DRS 1 filename1.htm Document

As confidentially submitted to the Securities and Exchange Commission on May 10, 2018.
This draft registration statement has not been publicly filed with the Securities and Exchange Commission, and all information herein
remains strictly confidential.
Registration No. 333-
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
___________________
Establishment Labs Holdings Inc.
(Exact name of Registrant as specified in its charter)
___________________
British Virgin Islands
3842
Not applicable
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
 
Building B15 and 25
Coyol Free Zone
Alajuela
Costa Rica
+506 2434 2400
 
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
___________________
Motiva USA LLC
16192 Coastal Highway
Lewes, DE 19958
+506 2434 2400

(Name, address, including zip code, and telephone number, including area code, of agent for service)
___________________
Copies to:
J. Casey McGlynn
Elton Satusky
Andrew R. Ellis
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
Audrey M. Robertson
Conyers Dill & Pearman
Commerce House, Wickhams Cay 1
Road Town, Tortola VG1110
British Virgin Islands
(284) 852 1000
Mark B. Weeks
Frank F. Rahmani
John T. McKenna
Cooley LLP
3175 Hanover Street
Palo Alto, CA 94304
(650) 843-5000
___________________
Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting 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. (Check one):
Large accelerated filer
¨
 
 
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
¨
 
 
 
 
Emerging Growth Company
x
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 7(a)(2)(B) of the Securities Act ¨
___________________
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Proposed Maximum
Aggregate Offering Price (1)(2)
Amount of
Registration Fee
Common Shares, no par value
$
$
(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.


The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED                      , 2018

PRELIMINARY PROSPECTUS

                    Shares
logoa02.jpg
Common Shares

We are offering              common shares. This is our initial public offering, and no public market currently exists for our common shares. We expect the initial public offering price to be between $         and $         per common share. We intend to apply to list our common shares on the Nasdaq Capital Market under the trading symbol “ESTA.”
We are an “emerging growth company” as defined under the federal securities laws. Investing in our common shares involves risks. See the section titled “Risk Factors” beginning on page 14.
Neither the Securities and Exchange Commission in the United States nor any other regulatory body has approved or disapproved of these common shares or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
 
 
 
 
 
 
PER SHARE
 
TOTAL
 
 
Initial public offering price
$
 
$
 
 
Underwriting discounts and commissions(1) 
$
 
$
 
 
Proceeds to us, before expenses
$
 
$
 
 
 
 
 
 
 
 
(1)  Please see the section titled “Underwriting” for additional information regarding underwriter compensation.
 

Delivery of the common shares in this offering is expected to be made on or about                       , 2018. We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase an additional              common shares. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $              and the total proceeds to us, before expenses, will be $              .
 
Joint Book-Running Managers
Jefferies
Cowen

Lead Manager
BTIG



Prospectus dated                          , 2018.



TABLE OF CONTENTS
We and the underwriters have not authorized any person to provide you with information different from that contained in this prospectus or any related free writing prospectus that we authorize to be distributed to you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus speaks only as of the date of this prospectus unless the information specifically indicates that another date applies, regardless of the time of delivery of this prospectus or of any sale of the securities offered hereby.
Through and including ______, 2018 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
No action is being taken in any jurisdiction outside the United States to permit a public offering of the common shares or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of the prospectus applicable to that jurisdiction.


- i -


CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Except where the context requires otherwise and for purposes of this prospectus only:
“GAAP” refers to the Generally Accepted Accounting Principles in the United States.
“Establishment Labs,” “we,” “us,” “our” or “company” refer to Establishment Labs Holdings Inc. and its subsidiaries.
“FDA” refers to the United States Food and Drug Administration.
“U.S.” or “United States” refers to the United States of America.
“EU” refers to the European Union.
“$”, “U.S. dollars” or “USD” refers to the legal currency of the United States.
The financial statements of our foreign subsidiaries whose functional currencies are the local currencies are translated into U.S. dollars for consolidation as follows: assets and liabilities at the exchange rate as of the applicable balance sheet date, shareholders’ equity at the historical rates of exchange, and income and expense amounts at the average exchange rate for the month. Translation adjustments resulting from the translation of the subsidiaries’ accounts are included in “Accumulated other comprehensive income.” Transactions denominated in currencies other than the applicable functional currency are converted to the functional currency at the exchange rate on the transaction date. At period end, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses resulting from foreign currency transactions are included within “Other income (expense), net.” See Note 2 in the notes to our consolidated financial statements included elsewhere in this prospectus for more information.


- ii -


PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including the sections titled “Risk Factors,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and our consolidated financial statements and related notes before deciding whether to purchase our common shares.
Business Overview
We are a medical technology company focused on improving patient safety and aesthetic outcomes, initially in the breast aesthetics and reconstruction market. Our line of silicone gel-filled breast implants, branded as Motiva Implants, is the centerpiece of our MotivaImagine medical technology platform. Our post-market surveillance and published third party data indicates that Motiva Implants show low rates of adverse events (including rupture, capsular contracture, and safety-related reoperations) that we believe compare favorably with those of our competitors. We believe the proprietary technologies that differentiate our Motiva Implants enable improved safety and aesthetic outcomes and have helped drive our revenue growth. Our MotivaImagine platform enables surgical techniques that we promote as Motiva branded surgeries. We have developed other complementary products and services on our MotivaImagine platform, which are aimed at further enhancing patient outcomes.
To date, most of our revenues have been generated from sales of our Motiva Implants. We began selling Motiva Implants outside the United States in October 2010; since then, we have introduced four generations of Motiva Implants, and Motiva Implants are now sold in over 60 countries, including nine of the top ten countries for breast augmentations in 2016 according to the International Society of Aesthetic Plastic Surgery, or ISAPS. We currently sell our products either via exclusive distributors or, in certain countries, our direct sales force. We received approval of an investigational device exemption, or IDE, from the FDA in March 2018 to initiate our Motiva Implant clinical trial in the United States. The first patient in the study was enrolled in April 2018, and we anticipate completing enrollment in early 2019. The results of the study are expected to support a pre-market approval, or PMA, submission to the FDA.
We have assembled a broad portfolio of intellectual property related to our medical device and aesthetics products. We believe this intellectual property, combined with proprietary manufacturing processes and the regulatory approvals we have successfully obtained outside of the United States, provides us with a strong market position. As of April 30, 2018, we own or have rights to three issued and seven pending patents in the United States related to various aspects of our Motiva implants (such as implant barrier layers, surface texture technology, minimally invasive implant delivery systems, and our QInside Safety Technology radio frequency identification devices). In addition, we have six pending foreign applications and six pending PCT applications. We intend to continue to expand our intellectual property portfolio and, combined with our Motiva Implants’ favorable safety profile, obtain FDA approval and drive Motiva’s adoption in the United States, which represents the largest breast augmentation market.
Our revenue for 2015, 2016 and 2017 was $9.6 million, $19.8 million and $34.7 million, respectively, an increase of $10.2 million, or 106%, in 2016 compared to 2015, and an increase of $14.9 million, or 75%, in 2017 compared to 2016. Net losses increased from $1.6 million in 2015 to $22.2 million in 2016, and further increased to $34.9 million in 2017, an increase of 57% compared to 2016. As of December 31, 2017, we had an accumulated deficit of $67.9 million.

1


Our Market Opportunity
Breast augmentation surgery remains the leading aesthetic surgical procedure by number of procedures globally. Approximately 1.65 million breast augmentations were performed worldwide in 2016, according to ISAPS. In addition, according to MarketsandMarkets’ Medical Aesthetics Market - Forecast to 2021 report of November 2016, the global breast implant market was estimated at approximately $1.15 billion in 2016 and is expected to grow at a compound annual growth rate of approximately 8.5% through 2021. The following table lists the top markets by country for total breast augmentations in 2016 according to ISAPS.
Total Breast Augmentation Procedures
Rank *
Country
Procedures
% of World-Wide Total
1
United States
331,122
20.1%
2
Brazil
217,085
13.2%
3
Russia
84,235
5.1%
4
Mexico
62,206
3.8%
5
Italy
54,128
3.3%
6
Germany
52,209
3.2%
7
France
47,510
2.9%
8
Spain
46,493
2.8%
9
Columbia
44,080
2.7%
10
Turkey
38,484
2.3%
*  Rankings are based solely on those countries from which a sufficient survey response was received and data were considered to be representative.
Traditional Breast Implants and Their Limitations
Despite the global demand for breast augmentation procedures, there has been relatively little innovation since the 1990s. In 1992, due to emerging safety concerns, the FDA placed a moratorium on sales of silicone breast implants in the United States that was lifted in 2006. This, combined with the ongoing FDA requirement for a PMA on all new breast implants, has discouraged breast implant innovation over the past 30 years. Current products have relatively high adverse event rates, and we believe many do not mimic natural breast tissue. The table below contains selected adverse event information from published data from the PMA clinical trials conducted by the only three companies currently approved to market silicone breast implants in the United States.
 
 
 
 
 
 
 
 
 
Sientra
5-Year
 
Allergan
6-Year
 
Mentor
6-Year
Number of Patients
 
N=1,788 Patients
 
N=455 Patients(1)
 
N=1,008 Patients
Ruptures(2)
 
1.8%
 
5.5%
 
3.7%
Capsular Contracture
 
9.0%
 
14.8%
 
13.4%
Reoperations
 
23.8%
 
28.0%
 
26.1%
 
 
 
 
 
 
 
Each of these prospective studies was conducted at multiple sites in the United States and submitted by each of these companies as their core study supporting approval, as that term is defined in the FDA Guidance on Breast Implants. Sientra, Mentor, and Allergan studies commenced in 2002, 2000, and 1998, respectively. Five-year and six-year data was chosen to increase comparability to our six-year data.
Kaplan-Meier risk rates were the primary method of analysis for the above data.
(1)  Adverse events in the study were derived from the primary augmentation cohort. The overall patient population in the study was 715 patients.
(2)  The total for Sientra is based on the total patient population in the study, and the totals for Allergan and Mentor are based on a substudy cohort of patients who underwent an MRI, which is lower than the overall number of patients participating in the study.

2


Subsequent to each of their PMAs in the US, our competitors have released results from their individual 10-year prospective clinical trials.  The table below contains published data from these clinical trials relating to primary augmentations, which is the first time a patient receives an aesthetic breast implant operation.
Results from Primary Augmentations
 
 
 
 
 
 
 
 
 
Sientra
10-Year
 
Allergan
10-Year
 
Mentor
10-Year
Number of Patients
 
N=1,116 Patients
 
N=455 Patients
 
N=552 Patients
Ruptures(1)
 
8.5%
 
9.3%
 
24.2%
Capsular Contracture
 
12.9%
 
18.9%
 
12.1%
Reoperations
 
24%
 
36.1%
 
25.5%
 
 
 
 
 
 
 
Kaplan-Meier risk rates were the primary method of analysis for the above data. This table represents the final data from the primary cohort of the same study referenced in the above five- and six-year PMA studies conducted by our competitors.
(1)  The rupture rates represent the MRI cohort only for each respective study, which consists of 571 patients for Sientra, 158 patients for Allergan and 202 patients for Mentor.
Our Clinical Data
We believe that the improved appearance, feel and patient safety profile of our Motiva Implants provides a strong competitive advantage that will help us to both capture market share and achieve higher patient conversion rates by addressing the key concerns described by patients who choose not to pursue breast augmentation surgery. We believe Motiva Implants have demonstrated a safety profile that compares favorably with our primary competitors based on the following data.
Our Postmarket Surveillance Data
Our prospective postmarket surveillance data indicate capsular contracture and reoperation for adverse events of less than 0.1%, which was collected from procedures performed outside of the United States between October 2010 and December 2017. In contrast to the above competitor data, our data is self-reported rather than collected at mandatory follow-ups and was generated solely for our postmarket surveillance instead of in connection with an FDA PMA approval study.
 
 
 
 
 
Motiva Implants
Number of Implants
 
N=386,284 Implants(1)
Rupture
 
< 0.1%
Capsular Contracture
 
< 0.1%
Reoperation for Adverse Events
 
< 0.1%
Reoperation (All Causes)
 
N/A(2)
 
 
 
(1)  Data is internally tracked on an individual implant basis rather than by patient.
(2)  Complaint database does not capture reoperations for reasons not related to safety.

3


Third-Party Retrospective Data
An independent study by Sforza et al., published in the peer-reviewed Aesthetic Surgery Journal in 2017, conducted between April 2013 and April 2016, reported 5,813 consecutive cases of breast augmentation with Motiva Implants. The study reported overall rates of complication and reoperation of 0.76% over an interval of 3 years. All procedures were performed in a single center (Dolan Park Hospital, Bromsgrove, England) by a group of 16 plastic surgeons. There were no serious adverse events and no cases of implant rupture for device failure, capsular contracture (Baker III/IV) in primary cases, double capsules, or late seromas. The authors presented consistent real-world data and believe that their free, 3-year aftercare system is a strong method for patient retention and follow-up by eliminating any financial limitations for patients to return for follow-up consultations if any issues occur. Anecdotally, the same group of surgeons utilizing the same aftercare system for the last 7 years reported substantially different results utilizing other types of silicone breast implants (i.e, non-Motiva Implants). The overall revision rate for this group from 2010 to 2013 utilizing a different, macro-textured, FDA approved implant (N > 10,000) was 8.43%, which is more than 10 times higher than the rate for Motiva Implants reported in this analysis.
establishment_chart-36431.jpg
(1)  Name of FDA approved competitors have not been published.
Our Prospective Data
We are also conducting a 10-year prospective trial in 233 patients in Costa Rica to assess the safety profile and patient satisfaction of Motiva Implants. Interim results from the current study include six-year data for 35 patients and three-year data for 79 patients, and to date there have been no reported implant ruptures, capsular contractures or adverse event-related reoperations in these patient cohorts.
We have started a U.S. trial directed at FDA approval with similar endpoints to this prospective trial with patient populations similar to those of our competitors. The first patient in the study was enrolled in April 2018, and we anticipate completing enrollment in early 2019.


4


Our Products and Technologies
The key characteristics of our primary products are described in the table below:
Product
Motiva Implants
Divina
Puregraft
 
businessa01.jpg
businessa10.jpg
pg2018.jpg
Description
Soft silicone-gel filled breast implants with improved appearance, feel and safety
3D simulation device and proprietary tissue modeling software
Autologous graft of healthy, viable adipose (fat) cells for filling and contouring
Product Catalog
Available in more than 1,000 product variations, including four projection height
For use with breast surgeries
Available in three graft volumes: 50cc, 250cc, and 850cc
Key Features
SilkSurface/SmoothSilk shell surface

ProgressiveGel PLUS, ProgressiveGel Ultima, Silicone filling gels

Ergonomix design

TrueMonobloc construction

QInside Safety Technology RFID microtransponder

BluSeal shell barrier layer
Pre-operative 3D planning that enables patients and physicians to visualize post-surgical result and measure pre-existing breast volume to optimize implant selection

May increase clinical consultation efficiency

MotivaHybrid: fat grafting can be used in conjunction with Motiva Implants by measuring pre-existing volume of the breast and calculating the appropriate ratio between silicone implant and fat graft
Purifies adipose tissue through selective filtration technology

Self-contained purification process preserves sterility

Can be used in conjunction with Motiva Implants

Exclusive distributor outside of the United States and Canada
Sales Territories
Over 60 countries outside the United States including nine of the top ten markets by country for total breast augmentations in 2016
Motiva Implants
Current generation Motiva Implants utilize our proprietary Ergonomix design, a round and oval-base implant that responds to gravity and movement in ways that more closely mimic natural breast tissue. We believe that our favorable safety profile and patient satisfaction rates are attributable to our differentiating technologies, which include:
SilkSurface/SmoothSilk is a smooth bio-engineered cell-friendly surface characterized by a uniformly high density of hierarchical micro/nano surface features, designed to reduce the body’s inflammatory reactions to our implants, which is intended to lower rates of complications like capsular contracture and seroma.
Silicone gel rheologies consists of highly purified biocompatible gels with specific visco-elastic properties that we believe enables Motiva Implants to respond to the patient’s motion in ways that more closely mimic the appearance, feel and movement of natural breast tissue under the brand names of ProgressiveGel PLUS and ProgressiveGel Ultima.
TrueMonobloc technology, which uses specific silicone chemistry and our proprietary manufacturing processes to allow for all components to be bonded for increased elasticity and ductility compared with silicone implants produced by our competitors.
BluSeal technology, a proprietary colored layer of low-permeability silicone within the implant shell, gives a visual indicator of the layer integrity during the manufacturing process. This technology also helps surgeons confirm whether the barrier layer has defects, or other imperfections, before implantation that might lead to post-implantation shell rupture or gel bleed.

5


QInside Safety Technology radio frequency identification device, or RFID, technology, which is a microtransponder embedded within the gel of the implant that gives surgeons the ability to non-invasively check each implant’s unique identification number with an RFID reader, as well as access to our MotivaImagine app for related information, such as implant type, size, and other characteristics.
Our design, which allows all implants to be 100% filled, is intended to reduce the risk of creases in the shell that could create shell weakness and rupture.
Divina 3D Simulation System
We sell our Divina 3D simulation systems to plastic surgeons for use in pre-surgical patient consultations and planning. Divina utilizes a combination of 3D imaging hardware and proprietary Tissue Behavior Simulation, or TBS, software to give physicians and patients the ability to visualize the potential aesthetic results of a procedure and various implant sizes in real time. We believe that the addition of a Divina system to a clinic will facilitate an increase in the number of patients who chose to proceed from a consultation to a surgical procedure.
Puregraft
In September 2016, we became the exclusive distributor of the Puregraft line of products outside the United States and Canada. Puregraft is used to remove blood, lipids and other components from adipose tissue, primarily leaving the viable adipose cells for reinjection into areas of the patient’s body where additional soft tissue volume or contouring is desired. Known as an autologous adipose tissue graft, these procedures are utilized primarily in breast augmentation and reconstruction, facial enhancement, and body contouring. In an independent study by Gerth et al. reported in the peer-reviewed Aesthetic Surgery Journal in 2014 conducted between November 2010 and November 2012, 26 patients receiving autologous adipose tissue grafts for facial contouring processed via Puregraft had significantly higher long-term retention of volume when compared to 33 patients that had received grafts processed using conventional means, with statistical significance being determined by a p-value of 0.03. In the breast augmentation setting, a clinical study of 26 patients whose implant procedures were subsequently enhanced with Puregraft-enabled grafts, conducted independently at Dolan Park Hospital by Sforza et al. and published in the Aesthetic Surgery Journal in 2016, approximately 73% of fat volume was retained by patients at one year, and 96% of patients reported satisfaction with the outcome. The initial term of our distribution agreement with Puregraft ends in September 2019, but we have the ability to renew the agreement at the end of the initial term if we wish to do so and meet certain minimum purchase requirements.
Branded Surgeries
Our suite of products and technologies enables surgical techniques that we intend to develop and promote as “branded surgeries.” Our first such branded surgery, MotivaHybrid, combines 3D pre-surgical assessment of existing breast tissue volume using either our Divina system or another 3D scanning system, together with Motiva Implants and Puregraft autologous adipose tissue grafts. The MotivaHybrid method is designed to enable surgeons to optimize silicone volume using Motiva Implants and balance the ratio of silicone to tissue with additional contouring using Puregraft for more natural balanced results and improved patient satisfaction. Our second branded surgery, Motiva MinimalScar, allows surgeons to significantly reduce the size of the surgical incision by using our proprietary MotivaImagine Ultralight LED Retractor in conjunction with the Motiva Insertion Sleeve. We are also developing Motiva Minimally Invasive Natural Technique, or Motiva MINT — a family of branded surgeries that we anticipate will allow breast augmentation through small incisions. We intend for Motiva MINT to allow breast augmentation procedures to be performed under local anesthesia rather than general anesthesia, with faster recovery times and a resulting reduction of surgical complications. The implants associated with Motiva MINT have been developed, and we currently intend to begin the CE marking process in 2018. Instruments and special devices for the Motiva MINT procedure are currently being prototyped and tested. We believe Motiva MINT will be able to attract new customers and expand the market for breast aesthetic procedures.
MotivaImagine Centers
We utilize our MotivaImagine Center initiative, which are collaborations with plastic surgery clinics whereby we provide them with access to our technologies and the ability to brand themselves as a MotivaImagine Center. In exchange for these services and use of the Motiva branding, each MotivaImagine Center commits to use Motiva Implants and other products in the MotivaImagine product platform. Before certifying a MotivaImagine Center, we ensure that the center offers:
Either our Divina or AX3 3D simulator, or a third party cloud-based visualization software that we sell in partnership with Crisalix systems;
Access to the full suite of MotivaImagine products that complement Motiva Implants;
Surgical staff trained by Establishment Labs in the optimal use of MotivaImagine products; and

6


Branding and design elements, according to company guidelines, that are intended to create a more luxurious and reassuring experience for patients.
Since 2016, 28 independent clinics outside the United States have elected to become MotivaImagine Centers, and we are pursuing enrollment of additional centers as a key component of our sales and marketing strategy. We also intend to utilize the network of MotivaImagine Centers as a channel for other future aesthetic surgical products on our MotivaImagine platform.
Our Competitive Strengths
Patient-centric innovative implant technologies. We have developed our Motiva Implants by enhancing and creating novel product components for our implants, and then combining these components into products that deliver improved aesthetic outcomes, increased patient satisfaction and favorable safety profiles.
Extensive suite of complementary products and services. Our MotivaImagine product portfolio includes innovative products such as Divina 3D surgical simulation systems, Puregraft autologous fat grafting systems, and other surgical tools. We believe branded surgical procedures, such as MotivaHybrid, Motiva MinimalScar and Motiva MINT, will address key unmet needs for both the physician and the patient.
Proprietary internal manufacturing processes and capabilities. We manufacture our silicone products in state-of-the-art manufacturing facilities in Costa Rica rather than relying on third-party manufacturers. In these facilities, we utilize our novel 3D imprinted molding method to create proprietary surface features that, in combination with other proprietary materials and methods, differentiate our products from those of our competitors. Our two manufacturing sites have gone through full site inspections and audits under the Medical Device Single Audit Program, or MDSAP, which were carried out by the British Standards Institute, or BSI, an agency which the FDA accepts as a substitute for routine agency inspections. We believe our modern facilities, focus on product quality and deep technological know-how has helped us establish and maintain a brand of consistency, quality and safety.
Dynamic worldwide sales platform. We sell our products both through exclusive arrangements with leading local distributors who have strong local surgeon relationships and our direct sales force in key markets such as Brazil and certain countries in Europe. Using this market specific approach, we have built an effective and efficient worldwide sales platform.
Proven management team with expansive industry experience. We have a highly experienced management team that is comprised of leaders from the medical aesthetic market.
Our Growth Strategy
Our goal is to be the global leader in aesthetic surgical implant technology, including breast implants, while improving patient safety through product innovation. The key elements of our strategy include:
Expand revenues in existing markets. We believe we can continue to grow market share in our existing markets due to the favorable safety profile and improved aesthetic outcomes of our Motiva Implants.
Launch Motiva Implants in additional markets outside the United States. We expect that continued geographic expansion will be a key driver of growth in the near term. During 2016 and 2017, we started sales through distributors in Australia, Israel, Russia, Saudi Arabia and South Korea, as well as starting direct sales in Brazil, the second largest market for breast augmentations. Expansion into new countries in the Asia-Pacific region (China, India, Taiwan and Thailand) is expected in the next several years.
Obtain FDA approval and enter the U.S. market. We are conducting our IDE clinical trial in the United States, with the goal of obtaining approval from the FDA for a premarket application, or PMA, and commercializing our Motiva Implants in the United States The first patient in the study was enrolled in April 2018, and we anticipate completing enrollment in early 2019.
Optimize patient conversion through sales and marketing programs. Our MotivaImagine Centers enable us to engage with and educate patients on the Motiva brand and the benefits of our products, as well as increase clinical efficiency for our physician collaborators. In the future, we expect our MotivaImagine Centers to have important strategic synergies with our branded surgeries, which are promoted globally. We employ a multi-faceted marketing strategy that includes social media engagement, conferences, advertisements and education.
Seek out and pursue strategic acquisitions. We intend to seek out other innovative products, services and branded procedures that meet unmet needs in the aesthetics space and complement our existing product portfolio, and we believe this can be additive to future revenue growth. We have purchased distributor networks in strategic markets and may acquire other third party sales organizations in the future. While we have no specific acquisitions or planned licensing agreements, we may engage in these, or other strategic transactions, with the goal of augmenting our existing product portfolio and global footprint.

7


Continue a high level of engagement with key opinion leaders. We promote Motiva Implants, in part, via an extensive and robust calendar of physician education events led by key opinion leaders in the field of aesthetic surgery. In 2018 we plan to conduct approximately 70 events through our MotivaEdge educational platform. We also collaborate with key opinion leaders to identify and develop new clinical applications for our existing products, as well as new product and strategic opportunities.
Selected Risk Factors Associated with Our Business
Our business is subject to numerous risks and uncertainties, as more fully described in the section titled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our common shares. These risks include, among others:
We expect to incur losses for the foreseeable future, and our ability to achieve and maintain profitability depends on the commercial success of our Motiva Implants, which represents over 85% of our revenues.
We have a limited operating history and may face difficulties encountered by companies early in their commercialization in competitive markets, particularly companies that develop and sell medical devices.
Motiva Implants are not currently approved for commercial sale in the United States. Obtaining such approval is costly and time consuming, and we may not obtain the regulatory approval required to sell our products in the United States.
There is no guarantee that the FDA or non-U.S. regulatory agencies will grant approval for our current or future products, and failure to obtain regulatory approvals in the United States and other international jurisdictions, or revocation of approvals in those jurisdictions, will prevent us from marketing our products.
We expect to significantly increase the size of our organization; as a result, we may encounter difficulties in managing our growth, which could disrupt our operations and/or increase our net losses.
We rely on a single-source, third-party supplier for medical-grade long-term implantable silicone, which is the primary raw material used in our Motiva Implants. If this supplier were to increase prices for these raw materials over time or experience interruptions in its ability to supply us with this raw material, our business, financial condition and results of operations could be adversely affected.
Various factors outside our direct control may adversely affect manufacturing and supply of our breast implants, tissue expanders and other products.
Negative publicity, product defects and any resulting litigation concerning our products or our competitors’ products could harm our reputation and reduce demand for silicone breast implants, either of which could negatively impact our financial results.
Commercial success of Motiva Implants in the United States or elsewhere depends on our ability to accurately forecast customer demand and manufacture sufficient quantities of product in the implant sizes that patients and physicians request, and to manage inventory effectively.
If we are not able to obtain and maintain intellectual property protection for our products and technologies, or if the scope of our patents is not sufficiently broad, we may not be able to effectively maintain our market leading technology position.
If we are unable to adequately address these and other risks we face, our business, financial condition, operating results and prospects may be adversely affected.
Implications of Being an Emerging Growth Company
In addition, we are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012, and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in this prospectus, our periodic reports and proxy statement and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. We may take advantage of these exemptions for up to five years or until we are no longer an “emerging growth company.”
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act.

8


Corporate Information
We were reorganized under a parent holding company in the British Virgin Islands on October 9, 2013. Prior to that we operated as Establishment Labs, S.A., a Sociedad Anónima incorporated in Costa Rica, which was established in Costa Rica on January 18, 2004. Our registered office is located at P.O. Box 3140, Commerce House, Wickhams Cay 1, Road Town, Tortola VG1110, British Virgin Islands, and our telephone number at this address is +1 (441) 278 7931. Our principal place of business in Costa Rica is located at Alajuela, Coyol Free Zone, Buildings B15 and 25. Our telephone number at this address is +506 2434 2400. Our website address is www.establishmentlabs.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus, or in deciding whether to purchase our securities. Our agent for service of process in the United States is our wholly-owned subsidiary, Motiva USA LLC, a Delaware limited liability company, domiciled at 16192 Coastal Highway, Lewes, DE 19958.
We own or have rights to trademarks and trade names that we use in connection with the operation of our business, including Establishment Labs and our logo as well as other brands such as Motiva Implants, SilkSurface/SmoothSilk, VelvetSurface, ProgressiveGel, TrueMonobloc, BluSeal, Divina, Ergonomix and MotivaImagine, among others. Other trademarks and trade names appearing in this prospectus are the property of their respective owners. Solely for your convenience, some of the trademarks and trade names referred to in this prospectus are listed without the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks and trade names.

9


THE OFFERING 
Common shares offered by us
                          shares

Option to purchase additional shares
We have also granted the underwriters an option for a period of 30 days from the date of this prospectus, to purchase an additional                              common shares from us at the public offering price less the underwriting discount.

Common shares to be outstanding after this offering
                           shares, or                             shares if the underwriters exercise their option to purchase additional common shares in full.

Use of proceeds
We estimate the net proceeds from this offering will be approximately $          million, or approximately $          million if the underwriters exercise their option to purchase additional shares in full, at an assumed initial public offering price of $          per common share, the midpoint of the price range on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 
We intend to use the net proceeds from this offering (i) to fund our planned PMA clinical trial for Motiva Implants and related costs; (ii) to repay approximately $4.9 million in promissory notes issued to former Class Z preferred shareholders; and (iii) to fund working capital and other general corporate purposes. See the section titled “Use of Proceeds” for additional information.

Risk factors
See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common shares.

Proposed Nasdaq Capital Market symbol
“ESTA”
The number of common shares to be outstanding after this offering is based on 14,522,495 shares outstanding as of December 31, 2017 and excludes:
863,932 common shares issuable upon the exercise of share options outstanding as of December 31, 2017 granted under our 2015 Equity Incentive Plan with a weighted-average exercise price of $5.36 per share;
145,000 common shares issuable upon the exercise of warrants outstanding as of December 31, 2017 with an exercise price of $3.80 per share;
585,056 common shares issuable upon the vesting of restricted stock awards outstanding as of December 31, 2017, under our 2015 Equity Plan;
up to 100,000 common shares reserved for issuance in connection with acquisition-related obligations; and
                    common shares reserved for future issuance under our equity compensation plans, consisting of (i)                     common shares initially reserved for issuance under our 2018 Equity Incentive Plan, which we expect to be effective on the business day immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part (if approved by our shareholders) upon completion of this offering, and (ii)                      common shares initially reserved for issuance under our 2018 Employee Share Purchase Plan, which we expect to be effective on the business day immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part (if approved by our shareholders). Our 2018 Equity Incentive Plan and 2018 Employee Share Purchase Plan also provide for automatic annual increases in the number of shares reserved under such plans each year, as more fully described in the section titled “Executive Compensation-Employee Benefit and Share Plans.”

10


Unless otherwise indicated, all information in this prospectus reflects and assumes the following:
the conversion of all of our outstanding ordinary shares into an aggregate of 14,522,495 common shares immediately prior to the completion of this offering;
the adoption of our amended and restated memorandum and articles of association and the filing of our amended and restated memorandum and articles of association with the registrar of corporate affairs in the British Virgin Islands immediately prior to the completion of this offering; and
no exercise of the underwriters’ option to purchase additional shares.


11


SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our financial data and should be read together with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
We have derived the consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the balance sheet data as of December 31, 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the year ended December 31, 2015 from our audited consolidated financial statements not included in this prospectus. Our historical results presented below are not necessarily indicative of financial results to be achieved in future periods.
 
 
 
 
 
 
 
Years Ended December 31,
 
2015
 
2016
 
2017
 
(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
Revenue
$
9,594

 
$
19,801

 
$
34,681

Cost of revenue
4,623

 
9,705

 
16,979

Gross profit
4,971

 
10,096

 
17,702

Operating expenses:
 
 
 
 
 
Sales, general and administrative
4,727

 
23,189

 
30,821

Research and development
604

 
2,740

 
6,864

Total operating expenses
5,331

 
25,929

 
37,685

Loss from operations
(360
)
 
(15,833
)
 
(19,983
)
Interest expense
(955
)
 
(3,413
)
 
(10,420
)
Change in fair value of derivative instruments
(182
)
 
(2,484
)
 
(2,428
)
Other income (expense), net
(97
)
 
(295
)
 
(1,961
)
Loss before income taxes
(1,594
)
 
(22,025
)
 
(34,792
)
Provision for income taxes

 
(134
)
 
(105
)
Net loss
$
(1,594
)
 
$
(22,159
)
 
$
(34,897
)
Cumulative dividend relating to ordinary shares
(171
)
 

 

Dividend relating to ordinary shares
(623
)
 

 

Net loss attributable to ordinary shareholders
$
(2,388
)
 
$
(22,159
)
 
$
(34,897
)
 
 
 
 
 
 
Basic and diluted net loss per share attributable to non-participating ordinary shareholders
$
(0.54
)
 
$
(3.42
)
 
$
(3.41
)
Basic and diluted net loss per share attributable to participating ordinary shareholders
$
(0.81
)
 
$

 
$

Weighted average outstanding non-participating ordinary shares used for net loss per share attributable to ordinary shareholders
4,413,194

 
6,482,249

 
10,230,586

Weighted average outstanding participating ordinary shares used for net loss per share attributable to ordinary shareholders
2,173,663

 

 

 
 
 
 
 
 
(1)
See Note 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts.

12


 
 
 
 
 
 
 
As of December 31, 2017
 
Actual
 
Pro Forma (1)
 
Pro Forma As Adjusted (2)(3)
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
Cash
$
10,864

 
$
 
$
Working capital (deficit)
(18,053
)
 
 
 
 
Total assets
57,095

 
 
 
 
Other liabilities, long term
4,673

 
 
 
 
Total liabilities
62,108

 
 
 
 
Total shareholders’ equity (deficit)
(5,013
)
 
 
 
 
 
 
 
 
 
 
(1)
The pro forma column reflects the conversion of all of our outstanding ordinary shares into an aggregate of 14,522,495 common shares immediately prior to the completion of this offering.
(2)
The pro forma as adjusted column further reflects (i) the sale by us of               common shares in this offering at an assumed initial public offering price of $          per common share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the repayment of $4.9 million to fund the repayment of indebtedness due to former Class Z preferred shareholders pursuant to promissory we issued to such holders in exchange for such shares.
(3)
Each $1.00 increase (decrease) in the assumed initial public offering price of $          per common share would increase (decrease) each of cash, working capital (deficit), total assets and shareholders’ equity (deficit) by $          million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) each of cash, working capital (deficit), total assets and total shareholders’ equity (deficit) by approximately $          million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and will be adjusted based on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.



13


RISK FACTORS
Investing in our common shares involves a high degree of risk. The following risk factors describe circumstances or events that could have a negative effect on our business, financial condition or operating results. You should consider carefully the following risks, together with all the other information in this prospectus, including our consolidated financial statements and notes thereto, before you invest in our common shares. If any of the following risks occur, our business, financial condition, or operating results, could be adversely affected. As a result, the trading price of our common shares could decline and you could lose part or all of your investment. Additional risks and uncertainties not currently known to us or that we currently believe are not material could also impair our business, financial condition or operating results.
Risks Related to the Development and Commercialization of Our Products
We expect to incur losses for the foreseeable future, and our ability to achieve and maintain profitability depends on the commercial success of our Motiva Implants, which represents over 85% of our revenues.
We have incurred losses to date and expect to continue to incur losses for the foreseeable future. In 2017, sales of our Motiva Implants accounted for over 85% of our revenues, and we expect our revenues to continue to be driven primarily by sales of these products. In order to achieve and sustain profitability, our revenues from these products will need to grow beyond the levels we have achieved in the past. If physicians and/or patients do not perceive our products to be competitive in features and safety when compared to other products in the market, or if demand for our Motiva Implants or for breast implants in general decreases, we may fail to achieve sales levels that provide for future profitability.
Our ability to successfully market Motiva Implants and our other current and future offerings depends on numerous factors, including but not limited to:
the outcomes of current and future clinical studies of Motiva Implants, including our ongoing PMA clinical trial, to demonstrate our products’ value in improving safety outcomes and/or patient satisfaction;
acceptance of Motiva Implants as safe and effective by patients, caregivers and the medical community;
an acceptable safety profile of Motiva Implants in the global market;
whether key thought leaders in the medical community accept that such clinical studies are sufficiently meaningful to influence their or their patients’ choices of product;
maintenance of our existing regulatory approvals and expansion of the geographies in which we have regulatory approvals;
commercially viable processes at a scale sufficient to meet anticipated demand at an adequate cost of manufacturing, and that are compliant with ISO 13485 Quality Management System requirements and/or good manufacturing practice, or GMP, requirements, as set forth in the FDA’s Quality System Regulation, Brazilian and other international regulations;
our success in educating physicians and patients about the benefits, administration and use of Motiva Implants, Motiva branded surgeries and value proposition of our MotivaImagine Centers;
the successful implementation of our MotivaImagine Centers with plastic surgery clinics;
the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;
the willingness of patients to pay out-of-pocket for breast augmentation procedures in the absence of coverage and reimbursement for such procedures;
the success of our internal sales and marketing organization and the sales forces of our distributors; and
continued demand for breast augmentation and reconstruction procedures using silicone implants, which may be adversely affected by events involving either our products or those of our competitors, including FDA warnings to patients regarding Breast Implant-Associated Anaplasic Large Cell Lymphoma, or BIA-ALCL.
Some of these factors are beyond our control. If we are unable to continue to commercialize Motiva Implants and our other products, or unable to obtain a partner to commercialize them, we may not be able to produce any incremental revenues related to Motiva Implants and our other products. This would result in an adverse effect on our business, financial condition, results of operations and growth prospects.

14


We have a limited operating history and may face difficulties encountered by companies early in their commercialization in competitive and rapidly evolving markets.
Our Motiva Implants have been marketed in countries outside of the United States since October 2010, and as such, we have a limited operating history upon which to evaluate our business and forecast our future net sales and operating results. In assessing our business prospects, you should consider the various risks and difficulties frequently encountered by companies early in their commercialization in competitive markets, particularly companies that develop and sell medical devices. These risks include our ability to:
implement and execute our business strategy;
expand and improve the productivity of our direct sales force, distributors and marketing programs to grow sales of our existing and proposed products;
increase awareness of our brands and build loyalty among plastic surgeons and patients;
manage expanding operations;
respond effectively to competitive pressures and developments;
enhance our existing products and develop new products;
obtain regulatory clearance or approval to enhance our existing products and commercialize new products;
respond to changing regulations associated with medical devices across all geographies;
perform clinical trials with respect to our existing products and any new products;
attract, retain and motivate qualified personnel in various areas of our business; and
obtain and maintain coverage and adequate levels of reimbursement for our products.
Due to our limited operating history, we may not have the institutional knowledge or experience to be able to effectively address these and other risks that we may face. In addition, we may not be able to develop insights into trends that could emerge and negatively affect our business and may fail to respond effectively to those trends. As a result of these or other risks, we may not be able to execute key components of our business strategy, and our business, financial condition and operating results may suffer.
Our business depends on maintaining our brand and ongoing customer demand for our products and services, and a significant reduction in sentiment or demand could affect our results of operations.
Our success depends on the reputation of our brands, which depends on factors such as the safety and quality of our products, our communication activities, including marketing and education efforts, and our management of our customer experience. Maintaining, promoting and positioning our brands are important to expanding our customer base. This will depend largely on the success of our education and marketing efforts and our ability to provide a consistent, high-quality customer experience.
We may need to make substantial investments in the areas of education and marketing in order to maintain and enhance our brands. Ineffective marketing, negative publicity, significant discounts by our competitors, product defects and related liability litigation, failure to obtain regulatory clearance for our products, counterfeit products, unfair labor practices and failure to protect the intellectual property rights in our brands are some of the potential threats to the strength of our business. To protect our brands’ status, we may need to make substantial expenditures to mitigate the impact of such threats.
We believe that maintaining and enhancing our brands in the countries in which we currently sell our products and in new countries where we have limited brands recognition is important to expanding our customer base. If we are unable to maintain or enhance the strength of our brands in the countries in which we currently sell our products and in new countries, then our growth strategy could be adversely affected.
Our success depends, in part, on our ability to continue to enhance our existing products and services and develop or commercialize new products and services that respond to customer needs and preferences, which we expect will require us to incur significant expenses.
In recent years, we have incurred significant costs in connection with the development of Motiva Implants, the MotivaImagine platform, including the Divina 3D simulation system, and other products and services. We expect our research and development expenses to increase significantly in 2018 and beyond, as we initiate our IDE clinical trial in the United States. We will also incur significant expenses to expand our sales and marketing organization to support sales of Motiva Implants, including but not limited to a direct sales force in Brazil, France, Sweden, Denmark, Norway

15


and the United Kingdom, as well as Puregraft and MotivaImagine products outside the United States and Canada. We intend to utilize a portion of the net proceeds from this offering in order to cover these additional expenses.
We may not be able to compete effectively with our competitors, and ultimately satisfy the needs and preferences of our customers, unless we can continue to enhance existing products and develop or acquire new innovative products and services. Product development requires the investment of significant financial, technological and other resources. Product improvements and new product introductions also require significant planning, design, development and testing at the product and manufacturing process levels. We may not be able to timely or effectively develop product improvements or new products and services. Likewise, we may not be able to acquire new products on terms that are acceptable to us, or at all. Furthermore, in most countries, we need to obtain regulatory approval in order to market and sell our products, which may limit our ability to act quickly in scaling commercialization in those countries, including the United States. Our competitors’ new products may beat our products to market, be more effective or safer or have new features, obtain better market acceptance or render our products and services obsolete. Any new or modified products and services that we develop may not receive regulatory clearance or approval, or achieve market acceptance or otherwise generate any meaningful sales or profits for us.
Pricing pressure from customers and our competitors may impact our ability to sell our products at prices necessary to support our current business strategies and future expansion.
The industry environment for silicone implants and complementary products in certain international markets is price-sensitive. In these markets, or in the United States if we are successful in obtaining the required regulatory approval to sell in the U.S. market, our competitors may adopt aggressive pricing strategies to intensify the competitive pricing pressure for breast implants. If we are not successful in educating customers or third-party payors of the differentiation of our Motiva Implants as compared to our competitors' products, customers may choose our competitors' products. Additionally, as more competitors introduce products that compete with ours, we may face additional pricing pressure that would adversely impact our future results.
A substantial proportion of our sales are through exclusive distributors, and we do not have direct control over the efforts these distributors may use to sell our products. If our relationships with these third-party distributors deteriorate, or if these third-party distributors fail to sell our products or engage in activities that harm our reputation, or fail to adhere to medical device regulations, our financial results may be negatively affected.
Historically, our sales model has been to sell primarily through distributors rather than through our own sales force, with the notable exception of Brazil, France, Sweden, Denmark, Norway, and the United Kingdom where we are selling directly and, in the future, may utilize a hybrid sales model that includes both distributors and a direct sales effort. We believe that our reliance on distributors improves the economics of our business, as we do not carry the high fixed costs of a direct sales force in many of the countries in which our Motiva Implants are sold. If we are unable to maintain or enter into such distribution arrangements on acceptable terms, or at all, we may not be able to successfully commercialize our products in certain countries. Furthermore, distributors can choose the level of effort that they apply to selling our products relative to others in their portfolio. The selection, training, and compensation of a distributor’s sales personnel are within their control rather than our own and may vary significantly in quality from distributor to distributor.
In addition, although our contract terms require our distributors to comply with all applicable laws regarding the sale of our products, including anti-competition, anti-money laundering, sanctions laws and FDA regulations, we may not be able to ensure proper compliance. If our distributors fail to effectively market and sell our products in full compliance with applicable laws, our results of operations and business may suffer.
In certain large markets, we engage in direct sales efforts. We may fail to maintain and develop our direct sales force, and our revenues and financial outcomes could suffer as a result. Furthermore, our direct sales personnel may not effectively sell our products.
We have established a direct sales force for our business in Brazil, and we have implemented a direct sales strategy in France, Sweden, Denmark, Norway and the United Kingdom. We have hired, and will need to retain and motivate a significant number of sales and marketing personnel in order to support our anticipated growth in these countries. There is significant competition for quality personnel experienced in such activities, including from companies with greater financial resources than ours. If we are not successful in our efforts to continue recruiting, retaining, and motivating such personnel, we may not be able to increase our revenues, or we may increase our expenses in greater measure than our revenues, negatively impacting our operating results.

16


We are also working on creating a direct sales structure and strategy in certain markets. We are working to put in place the correct legal and business structure to comply with taxation and operational requirements. These structures may not ultimately be implemented or, if implemented, be successful or effective and may not be able to increase our revenues, improve our gross margins. In addition, we may increase our expenses or tax related costs may increase in greater measure than our revenues, negatively impacting our operating results.
Furthermore, our sales force may operate independently with limited day-to-day oversight from management. They may engage in sales practices that increase certain risks to our business, including the risk of scrutiny from regulatory authorities and the risk that we violate anti-corruption regulations in one or more countries. These and other independent actions may result in unexpected costs, news that might impair our reputation or revenues, litigation in various jurisdictions, and/or sanctions. Any of these could impair the trading price of our shares and adversely impact our results.
If we are unable to train plastic surgeons on the safe and appropriate use of our products and branded surgeries, we may be unable to achieve our expected growth.
An important part of our sales process includes educating plastic surgeons about the benefits and advantages of our Motiva Implants and MotivaImagine products, and training them on the safe and appropriate use of our products. As part of our effort to educate and train plastic surgeons through our MotivaEdge educational platform, we completed 50 medical training sessions worldwide during 2017, and plan to complete approximately 70 medical training sessions worldwide during 2018. If we are unable to train potential new plastic surgeon customers at these medical training sessions, we may be unable to achieve our expected growth.
It is critical to the success of our commercialization efforts to train a sufficient number of plastic surgeons and provide them with adequate instruction in the appropriate use of our products and branded surgeries. This training process may take longer than expected and may therefore affect our ability to grow our business. Following completion of training, we rely on the trained plastic surgeons to advocate for our products and branded surgeries in the marketplace. Convincing plastic surgeons to dedicate the time and focus necessary for adequate training is challenging, and we cannot assure we will be successful in these efforts. If plastic surgeons are not properly trained, they may misuse or ineffectively use our products or branded surgeries. This may also result in, among other things, unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us, any of which could have an adverse effect on our business and reputation.
In addition, we need to ensure that plastic surgeons are sufficiently educated our regarding our implants. For example, many metal implants, such as screws or artificial joints, produce an artifact when magnetic resonance imaging, or MRI, is used to image the area in which the object resides. Our QInside Safety Technology microtransponder embedded in certain Motiva Implants contains metal and causes an artifact that can affect breast cancer screening using MRI, and this artifact is not present in other imaging modalities such as breast ultrasound and film or digital mammography. It is important that we educate physicians and patients of the risks associated with MRI artifacts and how to mitigate them if they choose to utilize Motiva Implants that contain a QInside microtransponder. If we fail to educate physicians and patients about any of these factors, they may make decisions regarding Motiva Implants without full knowledge of the risks and benefits or may view our Motiva Implants negatively.
There is no guarantee that the FDA or non-U.S. regulatory agencies will grant approval for our current or future products, and failure to obtain regulatory approvals in the United States and other international jurisdictions, or revocation of approvals in those jurisdictions, will prevent us from marketing our products.
We intend to seek additional distribution and marketing partners for Motiva Implants and may market specific products only in international markets. We have obtained a CE Mark for Motiva Implants and are therefore authorized to sell in the EU; however, in order to market in regions such as the Asia Pacific and many other jurisdictions, we must obtain separate regulatory approvals. The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain the CE Mark or FDA approval. Moreover, clinical studies or manufacturing processes conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more international regulatory authorities does not ensure approval by regulatory authorities in other countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. An international regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain international regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and even if we file we may not receive necessary approvals to commercialize our products in any market.

17


Before obtaining regulatory approval for the sale of a planned product, we may be required to conduct extensive preclinical and clinical studies to demonstrate the safety and efficacy of our planned products in human patients. Clinical studies can be expensive, difficult to design and implement, can take many years to complete, and are uncertain as to outcome. A failure of one or more of our clinical studies could occur at any stage of testing. In connection with the initiation of a clinical study in the United States, we filed an IDE application in 2017, which was approved in March 2018. Our first patient was enrolled in April 2018, and we anticipate completing enrollment in early 2019. Our ongoing U.S. IDE trial may take longer to enroll than anticipated, may be stopped for unforeseen safety issues or may not be successful in meeting its endpoints, in which case our U.S. regulatory pathway would require subsequent additional clinical trials.
Numerous unforeseen events during, or as a result of, preclinical and clinical studies could occur, which would delay or prevent our ability to receive regulatory approval or commercialize Motiva Implants or any of our planned products, including the following:
Clinical studies may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical studies or abandon product development programs.
The number of patients required for clinical studies may be larger than we anticipate, enrollment in these clinical studies may be insufficient or slower than we anticipate, or patients may drop out of these clinical studies at a higher rate than we anticipate.
The cost of clinical studies may be greater than we anticipate.
Third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all.
We might suspend or terminate clinical studies of our planned products for various reasons, including a finding that our planned products have unanticipated serious side effects or other unexpected characteristics, or that the study subjects are being exposed to unacceptable health risks.
Regulators may not approve our proposed clinical development plans.
Regulators or independent institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical study or conduct a clinical study at a prospective study site.
Regulators or IRBs may require that we, or our investigators, suspend or terminate clinical studies for various reasons, including noncompliance with regulatory requirements.
Regulators in countries where Motiva Implants are currently marketed may require that we suspend commercial distribution if there is noncompliance with regulatory requirements or safety concerns.
Regulators in countries where Motiva Implants are currently marketed may suspend commercial distribution of silicone breast implants due to safety or other concerns generally applicable to the product category.
The supply or quality of our planned products or other materials necessary to conduct clinical studies of our planned products may be insufficient or inadequate.
The enactment of new regulatory requirements in Europe under the new Medical Device Regulation may make approval times longer and standards more difficult to pass.
If we or any future collaboration partner are required to conduct additional clinical trials or other testing of Motiva Implants or any planned products beyond those that we contemplate, those clinical studies or other testing may not be successfully completed, if the results of these studies or tests are not positive or are only modestly positive or if they raise safety concerns, we may:
be delayed in obtaining marketing approvals for Motiva Implants or our planned products;
not obtain marketing approval at all;
obtain approval for indications that are not as broad as intended;
have a product removed from the market after obtaining marketing approval;
be subject to additional post-marketing testing requirements; and/or
be subject to restrictions on how the product is distributed or used.
Even if we obtain regulatory approvals or clearances in a jurisdiction, our products may be removed from the market due to a variety of factors, including adverse events, recalls, suspension of regulatory clearance to sell, or other factors. For example, during the summer of 2016 while we were transitioning from one notified body to another, our CE Mark for Motiva Implants was temporarily not in force. We expect that the initial U.S. approval will be subject to a lengthy and expensive follow-up period, during which we must monitor patients enrolled in clinical studies and collect data on their safety outcomes. Even if FDA approval is obtained, FDA has authority to impose postmarket approval conditions, which can include (i) restrictions on device’s sale, distribution, or use, (ii) continuing evaluation of the device’s safety and

18


efficacy, (iii) additional warning/hazard labeling requirements, (iv) significant record management, (v) periodic reporting requirements, and (vi) any other requirements FDA determines necessary to provide reasonable assurance of the device’s safety and effectiveness. Completion of this follow-up study, in a manner which results in data sufficient to maintain FDA approval, is subject to multiple risks, many of which are outside of our control. These include, but are not limited to, our ability to fund the ongoing study from our operations or via additional fundraising; study participants’ willingness and ability to return for follow-up study visits; and maintenance of a suitable study database over a long period of time. Even if completed and appropriately evaluated, the study follow-up may reveal safety or other issues that impact the approved labeling, or even may result in withdrawal of Motiva Implants from the marketplace in the United States or elsewhere.
Although we launched Motiva Implants commercially in October 2010 and have sold over 386,000 units to date in various countries outside the United States, we do not have as much post-market surveillance data as our competitors and may not have clearly identified all possible or actual risks of our products. Furthermore, if our clinical trials do not produce patient data that compares favorably with breast implants that are already on the market, then physicians and patients may opt not to use our products, and our business would suffer.
Our product development costs will also increase if we experience delays to our clinical trials or approvals. We do not know whether any clinical studies will begin as planned, will need to be restructured, or will be completed on schedule, or at all.
Significant clinical study delays could also shorten any periods during which we may have the exclusive right to commercialize our planned products or allow our competitors to bring products to market before we do, which would impair our ability to commercialize our planned products and harm our business and results of operations.
Motiva Implants are not currently approved for commercial sale in the United States. Obtaining such approval is costly and time consuming, and we may not obtain the regulatory approval required to sell our products in the United States.
Neither we, nor any future collaboration partner, can commercialize Motiva Implants in the United States without first obtaining regulatory approval for the product from the FDA. In the EU and other countries, we previously obtained a CE Mark, before making the product available for commercial sale. FDA guidance on silicone breast implants mandates approval via the PMA process. Extensive preclinical and clinical testing will be required to support the PMA. At least one well-controlled clinical trial is required for approval, such as the one we began in April 2018, which will require us to commit significant financial and personnel resources. Additionally, we will be required to commit to significant and costly post-approval requirements, which will include follow-up of our clinical trial patients for up to ten years, creation of a patient registry, and/or other studies, and implementation of training programs for physicians. We may be unable to fund, enroll, or complete such trials in a timely fashion, or at all, and we may have an insufficient number of enrolled patients follow up as instructed. The results of clinical studies may not be favorable enough to support marketing approval in the United States, or may raise other questions (pertaining, for example, to product safety or effectiveness) that jeopardizes our current approvals for sale in other territories. The FDA approval process will take at least several years to complete, and FDA approval may never be obtained. We must also demonstrate that our manufacturing facilities, processes and controls are adequate to support FDA approval and that our clinical investigators complied with good clinical practices in the conduct of our Motiva Implant clinical trial.
Furthermore, FDA regulatory approval is not a guarantee, and the filing and approval process itself is expensive and may take several years. The FDA also has substantial discretion in the approval process. Despite the time and expense exerted, failure may occur at any stage, and we could encounter problems that cause us to abandon or repeat clinical studies, including our ongoing PMA clinical trial that commenced in April 2018. The FDA can delay, limit, or deny approval of a product candidate for many reasons, including, but not limited, to:
a product candidate may not be deemed to be safe and effective;
FDA officials may not find the data from clinical and preclinical studies sufficient;
the FDA may not approve our or our supplier’s processes or facilities; or
the FDA may change its approval policies or adopt new regulations.
If Motiva Implants, or our future products, fail to demonstrate safety and efficacy in further clinical studies that may be required for U.S. approval, or do not gain regulatory approval, our business and results of operations will be harmed.
Moreover, obtaining regulatory approval for marketing of our products in one country does not ensure we will be able to obtain regulatory approval in other countries, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.

19


Even if subsequent clinical trials demonstrate acceptable safety and efficacy for Motiva Implants in some patient populations, the FDA or similar regulatory authorities outside the United States may not approve Motiva Implants for marketing or may approve it with restrictions on the label, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
It is possible the FDA or similar regulatory authorities may not consider the results of the clinical trials to be sufficient for approval of Motiva Implants for our desired indications for use. Guidance issued by the FDA in 2006 suggests that a single well-controlled study is required for approval of a new silicone breast implant. The FDA may nonetheless require that we conduct additional clinical studies, possibly using a different clinical study design.
Moreover, even if the FDA or other regulatory authorities approve Motiva Implants, the approval may include additional restrictions on the label that could make Motiva Implants less attractive to physicians and patients compared to other products that may be approved for broader indications, which could limit potential sales of Motiva Implants.
If we fail to obtain FDA or other regulatory approval of Motiva Implants, or if the approval is narrower than what we seek, it could impair our ability to realize value from Motiva Implants, and therefore may have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Commercial success of Motiva Implants in the United States or elsewhere depends on our ability to accurately forecast customer demand and manufacture sufficient quantities of product in the implant sizes that patients and physicians request, and to manage inventory effectively.
Manufacturing of silicone breast implants requires costly capital equipment and a highly-skilled workforce. There is a significant lead time to build and certify a new manufacturing facility. Historically, we have had one manufacturing facility in Costa Rica, and we have experienced inventory shortages that have impaired our ability to meet market demand. Our second manufacturing facility, also located in Costa Rica, is operational, and we received certification under the multi-country MDSAP protocol and began shipping saleable product in March 2017. Although we believe our new, larger manufacturing facility, in combination in our existing facility, will give us adequate manufacturing capacity to meet demand for at least the next 2 years, we have, in the past, been unable to fill all incoming orders to meet growing demand. In addition, we will likely need to obtain additional manufacturing capacity prior to any commercialization of our Motiva Implants in the United States, if approved. If demand increases faster than we expect, or if we are unable to produce the quantity of goods that we expect with our current facilities, we may not be able to grow revenue at an optimal rate. There may be other negative effects from supply shortages, including loss of our reputation in the marketplace and a negative impact on our relationships with our distributors.
On the other hand, if demand for our products declines, or if market supply surpasses demand, we may not be able to reduce manufacturing expenses or overhead costs proportionately. We have invested significantly in our manufacturing capacity in order to vertically integrate our business. If an increase in supply outpaces the increase in market demand, or if demand decreases, the resulting oversupply could adversely impact our sales and result in the underutilization of our manufacturing capacity, higher inventory carrying costs and associated working capital, changes in revenue mix, and/or price erosion, any of which would lower our margins and adversely impact our financial results.
If we fail to compete effectively against our competitors, many of whom have greater resources than we have, our revenues and results of operations may be negatively affected.
Alternatives exist for Motiva Implants and for our other products, and we will likely face competition with respect to any planned products that we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, medical device companies, and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology companies that currently market silicone breast implants. We also face competition from manufacturers of saline-filled breast implants, and we see emerging competition from non-implant breast augmentation techniques such as hyaluronic acid injection and novel fat grafting methodologies. Any of these may present competitive barriers to Motiva Implants.
Our leading competitors are large, multi-national companies with significant resources and capabilities. Three of these companies, Sientra, Mentor, and Allergan, have conducted large prospective clinical studies that started in the United States in 2002, 2000 and 1998, respectively, the data from which they use extensively to promote their products. While we plan to use a portion of the net proceeds from the current offering to conduct such a study, to date we have not conducted a study designed in such a way as to support a PMA application in the United States. This can put us at a disadvantage when promoting our products to physicians and patients, even outside the United States. In addition, the significant financial and staff resources, and brand recognition, that our competitors possess mean they may be able to compete with us regardless of the differentiating features of our product. If we are not successful in capturing market

20


share, even outside the United States, or if physicians or patients do not perceive our products to be safer or more favorable, our revenues and/or our operating margins may be significantly impaired.
In addition, manufacturers of competitive products may reduce prices for their competing products in an effort to gain or retain market share, and undermine the value proposition that Motiva Implants might otherwise be able to offer to customers. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. These competitors may develop new technologies that are superior to our products or replace silicone.
Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties may compete with us in recruiting and retaining qualified technical and management personnel, establishing clinical study sites and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs.
We may be subject to substantial warranty or product liability claims or other litigation in the ordinary course of business that may adversely affect our business, financial condition and operating results.
We face an inherent risk of product liability exposure related to the sale of Motiva Implants and any planned products in clinical studies. The marketing, sale and use of Motiva Implants and our planned products could lead to the filing of product liability claims against us if someone alleges that our products failed to perform as designed or caused significant adverse events in patients. We may also be subject to liability for a misunderstanding of, or inappropriate reliance upon, the information we provide. If we cannot successfully defend ourselves against claims that Motiva Implants or our planned products caused injuries, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
decreased demand for any planned products we may develop;
injury to our reputation and significant negative media attention;
withdrawal of patients from clinical studies or cancellation of studies;
significant costs to defend the related litigation and distraction to our management team;
substantial monetary awards to plaintiffs;
loss of revenue; and
the inability to commercialize any products that we may develop.
We currently hold $25 million in product liability insurance coverage, which may not be adequate to cover all liabilities we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Negative publicity, product defects and any resulting litigation concerning our products or our competitors’ products could harm our reputation and reduce demand for silicone breast implants, either of which could negatively impact our financial results.
The responses of potential patients, physicians, the news media, legislative and regulatory bodies and others to information about complications or alleged complications of our products, or products liability litigation against us or our competitors, could result in negative publicity and could materially reduce market acceptance of our products. These responses or any investigations and potential resulting negative publicity may have a material adverse effect on our business and reputation and negatively impact our financial condition, results of operations or the market price of our common stock. In addition, significant negative publicity could result in an increased number of product liability claims against us.
Counterfeit products may be represented as ours, which could compete with our genuine products and may also expose us to risks associated with adverse events and product liability.
With respect to our major competitors’ branded products, we routinely see counterfeit versions in the marketplace, which are packaged and represented as having been made by major companies. This is particularly common in emerging markets, where sensitivity to price is higher and regulatory enforcement is under-resourced. While we are not aware of any counterfeit Motiva Implants in the market, such products may appear as our market share and average selling price grow. These counterfeit products are typically manufactured with significantly lower quality than the products they are claimed to be, and in some cases may be manufactured with silicones that are not medical-grade. They may expose patients to significant adverse event risks, and there is a risk that certain adverse events with counterfeit products may

21


be attributed to our genuine products. This could reduce demand for our products, result in negative publicity, or otherwise impact our business and the price of our shares.
The loss of key members of our executive management team could adversely affect our business.
Our success in implementing our business strategy depends largely on the skills, experience and performance of key members of our executive management team and others in key management positions, including Juan José Chacón Quirós, our Chief Executive Officer, Salvador Dada, our Chief Operating Officer, and Roberto de Mezerville, our Chief Technology Officer. The collective efforts of each of these persons, and others working with them as a team, are critical as we continue to develop our tests and technologies and pursue our research and development and sales programs. As a result of the difficulty in locating qualified new management, the loss or incapacity of existing members of our executive management team could adversely affect our operations. If we were to lose one or more of these key employees, we could experience difficulties in finding qualified successors, competing effectively, developing our technologies and implementing our business strategy. We do not have “key person” life insurance on our senior executives, and the loss of any of the key members of our team would have a negative impact to our business and financial results.
In addition, we rely on collaborators, consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our collaborators, consultants and advisors are generally employed by employers other than us and may have commitments under agreements with other entities that may limit their availability to us.
The loss of a key employee, the failure of a key employee to perform in his or her current position or our inability to attract and retain skilled employees could result in our inability to continue to grow our business or to implement our business strategy.
Various factors outside our direct control may adversely affect manufacturing and supply of our breast implants, tissue expanders and other products.
We currently manufacture Motiva Implants at our facilities in the Coyol Free Zone, Alajuela, Costa Rica, under the multi-country MDSAP protocol. Our Divina scanners are manufactured from components sourced globally, with final assembly in Alajuela, Costa Rica. Our QInside Safety Technology microtransponders are manufactured by contract manufacturers with final testing and packaging at a manufacturing supplier facility in Regensburg, Germany; additional inspection of the units happens in our facilities in Coyol, Costa Rica, prior to approval for manufacturing. We believe that we currently have adequate manufacturing capacity for all of our products sufficient to meet our demand forecasts for at least the next 2 years. If demand for our current products and our planned products increases more rapidly than we anticipate, or if we secure regulatory approval to commercialize our products in additional geographies, we will need to either expand our manufacturing capabilities or outsource to other manufacturers. We currently rely upon third-party contract manufacturing organizations to manufacture and supply components for our Divina scanners and QInside Safety Technology microtransponders. The manufacture of these products in compliance with ISO standards and the FDA’s regulations requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medical device products often encounter difficulties in production, including difficulties with production costs and yields, quality control, quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced FDA requirements, other federal and state regulatory requirements, and foreign regulations.
We currently purchase components for the Divina scanners and QInside Safety Technology microtransponders under purchase orders and do not have long-term contracts with most of the suppliers of these materials. In addition, we rely on NuSil as the sole supplier of medical-grade silicone used in our Motiva Implants as well as other products that we manufacture under contract to other customers. See “-We rely on a single-source, third-party supplier for medical-grade silicone, which is the primary raw material used in these products. If this supplier were to increase prices for these raw materials over time or experience interruptions in their ability to supply us with this raw material, our business, financial condition and results of operations could be adversely affected.” If suppliers were to delay or stop producing our components, or if the prices they charge us were to increase significantly, or if they elected not to sell to us, we would need to identify other suppliers. We could experience delays in manufacturing the instruments or consumables while finding another acceptable supplier, which could impact our results of operations. The changes could also result in increased costs associated with qualifying the new materials or reagents and in increased operating costs. Further, any prolonged disruption in a supplier’s operations could have a significant negative impact on our ability to manufacture and deliver products in a timely manner.
The manufacturing, sterilization and distribution of our Motiva Implants and other products are technically challenging. Changes that our suppliers may make, or additional requirements from regulatory agencies, outside of our direct control

22


can have an impact on our processes, on quality and on the successful delivery of products to our customers. Mistakes and mishandling are not uncommon and can affect supply and delivery. Some of these risks include:
failure to complete sterilization on time or in compliance with the required regulatory standards;
transportation and import and export risk, particularly given the global nature of our supply and distribution chains;
delays in analytical results or failure of analytical techniques that we depend on for quality control and release of products;
natural or other disasters, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment or other forms of disruption to business operations affecting our manufacturer or its suppliers;
latent defects that may become apparent after products have been released and that may result in a recall of such products. If any of these risks were to materialize, our ability to provide our products to customers on a timely basis would be adversely impacted;
contamination of our raw materials or manufactured products; and
inclusion of vendors of raw materials not in compliance with ISO-13485 requirements.
Some of the components used in our Motiva Implants are currently sole-source, and substitutes for these components might not be obtained easily or may require substantial design or manufacturing modifications. Any significant problem experienced by one of our sole source suppliers may result in a delay or interruption in the supply of components to us because the number of third-party manufacturers with the necessary manufacturing and regulatory expertise and facilities is limited and certification of a new supplier may be complex and time consuming. Any delay or interruption would likely lead to a delay or interruption in our manufacturing operations. The inclusion of substitute components must meet our product specifications and could require us to qualify the new supplier with the appropriate regulatory authorities. The added time and cost to arrange for alternative suppliers could have a material adverse effect on our business. New manufacturers of any planned product would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing the planned product. Obtaining the necessary FDA or global approvals or other qualifications under applicable regulatory requirements and ensuring non-infringement of third-party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs that may be passed on to us.
Any disruption at our existing facilities could adversely affect our business and operating results.
Our principal offices are located in Costa Rica, and all of our main manufacturing activities are conducted in two ISO-13485 and GMP compliant manufacturing facilities in Costa Rica through Establishment Labs, S.A. Despite our efforts to maintain and safeguard our manufacturing facilities, including acquiring insurance and adopting maintenance and health and safety protocols, vandalism, terrorism or a natural or other disaster, such as earthquake, volcanic activity, fire or flood, could damage or destroy our inventory of finished goods, cause substantial delays in our operations and manufacturing, result in the loss of key information and cause us to incur additional expenses. Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our facilities may have an adverse effect on our business, financial condition and results of operations.
We have made multiple acquisitions in the past, and in the future we may acquire other businesses or form joint ventures or make investments in other companies or technologies. If we are not successful in integrating these businesses, as well as identifying and controlling risks associated with the past operations of these businesses, we may incur significant costs, receive penalties or other sanctions from various regulatory agencies, and/or incur significant diversions of management time and attention.
We believe our business growth will be enhanced if we continually seek opportunities to enhance and broaden our product offerings. As part of our business strategy, we may pursue acquisitions or licenses of assets, or acquisitions of businesses. We also may pursue strategic alliances and joint ventures that leverage our core technology and industry experience to expand our product offerings or sales and distribution resources. Our company has acquired companies in a variety of countries, including Belgium, Brazil, Sweden, Denmark, Norway and France. We have also acquired and licensed assets.
We may do more of these types of transactions in the future and may also form strategic alliances and joint ventures. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions also could result in significant write-offs or the incurrence of debt and contingent liabilities, any of which could have an

23


adverse effect on our financial condition, results of operations and cash flows. Integration of an acquired company may also disrupt ongoing operations and require management resources that would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could have a negative effect on our results of operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any acquisition, license, strategic alliance or joint venture. To finance such a transaction, we may choose to issue common shares as consideration, which would dilute the ownership of our shareholders. If the price of our common shares is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our shares as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.
We do not know whether we will be able to successfully integrate any acquired business, product or technology. The success of any given acquisition may depend on our ability to retain any key employees related thereto, and we may not be successful at retaining or integrating such key personnel. Integrating any business, product or technology we acquire could be expensive and time-consuming, disrupt our ongoing business, impact our liquidity, and/or distract our management. If we are unable to integrate any acquired businesses, products or technologies effectively, our business may suffer. Whether as a result of unsuccessful integration, unanticipated costs, including those associated with assumed liabilities and indemnification obligations, negative accounting impact, or other factors, we may not realize the economic benefits we anticipate from acquisitions. In addition, any amortization or charges resulting from the costs of acquisitions could increase our expenses.
If changes in the economy and/or consumer spending, consumer preference and other trends reduce consumer demand for our products, our sales and profitability would suffer.
We are subject to the risks arising from adverse changes in general economic and market conditions. Certain elective procedures, including breast augmentation, are typically not covered by insurance. Adverse changes in the economy may cause consumers to reassess their spending choices, which could have an adverse effect on consumer spending, reduce the demand for these surgeries, and therefore have an adverse effect on our net sales. Furthermore, consumer preferences and trends may shift due to a variety of factors, including changes in demographic and social trends, public health initiatives and product innovations, which may reduce consumer demand for our products.
Fluctuations in insurance costs and availability, and future insurance requirements could adversely affect our profitability or our risk management profile.
We hold a number of insurance policies, including product liability insurance, directors' and officers' liability insurance, general liability insurance, property insurance and workers' compensation insurance. If the costs of maintaining adequate insurance coverage increase significantly in the future, our operating results could be adversely affected. Likewise, if any of our current insurance coverage should become unavailable to us or become economically impractical, we would be required to operate our business without indemnity from commercial insurance providers. If we operate our business without insurance, we could be responsible for paying claims or judgments against us that would have otherwise been covered by insurance, which could adversely affect our results of operations or financial condition.
Continued international expansion of our business will expose us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.
Our products are currently sold in over 60 countries, and we operate subsidiaries in the United States, Costa Rica, Brazil, Belgium, France, Sweden and Switzerland. Our business strategy contemplates continued international expansion, including partnering with medical device distributors, and introducing Motiva Implants and other planned products outside the United States. The sale and shipment of our products internationally, as well as the purchase of components from international sources, subjects us to potential U.S. and foreign governmental trade, import and export, and customs regulations and laws.
Compliance with these regulations and laws is costly and exposes us to penalties for non-compliance. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export or import privileges, seizure of shipments, restrictions on certain business activities and exclusion or debarment from government contracting. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping and sales activities.

24


In addition, several of the countries in which we sell our products or conduct our operations are, to some degree, subject to political, economic or social instability. Doing business in Costa Rica and other countries outside the United States involves a number of other risks, including:
compliance with the free zone regime regulations under which the manufacturing sites operate;
different regulatory requirements for device approvals in international markets;
multiple, conflicting and changing laws and regulations such as tariffs and tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;
potential failure by us or our distributors to obtain and/or maintain regulatory approvals for the sale or use of our products in various countries;
difficulties in managing global operations;
logistics and regulations associated with shipping products, including infrastructure conditions and transportation delays;
limits on our ability to penetrate international markets if our distributors do not execute successfully;
governmental price controls, differing reimbursement regimes and other market regulations;
financial risks, such as longer payment cycles, difficulty enforcing contracts and collecting accounts receivable, and exposure to currency exchange rate fluctuations;
reduced protection for intellectual property rights, or lack of them in certain jurisdictions, forcing more reliance on our trade secrets, if available;
economic weakness, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;
the March 2017 Article 50 notice of withdrawal that formally began the process of a British exit from the EU, including with respect to its effect on the value of the British pound relative to other currencies;
failure to comply with the Foreign Corrupt Practices Act, including its books and records provisions and its anti-bribery provisions, by maintaining accurate information and control over sales activities and distributors’ activities.
unexpected changes in tariffs, trade barriers and regulatory requirements;
compliance with tax, employment, immigration and labor laws;
taxes, including withholding of payroll taxes;
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business and shipping interruptions resulting from natural or other disasters including earthquakes, volcanic activity, hurricanes, floods and fires.
Any of these risks, if encountered, could harm our future international expansion and operations and, consequently, have an adverse effect on our financial condition, results of operations and cash flows.
Our failure to adequately protect personal information in compliance with evolving legal requirements could harm our business.
In the ordinary course of our business, we collect and store sensitive data, including legally protected patient health information, credit card information and personally identifiable information. We collect this kind of information on our customers for purposes of servicing potential warranty claims and for post-marketing safety vigilance. These data protection and privacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.
There are a number of state, federal and international laws protecting the privacy and security of health information and personal data. As part of the American Recovery and Reinvestment Act 2009, or ARRA, Congress amended the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA imposes limitations on the use and disclosure of an individual’s protected health information by certain health care providers, health care clearinghouses, and health insurance plans, collectively referred to as covered entities, that involve the creation, use, maintenance or disclosure of protected health information. The HIPAA amendments also impose compliance obligations and corresponding penalties for non-compliance on individuals and entities that provide services to health care providers and other covered entities, collectively referred to as business associates. ARRA also made significant increases in the penalties for improper use or disclosure of an individual’s protected health information under HIPAA and extended

25


enforcement authority to state attorneys general. The amendments also create notification requirements for individuals whose protected health information has been inappropriately accessed or disclosed: notification requirements to federal regulators and in some cases, notification to local and national media. Notification is not required under HIPAA if the health information that is improperly used or disclosed is deemed secured in accordance with encryption or other standards developed by the U.S. Department of Health and Human Services, or HHS. Most states have laws requiring notification of affected individuals and state regulators in the event of a breach of personal information, which is a broader class of information than the protected health information protected by HIPAA. Many state laws impose significant data security requirements, such as encryption or mandatory contractual terms to ensure ongoing protection of personal information.
In addition, even when HIPAA does not apply, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the FTCA, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Medical data is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA Security Rule.
Many foreign countries and governmental bodies, including the European Union, Canada, Australia and other relevant jurisdictions, have laws and regulations concerning the collection and use of personal or sensitive data obtained from their residents or by businesses operating within their jurisdiction. For example, the European Commission recently adopted the General Data Protection Regulation, or the GDPR, effective in May 25, 2018, that will supersede current EU data protection legislation, impose more stringent EU data protection requirements and provide for greater penalties for noncompliance. The GDPR applies to any company established in the EU as well as to those outside the EU if they collect and use personal data in connection with the offering goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on services providers. Non-compliance with the GDPR can trigger steep fines of up to €20 million or 4% of total worldwide annual turnover, whichever is higher. Given the breadth and depth of changes in data protection obligations, preparing to meet the GDPR’s requirements before its application on May 25, 2018 requires time, resources and a review of the technology and systems currently in use against the GDPR’s requirements.
We and our customers are at risk of enforcement actions taken by certain EU data protection authorities until such point in time that we may be able to ensure that all transfers of personal data to us from the EEA are conducted in compliance with all applicable regulatory obligations, the guidance of data protection authorities and evolving best practices. We may find it necessary to establish systems to maintain personal data originating from the EU in the EEA, which may involve substantial expense and may cause us to need to divert resources from other aspects of our business, all of which may adversely affect our business.
Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected individuals, damage to our reputation and loss of goodwill, any of which could harm on our operations, financial performance, and business. Evolving and changing definitions of personal data and personal information, within the European Union, the United States, and elsewhere, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Moreover, if the relevant laws and regulations change, or are interpreted and applied in a manner that is inconsistent with our data practices or the operation of our products and services, we may need to expend resources in order to change our business operations, data practices, or the manner in which our products or services operate. Even the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our products.
If we are not able to satisfy data protection, security, privacy, and other government- and industry-specific requirements, our business could be harmed.
There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises experienced by other companies, by our customers or by us may lead to public disclosures, which could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our other products and our ability to attract new customers. As we expand into new regions, we will need to comply with new requirements. If we cannot comply or if we incur a violation in one or more of these requirements, our growth could be adversely impacted, and we could incur significant liability.

26


Risks Related to the Operation of Our Business
We expect to significantly increase the size of our organization; as a result, we may encounter difficulties in managing our growth, which could disrupt our operations and/or increase our net losses.
As of December 31, 2017, we had 376 employees. Over the next several years, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of manufacturing, regulatory affairs, clinical and sales and marketing. We also intend to continue to improve our operational, financial and management controls, reporting systems and procedures, which may require additional personnel. Such growth could place a strain on our administrative and operational infrastructure, and/or our managerial abilities, and we may not be able to make improvements to our management information and control systems in an efficient or timely manner. We may discover deficiencies in existing systems and controls.
Many of these employees will be in countries outside of our corporate headquarters, which adds additional complexity. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. We may not be able to effectively manage these activities. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Future growth would impose significant added responsibilities on members of management, including:
managing our clinical trials effectively, which we anticipate being conducted at numerous clinical sites;
identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience we will require, in multiple countries;
managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
managing additional relationships with various distributors, suppliers, and other third parties;
improving our managerial, development, operational and finance reporting systems and procedures; and
expanding our facilities.
Our failure to accomplish any of these tasks could prevent us from successfully growing. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. We may also be exposed or subject to increased unforeseen or undisclosed liabilities as well as increased levels of indebtedness.
Any future distribution or commercialization agreements we may enter into with respect to our current or planned products may place the development of these products outside our control, or may otherwise be on terms unfavorable to us.
We may enter into additional distribution or commercialization agreements with third parties with respect to our current or planned products, for commercialization in or outside the United States. Our likely collaborators for any distribution, marketing, licensing or other collaboration arrangements include large and mid-size medical device and diagnostic companies, regional and national medical device and diagnostic companies, and distribution or group purchasing organizations. We will have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our planned products. Our ability to generate revenue from these arrangements will depend in part on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable planned products; and collaborators may own or co-own intellectual property covering our products that results from our collaborating with them. In such cases, we would not have the exclusive right to commercialize such intellectual property.
Any termination or disruption of collaborations could result in delays in the development of planned products, increases in our costs to develop the planned products or the termination of development of a planned product.
We rely on third parties to conduct certain components of our clinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such studies, which could interfere with or delay our ability to get regulatory approval or commercialize our products.
We rely on third parties, such as contract research organizations, or CROs, clinical data management organizations, medical institutions and clinical investigators, to perform various functions for our clinical trials. Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that each of our clinical studies is conducted in accordance with the

27


general investigational plan and protocols for the study. Moreover, the International Council for Harmonization (ICH) and FDA require us to comply with standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical studies to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of patients in clinical studies are protected. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical studies in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our planned products and will not be able to, or may be delayed in our efforts to, successfully commercialize our planned products.
Our results of operations could be affected by fluctuations in currency rates.
We present our results of operations in U.S. dollars, which is our reporting currency. However, as of December 31, 2017, the majority of our revenues are denominated in currencies other than the U.S. dollar - primarily the British pound, the euro, and the Brazilian real. As of December 31, 2017, the majority of our expenses are denominated in U.S. dollars or in Costa Rican colons, which are linked to the U.S. dollar. In the future, we expect to have significant revenues and expenses denominated in these non-U.S. currencies. As such, unfavorable fluctuations in currency exchange rates could have an adverse effect on our results of operations.
Because our combined consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar in relation to the British pound, the euro, and the Brazilian real will affect our revenues, operating income and the value of balance sheet items originally denominated in other currencies. These changes would cause our growth in consolidated earnings stated in U.S. dollars to be higher or lower than our growth in local currency when compared against other periods. We do not engage in currency hedging arrangements to protect us from fluctuations in the exchange rates of the euro and other currencies in relation to the U.S. dollar (and/or from inflation of such currencies), and we may be exposed to material adverse effects from such movements. We cannot predict any future trends in rates of inflation or exchange rates of other currencies against the U.S. dollar, and there can be no assurance that any contractual provisions will offset their impact, or that any future currency hedging activities will be successful.
We have significant exposure to the economic and political situations in emerging market countries, and developments in these countries could materially impact our financial results, or our business more generally.
Many of the countries in which our products are sold are emerging markets. Our global growth strategy contemplates the expansion of our existing sales activities in Latin America, EMEA and Asia-Pacific as well as North America. Our exposure to emerging markets has increased in recent years, as have the number and importance of our distributor arrangements. Economic and political developments in Brazil and other emerging markets, including economic crises, currency inflation, or political instability, have had in the past, and may have in the future, a material adverse effect on our financial condition and results of operations. Moreover, as these markets continue to grow, competitors may seek to enter these markets and existing market participants will likely try to aggressively protect or increase their market shares. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share, which could have an adverse effect on our financial condition and results of operations.
The political situation in the United States can affect the ability of our company to conduct business in certain areas or countries if new trade conditions are imposed or enforced by the U.S. government.
There could be negative consequences to our company’s revenue if the U.S. government unexpectedly changes its trade policies towards determined geographies or countries. These policy changes can include such things as trade barriers, which serve to limit or prevent international trade. It may request additional funds or tariffs in exchange for the right to export items into the country. Tariffs or quotas may be used to protect domestic producers from foreign competition. Changes may include the modification or withdrawal of free trade agreements already in place. This also can have a large effect on the profits of our company because it either cuts revenues as a result of a tax on imports/exports or restricts the amount of revenues that can be earned.
Our operations involve hazardous materials and we and third parties with whom we contract must comply with environmental laws and regulations, which can be expensive and restrict how we do business, and could expose us to liability if our use of such hazardous materials causes injury.
Our manufacturing processes currently require the controlled use of potentially harmful chemicals, including highly flammable solvents. We cannot eliminate the risk of accidental contamination or injury to employees or third parties from

28


the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject to, on an ongoing basis, federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. These are particularly stringent in California, where NuSil Technology, LLC, or NuSil, one of our key suppliers, is located. The cost of compliance with these laws and regulations may become significant and could have an adverse effect on our financial condition, results of operations and cash flows. In the event of an accident or if we otherwise fail to comply with applicable regulations, we could lose our permits or approvals or be held liable for damages or penalized with fines.
Risks Related to Our Financial Condition and Capital Requirements
We have incurred net operating losses in the past and expect to incur net operating losses for the foreseeable future.
We were not profitable in 2015, 2016 or 2017, and we continue to incur significant research and development and general and administrative expenses related to our operations. We do not expect to be profitable in 2018, and in future years we expect to incur significant research and development expenses related to, among other things, the PMA clinical study of Motiva Implants in the United States Investment in medical device product development, particularly clinical studies, is highly speculative. It entails substantial upfront capital expenditures and significant risk that any potential planned product will fail to demonstrate adequate accuracy or clinical utility. We may not be profitable for some time after the completion of this offering. As of December 31, 2017, we had an accumulated deficit of $67.9 million.
We expect that our future financial results will depend primarily on our success in launching, selling and supporting Motiva Implants and other products that are part of our MotivaImagine platform. This will require us to be successful in a range of activities, including manufacturing, marketing, and selling Motiva Implants. We may not succeed in these activities and may never generate revenue that is sufficient to be profitable in the future. Even if we are profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve sustained profitability would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our planned products, market our current and planned products, or continue our operations.
We may need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our planned development and commercialization efforts. Raising additional capital may subject us to unfavorable terms, cause dilution to our existing shareholders, restrict our operations, or require us to relinquish rights to our products and technologies.
Our operations have consumed substantial amounts of cash since our inception, and we expect to incur significant expenses in connection with our planned research, development and product commercialization efforts. We believe that our available cash, cash from operations, and the net proceeds from this offering will be sufficient to satisfy our liquidity requirements for at least the next 12 months. If this offering is not completed, we do not believe that our available cash and cash from operations will be sufficient to satisfy our liquidity requirements for the next 12 months. We may need to raise sufficient capital from this offering to execute our business plan. If our available cash resources, net proceeds from this offering and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, we may seek to sell equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. Any failure to raise the funds necessary to support our operations may force us to delay, reduce or suspend our planned clinical trials, research and development programs, or other commercialization efforts.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends.
In January 2018, management made an assessment that we would likely default on the Madryn Credit Agreement due to our investment in our Brazilian subsidiary approaching the $5.0 million limit. We informed Madryn and the syndicate of lenders, or the Lenders, of the potential technical default event and started the process to obtain a forbearance agreement. We initially defaulted on the Madryn Credit Agreement on February 28, 2018 when our investment in our Brazilian subsidiary exceeded the $5.0 million threshold permitted under the Madryn Credit Agreement.  As a result, on March 23, 2018 and subsequently on April 30, 2018, we entered into a forbearance agreement with the Lenders, where the Lenders agreed to forebear from exercising certain rights and remedies through May 18, 2018 arising from certain disclosure and other technical defaults under the Madryn Credit Agreement, including those mentioned above with respect our Brazilian subsidiary. In accordance with certain cure rights under the Madryn Credit Agreement and the forbearance agreement, we will use best efforts to raise no less than $20.0 million of cash proceeds from equity issuances.  Furthermore, the forbearance agreement permits the limit of the amount of investment in the Brazilian

29


subsidiary not too exceed an additional $5.0 million, and maintain the liquidity in accounts for which Madryn received a qualifying control agreement of no less than $2.0 million, while we provide periodic reports on all investments in the Brazilian subsidiary. The forbearance agreement also forbears the Lenders from exercising certain rights and remedies in the event of our failure to provide the report and opinion of an independent certified public accountant free from any “going concern” qualifications for the fiscal year ended December 31, 2017.
If we raise additional funds through collaborations, strategic collaborations or partnership, or marketing, distribution or licensing arrangements with third parties, we may be required to do so at an earlier stage than would otherwise be ideal and/or may have to limit valuable rights to our intellectual property, technologies, products, or future revenue streams, or grant licenses or other rights on terms that are not favorable to us. Furthermore, any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
We have experienced significant net losses and sustained negative cash flows from operations. In the twelve months ended December 31, 2016, we incurred a net loss of $22.2 million and used cash for operating activities of $14.3 million. In the twelve months ended December 31, 2017, we incurred a net loss of $34.9 million and used cash for operating activities of $32.0 million. We have an accumulated deficit of $33.0 million as of December 31, 2016 and $67.9 million as of December 31, 2017. We expect to experience further significant net losses in 2018 and the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern for at least the next twelve months from the date of the issuance of the financial statements. As of and for the year ended December 31, 2017, our independent registered public accounting firm has included an explanatory paragraph in their audit report raising substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to obtain adequate funding from this proposed offering or in the future, or if we are unable to grow our revenue substantially to achieve and sustain profitability, amongst other factors, we may not be able to continue as a going concern, and our shareholders may lose some or all of their investment in us.
Risks Related to Our Business and Our Industry
We rely on a single-source, third-party supplier for medical-grade long-term implantable silicone, which is the primary raw material used in our Motiva Implants. If this supplier were to increase prices for these raw materials over time or experience interruptions in its ability to supply us with this raw material, our business, financial condition and results of operations could be adversely affected.
We rely on NuSil, as the sole supplier of medical-grade silicone used in our Motiva Implants as well as other products that we manufacture under contract to other customers. To our knowledge, NuSil is the only supplier of such raw materials with the appropriate filings with the FDA and other regulatory bodies to enable manufacture of products with our requirements. NuSil supplies our major competitors with raw material as well, and at least two of these are larger-volume customers of NuSil than we are.
If NuSil becomes unable or unwilling to supply sufficient quantities of medical-grade silicone of the specifications required for our products, we may not be able to replace this supply source quickly, or at all. Similarly, they may become unable or unwilling to manufacture our needed raw materials in compliance with regulatory requirements, or their manufacturing facilities may not be able to maintain compliance with regulatory requirements. Any replacement supplier would have to be qualified with the relevant regulatory authorities, which is an expensive and time-consuming process during which we may experience an interruption in our manufacturing operations. We may also be unsuccessful in negotiating favorable terms with such a supplier. Any of these contingencies would likely affect the financial results of our operations and may have a negative impact on our share price. In particular, if we are not able to establish a replacement vendor for our medical-grade silicone, we may be unable to sell our Motiva Implants as well as other products that we manufacture under contract to other customers until such time as a replacement vendor is identified, which would likely significantly affect the financial results of our operations and have significantly negative impact on our share price.
Our current supply agreement with NuSil expires in December 2021. There can be no assurance that NuSil will agree to continue to supply us with medical-grade silicone following the expiration of our contracts on terms that are acceptable to us, or at all. This would have a material adverse effect on our business, financial condition, and results of operations for the reasons set forth above.

30


In addition, our relationship with NuSil involves other risks, including but not limited to the following:
They may not be able, or willing, to manufacture silicone raw materials with our agreed-upon specifications.
They may not be able, or willing, to manufacture our needed raw materials in compliance with regulatory requirements, or our suppliers’ manufacturing facilities may not be able to maintain compliance with regulatory requirements.
They may not be able to supply sufficient quantities of each raw material quickly enough for us to respond to rapid increases in demand.
They may have information that is helpful to competitors in understanding our proprietary compositions and other trade secrets of our manufacturing processes, and they may convey this information to our competitors.
We may be subject to price fluctuations when a supply agreement is renegotiated, if we fail to meet certain minimum order requirements, or if our existing contract is not renewed.
They may lose access to critical services and components, resulting in interruption in manufacture or shipment of medical-grade silicone.
Their facilities may be affected by earthquakes, wild fires, mud slides or other natural disasters, which could delay or impede production of our raw materials.
We may be required to obtain regulatory approvals related to any change in our supply chain.
NuSil may wish to discontinue supply of products to us or may act in other ways that are anticompetitive.
NuSil may claim ownership of the intellectual property associated with our ProgressiveGel family of silicone gel rheologies.
NuSil or their parent entity may encounter financial or other hardships unrelated to our demand for products, which could negatively impact their ability to fulfill our orders and support our regulatory approvals.
Negative publicity concerning our products or our competitors’ products could harm our reputation and reduce demand for silicone breast implants, either of which could impact our financial results and/or share price.
The silicone breast implant industry has been the focus of significant regulatory and media scrutiny. Silicone breast implants were removed from the U.S. marketplace for a period in the 1990s and 2000s related to safety concerns. Certain patient advocacy groups exist to publicize real and perceived health risks associated with silicone breast implants and plastic surgery generally. The activities of legislative bodies, regulatory agencies, physician organizations, and other groups may lead to publicity around the real and perceived risks to patients from silicone implants. Any of these could reduce patient demand for our products, or could, even in the absence of a change in demand, negatively impact our share price. In addition, activity of this type could result in an increase in the number or size of product liability claims, which would adversely affect our business, financial results, and/or the price of our shares.
Recent studies have called into question the long-term safety of breast implants and there have also been reports of anaplastic large cell lymphoma linked to our competitors’ products. These events may lead to a reduction in the demand for silicone breast implants and could adversely affect our business.
Silicone breast implants have been associated with higher rates of anaplastic large cell lymphoma, or ALCL, a rare type of cancer affecting cells of the immune system. In January 2011, the FDA indicated that there was a possible association between saline and silicone gel-filled breast implants and higher rates of ALCL, with the causal links not yet understood. In March 2015, France’s National Cancer Institute, or NCI, noted that there is a clearly established link between ALCL and breast implants, which is referred to as breast implant-associated ALCL, or BIA-ALCL. The NCI noted in that report that most of the reported cases occurred in women with textured implants. In response, the Agence Nationale de Securite du Medicament et des Produits de Sante, or ANSM, the regulatory authority in France, has required manufacturers marketing breast implants in France, including us, to submit biocompatibility data for review, and this review is ongoing. While France by itself is a very small market for us, we anticipate that the results of this regulatory inquiry will influence other regulatory agencies in a variety of countries. It is possible that the BIA-ALCL risk factor will become highly publicized as a result, and this could negatively, and significantly, impact demand for breast implants globally.
In August 2017, the FDA updated its recommendations on BIA-ALCL and subsequently requested all breast implant manufacturers to revise their physician and patient labeling with the most up-to-date information.  The FDA still describes BIA-ALCL as “rare” and states: “we have strengthened our understanding of this condition and concur with the World Health Organization designation of breast implant-associated anaplastic large cell lymphoma (BIA-ALCL) as a rare T-cell lymphoma that can develop following breast implants. The exact number of cases remains difficult to determine due to significant limitations in world-wide reporting and lack of global implant sales data. At this time, most data suggest that BIA-ALCL occurs more frequently following implantation of breast implants with textured surfaces

31


rather than those with smooth surfaces.” The FDA noted it does not recommend prophylactic breast implant removal in a patient without symptoms or other abnormality.
In March 2018, the FDA further updated its reporting on BIA-ALCL stating “we are reporting that we are aware of 414 total cases of BIA-ALCL. Additionally, studies reported in medical literature estimate that the lifetime risk of developing BIA-ALCL for patients with textured breast implants ranges from 1 in 3,817 to 1 in 30,000.” The FDA noted that the update did not change the agency’s recommendation and that choosing to obtain a breast implant is a very personal decision that patients and providers should make with the most complete information available.
We do not produce the type of more rough textured implants of our competitors, that were involved in these reports, and, to date, no cases of BIA-ALCL have been reported in women with Motiva Implants. Future clinical studies or clinical experience may indicate that breast implants expose patients to greater risks of BIA-ALCL, which may reduce demand for silicone implants generally, expose us to product liability claims, as well as to Class Actions and other lawsuits. These impacts may occur in the absence of any specific linkage with our products. Moreover, if cases of BIA-ALCL or other complications are discovered in the future and/or are reported in patients with Motiva Implants, we could be subject to mandatory product recalls, suspension or withdrawal of our regulatory licensure for sale in one or more countries, and significant legal liability. Any of these may have an adverse effect on our business or operating results, or a negative impact on our share price.
Risks Related to Intellectual Property
The medical device industry is characterized by patent litigation and we could become subject to litigation that could be costly, result in the diversion of management's time and efforts, require us to pay damages or prevent us from marketing our existing or future products.
Patent litigation is prevalent in the medical device and diagnostic sectors. Our commercial success depends in part upon our ability and that of our distributors, contract manufacturers, and suppliers to manufacture, market, to sell our planned products, and to use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. We may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology. Third parties may assert infringement claims against us based on existing or future intellectual property rights. If we are found to infringe a third-party’s intellectual property rights, we could be required to obtain a license from such third-party to continue developing and marketing our products and technology. We may also elect to enter into such a license in order to settle pending or threatened litigation. However, we may not be able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and could require us to pay significant royalties and other fees. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our planned products in commercially important territories, or force us to cease some of our business operations, which could harm our business. Many of our employees were previously employed at, and many of our current advisors and consultants are employed by, universities or other biotechnology, medical device or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, advisors and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we, or these employees, have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. These and other claims that we have misappropriated the confidential information or trade secrets of third parties can have a similar negative impact on our business to the infringement claims discussed above.
Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation or other intellectual property related proceedings could have a material adverse effect on our ability to compete in the marketplace.

32


If we fail to comply with our obligations in our intellectual property agreements, we could lose intellectual property rights that are important to our business.
We are a party to intellectual property arrangements and expect that our future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, any licensor may have the right to terminate such agreements, in which event we may not be able to develop and market any product that is covered by such agreements. Termination of such agreements, or reduction or elimination of our rights under such agreements, may result in our having to negotiate new or reinstated arrangements on less favorable terms, or our not having sufficient intellectual property rights to operate our business. The occurrence of such events could harm our business and financial condition.
The risks described elsewhere pertaining to our intellectual property rights also apply to any intellectual property rights that we may license, and any failure by us or any future licensor to obtain, maintain, defend and enforce these rights could have a material adverse effect on our business.
If we are not able to obtain and maintain intellectual property protection for our products and technologies, or if the scope of our patents is not sufficiently broad, we may not be able to effectively maintain our market leading technology position.
Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and products.
The patent position of medical device and diagnostic companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unresolved. In recent years, patent rights have been the subject of significant litigation. As a result, the issuance, scope, validity, enforceability and commercial value of the patent rights we rely on are highly uncertain. Pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of the patents we rely on or narrow the scope of our patent protection. The laws of other countries may not protect our rights to the same extent as the laws of the U.S. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we or were the first to file for patent protection of such inventions.
Even if the patent applications we rely on issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and the patents we rely on may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop or prevent us from stopping others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new planned products, patents protecting such products might expire before or shortly after such products are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage.
We may become involved in legal proceedings to protect or enforce our intellectual property rights, which could be expensive, time consuming, or unsuccessful.
Competitors may infringe or otherwise violate the patents we rely on, or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims that we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property rights. In addition, in an infringement proceeding, a court may decide that a patent we are asserting is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that the patents we are asserting do not cover the technology in question. An adverse result in any litigation proceeding could put one or more patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

33


Interference or derivation proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office, or USPTO, or any other patent authority may be necessary to determine the priority of inventions or other matters of inventorship with respect to patents and patent applications. We may become involved in proceedings, including oppositions, interferences, derivation proceedings inter partes reviews, patent nullification proceedings, or re-examinations, challenging our patent rights or the patent rights of others, and the outcome of any such proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of, or invalidate, important patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Our business also could be harmed if a prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Litigation or other proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may also become involved in disputes with others regarding the ownership of intellectual property rights. If we are unable to resolve these disputes, we could lose valuable intellectual property rights.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical or management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Uncertainties resulting from the initiation and continuation of intellectual property litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected, harming our business and competitive position.
In addition to our patented technology and products, we rely upon confidential proprietary information, including trade secrets, unpatented know-how, technology and other proprietary information, to develop and maintain our competitive position. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in the market. We seek to protect our confidential proprietary information, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us. These agreements are designed to protect our proprietary information, however, we cannot be certain that our trade secrets and other confidential information will not be disclosed or that competitors will not otherwise gain access to our trade secrets, or that technology relevant to our business will not be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees, consultants or collaborators that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could be disclosed, misappropriated or otherwise become known or be independently discovered by our competitors. In addition, intellectual property laws in foreign countries may not protect trade secrets and confidential information to the same extent as the laws of the United States. If we are unable to prevent disclosure of the intellectual property related to our technologies to third parties, we may not be able to establish or maintain a competitive advantage in our market, which would harm our ability to protect our rights and have an adverse effect on our business.
We may not be able to protect or enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our planned products throughout the world may be prohibitively expensive to us. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in international jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

34


Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to be paid by us to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents or applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to use our technologies and this circumstance would have a material adverse effect on our business.
Risks Related to Government Regulation
The regulatory approval process is expensive, time consuming and uncertain, and may prevent us from obtaining approvals for the commercialization of Motiva Implants or our planned products.
The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of medical devices are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, where regulations differ from country to country. Our products are registered to be sold in over 60 countries, but we are not permitted to market our planned products in the United States until we receive the requisite approval or clearance from the FDA. We have not submitted an application or received marketing approval for Motiva Implants or any planned products in the United States. Obtaining PMA approval for sale for a medical device from the FDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions, including the following:
warning letters;
civil or criminal penalties and fines;
injunctions;
suspension or withdrawal of regulatory approval;
suspension of any ongoing clinical studies;
voluntary or mandatory product recalls and publicity requirements;
refusal to accept or approve applications for marketing approval of new devices or supplements to approved applications filed by us;
restrictions on operations, including costly new manufacturing requirements; or
seizure or detention of our products or import bans.
Prior to receiving approval to commercialize any of our planned products in the United States or abroad, we may be required to demonstrate with substantial evidence from preclinical and well-controlled clinical studies, and to the satisfaction of the FDA or other regulatory authorities abroad, that such planned products are safe and effective for their intended uses. Results from preclinical studies and clinical studies can be interpreted in different ways. Even if we believe the preclinical or clinical data for our planned products are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering any of our planned products to humans may produce undesirable side effects, which could interrupt, delay or cause suspension of clinical studies of our planned products and result in the FDA or other regulatory authorities denying approval of our planned products for any or all targeted indications.
Regulatory approval from the FDA is not guaranteed, and the approval process is expensive and may take several years. The FDA also has substantial discretion in the approval process. Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon or repeat clinical studies, or perform additional preclinical studies and clinical studies. The number of preclinical studies and clinical studies that will be required for FDA approval varies depending on the planned product, the indication that the planned product is designed to address and the regulations applicable to any particular planned product. The FDA can delay, limit or deny approval of a planned product for many reasons, including, but not limited to, the following:
a planned product or one or more of its features may not be deemed safe or effective;
FDA officials may not find the data from preclinical studies and clinical studies sufficient;

35


the FDA might not approve our manufacturing or our third-party supplier’s processes or facilities; or
the FDA may change its approval policies or adopt new regulations.
If Motiva Implants or any planned products fail to demonstrate safety and efficacy in preclinical and clinical studies or do not gain regulatory approval, our business and results of operations will be harmed.
Even if we receive regulatory approval for a planned product, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements.
When a regulatory approval is obtained, the approved product and its manufacturer are subject to continual review by the FDA or non-U.S. regulatory authorities. Our regulatory approval for Motiva Implants, as well as any regulatory approval that we receive for Motiva Implants or for any planned products may be subject to limitations on the indicated uses for which the product may be marketed. Future approvals may contain requirements for potentially costly post-marketing follow-up studies to monitor the safety and efficacy of the approved product. In addition, we are subject to extensive and ongoing regulatory requirements by the FDA and other regulatory authorities with regard to the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for our products. In addition, we are required to comply with regulations regarding the manufacture of Motiva Implants, which include requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must inspect these manufacturing facilities and determine they are in compliance with FDA good manufacturing practice requirements as set forth in the Quality System Regulation, or QSR, before the products can be approved. These facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with QSR regulations. If we or a third party discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of manufacturing.
Health care reform measures could hinder or prevent our planned products’ commercial success.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the health care system in ways that could affect our future revenue and future profitability and the future revenue and future profitability of our potential customers. Federal and state lawmakers regularly propose and, at times, enact legislation, that could result in significant changes to the health care system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant health care reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or PPACA, was enacted in 2010. The PPACA contains a number of provisions, including those governing enrollment in federal health care programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government health care programs and will result in the development of new programs. The PPACA, among other things, could result in the imposition of injunctions and imposes a tax of 2.3% on the retail sales price of medical devices sold after December 31, 2012. This tax may apply to Motiva Implants and some or all of our products which are in development. The excise tax has been temporarily suspended through the end of 2019, but will be reinstated in 2020 without additional Congressional action.
Some provisions of the PPACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the PPACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the PPACA. While Congress has not passed comprehensive repeal legislation, we expect there will be additional challenges and amendments to the PPACA in the future as new administrations and politicians are elected. Since January 2017, two executive orders have been signed and other directives designed to delay, circumvent, or loosen certain requirements mandated by the PPACA. Concurrently, Congress has considered legislation that would repeal and replace all or part of the PPACA. While Congress has previously been successful at passing comprehensive repeal legislation through both Chambers of Congress, it had then been vetoed by former President Obama; however full repeal legislation is unlikely in the current political climate. Furthermore, the Tax Cuts and Jobs Act passed in December of 2017 included a provision that would repeal one of the primary pillars of the law, the PPACA’s individual mandate penalty that essentially assessed a monetary penalty or fine on certain individuals who fail to maintain qualifying health coverage for all or part of a year. Congress may consider other legislation to repeal or replace elements of the PPACA on a provision-by-provision basis. We cannot assure you that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to health care reform will affect our business. Furthermore, legislators continue efforts to repeal and replace other elements of the PPACA. While the result of these efforts is not yet known, any changes that result in price controls, reduce access to and reimbursement for care or add additional regulations may have an adverse effect on our financial condition and results of operations.

36


In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, the Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals for spending reductions to Congress. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, which triggered the legislation’s automatic reduction to several government programs, including aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013, which, due to subsequent legislative amendments to the statute, including the Bipartisan Budget Act of 2018, will remain in effect through 2027 unless additional Congressional action is taken. In January 2013, former President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months the budget cuts mandated by the sequestration provisions of the Budget Control Act of 2011. The ATRA, among other things, also reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In March 2013, the President signed an executive order implementing sequestration, and in April 2013, the 2% Medicare reductions went into effect. We cannot predict whether any additional legislative changes will affect our business.
There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may adversely affect:
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability; and
the availability of capital.
If we fail to comply with health care regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
Even though we do not and will not control referrals of health care services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state health care laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to health care fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include, without limitation:
the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal health care programs, such as the Medicare and Medicaid programs;
the federal physician self-referral law, commonly known as the Stark Law, which prohibits, among other things, physicians who have a financial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare and Medicaid patients to that entity for designated health services, unless an exception applies. Similarly, entities may not bill Medicare, Medicaid or any other party for services furnished pursuant to a prohibited referral. Unlike the federal Anti-Kickback Statute, the Stark Law is a strict liability statute, meaning that all of the requirements of a Stark Law exception must be met in order to be compliant with the law;
the federal civil and criminal false claims and civil monetary penalties laws, including the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government;
HIPAA, which prohibits, executing a scheme to defraud any health care benefit program or making false statements relating to health care matters;
the federal transparency requirements under the PPACA which requires certain manufacturers of drugs, devices, biologics and medical supplies to annual report to theHHSinformation related to physician payments and other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic health care transactions and protects the security and privacy of protected health information; and
state law equivalents of each of the above federal laws, such as anti-kickback, transparency and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, as well as state post-marketing compliance laws; and

37


state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
The PPACA, among other things, amended the intent requirement of the federal Anti-Kickback Statute and criminal health care fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that 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 False Claims Act.
Similar regulations would also apply to our business in countries where we have started direct sales operations, like Brazil and several others within the European Union, where they have different regulations at European and national levels. There is a high degree of complication in complying with the different levels of regulation and the singular differences in the different countries and markets.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, individual imprisonment, additional reporting and government oversight, if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. Any such penalties or curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal, state or international privacy, security and fraud laws may prove costly.
We have obtained the authorization to distribute our products in regions/countries such as Europe and Brazil through the certification of our Quality System by the corresponding regulatory entities. Failing to demonstrate that our Quality System is in place, that consistently and systematically ensures compliance with regulations from such regions/countries might imply losing the certifications and as such, the rights to freely distribute the products which would clearly impact the company’s revenue and reputation.
French regulatory authorities at the ANSM are evaluating the biocompatibility of textured breast implants.
In February 2016, the ANSM set up a temporary scientific committee to assess the biocompatibility of implantable breast prostheses. Its objective is “to give an opinion on the documented demonstration of the biocompatibility of implantable breast implants from manufacturers.”
Accordingly, all manufacturers of breast implants marketed in France, including us, received correspondence from ANSM authorities during the first half of 2015, requesting certain biocompatibility compliance data on breast implants. A period of twelve months was set for all manufacturers to complete the demonstration of conformity with the enhanced biocompatibility requirements. During September 2016, we met with the ANSM to discuss conducting a testing plan to be completed during 2017, and have submitted information and responses to follow up requests to ANSM on multiple occasions from July 2017 to November 2017. The ANSM authorities have stated that they may suspend marketing of implants that do not demonstrate conformity within the timeframe given. While France by itself is a very small market for us, we anticipate that the results of this regulatory inquiry will influence other regulatory agencies in a variety of countries. It is possible that the ALCL risk factor will become highly publicized as a result, and this could negatively, and significantly, impact demand for breast implants globally. Any suspension of sale of our implants in France would adversely affect our business and sales in France and could negatively influence our sales in other countries.
The Dutch Health Care Inspectorate, together with the RIVM, are evaluating silicone breast implants through a market surveillance study
In 2015, the Netherlands National Institute for Public Health and the Environment, or RIVM, commissioned by the Dutch Health Care Inspectorate, initiated an assessment of the 10 manufacturers that commercialize breast implants on the Dutch market, including us. The purpose was to investigate the quality of the silicone breast implants addressing a revision of the technical files, a physical-chemical characterization of the silicone materials, biocompatibility and identifying any concern related to the patient safety.
For this investigation, important parts of the technical files of each manufacturer of silicone breast implants were evaluated. In parallel, laboratory analyses were performed on the chemical composition and potentially harmful

38


properties of the implants. Each manufacturer was evaluated based on the assessment of the technical files, and the information was published initially without identifying the results to the manufacturer.
Subsequently, each manufacturer presented an update of the findings and observations of this evaluation. In February 2018, the results of the updated assessment were published for the market surveillance study. In this reassessment, we corrected a typographical error in the name of our silicone gel. Laboratory analyses of the actual implants showed no deviations that could cause health damage. The Dutch Health Care Inspectorate has not revealed if they will continue with the assessments on a periodic basis or what other aspects they may evaluate. Any deficiencies of our implants in the Netherlands could adversely affect our business and sales in Europe and throughout the world.
Risks Related to This Offering and Ownership of Our Securities
Our share price may be volatile, and purchasers of our securities could incur substantial losses.
Our share price is likely to be volatile. The securities markets in general, and the market for biotechnology and medical device companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common shares at or above the initial public offering price. The market price for our shares may be influenced by many factors, including the following:
our ability to successfully commercialize, and realize revenues from sales of, Motiva Implants, MotivaImagine Centers and Motiva branded surgeries;
the success of competitive products or technologies;
results of clinical studies of Motiva Implants or planned products or those of our competitors;
regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products;
introductions and announcements of new products by us, our commercialization partners, or our competitors, and the timing of these introductions or announcements;
actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing processes or sales and marketing terms;
variations in our financial results or those of companies that are perceived to be similar to us;
the success of our efforts to acquire or in-license additional products or planned products;
developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners;
developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products;
our ability or inability to raise additional capital and the terms on which we raise it;
the recruitment or departure of key personnel;
changes in the structure of health care payment systems;
negative shifts in the economy effecting the number of aesthetic breast procedures;
market conditions in the pharmaceutical and biotechnology sectors;
actual or anticipated changes in earnings estimates or changes in securities analyst recommendations regarding our common shares, other comparable companies or our industry generally;
trading volume of our common shares;
sales of our common shares by us or our shareholders;
general economic, industry and market conditions; and
the other risks described in this “Risk Factors” section.
These broad market and industry factors may harm the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could adversely affect our business, financial condition, results of operations and growth prospects.

39


CPH TU, LP, an entity affiliated with one of our directors, owns and will own after this offering a significant percentage of our common shares and will exercise significant influence over matters requiring shareholder approval.
Based upon the assumed number of shares to be sold in this offering and the assumed midpoint of the price range, each as set forth on the cover page of this prospectus, CPH TU, LP, or CPH, an entity affiliated with one of our directors, Nicholas Lewin, will beneficially own 50.9% of our outstanding common shares following this offering (assuming no exercise of the underwriters’ option to purchase additional shares). Nicholas Lewin and CPH will therefore have significant influence over management and significant control over matters requiring shareholder approval, including the annual election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control may limit shareholders’ ability to influence corporate matters and, as a result, we may take actions that our shareholders do not view as beneficial. As a result, the market price of our common shares could be adversely affected.
Future sales of our common shares, or the perception that future sales may occur, may cause the market price of our common shares to decline, even if our business is doing well.
Sales of substantial amounts of our common shares in the public market after this offering, or the perception that these sales may occur, could materially and adversely affect the price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. The common shares sold in this offering will be freely tradable, without restriction, in the public market, except for any shares sold to our affiliates.
In connection with this offering, we, our officers, directors, certain of our option holders, and holders of all of our outstanding share capital have agreed, prior to the commencement of this offering, subject to specified exceptions, not to directly or indirectly sell or transfer any common shares for 180 days after the date of this prospectus without the consent of Jefferies LLC, or Jefferies. However, Jefferies may release these shares from any restrictions at any time. We cannot predict what effect, if any, market sales of shares held by any shareholder or the availability of shares for future sale will have on the market price of our common shares.
Approximately              common shares may be sold in the public market by existing shareholders after the date of this prospectus and an additional              common shares may be sold in the public market by existing shareholders 181 days after the date of this prospectus, subject to volume and other limitations imposed under the federal securities laws. Sales of substantial amounts of our common shares in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our common shares and could materially impair our ability to raise capital through offerings of our common shares. See the section titled “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling shares of our common shares after this offering.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, which was enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the date on which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may suffer or be more volatile.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act.

40


We could be subject to securities class action litigation.
In the past, securities class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in the price of our ordinary shares, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and results of operations and divert management’s attention and resources from our business.
After this offering, our executive officers, directors and principal shareholders will continue to maintain the ability to control or significantly influence all matters submitted to shareholders for approval.
Upon the closing of this offering, our executive officers, directors and shareholders who owned more than 5% of our outstanding common shares before this offering will, in the aggregate, beneficially own shares representing approximately     % of our common shares, based on                            common shares outstanding as of the date of this offering, including the common shares issuable upon conversion of our convertible promissory notes upon the closing of this offering and after giving effect to and the sale of shares in this offering. As a result, if these shareholders were to choose to act together, they would be able to control or significantly influence all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these shareholders, if they choose to act together, will control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other shareholders may desire.
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and regulations of the Securities and Exchange Commission, or SEC, and the rules and regulations of The Nasdaq Capital Market, or Nasdaq. The expenses that will be required in order to adequately prepare for being a public company will be material, and compliance with the various reporting and other requirements applicable to public companies will require considerable time and attention of management. For example, the Sarbanes-Oxley Act and the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. These rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits on coverage or incur substantial costs to maintain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees, or as executive officers.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, beginning with our second annual report on Form 10-K. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an emerging growth company or smaller reporting company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our shares could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to

41


obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our common shares, and could adversely affect our ability to access the capital markets.
We have identified material weaknesses in our internal control over financial reporting as of December 31, 2017, and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our consolidated financial statements. If we fail to remedy our material weaknesses, or if we fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Prior to the completion of this offering, we have been a private company with limited accounting and compliance personnel and other resources to address our internal control over financial reporting.
In connection with the preparation and audit of our 2016 financial statements, we had two material weaknesses. First, we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, U.S. GAAP experience and training commensurate with our structure and financial reporting requirements. Second, we did not have adequate separation of duties to provide for appropriate control of cash and other accounts.
We have hired additional personnel in our accounting department, and hired consultants with technical expertise to account for our complex financial instruments related to our debt agreements with CPH TU, LP, and Perceptive, as well as other business combination and asset acquisition accounting.
Management determined that these material weakness were remediated as of December 31, 2017.
In connection with the preparation and audit of our 2017 financial statements, we had the following material weaknesses. We did not perform adequate reviews of the accounting for each tranche of the debt outstanding under the Madryn Credit Agreement and the standard-to-actual inventory costing. Further, at our Brazilian subsidiary, we did not employ an adequate number of accounting and finance professionals with the requisite expertise in order to timely and accurately capture, record and review the high volume of transactions.
We are in the process of improving policies and procedures and designing more effective controls to remediate these material weaknesses, but our remediation efforts are not complete and are ongoing. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, it may materially adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner and impact investor confidence in our Company.
The actions we have taken are subject to continued review, supported by confirmation and testing by management as well as audit committee oversight. While we have implemented a plan to remediate these material weaknesses we cannot assure you that we will be able to remediate these material weaknesses, which could impair our ability to accurately and timely report our consolidated financial position, results of operations, or cash flows. Our failure to remediate the material weaknesses identified above or the identification and remediation of additional material weaknesses in the future, could adversely affect our ability to report financial information, including our filing of quarterly or annual reports with the SEC on a timely and accurate basis. Moreover, our failure to remediate the material weakness identified above or the identification of additional material weaknesses, could prohibit us from producing timely and accurate consolidated financial statements, which may adversely affect our share price and we may be unable to maintain compliance with Nasdaq listing requirements.
Our ability to use net operating losses to offset future taxable income and certain other tax attributes may be subject to certain limitations.
Federal and California laws impose restrictions on the utilization of net operating loss carryforwards and R&D credit carryforwards in the event of a change in ownership of the Company, which constitutes an “ownership change” as defined by Internal Revenue Code Sections 382 and 383.  Generally, an ownership change occurs if the percentage of the value of the shares that are owned by one or more direct or indirect “five percent shareholders” increases by more than 50% over their lowest ownership percentage at any time during the applicable testing period. If we have

42


experienced an “ownership change” at any time since our formation, we may already be subject to limitations on our ability to utilize our existing net operating losses and other tax attributes. We have not experienced an ownership change in the past that would materially impact the availability of its net operating losses and tax credits. Nevertheless, future changes in our share ownership, which may be outside of our control, may trigger an “ownership change” and, consequently, Section 382 and 383 limitations. We have not completed a Section 382 and 383 analysis to determine if an ownership change has occurred. Until such analysis is completed, we cannot be sure that the full amount of the existing net operating loss carryforwards will be available to us, even if we do generate taxable income before their expiration. In addition, under the newly enacted U.S. federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.
The recently passed comprehensive U.S. tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, new legislation was passed that significantly revises the Internal Revenue Code of 1986, as amended.  The newly enacted U.S. federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits.  Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected.  In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law.  The impact of this tax reform on holders of our common shares is also uncertain and could be adverse.  We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common shares.
Tax authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs, taxes or non-realization of expected benefits.
A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, the U.S. Internal Revenue Service or another tax authority could challenge the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contrast such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable. In addition, we may be subject to additional tax liabilities, which could materially and adversely affect our business, financial condition and results of operations. The application, interpretation and enforcement value-added tax, or VAT, and other taxes and related regulations applicable to medical device companies is complex and evolving.
Discontinuation of preferential tax treatments we currently enjoy or other unfavorable changes in tax law could result in additional compliance obligations and costs.
Discontinuation of preferential tax treatments we currently enjoy or other unfavorable changes in tax law could result in additional compliance obligations and costs. We are currently the beneficiary of a tax holiday in Costa Rica pursuant to which we are subject to a tax at a 6% rate. We are in the process of applying for, and expect to receive, a tax holiday in Costa Rica under which we would be subject to tax at a 0% rate. However, there can be no assurance that we will continue to qualify for or receive such favorable tax treatment. If we fail to maintain such favorable tax treatment we may be subject to tax in Costa Rica at a significantly higher rate.
If a United States person is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A U.S. shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any

43


distributions. An individual that is a U.S. shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a U.S. shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a U.S. shareholder with respect to any such controlled foreign corporation or furnish to any U.S. shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A U.S. investor should consult its advisors regarding the potential application of these rules to an investment in our common shares.
If you purchase our securities in this offering, you will incur immediate and substantial dilution in the book value of your investment.
The initial public offering price is substantially higher than the net tangible book value per share of our securities. Investors purchasing shares in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing shares in this offering will incur immediate dilution of $         per share, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus. Further, investors purchasing shares in this offering will contribute approximately     % of the total amount invested by shareholders since our inception, but will own, as a result of such investment, only approximately     % of common shares outstanding immediately following this offering.
The exercise of any of our outstanding options would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. Further, because we may need to raise additional capital to fund our clinical development programs, we may in the future sell substantial amounts of common shares or securities convertible into or exchangeable for common shares. These future issuances of equity or equity-linked securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in further dilution to investors.
No public market for our common shares currently exists and an active trading market may not develop or be sustained following this offering.
There is no established trading market for our securities, and the market for our securities may be highly volatile or may decline regardless of our operating performance. Prior to this offering, you could not buy or sell our securities publicly. An active public market for our securities may not develop or be sustained after this offering. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market in our common shares or how liquid that market might become. An active and liquid trading market may be further hindered to the extent certain of our existing investors purchase shares in this offering. If a market does not develop or is not sustained, it may be difficult for you to sell your securities at the time you wish to sell them, at a price that is attractive to you, or at all.
The initial public offering price per share has been determined through negotiation between us and representatives of the underwriter, and may not be indicative of the market prices that prevail after this offering. You may not be able to sell your common shares at or above the initial public offering price or warrant exercise price per share.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our common share price and trading volume could decline.
The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our common shares would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

44


Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.
Although we currently intend to use the net proceeds from this offering in the manner described in the section titled “Use of Proceeds,” our management will have broad discretion in the application of the balance of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common shares. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common shares to decline and delay the commercialization of Motiva Implants or other planned products. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
Provisions in our amended and restated memorandum and articles of association and under British Virgin Islands law could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management.
Provisions in our amended and restated memorandum and articles of association that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us that shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for our common shares, thereby depressing the market price of our common shares. In addition, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team. Among others, these provisions include the following:
our board of directors will be divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a change in control;
our board of directors will have the right to elect directors to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which will prevent shareholders from being able to fill vacancies on our board of directors;
our shareholders will not be able to act by written consent or call special shareholders’ meetings; as a result, a holder, or holders, controlling a majority of our shares would not be able to take certain actions other than at annual shareholders’ meetings or special shareholders’ meetings called by our board of directors, the chairman of our board, the chief executive officer or the president;
our amended and restated memorandum and articles of association will prohibit cumulative voting in the election of directors, which limits the ability of minority shareholders to elect director candidates;
future amendments of our amended and restated memorandum and articles of association will require the approval of 66 2/3% of our outstanding voting securities;
our shareholders will be required to provide advance notice and additional disclosures in order to nominate individuals for election to our board of directors or to propose matters that can be acted upon at a shareholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and
our board of directors will be able to issue, without shareholder approval, shares of undesignated preferred shares, which makes it possible for our board of directors to issue preferred shares with voting or other rights or preferences that could impede the success of any attempt to acquire us.
Moreover, because we are incorporated in the British Virgin Islands, we are governed by the provisions of BVI Business Companies Act, 2004, as amended, or the BVI Act, which provide for different shareholder rights than a Delaware corporation. See, for example, the risk factor titled “Rights of shareholders under British Virgin Islands law differ from those under U.S. law, and, accordingly, you may have fewer protections as a shareholder.”
Our employment agreements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change in control of us, which could harm our financial condition or results.
Certain of our executive officers are parties to employment agreements that contain change in control and severance provisions providing for aggregate cash payments of up to approximately $         million for severance and other benefits and acceleration of vesting of share options in the event of a termination of employment in connection with a change in control of our company. The accelerated vesting of options could result in dilution to our existing shareholders and harm the market price of our common shares. The payment of these severance benefits could harm our financial condition and

45


results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with our company.
Because we do not anticipate paying any cash dividends on our common shares in the foreseeable future, capital appreciation, if any, will be our shareholders’ sole source of gain.
We have in the past declared dividends on our share capital. Please see Note 8 to our annual consolidated financial statements for further information. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. For example, our credit agreement and guaranty with Madryn restricts our ability to pay dividends. As a result, capital appreciation, if any, of our common shares will be our shareholders’ sole source of gain for the foreseeable future.
Risks Related to Being a British Virgin Islands Company
Rights of shareholders under British Virgin Islands law differ from those under U.S. law, and, accordingly, you may have fewer protections as a shareholder.
Our corporate affairs are governed by our Amended and Restated Memorandum and Articles of Association, the BVI Act, and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of the foregoing, holders of our ordinary shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.
The laws of the British Virgin Islands provide limited protection for minority shareholders, so minority shareholders will have limited or no recourse if they are dissatisfied with the conduct of our affairs.
Under the laws of the British Virgin Islands, there is limited statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies, as summarized under “Description of Share Capital-Shareholders’ Rights Under British Virgin Islands Law Generally.” The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of a British Virgin Islands company and are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of the company. As such, if those who control the company have persistently disregarded the requirements of the BVI Act or the provisions of our amended and restated memorandum and articles of association, then the courts will likely grant relief. Generally, the areas in which the courts will intervene are the following: (i) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (ii) acts that constitute fraud on the minority where the wrongdoers control the company; (iii) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (iv) acts where we have not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded to minority shareholders under the laws of many states in the United States.
British Virgin Islands law differs from the laws in effect in the United States, and U.S. investors may have difficulty enforcing civil liabilities against us, our directors or members of senior management named in this prospectus.
Under our Amended and Restated Memorandum and Articles of Association, we may indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited exceptions. Furthermore, to the extent allowed by law, the rights and obligations among or between us, any of our current or former directors, officers and employees and any current or former shareholder will be governed exclusively by the laws of the British Virgin Islands and subject to the jurisdiction of the British Virgin Islands courts, unless those rights or obligations do not relate to or arise out of their capacities as such. Although there is doubt as to whether U.S. courts would enforce these provisions in an action brought in the United States, under U.S. securities laws, these provisions could make judgments obtained outside of the British Virgin Islands more difficult to enforce against our assets in the British Virgin Islands or jurisdictions that would apply British Virgin Islands law.

46


British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of one avenue to protect their interests.
British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce judgments of courts in the United States. based on certain liability provisions of U.S. securities law or to impose liabilities, in original actions brought in the British Virgin Islands, based on certain liability provisions of the U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a non-U.S. court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

47


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections titled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry and Market Data,” “Business” and “Shares Eligible for Future Sale,” contains forward-looking statements. In some cases you can identify these statements by forward-looking words, such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “potential,” “seek,” “expect,” “goal,” or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expected uses of the net proceeds from this offering;
the timing and the success of U.S. approval of our Motiva Implants pursuant to our clinical and regulatory efforts;
our ability to successfully commercialize our Motiva Implants in the United States;
our ability to maintain regulatory approval of Motiva Implants in jurisdictions outside the United States or to obtain and maintain regulatory approval of other future products in any jurisdiction;
our expectation that our existing capital resources and the net proceeds from this offering will be sufficient to fund a PMA clinical trial for Motiva Implants in the United States;
the benefits of the use of Motiva Implants and our other products, services and technologies;
the rate and degree of market acceptance of Motiva Implants and our other current or future products;
our expectations regarding government and third-party payor coverage and reimbursement;
our ability to manufacture our products in conformity with FDA requirements and to scale up manufacturing of our products to commercial scale;
our ability to successfully build our relationships with distributors and direct sales force and commercial infrastructures;
our ability to effectively compete in our markets;
our reliance on third parties to conduct clinical studies;
our reliance on third-party suppliers for certain product components, some of which are single source suppliers;
our reliance on our collaboration partners’ performance over which we do not have control;
our ability to retain and recruit key personnel, including development of a sales and marketing function in Brazil;
our ability to obtain and maintain intellectual property protection for Motiva Implants and our other current and future products;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to, obtain additional financing;
our financial performance; and
developments and projections relating to our competitors or our industry.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required under applicable law.

48


You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

49


INDUSTRY AND MARKET DATA
We obtained the industry, market and similar data set forth in this prospectus from our own internal estimates and research, industry publications and surveys and studies conducted by third parties. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates.
Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.


50


USE OF PROCEEDS
We estimate that the net proceeds from our issuance and sale of our common shares in this offering will be approximately $            million, or approximately $            million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $                 per common share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the assumed initial public offering price of $                  per common share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds from this offering by approximately $            million, assuming that the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering by approximately $            million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions payable by us.
We intend to use the net proceeds from this offering as follows:
approximately $          million to $          million to fund a PMA study in order to obtain regulatory approval to market and sell our Motiva Implants in the United States;
approximately $4.9 million to fund the repayment of indebtedness due to former Class Z preferred shareholders pursuant to promissory notes we issued to such holders in exchange for such shares; and
the remainder to fund working capital and other general corporate purposes.
This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development and commercialization efforts and the status of and results from clinical studies, as well as any collaborations that we may enter into with third parties and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments such as money market funds, certificates of deposit, commercial paper and U.S. government securities.
DIVIDEND POLICY
We have in the past declared dividends on our share capital. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, our credit agreement with Madryn Health Partners, LP, or Madryn, as administrative agent, and a syndicate of lenders restricts our ability to pay dividends.


51


CAPITALIZATION
The following table sets forth our cash and capitalization as of December 31, 2017:
on an actual basis;
on a pro forma basis to reflect the conversion of our issued and outstanding ordinary shares into an aggregate of 14,522,495 common shares immediately prior to the completion of this offering; and
on a pro forma as adjusted basis to further reflect (i) the sale by us of            common shares in this offering at an assumed initial public offering price of $            per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the repayment of $4.9 million to fund the repayment of indebtedness due to former Class Z preferred shareholders pursuant to promissory notes we issued to such holders in exchange for such shares.
You should read this table together with the sections titled “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
Actual
 
Pro Forma
 
Pro Forma As Adjusted (1)
 
 
(in thousands, except share and per share data)
Cash
 
$
10,864

 
$

 
$
 
 
 
 
 
 
 
Notes payable related party, including accrued interest
 
$
4,921

 
$
4,921

 
$

Note payable, Madryn, net of debt discount and issuance costs
 
19,167

 
 
 
 
Shareholders’ equity (deficit):
 
 
 
 
 
 
Ordinary shares - $1.00 par value (class A and B), 21,206,630 shares authorized, 13,427,536 shares issued, 12,206,326 shares outstanding, actual;               shares authorized and             shares issued and outstanding, pro forma and pro forma as adjusted
 
13,427

 
 
 
 
Ordinary shares - no par value (class C, D, E and F), 2,316,169 shares authorized, issued and outstanding, actual;            shares authorized and           shares issued and outstanding, pro forma and pro forma as adjusted
 
27,840

 

 
 
Common shares - $1.00 par value, 84,050,000 shares authorized, zero shares issued and outstanding, actual; 84,050,000 shares authorized and 14,522,495 shares issued and outstanding, pro forma;             shares authorized and              shares issued and outstanding, pro forma as adjusted
 

 
 
 
 
Additional paid-in-capital
 
27,986

 
 
 
 
Treasury stock, at cost, 1,221,210 shares held
 
(6,465
)
 
 
 
 
Accumulated deficit
 
(67,877
)
 
 
 
 
Other comprehensive income
 
76

 
 
 
 
Total shareholders’ equity (deficit)
 
(5,013
)
 
 
 
 
Total capitalization
 
$
19,075

 
$
 
$
 
 
 
 
 
 
 
(1)
Each $1.00 increase (decrease) in the assumed initial public offering price of $            per common share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro

52


forma as adjusted cash, additional paid-in capital, total shareholders’ equity (deficit) and total capitalization by approximately $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash, additional paid-in capital, total shareholders’ equity (deficit) and total capitalization by approximately $             , assuming that the assumed initial public offering price of $              per common share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information set forth in the table above is illustrative only and will be adjusted based on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.
The number of common shares to be outstanding after this offering is based on 14,522,495 shares outstanding as of December 31, 2017 and excludes:
863,932 common shares issuable upon the exercise of share options outstanding as of December 31, 2017 granted under our 2015 Equity Incentive Plan with a weighted-average exercise price of $5.36 per share;
145,000 common shares issuable upon the exercise of warrants outstanding as of December 31, 2017 with an exercise price of $3.80 per share;
585,056 common shares issuable upon the vesting of restricted stock awards outstanding as of December 31, 2017, under our 2015 Equity Plan;
up to 100,000 common shares reserved for issuance in connection with acquisition-related obligations; and
                    common shares reserved for future issuance under our equity compensation plans, consisting of (i)                     common shares initially reserved for issuance under our 2018 Equity Incentive Plan, which we expect to be effective on the business day immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part (if approved by our shareholders) upon completion of this offering, and (ii)                      common shares initially reserved for issuance under our 2018 Employee Share Purchase Plan, which we expect to be effective on the business day immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part (if approved by our shareholders). Our 2018 Equity Incentive Plan and 2018 Employee Share Purchase Plan also provide for automatic annual increases in the number of shares reserved under such plans each year, as more fully described in the section titled “Executive Compensation-Employee Benefit and Share Plans.”

53


DILUTION
If you invest in our common shares, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of common shares in this initial public offering and the pro forma as adjusted net tangible book value per common share immediately after this offering.
As of December 31, 2017, our pro forma net tangible book value was approximately $            million, or $              per common share. Our pro forma net tangible book value per common share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of common shares outstanding as of December 31, 2017, after giving effect to the conversion of our issued and outstanding ordinary shares into an aggregate of 14,522,495 common shares immediately prior to the completion of this offering.
After giving effect to (i) the sale by us of            common shares in this offering at an assumed initial public offering price of $            per common share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the repayment of $4.9 million of promissory notes held by former Class Z preferred shareholders, which repayment will occur in connection with this offering, our pro forma as adjusted net tangible book value as of December 31, 2017 would have been $            million, or $              per common share. This represents an immediate increase in pro forma as adjusted net tangible book value of $              per common share to our existing shareholders and an immediate dilution of $              per common share to investors purchasing shares in this offering.
The following table illustrates this dilution:
 
 
 
 
 
Assumed initial public offering price per common share
 

 
$
Pro forma net tangible book value per common share as of December 31, 2017
 
$
 

Increase in pro forma as adjusted net tangible book value per common share attributable to new investors in this offering
 

 

Pro forma net tangible book value per common share, as adjusted to give effect to this offering
 

 

Dilution per common share to new investors in this offering
 

 
$
 
 
 
 
 
The dilution information discussed above is illustrative only and will be adjusted based on the actual initial public offering price, the number of shares offered and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $              per common share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma net tangible book value, as adjusted to give effect to this offering, by $              per common share, the increase (decrease) attributable to this offering by $              per common share, and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering by $              per common share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover page of this prospectus would increase (decrease) our pro forma net tangible book value, as adjusted to give effect to this offering, by $              per common share, the increase (decrease) attributable to this offering by $              per common share, and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering by $              per common share, assuming that the assumed initial public offering price of $              per common share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value per common share after giving effect to this offering would be $              per common share, and the dilution in net tangible book value per common share to investors in this offering would be $              per common share.
The following table summarizes, as of December 31, 2017 on the pro forma as adjusted basis described above, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and investors in this offering paid for such shares. The calculation below is

54


based on the initial public offering price of $              per share, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Purchased
 
Total Consideration
 
Average Price Per Share
 
 
Number
 
Percent
 
Amount
 
Percent
 
Existing Shareholders
 
 
 
%
 
$
 
%
 
$
New Investors
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
%
 
$
 
%
 
$
 
 
 
 
 
 
 
 
 
 
 
Each $1.00 increase (decrease) in the assumed initial public offering price of $              per common share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by approximately $              million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and increase (decrease) the percent of total consideration paid by new investors by        %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover page of this prospectus would increase (decrease) total consideration paid by new investors by approximately $                 million, assuming that the assumed initial public offering price of $                per common share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and increase (decrease) the percent of total consideration paid by new investors by         %, assuming that the assumed initial public offering price of $                per common share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. After giving effect to the sale of shares in the offering by us, if the underwriters exercise their option to purchase additional shares in full, our existing shareholders would own              % and new investors would own              % of the total number of common shares outstanding upon the completion of this offering.
The number of common shares to be outstanding after this offering is based on 14,522,495 shares outstanding as of December 31, 2017 and excludes:
863,932 common shares issuable upon the exercise of share options outstanding as of December 31, 2017 granted under our 2015 Equity Incentive Plan with a weighted-average exercise price of $5.36 per share;
145,000 common shares issuable upon the exercise of warrants outstanding as of December 31, 2017 with an exercise price of $3.80 per share;
585,056 common shares issuable upon the vesting of restricted stock awards outstanding as of December 31, 2017, under our 2015 Equity Plan;
up to 100,000 common shares reserved for issuance in connection with acquisition-related obligations; and
                    common shares reserved for future issuance under our equity compensation plans, consisting of (i)                     common shares initially reserved for issuance under our 2018 Equity Incentive Plan, which we expect to be effective on the business day immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part (if approved by our shareholders) upon completion of this offering, and (ii)                      common shares initially reserved for issuance under our 2018 Employee Share Purchase Plan, which we expect to be effective on the business day immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part (if approved by our shareholders). Our 2018 Equity Incentive Plan and 2018 Employee Share Purchase Plan also provide for automatic annual increases in the number of shares reserved under such plans each year, as more fully described in the section titled “Executive Compensation-Employee Benefit and Share Plans.”
To the extent that any outstanding options or warrants are exercised, or new options or warrants are issued, there will be further dilution to investors participating in this offering.


55


SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together with our consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, which are included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the year ended December 31, 2015 from our audited consolidated financial statements not included in this prospectus. Our historical results presented below are not necessarily indicative of financial results to be achieved in future periods.
 
 
 
 
 
 
 
Years Ended December 31,
 
2015
 
2016
 
2017
 
(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
Revenue
$
9,594

 
$
19,801

 
$
34,681

Cost of revenue
4,623

 
9,705

 
16,979

Gross profit
4,971

 
10,096

 
17,702

Operating expenses:
 
 
 
 
 
Sales, general and administrative
4,727

 
23,189

 
30,821

Research and development
604

 
2,740

 
6,864

Total operating expenses
5,331

 
25,929

 
37,685

Loss from operations
(360
)
 
(15,833
)
 
(19,983
)
Interest expense
(955
)
 
(3,413
)
 
(10,420
)
Change in fair value of derivative instruments
(182
)
 
(2,484
)
 
(2,428
)
Other income (expense), net
(97
)
 
(295
)
 
(1,961
)
Loss before income taxes
(1,594
)
 
(22,025
)
 
(34,792
)
Provision for income taxes

 
(134
)
 
(105
)
Net loss
(1,594
)
 
(22,159
)
 
(34,897
)
Cumulative dividend relating to ordinary shares
(171
)
 

 

Dividend relating to ordinary shares
(623
)
 

 

Net loss attributable to ordinary shareholders
$
(2,388
)
 
$
(22,159
)
 
$
(34,897
)
 
 
 
 
 
 
Basic and diluted net loss per share attributable to non-participating ordinary shareholders
$
(0.54
)
 
$
(3.42
)
 
$
(3.41
)
Basic and diluted net loss per share attributable to participating ordinary shareholders
$
(0.81
)
 
$

 
$

Weighted average outstanding non-participating ordinary shares used for net loss per share attributable to ordinary shareholders
4,413,194

 
6,482,249

 
10,230,586

Weighted average outstanding participating ordinary shares used for net loss per share attributable to ordinary shareholders
2,173,663

 

 

 
 
 
 
 
 
(1)
See Note 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts.

56



 
 
 
 
 
As of December 31,
 
2016
 
2017
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
Cash
$
479

 
$
10,864

Working capital (deficit)
(42,052
)
 
(18,053
)
Total assets
29,562

 
57,095

Other liabilities, long term
1,425

 
4,673

Total liabilities
55,997

 
62,108

Total shareholders’ equity (deficit)
(26,435
)
 
(5,013
)
 
 
 
 

57


MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial Data” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.
Overview
We are a medical technology company focused on improving patient safety and aesthetic outcomes, initially in the breast aesthetics and reconstruction market. Our line of silicone gel-filled breast implants, branded as Motiva Implants, is the centerpiece of our MotivaImagine medical technology platform. Our post-market surveillance and published third party data indicates that Motiva Implants show low rates of adverse events (including rupture, capsular contracture, and safety-related reoperations) that we believe compare favorably with those of our competitors. We believe the proprietary technologies that differentiate our Motiva Implants enable improved safety and aesthetic outcomes and have helped drive our revenue growth. Our MotivaImagine platform enables surgical techniques that we promote as Motiva branded surgeries. We have developed other complementary products and services on our MotivaImagine platform, which are aimed at further enhancing patient outcomes.
We have devoted a majority of our resources since inception to developing our Motiva Implants, which we began selling in October 2010. We have incurred net losses in each year since inception, and we have financed our operations primarily through private equity financings and debt financings. Our revenue for the years ended December 31, 2016 and 2017 was $19.8 million and $34.7 million, respectively, an increase of $14.9 million, or 75%. Net losses increased from $22.2 million for the year ended December 31, 2016 to $34.9 million for the year ended December 31, 2017. As of December 31, 2017, we had an accumulated deficit of $67.9 million.
We have made and continue to make significant investments in additional manufacturing capacity, marketing, customer service, and a direct sales force in certain territories like Brazil and several countries in Europe in order to drive and support further adoption of our Motiva Implants. We also intend to continue to make significant investments to conduct our PMA clinical trial in the United States, with the goal of obtaining FDA approval and commercializing our Motiva Implants in the United States, continue research and development of new and existing products and on programs to educate physicians about the benefits of our products. We also expect to incur significant additional expenditures as a public company.
As a result of these and other factors, we expect to continue to incur net losses in the intermediate term and may need to raise additional capital through equity and debt financings in order to fund our operations. Our operating results may fluctuate on a quarterly or annual basis in the future, and our growth or operating results may not be consistent with predictions made by securities analysts, if any. If we are unable to achieve our revenue growth objectives, we may not be able to achieve profitability.
We will continue to incur losses at least in the near term as we expand our organization to support planned sales growth, while also continuing to invest in research and development of our products, clinical trials to enable regulatory approval in the United States, and other commercialization efforts.
Components of Results of Operations
Revenue
We commenced sales of our Motiva Implants in October 2010 and these products have historically accounted for the majority of our revenues. Sales of our Motiva Implants accounted for over 85% of our revenues, for the years ended December 31, 2016 and 2017, and we expect our revenues to continue to be driven primarily by sales of these products. We primarily derive revenue from sales of our Motiva Implants to two types of customers: (1) medical distributors and (2) direct sales to physicians, hospitals, and clinics.
We recognize revenue related to the sales of products at the time of shipment, except for a portion of our direct sales revenue that is generated from the sale of consigned inventory maintained at physician, hospital, and clinic locations. For consignment sales, revenue is recognized at the time we are notified by the customer that the product has been

58


implanted. Our contracts with distributors do not typically contain right of return or price protection and have no post-delivery obligations.
We expect our revenue to increase as we enter new markets, expand awareness of our products in existing markets, and grow our distributor network and direct sales force. We also expect our revenue to fluctuate from quarter to quarter due to a variety of factors, including seasonal fluctuations in demand for Motiva Implants. We are also affected by foreign currency fluctuations, however, to date, the net impact of foreign currency translation has been insignificant.
Cost of Revenue and Gross Margin
Our implants are manufactured at our two facilities in Costa Rica, one of which opened in 2017. Cost of revenue is primarily the cost of silicone but also includes other raw materials, packaging, components, quality assurance, labor costs, as well as manufacturing and overhead expenses. Cost of revenue also includes depreciation expense for production equipment, and amortization of certain intangible assets.
We calculate gross margin as revenue less cost of revenue for a given period divided by revenues. Our gross margin may fluctuate from period to period depending, in part, on the efficiency and utilization of our manufacturing facilities, targeted pricing programs, and sales volume based on geography, customer and product type.
Operating Expenses
Sales, General and Administrative
Sales, general and administrative, or SG&A, expenses primarily consist of compensation, including salary, share-based compensation and employee benefits for our sales and marketing personnel, and for administrative personnel that support our general operations such as information technology, executive management, financial accounting, customer service, and human resources personnel. SG&A expenses also includes costs attributable to marketing, sales support, travel, legal services, financial audit fees, insurance costs, and consulting services. We expect to incur additional SG&A expenses in connection with our becoming a public company, which may increase further when we are no longer able to rely on the “emerging growth company” exemption we are afforded under the JOBS Act.
We expect our SG&A expenses to continue to increase in absolute dollars for the foreseeable future as our business grows and we continue to invest in our sales, marketing, medical education, training and general administration resources to build our corporate infrastructure. However, we expect our SG&A expenses to decrease as a percentage of our revenue over the long term, although our SG&A expenses may fluctuate from period to period due to the timing of expenses related to our sales and marketing campaigns.
Research and Development
Our research and development, or R&D, activities primarily consist of engineering and research programs associated with our products under development, as well as R&D activities associated with our clinical development activities. Our R&D expenses primarily consist of compensation, including salary, share-based compensation and employee benefits for our R&D and clinical personnel. We also incur significant expenses for supplies, development prototypes, design and testing, clinical study costs and product regulatory and consulting expenses.
We expect our R&D expenses to continue to increase in absolute dollars and as a percentage of revenue for the foreseeable future as we continue to advance our products under development, as well as initiate and prepare for additional clinical studies. We received an IDE approval from the FDA in March 2018, to initiate a clinical trial and enrolled the first patient during the first half of 2018. We estimate that total costs for this PMA clinical trial will be between $          million and $          million. We also have other products under development for which we may be required to conduct clinical trials in future periods in order to receive regulatory approval to market these products.
Interest Expense
Interest expense consists primarily of cash and non-cash interest related to outstanding debt and amortization of debt discounts. As of December 31, 2017, we had $44.9 million in outstanding principal and accrued interest.
Change in Fair Value of Derivative Instruments
Change in fair value of derivative instruments consists of changes in the fair value of our share warrants and put and call option liabilities, and fair value of our liability to issue shares.
Other Income (Expense), Net
Other income (expense), net consists of bank charges, interest income, other non-operating income (expense) and income tax provision.

59


Consolidated Results of Operations
The following tables set forth our results of operations for the periods presented, in dollars:
 
 
 
 
 
Years Ended December 31,
 
2016
 
2017
 
(in thousands)
Revenue
$
19,801

 
$
34,681

Cost of revenue
9,705

 
16,979

Gross profit
10,096

 
17,702

Operating expenses:
 
 
 
Sales, general and administrative
23,189

 
30,821

Research and development
2,740

 
6,864

Total operating expenses
25,929

 
37,685

Loss from operations
(15,833
)
 
(19,983
)
Interest expense
(3,413
)
 
(10,420
)
Change in fair value of derivative instruments
(2,484
)
 
(2,428
)
Other income (expense), net
(295
)
 
(1,961
)
Loss before income taxes
$
(22,025
)
 
$
(34,792
)
Provision for income taxes
(134
)
 
$
(105
)
Net loss
$
(22,159
)
 
$
(34,897
)
 
 
 
 
Comparison of the Years Ended December 31, 2016 and 2017
 
 
 
 
 
Years Ended December 31,
 
2016
 
2017
 
(in thousands)
Revenue
$
19,801

 
$
34,681

Cost of revenue
9,705

 
16,979

Gross profit
$
10,096

 
$
17,702

Gross margin
51
%

51
%
 
 
 
 
Revenue
Revenue increased $14.9 million, or 75%, to $34.7 million for the year ended December 31, 2017 as compared to $19.8 million for the year ended December 31, 2016. The increase was primarily due to increased sales of Motiva Implants, with the increase driven by greater market penetration in existing geographies and commencement of sales in new geographies.
As of December 31, 2017, our sales organization included 46 employees and contractors, as compared to 8 employees as of December 31, 2016. The increase is primarily attributed to the start of the Brazil commercial operations.

60


Cost of Revenue and Gross Margin
Cost of revenue increased $7.3 million, or 75%, to $17.0 million for the year ended December 31, 2017 compared to $9.7 million for the year ended December 31, 2016. The increase was due to higher sales volume of Motiva Implants.
The gross margin for the years ended December 31, 2016 and 2017 has remained consistent at 51% for both periods.
Operating Expenses
 
 
 
 
 
Years Ended December 31,
 
2016
 
2017
 
(in thousands)
Operating expenses:
 
 
 
Sales, general and administrative
$
23,189

 
$
30,821

Research and development
2,740

 
6,864

Total operating expenses
$
25,929

 
$
37,685

 
 
 
 
Sales, General and Administrative Expense
SG&A expense increased $7.6 million, or 33%, to $30.8 million for the year ended December 31, 2017, compared to $23.2 million for the year ended December 31, 2016. These SG&A increases were, in part, related to our operations in Brazil which saw an increase in sales commissions and personnel costs of $1.8 million, and an increase in operating expenses of $1.9 million. Outside of Brazil, SG&A expenses increased $4.0 million in sales commissions and personnel costs as a result of the hiring of additional sales and administrative employees, offset by a decrease of $2.0 million in professional services costs. SG&A also increased due to an increase in rent expense of $0.5 million, an increase in depreciation and amortization of $0.7 million primarily related to our new facility in Costa Rica, and an increase in insurance costs of $0.5 million.
Research and Development Expense
R&D expense increased $4.1 million, or 151%, to $6.9 million for the year ended December 31, 2017, compared to $2.7 million for the year ended December 31, 2016. The increase in R&D expenses consisted primarily of $1.3 million share-based compensation expense, $2.3 million for outside consulting and advisory expenses, and $0.3 million related to the initiation of our PMA clinical study in the United States.
Interest Expense
Interest expense for the year ended December 31, 2017 was $10.4 million as compared to $3.4 million for the year ended December 31, 2016. The increase in interest expense is primarily due to the extinguishment of outstanding debt with Perceptive and conversion of debt with CPH in August 2017, and interest related to outstanding debt and amortization of debt discounts on our Madryn Credit Agreement, which we entered into in August 2017.
Change in Fair Value of Derivative Instruments
Change in fair value of derivative instruments for the year ended December 31, 2017 was expense of $2.4 million as compared with $2.5 million for the year ended December 31, 2016. The increase in change in fair value of derivative instruments is primarily due to changes in the fair value of Madryn derivatives embedded in the credit agreement we entered into in August 2017 and changes in our share warrant liability for warrants issued to CPH and to Perceptive in connection with the respective debt arrangements.
Liquidity and Capital Resources
As of December 31, 2017, we had an accumulated deficit of $67.9 million. Since our inception, we have generated losses and expect to continue to generate losses in the intermediate term. We have financed our operations through a combination of private equity financings and debt financings, and from cash generated from operations, primarily from the collection of accounts receivable resulting from sales. Our historical cash outflows have primarily been associated with cash used for operating activities such as expansion of our sales and marketing and distributor infrastructure, investing in inventory, R&D activities, asset acquisitions, capital improvements and other working capital needs. As of December 31, 2016 and 2017, we had cash of $0.5 million and $10.9 million, respectively.

61


In January 2017, we issued secured promissory notes to Mr. Chacon-Quiros, our Chief Executive Officer and director, and to CPH TU, LLP, a principal shareholder and related party, in an aggregate principal amount of $1.2 million under existing note purchase, security and pledge agreements. These promissory notes were repaid in January 2017 and April 2017.
In 2017, we raised capital through a series of equity financing rounds with total gross aggregate proceeds of $27.8 million. Through debt funding we received $38.5 million through the Madryn Credit Agreement, in which we used $15.0 million to pay off the Perceptive debt.
We believe that our available cash, cash from operations, and the net proceeds from this initial public offering will be sufficient to satisfy our liquidity requirements for at least the next twelve months from the date of the issuance of the financial statements. If this offering is not completed, we do not believe that our available cash and cash from operations will be sufficient to satisfy our liquidity requirements for the next twelve months from the date of the issuance of the financial statements. Our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
The degree and rate of market adoption of our products;
the cost and timing of our regulatory activities, especially the PMA clinical trial to obtain regulatory approval for our Motiva Implants in the United States;
the emergence of new competing technologies and products;
the costs of R&D activities we undertake to develop and expand our products;
the costs of commercialization activities, including sales, marketing and manufacturing;
the level of working capital required to support our growth; and
our need for additional personnel, information technology or other operating infrastructure to support our growth and operations as a public company.
We may need to raise additional capital to execute our business plan. If we are unable to raise additional capital when desired, or on terms acceptable to us, our business, results of operations, and financial condition would be adversely affected.
Cash Flows
The following table sets forth the primary sources and uses of cash for each of the periods presented below:
 
 
 
 
 
Years Ended December 31,
 
2016
 
2017
 
(in thousands)
Net cash provided by (used in):
 
 
 
Operating activities
$
(14,266
)
 
$
(31,970
)
Investing activities
(10,756
)
 
(845
)
Financing activities
20,211

 
42,993

Effect of exchange rate changes on cash

 
207

Net increase (decrease) in cash
$
(4,811
)
 
$
10,385

 
 
 
 
Net Cash Provided by (Used in) Operating Activities
Net cash used in operating activities of $14.3 million for the year ended December 31, 2016 was comprised of net loss of $22.2 million, partially offset by $0.6 million of non-cash depreciation expense, $2.6 million change in fair value of financial instruments, $3.1 million of share-based compensation expense, and $3.1 million of non-cash interest expense due to accretion of debt discounts, as well as changes in operating assets and liabilities of $1.8 million.
Net cash used in operating activities of $32.0 million for the year ended December 31, 2017 was comprised of a net loss of $34.9 million, partially offset by non-cash expenses of $1.9 million of depreciation and amortization, $2.4 million change in fair value of financial instruments, $3.3 million of share-based compensation expense, and $7.1

62


million of interest expense due to accretion of debt discounts, as well as changes in operating assets and liabilities of $14.3 million, primarily driven by an increase in inventory of $6.4 million.
Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities of $10.8 million for the year ended December 31, 2016 reflected $10.5 million in purchases of property and equipment primarily related to our second manufacturing facility and $0.1 million paid for business acquisitions.
Net cash used in investing activities of $0.8 million for the year ended December 31, 2017 primarily consisted of $0.9 million in purchases of property and equipment partially offset by changes in restricted cash of $0.1 million.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities of $20.2 million for the year ended December 31, 2016 primarily reflected $9.2 million in convertible notes borrowing, net of debt issuance costs, under the CPH note agreement, and $14.4 million borrowings from Perceptive debt agreement, net of debt issuance costs and $1.5 million in short term notes borrowings offset by $2.0 million in payment for repurchase of treasury shares, $1.5 million in repayment of short term notes and $1.0 million for the settlement of our Magna put option liability.
Net cash provided by financing activities of $43.0 million for the year ended December 31, 2017 primarily reflected $38.5 million in borrowing, net of debt issuance costs, under the Madryn Credit Agreement and $27.8 million in proceeds received for issuance of ordinary stock partially offset by $15.0 million in repayment of Perceptive debt, $4.5 million in payment for repurchase of treasury shares, and $2.4 million in payment for repurchase of share warrants.
Indebtedness
Notes Payable Related Party
In August 2015, we entered into agreements with all of the Class Z redeemable convertible preferred shareholders to exchange their outstanding shares and accumulated dividends for notes payable with a principal balance of $4.3 million. The notes bear interest at a simple rate of 7% per annum with a maturity date of March 31, 2020. Annual payments are due based on achievement of certain annual sales milestones beginning in March 2017, which are accelerated upon the effectiveness of an initial public offering. During fiscal years 2016 and 2017, we recorded non-cash interest expense of $0.3 million annually, to accrue for interest due on the notes. As of December 31, 2017 the balance of principal and accrued interest for the notes payable related party was $4.9 million.
Madryn Debt
On August 24, 2017, we entered into a credit agreement, or the Madryn Credit Agreement, with Madryn Health Partners, LP, or Madryn, as administrative agent, and a syndicate of lenders. The Madryn Credit Agreement provides for up to $55.0 million credit facility, $30.0 million (Term A) of which became available upon signing. The Madryn Credit Agreement matures on June 30, 2023.
We have an option to increase the commitments under the Madryn Credit Agreement by up to an additional $25.0 million, subject to us achieving certain revenue milestones. We met these milestones and borrowed an additional $5.0 million (Term B-1) on October 31, 2017 and $5.0 million (Term B-2) on December 15, 2017 bringing up the total outstanding principal balance to $40.0 million as of December 31, 2017. An additional $5.0 million (Term B-3) and $10.0 million (Term C) will become available on March 29, 2018 and June 30, 2020, respectively, if the required milestones for each tranche are achieved. We have not yet met the required milestones for the Term B-3 tranche as of the date of the issuance of our financial statements as of and for the year ended December 31, 2017.
Borrowings under the Madryn Credit Agreement bear interest at a rate equal to 3-month LIBOR plus 11.0% per annum provided that no default has occurred. In an event of a default, the interest would increase by an additional 4% per annum. No principal payments are due until 2021. Eight quarterly payments of 12.5% of the principal amounts borrowed under each tranche are due beginning September 30, 2021 through June 30, 2023.
We also determined that the Madryn Credit Agreement contained put options related to liquidity events or an event of default and a call option related to voluntary repayment option. We valued these put options and the call option, and allocated a fair value of $15.1 million for these identified embedded derivatives as a debt discount on the original commitment date in August 2017. An additional $5.0 million debt discount was recorded on respective borrowing dates when we met the required milestones and borrowed an additional $10.0 million in the fourth quarter of fiscal 2017. We revalue the options as of each reporting period, and record the change in the fair value in the consolidated statement of operations as other income or expense. We also incurred legal expenses of $1.3 million, which were recorded as a debt discount and are being amortized over the term of the Madryn Credit Agreement.

63


The Madryn Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur additional indebtedness, create liens, make certain investments, make restricted payments, enter into or undertake certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries. In addition, the Madryn Credit Agreement requires us to maintain minimum revenues and liquidity.
On August 24, 2017 we entered into a credit agreement, or the Madryn Credit Agreement, with Madryn Health Partners, LP, or Madryn, as administrative agent, and a syndicate of lenders. We defaulted on the Madryn Credit Agreement on February 28, 2018 when our investment in our Brazilian subsidiary exceeded the allowable $5.0 million threshold permitted under the Madryn Credit Agreement. As a result, on March 23, 2018 and subsequently on April 30, 2018, we entered into a forbearance agreement with the Lenders, where the Lenders agreed to forebear from exercising certain rights and remedies through May 18, 2018 arising from certain disclosure and other technical defaults under the Madryn Credit Agreement, including those mentioned above with respect our Brazilian subsidiary. Accordingly, as the forbearance agreement does not cover a period exceeding twelve months after the date of these financial statements, we recorded the Madryn debt as a current liability on the consolidated balance sheet (see Note 6). Management is working with the Lenders to amend the Madryn Credit Agreement to remove the restrictive covenants that resulted in the technical defaults which would allow us to reclassify the arrangement as long-term.
Contractual Obligations and Commitments
The following table summarizes payments due by period for our contractual commitments and obligations as of December 31, 2017:
 
 
Total
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
More Than
5 Years
 
(in thousands)
Capital lease obligations
$
1,046

 
$
335

 
$
546

 
$
165

 
$

Madryn debt obligations (principal)
40,000

 
40,000

 

 

 

Madryn debt obligations (interest) (1)
2,311

 
2,311

 

 

 

Notes payable related party
4,921

 
4,921

 

 

 

Purchase commitment
22,278

 
7,154

 
10,256

 
1,650

 
3,218

Operating lease obligations
5,011

 
738

 
1,190