Conformis Inc - Annual Report: 2019 (Form 10-K)

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•	our estimates regarding the potential market opportunity and timing of estimated commercialization for our current and future products, including our iUni, iDuo, iTotal CR, iTotal PS and Conformis Hip System;

•	our expectations regarding our sales, expenses, gross margin and other results of operations;

•	our strategies for growth and sources of new sales;

•	maintaining and expanding our customer base and our relationships with our independent sales representatives and distributors;

•	our current and future products and plans to promote them;

•	the anticipated trends and challenges in our business and in the markets in which we operate;

•	the implementation of our business model, strategic plans for our business, products, product candidates and technology;

•	our ability to achieve anticipated milestones under our collaborations;

•	the anticipated timing of our product launches;

•	the future availability of raw materials used to manufacture, and finished components for, our products from third-party suppliers, including single source suppliers;

•	product liability claims;

•	patent infringement claims;

•	our ability to retain and hire necessary employees and to staff our operations appropriately;

•	our ability to compete in our industry and with innovations by our competitors;

•	potential reductions in reimbursement levels by third-party payors and cost containment efforts of accountable care organizations;

•	our ability to obtain reimbursement or direct payment for our products and services;

•	our ability to protect proprietary technology and other intellectual property and potential claims against us for infringement of the intellectual property rights of third parties;

•	potential challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration and foreign government regulators, such as more stringent requirements for regulatory clearance or manufacturing of our products;

•	the anticipated adequacy of our capital resources to meet the needs of our business or our ability to raise any additional capital;

•	our ability to continue as a going concern; and

•	our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

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•	iFit Design, our proprietary algorithms and computer software that we use to design personalized implants and associated single-use, patient-specific instrumentation, which we refer to as iJigs, based on a computed tomography, or CT, scan of the patient and to prepare a surgical plan personalized for the patient that we call iView.

•	iFit Printing, a three-dimensional, or 3D, printing technology that we use to manufacture iJigs and that we may extend to manufacture certain components of our personalized knee replacement implants.

•	iFit Just-in-Time Delivery, our just-in-time manufacturing and delivery capabilities.

•	For the patient.  We believe that our individualized approach offers better clinical outcomes when compared to off-the-shelf implants based on the following measures:

•	Better fit.  We design our personalized joint implants to restore each patient's own native anatomy. As a result, we believe that our implants fit better.

•	Faster recovery.  We believe an individual fit requires less bone and soft tissue removal by the surgeon, thereby shortening recovery times.

•	Better function.  We design our personalized implants to follow the particular shape and contour of each patient's joint. As a result, we believe our implants offer an increased potential for a knee or hip that moves more naturally and is more stable.

•	Greater patient satisfaction.  We believe our implants offer patients greater overall satisfaction with the results of their knee or hip replacement.

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For the surgeon.  We believe that the combination of the use of our pre-surgical plan, or iView, and patient-specific iJigs with our personalized joint replacement implants enables a more accurate, reproducible and simplified surgical procedure by reducing the number of required steps and increasing the precision of the placement of the implant. With regard to our Conformis Hip System, our pre-operative surgical plan, or Hip iView, provides anatomical information to surgeons in advance of surgery that is not available today through the use of standard templating tools. In addition, surgeons have input into our hip system designs within a defined range of parameters to allow surgeons to optimize the Conformis Hip System for each patient, including allowing for leg length correction. An acetabular positioning iJig is used to place the acetabular cup in the position which is intended to maximize anatomical coverage of the cup, with the goal of eliminating the need for intra-operative navigation and also reducing or eliminating surgeon exposure to fluoroscopy. Our novel acetabular reaming system interacts with the acetabular iJigs to ream only to a predetermined depth, thereby reducing inadvertent punctures of the pelvis, in a reduced number of procedural steps.

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For the hospital, ambulatory surgical center or other medical facility.  Our hip and knee replacement joint products are delivered directly to the surgery center in a single, sterile, patient-labeled kit, eliminating the need for surgery centers to stock excess inventory for each surgical procedure. Unlike off-the-shelf systems for both knee and hip, our systems require little to no re-useable instrumentation due to the use of 3D printed iJigs as well as 3D printed intra-operative sizing trials. This eliminates or reduces the quantity of re-useable instruments and trays that must be processed through the facility to support each surgical procedure, which is especially important for ambulatory surgical centers, and reduces per case cost and also the potential risk for infection. Operating room set up time is also reduced due to the limited number of instruments needed which supports the ability to complete more surgical cases in a given day. We believe that our personalized joint replacement implants and iFit technology platform provide a better economic outcome for hospitals or other medical facilities by:

•	improving patient recovery times, reducing blood loss and reducing adverse event rates;

•	reducing the costs associated with managing and sterilizing large numbers of reusable instruments; and

•	improving turnaround times with the potential for more procedures to be completed within the same amount of time and for the hospital or other medical facility to generate additional revenue.

•	For the payor. We believe that our individualized approach offers better clinical outcomes when compared to off-the-shelf implants which leads to faster patient recoveries and lower costs for payors.

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•	iFit Design, our proprietary algorithms, computer software and design services that we use to design personalized implants and their associated individualized iJigs based on a CT scan of the patient and to prepare a surgical plan personalized for the patient that we call iView.

•	iFit Printing, a 3D printing technology that we use to manufacture iJigs and may extend to manufacture certain components of our personalized replacement implants.

•	iFit Just-in-Time Delivery our just-in-time manufacturing and delivery capabilities. We manufacture the personalized replacement implants and iJigs to order and do not maintain significant inventory of finished products. We deliver the personalized replacement implants and iJigs to the hospital or other medical facility in advance of the scheduled arthroplasty procedure.

•	For the patient. We believe that our individualized approach offers better clinical outcomes when compared to off-the-shelf implants based on the following measures:

•	Better fit.  Using our proprietary algorithms and computer software, we design our personalized knee and hip implants to restore the patient's own native anatomy. As a result, we believe that our implants fit better and regain better function, which is important to minimize pain and maintain the integrity of the implant.

•	Faster recovery.  We believe an individual fit requires less bone and soft tissue removal by the surgeon, resulting in less bleeding and swelling within the knee and shortened recovery times.

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Better function.  We design and/or plan our implants to match the patient's anatomy to provide a more stable, natural feeling joint. With regard to our personalized knee implant products, we match the patient’s natural "J" curves, corrected for deformities caused by osteoarthritis, preserve the patient's medial and lateral joint lines, and minimize up-and-down rocking and lift-off of the patient's condyles during normal knee movement.

•	Greater patient satisfaction.  We believe that, as a result of our individualized implants fitting and functioning better, patients have greater overall satisfaction with the results of their knee and hip replacements.

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Earlier intervention.  We believe that patients who undergo knee and hip replacement with one of our products typically retain more of their bone during the surgical procedure, as compared to patients who undergo knee or hip replacement using an off-the-shelf implant. The more bone that is preserved, the more likely the patient will have sufficient bone available if a revision surgery is necessary. As a result, patients may undergo knee or hip replacement surgery at an earlier age.

•	For the surgeon.  We believe that our iFit technology platform offers an improved surgical procedure and greater efficiencies for surgeons when compared to knee and hip replacements with off-the-shelf implants based on the following measures:

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Improved surgical procedure.  We believe that the combination of the use of our iJigs with our personalized surgical plan and personalized knee and hip implants enable a more accurate, reproducible and simplified surgical procedure by reducing the number of steps and increasing the precision of implant alignment. In our knee replacement procedure, the surgeon received our individualized pre-operative surgical plan or iView, that indicates where the surgeon makes a predetermined number of cuts that are specifically tailored to each patient and designed to result in a precise fit without the need for repetitive cutting of bone or soft tissue. In our hip replacement procedure, the surgeon receives our individualized pre-operative surgical plan, or Hip iView, that provides anatomical information in advance of surgery that is not available today through the use of standard templating tools. In addition, surgeons have input into our hip system designs within a defined range of parameters to allow surgeons to optimize the Conformis Hip System for each patient, including allowing for leg length correction. Our novel acetabular reaming system interacts with the acetabular iJigs to ream only to a predetermined depth, thereby reducing inadvertent punctures of the pelvis, in a reduced number of procedural steps. An acetabular positioning iJig is used to place the acetabular cup in the position which is intended to optimize anteversion, inclination and anatomical bone coverage of the cup, which we believe will eliminate the need for intra-operative navigation, and also the use of fluoroscopy during the procedure, reducing radiation exposure for both the patient and the surgical staff.

•	Bone preservation.  We believe our knee implants result in the preservation of more bone for several reasons:

•	We use our iFit technology platform to design each of the bone cuts required to fit our personalized implants so as to minimize bone resection and maximize bone preservation for the individual patient.

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Our femoral component is fitted using six cuts of the femur as compared to the five cuts typically used with off-the-shelf implants. We reviewed an abstract presented at the 2012 Annual Meeting of the Orthopedic Research Society, which studied stress and fatigue in a six-cut femoral implant model that was thinner than a five-cut model by an average of two millimeters. The six-cut implant model displayed substantially lower maximum stress than a five-cut model at a known high-stress location. At the time of the study, two of the authors of this study were our employees, and two of the authors of this study were paid consultants to us. Based in part on this data, we believe our six-cut implants can be thinner than off-the-shelf implants without sacrificing implant strength. We believe a thinner implant requires the surgeon to remove less bone during implantation.

•	Our summary of a peer reviewed study of 169 implants published in Reconstructive Review in 2016 indicates that our iTotal CR showed statistically significant less bone loss resection (p≤0.05) when compared to off-the-shelf implants. At the time of the study, two of the authors of this study were our employees, and one of the authors of this study was a paid consultant to us.

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Fewer post-operative issues.  We believe our personalized knee implants reduce the number of post-operative issues. Our review of a retrospective study of 248 patients who had undergone a total knee replacement, published in the peer-reviewed journal Arthroplasty Today in 2017, or the 2017 AT Study, indicates that patients who received an iTotal CR had significantly lower transfusion rates (p=0.005) and adverse event rates at discharge (p=0.003) and at 90 days post-discharge (p=0.023) than patients who received an off-the-shelf total knee replacement implant. We provided financial support for this study. At the time of this study, one of the authors of this study was a paid consultant to us.

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Greater efficiency.  Because of the simplified surgical procedure used with our products, we believe total operating room time is reduced when implanting our knee or hip system as compared to off-the-shelf implants. Our summary of the results of a retrospective study of 70 patients who had undergone total knee replacement presented at the 2015 ICJR World Arthroplasty Congress indicates that average

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•	For the hospital, ambulatory surgical center or other medical facility.  We believe that our personalized implants and iFit technology platform provide a better economic outcome for hospitals or other medical facilities through:

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Improved implant and instrument management and reduced sterilization costs.  As a result of our just-in-time delivery model, we ship our knee and hip implants and iJigs to the hospital or other medical facility in advance of the procedure, reducing the need to store implants and instruments in the hospital or other medical facility. Our hip and knee replacement joint products are delivered directly to the surgery center in a single, sterile, patient-labeled kit, eliminating the need for surgery centers to stock excess inventory for each surgical procedure. Unlike off-the-shelf systems for both knee and hip, our systems require little to no re-useable instrumentation due to the use of 3D printed iJigs as well as 3D printed intra-operative sizing trials. We estimate that a total knee replacement procedure using an off-the-shelf implant requires approximately 6 to 8 double-tiered, instrument trays and a hip replacement procedure using an off-the-shelf implant requires approximately 5 to 7 double-tiered instrument trays, which must be cleaned, sterilized and stored between procedures at significant cost to the hospital or other medical facility. A knee replacement procedure using our iTotal CR product requires only one tray of reusable instruments and a hip replacement procedure using our Conformis Hip System uses only 2 trays of reusable instruments. As a result of our just-in-time delivery approach and the reduction in the requirements for reusable instruments in procedures using our products compared to off-the-shelf implants, we believe our products meaningfully reduce a hospital's or other medical facility’s instrument cleaning, sterilizing and storage costs.

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Improved productivity in the OR.  We believe that the iJigs we provide with our implants eliminate many of the intraoperative sizing steps and reduce the number of positioning steps necessary with off-the-shelf products. In addition, our approach of delivering a single-package with pre-sterilized, single-use instruments allows for a more streamlined and efficient operating room through quick and easy set up and tear down. As a result, we believe that knee and hip replacements with our personalized knee and hip implants can improve turnaround times with the potential for more procedures to be completed within the same amount of time and for hospitals or other medical facilities to generate additional revenue.

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Shorter stays.  We believe that our personalized total joint replacements may shorten hospital or other medical facility stays. Our summary of the results of the 2017 AT Study indicates that a statistically significantly greater percentage of patients who underwent total knee replacement were discharged in fewer than three days following surgery (p=0.037) in the iTotal CR group (42%) than in the off-the-shelf group (30%). Our summary of a study published in Reconstructive Review in 2019, of 62 patients with either our iTotal CR or an off-the-shelf implant in a “Fast Track” protocol, also indicates that a significantly higher (p≤0.05) proportion of iTotal CR patients (66%) were discharged in less than 1 day when compared to off-the-shelf patients (30%).

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Economic Savings. We believe that our technology offers the potential of significant economic savings to hospitals or other medical facilities and payors. For example, the 2017 AT Study compared adverse events rates and cost of care for total knee arthroplasty patients treated with either personalized individually made implants or off-the-shelf implants. In that study, the total average real hospital costs between the personalized implant and off-the-shelf groups were nearly identical (customized implant $16,192 vs OTS $16,240), suggesting that patients with customized implants received improved hospital outcomes at no additional cost to the hospital. However, risk-adjusted per patient total cost of care showed a net savings of $914 per patient for the customized implant group for bundle of care, including the preoperative computed tomography scan, total knee arthroplasty hospitalization, and discharge disposition. Follow-up care costs demonstrated a savings of $1,313 per patient. Additionally, a retrospective study that we funded, reviewed over 4,000 Medicare patients who had undergone total knee replacement, was published in the peer-reviewed journal Orthopaedic Proceedings in October

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Fewer adverse events.  Many insurers and third-party payors, including Medicare, require the hospital or other medical facility to bear the cost of treating infections and post-operative adverse events if they occur within 90 days following the implant procedure. If reusable instruments are not properly prepared prior to surgery, they are a potential source of costly infections. The lower number of reusable instruments used with our knee and hip implants reduces the possibility of contaminated instruments. Our summary of the results of the 2017 AT Study indicates that use of our iTotal CR statistically significantly reduced blood transfusion rates (p=0.005) and adverse event rates at discharge (p=0.003) as compared to an off-the-shelf knee implant. Our review of this published research, sponsored by us, also indicates that use of our iTotal CR is associated with lower adverse event rates during the 90-day period following surgery (p=0.023). The reduction in adverse events observed during the 90-day period following surgery is meaningful because hospitals or other medical facilities may not be reimbursed for additional post-operative follow up care during this period.

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Expand our sales efforts to drive adoption of our products.  We systematically analyze market opportunities by considering factors such as the number of orthopedic surgeons, procedure volumes, pricing and reimbursement. We often seek to penetrate these markets by establishing relationships with influential surgeons who perform a high-volume of joint replacement procedures. We work with these surgeons to educate other surgeons.

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Leverage the clinical and economic benefits of our products and technologies.  We believe our personalized implant products offer important clinical and economic benefits to patients, surgeons and hospitals or other medical facilities. Potential benefits include better function, less bone resection, less blood loss, greater patient satisfaction, reduced length of stay and lower adverse event rates. These potential economic benefits for hospitals or other medical facilities also include reduced procedure times and reduced instrument management, cleaning and sterilization costs. We believe that our iFit technology platform will allow us to offer products for other joints that also afford important clinical and economic benefits. We have designed and sponsored studies that support these clinical and economic data. We will continue to establish these potential benefits through the design and sponsoring of studies to increase our available clinical and economic data.

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Seek to obtain enhanced reimbursement or create alternative payment models to enhance patient access and information. We believe that today’s reimbursement system does not easily allow for patients to realize the value of our technology. Currently, hospitals and other medical facilities purchase implants for use in joint replacement. Because hospitals are typically paid a global fee that includes implant acquisition costs, we do not believe that hospitals' interests are completely aligned with patient interests. Hospitals, for example, are incentivized to obtain the lowest cost joint replacement system to maximize profits while patients may place greater weight on performance and other factors. While many hospitals may rely on surgeon recommendations regarding implant purchase decisions, the increasing trend toward hospital-employee physicians and gainsharing have created a disincentive for physicians to provide full information to patients about their decision-making process relating to, and evaluation of, various surgical options, including the price-versus-performance value tradeoff between various replacement systems. To address these trends, we support clinical studies to demonstrate the overall value of our implants to the healthcare system, which could become increasingly important in bundled care settings. We also educate surgeons, hospitals and third-party payors on our existing clinical and economic benefits. And we actively reach out to private insurers to discuss both their reimbursement policies and how we can collaborate on alternate payment models. Additionally, we provide patient-focused educational and marketing materials to better provide patients, in collaboration with their surgeons, the tools to make more informed decisions about the choices of joint replacement systems available to them.

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Broaden our product portfolio by launching additional personalized orthopedic implants and complementary non-individualized or standard implants.  While our initial focus has been on the knee implant market, we believe our iFit technology platform is applicable to personalized implants for all major joints in the body and multiple implant subcategories within each joint. In 2017, we received clearance from the FDA for the Conformis Hip System, our first personalized hip replacement implant, which we launched on a limited basis in the second half of 2018. In November 2019, we received FDA clearance for and entered full commercial launch of the Conformis Hip System. We are planning for a limited commercial launch of a second stem for the Conformis Hip System in the second half of 2021. We launched on a limited basis our next generation iTotal CR Identity knee replacement implant in the second half of 2019 and are planning a full commercial launch for both the iTotal CR and PS Identity knee replacement implants in the second half of 2020. We have put the development of the next generation of our iUni partial knee replacement system on hold in order to focus on an iTotal cementless option for our iTotal knee implant. We are planning for a limited commercial launch of a femur cementless or Press Fit option for our iTotal knee implant in the first half of 2020 and a limited commercial launch of a tibia cementless or Press Fit option in the first half of 2021. We also expect a limited commercial launch of our full system Identity knee replacement implants in the second half of 2021. We also may seek to apply our iFit technology platform to develop additional product opportunities in the knee and hip replacement markets and other orthopedic markets in the longer-term, including shoulder, other extremities and spine.

•	Optimize our just-in-time manufacturing processes.  We have built state-of-the-art manufacturing processes, including proprietary software and 3D printing capabilities. We are continuing to invest in these processes, as we believe they provide us important competitive advantages, including:

•	expansion of gross margin through various initiatives, including the ongoing vertical integration of some of our manufacturing processes and/or off-shoring of appropriate processes;

•	shorter product design and development time frames; and

•	continuous improvement of our products without the difficulty faced by our competitors of making obsolete a large inventory of off-the-shelf implants and instruments.

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Enhance our patent portfolio and continue to exploit our patent position.  As of January 31, 2020, we own or exclusively in-license a total of approximately 356 issued patents and pending patent applications that cover personalized implants and PSI for all major joints and other elements of our iFit technology platform. See "Note J—Commitments and Contingencies" in the financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K for information regarding our patent litigation.

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•	new products and services development;

•	enhancements of existing products and software;

•	improvements in our iFit technology platform to further advance production efficiency and decrease the production time from receipt of an order to delivery of our product; and

•	advancements of our iFit technology platform that will enable us to provide our personalized products to a larger customer base, which we refer to as mass personalization.

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•	continue to increase the production of certain components of our products that we manufacture in-house, which we believe we can manufacture at a lower unit cost than vendors we currently use;

•	develop new versions of our software used in the design of our personalized joint replacement implants, which we believe will reduce costs associated with the design process; and

•	obtain more favorable pricing of certain components of our products manufactured for us by third parties.

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•	With respect to the patents that we own relating primarily to our personalized joint replacement implants, the first nonprovisional application was filed in 2002 claiming priority to a provisional application filed in 2001 and is expected to expire in 2022 and the other patents are expected to expire between 2022 and 2033.

•	With respect to the patents that we own relating primarily to our patient-specific instrumentation, the first nonprovisional application was filed in 2002 claiming priority to a provisional application filed in 2001 and is expected to expire in 2022 and the other patents are expected to expire between 2022 and 2035.

•	With respect to the patents that we own relating primarily to our iFit technology platform, the first nonprovisional application was filed in 2002 claiming priority to a provisional application filed in 2001 and is expected to expire in 2022 and the other patents are expected to expire between 2022 and 2032.

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With respect to the patent applications that we own relating primarily to our personalized joint replacement implants, patient-specific instrumentation, and our iFit technology, the first were filed in 2001 and if patents issue on these applications, they would be expected to expire in 2022 and if patents issued on the other patent applications, such patents would be expected to expire between 2022 and 2034. Our patent portfolio covers a range of subject matter, including:

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•	personalized articular implants for the knee, hip, spine, shoulder, ankle and extremities;

•	personalized instrumentation including for joint replacement and ligament reconstruction;

•	imaging technology;

•	3D printing technology for implants and instruments;

•	methods of designing personalized implants and instruments; and

•	methods of manufacturing personalized implants and instruments.

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•	the ability to introduce innovative products that are differentiated from competitors' offerings and represent an improvement over currently available products;

•	the ease of use of the products and the quality of training, services and clinical support provided to surgeons and hospitals and other medical facilities;

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•	the safety and efficacy of products and procedures, as demonstrated in published studies and other clinical reports;

•	the ability to anticipate and meet customers' needs and commercialize new products in a timely manner;

•	acceptance and adoption of products by patients, physicians and hospitals and other medical facilities; and

•	the price of products and cost effectiveness of the procedure and availability and rate of third-party reimbursement.

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the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing 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, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

•	the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

•	the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

•	HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

•	the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians and teaching hospitals; and

•	analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

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•	expansion of our sales and marketing efforts, including for the expanded commercial launch of our Conformis Hip System;

•	expansion of our manufacturing capacity;

•	funding research, development and clinical activities related to our existing products and product platform, including iFit design software and product support;

•	funding research, development and clinical activities related to new products that we may develop, including new versions of our existing products and other joint replacement products;

•	pursuing and maintaining appropriate regulatory clearances and approvals for our existing products and any new products that we may develop; and

•	preparing, filing and prosecuting patent applications, and maintaining and enforcing our intellectual property rights and position.

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•	greater financial resources, cash flow and other resources for product research and development, sales and marketing and litigation;

•	significantly greater name recognition;

•	established relations with, in some cases over decades, orthopedic surgeons, hospitals and other medical facilities, third-party payors and independent sales representatives and distributors;

•	established products that are more widely accepted by, a greater number of orthopedic surgeons, hospitals and other medical facilities and third-party payors;

•	more complete lines of products for knee, hip or other joint replacements;

•	larger and more well-established distribution networks with significant international presence;

•	products supported by long-term clinical data and long-term product survivorship data;

•	greater experience in obtaining and maintaining FDA and other regulatory approvals or clearances for products and product enhancements; and

•	more expansive portfolios of intellectual property rights and greater funds available to protect their intellectual property.

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•	increase sales of our products;

•	negotiate more favorable prices for the materials we use to manufacture our products;

•	obtain enhanced payment for our design services;

•	negotiate more favorable acquisition prices for the manufacture of certain components of our products that are manufactured for us by third parties;

•	continue to increase the production of certain components of our products that we manufacture in-house, which we believe we can manufacture at a lower unit cost than vendors we currently use;

•	deploy new versions of our software that reduce the costs associated with the design of our products; and

•	expand our internal manufacturing capabilities to manufacture certain components of our products at a lower unit cost than vendors we currently use.

•	comfort and experience with competitive products;

•	perceived differences in surgical technique and the need to learn a new surgical technique;

•	existing relationships with competitors, competitive sales representatives and competitive distributors;

•	lack or perceived lack of evidence supporting additional patient benefits from use of our products compared to competitive products, especially competitive products that may claim to be "individualized," "customized," "patient-specific," "personalized" or "individually made"

•	perceived convenience of using products from a more complete line of products than we offer, including as a result of our lack of a joint revision system;

•	perceived liability risks generally associated with the use of new products and procedures, including the lack of long-term clinical data;

•	risks of failure of timely delivery as a result of our "just-in-time" manufacturing and delivery model

•	unwillingness to wait for the implants to be delivered;

•	unwillingness to submit patients to or difficulty associated with scheduling and seeking reimbursement for computed tomography, or CT, scans needed to manufacture our products;

•	higher cost or perceived higher cost of our products compared to competitive products; and

•	the additional time commitment that may be required for surgeon training on our surgical technique.

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•	create innovative product designs;

•	accurately anticipate and meet customers' needs;

•	commercialize new products in a timely manner;

•	differentiate our offerings from competitors' offerings;

•	achieve positive clinical outcomes with new products;

•	demonstrate the safety and reliability of new products;

•	provide easy adoption by and improved surgical treatment plans for surgeons;

•	satisfy the increased demands by healthcare payors, providers and patients for shorter hospital or other medical facility stays, faster post-operative recovery and lower-cost procedures;

•	provide adequate medical education relating to new products; and

•	manufacture and deliver implants and instrumentation in sufficient volumes on time.

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•	agreements may terminate prematurely due to disagreements or may result in litigation and, if we terminate an agreement early, we may be required to pay a fee on termination;

•	we may not be able to renew existing agreements on acceptable terms;

•	our independent sales representatives and distributors may not devote sufficient resources to the sale of products;

•	our independent sales representatives and distributors may be unsuccessful in marketing our products;

•	our existing relationships with independent sales representatives and distributors may preclude us from entering into additional future arrangements with other independent sales representatives and distributors; and

•	we may not be able to negotiate future agreements with independent sales representatives and distributors on acceptable terms or at all.

•	an increase in our variable interest rates;

•	an inability to access credit markets should we require external financing;

•	a reduction in the purchasing power of our European Union customers due to a deterioration of the value of the euro;

•	inventory issues due to financial difficulties experienced by our suppliers and customers, including distributors; and

•	delays in collection.

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•	acquiring raw materials for 3D printing;

•	deploying new manufacturing processes;

•	managing the transitioned CAD labor force in India;

•	managing the oversight of the CAD labor force in India;

•	acquiring and maintaining manufacturing equipment;

•	managing production yields;

•	maintaining quality control and assurance;

•	maintaining component availability;

•	maintaining adequate control policies and procedures;

•	hiring and retaining qualified personnel; and

•	complying with state, federal and foreign regulations.

•	potential shortages of these key raw materials;

•	potential delays in qualifying a new source of these key raw materials if our current suppliers are unable to supply us with materials that meet our specifications, pass our internal quality control requirements, and meet regulatory requirements;

•	discontinuation of a material or other component on which we rely;

•	potential insolvency or change of control transactions involving our suppliers; and

•	reduced control over delivery schedules, quality and costs.

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•	agreement may terminate prematurely due to disagreements or may result in litigation;

•	we may not be able to renew the existing agreement on acceptable terms;

•	we may not be able to expand the Indian CAD labor force as necessary to meet market demand;

•	the third party may not devote sufficient resources to the production of our CAD designs;

•	the third party may fail to follow our processes, fail to provide CAD designs that meet our specifications or fail to meet regulatory or legal requirements;

•	we may experience outages or other problems with our high speed network provider that may prevent or delay the third party from accessing the necessary CAD design software, which would prevent or delay the completion of the CAD designs;

•	the third party may be limited or prevented from access to our high speed network provider due to U.S. or foreign government intervention or regulation; and

•	the third party may be subject to labor disputes, strikes or other shutdowns, including related to severe weather.

•	the location of the supplier and proximity to our facilities in Massachusetts;

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•	the availability of raw materials purchased by our suppliers;

•	workforce availability and skill required by the suppliers;

•	the complexity in manufacturing the component and general demand for the component;

•	delays and disruptions in the manufacturing processes of our vendors; and

•	disruptions in the supply chain due to weather conditions, natural disasters and contagious diseases or illnesses, such as the novel coronavirus, affecting suppliers, our employees, and freight carriers.

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•	requirements or preferences for domestic products or solutions, which could reduce demand for our products;

•	changes in foreign medical reimbursement policies and programs;

•	complex data privacy requirements and labor relations laws;

•	differing existing or future regulatory and certification requirements;

•	technology assessment requirements that we are not able to satisfactorily meet with our current published clinical and health economic outcomes studies;

•	extraterritorial effects of U.S. laws such as the Foreign Corrupt Practices Act;

•	effects of foreign anti-corruption laws, such as the U.K. Bribery Act of 2010, or the Bribery Act;

•	management communication and integration problems related to entering new markets with different languages, cultures and political systems;

•	greater difficulty in collecting accounts receivable and longer collection periods;

•	difficulties in enforcing contracts;

•	difficulties and costs of staffing and managing foreign operations;

•	labor force instability;

•	the uncertainty of protection for intellectual property rights in some countries;

•	potentially adverse regulatory requirements regarding our ability to repatriate profits to the United States;

•	tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; and

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•	political and economic instability and terrorism and the United Kingdom’s exit from the European Union (Brexit).

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•	stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property;

•	lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others;

•	incur significant legal expenses;

•	pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;

•	pay the attorney fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing;

•	redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive or infeasible; or

•	attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

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•	decreased demand for our products;

•	injury to our reputation;

•	significant litigation costs;

•	substantial monetary awards to or costly settlements with patients, especially in the event of a class action lawsuit;

•	product recalls;

•	loss of revenue;

•	the inability to commercialize new products or product candidates; and

•	diversion of management attention from pursuing our business strategy and may be costly to defend.

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•	untitled letters, warning letters, fines, injunctions or civil penalties;

•	termination of distribution authorizations;

•	recalls, detention and/or seizures of products;

•	delays in the introduction of products into the market;

•	total or partial suspension of production;

•	refusal of the FDA or other regulators to grant future clearances or approvals;

•	withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products;

•	withdrawal of the CE Certificates of Conformity, which authorize us to apply the CE Mark to our products and are necessary to sell our products within the European Economic Area, or EEA, or delay in obtaining these certificates; and

•	in the most serious cases, criminal penalties.

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•	the FDA or other regulatory authorities or an institutional review board may place a clinical trial on hold or partial hold;

•	institutional review boards and third-party clinical investigators may delay or reject our trial protocol;

•	third-party clinical investigators may decline to participate in a trial or may not perform a trial on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices or other FDA requirements;

•	sufficient patients may not enroll in clinical study trials, or patient follow-up may not occur, at the rate we expect;

•	patients may not comply with trial protocols;

•	third-party organizations may not perform data collection and analysis in a timely or accurate manner;

•	regulatory inspections of our clinical trials or manufacturing facilities may, among other things, require us to undertake corrective action or suspend, terminate or invalidate our clinical trials;

•	changes in governmental regulations or administrative actions;

•	the interim or final results of the clinical trials may be inconclusive or unfavorable as to safety or effectiveness; and

•	regulatory authorities may not accept the results or validity of our clinical studies.

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•	litigation involving patients who underwent procedures using our products;

•	restrictions on such products, manufacturers or manufacturing processes;

•	restrictions on the labeling or marketing of a product;

•	restrictions on product distribution or use;

•	requirements to conduct post-marketing studies or clinical trials;

•	warning letters or untitled letters;

•	withdrawal of the products from the market;

•	refusal to approve pending applications or supplements to approved applications that we submit;

•	repair, replacement, refunds, recalls or detention of our products;

•	fines, restitution or disgorgement of profits or revenue;

•	suspension or withdrawal of regulatory clearance or approval;

•	damage to relationships with any potential collaborators;

•	operating restrictions or partial suspension or total shutdown of production;

•	unfavorable press coverage and damage to our reputation;

•	refusal to permit the import or export of our products;

•	product detention and/or seizure;

•	consent decrees; or

•	injunctions or the imposition of civil or criminal penalties.

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•

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

•

the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation

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•	the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

•	HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

•	the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians and teaching hospitals; and

•	analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, including the General Data Protection Regulation in the EU, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

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•	a slowdown in the medical device industry or the general economy;

•	actual or anticipated quarterly or annual variations in our results of operations or those of our competitors;

•	changes in accounting principles or changes in interpretations of existing principles, which could affect our financial results;

•	actual or anticipated changes in our growth rate relative to our competitors;

•	changes in earnings estimates or recommendations by securities analysts;

•	fluctuations in the values of companies perceived by investors to be comparable to us;

•	announcements by us or our competitors of new products or services, significant contracts, commercial relationships, capital commitments or acquisitions;

•	competition from existing technologies and products or new technologies and products that may emerge;

•	the entry into or modification or termination of agreements with our distributors;

•	developments with respect to intellectual property rights;

•	sales, or the anticipation of sales, of our common stock by us, our insiders or our other stockholders, including upon the expiration of contractual lock-up agreements;

•	issuance of additional shares of our common stock related to raising capital for the Company;

•	actual or perceived need of the Company to raise additional capital and the actual or perceived inability to raise such capital on favorable terms;

•	actual or perceive inability of the Company to satisfy the financial and other requirements of our 2017 Secured Loan Agreement;

•	our ability to develop, obtain regulatory approval for and market new and enhanced products on a timely basis;

•	changes in coverage and reimbursement policies by insurance companies and other third-party payors;

•	our commencement of, or involvement in, litigation;

•	additions or departures of key management or technical personnel; and

•	changes in laws or governmental regulations applicable to us.

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•	seasonality in demand for our products, with reduced orders during the summer months and around year-end, followed by reduced sales of our products during the first and third quarters as a result;

•	our ability to meet the demand for our products;

•	increased competition;

•	the number, timing and significance of new products and product introductions and enhancements by us and our competitors;

•	our ability to develop, introduce and market new and enhanced versions of our products on a timely basis;

•	changes in pricing policies by us and our competitors;

•	changes in the number of cancelled sales orders and surgical cases using our implants that occur in a quarter or during other reporting periods, which may adversely affect our product margins, revenue and other aspects of our business;

•	changes in the treatment practices of orthopedic surgeons;

•	changes in distributor relationships and sales force size and composition;

•	the timing of material expense- or income-generating events and the related recognition of their associated financial impact;

•	fluctuations in foreign currency rates;

•	ability to obtain reimbursement for our products;

•	availability of raw materials;

•	work stoppages or strikes in the healthcare industry;

•	changes in FDA and foreign governmental regulatory policies, requirements and enforcement practices;

•	import and export inspections, which could impact the timing of delivery for either supplies or finished goods;

•	changes in accounting policies, estimates and treatments; and

•	general economic factors.

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•	delay, defer or prevent a change in control transaction that you may otherwise perceive to be beneficial;

•	entrench our management or the board of directors; or

•	impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.

•	establish a classified board of directors such that all members of the board are not elected at one time;

•	allow the authorized number of our directors to be changed only by resolution of our board of directors;

•	limit the manner in which stockholders can remove directors from the board;

•	establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at stockholder meetings;

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•	require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

•	limit who may call a special meeting of stockholders;

•	authorize our board of directors to issue preferred stock, without stockholder approval, that could be used to institute a shareholder rights plan, or so called "poison pill," that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

•	require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or bylaws.

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•	iFit Design, our proprietary algorithms and computer software that we use to design personalized implants and associated single-use patient-specific instrumentation, which we refer to as iJigs, based on computed tomography, or CT scans of the patient and to prepare a surgical plan customized for the patient that we call iView.

•	iFit Printing, a three-dimensional, or 3D, printing technology that we use to manufacture iJigs and that we may extend to manufacture certain components of our personalized knee replacement implants.

•	iFit Just-in-Time Delivery, our just-in-time manufacturing and delivery capabilities.

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•	absorbing overhead costs across a larger volume of product sales;

•	obtaining more favorable pricing for the materials used in the manufacture of our products;

•	obtaining more favorable pricing of certain components of our products manufactured for us by third parties;

•	increasing the proportion of certain components of our products that we manufacture in-house, which we believe we can manufacture at a lower unit cost than vendors we currently use; and

•	developing new releases of our software used in the design of our personalized joint replacement implants, which we believe will reduce costs associated with the design time.

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•	expansion of our sales and marketing efforts;

•	expansion of our manufacturing capacity;

•	funding research, development and clinical activities related to our existing products and product platform, including iFit design software and product support;

•	funding research, development and clinical activities related to new products that we may develop, including other joint replacement products;

•	pursuing and maintaining appropriate regulatory clearances and approvals for our existing products and any new products that we may develop; and

•	preparing, filing and prosecuting patent applications, and maintaining and enforcing our intellectual property rights and position.

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1.	Consolidated Financial Statement

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