424B4

424B4 1 d737200d424b4.htm 424B4 424B4

Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-230736
Registration Statement No. 333-231166

PROSPECTUS

5,690,000 shares

LOGO

TransMedics Group, Inc.

COMMON STOCK

TransMedics Group, Inc. is offering 5,690,000 shares of common stock. This is our initial public offering, and no public market currently exists for our common stock. The initial public offering price is $16.00 per share.

We have been approved to list our common stock on the Nasdaq Global Market under the symbol “TMDX.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 16.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

PRICE $16.00 A SHARE

Price to

Public

Underwriting
Discounts

and
Commissions⁽¹⁾

Proceeds to
Company

Per Share

$16.00

$1.12

$14.88

Total

$91,040,000

$6,372,800

$84,667,200

(1)

We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting” for additional information regarding the underwriters’ compensation.

The underwriters have the option to purchase up to an aggregate of 853,500 additional shares of common stock from us at the public offering price, less the underwriting discounts and commissions, for a period of 30 days after the date of this prospectus. The underwriters expect to deliver the shares against payment to the purchasers on or about May 6, 2019.

Joint Book-Running Managers


MORGAN STANLEY		J.P. MORGAN


Co-Managers
COWEN		CANACCORD GENUITY

May 1, 2019

LOGO

TABLE OF CONTENTS


	Page
PROSPECTUS SUMMARY		1
THE OFFERING		12
SUMMARY CONSOLIDATED FINANCIAL DATA		14
RISK FACTORS		16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		57
USE OF PROCEEDS		59
DIVIDEND POLICY		60
CAPITALIZATION		61
DILUTION		64
SELECTED CONSOLIDATED FINANCIAL DATA		67
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		69
BUSINESS		96
REGULATION		128
MANAGEMENT		140
EXECUTIVE COMPENSATION		148


	Page
CORPORATE REORGANIZATION		163
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS		164
PRINCIPAL SHAREHOLDERS		167
DESCRIPTION OF CAPITAL STOCK		171
DESCRIPTION OF CERTAIN INDEBTEDNESS		177
SHARES ELIGIBLE FOR FUTURE SALE		181
MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK		183
UNDERWRITING		187
LEGAL MATTERS		196
EXPERTS		196
WHERE YOU CAN FIND MORE INFORMATION		196
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

We are responsible for the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with any information other than in, or incorporated by reference in, this prospectus. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you or any representation that others may make to you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of any sale of the common stock. Our business, liquidity position, financial condition, prospects or results of operations may have changed since the date of this prospectus.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

The Corporate Reorganization

TransMedics Group, Inc., a recently formed Massachusetts corporation, or TransMedics Group, is currently a direct, wholly-owned subsidiary of TransMedics, Inc., a Delaware corporation. Immediately prior to the closing of this initial public offering, TMDX, Inc., a direct, wholly-owned subsidiary of TransMedics Group, will merge with and into TransMedics, Inc. with TransMedics, Inc. as the surviving corporation. As a result of the merger, each outstanding share of capital stock of TransMedics, Inc. will be converted into shares of common stock of TransMedics Group, each outstanding option to purchase shares of common stock of TransMedics, Inc. will be converted into an outstanding option to purchase shares of common stock of TransMedics Group and each outstanding warrant to purchase shares of preferred stock of TransMedics, Inc. will be converted into a warrant to purchase shares of common stock of TransMedics Group, pursuant to the terms of the Agreement and Plan of Merger and Reorganization filed as an exhibit to the registration statement of which this prospectus forms a part. We refer to this as the “Corporate Reorganization.”

Immediately following the Corporate Reorganization, (1) TransMedics Group will be a holding company with no material assets other than 100% of the equity interests in TransMedics, Inc., (2) the holders of capital stock in TransMedics, Inc. will become shareholders of TransMedics Group and (3) the historical consolidated financial statements of TransMedics, Inc. will become the historical consolidated financial statements of TransMedics Group because the Corporate Reorganization will be accounted for as a reorganization of entities under common control. Prior to the Corporate Reorganization, TransMedics Group has not conducted any activities other than in connection with its formation and in preparation for this offering and has no material assets other than 100% of the equity interests in TMDX, Inc.

Except as otherwise noted or the context otherwise requires, all information in this prospectus gives effect to the Corporate Reorganization.

Presentation of Financial and Operating Data

Unless otherwise indicated, the historical financial and operating information presented in this prospectus as of and for the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018 is that of TransMedics, Inc. References in this prospectus to “fiscal 2016” relate to the fiscal year ended December 31, 2016, references in this prospectus to “fiscal 2017” relate to the fiscal year ended December 30, 2017, references in this prospectus to “fiscal 2018” refer to the fiscal year ended December 29, 2018, and references in this prospectus to “fiscal 2019” refer to the fiscal year ending December 28, 2019.

Certain amounts and percentages included in this prospectus have been rounded. Accordingly, in certain instances, the sum of the numbers in a column of a table may not exactly equal the total figure for that column.

Industry and Market Data

The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, government publications and other published sources. Some data, such as our estimates of the potential pool of donors and our potential addressable commercial opportunity, are also based on our good faith estimates. Although we believe these third-party sources are reliable as of their respective dates, neither we nor the underwriters have independently verified the accuracy or completeness of this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications.

Trademarks and Tradenames

This prospectus contains references to our trademarks and to trademarks belonging to other entities. “TransMedics” is a registered trademark of TransMedics. The TransMedics logo, Organ Care System and OCS are trademarks of TransMedics. Each of the other trademarks, trade names and service marks included in this

prospectus belongs to its respective holder. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ^® or ^TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

iii

PROSPECTUS SUMMARY

This summary highlights information included elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read and consider this entire prospectus carefully, including the sections titled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making any investment decision. Unless the context otherwise requires, the terms “TransMedics,” the “Company,” “we,” “us” and “our” relate, prior to the Corporate Reorganization, to TransMedics, Inc., together with its consolidated subsidiaries, and, following the Corporate Reorganization, to TransMedics Group, together with its consolidated subsidiaries.

Our Business

We are a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. We developed the Organ Care System, or the OCS, to replace a decades-old standard of care that we believe is significantly limiting access to life-saving transplant therapy for hundreds of thousands of patients worldwide. Our innovative OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. We believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes.

Incidence of end-stage organ failure has been rapidly rising worldwide due to demographic trends that contribute to chronic diseases. Organ transplantation is the treatment of choice for addressing end-stage organ failure due to its positive clinical outcomes and favorable health economics. However, transplant volumes have been significantly restricted by the limitations of cold storage, the standard of care for organ transplantation. Cold storage is a rudimentary approach to organ preservation in which a donor organ is flushed with cold pharmaceutical solutions, placed in a plastic bag on top of ice and transported in a cooler. Cold storage subjects organs to significant injury due to a lack of oxygenated blood supply, or ischemia, does not allow physicians to assess organ viability and lacks the ability to optimize an organ’s condition once it has been retrieved from the donor. Time-dependent ischemic injury has been shown to result in short- and long-term post-transplant clinical complications and, together with the inability to assess or optimize organs, contributes to the severe underutilization of donor organs. While there are approximately 67,000 potential donors annually in the United States, Canada, the European Union and Australia, which we refer to as our key geographies, the majority of lungs and hearts donated after brain death, or DBD, go unutilized, and almost no available lungs and hearts donated after circulatory death, or DCD, are utilized.

We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. We designed the OCS technology platform to perfuse donor organs with warm, oxygenated, nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. Because the OCS significantly reduces injurious ischemic time on donor organs as compared to cold storage and enables the optimization and assessment of donor organs, it has demonstrated improved clinical outcomes relative to cold storage and offers the potential to significantly improve donor organ utilization.

for over 1,200 human organ transplants. We have commercialized the OCS Lung and OCS Heart outside of the United States and received our first premarket approval, or PMA, from the U.S. Food and Drug Administration, or the FDA, in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation. We expect FDA action over the next 18 months on additional applications for PMAs we have submitted in connection with our other OCS products. We submitted a PMA application to the FDA in August 2018 for the use of the OCS Lung for donor lungs currently unutilized for transplantation based on the results of our OCS Lung EXPAND Trial. As is typical for a PMA review process, in November 2018, we received a major deficiency letter, or MDL, for our PMA supplement to this PMA application. In March 2019, we submitted responses to each of the questions raised by the FDA in the MDL, including clarification analyses for subgroups, submission of the outcome data for longer time frames and other analyses as described further herein. We also submitted a PMA application to the FDA in December 2018 for the use of the OCS Heart for currently utilized and unutilized DBD donor hearts for transplantation based on the results of our OCS Heart EXPAND Trial and OCS Heart PROCEED II Trial. As is typical for a PMA review process, we received an MDL for this PMA application in March 2019, which requested clarifications and additional analyses of, and reports from, the clinical data, including subgroup analyses, outcome data at one year post-transplantation for all patients and other clarifications and explanations of the clinical findings. In addition to the clinical analyses, the MDL for our OCS Heart PMA application requested clarification and additional information on animal testing and bench testing results, sterilization, packaging and shelf-life testing, battery testing, biocompatibility testing, electromagnetic compatibility and software validation testing, as well as additional non-clinical data and clarifying information. We intend to submit our response to this MDL in the second half of 2019. Despite our response to the MDL for our PMA supplement to our OCS Lung PMA application and our intent to respond fully to the MDL for our OCS Heart PMA application, it is possible that the FDA may decide that the data from our clinical trials might not support PMA approval or any of the claims we wish to make, or the FDA could require us to gather significant additional clinical data, including additional long-term outcome data, or they could require us to conduct additional non-clinical testing, such as animal testing.

We have developed a substantial body of global clinical evidence to support our PMA applications, potential PMA applications and other regulatory approvals for the OCS for lung, heart and liver transplantation. Many of these clinical trials and studies have been published in peer-reviewed clinical journals and several additional studies are ongoing. Our clinical trials have evaluated the use of the OCS for transplantation of organs that meet the current criteria for organ transplantation, as well as organs that would otherwise go unutilized. We believe the results of our clinical trials across lung, heart and liver transplantation support the potential of the OCS in improving clinical outcomes and increasing utilization of available donor organs.

We are focused on establishing the OCS as the standard of care for solid organ transplantation. Because we believe cold storage is the primary factor limiting donor organ utilization today, we estimate our opportunity based on the existing donor pools and the potential for significantly expanded utilization with the OCS. We estimate the potential pool of DBD and DCD donors in our key geographies to be approximately 67,000 annually, with each donor having the capacity to donate more than one organ, including lung, heart and liver. Based on the utilization rates in our clinical trials and our commercial experience outside the United States, we estimate the potential annual addressable commercial opportunity for the OCS to be approximately $8 billion for lung, heart and liver transplantation combined. However, the industry in which we operate is subject to a high degree of uncertainty and risk, and these estimates could change.

The vast majority of transplant procedures are performed at a relatively small number of hospitals that have specialized organ transplant centers. For example, we estimate that approximately 50 to 55 transplant centers in the United States perform over 70% of the lung, heart and liver transplant volume. During our clinical trials, we established relationships with over 55 leading transplant programs in our key geographies and have generated a substantial body of clinical evidence. Our commercial strategy is focused on leveraging these relationships to drive deeper adoption of the OCS at the leading, large-volume academic transplant institutions. As of March 30, 2019, our sales and clinical adoption team consisted of 27 sales and clinical professionals.

Our OCS products are reimbursed in the United States through existing, standard commercial transplant billing mechanisms. The Medicare program and private payors have been providing reimbursement for the OCS Lung, OCS Heart and OCS Liver during the U.S. pivotal trials and have been providing reimbursement for the OCS Lung following FDA approval in March 2018. We believe these established channels will continue to facilitate commercial reimbursement for the OCS Lung and, if they are approved by the FDA, for the OCS Heart and OCS Liver. We are also in the process of seeking long-term reimbursement for our products outside of the United States.

Current Standards for Organ Preservation and Their Limitations

In recent years, significant innovations have been implemented in most aspects of organ transplantation surgery. However, organ preservation remains primarily limited to cold storage. Cold storage involves flushing the organs with cold pharmaceutical solutions designed to reduce organ temperature and arrest organ function. This process adversely impacts clinical outcomes and leads to underutilization of viable donor organs due to the following inherent challenges:

•

Lack of diagnostic assessment of organ viability or function: Cold storage does not support the assessment of organ function or viability because the organs are not functioning or metabolically active during cold storage. This lack of diagnostic assessment largely limits the donor pool to DBD donors, whose organs can be assessed for viability prior to retrieval because their hearts continue to beat.

•

Lack of therapeutic or optimization capabilities: Clinical studies have demonstrated the clinical benefits of replenishing donor organs with glucose, oxygen, hormones and electrolytes that are significantly altered or depleted during the donation process. Cold storage, however, does not allow for therapeutic intervention to optimize the condition of donor organs, which results in suboptimal post-transplant outcomes. In addition, transplant programs are less likely to accept organs that may appear compromised if they are unable to treat or optimize the organ, which prevents utilization of the vast majority of organs from DBD and DCD donors.

We believe the limitations of cold storage are directly responsible for the severe shortage in donor organ supply, which in 2016 resulted in approximately 77% of donated lungs and approximately 68% of donated hearts going unutilized in the United States. In addition, we believe the limitations of cold storage are the primary driver of the high rate of severe post-transplant complications that negatively impact both patients’ clinical outcomes and transplant economics for payors and providers.

Our Commercial Opportunity

We believe organ transplantation is severely supply constrained by the limitations of cold storage. While there is a national transplant waiting list that represents a snapshot of demand, we believe this waiting list significantly underrepresents the true clinical demand for organ transplants. Incidences of end-stage organ failure have been rapidly rising worldwide resulting in significant growth in the number of patients that could benefit from life-saving organ transplants. However, because the supply of donor organs has historically been constrained, the waiting list is fairly static, with annual additions to the waiting list typically matching closely the number of transplants performed or patients otherwise removed from the list. We believe that with increased utilization of donor organs for transplant, the waiting list will grow to match any increase in global supply.

We estimate our commercial opportunity based on the existing donor pools and the potential for significantly improved utilization resulting from the use of our OCS technology. We estimate that the potential pool of donors in our key geographies includes approximately 67,000 DBD and DCD donors annually. However, the industry in which we operate is subject to a high degree of uncertainty and risk, and these estimates could change. Because the OCS reduces injurious ischemic time significantly, allows for therapeutic optimization of the organ’s condition and enables diagnostic assessment, we believe the OCS could allow surgeons to utilize the vast majority of the donor pool that is currently unutilized due to the limitations of cold storage.

Our Technology and Solution

We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. The OCS was designed to perfuse donor organs with warm, oxygenated and nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment.

We developed the OCS, the first and only multi-organ platform, to leverage proprietary core technologies across multiple organs. For each OCS product, we supplement the platform with organ-specific, customized and proprietary technologies. To date, we have developed three OCS products, one for each of lung, heart and liver transplantation. OCS products for additional organs, including kidneys, are under development.

Each OCS product consists of three primary components customized for each organ:


• OCS Console: The OCS Console is a highly portable electromechanical medical device that houses and controls the function of the OCS and is designed to fit in the current workflow for organ transplantation.
• OCS Perfusion Set: The OCS Perfusion Set is a sterile, biocompatible single-use disposable set that stores the organ and circulates blood. The OCS Perfusion Set includes all accessories needed to place the organ on the system.
• OCS Solutions: The OCS Solutions are a set of nutrient-enriched solutions used with blood to replenish depleted nutrients and hormones needed to optimize the organ’s condition outside of the human body.

Our single-use OCS Perfusion Sets and OCS Solutions, which we refer to collectively as a disposable set, are required for each organ transplant. As such, our business model is characterized by a high level of recurring revenue. We expect that greater than 90% of our net revenue will be related to sales of our single-use OCS disposable sets.

The OCS technology platform is equipped with the following core technologies that we designed to comprehensively address the limitations of cold storage and improve transplant outcomes:

•

proprietary pulsatile blood pump to simulate beating heart perfusion in organs outside of the human body;

•

proprietary software-controlled titanium blood warmer to maintain blood at body temperature while maximizing portability;

•

gas exchanger to maintain organ oxygenation outside of the human body;

•

customized hemodynamics sensors to monitor and assess organ function outside of the human body;

•

proprietary software-controlled, miniaturized, electromechanical system with universal power supply and hot-swappable batteries to maximize portability and travel distance for organ retrieval;

•

proprietary wireless monitor and control software to provide an intuitive user interface for monitoring critical organ function; and

•

customized carbon fiber OCS console structure to reduce the overall weight of the system and maximize portability.

For each organ product, the OCS core technologies are supplemented with additional customized and proprietary organ-specific features to meet each organ’s requirements.

Key Advantages of the OCS Platform

We believe the OCS platform provides significant benefits relative to cold storage, including:

•

Improved Clinical Outcomes: Use of the OCS has demonstrated a substantial reduction in injurious ischemic time in all of our clinical trials. The results of our OCS Lung INSPIRE Trial, which compared the use of the OCS Lung to cold storage, demonstrated a statistically significant reduction of approximately two hours in the amount of time the organ went without oxygenation, or ischemic time. These results were achieved while allowing for an average of 1.5 incremental hours between donor and recipient. This decrease in injurious ischemic time resulted in an approximately 50% reduction relative to cold storage in the most common and severe form of lung transplant complication called primary graft dysfunction grade 3, or PGD3. PGD3 is a dangerous and costly complication as patients with it typically experience longer time on mechanical ventilation and in the intensive care unit, as well as potential long-term negative consequences. We believe these results are consistent with those of our other clinical trials and will support adoption of the OCS.

•

Increased Donor Organ Utilization: In our OCS Lung EXPAND Trial, we evaluated the use of the OCS Lung for donor organs from both DBD and DCD donors that would not otherwise have been utilized, and in our OCS Heart EXPAND Trial, we evaluated the use of the OCS Heart for donor organs from DBD donors that would not otherwise have been utilized. The lungs and hearts that were transplanted in these studies were rejected an average of 35 and 66 times, respectively, by other institutions using cold storage due to a variety of clinical and logistical reasons that may have included donor organ quality, donor age, expected injurious ischemic time or travel distance, or type of donor. In these trials, the use of the OCS resulted in an 87% utilization rate of donor lungs and an 81% utilization rate of donor hearts that otherwise would have been unutilized. The results of these trials support our belief that the OCS can significantly expand the number of organs that can be transplanted and better serve the large population of patients who need an organ transplant to survive.

Our Strategy

We are committed to transforming organ transplantation with our OCS platform by increasing the utilization of donor organs and improving clinical outcomes. We are targeting a large and highly concentrated opportunity that, we believe, currently lacks an effective solution for organ preservation, optimization and assessment. Our goal is to establish the OCS as the standard of care for organ transplantation and increase the number of organ transplants performed.

The key elements of our strategy are:

•

Target and drive deeper adoption of the OCS at leading transplant institutions. We are focused on driving adoption at leading, high volume transplant programs where we have established strong relationships during our clinical trials. We plan to leverage these centers’ familiarity with the value of the OCS to increase the number of transplants they perform and increase our penetration of their case volumes. We also plan to expand our reach to additional high volume transplant programs.

•

Continue to build clinical evidence to substantiate the benefits of the OCS and expand clinical transplant indications. Surgeons affiliated with leading academic transplant centers rely primarily on clinical evidence to drive changes in their practice. We have developed a substantial body of clinical evidence to support our PMA applications, potential PMA applications and other regulatory approvals for the use of the OCS technology in the field of organ transplantation. We plan to expand this body of clinical evidence in the post-market setting.

•

Expand the existing pool of utilizable donor organs by securing additional FDA PMA Supplements and new PMAs for expanded indications. We secured our first PMA approval for the OCS Lung in March 2018. We have several additional applications for PMAs in the pipeline, including

for our expanded lung indications and for our heart products, and we also plan to seek PMA approval for our liver products. If we are successful in obtaining such FDA approvals, we believe we will significantly expand the available donor organ pool.

•

Leverage the established commercial reimbursement process and billing mechanisms to accelerate U.S. commercial traction. Medicare and private payors provided reimbursement for the OCS Lung, OCS Heart and OCS Liver during our U.S. pivotal trials using existing commercial billing and reimbursement processes for organ transplant procedures and have provided reimbursement for the OCS Lung following FDA approval in March 2018. We believe these established methods will continue to facilitate commercial reimbursement for the OCS Lung and, if they are approved by the FDA, for the OCS Heart and OCS Liver. We are in the process of seeking long-term reimbursement for our OCS products in several other countries.

•

Develop the next generation OCS technology platform to improve user experience and expand OCS products. We intend to invest in developing the next generation, multi-organ platform to improve the user experience. We also intend to develop and seek approval for additional OCS products for other organs, including kidneys.

Preliminary Estimated Unaudited Financial Results for the Fiscal Three Months Ended March 30, 2019

Set forth below are selected preliminary consolidated financial results for the fiscal three months ended March 30, 2019 and selected consolidated financial results for the fiscal three months ended March 31, 2018. Our consolidated financial results for the fiscal three months ended March 30, 2019 are not yet available. The following information reflects our preliminary estimates with respect to such results based on information available as of the date of this prospectus and is subject to change. We have provided ranges, rather than specific amounts, for the preliminary results described below primarily because our financial closing procedures for the fiscal three months ended March 30, 2019 are not yet completed and, as a result, our final results upon completion of our closing procedures may differ materially from the preliminary estimates.


	Fiscal Three Months Ended March 31, 2018			Fiscal Three Months Ended March 30, 2019
	Fiscal Three Months Ended March 31, 2018			Low End of Range			High End of Range
	(unaudited, in thousands)
Net revenue	$	2,519		$	4,600		$	4,700
Gross profit	$	924		$	2,435		$	2,585
Loss from operations	$	(4,784	)	$	(6,150	)	$	(5,950	)
Net loss	$	(4,905	)	$	(7,050	)	$	(6,850	)

In our selected preliminary consolidated financial data above, the increase in net revenue from the fiscal three months ended March 31, 2018 to the fiscal three months ended March 30, 2019 was primarily due to U.S. commercial sales of OCS Lung disposable sets in the 2019 period, following FDA approval in March 2018 of the OCS Lung, as well as an increase from period to period in sales of OCS Liver disposable sets sold to customers for use in our OCS Liver PROTECT Trial. The year-over-year quarterly increase in gross profit was primarily due to the increase in net revenue from sales of OCS disposable sets, higher average selling prices per disposable set and lower fixed costs per disposable set. The year-over-year quarterly increase in loss from operations was primarily due to increases in selling expenses associated with commercial sales growth, general and administrative expenses supporting our growth and clinical trials expenses, and the year-over-year quarterly increase in net loss was primarily due to these same items as well as an increase in interest expense resulting from a higher amount of long-term debt outstanding in the fiscal three months ended March 30, 2019 compared to the fiscal three months ended March 31, 2018.

Our selected preliminary consolidated financial results presented above for the fiscal three months ended March 30, 2019 reflect our adoption of Accounting Standard Codification Topic 606, Revenue from Contracts

with Customers, or ASC 606, as of December 30, 2018, applied using the modified retrospective method. Under this method, (i) the new guidance is applied to customer contracts that are not yet completed as of December 29, 2018, with the cumulative effect of initially applying the new guidance recorded as an adjustment to accumulated deficit on the effective date of adoption, and (ii) our historical results for all periods prior to December 30, 2018, including for the fiscal three months ended March 31, 2018, are not adjusted. The anticipated impact of the adoption of ASC 606 on our consolidated financial statements is described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. While we have not finalized our validation of the impact of ASC 606 adoption, we expect that the revenue recognition of our OCS products will remain substantially unchanged and do not expect that the adoption of ASC 606 will have a material impact on our consolidated financial statements. Further, in the first year of adoption under the transition method we selected for adopting ASC 606, we are required to report in the footnotes to our consolidated financial statements what our operating results would have been for each of the first three quarters of fiscal 2019 and the full fiscal year prepared in accordance with the prior revenue recognition guidance. We expect that our operating results for the fiscal three months ended March 30, 2019 prepared in accordance with the prior revenue recognition guidance will not differ materially from the selected preliminary consolidated financial results presented above for the same period.

The selected preliminary consolidated financial data presented above for the fiscal three months ended March 30, 2019 is preliminary, is not a comprehensive statement of our financial results and is subject to completion of our financial closing procedures. Our actual results for the fiscal three months ended March 30, 2019 will not be available until after this offering is completed. These results may change, and those changes may be material. Further, our preliminary estimated results are not necessarily indicative of the results to be expected for the remainder of fiscal 2019 or any future period as a result of various factors, including, but not limited to, those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Accordingly, you should not place undue reliance upon these preliminary estimates.

This selected preliminary consolidated financial data has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or applied agreed-upon procedures with respect to this preliminary consolidated financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

Corporate Reorganization

The following chart illustrates our organizational structure upon completion of the Corporate Reorganization and this offering, assuming no exercise of the underwriters’ option to purchase additional shares of common stock:

LOGO

(1)	Upon the consummation of this offering, TransMedics Group will become a guarantor under our credit agreement with OrbiMed Royalty Opportunities II, LP, or the Credit Agreement.

(2)	TransMedics B.V. is a guarantor under our Credit Agreement.

Risks Associated with Our Business

•

We have incurred substantial losses since our inception, including a net loss of $23.8 million for the fiscal year ended December 29, 2018 and resulting in an accumulated deficit of $335.9 million as of December 29, 2018, and we anticipate that we will continue to incur losses in the future;

•

We may need to raise additional funding, which might not be available on favorable terms or at all;

•

We depend heavily on the success of the OCS and achieving market acceptance, and if we are unable to successfully commercialize the OCS, our business may fail;

•

Our estimates of the potential pool of donors in our key geographies and the possible size of our commercial opportunity are estimates and subject to uncertainty, risk and change;

•

The clinical trial process required to obtain regulatory approvals is lengthy and expensive, with uncertain outcomes;

•

We must continue to educate surgeons, transplant centers and private payors and demonstrate the merits of the OCS compared with cold storage or new competing technologies, and surgeons, transplant centers and private payors may require additional clinical data prior to adopting or maintaining coverage of the OCS;

•

Our long-term growth depends on our ability to improve the OCS platform, including to expand into new indications and to develop the next generation of our products;

•

We depend on a limited number of customers for a significant portion of our net revenue and the loss of, or a significant shortfall in demand from, these customers could have a material adverse effect on our financial condition and operating results;

•

Our business may not be successful if we are unable to protect, defend, maintain and enforce our intellectual property rights relating to the OCS and avoid allegations that our products infringe, misappropriate or otherwise violate the intellectual property rights of third parties; and

•

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.

The foregoing is only a summary of some of our risks. For a more detailed discussion of these and other risks you should consider before making an investment in our common stock, see “Risk Factors.”

Implications of Being an Emerging Growth Company and Smaller Reporting Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including:

•

reduced disclosure about our executive compensation arrangements;

•

exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments; and

•

exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K with the Securities and Exchange Commission, or the SEC) or we issue more than $1 billion of non-convertible debt securities over a three-year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Our Corporate Information

Our predecessor TransMedics, Inc. was incorporated in Delaware in August 1998. We were incorporated in Massachusetts in October 2018. Our principal executive offices are located at 200 Minuteman Road, Andover, MA 01810, and our telephone number is (978) 552-0900. Our website address is www.transmedics.com. Information contained on, or that can be accessed through, our website is not part of this prospectus.

THE OFFERING



Common stock offered by us		5,690,000 shares.

Common stock outstanding after this offering		20,236,097 shares (21,089,597 shares if the underwriters exercise their option to purchase additional shares in full).

Underwriters’ option to purchase additional shares of common stock from us		We have granted the underwriters an option to purchase up to an aggregate of 853,500 additional shares of common stock from us at the public offering price, less the underwriting discounts and commissions, for a period of 30 days after the date of this prospectus.

Use of proceeds		We estimate that our net proceeds from the sale of our common stock in this offering will be approximately $78.8 million, based on the initial public offering price of $16.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to support commercialization of the OCS Lung and, if approved, the OCS Heart in the United States; to fund research and development to design and manufacture the next generation of OCS technology; for clinical trial expenditures, including those relating to our pre- and post-market clinical trials, including our Thoracic Organ Perfusion Post-Approval Study Registry, our OCS Liver PROTECT Trial and the use of the OCS Heart for DCD donor hearts; and for working capital and other general corporate purposes. See “Use of Proceeds.”

Dividend policy		We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. See “Dividend Policy.”

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

Registration rights		Pursuant to an Investor Rights Agreement, certain existing holders of equity interests in TransMedics, Inc. will have registration rights with respect to shares of common stock of TransMedics Group upon completion of the Corporate Reorganization. See “Description of Capital Stock—Registration Rights.”

Nasdaq Global Market trading symbol		“TMDX”

The number of shares of common stock to be outstanding after this offering is based on 1,426,673 shares of common stock outstanding as of March 30, 2019, after giving effect to the Corporate Reorganization, including the conversion of all outstanding shares of preferred stock into an aggregate of 13,119,424 shares of common stock, and excludes:

•

1,595,150 shares of common stock issuable upon the exercise of stock options outstanding as of March 30, 2019 under our 2004 Stock Incentive Plan, or our 2004 Plan, and our 2014 Stock Incentive Plan, or our 2014 Plan, at a weighted average exercise price of $1.79 per share;

•

64,440 shares of common stock issuable upon the exercise of warrants outstanding as of March 30, 2019 to purchase shares of preferred stock that will be converted into warrants to purchase shares of common stock, at a weighted average exercise price of $10.70 per share, in connection with the Corporate Reorganization;

•

73,960 shares of common stock available for future issuance as of March 30, 2019 under our 2014 Plan;

•

3,428,571 shares of common stock that will become available for future issuance under our 2019 Stock Incentive Plan, or our 2019 Stock Plan, which includes 395,712 shares of our common stock issuable upon the exercise of options to be granted to certain of our employees and 21,645 shares of our common stock issuable upon the exercise of options to be granted to one of our directors, in each case to be granted in connection with this offering under our 2019 Stock Plan at an exercise price per share equal to the initial public offering price in this offering; and

•

371,142 shares of common stock that will become available for future issuance under our 2019 Employee Stock Purchase Plan.

Except as otherwise noted or the context otherwise requires, all information in this prospectus assumes or gives effect to:

•

the Corporate Reorganization, including (1) the conversion of all outstanding shares of preferred stock of TransMedics, Inc. into an aggregate of 13,119,424 shares of common stock of TransMedics Group; (2) the conversion of all outstanding shares of common stock of TransMedics, Inc. into an aggregate of 1,426,673 shares of common stock of TransMedics Group; (3) the conversion of each outstanding option to purchase shares of common stock of TransMedics, Inc. into an outstanding option to purchase shares of common stock of TransMedics Group adjusted on a 3.5-for-one basis, with a corresponding adjustment to the exercise price; and (4) the conversion of each outstanding warrant to purchase shares of preferred stock of TransMedics, Inc. into a warrant to purchase shares of common stock of TransMedics Group adjusted on a 3.5-for-one basis, with a corresponding adjustment to the exercise price;

•

no exercise of the outstanding stock options described above;

•

no exercise by the underwriters of their option to purchase additional shares; and

•

the filing and effectiveness of our restated articles of organization and the adoption of our amended and restated bylaws.

SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the following summary consolidated financial data 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 the related notes included elsewhere in this prospectus. The consolidated statement of operations data for the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018 and the consolidated balance sheet data as of December 29, 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.


	Fiscal Year Ended
	December 31, 2016			December 30, 2017			December 29, 2018
	(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenue	$	6,209		$	7,685		$	13,017
Cost of revenue		5,443			5,548			7,283

Gross profit		766			2,137			5,734

Operating expenses:
Research, development and clinical trials		15,637			14,957			13,656
Selling, general and administrative		8,115			7,606			12,315

Total operating expenses		23,752			22,563			25,971

Loss from operations		(22,986	)		(20,426	)		(20,237	)

Other income (expense):
Interest expense		(979	)		(1,072	)		(2,720	)
Change in fair value of preferred stock warrant liability		(105	)		159			(545	)
Other income (expense), net		5			548			(213	)

Total other expense, net		(1,079	)		(365	)		(3,478	)

Loss before income taxes		(24,065	)		(20,791	)		(23,715	)
Provision for income taxes		—			(32	)		(41	)

Net loss	$	(24,065	)	$	(20,823	)	$	(23,756	)

Net loss per share attributable to common stockholders, basic and diluted⁽¹⁾	$	(5.35	)	$	(4.48	)	$	(5.00	)

Weighted average common shares outstanding, basic and diluted⁽¹⁾		4,502			4,647			4,755

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)⁽¹⁾							$	(1.60	)

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)⁽¹⁾								14,478

(1)	See Note 14 to our consolidated financial statements included elsewhere in this prospectus for details on the calculation of basic and diluted net loss per share attributable to common stockholders and unaudited basic and diluted pro forma net loss per share attributable to common stockholders.


	As of December 29, 2018
	Actual			Pro Forma⁽²⁾			Pro Forma As Adjusted⁽³⁾
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	20,241		$	20,241		$	99,884
Working capital⁽¹⁾		22,241			22,241			104,391
Total assets		42,157			42,157			118,417
Long-term debt, net of discount		33,670			33,670			33,670
Preferred stock warrant liability		898			—			—
Convertible preferred stock		186,519			—			—
Total stockholders’ equity (deficit)		(192,242	)		(4,825	)		73,942

(1)	We define working capital as current assets less current liabilities.

(2)

The pro forma consolidated balance sheet data give effect to the Corporate Reorganization, including (i) the conversion of all outstanding shares of preferred stock of TransMedics, Inc. into an aggregate of 13,119,424 shares of common stock of TransMedics Group as of December 29, 2018, (ii) the conversion of all outstanding shares of common stock of TransMedics, Inc. into an aggregate of 1,397,493 shares of common stock of TransMedics Group as of December 29, 2018 and (iii) the conversion of all outstanding warrants to purchase shares of preferred stock of TransMedics, Inc. into warrants to purchase shares of common stock of TransMedics Group.

(3)

The pro forma as adjusted balance sheet data give further effect to (i) our issuance and sale of 5,690,000 shares of our common stock in this offering at the initial public offering price of $16.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) our payment of $1.5 million to former financial advisors upon the closing of this offering in satisfaction of contractual obligations previously recorded. As of December 29, 2018, $2.3 million of our estimated aggregate offering expenses had already been paid by us.

RISK FACTORS

An investment in our common stock involves risks. You should consider carefully the following risks and all of the other information contained in this prospectus before investing in our common stock. The risks described below are those that we believe are the material risks that we face. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. See “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this prospectus.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred substantial losses since our inception and anticipate that we will continue to incur losses in the future.

Since our inception, we have incurred significant operating losses. Our ability to generate net revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our Organ Care System, or the OCS, products. We generated net revenue of $7.7 million and $13.0 million for the fiscal years ended December 30, 2017 and December 29, 2018, respectively, and incurred net losses of $20.8 million and $23.8 million for those same years. As of December 29, 2018, we had an accumulated deficit of $335.9 million. To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, as well as revenue from clinical trials and commercial sales of our OCS products. Our losses have resulted principally from costs incurred in connection with our research and development, clinical trials, manufacturing and commercialization activities.

We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the U.S. and select non-U.S. markets, including growing our sales and clinical adoption team, which will pursue increasing commercial sales and clinical adoption of our OCS products; scaling our manufacturing operations; continuing research, development and clinical trial efforts; and seeking regulatory clearance for new products and product enhancements, including new indications, in both the U.S. and select non-U.S. markets. Further, following the closing of this offering, we expect to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding for expenses related to our operating activities, including selling, general and administrative expenses and research, development and clinical trials expenses. Because of the numerous risks and uncertainties associated with product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Until such time, if ever, as we can generate substantial net revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings, debt financings and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements, when needed, on favorable terms or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.

We may need to raise additional funding, which might not be available on favorable terms or at all. Raising additional capital may cause dilution to our shareholders.

As we continue to pursue and increase commercial sales of our OCS products, we expect our costs and expenses to increase in the future, particularly as we expand our sales and clinical adoption team, scale our manufacturing operation, continue research, development and clinical trial efforts, and seek regulatory clearance for new products and product enhancements, including new indications, both in the United States and in select non-U.S. markets. In addition, upon the closing of this offering, we expect to incur additional costs

associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend on many factors, including:

•

the amount of net revenue generated by sales of our OCS Consoles, OCS Perfusion Sets and OCS Solutions and other products that may be approved in the United States and select non-U.S. markets;

•

the costs and expenses of expanding our U.S. and non-U.S. sales and marketing infrastructure and our manufacturing operations;

•

the extent to which our OCS products are adopted by the transplant community;

•

the ability of our customers to obtain adequate reimbursement from third-party payors for procedures performed using the OCS products;

•

the degree of success we experience in commercializing our OCS products for additional indications;

•

the costs, timing and outcomes of any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

•

the emergence of competing or complementary technologies;

•

the number and types of future products we develop and commercialize;

•

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and

•

the level of our selling, general and administrative expenses.

Additional capital might not be available when we need it, and our actual cash requirements might be greater than anticipated. If we require additional capital at a time when investment in our industry or in the marketplace in general is limited, we might not be able to raise funding on favorable terms, if at all. If we are not able to obtain financing on terms favorable to us, we may need to cease or reduce development or commercialization activities, sell some or all of our assets or merge with another entity, which could result in a loss of all or part of your investment.

In addition, if we raise additional funds through the issuance of equity or convertible securities, the issuance of these securities could dilute your percentage ownership in our company. Furthermore, newly issued securities may have rights, preferences or privileges senior to those of common shareholders. If we raise additional funds through additional debt financing, we may need to dedicate a substantial additional portion of any operating cash flows to the payment of principal and interest on such indebtedness. The terms of any debt financing also could impose significant restrictions on our operations.

Our existing and any future indebtedness could adversely affect our ability to operate our business.

As of December 29, 2018, we had $35.0 million of outstanding long-term debt under our credit agreement with OrbiMed Royalty Opportunities II, LP, or OrbiMed, which we refer to as the Credit Agreement. We could incur additional indebtedness in the future. Our payment obligations under the Credit Agreement reduce cash available to fund working capital, capital expenditures, research and development and general corporate needs. In addition, indebtedness under the Credit Agreement bears interest at a variable rate, making us vulnerable to increases in market interest rates. If market rates increase substantially, we will have to pay additional interest on this indebtedness, which would further reduce cash available for our other business needs.

Our obligations under the Credit Agreement are secured by substantially all of our assets and the assets of our wholly-owned subsidiaries. The security interest granted over our assets could limit our ability to obtain additional debt financing. In addition, the Credit Agreement contains negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends or redeeming stock or making other distributions; making certain

investments; liquidating our company; modifying our organizational documents; entering into sale-leaseback arrangements and engaging in certain other business transactions. In addition, we are required to maintain a minimum liquidity amount of $3.0 million and are required, on an annual basis, to deliver to OrbiMed annual audited financial statements with an unqualified audit opinion from our independent registered public accounting firm. Failure to comply with the covenants in the Credit Agreement, including the minimum liquidity and unqualified audit opinion covenants, could result in the acceleration of our obligations under the Credit Agreement, and, if such acceleration were to occur, it would materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

We may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under our debt arrangements. The obligations under the Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to regulatory approvals and a material adverse change in our business, operations or other financial condition. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, OrbiMed may declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be due and payable. Upon the occurrence of certain events of bankruptcy or insolvency, all of the outstanding principal amount of the borrowings plus accrued and unpaid interest will automatically become due and payable.

Our outstanding indebtedness and any future indebtedness, combined with our other financial obligations, could increase our vulnerability to adverse changes in general economic, industry and market conditions, limit our flexibility in planning for, or reacting to, changes in our business and the industry and impose a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. See “Description of Certain Indebtedness.”

Our financial results may fluctuate from quarter to quarter, which makes our results difficult to predict and may cause our results to fall short of expectations.

Our financial results may fluctuate from quarter to quarter due to a number of factors, including the timing of our clinical trials, the availability of donor organs for transplantation, which is unpredictable and could impact the volume of transplant procedures performed at transplant centers using the OCS, and foreign currency exchange rates. We expect that revenue from sales will fluctuate significantly from quarter to quarter, and our future quarterly and annual expenses as a percentage of our revenue may be significantly different from those we have recorded in the past. Our financial results in some quarters may fall below expectations. Comparing our financial results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Because the timing of organ transplant procedures is generally unpredictable, we have not experienced seasonality in our business from quarter to quarter and do not expect to do so in the foreseeable future.

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

As of December 29, 2018, we had U.S. federal and state net operating loss, or NOL, carryforwards of $246.6 million and $179.1 million, respectively, which may be available to offset future taxable income, of which $215.2 million and $179.1 million begin to expire in 2019 and 2030, respectively, and of which $31.4 million related to U.S. federal income taxes do not expire but are limited in their usage to an annual deduction equal to 80% of annual taxable income. As of December 29, 2018, we also had U.S. federal and state research and development tax credit carryforwards of $6.4 million and $4.3 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2020 and 2024, respectively. A material portion of these NOL and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change,” generally defined as a greater than 50%

change by value in its equity ownership over a three-year period, is subject to limitations on its ability to utilize its pre-change NOLs, its research and development credit carryforwards and its disallowed interest expense carryovers to offset future taxable income. Our existing NOLs and research and development credit carryforwards may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs and research and development credit carryforwards could be further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, some of which might be beyond our control, could result in an ownership change under Section 382 of the Code. Our NOLs and credits may also be impaired under state law. For these reasons, if we determine that an ownership change has occurred or in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs, research and development credit carryforwards or disallowed interest expense carryovers incurred prior to 2018.

Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U.S. federal and state taxable income. As described above, we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOL or credit carryforwards. Under the Tax Cuts and Jobs Act, or TCJA, NOLs arising in taxable years beginning after December 31, 2017 will not be subject to expiration. In addition, the deduction for NOLs in any taxable year is limited to 80% of annual taxable income in respect of NOLs generated during or after 2018. The TCJA also reduced the corporate income tax rate to 21%, from a prior rate of 35%. This may cause a reduction in the potential economic benefit of our NOLs and other available deferred tax assets.

Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements for the fiscal year ended December 29, 2018 with respect to this uncertainty. Our ability to continue as a going concern will require us to obtain additional funding. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months. Without giving effect to the net proceeds from this offering, we expect that our existing cash and cash equivalents as of December 29, 2018 will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments through September 2019. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.

Risks Related to Research and Development and Commercialization

We depend heavily on the success of the OCS and achieving market acceptance. If we are unable to successfully commercialize the OCS, our business may fail.

We have invested all of our efforts and financial resources in the development of the OCS. While the OCS Lung received premarket approval, or PMA, from the U.S. Food and Drug Administration, or the FDA, for the preservation of donor lungs currently utilized for double-lung transplantation, and our OCS products have received the Conformité Européenne, or CE Mark, and several other international regulatory approvals for lung, heart and liver for sales outside the United States, we might not be able to commercialize successfully the OCS for the approved indications or obtain approvals for additional indications or in additional jurisdictions on our planned timing or at all. Our ability to generate product revenue and become profitable depends solely on sales of OCS Perfusion Sets and OCS Solutions, which we refer to collectively as disposable sets, and OCS Consoles. Our assumptions regarding demographic trends, donor organ availability and the use of transplantation as a treatment for end-stage organ failure may prove to be incorrect.

In order to achieve market acceptance for the OCS, we expect that we will need to demonstrate to surgeons, transplant center program directors and private payors that the OCS potentially results in some or all of the following: improvements in post-transplant clinical outcomes, increases in the utilization of donor organs, expansion of the pool of potential donors and reduction in the total cost of care as compared to available alternatives. Data from our ongoing or future clinical trials may not demonstrate that the OCS provides these benefits. Our estimates of the potential pools of donors are only estimates and subject to uncertainty, risk and change. In addition, the medical community might not consider data collected from our patient registry meaningful or compelling, or the data collected from our patient registry or any clinical or commercial experience could indicate that the OCS is unsafe, which would substantially undermine our commercialization efforts.

Surgeons, transplant centers and private payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. We expect that the cost of the OCS will significantly exceed the cost of cold storage preservation. In addition, surgeons may not be willing to undergo training to use the OCS, may decide the OCS is too complex to adopt without appropriate training and may choose not to use the OCS. Based on these and other factors, transplant center program directors and private payors may decide that the benefits of the OCS do not outweigh its costs. In addition, adoption of the OCS may be constrained by the capacity of individual transplant centers to perform transplants due to factors such as the number of its surgeons trained on the use of the OCS. As a result, demand for the OCS could be materially lower than we expect it to be, which would materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

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

We have obtained PMA approval for the OCS Lung for certain lung transplants in the United States. In order to obtain PMA approval for a device, the sponsor must conduct clinical trials, often well-controlled clinical studies, designed to assess the safety and effectiveness of the product. Conducting clinical trials is a complex and expensive process, can take many years and outcomes are inherently uncertain. We incur substantial expense for, and devote significant time to, clinical trials but cannot be certain that the product tested will ever generate revenue sufficient to cover the costs of trials. We may experience significant setbacks in clinical trials, even after earlier clinical trials showed promising results, and failure can occur at any time during the clinical trial process. Any of our products may malfunction or may produce undesirable adverse effects that could cause us or regulatory authorities to interrupt, delay or halt clinical trials. We, the FDA or another regulatory authority may suspend or terminate clinical trials.

Successful results in early studies do not assure positive results in subsequent clinical trials. The data we collect from our preclinical studies and clinical trials may not be sufficient to support FDA or other regulatory clearance or approval. Additionally, the FDA may disagree with our interpretation of the data from our studies and trials. The FDA may conclude that the clinical trial design, conduct or results are inadequate to prove safety or effectiveness, and the FDA may require us to undertake expensive and lengthy additional trials, which may delay clearance or approval of products.

Clinical trials are necessary to support PMA applications and may be necessary to support PMA supplements for modified versions of our marketed device products. Trials often require enrollment of large numbers of subjects, who may be difficult to identify, recruit and maintain as participants in the clinical trial. For example, the clinical trials supporting the PMA application for the OCS Lung involved 349 randomized and transplanted patients. As a condition of our PMA approval for the OCS Lung, we are required to conduct two post-market studies. Adverse outcomes in post-approval studies can result in withdrawal of approval of a PMA or restrictions on the approval. We will need to conduct additional clinical studies to support use of the OCS in, and development of OCS products for, new organs, like kidney, and for commercialization of our products in additional foreign jurisdictions. Clinical trials in organ transplant are difficult to design and implement, take substantial time to conduct and are expensive. The results of clinical trials are inherently uncertain. The initiation

and completion of any studies may be prevented, delayed or halted for numerous reasons. The following could adversely affect the costs, timing or successful completion of our clinical trials:

•

we have been required and, prior to collecting clinical data in the future to support new PMA applications, will be required again to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials, and the FDA may reject our IDE application and notify us that we may not begin investigational trials;

•

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

•

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

•

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

•

clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

•

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

•

our third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;

•

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

•

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

•

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

•

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

•

we may be unable to recruit a sufficient number of clinical trial sites;

•

regulators, IRBs or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;

•

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

•

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

Patient enrollment in clinical trials and completion of patient follow-up depend on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, patient compliance, competing clinical trials and clinicians’ and patients’

perceptions as to the potential advantages of the product being studied in relation to other available products or services. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of a product, or they may be persuaded to participate in contemporaneous clinical trials of a competitor’s product. In addition, patients participating in our clinical trials may drop out before completion of the trial or experience adverse medical events unrelated to our products. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may delay commencement or completion of the clinical trial, cause an increase in the costs of the clinical trial and delays, or result in the failure of the clinical trial.

Clinical trials must be conducted in accordance with the regulations of the FDA and other applicable regulatory authorities’ legal requirements and regulations and are subject to oversight by these governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our devices produced under certain requirements of the Quality System Regulation, or QSR, and other regulations. Furthermore, we rely on clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on transplant centers to conduct our clinical trials in compliance with good clinical practice, or GCP, requirements. To the extent that transplant centers fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both. In addition, clinical trials that are conducted in countries outside the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. institutions, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.

Failure can occur at any stage of clinical testing. Our clinical studies may produce negative or inconclusive results, and, in the future, we may decide, or regulators may require us, to conduct clinical and non-clinical testing in addition to those we have planned. For example, in a November 2018 major deficiency letter, or MDL, for our PMA supplement to our OCS Lung PMA application and a March 2019 MDL for our OCS Heart PMA application, each as described further below, the FDA asked us for additional available data and supplemental analyses. While we believe we have responded in full to the MDL regarding the PMA supplement to our OCS Lung PMA application and intend to fully respond to the MDL regarding our OCS Heart PMA application, in the future, the FDA could ask us to conduct additional clinical trials or submit additional evidence to support these PMA applications if the FDA does not believe the data we have already submitted, or intend to submit in response to the OCS Heart MDL, is sufficient. Our failure to adequately demonstrate the safety and effectiveness of the OCS or any product we may develop in the future would prevent receipt of regulatory clearance or approval and, ultimately, the commercialization of that product or indication for use. Even if our future products are cleared or approved in the United States, commercialization of our products in foreign countries would require approval by regulatory authorities in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. Any of these occurrences could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

We must continue to educate surgeons, transplant centers and private payors and demonstrate the merits of the OCS compared with cold storage or new competing technologies. Surgeons, transplant centers and private payors may require additional clinical data prior to adopting or maintaining coverage of the OCS.

Directors of transplant programs are key decision-makers in the adoption of novel medical devices used in organ transplantation. An important part of our commercialization efforts is to educate transplant center program directors and other surgeons on the relative merits of the OCS. Our success depends, in large part, on effectively marketing and educating program directors and other surgeons about the benefits of the OCS. Acceptance of the OCS also depends on educating program directors, other surgeons and private payors as to the distinctive characteristics, perceived medical and economic benefits, safety and ease of use and cost-effectiveness of the OCS.

If program directors, other surgeons and private payors do not find our body of published clinical evidence and data compelling or wish to wait for additional studies, they may choose not to use or provide coverage and reimbursement for our products. Currently, national healthcare systems do not reimburse transplant centers for the use of the OCS and reimbursement in international markets may require us to undertake additional clinical studies.

In addition, the long-term effects of our OCS beyond one to two years following transplantation are not yet known. Certain surgeons, transplant centers and private payors may prefer to see longer-term safety and efficacy data than we have produced. We cannot provide assurance that any data that we or others may generate in the future will be consistent with that observed in our existing clinical studies.

Our long-term growth depends on our ability to improve the OCS platform, including by expanding into new indications and developing the next generation of our products.

Our business plan contemplates that we will continue to improve the OCS platform, including by expanding into additional organs and developing the next generation of our products. Developing such new or modified products is expensive and time-consuming and diverts management’s attention away from current operations. The success of any new product offering or product enhancements to our OCS platform will depend on several factors, including our ability to:

•

properly identify and anticipate surgeon and patient needs;

•

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

•

avoid infringing upon, misappropriating or otherwise violating the intellectual property rights of third parties;

•

demonstrate the safety and efficacy of new products and product modifications;

•

obtain necessary regulatory clearances or approvals;

•

comply with regulations regarding the marketing of new products or product modifications;

•

provide adequate training to potential users of our products;

•

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

•

develop an effective sales and marketing effort.

In addition, issues pertaining to the core technology of the OCS could negatively affect adoption of the OCS across the OCS platform. If we are not successful in expanding our indications and developing the next generation of our products, our ability to increase our revenue may be impaired, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

We generate a significant amount of our net revenue from a limited number of customers. For the fiscal year ended December 29, 2018, Harefield Hospital and Massachusetts General Hospital each accounted for 10% of our net revenue, and for the fiscal year ended December 30, 2017, Harefield Hospital accounted for 16% of our net revenue. We expect that sales to relatively few customers will continue to account for a significant percentage of our net revenue in future periods. However, these customers or any of our other customers may not continue to utilize our products at current levels, pricing, or at all, and our revenue could fluctuate significantly due to changes in economic conditions, the use of other methods for organ preservation, such as cold storage, or the loss of, reduction of business with, or less favorable terms with any of our largest customers. Our future success will depend upon the timing and volume of business from our largest customers and the financial and operational success of these customers. If we were to lose one of our key customers or have a key customer significantly reduce its volume of business with us, our revenue may be materially reduced, which would materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

We depend on single-source suppliers and, in a few cases, sole-source suppliers for many of the components used in the OCS.

We rely on single-source suppliers and, in a few cases, sole-source suppliers for many of the components used in the OCS. A single-source supplier is a supplier from which we make all purchases of a particular component used in the OCS even though other suppliers of the component exist. A sole-source supplier is a supplier from which we make all purchases of a particular component used in the OCS, and the supplier is the only source of that particular component in the market. For example, each of Fresenius Kabi Austria GmbH and Fresenius Kabi AB, which we refer to collectively as Fresenius, is our single-source supplier of OCS Solutions for the OCS Lung and the OCS Heart, respectively. While we have manufacturing and supply agreements with certain of our suppliers, for most of our suppliers, we place purchase orders on an as-needed basis. Our suppliers could discontinue the manufacturing or supply of these components at any time. We do not carry a significant inventory of these components. Our suppliers may not be able to meet our demand for their products, either because of acts of nature, the nature of our agreements with those manufacturers or our relative importance to them as a customer, and our manufacturers may decide in the future to discontinue or reduce the level of business they conduct with us. We might not be able to identify and qualify additional or replacement suppliers for any of these components quickly or at all or without incurring significant additional costs. We cannot guarantee that we will be able to establish alternative relationships on similar terms, without delay or at all. We may also face regulatory delays or be required to seek additional regulatory clearances or approvals if we experience any delay or deficiency in the quality of products obtained from suppliers or if we have to replace our suppliers. In addition, many of the components used in the OCS are specifically designed for use in the OCS, which means that off-the-shelf components may not be available as substitutes.

Establishing additional or replacement suppliers for any of these materials or components, if required, or any supply interruption from our suppliers, could limit our ability to manufacture our products, result in production delays and increased costs and adversely affect our ability to deliver products to our customers on a timely basis. Our inability to obtain sufficient quantities of components for the OCS also could adversely affect clinical development of the OCS. If we are not able to identify alternate sources of supply for the components, we might have to modify our product to use substitute components, which could cause delays in shipments, increase design and manufacturing costs and increase prices for our products. Any such modified product might not be as effective as the predecessor product or might not gain market acceptance. This could lead to customer dissatisfaction and damage to our reputation and could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

We have limited experience in manufacturing the OCS on a commercial scale and may encounter problems at our manufacturing facility or otherwise.

We have limited experience in manufacturing the OCS on a commercial scale. In order to manufacture the OCS in quantities sufficient to meet our anticipated commercial opportunity, we will need to increase our manufacturing capabilities. We may encounter technical challenges to increasing the scale at which we manufacture the OCS, including with respect to material procurement and quality control and assurance. An increase in production could make it more difficult for us to comply with quality system regulations or other applicable requirements that are currently enforced by the FDA and other regulatory authorities, or that may be introduced in the future, in both the United States and in other countries. Commercial scale production of the OCS on a continuing basis also will require us to hire and retain additional management and technical personnel who have the necessary manufacturing experience and skills. We might not successfully identify, hire or retain qualified personnel on a timely basis or at all. Our inability to increase the scale of our manufacturing of the OCS could impair our ability to generate revenue and adversely affect market acceptance of our product.

In addition, all of our manufacturing operations are conducted at a single facility in Andover, Massachusetts. Any interruption in operations at this location could result in our inability to satisfy product demand. Despite our efforts to safeguard this facility, including acquiring insurance on commercially reasonable terms, adopting environmental health and safety protocols and utilizing off-site storage of computer data, a

number of factors could damage or destroy our manufacturing equipment or our inventory of component supplies or finished goods, cause substantial delays in our operations, result in the loss of key information, and cause us to incur additional expenses, including relocation expense, including:

•

operating restrictions, partial suspension or total shutdown of production imposed by regulatory authorities;

•

equipment malfunctions or failures;

•

technology malfunctions;

•

work stoppages;

•

damage to or destruction of the facility due to natural disasters or other events; or

•

regional or local power shortages.

Our insurance may not cover our losses in any particular case, or insurance may not be available on commercially reasonable terms to cover certain of these catastrophic events. In addition, regardless of the level of insurance coverage, damage to our facilities or any disruption that impedes our ability to manufacture the OCS in a timely manner could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Risks Related to Our Business and Industry

Failure to maintain an ethical and inclusive corporate culture, or damage to our reputation, could have a material adverse effect on our business.

We strive to create a culture in which our employees act with integrity, treat each other with respect and consider themselves empowered to report suspected misconduct. Our ability to attract and retain a high-quality workforce depends upon our commitment to a diverse and inclusive environment, along with our perceived trustworthiness and ethics. Allegations of misconduct by employees, particularly leaders, erode trust and confidence and cause reputational damage. Negative public opinion can result from actual or alleged conduct by the Company or those currently or formerly associated with the Company. Issues can arise in any number of circumstances, including employment-related offenses such as workplace harassment and discrimination, regulatory noncompliance, and failure to properly use and protect data and systems, as well as from actions taken by regulators or others in response to such conduct. Addressing allegations of misconduct detracts focus from business operations and is expensive. In 2018, for example, we resolved a claim based on allegations by a former employee relating to our Chief Executive Officer. Our board of directors, assisted by outside counsel, concluded that our Chief Executive Officer had exhibited poor personal judgment but had not violated state or federal employment discrimination laws (or engaged in any other illegal conduct). Allegations may be made against us and our executives in the future, and we may incur costs defending or settling such claims. We have adopted policies to promote compliance with laws and regulations as well as to foster a respectful workplace for all employees. These policies, which include a code of business conduct and ethics, an insider trading policy, a Regulation FD policy, a sexual harassment policy, a regulated fraternization policy, and a whistleblower policy, are a component of our effort to minimize employee misconduct as well as activities that frequently result in allegations of misconduct, but our employees may fail to abide by these policies. In addition to damaging our reputation, actual or alleged misconduct could affect the confidence of our shareholders, regulators and other parties and could have a material adverse effect on our business, financial condition and operating results.

Our failure to compete effectively will harm our business and operating results.

A broad range of medical device, pharmaceutical and biotechnology companies offer products, procedures and therapies that have the potential to limit the demand for organ transplantation. Companies within this group vary depending on the type of organ. New therapies for chronic obstructive pulmonary disease, or COPD, which

includes emphysema and chronic bronchitis, could limit the demand for lung transplants. For heart transplants, these alternative products, procedures and therapies include ventricular assist devices, cardiac rhythm management products, total artificial hearts, drug therapies for the heart and surgical procedures. Improved treatments for chronic diseases or conditions affecting the liver as well as efforts to develop artificial livers could limit the need for liver transplants. If demand for organ transplants decreases, sales of the OCS and its components will suffer.

Other companies may develop technologies and products that result in improved patient outcomes or are safer, easier to use, less expensive or more readily accepted than the OCS. Their products or technologies could make the OCS obsolete or noncompetitive. Other companies may also obtain FDA or other regulatory approval or clearance for their products sooner than we may obtain approval or clearance for the OCS. Many of these providers of alternative products, procedures and therapies have greater name recognition, significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and clearances and marketing and selling products than we do. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Third parties may also compete with us in recruiting and retaining qualified medical, engineering and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to or necessary for our products or development programs or otherwise advantageous to our business. Our failure to compete effectively will harm our business and operating results.

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches or data corruption could materially disrupt our operations and adversely affect our business and operating results.

The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage sales and marketing data, accounting and financial functions, inventory management, product development tasks, clinical data, donor and patient data, customer service and technical support functions. Our information technology systems are vulnerable to damage or interruption from earthquakes, fires, floods and other natural disasters; terrorist attacks; cyber-based attacks; attacks by computer viruses or hackers; power losses, computer system or data network failures; security breaches and data corruption. Federal, state and international laws and regulations, such as the European Union’s General Data Protection Regulation, or the GDPR, which took effect in May 2018, can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties and significant legal liability, if our information technology security efforts fail. In addition, our software systems include cloud-based applications that are hosted by third-party service providers with security and information technology systems subject to similar risks.

The failure of either our or our service providers’ information technology could disrupt our entire operation or result in decreased sales, increased overhead costs and product shortages, all of which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Economic, political and other risks associated with foreign operations could adversely affect our international sales and our results of operations.

Because we market the OCS in countries in Europe, the Asia-Pacific, Central Asia and Canada and plan to market it in other international markets, we are subject to risks associated with doing business internationally. During the fiscal years ended December 30, 2017 and December 29, 2018, 64% and 50%, respectively, of our net revenue was generated from customers located outside of the United States. Even if we are successful in commercializing the OCS in the United States, we anticipate that international sales will represent a substantial

portion of our total sales. In addition, some of our employees and suppliers are located outside of the United States. Accordingly, our results of operations could be harmed by a variety of factors, including:

•

changes in a country’s or region’s political or economic conditions, including any potential impact resulting from the U.K.’s decision to exit the European Union, commonly referred to as “Brexit”;

•

longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions;

•

different or changing regulatory or insurance practices regarding reimbursement for transplant procedures;

•

difficulties in developing effective marketing campaigns in unfamiliar foreign countries;

•

trade protection measures, import or export licensing requirements or customs clearance and shipping delays;

•

fluctuations in foreign currency exchange rates;

•

differing tax laws and changes in those laws in the countries in which we are subject to tax, or potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to our corporate structure, and restrictions on the repatriation of earnings;

•

changes in international legislation or regulations governing the approval or clearance process for the OCS or ongoing compliance requirements;

•

differing business practices associated with foreign operations;

•

difficulties in staffing and managing our international operations;

•

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

•

the burdens of complying with a wide variety of foreign laws and different legal standards, such as anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, or the FCPA, and U.K. Bribery Act of 2010, or the Bribery Act, data privacy requirements, labor laws and anti-competition regulations;

•

differing protection of intellectual property; and

•

increased financial accounting and reporting burdens and complexities.

We rely on shipping providers to deliver products to our customers globally. Labor, tariff or World Trade Organization-related disputes, piracy, physical damage to shipping facilities or equipment caused by severe weather or terrorist incidents, congestion at shipping facilities, inadequate equipment to load, dock and offload our products, energy-related tie-ups or other factors could disrupt or delay shipping or off-loading of our products domestically and internationally. Such disruptions or delays could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

If one or more of these risks are realized, our business, financial condition, operating results, cash flows and prospects could be materially and adversely affected.

Our success depends on our ability to retain our founder and President and Chief Executive Officer and other members of our management team and to attract, retain and motivate qualified personnel.

Our success depends on our continued ability to attract, retain and motivate highly qualified clinicians, surgeons, scientists, engineers, managers and sales personnel. Dr. Waleed H. Hassanein, our founder and President and Chief Executive Officer, and other members of our management team are important to the success of our operations and to our efforts to develop and commercialize the OCS. All of these key employees, including Dr. Hassanein, are at-will employees and can terminate their employment with us at any time. The loss of any of these key members of our management team and, in particular, Dr. Hassanein, could impede our

achievement of our research, development and commercialization objectives. In addition, it will be an event of default under our Credit Agreement if Dr. Hassanein ceases to be our President and Chief Executive Officer and we do not hire a replacement that is reasonably acceptable to OrbiMed within 120 days. We maintain $1.0 million of “key person” insurance policy on the life of Dr. Hassanein, but we do not maintain such insurance on any of our other employees.

In addition, our expected growth will require us to hire a significant number of qualified personnel, including clinical development, regulatory, sales, marketing, engineering, scientific, clinical support and administrative personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we cannot continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we might not be able to sustain our operations or become profitable.

The failure to manage our growth effectively could harm our business.

To manage our anticipated future growth effectively, we must enhance our manufacturing capabilities, information technology infrastructure and financial and accounting systems and controls. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of the OCS for transplants involving additional indications or other organs, such as kidney. If we are unable to effectively manage our growth, our expenses may increase more than expected, our revenue could grow more slowly than expected and we might not be able to achieve our research and development and commercialization goals, which in turn could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Risks Related to Our Intellectual Property

If we fail to maintain our license to patents covering the OCS, we will lose the right to manufacture, market and sell the OCS and our business would be harmed.

Our business depends, in part, on our license from the Department of Veterans Affairs, or VA, that covers the OCS. We have a license under certain patent rights relevant to our right to manufacture, market and sell the OCS, including the OCS Perfusion Sets and OCS Solutions specific to the lung, heart, liver and kidney for use in the OCS, pursuant to a license agreement with the VA. For more information, see “Business—Intellectual Property—Department of Veterans Affairs License”. Our license agreement requires us, among other things, to pay royalties, determined as a percentage of our net sales of products covered by the licensed patents. If we fail to make these payments or otherwise fail to comply with the terms of our license agreement, the VA would have the right to terminate our license, in which case we would lose our right to manufacture, market and sell products covered by the licensed patents, which would materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the agreement. If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our license agreement with the VA or any other licensing arrangements on acceptable terms, or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully develop and commercialize the OCS or other affected products. If we or our licensors fail to adequately protect our licensed intellectual property, our ability to commercialize our products could suffer. Any disputes with our licensor or any termination of the licenses on which we depend could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we infringe or are alleged to infringe the intellectual property rights of third parties or are otherwise subject to litigation or other proceedings regarding our intellectual property rights, our business or competitive position could be adversely affected.

Our commercial success will depend in part on not infringing, misappropriating or otherwise violating the patents or other intellectual property or proprietary rights of others. Significant litigation regarding patent and other intellectual property rights occurs in the medical device industry. Third parties may claim that the OCS or aspects or uses of the OCS infringe intellectual property rights for which we do not hold licenses or other rights in the United States and abroad. Third parties in both the United States and abroad may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products.

Given the vast number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. For example, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived, so there may be applications of others now pending or recently revived patents of which we are unaware. These applications may later result in issued patents, or the revival of previously abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our products. Third parties may, in the future, assert claims that we are employing their proprietary technology without authorization, including claims from competitors or from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may have no deterrent effect. As we continue to commercialize our products in their current or updated forms, launch new products and enter new markets, competitors may claim that one or more of our products infringe their intellectual property rights as part of business strategies designed to impede our successful commercialization and entry into new markets. The large number of patents, the rapid rate of new patent applications and issuances, the complexities of the technology involved, and the uncertainty of litigation may increase the risk of business resources and management’s attention being diverted to patent litigation.

If any third-party patents were asserted against us, even if we believe such claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that the asserted third-party patents are valid, enforceable, and infringed, which could materially and adversely affect our ability to commercialize our products. In order to successfully challenge the validity of any U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. We may choose or, if we are found to infringe a third party’s patent rights and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing, and marketing any of our products. 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 and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing the infringing technology or products. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent or other intellectual property right. There could also be public announcements of the results of hearing, motions, or other interim developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations and prospects.

Our industry has experienced substantial litigation and other proceedings regarding patent and other intellectual property rights and lawsuits to protect or enforce our patents and other intellectual property rights could be expensive, time-consuming and unsuccessful.

In addition to infringement claims against us, we may become a party to other types of patent litigation and other proceedings, including post-grant proceedings declared by the United States Patent and Trademark Office, or USPTO, and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to the OCS. For example, we may be subject to a third-party preissuance submission of prior art to the USPTO, or become involved in post-grant review procedures, oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete. Patent litigation and other proceedings may also absorb significant management time.

In addition, competitors and other third parties may infringe, misappropriate or otherwise violate our patents and 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 and divert the time and attention of our management. In addition, many of our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can.

A court may disagree with our allegations and may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the third-party technology in question. Furthermore, the other party could counterclaim that we infringe their intellectual property or counterclaim that a patent we have asserted against them is invalid or unenforceable, or both. In patent litigation in the United States, counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. Similarly, third parties may initiate legal proceedings against us seeking a declaration that certain of our intellectual property rights are non-infringed, invalid, or unenforceable. The outcome of any such proceeding is generally unpredictable.

An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our products, we would lose at least part, and perhaps all, of the patent protection covering such product. Competing products may also be sold in other countries in which our patent coverage might not exist or be as strong. Any of these outcomes would have a material adverse effect on our business.

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 litigation. There could also be public announcements of the results of hearing, motions, or other interim developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Even if we ultimately prevail, a court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may not be an adequate remedy. Furthermore, the monetary cost of such litigation and the diversion of the attention of our management could outweigh any benefit we receive as a result of the proceedings. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business.

If we are unable to establish, maintain or adequately protect our intellectual property rights relating to the OCS, the commercial value of the OCS will be adversely affected and our competitive position could be harmed.

Our success and ability to compete depend in part upon our ability to establish and maintain intellectual property rights covering the OCS in the United States and other countries. We own or have an exclusive license under several patents and patent applications in the United States and corresponding patents and patent applications in a number of foreign jurisdictions. All but one of the issued United States patents under the VA license expired in 2017 and the issued international patents expired in 2018. With respect to the unexpired, issued U.S. patent licensed from the VA, we have filed an application for patent term extension that, if granted, would extend the term of that patent until 2022. With respect to the patents and patent applications that we own, any patents that have or may issue from our currently issued or pending patent applications would be expected to expire between 2023 and 2036, assuming all required fees are paid.

However, we cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our OCS technology, any additional features we develop for our OCS technology or any new products. Other parties may have developed technologies that may be related to or competitive with our system, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position. The patent positions of medical device companies, including our patent position, may involve complex legal and factual questions, and, therefore, the scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Even if issued, our patents may be challenged, narrowed, held unenforceable, invalidated or circumvented, or others could challenge the inventorship, ownership or enforceability of our patents and patent applications, any of which could limit our ability to stop competitors from marketing similar products or limit the term of patent protection we may have for our products, or cause us to lose our right to manufacture, market and sell the OCS products or components of the OCS products. Proceedings challenging our patents could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to commercialize our products.

Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection, which in turn could diminish the commercial value of the OCS. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

•

any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect the OCS;

•

any of our pending patent applications will issue as patents;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

If we are unable to obtain patent term extension under the Hatch-Waxman Amendments our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of our products, one or more of the U.S. patents we own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. For example, we currently have a pending patent term extension request based on the recently approved OCS Lung that, if granted, would increase the term of one of our patents by up to five years. The Hatch-Waxman Amendments permit a patent restoration term of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, even if, at the relevant time, we have an issued patent covering our product, we may not be granted an extension if we were, for example, to fail to exercise due diligence during the testing phase or regulatory review process, to fail to apply within applicable deadlines or prior to expiration of relevant patents or otherwise to fail to satisfy applicable requirements. Moreover, the time period of the extension or the scope of patent protection afforded could be less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval and only those claims covering the approved product, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we can enforce our patent rights for the applicable product will be shortened and our competitors may obtain approval of competing products following our patent expiration. As a result, our ability to generate revenues could be materially adversely affected. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. If we do not have adequate patent protection or other exclusivity for our products, our business, financial condition or results of operations could be materially adversely affected.

Recent changes in U.S. patent laws may limit our ability to obtain, defend and/or enforce our patents.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a first-to-file system. The first-to-file provisions, however, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.

However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the enforcement and defense of our issued patents. For example, the Leahy-Smith Act provides that an administrative tribunal known as the Patent Trial and Appeals Board, or PTAB, provides a venue for challenging the validity of patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although it is not clear what, if any, long-term impact the PTAB proceedings will have on the operation of our business, the initial results of patent challenge proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S. patent claims. The availability of the PTAB as a lower-cost, faster and potentially more potent tribunal for challenging patents could increase the likelihood that our own patents will be challenged, thereby increasing the uncertainties and costs of maintaining and enforcing them.

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

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.

If we are unable to protect the confidentiality of our trade secrets, the value of the OCS and our business and competitive position could be harmed.

In addition to patent protection, we also rely upon trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures, trade secret violations are often a matter of state law, and the criteria for protection of trade secrets can vary among different jurisdictions. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. We also have agreements with our employees, consultants and third parties that obligate them to assign inventions made in the course of their work for us to us, however these agreements may not be self-executing, not all employees or consultants may enter into such agreements, or employees or consultants may breach or violate the terms of these agreements, and we may not have adequate remedies for any such breach or violation. If any of our intellectual property or confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, the value of the OCS and our business and competitive position could be harmed.

We may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, including trade secrets or know-how, or are in breach of non-competition or non-solicitation agreements with our competitors and third parties may claim an ownership interest in intellectual property we regard as our own.

Many of our employees and consultants were previously employed at or engaged by other medical device, biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, consultants and contractors may have executed proprietary rights, non-disclosure and non-

competition agreements in connection with such previous employment. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property or disclosed the alleged trade secrets or other proprietary information, of these former employers, competitors or other third parties. Additionally, we may be subject to claims from third parties challenging our ownership interest in or inventorship of intellectual property we regard as our own, based on claims that our agreements with employees or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations to assign inventions to another employer, to a former employer, or to another person or entity. Litigation may be necessary to defend against claims, and it may be necessary or we may desire to enter into a license to settle any such claim; however, there can be no assurance that we would be able to obtain a license on commercially reasonable terms, if at all. If our defense to those claims fails, in addition to paying monetary damages or a settlement payment, a court could prohibit us from using technologies, features or other intellectual property that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies, features or other intellectual property that are important or essential to our products could have a material adverse effect on our business and competitive position, and may prevent us from selling our products. In addition, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. Any litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Risks Related to Government Regulation

If we fail to adequately respond to FDA follow-up inquiries or to obtain or maintain necessary FDA approval for each use of the OCS, or if such approval is delayed, or if we fail to maintain the CE Mark in the European Union, we will not be able to commercially sell and market the OCS.

The OCS products are medical devices subject to extensive regulation in the United States by the FDA and other federal, state and local authorities. The FDA regulates the design, development, testing, manufacturing, labeling, selling, promoting, distributing, importing, exporting and shipping of the OCS. We have obtained PMA approval for the OCS Lung for the preservation of donor lungs currently utilized for double-lung transplantation, but the OCS has not yet attained PMA approval for preservation of heart and liver donor organs, as well as for certain donor lungs that are currently unutilized for transplantation. In the European Union, we have the right to affix a CE Mark for the sale of the OCS Lung, OCS Heart and OCS Liver for lung, heart and liver transplants, respectively. Our notified body in the U.K., British Standards Institute, or BSI, currently issues the certificates which allow CE marking of the OCS products. Following the U.K.’s withdrawal from the European Union, certificates issued by U.K. notified bodies will no longer be recognized. However, BSI has recently received authorization for their corporate entity in the Netherlands to issue certificates that allow the CE marking required to market medical device products in the European Union.

In the United States, before we can market the OCS products for each organ, we must first receive PMA approval from the FDA. This process can be expensive and lengthy and entail significant costs. The process of obtaining PMA approval requires significant clinical trial data. It generally takes one year, or even longer, from the time the PMA application is submitted to the FDA until an approval is obtained. Despite the time, effort and cost involved in this process, the FDA might not approve the OCS products for use in preservation of donor lungs currently unutilized for transplantation or of donor hearts, livers, or other organs.

Furthermore, unforeseen requirements or delays in obtaining clearances or approvals from the FDA for any future products could result in unexpected and significant costs for us and consume management’s time and other

resources. The FDA could ask us to supplement our submissions, collect additional non-clinical data, conduct additional clinical trials or engage in other costly and time-consuming actions, or it could simply deny our PMA application or, if we were to seek any 510(k) clearance for a product, issue a not substantially equivalent determination for a 510(k) device. For example, in 2015, we voluntarily withdrew our original PMA application for the OCS Heart prior to approval in an effort to expand our data to include OCS Heart EXPAND Trial results as well as to supplement our OCS Heart PROCEED II Trial results with long-term follow-up data that was not collected as part of the original trial protocol. In addition, even if we obtain PMA approval, the approval could be withdrawn or other restrictions imposed if post-market data demonstrate safety issues or inadequate performance. For 510(k) cleared devices, FDA can use its enforcement authorities to require removal of a device from the market in case of safety issues.

We are currently investigating the safety and effectiveness of the OCS in multiple IDE investigations. Specifically, pivotal trials are being initiated or under IDEs that investigate the safety and effectiveness of the OCS Lung for the preservation of donor lungs that are currently unutilized for transplantation, the safety and effectiveness of the OCS Heart for the preservation of donor hearts that are currently unutilized for transplantation and the safety and effectiveness of the OCS Liver for the preservation of donor livers that are currently utilized and currently unutilized for transplantation. In addition, we completed an IDE pivotal trial of the OCS Heart for donor hearts that are currently unutilized for transplantation and received IDE approval for the Continued Access Protocol for this trial. We also received IDE approval for a study of OCS Heart for donor hearts that are donated after circulatory death. We intend to use data from the pivotal clinical trials we are conducting or have finished conducting under IDEs to support our applications for PMA approvals for the OCS Heart and OCS Liver, and recently submitted a panel track supplement to the OCS Lung PMA for the indication of the preservation of certain donor lungs that are currently unutilized for transplantation.

As is typical to the PMA review process, during the course of its initial PMA review and within 90 calendar days of the company’s PMA filing date, the FDA communicates deficiencies it has identified through a substantive interaction, which in most cases is a letter that is referred to as a major deficiency letter, or MDL, and provides the applicant with an opportunity to address the FDA’s questions. After completing its review of a PMA application, the FDA will take one of the following actions: an approval, an approvable letter, a not approvable letter, or, in rare instances, a denial. As anticipated, in November 2018, we received an MDL for our PMA supplement to our OCS Lung PMA application. In our subsequent Day-100 meeting with the FDA, we discussed the FDA’s requests in the MDL, as described below, and we submitted an amendment to the PMA supplement to formally respond to all of the requests in the MDL in March 2019.

The requests in the MDL for our PMA supplement to our OCS Lung PMA application are primarily focused on: (1) additional subgroup and other analyses of the existing OCS Lung EXPAND Trial clinical data, given that the objective performance goal for the primary effectiveness composite endpoint was not met and the lack of a prospective control arm for these type of donor lungs; (2) submission of available longer-term data on survival and bronchiolitis obliterans syndrome, or BOS, which is a common long-term complication of lung transplantation, for OCS Lung EXPAND Trial patients and analyses of these data; (3) recommended changes to our proposed post-approval study; and (4) clarifications regarding OCS Lung EXPAND Trial clinical data, data analyses and information about the OCS Lung submitted in the PMA supplement. In the MDL, the FDA also requested an explanation regarding the dual roles of a physician serving as our medical monitor for the OCS Lung EXPAND Trial, who is also a member of the data safety monitoring board overseeing this trial. The FDA also indicated its continued interest in the OCS Lung INSPIRE Trial’s long-term results beyond two years that are currently being collected under the OCS Lung INSPIRE Continuation Post-Approval Study.

We believe the response to the MDL for our PMA supplement to our OCS Lung PMA application was thorough and comprehensive. We provided responses to all of the FDA’s questions, including: (1) subgroup analyses of the primary effectiveness endpoint by various donor inclusion criteria; (2) longer-term data that demonstrates the EXPAND patients had similar survival and BOS through two years post-transplant compared to INSPIRE control arm patients who received donor lungs preserved on cold storage; (3) updates to the proposed

post-approval study protocol; (4) all clarifications or other information requested by the FDA on the submitted data; and (5) an explanation regarding the dual role of our medical monitor, a leading expert in the field of thoracic transplantation.

As anticipated, in March 2019, we also received an MDL for our OCS Heart PMA application. In our subsequent Day-100 meeting with the FDA in April 2019, we discussed the FDA’s requests in the MDL. The FDA’s requests in the MDL relate to additional information on the clinical data, the non-clinical testing, and certain components of the device itself, and are primarily focused on: (1) additional subgroup and other analyses of the existing OCS Heart EXPAND PMA data; (2) submission of available longer-term data on survival for OCS Heart EXPAND Trial patients and analyses of these data; (3) clarifications regarding OCS Heart EXPAND Trial clinical data and (4) information and clarifications about the non-clinical data submitted in the PMA application, including animal and bench testing results; sterilization, packaging and shelf-life testing; battery testing; biocompatibility testing; electromagnetic compatibility and software validation testing, which may require some additional non-clinical testing. We intend to submit our response to this MDL in the second half of 2019. Despite our response to the MDL for our PMA supplement to our OCS Lung PMA application and our intent to respond fully to the MDL for our OCS Heart PMA application, it is possible that the FDA may decide that the data from our clinical trials might not support PMA approval or any of the claims we wish to make, or the FDA could require us to gather significant additional clinical data, including additional long-term outcome data, or they could require us to conduct additional non-clinical testing, such as animal testing.

The approval process involving the OCS for each organ is subject to many of the same risks and uncertainties as for lungs and hearts. If we are not able to obtain the necessary regulatory approvals for the OCS, or approvals or clearances for future products on a timely basis or at all, our financial condition and results of operations would suffer, possibly materially, and our business might fail. Even if the FDA grants PMA approval for the OCS Lung for preservation of donor lungs currently unutilized for transplantation and for the OCS Heart and OCS Liver for preservation of donor hearts and livers for transplantation, respectively, the claims approved by the FDA may be significantly narrower than those we are seeking.

We have been able to affix the CE Mark to the OCS Heart since September 2006, the OCS Lung since December 2010 and the OCS Liver since November 2016. These CE Marks were renewed in September 2017 and are valid for five years, so they will expire in September 2022. In order to be able to continue to use the CE Mark in the same manner after May 2020, we will have to meet the conditions set out in the transitional provisions in the Medical Devices Regulation (Regulation 2017/745), or the Medical Devices Regulation. Before expiry of these certificates, we will need to apply for their re-certification under the new Medical Devices Regulation. We might not be able to continue to use the CE Mark for any current use of the OCS. If:

•

we are not able to obtain re-certification of our products for their current use;

•

we are not able to do so in time before the certificates expire;

•

our technical files for our products do not meet the new (and more stringent) requirements under the Medical Devices Regulation; or

•

any variation in the uses for which the CE Mark has been affixed to the OCS requires us to perform further research or to modify the technical documentation required to affix the CE mark, our revenues and operating results could be adversely affected and our reputation could be harmed.

If we fail to obtain and maintain regulatory approval in foreign jurisdictions, our market opportunities will be limited.

FDA clearance or approval or a CE mark does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries. However, the failure to obtain clearance or approval in one jurisdiction may have a negative impact on our ability to obtain clearance or approval elsewhere. If we do not obtain or maintain

necessary market authorizations to commercialize our products in markets outside the United States, it would negatively affect our overall market penetration. For example, if, as a result of manufacturing error, the efficacy of our products does not meet the standards claimed in the accompanying instructions for use, regulatory authorities could prevent our products from being placed on the market in the European Union.

Additionally, we may need to obtain additional regulatory approval in the U.K. following Brexit. Failure to do so may mean that we will be unable to sell our products in the U.K.

If transplant centers and hospitals cannot obtain adequate reimbursement or funding from governments or third-party payors for purchases of the OCS and additional disposable sets and for costs associated with procedures that use the OCS, our prospects for generating revenue and achieving profitability will suffer materially.

Our prospects for generating revenue and achieving profitability depend heavily upon the availability of adequate reimbursement or funding in both the United States and other markets for purchases of the OCS and for organ transplant procedures that use the OCS.

In the United States, Medicare generally reimburses the facilities in which transplant procedures are performed based upon prospectively determined amounts. For hospital inpatient treatment, the Medicare prospective payment generally is determined by the patient’s condition and other patient data and procedures performed during the patient’s hospital stay, using a classification system known as Medicare severity diagnosis-related groups, or MS-DRGs. Prospective rates are adjusted for, among other things, regional differences and whether the hospital is a teaching hospital. Because prospective payments are based on predetermined rates and may be less than a hospital’s actual costs in furnishing care, hospitals have incentives to lower their inpatient operating costs by utilizing products, devices and supplies that will reduce the length of patients’ hospital stays, decrease labor or otherwise lower their costs.

In addition to these MS-DRG-based payments, Medicare reimburses transplant centers for “reasonable and necessary” organ acquisition costs, which are considered “pass-through” costs from the prospective payment system, and are not based on the payments for the applicable MS-DRG. Pass-through organ acquisition costs include services required for the acquisition of an organ, such as tissue typing, organ preservation, transport of organs, donor evaluation and other acquisition costs. The separate payments for these costs are determined on a reasonable cost basis established through the transplant center’s Medicare cost report. During OCS clinical trials, even before the OCS had been approved by the FDA, the Medicare program reimbursed transplant centers for their use of the OCS for lung, heart and liver transplantation. We believe, though cannot be assured, that the costs incurred by transplant centers for the organ-specific OCS Console, OCS Perfusion Sets and OCS Solutions will be classified as organ acquisition costs for which Medicare will provide additional reimbursement. However, Medicare does not reimburse for items determined not to be reasonable and necessary for diagnosis or treatment of an illness or injury. The Centers for Medicare & Medicaid Services, or CMS, and Medicare contractors who administer Medicare around the country have substantial discretion in determining whether the OCS is reasonable and necessary in this context. Either CMS or a Medicare contractor might determine that Medicare will not cover and reimburse for the cost of the OCS in the absence of reliable clinical data evidencing the benefits to patients of the use of the OCS. The data we collect from our prior, ongoing and planned clinical studies and patient registry may not be sufficient for this purpose in a coverage determination by CMS or a Medicare contractor. Accordingly, Medicare might not reimburse transplant centers for all or a portion of the cost of the OCS. We believe that private insurers and other public insurers in the United States generally will follow the coverage and payment policies of Medicare.

Outside of the United States, reimbursement and funding systems vary significantly by country, and within some countries, by region. Many foreign markets have government managed healthcare systems that govern reimbursement and funding for medical devices and procedures. In the European Union member states, the costs associated with organ transplant procedures may be paid for by national insurance and in some cases private

insurers or by both national insurance and private insurers, depending on the priorities established by individual programs. These reimbursement arrangements are subject to complex rules and regulations at the national and regional levels that can vary between member states of the European Union and are likely to require that we demonstrate that the OCS is superior to existing preservation methods. We have no studies currently planned to collect such clinical data, and any studies of this kind likely would be expensive and lengthy and may not ultimately produce results adequate to secure reimbursement. In some cases, we might not be able to secure adequate reimbursement for the OCS at all or until we have collected additional clinical data supporting the benefits associated with the use of the OCS in transplant procedures. Hospitals or surgeons in countries or regions where separate additional reimbursement or funding for the OCS is not available may determine that the benefits of the OCS do not or will not outweigh the cost of the OCS. Adoption of our products in the European Union may be hindered if they impede our customer’s compliance with the requirements of Directive 2010/53/EU (formerly Directive 2010/45/EU), which imposes certain standards on procurement, preservation and transport of organs intended for transplantation. Even where reimbursement or funding is available, in some foreign countries, particularly in the European Union, the pricing of medical devices is subject to governmental control. In these countries, reimbursement and pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. For example, some foreign reimbursement systems provide for limited payments in a given period and, therefore, result in extended payment periods, which could hinder adoption of the OCS for use in transplantation, limiting sales. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, it may not be profitable to sell our products in certain foreign countries, which could negatively affect the long-term growth of our business.

Even if existing reimbursement and funding arrangements of governmental programs and other third-party payors provide for sufficient payments to make purchases of the OCS cost-effective for hospitals, the laws and regulations governing these arrangements are subject to change. The continuing efforts of governments, insurance companies and other payors of healthcare costs to contain or reduce these costs could lead to legislative or regulatory reform of the United States or foreign reimbursement and funding systems in a manner that significantly reduces or eliminates reimbursement for the OCS or for transplant procedures.

If hospitals in the United States or the European Union are not able to obtain reimbursement or funding for the cost of the OCS and additional disposable sets or for transplant procedures generally, they may not have sufficient economic incentives to purchase the OCS. If hospitals or surgeons determine that the benefits of the OCS do not or will not outweigh the initial cost and ongoing expense of the OCS, we might fail to achieve significant sales and may never become profitable.

Reimbursement in international markets is likely to require us to undertake country-specific reimbursement activities, including additional clinical studies, which could be time-consuming and expensive and may not yield acceptable reimbursement rates.

In international markets, market acceptance of our products will likely depend in large part on the availability of reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country, and by region in some countries, and include both government-sponsored healthcare and private insurance. We may not obtain international reimbursement approvals in a timely manner, if at all. In addition, even if we do obtain international reimbursement approvals, the level of reimbursement may not be enough to commercially justify expansion of our business into the approving jurisdiction. To the extent we or our customers are unable to obtain reimbursement for products in major international markets in which we seek to market and sell our products, our international revenue growth would be harmed, and our business and results of operations would be adversely affected.

If we modify our products, we may be required to obtain approval of new PMAs or PMA supplements, vary existing CE Marking, and may be required to cease marketing or recall any modified products until the required approvals are obtained.

Certain modifications to a PMA-approved device require approval of a new PMA or a PMA supplement, while other modifications can be reported in an annual report or through a 30-day Notice. The FDA may not agree with our decisions regarding whether a new PMA or PMA supplement is necessary. We may make modifications to our approved devices and manufacturing processes in the future that we believe do not require approval of a new PMA application or PMA supplement, or submission of a 30-day Notice. If the FDA disagrees with our determination and requires us to submit a new PMA, PMA supplement or 30-day Notice for modifications to our previously approved products or manufacturing processes, we may be required to cease marketing or to recall the modified product until we obtain approval or submit the 30-day Notice, and we may be subject to significant regulatory fines or penalties. In addition, the FDA may not approve our products for the indications that are necessary or desirable for successful commercialization or could require clinical trials to support any modification to the device or our modified indications or claims. Any delay or failure in obtaining required approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.

Additionally, any significant change to the quality system or the product range in relation to a CE Marked device will require notification to the notified body which certified the product. The notified body will assess the proposed change. We might not be able to have the CE Mark varied without taking additional steps, or at all. For example, we might need to conduct additional clinical trials and provide additional technical information to the appropriate notified body before the CE Mark can be affixed to the changed product.

Even after approval for the OCS, we are subject to continuing regulation by regulatory authorities and entities in the United States and other countries, and if we fail to comply with any of these regulations, our business could suffer.

Even after approval of the OCS for a specific indication, we are subject to extensive continuing regulation by the FDA and other regulatory authorities and entities. We are subject to Medical Device Reporting, or MDR, regulations, which require us to report to the FDA if we become aware of information that reasonably suggests our product may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device we market would likely cause or contribute to a death or serious injury if the malfunction were to recur. We must report corrections and removals to the FDA where the correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug, and Cosmetic Act, or FDCA, caused by the device that may present a risk to health, and maintain records of other corrections or removals. The FDA closely regulates promotion and advertising and all claims that we make for the OCS. If the FDA determines that our promotional materials, training or advertising activities constitute promotion of an unapproved use of the OCS, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions.

The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement actions by the FDA or state agencies, which may include any of the following sanctions:

•

untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

•

recall, termination of distribution, administrative detention, injunction or seizure of organ-specific OCS Consoles or disposable sets;

•

customer notifications or repair, replacement or refunds;

•

operating restrictions or partial suspension or total shutdown of production;

•

refusing or delaying our requests for 510(k) clearance or premarket approval of new products or for modifications to existing products, and refusing or delaying our requests for PMAs for new intended uses of the OCS.

•

withdrawing or suspending PMA approvals that have already been granted, resulting in prohibitions on sales of our products;

•

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

•

criminal prosecution.

Any corrective action, whether voluntary or involuntary, as well as potentially defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

We are currently required to comply with strict post-marketing obligations that accompany the affixing of the CE Mark to medical devices in the European Union. These include the obligation to report incidents which meet the criteria for reporting to provide periodic summary and trend reports. Authorities in the European Union also closely monitor the marketing programs implemented by device companies. The obligations that companies must fulfill concerning premarketing approval of promotional material vary among member states of the European Union. A failure to comply with our obligations in marketing and promoting the OCS in the European Union could harm our business and results of operations.

For our currently marketed OCS Lung, as part of the conditions of approval, we must complete two PMA post-approval studies, the INSPIRE Continuation Post-Approval Study, which is a two-arm observational study intended to evaluate long-term outcomes of the OCS Lung INSPIRE Trial patients, and our OCS Lung Thoracic Organ Perfusion Post-Approval Study Registry, or TOP Registry, which is a prospective, single-arm, multi-center, observational study designed to evaluate short- and long-term safety and effectiveness of the OCS Lung. Both the INSPIRE Continuation Post-Approval Study and the TOP Registry entail submission of regular reports to the FDA. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.

In addition, certain changes and other events with respect to regulatory approvals may cause an event of default under our Credit Agreement. See “Description of Certain Indebtedness.”

If we fail to comply with the FDA’s QSR, or FDA or EU requirements that pertain to clinical trials or investigations, the FDA or the competent EU authority could take various enforcement actions, including halting our manufacturing operations, and our business would suffer.

In the United States, as a manufacturer of a medical device, we are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of medical devices. The FDA enforces the QSR through periodic inspections and unannounced “for cause” inspections.

We are subject to periodic FDA inspections to determine compliance with QSR and pursuant to the Bioresearch Monitoring Program, which have in the past and may in the future result in the FDA issuing Form 483s, including during the conduct of clinical trials. Outside the United States, our products and operations are also often required to comply with standards set by industrial standards bodies, such as the International Organization for Standardization. Foreign regulatory bodies may evaluate our products or the testing that our products undergo against these standards. The specific standards, types of evaluation and scope of review differ among foreign regulatory bodies. Our failure to comply with FDA or local requirements that pertain to clinical

trials/investigations, including GCP requirements, and the QSR (in the United States), or failure to take satisfactory and prompt corrective action in response to an adverse inspection, could result in enforcement actions, including a warning letter, adverse publicity, a shutdown of or restrictions on our manufacturing operations, delays in approving or clearing our products, refusal to permit the import or export of our product, prohibition on sales of our product, a recall or seizure of our products, fines, injunctions, civil or criminal penalties, or other sanctions, any of which could cause our business and operating results to suffer.

Our products have been and may in the future be subject to product recalls that could harm our reputation and could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

The OCS must be manufactured in accordance with federal and state regulations, and we or any of our suppliers or third-party manufacturers could be forced to recall our installed systems or terminate production if we fail to comply with these regulations. The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design, manufacture or labeling. In the case of the FDA, the recall order must be based on an FDA finding that there is a reasonable probability that the device would cause serious adverse health consequences or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us could occur as a result of component failures, security failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that recalls initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA caused by the device that may present a risk to health be reported to the FDA within 10 working days after the recall is initiated. Companies are required to maintain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, we could be required to report those actions as recalls. A recall announcement could harm our reputation with customers and negatively affect our sales. Additionally, any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device approval, seizure of our products or delay in clearance or approval of future products.

We have voluntarily recalled certain products from customer sites in the past, and may need to take similar actions in the future, which may result in notices to regulatory agencies in other jurisdictions. For example, in July 2018, we implemented a correction to the OCS Heart and Liver Consoles to address a loss of connection between the OCS Console and Perfusion Sets that was caused by incomplete cleaning, and issued a Product Information Bulletin to all customers and filed corrective action reports with European and Australian authorities. In March 2018, we identified a defect in one of the parts of the OCS Liver organ chamber. As a result, we temporarily suspended enrollment in the OCS Liver PROTECT Trial and recalled all potentially affected units from customer sites. Additionally, in March 2018, after identifying out-of-specification plastic components used in the manufacturing of the OCS Lung Console, we recalled the affected units from customer sites and replaced them with known, good product. All affected customers were notified of the issue, and regulatory bodies in Italy, Lithuania and Netherlands were notified. In September 2017, we recalled the OCS Heart units from customer sites in the United States and U.K. that were not displaying the programmed settings for certain parameters and replaced them with properly labeled products. We also notified the FDA as well as regulatory bodies in the U.K. and Netherlands. In addition, in January 2017, a heart was rejected for transplantation in the U.K. due to exposure to elevated temperatures beyond the set point due to incorrect reading of the temperature sensor offsets. We notified all OCS Heart users of the issue, and provided steps to help avoid a

similar event. We also notified the FDA as well as regulatory bodies in the U.K., Netherlands, Germany, Italy, Denmark, Lithuania and Australia.

Internationally, the approaches to product defects will vary. A product may be recalled in one country but not in others. However, within the European Union, competent authorities are known to communicate with each other, therefore a recall in one EU member state may lead to recalls in the rest of the European Union.

We may not be able to obtain or maintain regulatory qualifications outside the United States, which could harm our business.

Sales of the OCS outside the United States are subject to foreign regulatory requirements that vary widely from country to country. The foreign regulatory approval process generally includes all of the risks associated with obtaining FDA clearance or approval in addition to other risks. Complying with international regulatory requirements can be an expensive and time-consuming process, and approval is not certain. The time required to obtain foreign clearances or approvals may exceed the time required for FDA clearance or approval, and requirements for such clearances or approvals may differ significantly from FDA requirements. Foreign regulatory authorities may not clear or approve our product for the same uses cleared or approved by the FDA. Although we have been able to affix the CE Mark to the OCS Lung, OCS Heart and OCS Liver in the European Union, we may not be able to maintain such CE Marking, including as a result of the need to re-certify our products, under the new Medical Devices Regulation. Our notified body in the U.K., BSI, could determine either itself or at the request of a competent authority that our OCS products do not meet the regulatory requirements for CE marking, which would result in withdrawal of the certificates that allow the CE marking required to market the OCS products in the European Union. In addition, we may not be able to affix the CE Mark to new or modified products and we may fail to obtain any additional regulatory qualifications, clearances or approvals or to comply with additional legal obligations required by the individual member states of the European Union or other countries in which we seek to market the OCS. The FDA also regulates the export of medical devices from the United States. If we are not successful in obtaining and maintaining foreign regulatory approvals or complying with U.S. export regulations, our business will be harmed.

Foreign regulatory agencies periodically inspect manufacturing facilities both in the United States and abroad. Our most recent inspection by our EU Notified Body was in July 2018, which resulted in observations. While we have implemented corrective and preventive actions to address these observations, these previous observations may not be closed out. Additionally, we may fail to pass future inspections of our facility by applicable regulatory authorities or entities both in the United States and in other countries. Delays in receiving necessary qualifications, clearances or approvals to market our product outside the United States, or the failure to receive those qualifications, clearances or approvals, or to comply with other foreign regulatory requirements, could limit or prevent us from marketing our products or enhancements in international markets. Additionally, the imposition of new requirements could significantly affect our business and our product and we might not be able to adjust to such new requirements. If we fail to comply with applicable foreign regulations, we could face substantial penalties and our business, financial condition, operating results, cash flows and prospects could be adversely affected.

We could face product liability suits or regulatory delays due to defects in the OCS, which could be expensive and time-consuming and result in substantial damages payable by us and increases in our insurance rates.

If our products are deemed to be defectively designed, manufactured or labeled, contain defective components, suffer security failures or are hacked, or are counterfeited, we could face substantial and costly litigation by transplant centers that purchase or use the OCS or by their patients or others claiming damages on their behalf. Moreover, transplantations are complex and inherently risky medical procedures. For example, most recipients of heart transplants experience one or more serious adverse events during their transplant and post-operative care, including in some cases, death. In our OCS Lung INSPIRE Trial of donor lungs, 24% of patients

experienced serious lung graft related adverse events and in our OCS Heart PROCEED II Trial of donor hearts, 13% of patients experienced serious heart graft related adverse events. Many of the patients currently on a waiting list for a lung, heart or liver transplant already are very sick, with some of them receiving intensive care. All of these patients have a significant risk of death if they do not receive a transplant. Thus, we may incur substantial liability if the OCS fails to perform as expected and, as a result of this failure, patients do not receive the intended transplants or receive transplants that are not successful.

Additionally, if the number of adverse events experienced by patients in clinical trials of the OCS is greater than expected, our clinical trials could be delayed or terminated by us or regulatory authorities. In our OCS Lung INSPIRE Trial of currently utilized donor lungs, 5.3% of patients died within 30 days of transplant, and in our OCS Heart PROCEED II Trial of currently utilized donor hearts, 6% of patients died within 30 days of transplant. Additionally, in a post-hoc observational analysis of all-cause mortality measured at 39 months post transplant for OCS Heart PROCEED II Trial patients, overall deaths were higher in the OCS group compared to the standard of care group. Although death is an anticipated adverse event of the organ transplant population, if the rate of deaths or other serious adverse events using the OCS is greater than expected using conventional transplant procedures, the study could be delayed or halted, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Because the OCS represents a novel approach to organ transplantation, a patient or transplant center may choose to name us as a party to a lawsuit relating to the use of the OCS in connection with a planned or completed transplant procedure regardless of whether the OCS caused or contributed to a serious adverse event or death of a patient. Any claim, whether or not we are ultimately successful, could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us.

Currently, we maintain product liability insurance covering damages of up to $10 million per occurrence for both the human clinical and commercial use of our product. We also maintain local insurance policies in Belgium, Germany, Australia and the U.K. with coverage ranging from €2.5 million to €10.0 million per occurrence as required by the applicable country. Our current insurance coverage might not be sufficient to cover future claims and is subject to deductibles. Moreover, in the future, we may not be able to obtain insurance in amount or scope sufficient to provide us with adequate coverage against potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry, impair our current or future preclinical studies or clinical trials, hinder acceptance of our products in the market and reduce product sales. Furthermore, we would need to pay any product liability losses in excess of our insurance coverage or within the deductibles provided under our insurance policies applicable to the claim out of cash reserves, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

The FDA has warned that the threat of cyberattacks on medical devices is no longer theoretical. Hackers and other third parties may try to circumvent security controls on an OCS to gain access to information on the OCS, alter the way an OCS operates, to act as a trojan horse or other entry point to other systems that could lead to those systems suffering cybersecurity breaches or attacks, or to cause harms to transplanted organs or individuals. If our security controls fail to fully protect the OCS and the information on it, we could suffer reputational harm, could undergo regulatory investigations and enforcement, or could have claims brought against us.

Third parties may attempt to produce counterfeit versions of our products, which may harm our ability to sell the OCS and its components, negatively affect our reputation or harm patients and subject us to product liability.

Counterfeit medical devices are an increasing presence on the market. Third parties may seek to develop, manufacture, distribute and sell systems that we believe infringe our proprietary rights, which would compete against the OCS and impair our ability to sell the OCS in jurisdictions in which our proprietary rights are not

upheld. In addition, counterfeit products may be promoted in a way that misleads consumers into believing they are affiliated with us. If a counterfeit version of the OCS were to appear on the market, we would expect to be obliged to verify all OCS products currently on the market, and possibly to withdraw all OCS products from the market while verifications are made. We also might be named in a lawsuit relating to any side effects or fatalities allegedly related to the use of a counterfeit OCS irrespective of whether the counterfeit device in fact contributed to such an adverse event or whether we were aware of the existence of the counterfeit device.

Improper marketing or promotion of our products or misuse or off-label use of the OCS may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

Certain OCS products have been approved by regulatory authorities in the United States, European Union and other jurisdictions for specific indications, and our promotional materials and training methods must comply with regulatory requirements in the countries where they are sold. We train our sales and clinical adoption team to not promote the OCS for uses outside of the approved indications for use, known as “off-label uses.” We cannot, however, prevent a surgeon from using the OCS off-label, when in the surgeon’s independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if surgeons attempt to use the OCS off-label. Furthermore, the use of the OCS for indications other than those approved by the FDA or approved by any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among surgeons and patients.

If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

In addition, surgeons may misuse the OCS or use improper techniques if they are not adequately trained, potentially leading to unsatisfactory patient outcomes, patient injuries, negative publicity and an increased risk of product liability. If the OCS is misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. Similarly, in an effort to decrease costs, surgeons may also reuse the component and accessories of the OCS that are intended for a single use or may purchase reprocessed OCS components from third-party reprocessors in lieu of purchasing new components from us, which could result in product failure and liability. As described above, product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

Legislative or regulatory reforms in the United States or other jurisdictions may make it more difficult and costly for us to obtain regulatory clearances or approvals for our products or to manufacture, market or distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to obtain approval for, manufacture, market or distribute our products. We cannot determine what effect changes in regulations, statutes, legal

interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require additional testing prior to obtaining clearance or approval; changes to manufacturing methods; recall, replacement or discontinuance of our products; or additional record keeping.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the European Union Medical Devices Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the European Economic Area, or EEA, member states, regulations would be directly applicable, (i.e., without the need for adoption of EEA member state laws implementing them) in all EEA member states and are intended to eliminate current differences in the regulation of medical devices among EEA member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The Medical Devices Regulation will become applicable three years after publication, which is in 2020. Once applicable, the new regulations will, among other things:

•

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

•

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

•

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

•

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

•

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

Our products may be affected by these rules, which may mean longer or more burdensome assessment of our products. These modifications may have an effect on the way we conduct our business in the EEA.

We recognize that our products will have to be re-certified under the Medical Devices Regulation and we are in the process of updating internal procedures to ensure compliance with the new Medical Devices Regulation and have added international regulatory personnel to assist with the transition.

In addition, there are significant concerns associated with whether EU Notified Bodies will be able to re-certify all devices in their care in time. If we do not manage to re-certify our products under this new regulation or cannot rely on the transitional provisions, we may have to take our products off the EU market until this is the case.

We are subject to certain federal, state and foreign fraud and abuse laws, health information privacy and security laws and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly.

There are numerous U.S. federal and state, as well as foreign, laws pertaining to healthcare fraud and abuse, including anti-kickback, false claims and physician transparency laws. Our business practices and relationships with providers are subject to scrutiny under these laws. We may also be subject to privacy and security regulation related to patient, customer, employee and other third-party information by both the federal government and the

states and foreign jurisdictions in which we conduct our business. The healthcare laws and regulations that may affect our ability to operate include, but are not limited to:

•

the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. The U.S. government has interpreted this law broadly to apply to the marketing and sales activities of manufacturers. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Violations of the federal Anti-Kickback Statute may result in substantial civil monetary and criminal penalties. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid;

•

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

•

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

•

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

•

the federal Physician Sunshine Act under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, which require certain applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to CMS information related to payments and other transfers of value to physicians and teaching hospitals. Applicable manufacturers are required to submit annual reports to CMS. Failure to submit required information may result in substantial civil monetary penalties;

•

many countries in which we operate have laws with extra-territorial effect—those laws apply to our operations outside the relevant country, to the extent they are breached. Examples of such laws include: the FCPA, Bribery Act and the GDPR. The extra-territorial effect of those laws affects our sales and marketing strategy, since in many countries healthcare professionals are officers of the state. This is particularly important in the context of bribery offences, which in the U.K. and in the United States include the offence of bribing a foreign public official. Failure by our sales staff to comply with those laws may result in criminal and civil penalties and damage our reputation; and

•

analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any private payor, including

commercial insurers or patients; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm customers, foreign and state laws, including the GDPR, governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers.

These laws and regulations, among other things, constrain our business, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with customers, physicians or other potential purchasers of our products. In particular, these laws will influence, among other things, how we structure our sales offerings, including discount and rebate practices, customer support, education and training programs, and physician consulting and other service arrangements. Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.

To enforce compliance with the healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. For example, the member states of the European Union closely monitor perceived unlawful marketing activity by companies, including inducement to prescribe and the encouragement of off-label use of devices. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity, and be costly to respond to. If our operations are found to be in violation of any of the healthcare laws or regulations described above or any other healthcare regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, contractual damages, reputational harm, disgorgement and the curtailment or restructuring of our operations. Moreover, industry associations closely monitor the activities of their member companies. If these organizations or national authorities were to name us as having breached our obligations under their laws, regulations, rules or standards, our reputation would suffer and our business, financial condition, operating results, cash flows and prospects could be adversely affected.

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws, including the FCPA, as well as export control laws, customs laws, sanctions laws and other laws governing our operations could result in civil or criminal penalties, other remedial measures and legal expenses.

As we grow our international presence, we are increasingly exposed to trade and economic sanctions and other restrictions imposed by the United States, the European Union and other governments and organizations. The U.S. Departments of Justice, Commerce, State and U.S. Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the FCPA and other federal statutes and regulations, including those established by the Office of Foreign Assets Control, or OFAC. In addition, the Bribery Act prohibits both domestic and international bribery, as well as bribery across both private and public sectors, where a business or personnel engaged by it have a connection with the U.K. An organization with that

connection and that “fails to prevent bribery” by anyone associated with the organization can be found guilty under the Bribery Act unless the organization can establish the defense of having implemented “adequate procedures” to prevent bribery. Under these laws and regulations, as well as other anti-corruption laws, anti-money laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations would negatively affect our business, financial condition and results of operations. Due to sales of our products to government or government-affiliated entities, we may be exposed to heightened risk of potential violations of the FCPA, the Bribery Act, or other relevant law.

We have implemented policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants and agents with the FCPA, OFAC restrictions, the Bribery Act and other export control, anti-corruption, anti-money-laundering and anti-terrorism laws and regulations. We cannot assure you, however, that our policies and procedures are or will be sufficient or that directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions, the Bribery Act or other export control, anti-corruption, anti-money laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to, and may in the future become subject to additional, U.S., state and foreign laws and regulations imposing obligations on how we collect, store, process or share information concerning individuals. Our actual or perceived failure to comply with such obligations could harm our business. Complying with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.

In the conduct of our business, we may at times collect, process or share data concerning individuals, including health-related personal data. The U.S. federal government and various states have adopted or proposed laws, regulations, guidelines and rules for the collection, distribution, use and storage of personal information of individuals. We may also be subject to U.S. federal rules, regulations and guidance concerning cybersecurity for medical devices, including guidance from the FDA. State privacy and cybersecurity laws vary and, in some cases, can impose more restrictive requirements than U.S. federal law. Where state laws are more protective, we must comply with the stricter provisions. In addition to fines and penalties that may be imposed for failure to comply with state law, some states also provide for private rights of action to individuals for misuse of personal information.

The European Union also has laws and regulations dealing with the collection, use and processing of personal data concerning individuals who are located in the European Union, which are often more restrictive than those in the United States. Data laws in the European Union are under reform and since May 25, 2018, we have been and will be subject to the requirements of the GDPR because we are processing personal data in the European Union. or offering goods to, or monitoring the behavior of, individuals who are located in the European Union. The GDPR implements more stringent administrative requirements for controllers and processors of personal data, including, for example, shortened timelines for data breach notifications, limitations on retention of information, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data, additional obligations when we contract with service providers, and more robust rights for individuals over their personal data. The GDPR provides that EU member states may make their own further laws and regulations limiting the processing of genetic, biometric or health data, which could limit our ability to use and share personal data or to cause our costs could increase, and harm our business and financial condition. If we do not

comply with our obligations under the GDPR, we could be exposed to substantial fines and litigation. In addition, EU law restricts transfers of personal data to the United States unless certain requirements are met. These rules are under flux. For example, following a decision of the Court of Justice of the European Union in October 2015, transferring personal data to U.S. companies that had certified as members of the U.S. Safe Harbor Scheme was declared invalid. In July 2016, the European Commission adopted the U.S.-EU Privacy Shield Framework which replaces the Safe Harbor Scheme. However, this Framework is under review and there is currently litigation challenging it and other mechanisms for transferring personal data from the EU (e.g., through standard contractual clauses). It is uncertain whether the Privacy Shield Framework and/or the standard contractual clauses will be similarly invalidated by the European courts. We rely on a mixture of mechanisms to transfer personal data from our EU business to the United States, and could be impacted by changes in law as a result of a future review of these transfer mechanisms by European regulators under the GDPR, as well as current challenges to these mechanisms in the European courts.

Any actual or perceived failure by us or the third parties with whom we work to comply with data privacy or security laws, policies, legal obligations or industry standards, or any security incident that results in the unauthorized release or transfer of information concerning individuals, may result in governmental enforcement actions and investigations, including by European data protection authorities and U.S. federal and state regulatory authorities, fines and penalties, litigation and/or adverse publicity, including by consumer advocacy groups, and could cause our customers, their patients and other healthcare professionals to lose trust in us, which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system, could harm our business, financial condition and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. In March 2010, the Affordable Care Act was enacted in the United States, which made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. Among other ways in which it may affect our business, the Affordable Care Act:

•

imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, although the effective rate paid may be lower. Through a series of legislative amendments, the tax was suspended for 2016 through 2019. Absent further legislative action, the device excise tax will be reinstated on medical device sales starting January 1, 2020;

•

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

•

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

•

expanded the eligibility criteria for Medicaid programs.

We do not yet know the full impact that the Affordable Care Act, and more recent measures impacting the healthcare system, will have on our business. The taxes imposed by the Affordable Care Act may result in decreased profits to us, lower reimbursement by payors to hospitals and transplant centers, and/or reduced medical procedure volumes, all of which may have a material adverse effect on our business, financial condition and results of operations. The Trump Administration and the U.S. Congress may take further action regarding the Affordable Care Act, including, but not limited to, repeal or replacement. Most recently, the TCJA was enacted which, among other things, removes penalties for not complying with the individual mandate to carry health insurance. Additionally, all or a portion of the Affordable Care Act and related subsequent legislation may be modified, repealed or otherwise invalidated through judicial challenge, which could result in lower numbers of insured individuals, reduced coverage for insured individuals and adversely affect our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law which, among other things, 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. The Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, enacted on April 16, 2015, repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a new system of incentive payments scheduled to begin in 2019 that are based on various performance measures and physicians’ participation in alternative payment models such as accountable care organizations. It is unclear what effect new quality and payment programs, such as MACRA, may have on our business, financial condition, results of operations or cash flows.

We expect additional state and federal healthcare policies and reform measures to be adopted in the future, any of which could limit reimbursement for healthcare products and services or otherwise result in reduced demand for the OCS or additional pricing pressure and have a material adverse effect on our industry generally and on our customers. Any changes of, or uncertainty with respect to, future reimbursement to hospitals and transplant centers could affect demand for the OCS, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Our business activities involve the use of hazardous materials, which require compliance with environmental and occupational safety laws regulating the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other adverse consequences.

Our research and development programs involve the controlled use of hazardous materials. Accordingly, we are subject to international, federal, state and local laws governing the use, handling and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials comply in all material respects with applicable regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or failure to comply with environmental laws, we could be held liable for damages that result, and any such liability could exceed our assets and resources. Our general liability and umbrella insurance policies provide for coverage up to annual aggregate limits of $2 million per occurrence, but exclude coverage for liabilities relating to the release of pollutants. The insurance that we currently hold may not be adequate to cover all liabilities relating to accidental contamination or injury due to pollution conditions or other extraordinary or unanticipated events. Furthermore, an accident could damage or force us to shut down our operations.

Risks Related to Our Common Stock and this Offering

An active trading market for our common stock may not develop, and you may not be able to resell your shares of our common stock at or above the initial offering price.

Before this offering, there was no public trading market for our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price at the time that you would like to sell them or at all. The initial public offering price of our common stock was determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after the offering. We cannot predict the prices at which our common stock will trade. Consequently, you may not be able to sell our common stock at prices equal to or greater than the price you paid in this offering or at all.

The market price of our common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering and could subject us to securities class action litigation.

The market price of our common stock could be subject to significant fluctuations after this offering, and it may decline below the initial public offering price. Some of the factors that may cause the market price of our common stock to fluctuate include:

•

price and volume fluctuations in the overall stock market;

•

volatility in the market price and trading volume of comparable companies;

•

actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts;

•

results of clinical trials relating to the OCS or competing products;

•

failure or discontinuation of any of our product development and research programs;

•

regulatory or legal developments in the United States and other countries, including changes in the healthcare payment systems;

•

results of applications for regulatory approvals or clearances for the OCS or competing products;

•

our announcements or our competitors’ announcements of new products, procedures or therapies;

•

departure of key personnel;

•

litigation involving us or that may be perceived as having an adverse effect on our business;

•

developments or disputes concerning patent applications, issued patents or other proprietary rights;

•

market conditions in the medical device and biotechnology sectors;

•

changes in general economic, industry and market conditions and trends;

•

investors’ general perception of us; and

•

sales of large blocks of our stock.

The market for medical device and biotechnology companies, in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

We will have broad discretion in the use of our net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of our net proceeds from the sale of our shares in this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations, the occurrence and timing of regulatory approvals and clinical trials, the anticipated growth of our business and the availability and terms of alternative financing sources to fund our growth. Because we will have broad discretion in the application of our net proceeds from this offering, our management may fail to apply these funds effectively, which could materially and adversely affect our ability to operate and grow our business.

Purchasers in this offering will incur immediate and substantial dilution in the book value of their investment as a result of this offering.

The initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our common stock after this offering. Investors purchasing common stock in this offering will

pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share after this offering. If you purchase shares of our common stock in this offering, you will incur immediate dilution of $12.34 per share as of December 29, 2018, based on the initial public offering price of $16.00 per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the initial public offering price. Further, investors purchasing common stock in this offering will contribute approximately 23.1% of the total amount invested by stockholders since our inception and will own approximately 28.2% of the shares of common stock outstanding after this offering. You will experience additional dilution upon the exercise of options to purchase shares of our common stock, including those options currently outstanding and those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. To the extent we raise additional capital by issuing equity securities, our shareholders will experience substantial additional dilution. See “Dilution.”

Because we do not expect to pay any dividends on our common stock for the foreseeable future, investors in this offering may never receive a return on their investment.

You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, to realize a return on their investment.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Following completion of this offering, we will have 20,236,097 shares of common stock outstanding (or 21,089,597 shares of common stock if the underwriters exercise their option to purchase additional shares in full). Of the shares of our common stock to be outstanding following completion of this offering, the shares offered by this prospectus will be eligible for immediate sale in the public market without restriction by persons other than our affiliates. Our remaining outstanding shares will become available for resale in the public market as shown in the chart below, subject to the provisions of Rule 144 and Rule 701.


Number of Shares		Date Available for Resale
397,342		On the date of this offering

14,148,755		180 days after this offering, subject to certain exceptions

In addition, each of our officers and directors and certain holders of our common stock have entered into a lock-up agreement with Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representatives of the underwriters, which regulates their sales of our common stock for a period of 180 days after the date of this prospectus, subject to certain exceptions. Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason.

Sales of substantial amounts of our common stock in the public market after this offering, the perception that such sales will occur, or early release of these lock-up agreements could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future. For more information, see the “Shares Eligible for Future Sale” and “Underwriting” sections of this prospectus.

We have adopted anti-takeover provisions in our restated articles of organization and amended and restated bylaws and are subject to provisions of Massachusetts law that may frustrate any attempt to remove or replace our current board of directors or to effect a change of control or other business combination involving our company.

Our restated articles or organization and amended and restated bylaws and certain provisions of Massachusetts law may discourage certain types of transactions involving an actual or potential change of control of our company that might be beneficial to us or our security holders. For example, our amended and restated bylaws grant the chairperson presiding over any meetings of shareholders the right to adjourn such meeting. Our board of directors also may issue shares of any class or series of preferred stock in the future without shareholder approval and upon such terms as our board of directors may determine. The rights of the holders of our common stock will be subject to, and may be harmed by, the rights of the holders of any class or series of preferred stock that may be issued in the future. Massachusetts state law also prohibits us from engaging in specified business combinations unless the combination is approved or consummated in a prescribed manner. These provisions, alone or together, could delay hostile takeovers and changes in control of our company or changes in our management.

Our restated articles of organization designate the Business Litigation Session of the Superior Court of Suffolk County, Massachusetts (or, if and only if the Business Litigation Session of the Superior Court of Suffolk County, Massachusetts lacks jurisdiction, another state or federal court located within the Commonwealth of Massachusetts) as the sole and exclusive forum for any action under Massachusetts statutory or common law: brought derivatively on our behalf, asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, asserting a claim arising pursuant to any provision of the Massachusetts Business Corporation Act or asserting a claim governed by the internal affairs doctrine, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. In addition, our restated articles of organization provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provisions. This provision will not apply to actions arising under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the Securities Act of 1933, as amended, or the Securities Act. Additionally, this exclusive forum provision may limit the ability of our shareholders to bring a claim in a judicial forum that such shareholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. Alternatively, if the Business Litigation Session of the Superior Court of Suffolk County, Massachusetts or a court outside of Massachusetts were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other venues or jurisdictions, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors. These new obligations and constituents will require

significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

Our directors, officers and principal shareholders have significant voting power and may take actions that may not be in the best interests of our other shareholders.

Following completion of this offering, our directors, officers and principal shareholders each holding more than 5% of our common stock will collectively control approximately 63.7% of our outstanding common stock (approximately 61.1% if the underwriters exercise their option to purchase additional shares in full). As a result, these shareholders, if they act together, will be able to control the management and affairs of our company and most matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. The interests of these shareholders may not be the same as or may even conflict with your interests. For example, these shareholders could attempt to delay or prevent a change in control of the Company, even if such change in control would benefit our other shareholders. As a result, this concentration of ownership may not be in the best interests of our other shareholders.

As a public company, we will become subject to additional laws, regulations and stock exchange listing standards, which will impose additional costs on us and may strain our resources and divert our management’s attention.

Prior to this offering, we operated on a private basis. After this offering, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of Nasdaq and other applicable securities laws and regulations. Compliance with these laws and regulations will increase our legal and financial compliance costs and make some activities more difficult, time-consuming or costly, which may strain our resources or divert management’s attention.

If we fail to maintain effective internal control over financial reporting and effective disclosure controls and procedures, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our company.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and, therefore, we are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Although we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we are not required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

To comply with the requirements of being a public company, we may need to undertake actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the

applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal controls over financial reporting or we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports. As a result, the market price of our common stock could be materially adversely affected.

We are an “emerging growth company” and “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of this offering, subject to specified conditions. We would cease to be an emerging growth company prior to such date if we have more than $1.07 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include reduced disclosure obligations regarding executive compensation and no requirements to hold non-binding advisory votes on executive compensation and golden parachute payments, to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and to comply with certain requirements of Auditing Standard 3101 relating to providing a supplement to the auditor’s report regarding critical audit matters. In this prospectus, we have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to avail ourselves of this exemption, and the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies. Accordingly, we will incur additional costs in connection with complying with the accounting standards applicable to public companies at such time or times as they become applicable to us.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations.

Accounting principles and related pronouncements, implementation guidelines and interpretations we apply to a wide range of matters that are relevant to our business, including, but not limited to, revenue recognition, leases and stock-based compensation, are complex and involve subjective assumptions, estimates and judgments by our management. Changes in accounting pronouncements or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “could,” “target,” “predict,” “seek” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment and 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.

Some of the key factors that could cause actual results to differ from our expectations include:

•

our anticipation that we will continue to incur losses in the future;

•

our potential need to raise additional funding;

•

our existing and any future indebtedness, including our ability to comply with affirmative and negative covenants under the Credit Agreement to which we will remain subject to until maturity, and our ability to obtain additional financing on favorable terms or at all;

•

the fluctuation of our financial results from quarter to quarter;

•

our ability to use NOLs and research and development credit carryforwards;

•

our dependence on the success of the OCS;

•

the rate and degree of market acceptance of the OCS;

•

our ability to educate patients, surgeons, transplant centers and private payors of benefits offered by the OCS;

•

our ability to improve the OCS platform;

•

our dependence on a limited number of customers for a significant portion of our net revenue;

•

the timing of and our ability to obtain and maintain regulatory approvals or clearances;

•

our ability to adequately respond to FDA follow-up inquiries in a timely manner;

•

the performance of our third-party suppliers and manufacturers;

•

the timing or results of clinical trials for the OCS;

•

our manufacturing, sales, marketing and clinical support capabilities and strategy;

•

attacks against our information technology infrastructure;

•

the economic, political and other risks associated with our foreign operations;

•

our ability to attract and retain key personnel;

•

our ability to protect, defend, maintain and enforce our intellectual property rights relating to the OCS and avoid allegations that our products infringe, misappropriate or otherwise violate the intellectual property rights of third parties;

•

the ability to obtain and maintain regulatory approvals or clearance for our OCS products;

•

our expectations for the pricing of the OCS, as well as the reimbursement coverage for the OCS in the United States and internationally;

•

regulatory developments in the United States, European Union and other jurisdictions;

•

the extent and success of competing products that are or may become available;

•

the impact of any product recalls or improper use of our products;

•

our use of proceeds for this offering; and

•

our estimates regarding revenues, expenses and needs for additional financing.

The forward-looking statements included in this prospectus are made only as of the date hereof. 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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. 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.

You should read this prospectus with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

USE OF PROCEEDS

We estimate that our net proceeds from the sale of our common stock in this offering will be approximately $78.8 million, or approximately $91.5 million if the underwriters exercise in full their option to purchase additional shares from us in this offering, based on the initial public offering price of $16.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering as follows:

•

approximately $25.0 million to support commercialization of the OCS Lung and, if approved, the OCS Heart in the United States;

•

approximately $20.0 million to fund research and development to design and manufacture the next generation of OCS technology;

•

approximately $15.0 million for clinical trial expenditures, including those relating to our pre- and post-market clinical trials, including our TOP Registry, our OCS Liver PROTECT Trial and the use of the OCS Heart for DCD donor hearts; and

•

the balance for working capital and other general corporate purposes.

In addition, we believe that opportunities may exist from time to time to expand our current business through acquisitions of or investments in complementary products, technologies or businesses. While we have no current agreements, commitments or understandings for any specific acquisitions or in-licenses at this time, we may use a portion of our net proceeds for these purposes.

Based on our current plans, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, including completing the clinical trials specifically identified above, capital expenditure requirements and debt service payments for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Requirements” and “Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital—We have incurred substantial losses since our inception and anticipate that we will continue to incur losses in the future” and “—We may need to raise additional funding, which might not be available on favorable terms or at all. Raising additional capital may cause dilution to our shareholders.”

Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of our net proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations, the occurrence and timing of regulatory approvals and clinical trials, the anticipated growth of our business and the availability and terms of alternative financing sources to fund our growth. Pending their use as described above, we intend to invest the net proceeds we receive from this offering in saving, certificate of deposit and money market accounts as well as short-term and intermediate investment-grade interest-bearing securities and obligations, such as money market funds, commercial paper and obligations of the United States government and its agencies.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. Any future determination to declare and pay cash dividends, if any, will be made at the discretion of our board of directors and will depend on a variety of factors, including applicable laws, our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, general business or financial market conditions and other factors our board of directors may deem relevant. In addition, our Credit Agreement contains covenants that restrict our ability to pay cash dividends. See “Description of Certain Indebtedness—Credit Agreement.” Investors should not purchase our common stock with the expectation of receiving cash dividends.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 29, 2018:

•

on an actual basis, before giving effect to the Corporate Reorganization;

•

on a pro forma basis to give effect to the Corporate Reorganization, including (i) the conversion of all outstanding shares of preferred stock of TransMedics, Inc. into an aggregate of 13,119,424 shares of common stock of TransMedics Group, Inc., or TransMedics Group, (ii) the conversion of all outstanding shares of common stock of TransMedics, Inc. into an aggregate of 1,397,493 shares of common stock of TransMedics Group, (iii) the conversion of all outstanding warrants to purchase shares of preferred stock of TransMedics, Inc. into warrants to purchase shares of common stock of TransMedics Group and (iv) the filing and effectiveness of our restated articles of organization; and

•

on a pro forma as adjusted basis to give further effect to (i) our issuance and sale of 5,690,000 shares of our common stock in this offering at the initial public offering price of $16.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) our payment of $1.5 million to former financial advisors upon the closing of this offering in satisfaction of contractual obligations previously recorded.

You should read the information in this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the “Corporate Reorganization,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.


	As of December 29, 2018
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands, except share and per share data)
Cash and cash equivalents	$	20,241		$	20,241		$	99,884	⁽¹⁾


Preferred stock warrant liability	$	898		$	—		$	—

Long-term debt, net of discount		33,670			33,670			33,670

Convertible preferred stock (Series A-1, B, B-1, C, D, E and F), $0.0001 par value; 50,776,054 shares authorized, 50,404,140 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted		186,519			—			—

Stockholders’ equity (deficit):
Preferred stock, no par value; no shares authorized, issued or outstanding, actual; 25,000,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted		—			—			—
Common stock, $0.0001 par value; 60,000,000 shares authorized, 4,892,364 shares issued and 4,891,288 shares outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted		1			—			—
Common stock, no par value; no shares authorized, issued or outstanding, actual; 150,000,000 shares authorized, 14,516,917 shares issued and outstanding, pro forma; 150,000,000 shares authorized, 20,206,917 shares issued and outstanding, pro forma as adjusted		—			331,212			409,979
Additional paid-in capital		143,794			—			—
Accumulated other comprehensive loss		(101	)		(101	)		(101	)
Accumulated deficit		(335,936	)		(335,936	)		(335,936	)

Total stockholders’ equity (deficit)		(192,242	)		(4,825	)		73,942

Total capitalization	$	28,845		$	28,845		$	107,612

(1)	As of December 29, 2018, $2.3 million of our estimated aggregate offering expenses had already been paid by us.

The table above does not include:

•

1,625,758 shares of common stock issuable upon the exercise of stock options outstanding as of December 29, 2018 under our 2004 Plan and our 2014 Plan, at a weighted average exercise price of $1.76 per share;

•

64,440 shares of common stock issuable upon the exercise of warrants outstanding as of December 29, 2018 to purchase shares of preferred stock that will be converted into warrants to purchase shares of common stock at a weighted average exercise price of $10.70 per share, in connection with the Corporate Reorganization;

•

72,532 shares of common stock available for future issuance as of December 29, 2018 under our 2014 Plan;

•

371,142 shares of common stock that will become available for future issuance under our 2019 Employee Stock Purchase Plan, or our 2019 ESPP.

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our historical net tangible book value (deficit) as of December 29, 2018 was $(195.6) million, or $(39.99) per share of common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying value of our preferred stock, which is not included within stockholders’ deficit. Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the 4,891,288 shares of common stock outstanding as of December 29, 2018, before giving effect to the Corporate Reorganization.

Our pro forma net tangible book value (deficit) as of December 29, 2018 was $(8.2) million, or $(0.57) per share of common stock. Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to the Corporate Reorganization, including (i) the conversion of all outstanding shares of preferred stock of TransMedics, Inc. into an aggregate of 13,119,424 shares of common stock of TransMedics Group, (ii) the conversion of all outstanding shares of common stock of TransMedics, Inc. into an aggregate of 1,397,493 shares of common stock of TransMedics Group and (iii) the conversion of all outstanding warrants to purchase shares of preferred stock of TransMedics, Inc. into warrants to purchase shares of common stock of TransMedics Group. Pro forma net tangible book value (deficit) per share represents pro forma net tangible book value (deficit) divided by the total number of shares outstanding as of December 29, 2018, after giving effect to the pro forma adjustments described above.

After giving further effect to (i) our issuance and sale of 5,690,000 shares of our common stock in this offering at the initial public offering price of $16.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) our payment of $1.5 million to former financial advisors upon the closing of this offering in satisfaction of contractual obligations previously recorded, our pro forma as adjusted net tangible book value as of December 29, 2018 would have been $73.9 million, or $3.66 per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $4.23 to existing stockholders and immediate dilution of $12.34 in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:


Initial public offering price per share				$	16.00
Historical net tangible book value (deficit) per share as of December 29, 2018	$	(39.99	)
Increase per share attributable to the pro forma adjustments described above		39.42

Pro forma net tangible book value (deficit) per share as of December 29, 2018		(0.57	)
Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering		4.23

Pro forma as adjusted net tangible book value per share after this offering					3.66

Dilution per share to new investors purchasing common stock in this offering				$	12.34

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $4.11, representing an immediate increase in pro forma as adjusted net tangible book value per share of $4.68 to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $11.89 to new investors purchasing common stock in this offering, based on the initial public offering price of $16.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, as of December 29, 2018, on the pro forma as adjusted basis described above, the total number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid or to be paid and the average price per share paid or to be paid by existing stockholders and by new investors in this offering at the initial public offering price of $16.00 per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.


	Shares Purchased					Total Consideration					Average Price Per Share
	Number		Percentage			Amount		Percentage			Average Price Per Share
Existing stockholders		14,516,917		71.8	%	$	303,488,126		76.9	%	$	20.91
New investors		5,690,000		28.2			91,040,000		23.1		$	16.00

Total		20,206,917		100.0	%	$	394,528,126		100.0	%

If all of the outstanding options and warrants noted below were exercised, (i) the number of shares of our common stock held by existing stockholders would be increased to 16,207,115 shares, or 74.0% of the total number of shares of our common stock outstanding after this offering, and the percentage of shares of common stock held by new investors purchasing common stock in this offering would be decreased to 26.0% of the total number of shares of our common stock outstanding after this offering, (ii) the consideration paid by existing stockholders would be increased to $307.0 million, or 77.1% of the total consideration paid by stockholders after this offering, and the percentage of consideration paid by new investors purchasing common stock in this offering would be decreased to 22.9% of the total consideration paid by stockholders after this offering, and (iii) the average price per share paid by existing stockholders would decrease to $18.95 per share.

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to 68.9% of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to 31.1% of the total number of shares of our common stock outstanding after this offering.

The tables and discussion above are based on the number of shares of our common stock outstanding as of December 29, 2018, and exclude:

•

64,440 shares of common stock issuable upon the exercise of warrants outstanding as of December 29, 2018 to purchase shares of preferred stock that will be converted into warrants to purchase shares of common stock, at a weighted average exercise price of $10.70 per share, in connection with the Corporate Reorganization;

•

72,532 shares of common stock available for future issuance as of December 29, 2018 under our 2014 Plan;

•

3,428,571 shares of common stock that will become available for future issuance under our 2019 Stock Plan, which includes 395,712 shares of our common stock issuable upon the exercise of options to be granted to certain of our employees and 21,645 shares of our common stock issuable upon the exercise of options to be granted to one of our directors, in each case to be granted in connection with this offering under our 2019 Stock Plan at an exercise price per share equal to the initial public offering price in this offering; and

•

371,142 shares of common stock that will become available for future issuance under our 2019 ESPP.

To the extent that new stock options or warrants are issued, or we issue additional shares of common stock in the future, there will be further dilution to new investors. In addition, we may choose to raise additional capital

because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The consolidated statement of operations data for the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018 and the consolidated balance sheet data as of December 30, 2017 and December 29, 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.


	Fiscal Year Ended
	December 31, 2016			December 30, 2017			December 29, 2018
	(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenue	$	6,209		$	7,685		$	13,017
Cost of revenue		5,443			5,548			7,283

Gross profit		766			2,137			5,734

Operating expenses:
Research, development and clinical trials		15,637			14,957			13,656
Selling, general and administrative		8,115			7,606			12,315

Total operating expenses		23,752			22,563			25,971

Loss from operations		(22,986	)		(20,426	)		(20,237	)

Other income (expense):
Interest expense		(979	)		(1,072	)		(2,720	)
Change in fair value of preferred stock warrant liability		(105	)		159			(545	)
Other income (expense), net		5			548			(213	)

Total other expense, net		(1,079	)		(365	)		(3,478	)

Loss before income taxes		(24,065	)		(20,791	)		(23,715	)
Provision for income taxes		—			(32	)		(41	)

Net loss	$	(24,065	)	$	(20,823	)	$	(23,756	)

Net loss per share attributable to common stockholders, basic and diluted⁽¹⁾	$	(5.35	)	$	(4.48	)	$	(5.00	)

Weighted average common shares outstanding, basic and diluted⁽¹⁾		4,502			4,647			4,755

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)⁽¹⁾							$	(1.60	)

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)⁽¹⁾								14,478

(1)	See Note 14 to our consolidated financial statements included elsewhere in this prospectus for details on the calculation of basic and diluted net loss per share attributable to common stockholders and unaudited basic and diluted pro forma net loss per share attributable to common stockholders.


	As of December 30, 2017			As of December 29, 2018
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	24,663		$	20,241
Working capital⁽¹⁾		23,137			22,241
Total assets		37,001			42,157
Long-term debt, net of discount, including current portion		8,652			33,670
Preferred stock warrant liability		353			898
Convertible preferred stock		186,519			186,519
Total stockholders’ deficit		(168,724	)		(192,242	)

(1)	We define working capital as current assets less current liabilities.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial Data” section of this prospectus and our consolidated financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. We developed the OCS to replace a decades-old standard of care that we believe is significantly limiting access to life-saving transplant therapy for hundreds of thousands of patients worldwide. Our innovative OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. We believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes.

Since our inception, we have focused substantially all of our resources on designing, developing and building our proprietary OCS technology platform and organ-specific OCS products; obtaining clinical evidence for the safety and effectiveness of our OCS products through clinical trials; securing regulatory approval; organizing and staffing our company; planning our business; raising capital; and providing general and administrative support for these operations. To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements.

December 31, 2016, December 30, 2017 and December 29, 2018, respectively. We incurred net losses of $24.1 million, $20.8 million and $23.8 million, respectively, for those same years. As of December 29, 2018, we had an accumulated deficit of $335.9 million. We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the U.S. and select non-U.S. markets, including growing our sales and clinical adoption team, which will pursue increasing commercial sales and clinical adoption of our OCS products; scaling our manufacturing operations; continuing research, development and clinical trial efforts; and seeking regulatory clearance for new products and product enhancements, including new indications, in both the U.S. and select non-U.S. markets. Further, following the closing of this offering, we expect to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding for expenses related to our operating activities, including selling, general and administrative expenses and research, development and clinical trials expenses.

Because of the numerous risks and uncertainties associated with product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Until such time, if ever, as we can generate substantial net revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings, debt financings and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”

Without giving effect to the net proceeds from this offering, we expect that our existing cash and cash equivalents as of December 29, 2018 will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments through September 2019. Beyond that point, we will need to raise additional capital to finance our operations, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern within one year after the March 29, 2019 issuance date of our annual consolidated financial statements for the fiscal year ended December 29, 2018. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for additional information on our assessment.

Similarly, in its report on our financial statements for the fiscal year ended December 29, 2018, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern.

Corporate Reorganization

TransMedics Group, Inc., a recently formed Massachusetts corporation, is currently a direct, wholly-owned subsidiary of TransMedics, Inc., a Delaware corporation. Immediately prior to the closing of this offering, TMDX, Inc., a direct, wholly-owned subsidiary of TransMedics Group, will merge with and into TransMedics, Inc. with TransMedics, Inc. as the surviving corporation. As a result of the merger, each outstanding share of capital stock of TransMedics, Inc. will be converted into shares of common stock of TransMedics Group, each outstanding option to purchase shares of common stock of TransMedics, Inc. will be converted into an outstanding option to purchase shares of common stock of TransMedics Group and each outstanding warrant to purchase shares of preferred stock of TransMedics, Inc. will be converted into a warrant to purchase shares of

common stock of TransMedics Group, pursuant to the terms of the Agreement and Plan of Merger and Reorganization filed as an exhibit to the registration statement of which this prospectus forms a part.

Immediately following the Corporate Reorganization, (1) TransMedics Group will be a holding company with no material assets other than 100% of the equity interests in TransMedics, Inc., (2) the holders of capital stock in TransMedics, Inc. will become shareholders of TransMedics Group and (3) the historical consolidated financial statements of TransMedics, Inc. will become the historical consolidated financial statements of TransMedics Group because the Corporate Reorganization will be accounted for as a reorganization of entities under common control. Prior to the Corporate Reorganization, TransMedics Group has not conducted any activities other than in connection with its formation and in preparation for its initial public offering and has no material assets other than 100% of the equity interests in TMDX, Inc.

Components of Our Results of Operations

Net Revenue

We generate revenue primarily from sales of our single-use, organ-specific disposable sets (i.e., our organ-specific OCS Perfusion Sets sold together with our organ-specific OCS Solutions) used on our organ-specific OCS Consoles, each being a component of our OCS products. To a lesser extent, we also generate revenue from the sale of OCS Consoles to customers and from the implied rental of OCS Consoles loaned to customers at no charge. For each new transplant procedure, customers purchase an additional disposable set for use on the customer’s existing organ-specific OCS Console.

All of our revenue has been generated by sales to transplant centers in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries. Substantially all of our customer arrangements are multiple-element arrangements that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those multiple-element arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer.

Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under arrangements referred to as customer clinical trial agreements. Under most of these customer clinical trial agreements, we place an organ-specific OCS Console at the customer site for its use free of charge for the duration of the clinical trial, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure during the clinical trial. When we loan the OCS Console to the customer, we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any OCS products. In such cases, we invoice the customer for OCS disposable sets based on customer orders received for each new transplant procedure and the prices set forth in the customer agreement. Over time, we typically recover the cost of the loaned OCS Console through the customer’s continued purchasing and use of additional disposable sets. For these reasons, we have determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console. We intend to continue to loan OCS Consoles to some of our customers during commercialization of our OCS products.

Because all elements of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to elements other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all elements of revenue from customer arrangements are classified as a single category of revenue in our consolidated statement of operations.

For customer clinical trial agreements, we make payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products. Because these payments do not provide us with a separately identifiable benefit, we record such payments as a reduction of revenue from the customer, resulting in our net revenue presentation.

Prior to the fourth quarter of 2018, all of our net revenue in the United States had been generated from sales of OCS disposable sets sold in conjunction with clinical trials conducted for our OCS products. In March 2018, we received our first FDA PMA approval for the OCS Lung, and we began commercial sales of this product in the United States during the fourth quarter of 2018. Therefore, commencing in fourth quarter of 2018, our net revenue in the United States is derived from both clinical trial sales and commercial sales and consists primarily of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles. We expect to continue to have U.S. clinical trial sales for our OCS Heart and OCS Liver products until we receive similar FDA PMAs for those products.

Historically, our net revenue in the United States fluctuated from period to period as a result of the timing of patient enrollment in our clinical trials. Our net revenue during periods of patient enrollment has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolled. Our OCS Lung EXPAND Trial began patient enrollment in January 2014 and completed patient enrollment in October 2016. Our OCS Heart EXPAND Trial began patient enrollment in September 2015 and completed patient enrollment in March 2018. Our Liver PROTECT Trial began enrollment in January 2016 and is currently enrolling patients. Our OCS Lung EXPAND II Trial began patient enrollment in March 2018 and is currently enrolling patients. Our net revenue may continue to fluctuate from period to period as a result of the timing of ongoing clinical trials in which our OCS products are used.

Through December 29, 2018, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials) and our net revenue has been generated primarily from sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles. Commercial sales of OCS disposable sets generally have a higher average selling price than clinical trial sales of OCS disposable sets.

We expect that our net revenue will increase in the future as a result of receiving our first FDA PMA approval for the OCS Lung in the United States in March 2018 and any potential future FDA approvals in the United States for additional indications on OCS Lung and, eventually, OCS Heart and OCS Liver. We also expect that our net revenue will increase as a result of anticipated growth in non-U.S. sales if national healthcare systems begin to reimburse transplant centers for the use of the OCS, if transplant centers utilize the OCS in more transplant cases, and if more transplant centers adopt the OCS in their programs.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists primarily of costs of components of our OCS Consoles and disposable sets, costs of direct materials, labor and the manufacturing overhead that directly supports production, and costs related to the depreciation of OCS Consoles loaned to customers. When we loan an OCS Console to a customer for its use free of charge, we capitalize as property and equipment the cost of our OCS Console and depreciate these assets over the five-year estimated useful life of the console.

Included in the cost of disposable sets is the cost of our OCS Lung, OCS Heart and OCS Liver Solutions. In each reported period through December 29, 2018, if we did not meet our obligation to purchase minimum quantities annually from our supplier of OCS Lung Solution, we were obligated to pay a premium equal to the order shortfall multiplied by a specified price. We capitalized any estimated premium we expected to pay at the end of each year as an adjustment to the inventory cost of OCS Lung Solution ordered during that year. The capitalized inventory adjustment is recognized as a component of cost of revenue when related OCS disposable sets are sold.

We expect that cost of revenue will increase in absolute dollars primarily as, and to the extent that, our net revenue increases.

Gross profit is the amount by which our net revenue exceeds our cost of revenue in each reporting period. We calculate gross margin as gross profit divided by net revenue. Our gross margin has been and will continue to

be affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing costs, headcount, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses.

We expect that cost of revenue as a percentage of net revenue will decrease and gross margin and gross profit will increase over the long term as our sales and production volumes increase and our cost per unit of our disposable sets decreases due to efficiencies of scale. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin. As utilization by customers of our OCS products increases, we expect that a greater number of OCS disposable sets will be used per year on the same OCS Console, thereby driving overall gross margin improvement. Because we expect that the number of OCS disposable sets sold over time will be significantly greater than the number of OCS Consoles sold or loaned to customers over that same period, we expect that our gross margin improvement will not be significantly affected by the number of OCS Consoles that we sell or loan to customers. While we expect gross margin to increase over the long term, it will likely fluctuate from quarter to quarter.

Operating Expenses

Research, Development and Clinical Trials Expenses

Research, development and clinical trials expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering, clinical trials to develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include:

•

employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research, hardware and software development, regulatory and clinical trial functions;

•

expenses incurred in connection with the clinical trials of our products, including under agreements with third parties, such as consultants, contractors and data management organizations;

•

the cost of maintaining and improving our product designs, including the testing of materials and parts used in our products;

•

laboratory supplies and research materials; and

•

facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance.

We expense research, development and clinical trials costs as incurred. In the future, we expect that research, development and clinical trials expenses will increase due to ongoing product development and approval efforts. We expect to continue to perform activities related to obtaining additional regulatory approvals for expanded indications in the United States and to developing the next generation of our OCS technology platform.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our sales and clinical adoption team and personnel in executive, marketing, finance and administrative functions. Selling, general and administrative expenses also include direct and allocated facility-related costs, promotional activities, marketing, conferences and trade shows as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We expect to continue to increase headcount in our sales and clinical adoption team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S. and select non-U.S. markets.

We expect that our selling, general and administrative expenses will increase as we increase our headcount to support the expected continued sales growth of our OCS products. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Interest Expense

Interest expense consists of interest expense associated with outstanding borrowings under a prior loan agreement and our existing loan agreement as well as the amortization of debt discount associated with such agreements. We expect our interest expense will increase in connection with our credit agreement with OrbiMed, under which we borrowed $35.0 million in June 2018. At that time, we repaid the remaining $6.7 million of principal that had been outstanding under our prior loan and security agreement with Hercules Technology Growth Capital, or Hercules, thereby increasing our total debt by $28.3 million.

Change in Fair Value of Preferred Stock Warrant Liability

In connection with our prior loan and security agreement, as amended, with Hercules, we issued warrants to purchase shares of Series B, Series D and Series F preferred stock. We classify these warrants as a liability on our consolidated balance sheet that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the warrant liability as a component of other income (expense) in our consolidated statements of operations. We will continue to recognize changes in the fair value of each warrant comprising the warrant liability until each respective warrant is exercised, expires or qualifies for equity classification.

In connection with the Corporate Reorganization, the warrants to purchase preferred stock will be converted into warrants to purchase common stock, and the fair value of the warrant liability at that time will be reclassified to common stock. As a result, subsequent to the closing of this offering, we will no longer remeasure the fair value of the warrant liability at each reporting date.

Other Income (Expense), Net

Other income (expense), net includes interest income, foreign currency transaction gains and losses and other non-operating income and expense items unrelated to our core operations, including the loss on extinguishment of debt that we recognized in June 2018 in connection with our repayment of borrowings under our loan and security agreement with Hercules.

Interest income consists of interest earned on our invested cash balances. We expect our interest income to increase as we invest the net proceeds from this offering. Foreign currency transaction gains and losses result from intercompany transactions of a short-term nature as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded.

Provision for Income Taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. In reporting periods subsequent to 2016, we have recorded provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries.

As of December 29, 2018, we had U.S. federal and state net operating loss carryforwards of $246.6 million and $179.1 million, respectively, which may be available to offset future taxable income, of which $215.2 million and $179.1 million begin to expire in 2019 and 2030, respectively, and of which $31.4 million related to U.S. federal income taxes do not expire. As of December 29, 2018, we also had U.S. federal and state research and development tax credit carryforwards of $6.4 million and $4.3 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2020 and 2024, respectively. As of December 29, 2018, we had no foreign net operating loss carryforwards. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

On December 22, 2017, the TCJA was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from a top marginal tax rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The federal tax rate change resulted in a reduction in the gross amount of our deferred tax assets recorded as of December 30, 2017 and a corresponding reduction in our valuation allowance. As a result, no income tax expense or benefit was recognized as of the enactment date of the TCJA.

Results of Operations

Our fiscal year ends on the last Saturday in December, and we report fiscal years using a 52/53-week convention. Under this convention, certain fiscal years contain 53 weeks. Each fiscal year is typically composed of four 13-week fiscal quarters, but in years with 53 weeks, the fourth quarter is a 14-week period. Our fiscal year ended December 31, 2016 included 53 weeks, and our fiscal years ended December 30, 2017 and December 29, 2018 included 52 weeks.

Comparison of the Fiscal Years Ended December 30, 2017 and December 29, 2018

The following table summarizes our results of operations for the fiscal years ended December 30, 2017 and December 29, 2018:


	Fiscal Year Ended
	December 30, 2017			December 29, 2018			Change
	(in thousands)
Net revenue	$	7,685		$	13,017		$	5,332
Cost of revenue		5,548			7,283			1,735

Gross profit		2,137			5,734			3,597

Operating expenses:
Research, development and clinical trials		14,957			13,656			(1,301	)
Selling, general and administrative		7,606			12,315			4,709

Total operating expenses		22,563			25,971			3,408

Loss from operations		(20,426	)		(20,237	)		189

Other income (expense):
Interest expense		(1,072	)		(2,720	)		(1,648	)
Change in fair value of preferred stock warrant liability		159			(545	)		(704	)
Other income (expense), net		548			(213	)		(761	)

Total other expense, net		(365	)		(3,478	)		(3,113	)

Loss before income taxes		(20,791	)		(23,715	)		(2,924	)
Provision for income taxes		(32	)		(41	)		(9	)

Net loss	$	(20,823	)	$	(23,756	)	$	(2,933	)

Net Revenue, Cost of Revenue and Gross Profit


	Fiscal Year Ended
	December 30, 2017		December 29, 2018		Change
	(in thousands)
Net revenue	$	7,685	$	13,017	$	5,332
Cost of revenue		5,548		7,283		1,735

Gross profit	$	2,137	$	5,734	$	3,597

Net Revenue


	Fiscal Year Ended
	December 30, 2017		December 29, 2018		Change
	(in thousands)
Net revenue by geography:
United States	$	2,744	$	6,543	$	3,799
Outside the U.S.		4,941		6,474		1,533

Total net revenue	$	7,685	$	13,017	$	5,332

Net revenue by OCS product:
OCS Lung net revenue	$	789	$	5,078	$	4,289
OCS Heart net revenue		5,761		5,956		195
OCS Liver net revenue		1,135		1,983		848

Total net revenue	$	7,685	$	13,017	$	5,332

Net revenue increased by $5.3 million in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017 primarily as a result of an increase in the number of OCS disposable sets sold to customers in the United States and outside the U.S.

Net revenue from customers in the United States was $6.5 million in the fiscal year ended December 29, 2018 and increased by $3.8 million in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017. The increase in net revenue from customers in the United States was primarily due to the sale of OCS Lung disposable sets sold to customers for use in our OCS Lung EXPAND II Trial and commercial sales of OCS Lung products. The OCS Lung EXPAND II Trial began enrolling patients in March 2018, and commercial sales of our OCS Lung disposable sets in the U.S. commenced in October 2018. Net revenue from sales of OCS Lung products in the U.S. increased from $0.1 million in the fiscal year ended December 30, 2017 to $4.4 million in the fiscal year ended December 29, 2018, and the increase was due to sales of OCS Lung disposable sets and our first U.S. commercial sale of an OCS Lung Console in the fourth quarter of 2018. In addition, net revenue from OCS Liver disposable sets sold to customers for use in our OCS Liver PROTECT Trial increased from $1.0 million in the fiscal year ended December 30, 2017 to $2.0 million in the fiscal year ended December 29, 2018. These increases in OCS Lung and OCS Liver net revenues were partially offset by a $1.4 million decline in net revenue in the United States in 2018 primarily due to lower sales of OCS Heart disposable sets as a result of the completion of patient enrollment in our OCS Heart EXPAND Trial in March 2018. In addition, the U.S. selling price of OCS Lung disposable sets sold in 2018 was approximately 42% higher than the U.S. selling prices of OCS Heart and OCS Liver disposable sets sold in 2017, which accounted for $1.2 million of the overall $3.8 million increase in net revenue in the United States from 2017 to 2018. The U.S. selling prices of the OCS Heart disposable sets and OCS Liver disposable sets were unchanged from 2017 to 2018.

Net revenue from customers outside the U.S. was $6.5 million in the fiscal year ended December 29, 2018 and increased by $1.5 million in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017. The increase in net revenue from customers outside the U.S. was primarily due to an increase of $1.7 million from sales of OCS Heart disposable sets from increased utilization by new and existing customers, partially offset by a $0.2 million unfavorable impact of foreign currency rates. The selling prices of the OCS disposable sets outside the U.S. were consistent from 2017 to 2018. In both years, net revenue from customers outside the U.S. was derived entirely from commercial sales.

The increases in net revenue by OCS product (i.e., OCS Lung, OCS Heart and OCS Liver) in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017 were each primarily due to an increase in the number of OCS disposable sets sold for each organ-specific OCS product. To a lesser extent, the

increase in OCS Lung net revenue was also due to the increase in the U.S. selling price of OCS Lung disposable sets described above and our first U.S. commercial sale of an OCS Lung Console in the fourth quarter of 2018.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $1.7 million in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017. Gross profit increased by $3.6 million in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017. Gross margin was 28% and 44% for the fiscal years ended December 30, 2017 and December 29, 2018, respectively. Gross profit and gross margin increased primarily as a result of a higher selling price for OCS Lung disposable sets used in our OCS Lung EXPAND II Trial and in OCS Lung commercial sales during 2018 relative to the average selling price across OCS disposable sets in 2017 and overall higher sales, which improved efficiency in production and reduced the impact of fixed costs in our manufacturing operation.

Operating Expenses

Research, Development and Clinical Trials Expenses


	Fiscal Year Ended
	December 30, 2017		December 29, 2018		Change
	(in thousands)
Personnel related (including stock-based compensation expense)	$	5,859	$	5,682	$	(177	)
Clinical trials costs		2,903		2,271		(632	)
Consulting and third-party testing		2,114		2,097		(17	)
Laboratory supplies and research materials		1,327		1,166		(161	)
Facility related and other		2,754		2,440		(314	)

Total research, development and clinical trials expenses	$	14,957	$	13,656	$	(1,301	)

Total research, development and clinical trials expenses decreased by $1.3 million from $15.0 million in the fiscal year ended December 30, 2017 to $13.7 million in the fiscal year ended December 29, 2018. Clinical trials costs decreased by $0.6 million, primarily due to reduced regulatory costs, as we received our first PMA approval from the FDA in March 2018, and due to reduced clinical trial activity in our OCS Lung EXPAND Trial, as we completed enrollment in the first quarter of 2017, and in our OCS Heart EXPAND Trial, as we completed enrollment in March 2018.

Selling, General and Administrative Expenses


	Fiscal Year Ended
	December 30, 2017		December 29, 2018		Change
	(in thousands)
Personnel related (including stock-based compensation expense)	$	2,993	$	4,988	$	1,995
Professional and consultant fees		1,806		3,878		2,072
Tradeshows and conferences		674		1,023		349
Facility related and other		2,133		2,426		293

Total selling, general and administrative expenses	$	7,606	$	12,315	$	4,709

Total selling, general and administrative expenses increased by $4.7 million from $7.6 million in the fiscal year ended December 30, 2017 to $12.3 million in the fiscal year ended December 29, 2018 primarily due to increases in personnel-related costs and professional and consultant fees as we hired additional resources and engaged consultants to support commercial sales of our OCS Lung product in the United States after receipt of our PMA approval in March 2018 and to support our preparation to operate as a public company.

Other Income (Expense)

Interest Expense

Interest expense for the fiscal year ended December 30, 2017 and December 29, 2018 consisted of interest on the outstanding borrowings under our loan and security agreement with Hercules and our credit agreement with OrbiMed. Our loan and security agreement with Hercules was outstanding through June 22, 2018, when we terminated and repaid in full the borrowings under that agreement and entered into a new credit agreement with OrbiMed. Interest expense increased by $1.6 million in the fiscal year ended December 29, 2018 compared to the fiscal year ended December 30, 2017 primarily as a result of a $28.3 million increase in our total outstanding borrowings in June 2018.

Change in Fair Value of Preferred Stock Warrant Liability

The change in the fair value of our preferred stock warrant liability in the fiscal years ended December 30, 2017 and December 29, 2018 was due primarily to the changes in the fair value of our preferred stock during those periods.

Other Income (Expense), Net

Other income (expense), net for the fiscal years ended December 30, 2017 and December 29, 2018 included interest income of $0.3 million in each period, resulting from interest earned on invested cash balances, and included $0.3 million of foreign currency transaction gains and $0.2 million of foreign currency transaction losses, respectively. Additionally, other income (expense), net for the fiscal year ended December 29, 2018 included a loss on extinguishment of debt of $0.3 million that we recognized in connection with the prepayment of our borrowings under our loan and security agreement with Hercules upon entering into our new credit agreement with OrbiMed.

Comparison of the Fiscal Years Ended December 31, 2016 and December 30, 2017

The following table summarizes our results of operations for the fiscal years ended December 31, 2016 and December 30, 2017:


	Fiscal Year Ended
	December 31, 2016			December 30, 2017			Change
	(in thousands)
Net revenue	$	6,209		$	7,685		$	1,476
Cost of revenue		5,443			5,548			105

Gross profit		766			2,137			1,371

Operating expenses:
Research, development and clinical trials		15,637			14,957			(680	)
Selling, general and administrative		8,115			7,606			(509	)

Total operating expenses		23,752			22,563			(1,189	)

Loss from operations		(22,986	)		(20,426	)		2,560

Other income (expense):
Interest expense		(979	)		(1,072	)		(93	)
Change in fair value of preferred stock warrant liability		(105	)		159			264
Other income (expense), net		5			548			543

Total other expense, net		(1,079	)		(365	)		714

Loss before income taxes		(24,065	)		(20,791	)		3,274
Provision for income taxes		—			(32	)		(32	)

Net loss	$	(24,065	)	$	(20,823	)	$	3,242

Net Revenue, Cost of Revenue and Gross Profit


	Fiscal Year Ended
	December 31, 2016		December 30, 2017		Change
	(in thousands)
Net revenue	$	6,209	$	7,685	$	1,476
Cost of revenue		5,443		5,548		105

Gross profit	$	766	$	2,137	$	1,371

Net Revenue


	Fiscal Year Ended
	December 31, 2016		December 30, 2017		Change
	(in thousands)
Net revenue by geography:
United States	$	3,468	$	2,744	$	(724	)
Outside the U.S.		2,741		4,941		2,200

Total net revenue	$	6,209	$	7,685	$	1,476

Net revenue by OCS product:
OCS Lung net revenue	$	1,934	$	789	$	(1,145	)
OCS Heart net revenue		3,598		5,761		2,163
OCS Liver net revenue		677		1,135		458

Total net revenue	$	6,209	$	7,685	$	1,476

Net revenue increased by $1.5 million in the fiscal year ended December 30, 2017 compared to the fiscal year ended December 31, 2016 primarily as a result of a $2.2 million increase in sales outside of the U.S., which was partially offset by a decrease of $0.7 million in sales in the United States.

Net revenue from customers in the United States, all of which was generated by customers conducting clinical trials of our OCS products, was $2.7 million in the fiscal year ended December 30, 2017 and decreased by $0.7 million in the fiscal year ended December 30, 2017 compared to the fiscal year ended December 31, 2016. The decrease in net revenue from customers in the United States was primarily due to fewer sales of OCS Lung disposable sets as a result of the completion of patient enrollment in our OCS Lung EXPAND Trial in the fourth quarter of 2016. U.S. selling prices of our OCS disposable sets were consistent from the fiscal year ended December 31, 2016 to the fiscal year ended December 30, 2017.

Net revenue from customers outside the U.S. was $4.9 million in the fiscal year ended December 30, 2017 and increased by $2.2 million in the fiscal year ended December 30, 2017 compared to the fiscal year ended December 31, 2016. The increase in net revenue from customers outside the U.S. was due to increased sales of OCS disposable sets as existing customers increased their utilization of the OCS and as several new transplant centers began using the OCS. Foreign currency rates did not have a material impact on the net revenue increase from the fiscal year ended December 31, 2016 to the fiscal year ended December 30, 2017. Selling prices of our OCS disposable sets outside the U.S. were consistent from the fiscal year ended December 31, 2016 to the fiscal year ended December 30, 2017. In both periods, net revenue from customers outside the U.S. was derived entirely from commercial sales.

The decrease in OCS Lung net revenue and increases in OCS Heart net revenue and OCS Liver net revenue in the fiscal year ended December 30, 2017 compared to the fiscal year ended December 31, 2016 were primarily due to a decrease and increases, respectively, in the number of OCS disposable sets sold for each organ-specific OCS product. During these periods, there were no sales of OCS Consoles.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $0.1 million in the fiscal year ended December 30, 2017 compared to the fiscal year ended December 31, 2016. Gross profit increased by $1.4 million in the fiscal year ended December 30, 2017 compared to the fiscal year ended December 31, 2016 due primarily to an increase in sales outside of the U.S. as existing customers increased their utilization of the OCS for transplants and several new transplant centers began using the OCS. Gross margin was 12% and 28% for the fiscal years ended December 31, 2016 and December 30, 2017, respectively. The increase in gross margin was primarily a result of higher volume of sales

of OCS disposable sets, which reduced the impact of fixed costs in our manufacturing operation, and the impact of the lower purchase cost of OCS Lung Solution in 2017 as compared to 2016. Selling prices of our OCS disposable sets were consistent from the fiscal year ended December 31, 2016 to the fiscal year ended December 30, 2017.

Operating Expenses

Research, Development and Clinical Trials Expenses


	Fiscal Year Ended
	December 31, 2016		December 30, 2017		Change
	(in thousands)
Personnel related (including stock-based compensation expense)	$	6,995	$	5,859	$	(1,136	)
Clinical trials costs		2,489		2,903		414
Consulting and third-party testing		1,703		2,114		411
Laboratory supplies and research materials		1,564		1,327		(237	)
Facility related and other		2,886		2,754		(132	)

Total research, development and clinical trials expenses	$	15,637	$	14,957	$	(680	)

Total research, development and clinical trials expenses decreased by $0.7 million from $15.6 million in the fiscal year ended December 31, 2016 to $15.0 million in the fiscal year ended December 30, 2017. Personnel-related costs decreased by $1.1 million primarily as a result of headcount reductions during late 2016. Clinical trials costs and consulting and third-party testing costs each increased by $0.4 million, primarily as a result of the hiring of consultants to assist with activity related to the regulatory PMA process for our OCS Lung product.

Selling, General and Administrative Expenses


	Fiscal Year Ended
	December 31, 2016		December 30, 2017		Change
	(in thousands)
Personnel related (including stock-based compensation expense)	$	3,269	$	2,993	$	(276	)
Professional and consultant fees		2,365		1,806		(559	)
Tradeshows and conferences		1,194		674		(520	)
Facility related and other		1,287		2,133		846

Total selling, general and administrative expenses	$	8,115	$	7,606	$	(509	)

Total selling, general and administrative expenses decreased by $0.5 million from $8.1 million in the fiscal year ended December 31, 2016 to $7.6 million in the fiscal year ended December 30, 2017, primarily due to decreases in personnel-related costs, professional and consultant fees and tradeshow and conference expenses. These decreases were a result of headcount reductions during late 2016. These decreases were partially offset by an increase in facility-related and other expenses due to increased travel costs related to the regulatory PMA process for our OCS Lung product.

Other Income (Expense)

Interest Expense

Interest expense for the fiscal years ended December 31, 2016 and December 30, 2017 consisted primarily of interest on the outstanding borrowings under our loan and security agreement with Hercules.

Change in Fair Value of Preferred Stock Warrant Liability

The change in the fair value of our preferred stock warrant liability in the fiscal years ended December 31, 2016 and December 30, 2017 was due primarily to the changes in the fair value of our preferred stock during those periods.

Other Income (Expense), Net

Other income (expense), net for the fiscal years ended the December 31, 2016 and December 30, 2017 included interest income of $0.1 million and $0.3 million, respectively, resulting from interest earned on invested cash balances, as well as $0.1 million of foreign currency transaction losses and $0.3 million of foreign currency transactions gains, respectively.

Quarterly Results of Operations Data

The following table sets forth our quarterly statement of operations data for each of the eight most recent fiscal quarters in the period ended December 29, 2018. We have prepared the quarterly statement of operations data on the same basis as the audited consolidated financial statements included in this prospectus. In our opinion, the quarterly financial data reflects all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of this data. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. Our operating results may fluctuate due to a variety of factors. Because the timing of organ transplant procedures is generally unpredictable, we have not experienced seasonality in our business from quarter to quarter and do not expect to do so in the foreseeable future. The results of historical periods are not necessarily indicative of the results to be expected for a full year or any future period.


	Fiscal Three Months Ended
	Apr. 1, 2017			July 1, 2017			Sept. 30, 2017			Dec. 30, 2017			Mar. 31, 2018			June 30, 2018			Sept. 29, 2018			Dec. 29, 2018
Net revenue	$	1,480		$	2,232		$	1,867		$	2,106		$	2,519		$	2,915		$	4,039		$	3,544
Cost of revenue		1,168			1,421			1,381			1,578			1,595			1,736			1,907			2,045

Gross profit		312			811			486			528			924			1,179			2,132			1,499

Operating expenses:
Research, development and clinical trials		3,961			4,193			3,402			3,401			3,465			3,433			3,272			3,486
Selling, general and administrative		1,829			2,330			1,813			1,634			2,243			2,899			2,799			4,374

Total operating expenses		5,790			6,523			5,215			5,035			5,708			6,332			6,071			7,860

Loss from operations		(5,478	)		(5,712	)		(4,729	)		(4,507	)		(4,784	)		(5,153	)		(3,939	)		(6,361	)

Other income (expense):
Interest expense		(265	)		(269	)		(270	)		(268	)		(258	)		(313	)		(1,076	)		(1,073	)
Change in fair value of preferred stock warrant liability		19			123			13			4			(30	)		(210	)		(183	)		(122	)
Other income (expense), net		108			123			189			128			174			(427	)		101			(61	)

Total other expense, net		(138	)		(23	)		(68	)		(136	)		(114	)		(950	)		(1,158	)		(1,256	)

Loss before income taxes		(5,616	)		(5,735	)		(4,797	)		(4,643	)		(4,898	)		(6,103	)		(5,097	)		(7,617	)
Provision for income taxes		(10	)		(9	)		(9	)		(4	)		(7	)		(8	)		(8	)		(18	)

Net loss	$	(5,626	)	$	(5,744	)	$	(4,806	)	$	(4,647	)	$	(4,905	)	$	(6,111	)	$	(5,105	)	$	(7,635	)

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements. As of December 29, 2018, we had cash and cash equivalents of $20.2 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the fiscal periods presented:


	Fiscal Year Ended
	December 31, 2016			December 30, 2017			December 29, 2018
	(in thousands)
Cash used in operating activities	$	(24,109	)	$	(23,098	)	$	(25,984	)
Cash provided by (used in) investing activities		(39,672	)		24,859			12,307
Cash provided by financing activities		63,544			3			22,064
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(6	)		335			(82	)

Net increase (decrease) in cash, cash equivalents and restricted cash	$	(243	)	$	2,099		$	8,305

Operating Activities

During the fiscal year ended December 29, 2018, operating activities used $26.0 million of cash, primarily resulting from our net loss of $23.8 million and net cash used by changes in our operating assets and liabilities of $4.3 million, partially offset by net non-cash charges of $2.1 million. Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 29, 2018 consisted primarily of a $2.7 million increase in inventory, a $2.5 million increase in accounts receivable and a $1.4 million increase in prepaid expenses and other current assets, all partially offset by a $2.5 million increase in accounts payable and accrued expenses and other current liabilities.

During the fiscal year ended December 30, 2017, operating activities used $23.1 million of cash, primarily resulting from our net loss of $20.8 million and net cash used by changes in our operating assets and liabilities of $2.8 million, partially offset by net non-cash charges of $0.5 million. Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 30, 2017 consisted primarily of a $2.5 million increase in inventory, a $0.3 million decrease in deferred rent and a $0.3 million decrease in accounts payable and accrued expenses and other current liabilities, all partially offset by a $0.5 million decrease in accounts receivable.

During the fiscal year ended December 31, 2016, operating activities used $24.1 million of cash, primarily resulting from our net loss of $24.1 million and net cash used by changes in our operating assets and liabilities of $0.9 million, partially offset by net non-cash charges of $0.8 million. Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 31, 2016 consisted primarily of a $1.6 million increase in inventory, a $0.8 million increase in accounts receivable and a $0.3 million decrease in deferred rent, all partially offset by a $1.9 million increase in accounts payable and accrued expenses and other current liabilities.

Changes in accounts receivable, inventory, accounts payable, and accrued expenses and other current liabilities in each reporting period are generally due to growth in our business, including the growth in sales, expenses and employee headcount. Our deferred rent balance will continue to decrease in each reporting period during the remaining term of the leases for our leased property.

Investing Activities

During the fiscal year ended December 29, 2018, net cash provided by investing activities was $12.3 million, due to the maturities of marketable securities of $12.7 million, partially offset by purchases of property and equipment of $0.4 million.

During the fiscal year ended December 30, 2017, net cash provided by investing activities was $24.9 million, due to the maturities of marketable securities of $44.3 million, partially offset by purchases of marketable securities of $19.2 million and purchases of property and equipment of $0.3 million.

During the fiscal year ended December 31, 2016, net cash used in investing activities was $39.7 million, due to purchases of marketable securities of $46.5 million and purchases of property and equipment of $1.5 million, partially offset by maturities of marketable securities of $8.3 million. The purchases of property and equipment during the fiscal year ended December 31, 2016 related to equipment purchases to expand our engineering and manufacturing capabilities.

Financing Activities

During the fiscal year ended December 29, 2018, net cash provided by financing activities was $22.1 million, consisting primarily of net proceeds from borrowings under our credit agreement with OrbiMed of $33.4 million, partially offset by the repayment of our previously outstanding borrowings under our loan and security agreement with Hercules of $9.1 million, representing principal of $8.5 million and the end-of-term payment of $0.6 million, and the payment of $2.3 million of offering costs related to our planned initial public offering.

Cash provided by financing activities in the fiscal year ended December 30, 2017 was less than $0.1 million.

During the fiscal year ended December 31, 2016, net cash provided by financing activities was $63.5 million, consisting primarily of proceeds from the issuance of preferred stock of $63.6 million.

Long-Term Debt

In June 2018, we entered into our Credit Agreement with OrbiMed, pursuant to which OrbiMed made certain term loans available to us. The Credit Agreement provides for aggregate maximum borrowings of up to $65.0 million, consisting of (i) $35.0 million upon entering into the Credit Agreement, which we borrowed in June 2018, and (ii) potential additional borrowings of up to $30.0 million that may become available upon our achievement of specified revenue thresholds and a regulatory milestone by determinable dates. We do not believe that we will meet the conditions necessary to access the additional borrowings of up to $30.0 million.

Borrowings under the Credit Agreement bear interest at an annual rate equal to the London Interbank Offered Rate, or LIBOR, subject to a minimum of 1.0% and a maximum of 4.0%, plus 8.5%, or the Applicable Margin, subject in the aggregate to a maximum interest rate of 11.5%. In addition, borrowings under the Credit Agreement bear paid-in-kind, or PIK interest, at an annual rate equal to the amount by which LIBOR plus the Applicable Margin exceeds 11.5%, but not to exceed 12.5%. The PIK interest is added to the principal amount of the borrowings outstanding at the end of each quarter until the maturity date of the Credit Agreement in June 2023. Borrowings under the Credit Agreement are repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest is due and payable. At our option, we may prepay outstanding borrowings under the Credit Agreement, subject to a prepayment premium of 9.0% of the principal amount of any prepayment within the first three years, which percentage decreases annually until it reaches zero at the end of three years. We are also required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment, which we are accreting to interest expense over the term of the Credit Agreement using the effective interest method.

All obligations under the Credit Agreement are guaranteed by us and each of our material subsidiaries. All obligations of us and each guarantor are secured by substantially all of our and each guarantor’s assets, including their intellectual property, subject to certain exceptions, including a perfected security interest in substantially all tangible and intangible assets of us and each guarantor. Under the Credit Agreement, we have agreed to certain affirmative and negative covenants to which we will remain subject until maturity. The covenants include maintaining a minimum liquidity amount of $3.0 million; the requirement, on an annual basis, to deliver to OrbiMed annual audited financial statements with an unqualified audit opinion from our independent registered public accounting firm; and restrictions on our activities, including limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to governmental approvals (if such events could cause a material adverse change in our business), failure to comply with certain covenants. including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in our business, operations or other financial condition. With respect to our consolidated financial statements for the fiscal year ended December 29, 2018, we received a waiver of the covenant requiring delivery to OrbiMed of audited financial statements with an unqualified audit opinion. The waiver provides that we must pay OrbiMed $162,500 on each of June 30, 2019 and September 30, 2019, which fees will terminate if this offering results in proceeds of at least $50.0 million. As of December 29, 2018, we were in compliance with all of the other covenants under the Credit Agreement.

Upon the occurrence of an event of default and until such event of default is no longer continuing, the Applicable Margin will increase by 4.0% per annum. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, OrbiMed may declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be due and payable. Upon the occurrence of certain events of bankruptcy or insolvency, all of the outstanding principal amount of the borrowings plus accrued and unpaid interest will automatically become due and payable. In addition, we may be required to prepay outstanding borrowings, subject to certain exceptions, with portions of net cash proceeds of certain asset sales and certain casualty and condemnation events. See “Description of Certain Indebtedness—Credit Agreement.”

In June 2018, we repaid all amounts due under our 2015 loan and security agreement with Hercules and the loan and security agreement was terminated.

Funding Requirements

•

the amount of net revenue generated by sales of our OCS Consoles, OCS disposable sets and other products that may be approved in the United States and select non-U.S. markets;

•

the costs and expenses of expanding our U.S. and non-U.S. sales and marketing infrastructure and our manufacturing operations;

•

the extent to which our OCS products are adopted by the transplant community;

•

the ability of our customers to obtain adequate reimbursement from third-party payors for procedures performed using the OCS products;

•

the degree of success we experience in commercializing our OCS products for additional indications;

•

the costs, timing and outcomes of any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

•

the emergence of competing or complementary technologies;

•

the number and types of future products we develop and commercialize;

•

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and

•

the level of our selling, general and administrative expenses.

See “Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital—We may need to raise additional funding, which might not be available on favorable terms or at all. Raising additional capital may cause dilution to our shareholders.”

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 29, 2018 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:


	Payments Due By Period
	Total		Less Than 1 Year		1 to 3 Years		4 to 5 Years		More Than 5 Years
	(in thousands)
Operating lease commitments⁽¹⁾	$	4,708	$	1,549	$	3,159	$	—	$	—
Debt obligations⁽²⁾		53,448		3,871		7,742		41,835		—

Total	$	58,156	$	5,420	$	10,901	$	41,835	$	—

(1)	Amounts in table reflect payments due for our leases of office and laboratory space in Andover, Massachusetts under two operating lease agreements that expire in December 2021.

(2)

Amounts in table reflect the contractually required principal and interest payments payable under the Credit Agreement, under which borrowings bear interest at a variable rate. For purposes of this table, the interest due under the Credit Agreement was calculated using an assumed interest rate of 10.94% per annum, which was the interest rate in effect as of December 29, 2018. Because such interest rate is below the PIK interest threshold of 11.5%, we did not include PIK in our calculated payments.

We are obligated to pay financing fees of $1.5 million to former financial advisors related to issuances of our Series B preferred stock and Series D preferred stock in periods prior to 2016. These financing fees are contingently payable in cash only upon an initial public offering or certain alternative transactions, including a sale of our company. These payments are not included in the table above as the timing of such payments is not known. See “Capitalization”.

We also enter into other contracts in the normal course of business with consulting firms, material suppliers and other third parties for clinical trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the table above as the amount and timing of such payments are not known.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related

disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We recognize revenue from sales to customers when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred (based on contractual shipping terms), the sales price is fixed or determinable, and collectability is reasonably assured. Revenue is recognized upon delivery to the customer or upon the later receipt of customer acceptance, if such acceptance is required. Because all elements of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to elements other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all elements of revenue from customer arrangements are classified as a single category of revenue in our consolidated statement of operations.

Our products have both software and non-software (e.g., hardware) components that function together to deliver the products’ essential functionality. In addition, the hardware sold cannot be used apart from the embedded software. As a result, all of our product offerings are excluded from the scope of software revenue recognition requirements and instead fall within the scope of Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition.

Substantially all of our customer arrangements are multiple-element arrangements that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those multiple-element arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer. We evaluate each element within a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value to the customer and delivery of any undelivered element is probable and within our control.

When a customer order includes an OCS Console, whether sold or loaned, we have determined that customer training and the equipment set-up of the OCS Console, each performed by us, lack standalone value to the customer because they are not sold on a standalone basis and can only be performed by us in conjunction with a sale or loan of our OCS Console. As a result, we have concluded that training, OCS Console equipment set-up and the OCS Console itself represent a single unit of accounting. Consequently, we do not recognize any revenue from any element of a customer order that includes an OCS Console, whether sold or loaned, until the OCS Console has been delivered and the training and equipment set-up have been completed by us. Further, we deem that “delivery” of an OCS Console occurs only after the console has been delivered and the training and equipment set-up have been completed by us.

When our customer arrangements are multiple-element arrangements that contain a loan of an OCS Console for the customer’s use at its customer site as well as OCS disposable sets that are delivered simultaneously, we allocate the arrangement consideration between the lease deliverables (i.e., the OCS Console) and non-lease deliverables (i.e., the disposable sets) based on the relative selling price of each deliverable, determined using the selling price hierarchy. To date, the amounts allocated to lease deliverables have been insignificant. The selling price hierarchy includes (1) vendor-specific objective evidence, or VSOE, if available, (2) third-party evidence, or TPE, if VSOE is not available, or (3) best estimate of selling price, or BESP, if neither VSOE or TPE is available. We have not been able to establish a selling price for the lease deliverables (i.e., the OCS Console) using VSOE or TPE. We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration include our discounting practices, our price lists, our go-to-market strategy, historical sales and contract prices. The determination of BESP is made in consultation with, and is approved by, our management.

In any multiple-element arrangement, we limit the amount of the arrangement fee allocated to deliverables to the amount that is not contingent on the future delivery of products or future performance obligations and the amount that is not subject to customer-specific return or refund privileges. Because we do not require minimum purchase commitments in any of our customer arrangements, the arrangement fee generated by expected future sales of OCS disposable sets is considered contingent for purposes of the allocation of the arrangement fee in each customer arrangement.

Other Revenue Recognition Policies

Under all of our customer arrangements that include a customer clinical trial agreement, we receive payments from sales to the customer of our OCS products and also make payments to that customer for reimbursements of clinical trial materials and for specified clinical documentation related to the customer’s use of our OCS products. If the clinical trial includes a patient arm that uses existing standard-of-care protocols for organ transplants (and does not use our OCS products), then we make additional payments to that customer to obtain clinical documentation related to existing standard-of-care protocols (i.e., unrelated to our OCS products).

In these cases, we have determined that the payments made to the customer for clinical trial materials and its costs incurred to execute specific clinical trial protocols related to our OCS products do not provide us with a separately identifiable benefit, and therefore, such payments are recorded as a reduction of revenue from the customer in our consolidated statements of operations. Reductions of revenue related to such payments made to customers for reimbursements are recognized when we recognize the revenue for the sale of our OCS disposable sets. For the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018, we recorded as a reduction of revenue $0.9 million, $0.7 million and $1.6 million, respectively, of reimbursable clinical trial costs.

In these same cases, we have also determined that payments made to the customer to obtain clinical documentation related to existing standard-of-care protocols (i.e., unrelated to our OCS products) do meet the

criteria to be classified as a cost because we receive an identifiable benefit separate from the customer’s purchase of our OCS products and the consideration paid represents the fair value of the benefit received by us. As a result, payments made by us to customers for standard-of-care protocols are recorded as research, development and clinical trials expenses. For the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018, we recorded as research, development and clinical trials expenses $0.3 million, $0.2 million and $0.6 million, respectively, related to payments made to customers at clinical trial sites for documentation related to existing standard-of-care protocols.

Billings to customers for shipping costs and reimbursement of out-of-pocket expenses, including travel, lodging and meals, are recorded as revenue, and the associated costs incurred by us for those items are recorded as cost of revenue.

We exclude any taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction (e.g., sales, use and value added taxes) from our revenue and costs.

Distributors

We market and sell our products primarily through our direct sales force, which sells our products to end customers globally. A small portion of our revenue is generated by sales to a limited number of distributors in Europe and Asia-Pacific. When we transact with a distributor, our contractual arrangement is with the distributor and not with the end customer. Whether we transact business with and receive the order from a distributor or directly from an end customer, our revenue recognition policy and resulting pattern of revenue recognition for the order are the same.

In our business with distributors, we enter into a distributor agreement under which the distributor places orders to us for our products in connection with the distributor’s own sales to identified end customers, and we confirm the identification of the end customer prior to accepting each order. Our distributors do not stock OCS Consoles purchased from us and stock only minimal quantities of OCS disposable sets. Under these contractual arrangements, we invoice the distributor for the arrangement fee (which reflects a distributor discount relative to typical end customer pricing) and payment to us from the distributor is not contingent upon the distributor’s collection from the end customer. We record revenue based on the amount of the discounted arrangement fee.

When a sale to a distributor includes an OCS Console, we perform the training and OCS Console equipment set-up for the end customer. We recognize no revenue from a distributor order that includes an OCS Console until the OCS Console has been delivered and the training and equipment set-up have been completed by us.

New Revenue Recognition Standard

Effective December 30, 2018, the beginning of our fiscal 2019, we are required to adopt ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. We will adopt ASC 606 using the modified retrospective method. Under this method, the new guidance is applied to customer contracts that are not yet completed as of December 29, 2018, with the cumulative effect of initially applying the new guidance recorded as an adjustment to accumulated deficit on the effective date of adoption. We are currently in the process of finalizing our assessment of the impact of the adoption of ASC 606 on our consolidated financial statements, accounting policies, IT systems and processes. We have allocated internal and external resources to assist in our planned implementation and evaluation of the impact of ASC 606. While we cannot reliably estimate the expected financial statement impact at this time, we expect that the revenue recognition of our OCS products will remain substantially unchanged and do not expect that the adoption of ASC 606 will have a material impact on our consolidated financial statements. For additional information, see “—Emerging Growth Company Status” and Note 2 to our consolidated financial statements included elsewhere in this prospectus.

Stock-Based Compensation

We measure stock-based option awards granted to employees and directors based on their fair value on the date of the grant using the Black-Scholes option-pricing model. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.

For stock-based option awards granted to non-employee consultants, we recognize compensation expense over the period during which services are rendered by such consultants until completed. At the end of each financial reporting period prior to the completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield.

Determination of Fair Value of Common Stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using a Monte Carlo simulation method, which used either a market or income approach to estimate our enterprise value. A Monte Carlo simulation method is used to calculate the value of an enterprise (or other asset) with multiple sources of uncertainty or with complicated features and to allocate the total equity value among the various holders of a company’s securities upon the simulated exit using a waterfall. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $2.21 per share as of May 12, 2016, $3.22 per share as of April 5, 2018 and $8.65 per share as of October 9, 2018 (each amount adjusted for the conversion ratio in the Corporate Reorganization). In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

•

the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

•

the progress of our research and development, including the status and results of clinical trials to develop clinical evidence of our products’ safety and effectiveness and progress of our development of our OCS products;

•

our stage of development and commercialization and our business strategy;

•

external market conditions affecting the medical device industry and trends within the medical device industry;

•

our financial position, including cash on hand, and our historical and forecasted performance and operating results;

•

the lack of an active public market for our common stock and our preferred stock;

•

the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions; and

•

the analysis of IPOs and the market performance of similar companies in the medical device industry.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

Options Granted

The following table summarizes by grant date the number of shares subject to options granted between January 1, 2017 and March 30, 2019, the per share exercise price of the options, the fair value of common stock on each grant date, and the per share estimated fair value of the options:


Grant Date	Number of Shares Subject to Options Granted		Per Share Exercise Price of Options		Fair Value of Common Stock per Share on Grant Date			Per Share Estimated Fair Value of Options
March 30, 2017		41,428	$	2.21	$	2.21		$	1.02
June 22, 2017		366,559	$	2.21	$	1.79	(1)	$	0.67
April 5, 2018		70,000	$	3.22	$	3.22		$	1.65
July 18, 2018		18,571	$	3.22	$	3.22		$	1.65
October 9, 2018		91,142	$	8.65	$	8.65		$	4.48

(1)

At the time of the option grant on June 22, 2017, our board of directors determined that the fair value of our common stock of $2.21 per share calculated in the third-party valuation as of May 12, 2016 described above reasonably reflected the per share fair value of our common stock as of the grant date. However, as described below, the fair value of common stock at the date of this grant was adjusted in connection with a retrospective fair value assessment for accounting purposes.

In preparing for the issuance of our financial statements for the fiscal year ended December 30, 2017, in September 2018, we performed a retrospective fair value assessment and concluded that the fair value of our common stock underlying stock options that we granted on June 22, 2017 was $1.79 per share for accounting purposes. We applied the fair value of our common stock from our retrospective fair value assessment to determine the fair value of these awards and calculate stock-based compensation expense for accounting purposes. This reassessed value was based, in part, upon a third-party valuation of our common stock prepared as of the June 22, 2017 grant date on a retrospective basis. The third-party valuation was prepared using a Monte Carlo simulation method and used an income approach to determine our enterprise value.

In connection with this offering, we plan to grant options to purchase 395,712 shares of our common stock to certain of our employees and 21,645 shares of our common stock to one of our directors, in each case at an exercise price per share equal to the initial public offering price in this offering. See “Executive Compensation—Stock Option Grants in Connection with this Offering.”

Valuation of Warrants to Purchase Preferred Stock

We classify warrants to purchase shares of our Series B, Series D and Series F preferred stock as liabilities on our consolidated balance sheets as these warrants are free-standing financial instruments that may require us to transfer assets upon exercise. The warrant liability associated with each of these warrants was initially recorded at fair value on the issuance date of each warrant and is subsequently remeasured to fair value at each reporting date. Changes in fair value of the warrant liability are recognized as a component of other income (expense) in our consolidated statements of operations. We will continue to recognize changes in fair value of each warrant comprising the warrant liability until each respective warrant is exercised, expires or qualifies for equity classification.

We utilize the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the preferred stock warrants. We assess these assumptions and estimates on a quarterly basis as additional information impacting the assumptions is obtained. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying Series B, Series D and Series F preferred stock, the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock. The most significant assumption in the Black-Scholes option-pricing model impacting the fair value of the preferred stock warrants is the fair value of our preferred stock as of each remeasurement date. We determine the fair value per share of the underlying preferred stock by taking into consideration our most recent sales of our preferred stock, results obtained from third-party valuations and additional factors that we deem relevant. As of December 30, 2017, the fair value of our Series B, Series D and Series F preferred stock was $0.75 per share, $2.99 per share and $4.83 per share, respectively. As of December 29, 2018, the fair value of our Series D and Series F preferred stock was $6.21 per share and $5.73 per share, respectively. We have historically been a private company and lack company-specific historical and implied volatility information of our stock. Therefore, we estimate expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. We have estimated a 0% dividend yield based on the expected dividend yield and the fact that we have never paid or declared dividends.

Valuation of Inventory

We value inventory at the lower of cost or net realizable value, with cost computed using the first-in, first-out method. We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, record charges to write down inventories to their estimated net realizable value, after evaluating historical sales, future demand, market conditions and expected product life cycles. Such charges are classified as cost of revenue in our consolidated statements of operations. Any write-down of inventory to net realizable value creates a new cost basis.

At the end of each reporting period, we assess whether losses should be accrued on long-term manufacturing purchase commitments in accordance with ASC 330, Inventory, which requires that losses that are expected to arise from firm, noncancelable and unhedged commitments for the future purchase of inventory, measured in the same way as inventory losses, should be recognized in the current period in the statement of operations unless they are deemed recoverable through firm sales contacts or when there are other circumstances that reasonably assure continuing sales without price decline. As of the end of each reporting period presented in our consolidated financial statements included elsewhere in this prospectus, we did not identify any potential losses arising from remaining future purchase commitments as compared to estimated future customer sales through the remainder of the term of the manufacturing purchase commitment and, as a result, did not recognize in a current period any loss provision for future-period remaining purchase commitments.

Backlog

We define backlog as contractually committed orders for our products for which the associated revenue has not been recognized and the customer has not been invoiced. Amounts that have been invoiced but not yet recognized as revenue are reported as deferred revenue on our consolidated balance sheets and are not included in our calculation of backlog. As of December 30, 2017 and December 29, 2018, we had backlog of $0.6 million and $1.2 million, respectively. The increase in backlog was primarily due to increased sales of our OCS disposable sets and timing of orders. Of the amount of backlog as of December 29, 2018, we expect that substantially all of it will be invoiced to customers within the following 12 months. However, because our customers may cancel, change or reschedule orders without penalty at any time prior to shipment, we have no assurance that we will be able to convert our backlog into shipped orders.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this prospectus.

Quantitative and Qualitative Disclosures about Market Risks

We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments and denominate our transactions in a variety of foreign currencies. Changes in these rates may have an impact on future cash flow and earnings. We manage these risks through normal operating and financing activities.

Foreign Currency Exchange Risk

Our foreign currency transaction exposure results primarily from intercompany transactions and transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded by us. Assets and liabilities arising from such transactions are translated into the legal entity’s functional currency using the period-end exchange rates. Foreign currency transaction gains (losses) are included in the consolidated statements of operations as a component of other income (expense). We recognized foreign currency transaction losses of $0.2 million during the fiscal year ended December 29, 2018.

Foreign currency translation exposure results from the translation of the financial statements of our subsidiaries whose functional currency is not the U.S. dollar into U.S. dollars for consolidated reporting purposes. Assets and liabilities of these subsidiaries are translated into U.S. dollars using the period-end exchange rates, and income and expense items are translated into U.S. dollars using average exchange rates in effect during each period. The effects of these foreign currency translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ equity (deficit) on our consolidated balance sheets. We recorded a foreign currency translation gain of less than $0.1 million during the fiscal year ended December 29, 2018.

For the fiscal year ended December 29, 2018, 50% of our net revenue and 9% of our operating costs and expenses were generated by subsidiaries whose functional currency is not the U.S. dollar and therefore are subject to foreign currency exposure.

Currently, our largest foreign currency exposure is that with respect to the euro. We believe that a 10% change in the exchange rate between the U.S. dollar and euro would not materially impact our operating results

or financial position. We have experienced and we will continue to experience fluctuations in our net loss as a result of revaluing our assets and liabilities that are not denominated in the functional currency of the entity that recorded the asset or liability. At this time, we do not hedge our foreign currency risk.

Interest Rate Sensitivity

As of December 29, 2018, we had cash and cash equivalents of $20.2 million, which consisted of cash and money market funds. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio.

In June 2018, we entered into our Credit Agreement with OrbiMed. Borrowings under the Credit Agreement bear interest at a variable rate per annum equal to LIBOR plus 8.5%. As of December 29, 2018, borrowings outstanding under the Credit Agreement totaled $35.0 million and the interest rate applicable to such borrowings was 10.94%. An immediate 10% change in LIBOR would not have a material impact on our debt-related obligations, financial position or results of operations.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

BUSINESS

Overview

We are a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. We developed the OCS to replace a decades-old standard of care that we believe is significantly limiting access to life-saving transplant therapy for hundreds of thousands of patients worldwide. Our innovative OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment. We believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes.

We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs. To date, we have developed three OCS products, one for each of lung, heart and liver transplantations, making the OCS the only multi-organ technology platform. Our OCS products have been used for over 1,200 human organ transplants. We have commercialized the OCS Lung and OCS Heart outside of the United States and received our first PMA approval from the FDA in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation. We expect FDA action over the next 18 months on additional applications for PMAs we have submitted in connection with our other OCS products. We received an MDL from the FDA in November 2018 for our PMA supplement to our PMA application based on the results of our OCS Lung EXPAND Trial for the use of the OCS Lung for donor lungs currently unutilized for transplantation. In March 2019, we submitted responses to each of the questions raised by the FDA in the MDL, including clarification analyses for subgroups, submission of the outcome data for longer time frames and other analyses as described further herein. We also submitted a PMA application to the FDA in December 2018 for the use of the OCS Heart for currently utilized and unutilized DBD donor hearts for transplantation based on the results of our OCS Heart EXPAND Trial and OCS Heart PROCEED II Trial. As is typical for a PMA review

process, we received an MDL for this PMA application in March 2019, which requested clarifications and additional analyses of, and reports from, the clinical data, including subgroup analyses, outcome data at one year post-transplantation for all patients and other clarifications and explanations of the clinical findings. In addition to the clinical analyses, the MDL for our OCS Heart PMA application requested clarification and additional information on animal testing and bench testing results, sterilization, packaging and shelf-life testing, battery testing, biocompatibility testing, electromagnetic compatibility and software validation testing, as well as additional non-clinical data and clarifying information. We intend to submit our response to this MDL in the second half of 2019. Despite our response to the MDL for our PMA supplement to our OCS Lung PMA application and our intent to respond fully to the MDL for our OCS Heart PMA application, it is possible that the FDA may decide that the data from our clinical trials might not support PMA approval or any of the claims we wish to make, or the FDA could require us to gather significant additional clinical data, including additional long-term outcome data, or they could require us to conduct additional non-clinical testing, such as animal testing.

LOGO

We are focused on establishing the OCS as the standard of care for organ transplantation. Because we believe cold storage is the primary factor limiting donor organ utilization today, we estimate our opportunity based on the existing donor pools and the potential for significantly expanded utilization with the OCS. We estimate the potential pool of DBD and DCD donors in our key geographies to be approximately 67,000 annually, with each donor having the capacity to donate more than one organ, including lung, heart and liver. However, the industry in which we operate is subject to a high degree of uncertainty and risk, and these estimates could change. Based on the utilization rates in our clinical trials and our commercial experience outside the United States, we estimate the potential annual addressable commercial opportunity for the OCS to be approximately $8 billion for lung, heart and liver transplantation combined. Our clinical trials have demonstrated that the OCS may result in improved post-transplant outcomes as compared to cold storage, and we believe this will enable us to capture a significant portion of the expanded transplant opportunity.

The vast majority of transplant procedures are performed at a relatively small number of hospitals that have specialized organ transplant centers. We estimate that approximately 50 to 55 transplant centers in the United States perform over 70% of the lung, heart and liver transplant volume. The lead transplant surgeons at each of these centers are the primary decision-makers on most aspects of the transplant programs. These surgeons rely primarily on clinical evidence to drive changes in their programs. During our clinical trials, we established relationships with over 55 leading transplant programs in our key geographies and have generated a substantial body of clinical evidence. Our commercial strategy is focused on leveraging these relationships to drive deeper adoption of the OCS at the leading, large-volume academic transplant institutions. As of March 30, 2019, our sales and clinical adoption team consisted of 27 sales and clinical professionals.

We believe the OCS will drive significant benefits to all stakeholders in the field of organ transplantation. For patients, we believe the OCS provides more patients with access to life-saving transplants and allows for quicker recovery following transplantation. For hospitals, we believe the OCS provides a means to increase transplant volume, treat more patients, enhance provider status and improve transplant program economics. Finally, we believe the OCS provides payors with a more cost-effective treatment for end-stage organ failure and reduces exposure to significant post-transplant complication costs and extended hospital stays.

Our OCS products are reimbursed in the United States through existing, standard commercial transplant billing mechanisms. The Medicare program and private payors have been providing reimbursement for the OCS Lung, OCS Heart and OCS Liver during the U.S. pivotal trials and have been providing reimbursement for the OCS Lung following FDA approval in March 2018. We believe these established channels will continue to facilitate commercial reimbursement for the OCS Lung and, if they are approved by the FDA, for the OCS Heart and OCS Liver. We are in the process of seeking long-term reimbursement for our products outside of the United States.

Our corporate headquarters, manufacturing and clinical training facilities are located in Andover, Massachusetts. We have additional distribution and commercial operations in Europe and Asia-Pacific. As of March 30, 2019, we employed 92 people globally. We generated $7.7 million of net revenue during the fiscal year ended December 30, 2017 and $13.0 million of net revenue during the fiscal year ended December 29, 2018, representing a 69% increase. Our business model is characterized by a high level of recurring revenue, which is derived primarily from sales of our single-use, organ-specific disposable sets that are required for each transplant using the OCS. We expect that greater than 90% of our net revenue will be related to sales of our single-use OCS disposable sets.

Commercial Opportunity

Demand for Organ Transplants

Incidence of end-stage organ failure has been rapidly rising worldwide due to demographic trends that contribute to chronic disease, including an aging population and obesity. Key disease states resulting in organ failure include COPD, chronic heart failure, diabetes, chronic liver disease and end-stage renal disease, or ESRD. COPD, which is primarily caused by smoking and can result in lung failure, has been diagnosed in over 12 million Americans and is responsible for 120,000 deaths in the United States annually. Approximately 6 million Americans live with chronic heart failure, with approximately 650,000 new patients diagnosed with heart failure each year. Of these patients, an estimated 250,000 could benefit from heart transplantation annually. Approximately 2.8 million patients globally are diagnosed with liver cirrhosis, a leading cause of liver failure. In addition, approximately 468,000 Americans are on chronic dialysis as a result of kidney failure associated with ESRD.

Organ Transplantation Represents the Treatment of Choice for End-Stage Organ Failure

Life-sustaining therapies for patients with end-stage organ failure are costly to the healthcare system. According to data from the 2017 Milliman U.S. Organ and Tissue Transplant research report, in the United States the average billed charges in the 30 days prior to transplant are approximately $39,000 per double-lung transplant patient, approximately $43,000 per heart transplant patient and approximately $41,000 per liver transplant patient.

We believe organ transplantation is the most effective treatment for end-stage organ failure in terms of both clinical outcomes and health economics. For example, the therapeutic options for end-stage heart failure include optimum medical management with pharmaceutical treatments, or OMM, mechanical support with a left ventricular assist device, or LVAD, and heart transplantation. As indicated in the figure below, heart transplantation is associated with materially longer survival rates as compared to OMM and LVADs, which are either used as a bridge to transplant or as destination therapy, an alternative to transplant.

Survival Curves of Stage IV Heart Failure Following Different Treatment Modalities

Mancini, et al. LVADs vs. Transplants, JACC 2015

LOGO

Survival for HeartMate II in the post-approval DT study compared with the initial DT trial, OMM in the REMATCH (Randomized Evaluation of Mechanical Assistance for the Treatment of Congestive Heart Failure) trial (19), and post-transplant survival. Modified with permission from Jorde et al. DT= destination therapy; HF= heart failure.

These improved survival rates, in turn, result in favorable economics on the basis of quality-adjusted life years. According to 2004 studies, the cost of adding one quality-adjusted life year is approximately $40,000 for a heart transplant as compared to approximately $800,000 for an LVAD or approximately $110,000 for OMM. Despite the large and growing incidence of organ failure worldwide, and the significant clinical and economic benefits of organ transplantation, the number of transplants severely lags demand due to the limitations of traditional methods of organ preservation prior to transplantation.

Supply of Donor Organs for Transplantation

The supply of donor organs for transplantation comes from two primary sources:

•

Donation After Brain Death—DBD Donors: DBD donors suffered irreversible brain damage. Because hearts continue to beat naturally for a few days in these donors, the organs continue to be perfused with oxygenated blood until retrieval, allowing transplant clinicians the opportunity to assess organ viability. We estimate that the pool of DBD donors is approximately 19,000 DBD donors annually in our key geographies, with approximately 8,400 DBD donors annually in the United States. While DBD donors represent the vast majority of donor organs transplanted, only approximately 23% of donated lungs and 32% of donated hearts were utilized in the United States in 2016, which we believe is primarily due to the limitations of current organ preservation methods.

•

Donation After Circulatory Death—DCD Donors: DCD donors suffered cardiac and circulatory arrest. Because hearts cease to beat in these donors, the organs do not receive oxygenated blood and transplant clinicians are unable to assess organ viability. We estimate that the potential DCD donor pool is approximately 48,000 donors annually in our key geographies, with over 22,000 DCD donors annually in the United States. Despite the large size of this donor pool, we estimate that DCD donor organs are used in fewer than 5% of lung transplants and are not used for heart transplants because current methods for organ preservation are unable to overcome the challenges presented by the lack of perfusion.


Annual Lung and Heart DBD Donor Utilization United States, Canada, European Union, Australia		Estimated Annual Lung and Heart DCD Donor Utilization United States, Canada, European Union, Australia

Sources: Organ Procurement Transplantation Network; Global Observatory on Donation and Transplantation		Source: Institute of Medicine of the National Academy of Science (2006)

Limitations of Current Organ Preservation Methods

In recent years, significant innovations have been implemented in most aspects of organ transplantation surgery. However, organ preservation remains primarily limited to cold storage. Cold storage involves flushing the organs with cold pharmaceutical solutions designed to reduce organ temperature and arrest organ function. The donor organ is then placed in a sterile plastic bag and stored on ice in a cooler. This process adversely impacts clinical outcomes and leads to underutilization of viable donor organs due to the following inherent challenges:

•

Time-dependent ischemic injury: Cold storage subjects donor organs to significant injury due to a lack of oxygenated blood supply, or ischemia. Ischemia has been reported to be an independent predictor of mortality after heart transplantation and development of short-term severe primary graft dysfunction, or PGD, which is associated with long-term complications in lung transplantation. A long-term consequence of PGD3, the most severe form of PGD, is chronic lung allograft dysfunction. Published data from the thoracic transplant registry of the International Society for Heart and Lung Transplantation shows that the risk for post-transplant patient mortality increases dramatically after approximately 190 minutes of injurious ischemic time in heart transplantation. This data highlights that the longer an organ spends on ice, the higher the risk of poor clinical outcomes, including mortality. In addition to resulting in poor transplant outcomes, time-dependent ischemic injury limits the acceptable time that transplant centers permit between organ retrieval and transplantation to four to six hours, resulting in restrictions on geographical distance between donors and transplant recipients.

Ischemic Times Correlates Positively with Increased Risk

for Patient Mortality After Heart Transplantation

LOGO

Dotted lines represent upper and lower confidence bound for the data plotted.

100

Correlation between Ischemic Injury and Development of

Long-Term Complications after Lung Transplantation—

Results of the OCS Lung INSPIRE Trial

LOGO

A p-value is a statistical calculation that relates to the probability that a difference between groups happened by chance. Typically, a p-value less than 0.05 represents statistical significance.

•

Lack of diagnostic assessment of organ viability or function: Cold storage does not support the assessment of organ function or viability because the organs are not functioning or metabolically active during cold storage. This lack of diagnostic assessment largely limits the donor pool to DBD donors, whose organs can be assessed for viability prior to retrieval because their hearts continue to beat. The lack of diagnostic assessment of organ viability during cold storage is the primary reason that DCD organs are rarely used for lung transplants and never used for heart transplants.

•

We believe the limitations of cold storage are directly responsible for the severe shortage in donor organ supply, which results in nearly all lungs and hearts from DCD donors, and the majority of lungs and hearts from DBD donors, going unutilized each year. In 2016, approximately 77% of donated lungs and approximately 68% of donated hearts went unutilized in the United States. In addition, we believe the limitations of cold storage are the primary driver of the high rate of severe post-transplant complications that negatively impact both patients’ clinical outcomes and transplant economics for payors and providers.

We developed the OCS technology platform to comprehensively address the major limitations of cold storage. The OCS represents a paradigm shift that transforms organ preservation with a dynamic technology that replicates many aspects of an organ’s natural state outside of the human body and enables new capabilities of organ optimization and assessment. Because the OCS reduces injurious ischemic time significantly and enables the optimization and assessment of donor organs, it offers the potential to significantly improve organ utilization relative to cold storage and could lead to improved clinical outcomes.

Our Commercial Opportunity

We believe organ transplantation is severely supply constrained by the limitations of cold storage. While there is a national transplant waiting list that represents a snapshot of demand, we believe this waiting list significantly underrepresents the true clinical demand for organ transplants. Because the supply of donor organs has historically been constrained, the waiting list is fairly static, with annual additions to the waiting list typically matching closely the number of transplants performed or patients otherwise removed from the list. We believe that with increased utilization of donor organs for transplant, the waiting list will grow to match any increase in global supply.

101

We estimate our commercial opportunity based on the existing donor pools and the potential for significantly improved utilization resulting from the use of our OCS technology. We estimate that the potential pool of donors in our key geographies includes approximately 67,000 DBD and DCD donors annually. Our estimates of the potential pools of donors are only estimates and subject to uncertainty, risk and change. Because the OCS reduces injurious ischemic time significantly, allows for therapeutic optimization of the organ’s condition and enables diagnostic assessment, we believe the OCS could allow surgeons to utilize the vast majority of the donor pool that is currently unutilized due to the limitations of cold storage.

Estimated Transplant Pool Underutilization

United States, Canada, European Union, Australia

LOGO

Sources: Organ Procurement and Transplantation Network; Global Observatory on Donation and Transplantation; Institute of Medicine of the National Academy of Science (2006)

We are focused on establishing the OCS as the standard of care for organ transplantation. Our clinical trial results have demonstrated that the OCS may result in improved post-transplant outcomes as compared to cold storage. In addition, our clinical trial results and commercial experience outside the United States have demonstrated a significant improvement in donor organ utilization to approximately 87% of DBD and DCD donor lungs, approximately 81% of DBD donor hearts and approximately 80% of DCD donor hearts, with improved post-transplant outcomes compared to cold storage. As a result, we believe that the OCS will also expand the existing pool of utilizable donor organs to include a significant share of the 67,000 potential annual donors and increase the overall number of transplants performed each year. We believe the OCS could be adopted for use in a significant share of transplants; however, certain factors may limit the actual utilization of the OCS, including the need to continue to educate surgeons, transplant centers and private payors of the merits of the OCS as compared with cold storage, the requisite training of surgeons prior to their use of the OCS and the overall capacity of transplant centers to perform organ transplants due to factors such as the availability of surgeons. See “Risk Factors—Risks Related to Research and Commercialization—We depend heavily on the success of the OCS and achieving market acceptance. If we are unable to successfully commercialize the OCS, our business may fail” and “—We must continue to educate surgeons, transplant centers and private payors and demonstrate the merits of the OCS compared with cold storage or new competing technologies. Surgeons, transplant centers and private payors may require additional clinical data prior to adopting or maintaining coverage of the OCS.”

102

Lung Opportunity

Today, there are only 4,800 donor lungs utilized annually for transplantation in our key geographies, resulting in approximately 62,200 organs, comprised of 14,400 from potential DBD donors and 47,800 from potential DCD donors, going unutilized each year due to the limitations of cold storage. Our OCS Lung EXPAND Trial demonstrated that the use of the OCS Lung in the types of organs that currently are not transplanted resulted in a blended DBD and DCD utilization rate of approximately 87%, based on 90% DBD utilization and 81% DCD utilization. Applying this 90% utilization rate to DBD donor lungs and 81% utilization rate to DCD donor lungs implies a total potential addressable opportunity of approximately $2.5 billion annually, of which approximately $215 million represents currently transplantable lungs, approximately $585 million represents improved utilization of DBD donors and the remaining approximately $1.7 billion represents utilization of DCD donors.

Estimated Addressable Lung Opportunity

United States, Canada, European Union, Australia

LOGO

103

Heart Opportunity

Today, there are only 5,800 donor hearts utilized annually for transplantation in our key geographies, resulting in approximately 61,200 organs, comprised of 13,200 from potential DBD donors and 48,000 from potential DCD donors, going unutilized each year due to the limitations of cold storage. Results from our OCS Heart EXPAND Trial demonstrated that the use of the OCS Heart in the types of organs that are currently unutilized resulted in a DBD utilization rate of approximately 81%. In addition, the results of the OCS Heart DCD commercial activities in Europe and Australia have resulted in a utilization rate of approximately 80% of DCD donor hearts. Applying this 81% utilization rate to DBD donor hearts and 80% utilization rate to DCD donor hearts implies a total addressable opportunity of approximately $2.5 billion annually, of which approximately $260 million represents currently transplantable hearts, approximately $480 million represents improved utilization of DBD donors and the remaining approximately $1.7 billion represents utilization of DCD donors.

Estimated Addressable Heart Opportunity

United States, Canada, European Union, Australia

LOGO

104

Liver Opportunity

Today, only 16,700 donor livers are utilized annually for transplantation in our key geographies, resulting in approximately 50,300 organs, comprised of 3,300 from potential DBD donors and 47,000 from potential DCD donors, going unutilized each year due to the limitations of cold storage. To support an FDA PMA for the OCS Liver, we are currently conducting a pivotal trial to preserve and assess donor livers from both DBD and DCD donors. Final results from the OCS Liver European REVIVE Trial demonstrated that the OCS Liver resulted in approximately 100% utilization of DBD and DCD donor livers. Applying this 100% utilization rate implies a total potential addressable opportunity of approximately $3.0 billion annually, of which approximately $750 million represents currently transplantable livers, approximately $150 million represents improved utilization of DBD donors and the remaining approximately $2.1 billion represents utilization of DCD donors.

Estimated Addressable Liver Opportunity

United States, Canada, European Union, Australia

LOGO

Our Technology and Solution

We developed the OCS to comprehensively address the major limitations of cold storage. The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. The OCS was designed to perfuse donor organs with warm, oxygenated and nutrient-enriched blood, while maintaining the organs in a living, functioning state; the lung is breathing, the heart is beating and the liver is producing bile. As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment.

The OCS Technology Platform

105

Each OCS product consists of three primary components customized for each organ:


• OCS Console: The OCS Console is a highly portable electromechanical medical device that houses and controls the function of the OCS and is designed to fit in the current workflow for organ transplantation.

• OCS Perfusion Set: The OCS Perfusion Set is a sterile, biocompatible single-use disposable set that stores the organ and circulates blood. The OCS Perfusion Set includes all accessories needed to place the organ on the system.

• OCS Solutions: The OCS Solutions are a set of nutrient-enriched solutions used with blood to replenish depleted nutrients and hormones needed to optimize the organ’s condition outside of the human body.

The OCS technology platform is equipped with the following core technologies that we designed to comprehensively address the limitations of cold