FEMASYS INC - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		11-3713499
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

3950 Johns Creek Court, Suite 100 Suwanee, GA  30024		(770) 500-3910
(Address of principal executive offices, including zip code)		(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities Registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2022 was $23,117,474.

As of March 29, 2023, there were 11,872,573 shares of the registrant’s $0.001 par value common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the Registrant’s 2023 Annual Meeting of Stockholders are incorporated by reference in Part III of this annual report on Form 10-K. The definitive proxy statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this annual report on Form 10-K.

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	Forward-Looking Statements	1
PART I		5
Item 1.	Business	5
Item 1A.	Risk Factors	25
Item 1B.	Unresolved Staff Comments	63
Item 2.	Properties	63
Item 3.	Legal Proceedings	63
Item 4.	Mine Safety Disclosures	63
PART II		64
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	64
Item 6.	[Reserved]	65
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	65
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	73
Item 8.	Financial Statements	74
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	101
Item 9A.	Controls and Procedures	101
Item 9B.	Other Information	101
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	101
PART III		102
Item 10.	Directors, Executive Officers, and Corporate Governance	102
Item 11.	Executive Compensation	102
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	102
Item 13.	Certain Relationships and Related Transactions, and Director Independence	102
Item 14.	Principal Accounting Fees and Services	102
PART IV		103
Item 15.	Exhibits, Financial Statement Schedules	103
Item 16.	Form 10-K Summary	104
	Signatures	105

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our ability to develop and advance our current product candidates and programs into, and successfully initiate and complete, clinical trials;

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the ability of our clinical trials to demonstrate safety and effectiveness of our product candidates and other positive results;

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our ability to enroll subjects in the clinical trials for our product candidates in order to advance the development thereof on a timely basis;

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our ability to obtain additional financing to fund the clinical development of our products and fund operations;

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estimates regarding the total addressable market for our product candidates;

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competitive companies and technologies in our industry;

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our ability to obtain U.S. Food and Drug Administration (FDA) approval for our permanent birth control system, ability to gain FDA grant of a de novo classification request for our intrauterine artificial insemination product, expand sales of our women-specific medical products and develop and commercialize additional products;

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our ability to commercialize or obtain regulatory approvals, grants of de novo classification requests or 510(k) clearance for our product candidates, or the effect of delays in commercializing or obtaining regulatory authorizations;

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our business model and strategic plans for our products, technologies and business, including our implementation thereof;

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commercial success and market acceptance of our product candidates;

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our ability to achieve and maintain adequate levels of coverage or reimbursement for our FemBloc system or any future products we may seek to commercialize;

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our ability to manufacture our products and product candidates in compliance with applicable laws, regulations and requirements and to oversee third-party suppliers, service providers and vendors in the performance of any contracted activities in accordance with applicable laws, regulations and requirements;

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adverse developments affecting the financial services industry;

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the impact of the COVID-19 pandemic on our business, financial condition, results of operations, and prospects;

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our ability to accurately forecast customer demand for our product candidates, and manage our inventory;

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our ability to build, manage and maintain our direct sales and marketing organization, and to market and sell our permanent birth control system, artificial insemination product and women-specific medical product solutions in markets in and outside of the United States;

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our ability to hire and retain our senior management and other highly qualified personnel;

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FDA or other U.S. or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;

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the timing or likelihood of regulatory filings and approvals or clearances;

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our ability to establish and maintain intellectual property protection for our product candidates and our ability to avoid claims of infringement;

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the volatility of the trading price of our common stock; and

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our expectations about market trends.

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We have incurred significant operating losses since inception, and we expect to incur operating losses in the future.

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We need substantial additional funding and may be unable to raise capital when needed.

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There is a substantial doubt about our ability to continue as a going concern.

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Our financial results may fluctuate significantly.

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Our ability to use our net operating losses and research and development credit carryforwards to offset future taxable income may be subject to certain limitations.

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Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, could adversely affect our current and projected business operations and our financial condition and results of operations.

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Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process.

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The FDA may not allow us to initiate a pivotal trial for FemBloc Premarket approval (PMA) due to safety concerns.

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Our current product candidates are in various stages of development.

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We are substantially dependent on the FDA’s permission to market our FemBloc system and FemaSeed product.

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The clinical development process required to obtain regulatory approvals is lengthy and expensive with uncertain outcomes.

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Interim, “topline,” and preliminary data from our clinical trials that we announce or publish from time to time may change as more data become available.

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Our products may fail to gain increased market acceptance.

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If we fail to obtain a granted de novo classification from the FDA to market and sell the FemaSeed product, or if the review of the de novo classification request is delayed, we will be unable to commercially distribute and market FemaSeed in the United States.

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Our artificial insemination solution may fail to gain increased market acceptance.

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If we are unable to achieve and maintain adequate levels of coverage or reimbursement for our permanent birth control solution, our commercial success may be severely hindered.

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Third-party payors and physicians who do not cover or use our permanent birth control solution or other women’s healthcare devices may require additional clinical data prior to adopting or maintaining coverage of our FemBloc system.

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The training required for physicians to use our permanent birth control solution and artificial insemination solution could reduce the market acceptance of our products.

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Some of our competitors have longer operating histories and more established products or greater resources than we do.

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Our long-term growth depends on our ability to enhance our solutions, expand our indications and develop and commercialize additional products.

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Our results of operations could be materially harmed if we are unable to accurately forecast customer demand and manage our inventory.

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We manufacture and assemble components for our products and product candidates, and a loss or degradation in performance of our manufacturing capabilities could have a material adverse effect on our business.

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We rely on a limited number of third-party suppliers for components for our products.

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Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business.

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We have limited experience marketing and selling our women-specific medical product solutions.

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We plan to rely on our own direct sales force for our women-specific medical products.

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We face the risk of product liability claims that could be expensive.

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If the quality of our solutions do not meet the expectations of physicians or patients, then our brand and reputation or our business could be adversely affected.

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We face risks related to health epidemics and outbreaks.

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Failure of a key information technology system, process or site could have an adverse effect on our business.

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Our facilities could become damaged or inoperable.

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Our ability to maintain our competitive position depends on our ability to attract and retain highly qualified talent.

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We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

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Our products and operations are subject to extensive government regulation.

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We may not receive the necessary approvals, classifications, or clearances to grow our business.

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Modifications to our products may require us to obtain new PMA approvals or approvals of a PMA supplement.

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Failure to comply with post-marketing regulatory requirements could subject us to enforcement actions.

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Our products must be manufactured in accordance with federal and state regulations.

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If treatment guidelines for permanent birth control or other women healthcare treatments change or the standard of care evolves, we may need to redesign and seek new marketing authorization from the FDA for one or more of our products.

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There may be misuse or off-label use of our products in the marketplace.

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Our products may cause or contribute to adverse medical events or be subject to failures or malfunctions.

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If we do not obtain and maintain international regulatory registrations or approvals for our products, we will be unable to market and sell our products outside of the United States.

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Legislative or regulatory reforms in the United States or the European Union may make it more difficult and costly for us to obtain regulatory clearances or approvals for our products.

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Our business involves the use of hazardous materials.

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If we are unable to adequately protect our intellectual property rights our competitive position could be harmed.

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Obtaining and maintaining patent protection depends on compliance with various governmental requirements.

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Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money.

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We may be unable to enforce our intellectual property rights throughout the world.

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Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

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Recent changes in U.S. patent laws could diminish the value of patents in general.

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Patent terms may be inadequate to protect our competitive position on our products.

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Our directors, officers and principal stockholders have significant voting power.

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We incur significant costs as a result of being a public company.

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We are obligated to develop and maintain proper and effective internal controls over financial reporting.

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Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Item 1.

Business.

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establishment registration and device listing;

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the Quality System Regulation, or QSR, which requires manufacturers, including third-party contract manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

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labeling regulations and the FDA prohibitions against the promotion of products for uncleared or unapproved uses (“off-label” uses) and other requirements related to promotional activities, including the advertising of restricted devices;

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medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury, or if their device malfunctioned and the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur;

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corrections and removal reporting regulations, which require that manufacturers report to the FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FDCA that may present a risk to health; and

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post market surveillance regulations, which apply to certain Class II or III devices when necessary to protect the public health or to provide additional safety and efficacy data for the device.

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warning or untitled letters, fines, injunctions, consent decrees and civil penalties; customer notifications, voluntary or mandatory recall or seizure of our products;

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operating restrictions, partial suspension or total shutdown of production;

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delay in processing submissions or applications for new products or modifications to existing products;

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withdrawing PMA approvals that have already been granted; and

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criminal prosecution.

Item 1A.

Risk Factors.

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The initiation, scope, rate of enrollment, progress, success, and cost of our current or future clinical trials;

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The cost of our research and development activities;

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The acceptance of our clinical trial data by the FDA or foreign regulatory authorities;

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Patient, physician and market acceptance of our permanent birth control system, intrauterine artificial insemination product and women-specific medical product solutions;

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The cost of filing and prosecuting patent applications and defending and enforcing our patent or other intellectual property rights;

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The cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights;

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The cost and timing of additional regulatory clearances, de novo grants or approvals;

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The cost and timing of establishing additional sales and marketing capabilities;

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Costs associated with any product recall that may occur;

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The effect of competing technological and market developments;

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The extent to which we acquire or invest in products, technologies and businesses, although we currently have no commitments or agreements relating to any of these types of transactions; and

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The costs of operating as a public company.

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Patient and physician adoption of our FemBloc system, if approved to market;

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Patient and physician adoption of our FemaSeed product, if granted de novo classification;

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Changes in coverage policies by third-party payors that affect the reimbursement of procedures using our products;

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Unanticipated pricing pressure;

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The hiring, retention and continued productivity of sales representatives;

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Our ability to expand the geographic reach of our sales and marketing efforts;

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Our ability to obtain regulatory clearance or approval for any products in development or for our current products for additional indications or in additional countries outside the United States;

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Results of clinical research and trials on our existing products and products in development;

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Delays in receipt of anticipated purchase orders;

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Delays in, or failure of, component and raw material deliveries by our suppliers; and

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Positive or negative coverage in the media or clinical publications of our products or products of our competitors or our industry.

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We may not be able to demonstrate to the FDA’s satisfaction that our product is safe and effective for its intended use;

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The FDA may disagree that our clinical data supports the label and use that we are seeking;

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The FDA may disagree that the data from our preclinical studies and clinical trials is sufficient to support marketing authorization; and

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The manufacturing process and facilities we use may not meet applicable requirements.

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We are required to submit an IDE application to FDA, which must become effective prior to commencing human clinical trials, and FDA may reject our IDE application and notify us that we may not begin investigational trials;

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Regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials;

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Regulators and/or IRBs or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site;

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We may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

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Clinical trials may produce negative or inconclusive results, or we may not agree with regulatory authorities on the interpretation of our clinical trial results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

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The number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate;

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Our third-party contractors, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

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We might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;

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We may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to submit to an IRB and/or regulatory authorities for reexamination;

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Regulators, IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety signals or noncompliance with regulatory requirements;

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The cost of clinical trials may be greater than we anticipate;

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Clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial;

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We may be unable to recruit a sufficient number of clinical trial sites or trial subjects;

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Regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our

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Manufacturing processes for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;

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Approval policies or regulations of FDA or applicable foreign regulatory authorities may change in a manner rendering our clinical data insufficient for approval; and

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Our current or future products may have undesirable side effects or other unexpected characteristics.

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lack of availability of adequate third-party payor coverage or reimbursement;

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lack of experience with our products and with permanent birth control and sonography as treatment alternatives;

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our inability to convince key opinion leaders to provide recommendations regarding our permanent birth control solution, or to convince physicians, patients and healthcare payors that our permanent birth control solution is an attractive alternative to surgical tubal ligation or other contraception options;

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perceived inadequacy of evidence supporting clinical benefits, safety or cost-effectiveness of our permanent birth control solution over existing alternatives;

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liability risks generally associated with the use of new products and procedures; and

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the training required to use new products.

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we may not be able to demonstrate to the FDA’s satisfaction that general controls, or general and special controls, are sufficient to provide reasonable assurance of safety and effectiveness of our product for its intended use;

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the FDA may disagree that the probable benefits of the device outweigh the probable risks; and

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the FDA may disagree that the data from our manufacturing activities, preclinical studies and clinical trial are sufficient to support de novo classification.

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lack of experience with our products and with intrauterine insemination and sonography as treatment alternatives;

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our inability to convince key opinion leaders to provide recommendations regarding our artificial insemination solution, or to convince physicians and patients that our localized directional intrauterine insemination product is an attractive alternative to other intrauterine insemination options or other assisted reproductive options;

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perceived inadequacy of evidence supporting clinical benefits, safety or cost effectiveness of our intrauterine artificial insemination product over existing alternatives;

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liability risks generally associated with the use of new products and procedures; and

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the training required to use new products.

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greater company, product and brand recognition;

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superior product safety, reliability and durability;

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better quality and larger volume of clinical data;

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more effective marketing to and education of patients and physicians;

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more sales force experience and greater market access;

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better product support and service;

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more advanced technological innovation, product enhancements and speed of innovation;

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more effective pricing and revenue strategies;

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lower procedure costs to patients;

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more effective reimbursement teams and strategies;

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dedicated practice development; and

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more effective clinical training teams.

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properly identify and anticipate physician and patient needs;

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develop and introduce new products and product enhancements in a timely manner;

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avoid infringing upon the intellectual property rights of third-parties;

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demonstrate, if required, the safety and effectiveness of new products with data from preclinical studies and clinical trials;

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obtain the necessary regulatory clearances, grants or approvals for expanded indications, new products or product modifications;

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be fully FDA-compliant with marketing of new products or modified products;

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provide adequate training to potential users of our products;

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receive adequate coverage and reimbursement for procedures performed with our products; and

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develop an effective and dedicated sales and marketing team.

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difficulties in securing distribution partnerships and managing our international relationships;

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increased competition as a result of more products and procedures receiving regulatory approval or otherwise free to market in international markets;

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longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

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reduced or varied protection for intellectual property rights in some countries;

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export restrictions, trade regulations, and foreign tax laws;

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fluctuations in currency exchange rates;

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foreign certification and regulatory clearance or approval requirements;

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customs clearance and shipping delays;

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political, social, and economic instability abroad, terrorist attacks, and security concerns in general;

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preference for locally produced products;

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potentially adverse tax consequences, including the complexities of foreign value-added tax systems;

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the burdens of complying with a wide variety of foreign laws and different legal standards; and

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increased financial accounting and reporting burdens and complexities.

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costs of litigation;

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distraction of management's attention from our primary business;

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the inability to commercialize our current and future products;

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decreased demand for our current and future products;

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damage to our business reputation;

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product recalls or withdrawals from the market;

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withdrawal of clinical trial participants;

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substantial monetary awards to patients or other claimants; or

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loss of sales.

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identifying, recruiting, integrating, maintaining and motivating additional employees;

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managing our internal development efforts effectively, including the clinical and FDA application preparation for our product candidates, while complying with our contractual obligations to contractors and other third parties; and

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improving our operational, financial and management controls, reporting systems and procedures.

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our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses or, for a 510(k) device, that they are substantially equivalent to the predicate;

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the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials or the interpretation of data from preclinical studies or clinical trials;

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serious and unexpected adverse device effects experienced by participants in our clinical trials;

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the data from our preclinical studies and clinical trials may be insufficient to support approval, de novo classification or clearance where required;

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our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;

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the manufacturing process or facilities we use may not meet applicable requirements; and

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the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient to support a marketing authorization.

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untitled letters or warning letters;

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fines, injunctions, consent decrees and civil penalties;

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recalls, termination of distribution, administrative detention, or seizure of our products;

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customer notifications or repair, replacement or refunds;

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operating restrictions or partial suspension or total shutdown of production;

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delays in or refusal to grant our requests for future PMA approvals or foreign regulatory approvals of new products, new intended uses, or modifications to existing products;

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withdrawals or suspensions of our current PMA or foreign regulatory approvals, resulting in prohibitions on sales of our products;

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FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; and

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criminal prosecution.

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warning letters or untitled letters;

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fines, injunctions or civil penalties;

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suspension or withdrawal of approvals;

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seizures or recalls of our products;

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total or partial suspension of production or distribution;

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administrative or judicially imposed sanctions;

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the FDA's refusal to grant pending or future approvals for our products;

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clinical holds; refusal to permit the import or export of our products; and

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criminal prosecution of us or our employees.

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strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

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establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

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improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

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set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;

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strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

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the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. The U.S. government has interpreted this law broadly to apply to the marketing and sales activities of manufacturers. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Violations of the federal Anti-Kickback Statute may result in civil monetary penalties. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also result in criminal penalties. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid. On November 20, 2020, the Department of Health and Human Services’ Office of the Inspector General, or OIG, finalized further modifications to the federal Anti-Kickback Statute. Under the final rules, the OIG added safe harbor protections under the Anti-Kickback Statute for certain coordinated care and value-based arrangements among clinicians, providers, and others. These rule (with exceptions) became effective January 19, 2021. We continue to evaluate what effect, if any, these rules will have on our business;

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the federal civil and criminal false claims laws and civil monetary penalties laws, including the federal civil False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal healthcare programs that are false or fraudulent. These laws can apply to manufacturers who provide information on coverage, coding, and reimbursement of their products to persons who bill third-party payers. Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

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the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary's decision to order or receive items or services reimbursable by the government from a particular provider or supplier;

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the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

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the federal Physician Sunshine Act under the ACA, which require certain applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance Program, or CHIP, to report annually to the DHHS Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, which is defined broadly to include other healthcare providers and teaching hospitals, and applicable manufacturers and group purchasing organizations, to report annually ownership and investment interests held by physicians and their immediate family members. Applicable manufacturers are required to submit annual reports to CMS. Failure to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership or investment interests that are not timely, accurately, and completely reported in an annual submission, and may result in liability under other federal laws or regulations. We have not, to date, submitted reports under the Physician Sunshine Act under the ACA;

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HIPAA, as amended by the HITECH Act, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements. Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties, and, in certain circumstances, criminal penalties. State attorneys general can also bring a civil action to enjoin a HIPAA violation or to obtain statutory damages on behalf of residents of his or her state;

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analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require device companies to comply with the industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm customers, foreign and state laws, including the EU General Data Protection Regulation, governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; federal government price reporting laws, which may require calculations and reporting of complex pricing metrics in an accurate and timely manner to government programs; and state laws related to insurance fraud in the case of claims involving private insurers; and

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California recently enacted the California Consumer Privacy Act (CCPA) which creates new individual privacy rights for California consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA will require covered companies to provide certain disclosures to consumers about its data collection, use and sharing practices, and to provide affected California residents with ways to opt-out of certain sales or transfers of personal information. The CCPA went into effect on January 1, 2020, and the California State Attorney General submitted final regulations for review on June 2, 2020, which were finalized and are now effective. The California State Attorney General has commenced enforcement actions against violators as of July 1, 2020. Further, a new California privacy law, the California Privacy Rights Act (CPRA) was passed by California voters on November 3, 2020. The CPRA created obligations relating to consumer data beginning on January 1, 2022 and enforcement of the law begins on July 1, 2023.  We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA compliance.  Laws similar to the CCPA and CPRA have been enacted in Virginia (the Virginia Consumer Data Protection Act, or VCDPA, which went into effect on January 1, 2023), Colorado (the Colorado Privacy Act, or CPA, which goes into effect on July 1, 2023), Utah (the Utah Consumer Privacy Act, or UCPA, which goes into effect on December 31, 2023) and Connecticut (the Connecticut Data Privacy Act, or CDPA, which goes into effect on July 1, 2023). The California Age-Appropriate Design Code Act (CAADCA), which expands the CPRA for businesses with websites that are likely to be accessed by children, was signed into law on September 15, 2022 and goes into effect on July 1, 2024. While the CCPA and CPRA contain an exception for certain activities involving PHI under HIPAA, we cannot yet determine the impact the CCPA, CPRA or other such future laws, regulations and standards may have on our business.

•

imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions (described in more detail below), although the effective rate paid may be lower. Through a series of legislative amendments, the tax was suspended for 2016 through 2019. Absent further legislative action, the device excise tax was to be reinstated on medical device sales starting January 1, 2020. The Further Consolidated Appropriations Act, 2020 H.R. 1865 (Pub.L.116-94), signed into law on December 20, 2019, has repealed the medical device excise tax previously imposed by Internal Revenue Code section 4191. Prior to the repeal, the tax was on a 4-year moratorium. As a result of the repeal and the prior moratorium, sales of taxable medical devices after December 31, 2015, are not subject to the tax. It is impossible to determine whether similar taxes could be instated in the future;

•

established a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical efficacy research in an effort to coordinate and develop such research;

•

implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models; and

•

expanded the eligibility criteria for Medicaid programs.

•

any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our FemBloc system and FemaSeed product;

•

any of our pending patent applications will issue as patents;

•

we will be able to successfully commercialize our products on a substantial scale, if approved, before our relevant patents we may have expire;

•

we were the first to make the inventions covered by each of our patents and pending patent applications;

•

we were the first to file patent applications for these inventions;

•

others will not develop similar or alternative technologies that do not infringe our patents; any of our patents will be found to ultimately be valid and enforceable;

•

any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

•

we will develop additional proprietary technologies or products that are separately patentable; or

•

our commercial activities or products will not infringe upon the patents of others.

•

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's 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 and infeasible; and

•

attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all, or from third parties who may attempt to license rights that they do not have.

•

being permitted to present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations;

•

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

•

an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotations;

•

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

•

exemptions from the requirement to hold a nonbinding advisory vote on executive compensation and to obtain stockholder approval of any golden parachute payments not previously approved.

•

a prohibition on actions by our stockholders by written consent;

•

advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings;

•

a requirement that directors may only be removed “for cause”

•

a requirement that only the board of directors may change the number of directors and fill vacancies on the board;

•

division of our board of directors into three classes, serving staggered terms of three years each; and

•

the authority of the board of directors to issue preferred stock with such terms as the board of directors may determine.

•

announcements of regulatory approval or disapproval of our FemBloc system or the FDA’s decision to grant or decline the de novo request for our FemaSeed product and any future approvals or clearances for enhancements to our products;

•

adverse results from or delays in clinical trials of our FemBloc system and/ or FemaSeed product;

•

unanticipated safety concerns related to the use of our FemBloc system and/ or FemaSeed product;

•

FDA or other U.S. or foreign regulatory or legal actions or changes affecting us or our industry;

•

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

•

any voluntary or mandated product recalls;

•

adverse developments concerning our suppliers or any future strategic partnerships;

•

the volume and timing of sales of our products;

•

the introduction of new products or product enhancements by us or others in our industry;

•

disputes or other developments with respect to our or others' intellectual property rights;

•

product liability claims or other litigation;

•

quarterly variations in our results of operations or those of others in our industry;

•

media exposure of our products or of those of others in our industry;

•

changes in governmental regulations or in reimbursement;

•

changes in earnings estimates or recommendations by securities analysts;

•

changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;

•

the public’s reaction to our earnings releases, other public announcements and filings with the SEC;

•

sales of substantial amounts of our stock by directors, officers or significant stockholders, or the expectation that such sales might occur;

•

operating and stock performance of other companies that investors deem comparable to us and overall performance of the equity markets;

•

additions or departures of key personnel;

•

changes in our capital structure, such as future issuances of securities and the incurrence of debt;

•

general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors; and

•

other factors described in this “Risk Factors” section.

Item 1B.

Unresolved Staff Comments.

Item 2.

Properties.

Item 3.

Legal Proceedings.

Item 4.

Mine Safety Disclosures.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Plan category		Number of shares to be issued upon exercise of outstanding options (#)				Weighted verage exercise price of outstanding options ($)				Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) (1)
		(a)				(b)				(c)
Equity compensation plans approved by stockholders 2021 Plan			357,950			$	5.40				1,605,111
Equity compensation plans not approved by stockholders 2015 Plan			573,600			$	3.07				n/a
Inducement Awards (2)			150,000			$	2.42				n/a
Total			1,081,550								1,605,111

1	Represents 1,325,247 shares of common stock available for awards under our 2021 stock option plan and 279,864 shares of common stock available for purchase under our 2021 employee stock purchase plan.

2	Represents inducement grants material to key officers entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

Item 6.

[Reserved]

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

•

Commencement and conduct of clinical trials for our product candidates. We must successfully obtain timely IDE approval to be able to commence pivotal clinical trial for FemBloc, as well as our future products. We must successfully recruit and enroll clinical trial participants in our clinical trials for FemBloc and FemaSeed, which is further complicated by the after effects and public health concerns of the COVID-19 pandemic, in order to have the requisite data for regulatory submissions, both to the FDA and to international regulatory bodies, for marketing authorization.

•

Regulatory approval of our product candidates. We must successfully obtain timely approvals, de novo classifications or clearances for our product candidates. For our sales to grow, we will need to receive FDA approval for the FemBloc system for permanent birth control and FDA grant of a de novo classification request for the FemaSeed product for artificial insemination in the United States, and will need to obtain regulatory approval, grant, clearance or marketing authorization of our other pipeline products in the United States and in international markets.

•

Clinical results. Publications of clinical results by us, our competitors and other third parties can have a significant influence on whether, and the degree to which, our products are used by physicians and the procedures and treatments those physicians choose to provide.

•

Market acceptance. The success of our business will ultimately depend on our ability to gain broad acceptance of our products, which will require an extensive education process for both physicians and patients of the benefits of our products.

•

Competition. Our industry has a number of large, well-capitalized companies. We must continue to successfully compete in light of our competitors’ existing and future products and related pricing and their resources to successfully market to the physicians who use our products.

•

cost of clinical trials to support our product candidates and product enhancements, including expenses for activities conducted by third-party services providers, primarily clinical research organizations, or CROs, and site payments;

•

certain personnel-related expenses, including salaries, benefits and stock-based compensation;

•

materials and supplies used for internal R&D and clinical activities;

•

allocated overhead information technology expenses; and

•

cost of outside consultants, who assist with technology development, regulatory affairs, clinical affairs and quality assurance, and testing fees.

		Year Ended December 31,
		2022				2021				Change				% Change
Sales		$	1,206,218				1,179,689				26,529				2.2	%
Cost of sales			441,938				370,384				71,554				19.3	%
Gross margin			764,280				809,305				(45,025	)			-5.6	%
Operating expenses:
Research and development			5,813,755				4,084,304				1,729,451				42.3	%
Sales and marketing			558,852				208,735				350,117				167.7	%
General and administrative			5,430,704				4,262,002				1,168,702				27.4	%
Depreciation and amortization			561,233				591,068				(29,835	)			-5.0	%
Total operating expenses			12,364,544				9,146,109				3,218,435				35.2	%
Loss from operations			(11,600,264	)			(8,336,804	)			(3,263,460	)			39.1	%
Other income (expense):
Interest income, net			228,164				3,768				224,396				5955.3	%
Other income			—				821,515				(821,515	)			-100.0	%
Interest expense			(13,464	)			(19,226	)			5,762				-30.0	%
Other expense			(2,306	)			(3,098	)			792				100.0	%
Total other income (expense)			212,394				802,959				(590,565	)			-73.5	%
Loss before income taxes			(11,387,870	)			(7,533,845	)			(3,854,025	)			51.2	%
Income tax expense			6,300				4,000				2,300				57.5	%
Net loss		$	(11,394,170	)			(7,537,845	)			(3,856,325	)			51.2	%

		Year Ended December 31,
		2022				2021
Compensation and related personnel costs		$	2,935,580				2,384,135
Clinical-related costs			1,839,643				882,138
Material and development costs			548,623				587,777
Professional and outside consultant costs			344,701				160,120
Other costs			145,208				70,134
Total research and development expenses		$	5,813,755				4,084,304

•

the cost, timing and results of our clinical trials and regulatory reviews;

•

the cost and timing of establishing sales, marketing and distribution capabilities;

•

the timing, receipt and amount of sales from our current and potential products;

•

our ability to continue manufacturing our products and product candidates and to secure the components, services and supplies needed in their production;

•

the degree of success we experience in commercializing our products;

•

the emergence of competing or complementary technologies;

•

the cost of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights; and

•

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

		Year Ended December 31,
		2022				2021
Net cash used in operating activities		$	(10,731,973	)			(7,930,785	)
Net cash used in investing activities			(407,475	)			(306,868	)
Net cash (used in) provided by financing activities			(681,645	)			29,698,456
Net change in cash and cash equivalents		$	(11,821,093	)			21,460,803

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Item 8.

Financial Statements.

Financial Statements

 

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm (KPMG LLP, PCAOB 185)	75
Balance Sheets at December 31, 2022 and 2021	76-77
Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021	78
Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021	79
Statements of Cash Flows for the Years Ended December 31, 2022 and 2021	80
Notes to Financial Statements	81-100

Atlanta, Georgia

March 30, 2022

 

FEMASYS INC.

Balance Sheets

 

 

(continued)

FEMASYS INC.

Balance Sheets

 

 

See accompanying notes to financial statements.

 

FEMASYS INC.

Statements of Comprehensive Loss

Years ended December 31, 2022 and 2021