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Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading Risk Factors included in our 2024 10-K, as updated by our subsequent Quarterly Report on Form 10-Q for the quarter ended June 28, 2025, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially aadversely affect our business, financial condition, or future results. Except for such additional information and the risk factors set forth below, we believe there have been no material changes in our risk factors from those described in our 2024 Form 10-K.
Our 2025 Credit Agreement contains financial and operating restrictions and Quarterly Report on Form 10-Q for the period ended June 28, 2025.
Unexpected increases in the volume of rebate claims we receive from payers we contract with due to that could limit our access to credit. If we fail to compe implementation of processing and billing system changes by the payers have in the past and may in the future negatively with its impact our business and financial or other coresults.
As previously disclosed, our revenants, we might be requirues are recorded to repay at the indebtednesstransaction price, which could harm our liquidity.
We are subject to certain covenants unis determined by the contracted price net of estimates of variable consider the 2025 Credit Agreementation relating to various items, including, but not limited to:
a minimum interest coverage r rebates paid pursuant to contracts relatio and a maximum consolidng to the sale of our products. A large privated total net leverage ratio requirement insurance payer recently informed us that it has defined in the 2025 Credit Agreemade changes to its claims data management;
restrictions on and billing systems and the declaration or payment of certain distributions on or in respect to our equity interests;
restrictions on acquisitions, invat, as a result, we expect that we may experience significantly larger rebate volumes for our HA viscosupplement products for future periods than the Company previously estments and certain otheimated or has experienced in prior payments;
limitations on eriods. We were also informed that the incurrencempact of new indebtedness;
these changes is not limitations oned to our products and the incurrence of new liens on property or assets;
lat other manufacturers under contract with this payer may experience simitations on transfers, sales and other dispositions;
limitations on enterlar increases. In addition, another payer that we contract with also recently notified us that they are implementing into transactions with affiliates;similar changes to their claims and
limitations on ma billing systems. We are working any material with these payers to assess the impact that these change in any ofs may have on our business objectives that could reasonaband believe, based on the information presently be expected to haavailable, that our current reserve a estimaterial adverse effect on our ability tos are adequate to cover these additional repay amounts borrowed underbate volumes and the 2025 Term Loan or 2025 Revolver.
Iat the changes are not expected to have a material impact on the absence of a waiver from our leCompanys existing accruals for the quarter. We are dependers, any failure by us tont on the payers we complyntract with these covenants might result in the deo provide timely and accurate claration of an event of default, which could adverseims data and invoices to establish our rebates estimates. If this information is not received in a timely affect our businesmanner or is inaccurate or unexpectedly increases, results of operations and four estimates may prove to be inancial position.
Indequate to cover any addition, our indebtedness could haal rebate volumes we may receive significant consequences onfrom payers in the future. If our rebate volumes increase or our financial position, including:
restimates prove to be inadequiring a substantial portionate, our business, results of our cash flows to peration and financial condition may be dedicaadversely affected to debt service payments instead of funding growth, working capital, capiand our revenue may be lower than we forecasted.
Various governmental expenditures, investreimbursements or reform and other cash requirehealthcare cost containments;
reducing proposals may affect our flexiability to adjust to changing business conditions or obtain addisell our products profitably and could adversely affect our business results and operationals and financing;
exposing us to al conditions.
Certain proposed legislative or othe risk of increasedr regulatory reforms may be adopted interest rates as certa the future that could result in of our borrowings,reductions including borrowings under our 2025 Term Loan, are at variable rates, mak Medicare and other governmental healthcare funding it , more difficult for rigorous to makecoverage criteria, new payments on our indebtedn methodologies or other downward press;
resture on the pricting us from making strategic acquisitions oor reimbursement we or our causing us to make non-strategic dustomers receivestitures; and
limiting for our ability to obtain additional financing fproducts. For working capital, capital expenditures, debt service requirements or general corporate purexample, the Medicare Physician Fee Schedule (PFS) Proposed Rule (CMS-1832-P) (Proposes.
We might require additional capital to fund our financiald Rule) for calendar year 2026, issued by the Centers for Medicare and operating obligations and support business growth.
If our expected cash from operations together with available borrowMedicaid Services (CMS), to be effective January 1, 2026, could impact government price reportings under our 2025 Cr requirements for Medit Agreement are sufficient to fund our current financial and operating obligacare Part B. Specifically, the Proposed Rule includes significant proposed changes to CMSs definitions, we might require additional capital. In addi of bona fide service fees (BFSFs) for purposes of average sales price (ASP) calculations, we intend to continuehich is the metric used to make investdetermine reimbursements to support our business growth and might require additional funds to respond to business under Medicare Part B. Although primarily aimed at pharmaceuticals, the challenges or opportunities, iincluding the need to further develop our current products and any new ed in the Proposed Rule would impact all products, enhance our operating infrastructure, and acquire comp reimbursed under Medicare Part B, including the Companys HA viscosupplementary businesses. Accordingly, we might need to engage in tion products.
The final rule was published by CMS on October 31, 2025 (Final Rule). Several of the proposed requity or additional debt financings to securements related to BFSFs were either not adopted or were additiomodified by CMS in the Final funds. If we raise additioRule. The Company is currently reviewing the Final funds through furRule to determine ther issuances of impact that these new requity or convertible debt securities, our existing stockholders crements may have on our business. As initially proposed, the Proposed Rule would sufferhave significant diluly changed longstanding ASP calculation methodologies by, and anymong other things, adding new requity securities we issue could have rights, preferencerements for supporting the fair market value of BFSFs and privileges suby requiring perior to thosedic recertifications of holders of our common stock. Any addsuch fees by the Company as a conditional debt financ of BFSF treatment. Long standing securCMS regulations have permitted by us could involve restrictivemanufacturers to exclude BFSFs from ASP if the fee satisfied certain covenants relating to our capital-raising activities and other financialnditions. Compliance with these new requirements would mandate substantial updates to our existing government pricing compliance and operationalreporting processes. Moreover, because matters, which mighny of our contracts with fees that make it more difficult for us to obtay fall within the expanded definition of BFSFs proposed in additional capital and to pursue business opportunitiethe new rule are with customers, such as wholesalers and pharmacy benefit managers, including potential acquisitions. In additionwhich are significantly larger than we are, we mightay not be able to obtain additionalrestructure our contracts to financing on terms favorable to us, or at allt our service fee payments within the new standards. If we aret is presently unable to obtain adequate financing or fclear the extent to which these requirements are included in the Financing on terms satisfl Rule and the impactory to us when that the new required, our ability to continue to support our ments, as adopted, may have on our business growth. If these and to respond to business challenges could be significantly limited.
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Ihe other requirements of the Proposed Rule are implementernational tariffs, including tariffs applied d and we are not successful in our efforts to goods traded betweerenegotiate the applicable contracts within the Unilimited States time frame mand oated by ther countries, and restrictions on goods im Proposed Rule or are otherwise required to include BFSF in our reported from certain such regionASP for our HA products pursuant to the Proposed Rule, the ASP and CMS reimbursement for our HA products may abe reduced, which may adversely affect our business,operating results of operations anand financial condition.
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Similarlier this year the Uniy, reimbursement for our HA products may also be affected States statby executive orders issued that it intends to impose tariffs in pursuby the administration relating government policy and has already imposed, or announced, several new tariffs, includto drug pricing, specifically Delivering Most-Favored Nation Prescription Drug Pricing tariffs on goodo American Patients and matLowerials from various countries includng Drug Prices by Once Again Putting member countries of Americans First (the European Union, Switzerland, Canada, Mexico, Japan and China. When unilateral changes are made to United States import tariffs, oxecutive Orders) that set forth the administrations policy goal of lowering pricing. Although ther countries may reciprocate, and in many cas Executive Orders outline broad policy objectives have reciprocated, with tariffs imposed or announced, againstand currently lack specific mandates, the United States. In some instances, the declaration of this new tariff policy has resulteir apparent aim is to lower prices paid in the United States entering into international trade negotiationsto more closely align with certain countries, some of which have resulted in the announcereimbursement levels provided by government of the international trade agreements with those-run health systems in other developed countries. The impact ofo the newly announced tradextent the agreements and whether and to what extent the newly dministration seeks to imposed tariffs will remain in placelement specific mandates or additional tariffs will be imposed remains uncertain. If tariffs are imposed or increasedother cost control initiatives through action by either the United State Department of Health and Human Services or other countries, it may impact the cost of goodsfederal agencies, the price of our products and demandreimbursement for our HA products in countriesmay be negatively impacted by such tariffs. For example, our Durolane and Gelsyn products are manufactured in Sweden and Switzerland, respectively. The enact. We cannot predict the extent to which this proposal, or similar reimbursement of, or increases in tariffs,reform proposals or other such charges, may increasehealthcare cost containment measures the cost of importing these productsat might be enacted into the United States. This may have an adverse effect on our businfuture, may impact the demand or commercial success or on of our results of operations. The institution of trade tariffs globally also carries HA viscosupplements or any of our othe risk of adverser products we currently affecting overall global economic conditions, which could have a negative impact on ussell or plan to commercialize.