SI-BONE(SIBN) - 2021 Q4 - Annual Report

Part I Business SI-BONE specializes in sacropelvic medical devices, marketing its iFuse Implant System globally through direct sales and distributors, driven by surgeon training, clinical data, and new product development - SI-BONE is a medical device company focused on musculoskeletal disorders of the sacropelvic anatomy, pioneering the iFuse minimally invasive surgical system[21] Financial Performance (2020-2021) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $90.2 million | $73.4 million | | Net Loss | $56.6 million | $43.7 million | | Gross Margin | 88% | 88% | - As of December 31, 2021, approximately 65,000 iFuse procedures have been performed by over 2,600 surgeons in the United States and more than 36 other countries[21] - The company markets products through a direct sales force and distributors in the U.S. and internationally, with substantially all revenue derived from iFuse implant sales[28] Overview SI-BONE's iFuse Implant System, a minimally invasive solution for sacropelvic disorders, has performed 65,000 procedures globally, driving 23% revenue growth to $90.2 million in 2021 with 88% gross margins - The company's core product, the iFuse Implant System, features patented titanium implants and specialized instruments for minimally invasive sacroiliac joint fusion[23] - Key product innovations include the iFuse-3D (2017), a 3D-printed porous implant, and iFuse-TORQ (2021), a threaded implant for pelvic fractures and SI joint fusion[25][27] - The company received FDA clearance for the Bedrock technique in April 2019 for multi-level spinal fusion, and an expanded trauma indication in March 2020[26] Market Opportunity SI-BONE estimates a substantial U.S. market opportunity for sacroiliac joint fusion at $2.5 billion annually, with additional markets for Bedrock technique at $200 million and iFuse-TORQ at $350 million Estimated Annual U.S. Market Opportunities | Indication | Estimated Annual Market Size | | :--- | :--- | | Sacroiliac Joint Fusion | ~$2.5 billion | | Spinopelvic Fixation (Bedrock) | ~$200 million | | Pelvic Trauma (iFuse-TORQ) | ~$350 million | - The number of iFuse procedures performed globally increased from 53,000 to approximately 65,000 between December 31, 2020, and December 31, 2021[35] Our Solution and Published Studies The iFuse Implant System's triangular implants offer immediate stability and fusion, supported by over 100 publications including randomized controlled trials and long-term studies demonstrating sustained improvements - The triangular cross-section of iFuse implants resists rotation and provides immediate joint stability, while the porous surface facilitates bony ongrowth and ingrowth for fusion[44][45] - The company's clinical evidence portfolio includes over 100 publications, featuring two prospective randomized controlled trials (INSITE and iMIA) and long-term data out to six years[54] - The LOIS five-year follow-up study demonstrated sustained improvements in pain and disability, high patient satisfaction, and an 88% SI joint fusion rate with no device-related adverse events[58] Coverage, Sales, and Marketing SI-BONE has near-universal U.S. payor coverage for minimally invasive SI joint fusion, with 160 million lives covered exclusively for its triangular implants, supported by a direct sales force and targeted marketing - As of December 31, 2021, near-universal coverage exists for minimally invasive SI joint fusion, with private payors covering approximately 160 million lives adopting policies exclusive to SI-BONE's triangular iFuse implants[66] Sales Force Headcount (as of Dec 31, 2021) | Region | Direct Territory Sales Managers | Direct Clinical Specialists | Third-Party Distributors | | :--- | :--- | :--- | :--- | | U.S. | 85 | 65 | 59 | | International | 20 | N/A | 32 | - The company invests in direct-to-patient marketing via digital channels, social media, TV, and radio to increase awareness of sacroiliac joint disorders as a source of lower back pain[77] Competition and Intellectual Property SI-BONE competes with major medical device firms, differentiating through its proprietary triangular implant design and extensive clinical evidence, with key patents expiring in November 2024 and September 2035 - Primary competitors include Globus Medical, Inc. and Medtronic plc, selling screw-based products, and companies marketing allograft bone implants[83] - The company's key competitive advantages are its differentiated triangular implant design and substantial published clinical evidence demonstrating safety, effectiveness, and economic utility, leading to exclusive payor coverage[84] Key Patent Expiration Dates | Product/Feature | Jurisdiction | Expiration Date | | :--- | :--- | :--- | | iFuse (triangular shape) | U.S. | November 2024 | | iFuse-3D (fenestrated design) | U.S. | September 2035 | | Foreign Patents | Various | August 2025 - September 2035 | Regulation SI-BONE's products are extensively regulated by the FDA (510(k) clearances) and international bodies (MDR, CE marking), also subject to healthcare fraud and abuse laws (Anti-Kickback Statute, Sunshine Act) and data privacy regulations (HIPAA, GDPR) - In the U.S., SI-BONE's products are regulated by the FDA, with most products having received 510(k) premarket clearance; the first iFuse implant clearance was in November 2008[90][112] - In the EEA, products require a CE Certificate of Conformity, with the company transitioning to compliance with the new, stricter Medical Device Regulation (MDR 2017/745), effective May 2021[108][243] - The company is subject to federal and state fraud and abuse laws, including the Anti-Kickback Statute and the Physician Payment Sunshine Act, governing financial relationships with healthcare providers[118][119] - Data privacy and security are governed by laws such as HIPAA in the U.S. and GDPR in the EU, imposing strict obligations on handling patient health information[122][125] Manufacturing and Human Capital SI-BONE outsources manufacturing to third-party suppliers like RMS, complying with QSR and ISO 13485, and as of December 31, 2021, had 352 employees with a focus on diversity, health, and talent development - The company relies on third-party manufacturers, with a key non-exclusive agreement with rms Company (RMS) for iFuse-3D implant production[128][129] - As of December 31, 2021, the company had 352 employees, including 150 U.S. direct field sales and 20 European sales, with a 2021 employee turnover rate of less than 20%[137] - The company has a Diversity and Inclusion Plan, with its board composition including four women and two Asian American members out of nine total directors[138][139] - Due to its public float exceeding $700 million, the company became a large accelerated filer as of December 31, 2021, no longer qualifying as an "emerging growth company"[152] Risk Factors The company faces risks from operating losses, COVID-19 impacts, reimbursement dependency, intense competition, reliance on the iFuse product family and limited suppliers, extensive regulation, and intellectual property disputes - The company has a history of significant operating losses, with a net loss of $56.6 million in 2021 and an accumulated deficit of $295.8 million, expecting future losses[156] - The COVID-19 pandemic has adversely impacted operations by suspending elective surgeries and may continue to disrupt demand, supply chains, and financial markets[158][159] - The business is highly dependent on revenue from the iFuse product family, and any failure to maintain market acceptance or grow sales could negatively affect financial results[187] - The company relies on a limited number of third-party suppliers, including single-source suppliers for critical components like the iFuse-3D implant, making it vulnerable to supply disruptions[201][203] Risks Related to Our Business and Our Industry Key business risks include operating losses, COVID-19 impacts, reimbursement dependency, intense competition, and high reliance on the iFuse product family and limited third-party manufacturers - The company has incurred significant operating losses since inception and may not achieve or sustain profitability[156] - Dependence on adequate coverage and reimbursement from third-party payors is critical; insufficient reimbursement may delay or prevent product adoption[164] - The company operates in a very competitive environment against large, well-resourced competitors like Medtronic and Globus Medical[182][184] - Substantially all revenue comes from the iFuse product family, making the company highly dependent on its success and vulnerable to market shifts or issues with this single product line[187] Risks Related to Our Legal and Regulatory Environment The company faces extensive U.S. and international regulation, risking penalties for non-compliance, potential stricter premarket approvals, and adherence to anti-kickback, false claims, and data privacy laws, with off-label promotion prohibited - The company and its suppliers are subject to extensive governmental regulation (e.g., FDA's QSR), and non-compliance could lead to enforcement actions like fines, recalls, or production suspension[236][244] - Compliance with U.S. federal and state fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act) is critical, with violations potentially resulting in severe civil and criminal penalties[248][249] - Promotional materials and training must not constitute "off-label" promotion of unapproved uses, which could lead to regulatory enforcement, fines, and reputational damage[266] - Modifications to existing 510(k)-cleared products may require new clearances, and an incorrect determination could lead to recalls or marketing cessation until clearance is obtained[275] Risks Related to Our Intellectual Property The company's competitive position relies on intellectual property protection, facing risks from key patent expirations in late 2024, potential costly patent litigation, and claims of wrongful use of competitors' trade secrets - The company's U.S. patents on the original iFuse triangular shape expire in November 2024, potentially allowing competitors to introduce similar devices[300] - The medical device industry is characterized by significant patent litigation, and the company could become subject to costly infringement claims that could prevent it from selling its products[308] - The company may face claims that its employees or distributors have wrongfully used or disclosed trade secrets from competitors, leading to litigation and potential loss of intellectual property[307] Risks Related to Ownership of Our Common Stock SI-BONE's common stock faces price volatility, anti-takeover provisions, and potential limitations on utilizing $255.5 million federal and $203.2 million state net operating loss carryforwards due to Section 382 rules - The price of the company's common stock may be volatile due to fluctuating operating results, regulatory actions, and general market conditions[310] - As of December 31, 2021, the company had significant federal ($255.5 million) and state ($203.2 million) net operating loss (NOL) carryforwards, but their future use may be limited by Section 382 ownership change rules[315] - The company's charter documents contain anti-takeover provisions, such as a classified board and restrictions on calling special meetings, which could deter potential acquirers[318][319] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None Properties The company's principal executive offices are a leased 21,848 square foot facility in Santa Clara, California, with additional leased R&D, warehouse, and office spaces internationally - The company's headquarters is a leased space of approximately 21,848 square feet in Santa Clara, California, with the lease expiring in May 2025[326] - Additional facilities are leased in Santa Clara, CA (R&D/warehouse), Gallarate, Italy, Mannheim, Germany, and Knaresborough, United Kingdom to support European operations[326] Legal Proceedings The company is not currently a party to any material legal proceedings that would significantly adversely affect its operations - The company is not currently involved in any material legal proceedings[327] Mine Safety Disclosures This item is not applicable to the company's business - Not Applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SI-BONE's common stock trades on Nasdaq under "SIBN"; the company has never paid dividends, and $85.4 million of IPO proceeds were used for general corporate purposes by December 31, 2021 - The company's common stock is listed on the Nasdaq Global Market under the symbol "SIBN"[330] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[332] - As of December 31, 2021, approximately $85.4 million of the net proceeds from the 2018 IPO had been used for general corporate purposes, including operations and capital expenditures[334] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 23% to $90.2 million in 2021, but operating expenses rose 27% to $131.4 million, widening net loss to $56.6 million, with $147.0 million cash on hand and growth driven by sales force expansion and new products 2021 vs. 2020 Results of Operations | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $90.2M | $73.4M | 23% | | Gross Profit | $79.7M | $64.5M | 24% | | Gross Margin | 88% | 88% | 0% | | Operating Expenses | $131.4M | $103.1M | 27% | | Loss from Operations | ($51.7M) | ($38.6M) | 34% | | Net Loss | ($56.6M) | ($43.7M) | 30% | - The increase in revenue was driven by higher domestic and international case volumes, an expanded sales organization, and an increase in the number of active surgeons[374] - Operating expenses increased significantly due to higher employee-related costs from increased headcount ($11.2 million in S&M, $1.6 million in R&D, $3.4 million in G&A) and a $7.8 million increase in travel, marketing, and training as COVID-19 restrictions eased[376][377][378] - As of December 31, 2021, the company had $147.0 million in cash and marketable securities and an accumulated deficit of $295.8 million[383][384] Quantitative and Qualitative Disclosures about Market Risk The company is not yet required to provide quantitative and qualitative disclosures about market risk, despite becoming a large accelerated filer as of December 31, 2021 - As a former smaller reporting company that recently became a large accelerated filer, the company is not yet required to provide the disclosures for this item[402] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2021 and 2020, with PricewaterhouseCoopers LLP providing an unqualified opinion on financials and internal controls, detailing $190.5 million total assets and $56.1 million total liabilities Consolidated Balance Sheet Data (as of Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $175,866 | | Total Assets | $190,506 | | Total Current Liabilities | $16,890 | | Total Liabilities | $56,086 | | Total Stockholders' Equity | $134,420 | Consolidated Statement of Operations Data (Year Ended Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Revenue | $90,152 | | Gross Profit | $79,724 | | Loss from Operations | ($51,670) | | Net Loss | ($56,572) | | Net Loss Per Share | ($1.71) | - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2021[408] - The company adopted the new lease accounting standard (ASC 842) effective January 1, 2021, recognizing $3.8 million of operating lease liabilities and $3.5 million of right-of-use assets on the balance sheet[486] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, practices, or financial disclosure - None Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes reported in Q4 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[575] - Management's report concluded that internal control over financial reporting was effective as of December 31, 2021, an assessment audited and agreed upon by PricewaterhouseCoopers LLP[576] - There were no changes in internal control over financial reporting during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, internal controls[577] Other Information The company reports no other information for this item - None Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the code of ethics, is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the forthcoming 2022 Proxy Statement[581] - The company has adopted a Code of Business Conduct and Ethics, available on its website, applicable to all officers, directors, and employees[582] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2022 Proxy Statement - Required information will be found in the "Executive Compensation" and "Compensation of Non-Employee Board Members" sections of the 2022 Proxy Statement[583] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2022 Proxy Statement - Required information will be found in the "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance Under Equity Compensation Plans" sections of the 2022 Proxy Statement[584] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Required information will be found in the "Certain Relationships and Related Party Transactions" and "Information Regarding the Board of Directors and Corporate Governance" sections of the 2022 Proxy Statement[585] Principal Accountant Fees and Services Information regarding fees paid to and services provided by the principal independent accountant is incorporated by reference from the 2022 Proxy Statement - Required information will be found in the "Principal Accountant Fees and Services" section of the 2022 Proxy Statement[586] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and a detailed index of exhibits filed with or incorporated by reference into the Annual Report on Form 10-K - This item lists all financial statements, schedules, and exhibits filed with the report[589] - The exhibit index includes key documents such as the Amended and Restated Certificate of Incorporation, bylaws, equity incentive plans, and material agreements like the manufacturing agreement with rms Company and the loan agreement with Silicon Valley Bank[591][594] Form 10-K Summary The company indicates that a Form 10-K summary is not provided - Not provided