOR-CEA, Medicare Claims, Affinity vs SOC | Q4 2022 | Q2 2023-SAWC Spring | Sports Medicine Studies Sports Medicine Clinical Studies Status | Product | Indication | Design | Completion Date | Estimated Data Presentation Date | | :---------------- | :--------- | :------------------------------------------------------------------------------------------------- | :-------------- | :------------------------------- | | Organogenesis ReNu | Knee OA | A Phase 3 Prospective, Multicenter, Double-Blind, Randomized, Placebo-Controlled Study (N=474) | Q1 2024 | Q3 2024 | | Organogenesis ReNu | Knee OA | A Phase 3 Prospective, Multicenter, Double-Blind, Randomized, Placebo-Controlled Study (N=474) | Q4 2025 | Q3 2026 | Selected Published Clinical Studies Published studies demonstrate the efficacy of various products, including PuraPly AM, Affinity, NuShield, ReNu, Apligraf, and Dermagraft, in wound closure, pain reduction, and improved healing rates - Published studies demonstrate the efficacy of PuraPly AM in achieving wound closure and reduction in area/depth/volume for various acute and chronic wounds[83][84][85][86] - A randomized controlled clinical trial showed Affinity achieved 60% wound closure in DFUs at 12 weeks, significantly higher than standard of care (p=0.04)[87] - Clinical experience with NuShield for 50 wounds (VLUs, DFUs, others) showed 90% achieved 60-100% wound closure, with a median time to closure of 102 days[89] - A 200-patient RCT for knee OA showed ReNu significantly reduced pain and improved responder rates compared to hyaluronic acid or saline at 12 months[90][91] - FDA-approved products Apligraf and Dermagraft have extensive clinical evidence, with Apligraf showing 56% DFU closure at 12 weeks vs. 38% for conventional therapy (p=.0042) and reduced amputations[97][98] - Dermagraft's pivotal trial showed a 64% increase in 100% DFU closure at 12 weeks compared to conventional therapy and a significant reduction in amputations[110][111] Platform Technologies The company's R&D capabilities are built on four core platform technologies: Bioengineered Cultured Cellular Products, Collagen Biomaterial, Placental-Based, and Antimicrobial - The company's R&D capabilities are built on four core platform technologies: Bioengineered Cultured Cellular Products (e.g., Apligraf, Dermagraft), Collagen Biomaterial Technology (e.g., PuraPly family), Placental-Based Products (e.g., Affinity, NuShield with AlloFresh and LayerLoc processes), and Antimicrobial Technology (PHMB for PuraPly AM)[117][118][119] Commercial Infrastructure The company leverages a direct sales force, independent agencies, in-house customer support, and internal/outsourced manufacturing, with international expansion plans - The company employs approximately 260 direct sales representatives for Advanced Wound Care and utilizes a mix of direct sales and 160 independent agencies for Surgical & Sports Medicine, with plans for international expansion[120][121] - In-house customer support services, including reimbursement, medical, and technical support through the 'Circle of Care' program, strengthen customer relationships[122] - Manufacturing is internal for non-placental products and outsourced for placental products, with robust internal compliance processes and FDA/AATB registrations[125][126] - In November 2023, the company entered a trademark license and manufacturing agreement with Vivex Biologics, Inc. to sell CYGNUS Dual and Matrix products, involving upfront fees, milestone payments, and royalties[129] Reimbursement Customer reimbursement relies on government and private payers, with Medicare payments often bundled, and policy changes, such as potential bundling for skin substitutes, posing revenue risks - Customer reimbursement for products relies on government programs (Medicare, Medicaid) and private payers, with Medicare payments often bundled for hospital/ASC settings and separate (ASP+6%) for physician offices[130][134] - While most private payers cover Apligraf and Dermagraft, many do not cover other products like PuraPly, PuraPly AM, Novachor, and NuShield[133] - Medicare's proposed policy to stop separate payments for skin substitutes in physician offices (2024/2025) was not finalized in 2023 but could be reconsidered, potentially impacting revenue[136][143] - Three MACs withdrew LCDs in September 2023 that would have eliminated coverage for five commercially marketed products, but new restrictive LCDs could be issued in the future[150] Competition The company operates in highly competitive markets characterized by rapid technological change, with success dependent on product efficacy, price, and support - The company operates in highly competitive markets characterized by rapid technological change, with success dependent on product efficacy, ease of use, price, reimbursement, and customer support[154] - Key competitors include Arthrex, Bioventus Inc., Integra LifeSciences, MiMedx Group, Smith & Nephew, 3M, Coloplast, DePuy Synthes, and Zimmer Biomet Holdings[156] Intellectual Property The company relies on trademarks, trade secrets, and patents to protect its technology, holding 36 issued patents globally, though key products like Apligraf, Dermagraft, and NuShield are not patent-covered - The company relies on trademarks, trade secrets, patents, and other intellectual property rights to protect its technology and competitive position[159] - As of December 31, 2023, the company owned 36 issued patents globally (15 U.S.) and 19 pending patent applications (9 U.S.), with many issued patents expected to expire between 2027 and 2042[160] - Key products like Apligraf, Dermagraft, and NuShield are not covered by the company's issued patents or pending patent applications[160] Government Regulation Products are subject to extensive FDA regulation, requiring 510(k) clearance or PMA approval, and compliance with various healthcare fraud and abuse laws - Products are subject to extensive FDA regulation under the PHSA or FDCA, requiring 510(k) clearance or PMA approval, and compliance with Quality System Regulation (QSR) for devices and cGMP for biologics[162][163][164][165] - Certain human cells, tissues, and cellular and tissue-based products (HCT/Ps) like Affinity and NuShield are regulated under Section 361 of the PHSA, exempting them from premarket review if minimally manipulated and for homologous use, though the FDA could disagree[170] - The company's ReNu product received Regenerative Medicine Advance Therapy (RMAT) designation for knee OA, which can expedite development but does not guarantee marketing approval[181] - Advertising, marketing, and promotional activities are subject to FDA oversight, prohibiting off-label promotion, and the company is subject to federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and False Claims Act[182][185] Seasonality Revenues typically show seasonality, with the fourth quarter being strongest due to hospital budget cycles and deductible satisfaction - Revenues typically show seasonality, with the fourth quarter being strongest due to hospital budget cycles and deductible satisfaction, and the first quarter usually having lower revenues[191] Human Capital Resources As of December 31, 2023, the company had approximately 862 full-time employees, focusing on diversity, competitive compensation, and professional development - As of December 31, 2023, the company had approximately 862 full-time employees worldwide, none represented by a collective bargaining agreement, and maintains good employee relations[192] - The company focuses on diversity, open communication, competitive compensation and benefits (no increase in healthcare contributions for 8 years), professional development, and employee health, well-being, and safety[193][194][197] Available Information The company makes its SEC filings, including annual and quarterly reports, available free of charge through its website's 'Investors' section - The company makes its SEC filings, including annual and quarterly reports, available free of charge through the 'Investors' section of its website, www.organogenesis.com[195](index=195&type=chunk) Key Financials (Year Ended December 31, 2023) | Metric | Amount (Millions) | | :----------------- | :---------------- | | Revenue | $433.1 | | Operating Expenses | $314.1 | Risk Factors The company faces numerous risks, including fluctuating operating results, potential future losses, and substantial uncertainty regarding product coverage and reimbursement Summary of Risk Factors The company faces risks from fluctuating operating results, uncertain reimbursement, material weaknesses in internal controls, and intense competition - The company's operating results may fluctuate significantly, and it may incur future losses despite recent net income[198] - Coverage and adequate reimbursement for products from government and private payers are uncertain and subject to policy changes, including potential bundling of payments for skin substitutes[198] - A material weakness in internal control over financial reporting has been identified, and disclosure controls and procedures are not effective[198] - The company faces significant competition, rapid technological change, and challenges in convincing physicians to adopt its products[200] Risks Related to Organogenesis and its business Operating results fluctuate, internal control weaknesses persist, supply chain dependence is high, and acquisitions and IT disruptions pose substantial risks - Operating results are subject to significant fluctuations due to competitive product introductions, reimbursement changes, and economic conditions[203][204] - The company has identified a material weakness in internal control over financial reporting related to IT general controls and segregation of duties, impacting financial reporting accuracy[207][208] - Dependence on a limited group of suppliers for components and human tissue, along with manufacturing disruptions (e.g., Dermagraft suspension), poses risks to product supply and sales[225][228] - Expansion through acquisitions (like NuTech Medical and CPN Biosciences) or licensing agreements (like Vivex Biologics) entails risks such as dilution, debt, integration challenges, and failure to realize anticipated benefits[235][237] - Significant disruptions of information technology systems or breaches of information security could adversely affect operations, customer service, and expose the company to liabilities[240][244] Risks Related to Regulation of Our Products and Other Government Regulations The company faces regulatory risks including potential refunds for discarded products, clinical trial delays, HCT/P reclassification, and non-compliance with fraud and abuse laws - The Infrastructure Investment and Jobs Act requires manufacturers to pay a refund for discarded single-use products, potentially leading to material rebates for Apligraf, Dermagraft, and PuraPly if the current exemption is rescinded[260] - Substantial delays or difficulties in clinical trials, including those for ReNu, could impair the ability to generate revenues from product sales and regulatory approvals[261][264] - The FDA may determine that certain HCT/Ps (Affinity, Novachor, NuShield) do not qualify for regulation solely under Section 361 of the PHSA, requiring premarket approval or clearance and disrupting marketing[277][280] - The company is subject to federal, state, and foreign healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act), with non-compliance potentially leading to substantial penalties and exclusion from government programs[297][298][303] Risks Related to Reimbursement for our Products Reimbursement rates and coverage are uncertain and subject to change, with Medicare's bundled payment policies and cost-containment efforts creating pricing pressure - Reimbursement rates and coverage for products from government and private insurance are subject to change, potentially reducing revenue and market acceptance[316][318] - Medicare's bundled payment policy in hospital outpatient settings incentivizes the use of cheaper competitor products, potentially impacting the company's market share[320] - The withdrawal of Local Coverage Determinations (LCDs) by three MACs in September 2023, which would have eliminated coverage for certain products, provides temporary relief, but new restrictive LCDs could be adopted in the future[329] - Cost-containment efforts by customers, Group Purchasing Organizations (GPOs), and Integrated Delivery Networks (IDNs) create pricing pressure and may limit the company's ability to secure contracts[330] Risks Related to Our Intellectual Property Intellectual property protection may be inadequate, key products are not patent-covered, trade secret reliance is risky, and litigation poses significant costs - The company's patents and other intellectual property rights may not adequately protect its products, with key products like Apligraf, Dermagraft, and NuShield not covered by current patents[331][335] - Reliance on trade secrets and know-how is risky, as these are difficult to protect and may be independently developed by competitors[333][343] - Pending and future intellectual property litigation is costly, disruptive, and could result in significant damages or injunctions preventing product sales[337] - Changes in U.S. patent law, including the Leahy-Smith America Invents Act and Supreme Court rulings, could diminish the value of patents and impair the ability to protect products[347][348] Risks Related to Our Indebtedness The company's substantial indebtedness of $66.6 million as of December 31, 2023, and restrictive covenants in its credit agreements, could materially adversely affect its business and financial condition - As of December 31, 2023, the company had approximately $66.6 million in outstanding indebtedness, which could materially adversely affect its business, results of operations, and financial condition[349] - The 2021 Credit Agreement requires compliance with financial covenants (Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio), and failure to meet these could lead to immediate debt repayment[349][358] - The company requires significant cash to service its debt, and its ability to generate cash depends on factors beyond its control, with potential inability to refinance or restructure obligations[354][355] - Restrictive covenants in credit agreements limit the company's ability to engage in certain activities, such as incurring additional debt, paying dividends, or making acquisitions[357][358] Risks Related to Our Class A Common Stock The Significant Stockholder Group exercises substantial control, the stock price is volatile, and company bylaws designate a specific forum for stockholder actions - The Significant Stockholder Group, owning approximately 46% of Class A common stock as of February 26, 2024, exercises significant control over the company, potentially leading to conflicts of interest[362] - The company's stock price has been and is likely to remain volatile, influenced by operating results, market conditions, and potential securities class action litigation[364][365] - Company bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for certain stockholder actions, which could limit stockholders' ability to choose a favorable judicial forum[367][369] General Risk Factors The company faces potential liabilities from securities class action litigation, uncertain future capital needs, challenges in retaining key employees, and adverse economic changes - The company is exposed to potential liabilities and reputational risk from securities class action litigation, including an ongoing lawsuit alleging federal securities law violations[371][372] - Future capital needs are uncertain, and the company may need to raise additional funds through equity or debt, which could result in dilution or unfavorable terms[375] - The company's success depends on its ability to retain key employees and attract qualified personnel, facing intense competition from companies with greater resources[376][379] - Uncertainty and adverse changes in general economic conditions, including recent turmoil in the global banking system (e.g., SVB failure), may negatively affect business and financing availability[380][381] Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[403] Cybersecurity The company maintains a cybersecurity infrastructure managed by its information security team for threat assessment, monitoring, and resilience - The company's information security team manages and enhances its cybersecurity infrastructure, utilizing tools like the Collective Controls Catalog for threat assessment and continuous monitoring[405] - Cybersecurity partners and outsourced security operations centers are leveraged to protect the company's environment, with periodic penetration testing and vulnerability assessments[407] - The Audit Committee of the Board of Directors provides risk management oversight, receiving quarterly updates on cybersecurity programs, vulnerability detection, and progress[408] Properties The company's corporate headquarters is a four-building campus in Canton, Massachusetts, comprising approximately 300,000 square feet for operations and R&D - The corporate headquarters is a 300,000 square foot campus in Canton, Massachusetts, with leased and purchased space for manufacturing, shipping, operations, and R&D[409] - Three buildings in Canton are leased from entities controlled by company stockholders and directors[409] - Additional leased facilities include a 43,850 square foot office, laboratory, and manufacturing space in Norwood, Massachusetts, and smaller facilities in Alabama, California, Florida, and other parts of Massachusetts[410][411] Legal Proceedings The company is a defendant in a class action lawsuit alleging federal securities law violations related to false and misleading statements - A class action complaint, Somogyi v. Organogenesis Holdings Inc., et al., was filed in December 2021 and amended in October 2022, alleging federal securities law violations[412][414] - The lawsuit claims false and misleading statements regarding revenue, sales growth, and competitive ability for Affinity and PuraPly XT products[414] - The company believes the claims are without merit and intends to vigorously contest them, having filed a motion to dismiss in March 2023[414] Mine Safety Disclosures The company has no disclosures related to mine safety - Mine Safety Disclosures are not applicable to the company[416] PART II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock is listed on Nasdaq under 'ORGO', with 131.9 million shares outstanding, and no cash dividends paid due to growth focus and credit restrictions Market Information The company's Class A common stock is listed on the Nasdaq Capital Market under the symbol 'ORGO', with 131,963,176 shares outstanding as of February 26, 2024 - The company's Class A common stock is listed on the Nasdaq Capital Market under the symbol 'ORGO'[419] - As of February 26, 2024, there were 131,963,176 shares of Class A common stock outstanding and 607 holders of record[419] Dividend policy The company has never paid cash dividends and intends to retain earnings for business growth, with dividend payments restricted by its 2021 Credit Agreement - The company has never declared or paid any cash dividends on its capital stock and intends to retain all available funds and future earnings to finance business growth[420] - The 2021 Credit Agreement restricts the company's ability to pay cash dividends without the bank's consent[420] Stock Performance Graph The report includes a comparison of cumulative total return for the company's Class A common stock against NASDAQ indices from December 31, 2018, through December 29, 2023 - The report includes a comparison of cumulative total return for the company's Class A common stock against the NASDAQ Composite Index and the NASDAQ Biotechnology Index from December 31, 2018, through December 29, 2023[421] Reserved This item is reserved and contains no information - Item 6 is reserved and contains no information[425] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details Organogenesis's financial performance, key events, revenue, expenses, liquidity, and critical accounting policies, noting a $41.0 million accumulated deficit as of December 31, 2023 Overview Organogenesis is a leading regenerative medicine company, reporting $433.1 million net revenue and $4.9 million net income for 2023, with a $41.0 million accumulated deficit - Organogenesis is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine, aiming to improve patient outcomes and lower care costs[428] - The company's product portfolio includes FDA-approved (PMA, 510(k) clearance) and pipeline products, providing a strong competitive advantage[429] - For the year ended December 31, 2023, the company reported net revenue of $433.1 million and net income of $4.9 million, with an accumulated deficit of $41.0 million[432] CPN Acquisition Organogenesis acquired CPN Biosciences for $19.0 million on September 17, 2020, with the earnout liability settling at $0 by June 30, 2022 - On September 17, 2020, Organogenesis acquired CPN Biosciences for an aggregate consideration of $19.0 million, consisting of cash, common stock, and a contingent earnout[433] - The earnout liability, initially valued at $3.8 million, was calculated to be $0 as of the conclusion of the earnout period on June 30, 2022[433] Dermagraft Dermagraft manufacturing and sales were suspended in Q4 2021 and Q2 2022, respectively, for cost savings, with customers expected to substitute Apligraf - Manufacturing of Dermagraft was suspended in Q4 2021, and sales in Q2 2022, as part of a plan to transition to a new manufacturing facility or third-party manufacturer for substantial long-term cost savings[434] - The company expects customers to substitute Apligraf for Dermagraft, anticipating no material impact on net revenue from the suspension[434] Local Coverage Determinations Three MACs issued and withdrew LCDs in 2023 that would have eliminated product coverage, impacting Q3/Q4 revenue and incurring $1.9 million in related expenses - In August 2023, three MACs issued LCDs that would have eliminated coverage for over 130 products, including five of the company's commercially marketed products for DFUs and VLUs, but these LCDs were withdrawn in September 2023[435] - The company incurred $1.2 million in legal expenses and $0.7 million in sales employee retention expenses related to efforts to withdraw the LCDs[435] - Despite the withdrawal, the LCDs impacted Q3 and Q4 2023 revenue due to shifts in customer buying patterns[435] License And Manufacturing Agreement In November 2023, the company entered a license agreement with Vivex Biologics for CYGNUS Dual and Matrix products, including a $5.0 million upfront fee and $2.5 million milestone - In November 2023, the company entered a trademark license and manufacturing agreement with Vivex Biologics, Inc. to sell CYGNUS Dual and Matrix products[436] - The agreement included a $5.0 million upfront licensing fee and an accrued $2.5 million milestone payment, along with low double-digit and high single-digit royalties on net sales of Dual and Matrix, respectively[436] Management's Use of Non-GAAP Measures Management uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance and trends by excluding certain non-core operating items - Management uses Adjusted EBITDA, a non-GAAP financial measure, to evaluate operating performance and trends, and for planning decisions, believing it provides useful insights by excluding certain non-core operating items[438][439] - Adjusted EBITDA is defined as net income (loss) before depreciation, amortization, interest, and income taxes, further adjusted for non-cash equity compensation, restructuring charges, asset write-offs, earnout liability changes, settlement fees, debt extinguishment loss, facility project pause, legal/consulting fees, and sales retention[439] Components of Our Consolidated Results of Operations Net revenue, cost of goods sold, and operating expenses are detailed, with expected increases in market development and R&D investments - Net revenue is derived from Advanced Wound Care and Surgical & Sports Medicine products, recognized when customers obtain control, and is net of reserves for returns, discounts, and GPO rebates[442][443] - Cost of goods sold includes personnel, product testing, quality assurance, raw materials, manufacturing, and facility costs, with gross profit affected by product mix, pricing, and operational efficiency[445][446] - Selling, general and administrative expenses are expected to increase due to investments in market development and sales force expansion[447] - Research and development expenses, expensed as incurred, are expected to increase with ongoing clinical trials, product enhancements, and pipeline development[448] - Income taxes are accounted for using an asset and liability approach, with deferred income taxes reflecting temporary differences and valuation allowances provided when necessary[451][452] Results of Operations Consolidated Results of Operations (in thousands) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :-------- | :-------- | :-------- | | Net revenue | $433,140 | $450,893 | $467,359 | | Cost of goods sold | $106,481 | $105,019 | $114,199 | | Gross profit | $326,659 | $345,874 | $353,160 | | Total operating expenses | $314,134 | $323,570 | $280,942 | | Income from operations | $12,525 | $22,304 | $72,218 | | Total other expense, net | $(2,133) | $(2,022) | $(9,132) | | Net income before income taxes | $10,392 | $20,282 | $63,086 | | Income tax (expense) benefit | $(5,447) | $(4,750) | $31,116 | | Net income and comprehensive income | $4,945 | $15,532 | $94,202 | EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | 2023 | 2022 | 2021 | | :--------------------------- | :-------- | :-------- | :-------- | | Net income | $4,945 | $15,532 | $94,202 | | Interest expense, net | $2,190 | $2,009 | $7,236 | | Income tax expense (benefit) | $5,447 | $4,750 | $(31,116) | | Depreciation | $10,448 | $5,845 | $5,781 | | Amortization | $4,918 | $4,883 | $4,949 | | EBITDA | $27,948 | $33,019 | $81,052 | | Stock-based compensation expense | $8,996 | $6,552 | $3,864 | | Restructuring charge | $3,796 | $2,268 | $4,704 | | Write-off of certain assets | $0 | $4,200 | $1,104 | | Change in fair value of earnout | $0 | $0 | $(3,985) | | Settlement fee | $0 | $2,600 | $700 | | Loss on extinguishment of debt | $0 | $0 | $1,883 | | Facility construction project pause | $0 | $632 | $0 | | Legal and consulting fees | $1,182 | $0 | $0 | | Sales retention | $694 | $0 | $0 | | Adjusted EBITDA | $42,616 | $49,271 | $89,143 | Comparison of the Years Ended December 31, 2023, 2022, and 2021 Revenue Net Revenue by Product Category (in thousands) | Category | 2023 | 2022 | 2021 | Change 2023 to 2022 | Change 2022 to 2021 | | :----------------------- | :-------- | :-------- | :-------- | :------------------ | :------------------ | | Advanced Wound Care | $405,514 | $422,231 | $430,237 | (4%) | (2%) | | Surgical & Sports Medicine | $27,626 | $28,662 | $37,122 | (4%) | (23%) | | Net revenue | $433,140| $450,893| $467,359| (4%) | (4%) | - Advanced Wound Care net revenue decreased by $16.7 million (4%) in 2023 due to changes in customer buying patterns and the impact of recently withdrawn LCDs[460] - Surgical & Sports Medicine net revenue decreased by $1.0 million (4%) in 2023, primarily due to a shift in distributor focus[461] - Advanced Wound Care net revenue decreased by $8.0 million (2%) in 2022 due to decreased sales of certain non-PuraPly products and a GPO settlement fee[462] - Surgical & Sports Medicine net revenue decreased by $8.5 million (23%) in 2022 due to the continued impact of the suspension of marketing for ReNu and NuCel products[463] Cost of Goods Sold and Gross Profit Cost of Goods Sold and Gross Profit (in thousands) | Metric | 2023 | 2022 | 2021 | Change 2023 to 2022 | Change 2022 to 2021 | | :--------------- | :-------- | :-------- | :-------- | :------------------ | :------------------ | | Cost of goods sold | $106,481 | $105,019 | $114,199 | 1% | (8%) | | Gross profit | $326,659 | $345,874 | $353,160 | (6%) | (2%) | - Cost of goods sold increased by $1.5 million (1%) in 2023, primarily due to product mix[464] - Gross profit decreased by $19.2 million (6%) in 2023, mainly due to a decrease in pricing for certain products and a shift in product mix[465] - Cost of goods sold decreased by $9.2 million (8%) in 2022 due to decreased sales volume in both Advanced Wound Care and Surgical & Sports Medicine products[466] - Gross profit decreased by $7.3 million (2%) in 2022, primarily from decreased sales volume and increased manufacturing-related costs, partially offset by a shift to higher gross margin products[467] Selling, General and Administrative Expenses Selling, General and Administrative Expenses (in thousands) | Metric | 2023 | 2022 | 2021 | Change 2023 to 2022 | Change 2022 to 2021 | | :----------------------------------- | :-------- | :-------- | :-------- | :------------------ | :------------------ | | Selling, general and administrative | $269,754 | $283,808 | $250,200 | (5%) | 13% | - Selling, general and administrative expenses decreased by $14.1 million (5%) in 2023, driven by lower compensation and restructuring costs ($6.1 million), equipment disposal ($4.4 million), reduced royalties ($1.5 million), and decreased travel ($3.3 million), partially offset by increased legal and consulting fees ($1.2 million) related to LCDs[468] - These expenses increased by $33.6 million (13%) in 2022, primarily due to additional headcount ($12.2 million), increased travel and marketing ($10.0 million), higher legal/royalty/consulting costs ($5.6 million), a $4.2 million charge for equipment disposal, and $0.6 million in facility project cancellation fees[469] Research and Development Expenses Research and Development Expenses (in thousands) | Metric | 2023 | 2022 | 2021 | Change 2023 to 2022 | Change 2022 to 2021 | | :------------------------- | :-------- | :-------- | :-------- | :------------------ | :------------------ | | Research and development | $44,380 | $39,762 | $30,742 | 12% | 29% | - Research and development expenses increased by $4.6 million (12%) in 2023, driven by a $2.2 million increase in compensation expenses due to increased headcount and a $2.4 million increase in other clinical research and consulting costs for pipeline products[470] - These expenses increased by $9.0 million (29%) in 2022, primarily due to increased headcount, product costs for pipeline products, and clinical study/regulatory approval costs[471] Other Expense, Net Other Expense, Net (in thousands) | Metric | 2023 | 2022 | 2021 | Change 2023 to 2022 | Change 2022 to 2021 | | :----------------------------- | :-------- | :-------- | :-------- | :------------------ | :------------------ | | Interest expense, net | $(2,190) | $(2,009) | $(7,236) | 9% | (72%) | | Loss on the extinguishment of debt | $0 | $0 | $(1,883) | 0% | (100%) | | Other income (expense), net | $57 | $(13) | $(13) | (538%) | 0% | | Total other expense, net | $(2,133)| $(2,022)| $(9,132)| 5% | (78%) | - Total other expense, net, increased by $0.1 million (5%) in 2023, primarily due to increases in interest rates[472] - Total other expense, net, decreased by $7.1 million (78%) in 2022, mainly due to lower interest rates on the 2021 Credit Agreement and the $1.9 million loss on extinguishment of debt recorded in 2021[473] Income Tax (Expense) Benefit Income Tax (Expense) Benefit (in thousands) | Metric | 2023 | 2022 | 2021 | Change 2023 to 2022 | Change 2022 to 2021 | | :--------------------------- | :-------- | :-------- | :-------- | :------------------ | :------------------ | | Income tax (expense) benefit | $(5,447) | $(4,750) | $31,116 | 15% | (115%) | - Income tax expense for 2023 was $5.4 million (52.4% effective tax rate), comprising $3.4 million current and $2.0 million deferred taxes, adjusted for state/local taxes and non-deductible expenses[474] - Income tax expense for 2022 was $4.8 million (23.4% effective tax rate), including $2.8 million current and $2.0 million deferred taxes[475] - The 2021 income tax benefit of $31.1 million primarily resulted from the release of a $48.3 million valuation allowance on net U.S. deferred tax assets[475] Liquidity and Capital Resources The company funds operations through product sales, loans, debt, and stock sales, with $103.8 million cash and $125.0 million available under its Revolving Facility as of December 31, 2023 - The company funds operations through product sales, loans, debt, and stock sales, with an accumulated deficit of $41.0 million and working capital of $144.5 million as of December 31, 2023[476] - Cash and cash equivalents totaled $103.8 million as of December 31, 2023, with $125.0 million available for future revolving borrowings under the 2021 Credit Agreement[476][481] - Primary uses of cash include working capital, capital expenditures, and debt service payments, with expectations of sufficient funds for at least 12 months[477][478][479] Consolidated Statements of Cash Flows (in thousands) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :-------- | :-------- | :-------- | | Net cash provided by operating activities | $30,917 | $24,859 | $61,978 | | Net cash used in investing activities | $(24,364) | $(33,898) | $(31,220) | | Net cash used in financing activities | $(5,505) | $(2,199) | $(1,036) | | Net increase (decrease) in cash and restricted cash | $1,048 | $(11,238) | $29,722 | Cash Flows Operating Activities Net cash provided by operating activities was $30.9 million in 2023, driven by net income and non-cash charges, partially offset by changes in operating assets - Net cash provided by operating activities was $30.9 million in 2023, $24.9 million in 2022, and $62.0 million in 2021[483][484][485] - In 2023, operating cash flow resulted from $4.9 million net income and $44.0 million in non-cash charges, partially offset by $18.1 million used in changes in operating assets and liabilities[483] Investing Activities Net cash used in investing activities was $24.4 million in 2023, $33.9 million in 2022, and $31.2 million in 2021, solely for capital expenditures - Net cash used in investing activities was $24.4 million in 2023, $33.9 million in 2022, and $31.2 million in 2021, consisting solely of capital expenditures[488] Financing Activities Net cash used in financing activities was $5.5 million in 2023, primarily for principal payments on the Term Loan and finance lease obligations - Net cash used in financing activities was $5.5 million in 2023, primarily for principal payments on the Term Loan ($4.7 million) and finance lease obligations ($0.5 million)[489] - In 2022, $2.2 million was used, mainly for term loan and finance lease obligations ($3.0 million) and CPN deferred acquisition consideration ($0.6 million), partially offset by stock awards ($1.4 million)[490] - In 2021, $1.0 million was used, including repayment of the 2019 Credit Agreement ($70.0 million) and debt extinguishment fees ($1.6 million), largely offset by proceeds from the 2021 Credit Agreement ($73.2 million)[491] Indebtedness Cash and Outstanding Debt (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $103,840 | $102,478 | | Term loan net of debt discount and issuance cost | $66,231 | $70,769 | | Finance lease obligations | $2,969 | $0 | | Total debt | $69,200 | $70,769 | 2021 Credit Agreement The 2021 Credit Agreement provides a $75.0 million Term Loan and $125.0 million Revolving Credit Facility, with $66.6 million outstanding and $125.0 million available - Entered in August 2021, providing a $75.0 million Term Loan Facility and a $125.0 million Revolving Credit Facility, secured by substantially all company assets[492] - Borrowings bear variable interest rates (SOFR Loans or ABR Loans) with an Applicable Margin based on the Total Net Leverage Ratio; the rate was 7.44% on December 31, 2023[493] - The agreement requires quarterly installment payments on the Term Loan and compliance with financial covenants, including Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio[494][496] - As of December 31, 2023, the company had $66.6 million outstanding under the Term Loan Facility and $125.0 million available under the Revolving Facility, and was in compliance with all covenants[497] 2019 Credit Agreement The 2019 Credit Agreement was terminated in August 2021, with a $70.6 million settlement payment resulting in a $1.9 million loss on extinguishment - The 2019 Credit Agreement, providing a $40.0 million term loan and $60.0 million revolving facility, was settled and terminated in August 2021 upon entering the 2021 Credit Agreement[498][669] - An aggregate of $70.6 million was paid to settle the 2019 Credit Agreement, resulting in a $1.9 million loss on extinguishment of the loan in 2021[498][669] Critical Accounting Policies and Significant Judgments and Estimates Key accounting policies involve significant management judgments and estimates in revenue recognition, accounts receivable, inventory, income taxes, and asset recoverability - Key accounting policies involve significant management judgments and estimates, including revenue recognition (reserves for returns, discounts, GPO rebates), accounts receivable (allowance for credit losses), and inventory (excess and obsolete reserves)[500][501][502][503][504] - Other critical areas include the recognition and measurement of current and deferred income tax assets and liabilities (valuation allowances, uncertain tax positions) and the assessment of recoverability for long-lived assets (property, equipment, intangibles)[505][506][507][508] Off-Balance Sheet Arrangements The company did not have any off-balance sheet arrangements during the periods presented - The company did not have any off-balance sheet arrangements during the periods presented[509] Recently Issued Accounting Pronouncements The company adopted ASU 2016-13 (Credit Losses) in 2023 and is evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) - The company adopted ASU 2016-13 (Financial Instruments—Credit Losses) on January 1, 2023, resulting in a $615,000 net reduction to the opening balance of retained earnings[629][630] - The company is currently evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[631][632] Quantitative and Qualitative Disclosures About Market Risk The company is