UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

xAnnual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2020

or

¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-35853

BIOSTAGE, INC.

(Exact Name of Registrant as Specified in Its Charter)

84 October Hill Road, Suite 11, Holliston, Massachusetts01746

(Address of Principal Executive Offices, including zip code)

(774)233-7300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ¨☐ NOx ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES ¨☐ NOx ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESx ☒ NO ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YESx ☒ NO ¨☐

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

YES ¨☐ NOx ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 20202022 was approximately $13,875,400.$34.5 million based on the closing sale price on that date of $4.65. Shares of the registrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not a determination for other purposes.

At April 8, 2021,March 20, 2023, there were 9,388,40712,206,400 shares of the registrant’s common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement in connection with the 2021 Annual Meeting of Stockholders (the Proxy Statement), to be filed within 120 days after the end of the Registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.None

BIOSTAGE, INC.

TABLE OF CONTENTS

ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 20202022

INDEX

Forward-Looking Statements

This Annual Report on Form 10-K contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), each as amended. The forward-looking statements are principally, but not exclusively, contained in “Item 1: Business” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations and our plans, objectives, expectations and intentions that are not historical facts and the potential impact of COVID-19 on our business and operations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “seek,” “expect,” “plans,” “aim,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “think,” “continue,” “potential,” “is likely,” “permit,” “objectives,” “optimistic,” “new,” “goal,” “target,” “strategy” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in detail under the heading “Item 1A. Risk Factors” beginning on page 1624 of this Annual Report on Form 10-K. You should carefully review all of these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors, including factors of which we are not currently aware, that could cause these differences. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report.Annual Report. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information. Biostage, Inc. is referred to herein as “we,” “our,” “us,” and “the Company.”

PART I

OVERVIEW

Item 1. Business.

OVERVIEW

We are a clinical-stage biotechnology company developing bioengineered organ implantsregenerative-medicine treatments for disorders of the gastro-intestinal system and the airway resulting from cancer, trauma or birth defects. Our technology is based on our novel technology. proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged organs. We believe that our technology represents a next-generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrifice of another of the patient’s own organs or permanent artificial implants.

In August 2017, we conducted the world’s first successful regeneration of the esophagus after the cancer in the patient’s esophagus had been surgically removed. This surgery was performed by Dr. Dennis Wigle, Chair of Thoracic Surgery at the Mayo Clinic. The results were published in the Journal of Thoracic Oncology Clinical and Research Reports in August 2021. The procedure demonstrated that our technology was able to successfully regenerate esophageal tissue, including the mucosal lining, to restore the integrity, continuity and functionality of the esophageal tube.

Our technology uses mesenchymal stem cells that are retrieved via biopsy from the patient’s abdominal adipose, or fat, tissue prior to surgery. These stem cells are isolated, expanded and then implanted on a hollow, tubular scaffold made from extremely thin fibers of polyurethane. The scaffold is comprisedthen incubated in a customized bioreactor where the stem cells expand further and begin to adhere to the fibers of the scaffold. The finished graft is then surgically implanted to replace the resected portion of the damaged organ. Several weeks after surgery, once a conduit has been established, the implanted scaffold is removed. No permanent artificial implant remains in the body.

We are initially targeting regeneration of the organs of the gastro-intestinal tract and the airway, where organ transplants are not medically possible today. Human-donor organ transplants or animal xenotransplants are currently not performed for these organs due to high rates of rejection. Additionally, we believe that our technology and intellectual property will allow us to develop organ-regeneration treatments for other organs.

Based on our successful first-in-human procedure and our preclinical procedures in over 50 pigs, the U.S. Food and Drug Administration, or FDA has approved our Investigational New Drug (IND) application to begin a combined phase 1/2 clinical trial for esophageal regeneration. This open-label trial will assess both safety and efficacy in up to ten patients requiring up to a 6cm esophageal replacement for any reason, including cancer, at up to five U.S. hospitals. We have contracted with IQVIA, a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry, as the contract research organization (CRO) to manage our first clinical trial. We intend to initiate this trial in the second quarter of 2023.

Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

Our Pipeline

We believe our organ-regeneration technology has the potential for broad applications in the field of medicine, for the repair or replacement of diseased or damaged organs. We are initially targeting conditions of the esophagus, including cancer, traumatic injury and birth defects. Additional product candidates in our development pipeline include ones to treat cancer, injury and birth defects of the bronchus. Based on discussions with surgeons familiar with regenerative medicine techniques, we believe that our technology may also be applicable to treating cancer, injury and birth defects in the colon and intestine.

Our Strategy

Our strategy is to develop and advance our pipeline of products, beginning with our lead product for the treatment of esophageal cancer, through clinical development and commercialization. The key elements of our strategy include:

The Problem

According to the American Cancer Society, every year approximately 17,000 Americans are diagnosed with esophageal cancer and approximately 15,000 of these diagnosed patients die from it. A year after being diagnosed with esophageal cancer, 50% of the patients have died. After five years, 80% of these patients have died. According to the World Health Organization’s International Agency for Research on Cancer, every year, there are more than 600,000 patients diagnosed with esophageal cancer worldwide.

The current treatment for patients with esophageal cancer is removal of the diseased part of the esophagus in a surgical procedure called an esophagectomy. The gap left by the removal of part of the esophagus is then repaired using one of two, difficult and expensive surgeries, both of which have frequent and significant complications. The first type of surgery is gastric pull-up. In this surgery, the patient’s stomach is reshaped into a tube and pulled up from the abdomen into the chest to connect to the top of the esophagus. With gastric pull-up, the patient no longer has a stomach with which to digest food. In the second type of surgery, termed colonic interposition, a piece of the patient’s bowel is cut out and used to bridge the gap where the diseased esophagus was removed. With colonic interposition, the patient often has insufficient intestine to digest food properly. Both surgical procedures have high rates of complications such as damage to the lungs and infections caused by leakage of stomach acids into the chest. Even with these surgical treatments, esophageal cancer is one of the deadliest forms of cancer.

In addition to cancer, there are other injuries to the esophagus such as fistulas (holes), injuries caused by the accidental ingestion of acids and alkalis, and birth defects. These are all difficult to treat surgically and often have significant long-term complications.

Hence, there is an enormous need for, and a huge market for, a better treatment for cancer, injuries and birth defects of the esophagus.

Our Solution – Biostage Organ-Regeneration Technology

Our organ-regeneration technology uses a patient’s own stem cells seeded on a temporary scaffold to regrow and restore their damaged organ. We believe our technology has numerous advantages over other attempts to restore organ function because our implant is not a transplant of a proprietary biocompatiblehuman-donor organ, it is not a transplant of an animal organ, it is not a piece of one of the patient’s other organs, and it is not an artificial implant that remains permanently in the body. Our implants will allow the patient to regenerate their own organ inside their own body.

Our esophageal implant consists of a hollow, tubular scaffold whichconsisting of a thin polyurethane fiber mesh that is formed in the foundationshape of our Cellframe^TM technology, thatthe damaged section of the organ. This scaffold is seeded with the patient’s own mesenchymal stromalstem cells which are obtained a few weeks before surgery through a biopsy of adipose (fat) tissue from the patient’s abdomen. The stem cells are isolated and expanded and then seeded onto the tubular scaffold. The scaffold is then be placed into a customized bioreactor for incubation and further cell expansion. During several days of incubation in our bioreactor, the stem cells attach to form our Cellspan^TM implant, combiningand grow into the clinically proven principlesouter 25% of tissue engineering, cell biology and materials science. Our platform technologythe scaffold. The stem cell-seeded scaffold is being developedthen surgically implanted into the patient to treat life-threatening conditionsbridge the gap created where diseased or damaged part of the esophagus bronchus and trachea. By focusing on these underserved patients, we hope to dramatically improve the treatment paradigm for these patients.was removed.

We believe our technology may provide surgeons a new paradigm to address life-threatening conditions of the esophagus, bronchus, and trachea due to congenital abnormalities, diseases, infections and traumas. Our novel technology harnessesThe stem cells then stimulate the body’s responsenatural wound-healing process including stimulating new blood vessel formation, scar-tissue formation and modulates it toward the healing processremodeling of that scar tissue into esophageal tissue. The scaffold guides the growth of new cells to regenerate tissuethe esophagus. After approximately one month, a complete biological tube, or conduit, has formed and restoreafter approximately three months, the continuitytube has developed into a layered structure that contains the critical blood supply, muscles, and integrity ofmucous-secreting glands to create a functioning esophagus. At this point, the organ. We are pursuing our Cellspan Esophageal Implant (CEI) technology as our first product candidate to address both esophageal disease and pediatric esophageal atresia, and we are also developing our technology’s applications to address conditions of the bronchus and trachea.

In collaboration with world-class institutions, such as Mayo Clinic and Connecticut Children’s Medical Center, we are advancing our technology. Our product development programimplanted scaffold is based on the greatest medical unmet needs, analysis of existing surgical options and physician validation.

In October 2019, we filed an Investigational New Drug (IND) application with the U.S. Food and Drug Administration (FDA) to treat patients with esophageal disease, absent of cancer, in adults that would require a short segment esophageal implant following clinically indicated short segment resection of the thoracic esophagus with our CEI product candidate. In November 2019, we received notice from the FDA placing our IND on clinical hold and providing a preliminary list of clinical hold and non-clinical hold questions. In December 2019, we received the formal letter with clinical hold and non-clinical hold questions and submitted our response to the clinical hold questions on February 18, 2020. On March 19, 2020, the FDA notified us that the IND for our CEI product candidate had been removed, from clinical hold and that we could proceed with our study. This FDA approval enables us to start our transition to a clinical-stage biotechnology company, and start clinical planning, engaging with a clinical research organization and site readiness in advance of starting the clinical trial for our CEI product candidate. On May 7, 2020, we submitted responses to certain non-clinical hold questions and finalized a majority of the remaining non-clinical hold responses in the third quarter of 2020, and submitted the remaining responses in the fourth quarter of 2020, except as it relates to our clinical trial details that we will submit onceis not a clinical research organization is selected. The ongoing COVID-19 pandemic could continue to adversely impact our business, including planned clinical trials, as discussed elsewhere in this document.permanent implant.

We believe that receiving regulatory approval to treat pediatric esophageal atresia with our CEI may provide a shorter time to a commercial product and the greater overall potential value in the U.S. market. In addition to providing a novel solution for a great medical need, approval of our pediatric esophageal atresia product candidate may result in receipt of a priority review voucher, which if achieved, could potentially provide significant value and non-dilutive funding to Biostage in the future. We have continued to advance our CEI pediatric esophagus program and plan to file a protocol amendment with the FDA to update our CEI esophageal disease clinical program after the initial adult patients are treated in the esophageal disease trial, subject to FDA approval.

We have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and regulatory approval pathway in China as to our implant products. We are not certain at this time as to which market, including U.S. or China for example, may provide the most viable initial pathway for regulatory approval to a commercial product. This will depend on a number of factors, including the approval and development processes, related costs, ability to raise capital and the terms and conditions thereof, as well as the ongoing impact of the COVID-19 pandemic, among other factors. Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development and financing, among others. Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

Our Technology Platform: How Itthe Biostage Esophageal Implant Works

The bioreactor and scaffold are made in our clean-room facilities in Holliston, Massachusetts and the cell seeding is performed at the FDA-approved, clinical-grade human cell culture facility at the University of Texas Medical Branch.

Our Cellspanmanufacturing process begins with the collection of an adipose (fat) tissue biopsy from the patient followed by the use of standard tissue culture techniques to isolate and expand the patient’s own (autologous) mesenchymal (multipotent) stromal cells, or MSC. The cells are seeded onto a proprietary biocompatible, synthetic scaffold, produced to mimic the dimensions of the organ to be regenerated, and incubated in a proprietary bioreactor. The scaffold is electrospun from polyurethane to form a non-woven, hollow tube. The specific microstructures of the Cellspan implants are designed to allow the cultured cells to attach to and cover the scaffold fibers.

We have conducted large-animal studies to investigate the use of the Cellspan implants for the reconstitution of the continuitybioreactors and integrity of tubular shape organs, such as the esophagus and the large airways, following a full circumferential resection of a clinically relevant segment, just as would occur in a clinical setting. We announced favorable preliminary preclinical results of large-animal studies for the esophagus, bronchus and trachea in November 2015. Based on the results of those studies, we chose the esophagus to be the initial focus for our organ regeneration technology.

Illustration of intersection of Cellspan esophageal implant and native

esophagus at time of implant and proposed mechanism of action

In May 2016, we reported an update of results from additional, confirmatory pre-clinical large-animal studies. We disclosed that the studies had demonstrated in a predictive large-animal model the ability of our Cellspan implant to successfully stimulate the regeneration of a section of esophagus that hadscaffolds has been surgically removed. CEIs, consisting of a proprietary biocompatible synthetic scaffold seeded with the recipient animal’s own mesenchymal stromal cells, were surgically implanted in place of the esophagus section that had been removed. After the surgical full circumferential resection of a portion of the thoracic esophagus, the Cellspan implant stimulated the reconstitution of full esophageal structural integrity and continuity.

Illustration of esophageal reconstitution over Cellspan esophageal

implant following time of implant and proposed mechanism of action

Study animals were returned to a solid diet three weeks after the implantation surgery. The scaffold portions of the Cellspan implants, which are intended to be in place only temporarily, were retrieved approximately three weeks post-surgery via the animal’s mouth in a non-surgical endoscopic procedure. Within 2.5 to 3 months, a complete inner epithelium layer and other specialized esophagus tissue layers were regenerated. Two animals in the study were kept in life for almost two years to evaluate the long-term viability of the newly regenerated tubular conduit and were then sacrificed for histological data. Prior to their sacrifice, these animals demonstrated normal weight gain, appeared healthy and free of any significant side effects and received no specialized care.

Platform Technology in Life-threatening Orphan Indications

In November 2016, we were granted Orphan Drug Designation for our CEIapproved by the FDA for the clinical trial. Based on expected FDA inspections additional development may be necessary for product approval.

For our scaffolds, our primary materials are medical-grade plastic resins and solvents used to restoreliquefy the structureresins in our manufacturing process. These materials are readily available from a variety of suppliers and functiondo not currently represent a large proportion of our total costs. For our autoseeders and bioreactors, we perform final assembly and testing of components that we buy from third parties like machine shops, parts distributors, molding facilities and printed circuit board manufacturers. These manufacturing operations are performed primarily at our Holliston, Massachusetts headquarters.

Advantages of the esophagus subsequentBiostage Esophageal Implant

Compared with the current standard of care procedures for esophageal cancer patients, either gastric pull-up or colonic interposition, our esophageal implant offers the following major advantages:

We believe that these significant medical advantages will lead to strong demand from patients and doctors for our esophageal damage due to cancer, injury or congenital abnormalities. Orphan Drug Designation providesimplant. Additionally, we believe that it will receive a seven-year marketing exclusivity period against competition in the U.S.favorable reimbursement profile from the date of a product’s approval for marketing. This exclusivity would be in addition to any exclusivity we may obtain from our patents. Additionally, orphan designation provides certain incentives, including tax creditspayors and a waiverinsurance companies because of the Biologics License Application (BLA) fee. We also plan to apply for Orphan Drug Designation for our CEI in Europe. Orphan Drug Designation in Europe provides market exclusivity in Europe for ten years from the date of the product’s approval for marketing.high cost and complications associated with alternative procedures.

We have advanced the development of our technology, specifically a CEI, in a series of preclinical studies, including large-animal studies with collaborators. In order to seek approval for the initiation of clinical trials for our CEIs in humans, Good Laboratory Practice (GLP) studies to support the safety of the CEI are required to submit an IND application with the FDA. We have now performed GLP studies to demonstrate that our technology, personnel, systems, processes and practices are sufficient for advancing into human clinical trials. We have conducted a number of IND-enabling GLP studies demonstrating safety and feasibility of the Cellspan implant. During 2018 we also performed additional non-GLP studies for the pediatric esophageal atresia program to optimize that product candidate. Some of the results from these studies were included in the IND for our CEI that we filed with the FDA in October 2019.

First-In-Human Use of the Biostage Esophageal Implant Product Candidateand Scientific Proof of Esophageal Regeneration

On August 7, 2017, we announced the use of our CEI product candidateesophageal implant in a patient at a major U.S. hospitalthe Mayo Clinic via an FDA-approved single-use expanded access, or compassionate use, application. The surgery took place at Mayo Clinic, but we were not allowed to identify the institution publicly at that time. The patient was a 75-year-old male with a life-threatening cancerous mass in his chest that spanned his heart, a lung, and his esophagus. The surgery was performed in May 2017by Dr. Dennis Wigle, Chair of Thoracic Surgery, to remove the tumor, repair the heart, part of one lung, and a section of the esophagus. The CEIOur esophageal implant was interpositioned into the gap in the esophagus created by the removal of the tumor. The patient’s surgeon informed us at that time that the surgery was a successsuccessful, and the patient was later discharged from the hospital. hospital 42 days after implantation. The scaffold and stent were removed on day 104 after implantation.

In February 2018, the surgeon informed us that the patient had died after living approximately eight months after surgery. The surgeon stated that the cause of death was a stroke, and that the stroke was unrelated to the esophageal implant. The surgeon also informed us that a preliminary autopsy had shown that the esophageal implant resulted in a regenerated esophageal tube in the patient, except for a very small (approximately 5mm) hole outside the implant zone on the lateral wall that was right up against a synthetic graft inserted as part of the patient’s heart repair on the vena cava in that same surgery. The synthetic graft on the pericardium was not related to our esophageal implant product candidate and may have acted as an irritant to esophageal tissue where it contacted the esophageal implant. The surgeon also informed us that the esophageal regeneration in this patient was consistent with the regeneration previously observed in our large-animalpig studies. In January 2019,

The results were published in the surgeon presentedJournal of Thoracic Oncology Clinical and Research Reports in August 2021. The photographs below, taken from the case study publicly at a major U.S. medical conference, including histological data supporting his earlier statements regarding successful regeneration. Mayo Clinic expectspaper, show the explanted esophagus from this procedure. The image on the left is the actual esophagus. As displayed below, the implant zone is visually almost identical to publish an article in a peer-reviewed journalnative esophagus which is the area both above and we expect to be in a position to release additional information on this landmark case at that time. Somebelow the implant zone. The thickness, color and texture of the results of this expanded access case was includedregenerated esophagus is nearly indistinguishable from the native esophagus.

The dark-brown tube in the IND for our CEI that we filed with the FDA in October 2019.

Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

Changing the Surgical Treatment of Esophageal Disease

We believe our technology may provide surgeons a new paradigm to address life-threatening conditions of the esophagus due to infection, trauma, cancer or congenital abnormalities. Initially, our focus is to treat patients with esophageal disease, absent of cancer, in adults that would require a short segment esophageal implant following clinically indicated short segment resection of the thoracic esophagus with our CEI product candidate.

According to the World Health Organization’s International Agency for Research on Cancer, there are approximately 572,000 new cases of esophageal cancer worldwide each year. A portion of all patients diagnosed with esophageal cancer are treated via a surgical procedure known as an esophagectomy. The current standard of care for an esophagectomy requires a complex surgical procedure that involves moving the patient’s stomach or a portion of their colon into the chest to replace the portion of esophagus resected by the removal of the tumor. These current procedures have high rates of complications and can lead to a severely diminished quality of life and require costly ongoing care. Our CEI product candidate aims to provide a simpler surgical procedure, with reduced complications, that may result in a better quality of life after the operation and reduce the overall cost of these patients to the healthcare system.

Focus on Pediatric Esophageal Atresia: a Congenital Abnormality in Need of a Better Solution

Each year, several thousand children worldwide are born with a congenital abnormality known as esophageal atresia, a condition where an infant is born with an esophagus that does not extend completely from the mouth to the stomach. When a long segmentcenter of the esophagus is lacking, the current standard of care is a series of surgical procedures where surgical sutures are appliedstent that was added to both endsavoid narrowing of the esophagus in an attemptesophagus. The stent for this patient was changed twice, once prior to stretch themour esophageal implant scaffold removal and pull them together so they can be connected at a later date. This process can take weeksonce after the scaffold and the procedure is plagued by serious complicationssecond stent were removed. The final stent was removed at five and may carry high rates of failure. Such approach also requires, in time,a half months post-surgery. We anticipate that patients treated with our esophageal implant are likely to undergo at least two separateone stent exchange during their recovery with the discontinuation of stents by six to nine months post-surgery. Stents are deployed and retrieved endoscopically, that is, via the mouth, and accordingly, there is no surgical interventions. Other options includeincision in the usechest.

The images on the righthand side are photographs taken under a microscope to show, from left to right, cells (stained pink), layered structure (stained blue and purple) and muscles (stained yellow). The images show a high level of consistency between the regenerated esophagus and the native esophagus, both to the naked eye and under the microscope. In the right most panels, the yellowish coloration along the left side of the child’s stomach or intestine that would be pulledimages shows a continuous line of muscles running up the regenerated esophagus. These muscles are the muscularis mucosae which contract to eject mucous into the chestesophagus. This mucosal lining is essential to the long-term survival of the patient because it both lubricates the esophagus to allow food to be swallowed and provides a connectionbarrier to infection. This mucosal lining was seen at three months in both the mouth. We are working to develophuman patient and in our pig models.

In this patient we saw the development of a CEI solution to address the complicationstube of esophageal atresia, that could potentially be life-changing, organ-sparing, or both.

Our Mission and Our Strategy

Our mission is to revolutionize regenerative medicine by bioengineering patient-specific Cellspan implants that use the patient’s own mesenchymal stromal cellstissue within one month, and the development of the mucosal lining within three months. In pig models we have similarly seen the development of a tube within one month and the development of the mucosal lining within three months. In our clinical trial, the primary endpoint is the development of the tube of the patient’s tissue within three months and one of the secondary endpoints is the development of the mucosal lining within twelve months.

Preclinical Models - Pig Studies

The pre-clinical animal studies using our esophageal implant investigated several key aspects of the product pertaining to stimulate organ regenerationthe implant procedure, cell survival, the architecture of the regenerated tissue at multiple survival time points, the post-implantation clinical management procedures including Computed Tomography, or CT imaging to assess the growth of new tissue, esophageal stent management, endoscopy procedures, barium swallow tests and restore an organ’s structurenutritional management.

Following implantation, CT imaging revealed early tissue deposition and continuity. Our business strategythe formation of a contiguous tissue conduit. Endoscopic evaluation at multiple time points revealed complete epithelialization of the lumenal surface by day 90. Histologic evaluation at several necropsy time points, post-implantation, demonstrated that the tissue continues to accomplishremodel over the course of a one-year survival time period, resulting in the development of esophageal structural features, including the mucosal epithelium, muscularis mucosae, lamina propria, as well as smooth muscle proliferation/migration initiating the formation of a laminated adventitia. One-year survival demonstrated restoration of oral nutrition, normal animal growth and the overall safety of this mission includes:treatment regimen.

Targeting life-threatening medical conditions.  We are focused on creating products to help physicians treat life-threatening conditionsThe image below is taken from a paper we published in Nature Partner Journals Regenerative Medicine in January 2022, in conjunction with our development partner, Connecticut Children’s Medical Center.

This image shows an esophagus explanted from a pig 90 days after our esophageal implant was implanted. The implant zone is visually almost identical to the esophagus, central lungnative tissue to the left and trachea caused by infection, trauma, cancer, or infection.right of it. We are also developing products forcan note the treatmentregeneration of congenital abnormalitiesthe interior surface of the esophagus and airways.the regeneration of the surrounding tissue that is visible in red at the top of the red box. The red color of the surrounding tissue indicates the presence of a healthy blood supply. We are not targetingnote further the glossy, reflective coating on the inside of the esophagus. This is evidence of the mucosal lining which is essential to the long-term survival of the patient. This mucosal lining was seen at three months in the pigs and was also observed in the human patient. The investigators concluded that at one year it was difficult to distinguish neo-tissue versus the native tissue.

Upcoming Phase 1/2 Clinical Trial

Based on both the successful in-human procedure at the Mayo Clinic and our extensive large-animal research, the FDA has approved our Investigational New Drug application to commence our clinical trial. The trial will be a ten-patient combined phase 1/2 trial, in up to five hospitals in the U.S. that measures both the safety and efficacy of our product candidate in the patient population. Enrollment criteria includes any patient that requires removal of a part of the esophagus that is less severethan six centimeters long for any medical reason. We expect enrolled patients to include esophageal cancer patients, but we may enroll patients with other esophageal conditions that have reasonable existing treatment options. Solutions for life-threatening medical conditions present a favorable therapeutic index, or risk/benefit relationship, by providingrequire regeneration. We expect to initiate the opportunitytrial in the second quarter of 2023.

The primary endpoint of the upcoming trial is the establishment of a significant medical benefit for patients who have poorcontinuous biological neoconduit, or no treatment alternatives.tube, by three months post-surgery. We believe that product candidates targeting life-threatening medical conditions may be eligible for review and approval by regulatory authorities under established expedited review programs, which may result in savings of timesaw this tube at one month in the regulatory approval process. Also,human patient and in the pigs. One of the secondary endpoints will be the development of a mucosal lining in the esophagus by twelve months post-surgery. We saw this mucosal lining by three months in the human patient and the pigs. Because we reached the primary endpoint and one of the secondary endpoints in both the human patient and the pigs, we believe that products targeting life-threatening medical conditions may be more likely to receive favorable reimbursement compared with treatments for less critical medical conditions.

Developing products thatwe have a relatively short timehigh likelihood of success in this clinical trial.

Based on the FDA’s approval of our clinical trial for any condition that requires removal of part of the esophagus, we believe that we are able to market.  Sincepursue the numbertreatment of patients diagnosed each year in the U.S.multiple diseases, injuries or birth defects with a life-threatening esophageal conditionsingle clinical trial. As a result, we believe that would require a short segment esophageal implant following clinically indicated short segment resection of the thoracic esophagus is relatively small, we expect the number of patients that we would likely need to enroll in athis clinical trial will also be relatively small. We expect up to 10 patients to be enrolled in our first clinical trial, which implies a relatively fast enrollment time, subject to milestone achievement requirements on initial patient(s) imposed byadvance the FDA prior to enrolling additional patients, and a less expensive clinical development program. Therefore, we expect to be able to conduct a clinical trial in a relatively short period of time, subject to enrollment time constraints, compared to clinical trials inBiostage Esophageal Implant for numerous indications with larger patient populations. We intend to work closely with regulatory agencies and clinical experts to design and size the clinical studies appropriately based on the specific conditions our products are intended to treat. We are evaluating the potential impact of the COVID-19 pandemic on our study timelines and costs.

Using our Cellframe and Cellspan technology as a platform to address multiple organs.  We believe that pre-clinical data we have produced to date may suggest that our technology is a novel and innovative approach to restoring organ function that may provide an ability to develop products that would address life-threatening conditions impacting organs like the esophagus, bronchus and trachea, and perhaps lower portions of the gastrointestinal (GI) tract. We believe that our technology may allow physiciansincluding to treat certain life-threatening conditions in ways not currently possible, and in some combination,esophageal cancer, Barrett esophagus, fistulas, traumatic injury to save patients’ lives, avoid or reduce complications experienced in the current standard of care, and improve the patients’ quality of life, while at the same time reducing the overall cost of patient care to the healthcare system.

Supplying the finished Cellspan esophageal implant to the surgeon.  Our technology includes our proprietary bioreactor, as well as our proprietary biocompatible scaffold that is seeded with the patient’s own mesenchymal stromal cells. We believe there is considerable value in supplying the final cell-seeded scaffold implant to the surgeon so that the hospital and surgeon may focus solely on performing the implantation.

Collaborating with leading medical and research institutions.  We have and will continue to collaborate with leading medical and research institutions. We have a co-development initiative with Mayo Clinic for regenerative medicine organ implant products for the esophagus and airways based onbirth defects in the esophagus. Compared to developing treatments for a single underlying medical condition, we believe that addressing multiple medical conditions in a single clinical trial has the potential to significantly reduce our technology. We are also collaboratingcosts to expand the market for our products.

Preclinical Development

In January 2022, together with Connecticut Children’s Medical Center, onwe published in Nature Partner Journals Regenerative Medicine the results of implanting pediatric-sized esophageal implants in 15 piglets. Numerous survival times were histologically analyzed to understand the tissue development and timing of the regeneration. Overall, the graft implantation procedure was deemed safe and feasible. The piglets showed regeneration of a co-development projectconduit, or tube, by one month and the regeneration of a normal mucosal lining by three months. Additionally, histological evaluation demonstrated that the tissue continued to translate our technology for pediatric esophageal atresia from pre-clinical studiesdevelop throughout the course of the one-year survival period. Importantly, the piglets also showed normal growth and weight gain which are considered critical in treating human babies.

This research also developed novel post-surgical techniques that closely mimic the hospital care that human babies undergo. These techniques included non-invasive CT imaging of the regenerated tissue and feeding the piglets via G tubes which are normally used to clinical trials. We believefeed human babies after surgeries in the use of our product candidates by leading surgeons and institutions will increase the likelihood that other surgeons and institutions will use our products.gastro-intestinal tract.

Our TechnologyClinical Pathway

Our technology is comprised of our proprietary bioengineered scaffold, which is the foundation of our Cellframe technology, that is seeded with the patient’s own mesenchymal stromal cells in our proprietary bioreactor to form our Cellspan implant prior to implantation. We believe that this study laid both the scientific and clinical groundwork for treating babies with birth defects in the esophagus with the Biostage Esophageal Implant. The FDA approval for the clinical trial allows us to treat children once we have established safety in adult patients in the phase 1/2 clinical trial. Once we have established the safety of the implant in adults, we expect to recruit children into the clinical trial.

Orphan Drug Designation – Seven Years of Exclusivity

In November 2016, we were granted Orphan Drug Designation for our technology combinesesophageal implant by the FDA to restore the structure and function of the esophagus subsequent to esophageal damage due to cancer, injury or congenital abnormalities. We also were granted Orphan Drug Designation for trachea on September 4, 2014.

The Orphan Drug Act provides incentives to manufacturers to develop and market drugs and biologics for rare diseases and conditions affecting fewer than 200,000 persons in the U.S. at the time of application for orphan drug designation, or more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making a highly-engineered, biocompatible scaffolddrug or biological product available in the U.S. for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a new drug application, or NDA, or Biologics License Application or BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. The first developer to receive FDA marketing approval for an orphan biologic is entitled to a seven-year exclusive marketing period in the U.S. for that product as well as a waiver of the BLA user fee. The exclusivity prevents FDA approval of another application for the same product for the same indication for a period of seven years, except in limited circumstances where there is a change in formulation in the original product and the second product has been proven to be clinically superior to the first. In addition, Orphan Drug Designation provides a seven-year marketing exclusivity period against competition in the U.S. from the date of a product’s approval for marketing. This exclusivity would be in addition to any exclusivity we may obtain from our patents. Additionally, orphan designation provides certain incentives, including tax credits and a robust population of cells that, by tapping into the stem cell nichewaiver of the surrounding native tissue after implantation, will stimulateBLA fee. We also plan to apply for Orphan Drug Designation for our esophageal implant in Europe. Orphan Drug Designation in Europe would provide market exclusivity in Europe for a tubular organ to remodel or regenerate tissue to closeperiod of ten years from the gap created by a surgical resection of a portion of that organ. This unique combination of technologies, developed through our extensive testing performed during the last few years, may potentially provide solutions to life-threatening conditions for patients with unmet medical needs.

We believe that our technology is unique, in that its mode of action appears to be different from other tissue engineering scaffold products developed previously, of which we are aware. Prior to our developmentdate of the technology,product’s approval for marketing.

Our Strategy

Our strategy is to develop and advance our approach attempted to implant a biocompatible scaffold that would be incorporated intopipeline of products, beginning with our lead product for the patient’s body by the surrounding native tissue growing into the scaffold. To our knowledge, all previous researchtreatment of esophageal cancer, through clinical development and development efforts by other investigators were based on that same concept. Our technology appears to work very differently. We believe that the unique combinationcommercialization. The key elements of our highly-engineered biocompatible scaffold with a population of the patient’s own mesenchymal cells enables an organ to develop new native tissue around our scaffold, but not into it, so the scaffold acts as a type of frame or staging for the new tissue. As a result, our scaffold is not incorporated into the body. Instead, it is retrieved from the body via an endoscopic procedure, not surgically, after sufficient tissue remodeling and regeneration has occurred.strategy include:

Our Technology

Biocompatible Scaffold Component

Our proprietary biocompatible scaffold component of the CEIour esophageal implant is constructed primarily of polyurethane.extremely thin polyurethane fibers. This material was chosen based on extensive testing of various materials. The scaffold is made using a manufacturing process known as electrospinning. The combination of the electrospinning process, which provides control over the desired microstructure of the scaffold fabric, with the polyurethane results in a scaffold that we believe has favorable biocompatibility characteristics.

The Patient’s Cells

Based on current pre-clinical development efforts, theThe cells we seed onto the scaffold are obtained from the patient’s adipose tissue, (abdominal fat).or abdominal fat. This fat tissue is obtained from a standard biopsy beforeduring the weeks leading up to the implant surgery. Mesenchymal stromal cells are extracted and isolated from the adipose tissue biopsy. The isolated cells are then expanded, or grown, for a short period prior to surgery in order to derive a sufficient cell population to be seeded on the scaffold. The cells are then seeded on the scaffold in our proprietary bioreactor and incubated there before the implant surgery.

We believe our CEI product candidate hasOur technology is protected by twelve issued U.S. patents (including patents on the potential to provide a major advance overbioreactor, the current therapeutic options for treating esophageal disease, damage from infection or trauma and congenital abnormalities. We believe our CEI has the potential to overcome the major challenges in restoring organ function for a damaged esophagus. With our CEI we are developing a surgical procedure that has the objective of reconstituting the continuitystructure of the patient’s esophagus without havingscaffold and the retrievable nature of the scaffold), two Orphan-Drug Designations from the FDA, both of which confer seven years of exclusivity in addition to relocate another organ in its place. In addition,protection offered by reducing or eliminating complications that occur in the currentpatents, and our first-mover advantage which allows us to improve the standard of care. Potential competitors would now have to improve upon our new standard of care rather than just improve on the existing standard of care in order to get their product candidates approved by the FDA. In addition, our patent claims cover patches as well as tubular structures. We intend to develop patches for the repair of tubular organs as well as solid organs.

See the “Intellectual Property, Licenses and Related Agreements” section below for more details.

Additional Targeted Diseases

Targeted Diseases

According to the World Health Organization, or WHO, International Agency for Research on Cancer’s Global Cancer Observatory database, worldwide there were over 600,000 cases of esophageal cancer in 2020. There are over one million cases of colon cancer. In addition, there are approximately 22,000 cases of bronchus cancer that, based on conversations with surgeons, we expect to reduce the costs of addressing and treating those additional complications. Because these substantial costs canbelieve could be reduced or even eliminatedtreated with our technology,technology. The following are the approximate case counts by certain geographic region pertaining to the cancers noted below:

Sources: Global Cancer Statistics 2020: GLOBOCAN Estimates of Incidence and Mortality Worldwide for 36 Cancers in 185 Countries Hyuna Sung, PhD; Jacques Ferlay, MSc, ME; Rebecca L. Siegel, MPH; Mathieu Laversanne, MSc; Isabelle Soerjomataram, MD, MSc, PhD; Ahmedin Jemal, DMV, PhD; Freddie Bray, BSc, MSc, PhD.

The above table excludes case counts for Tracheal Cancer. We estimate there are approximately 1,000 cases per year of trachea cancer in the U.S. and Europe that are severe enough to be treated with our technology. Please see “Life-threatening conditions of the Trachea” below. These numbers of patients do not include those with fistulas, ulcers, injuries or birth defects, all of which we believe may be treatable with our products, if successfully developed, can helptechnology.

Because our product candidates are likely to save or extend lives, improve the quality of life, and save money by reducing the complications associated with current surgical repair techniques, we expect to charge more than $250,000 per product in the U.S. market.

Treating even one tenth of only those patients who are diagnosed with esophageal cancer each year could generate billions of dollars in annual revenue. We believe that the market potential for patients and reduce overall healthcare costs.our products is significantly higher.

Unmet Patient Needs and Cellspan Implant Solutions

Esophageal Disease

Esophageal cancer is one of the deadliest types of cancer. According to the American Cancer Society, there are approximately 17,000 new diagnoses of esophageal cancer in the U.S. each year, and there are more than 15,000 deaths. Typically, a year after diagnosis with esophageal cancer, 50% of the patients are dead and after 5 years, 80% are dead.

There are approximately 572,000600,000 new diagnoses of esophageal cancer globally each year, according to the World Health Organization’s International Agency for Research on Cancer. According to the American Cancer Society,

Hence, there are approximately 20,000 new diagnoses ofis a vast need for a better treatment for esophageal cancer in the U.S. each year, and there are more than 16,000 deaths from esophageal cancer each year. Esophageal cancer is very deadly - the five-year survival rate for people with esophageal cancer is 18% in the U.S. cancer.

Approximately 5,000 esophagectomy surgeries occur in the U.S. annually to treat esophageal cancer, and approximately 10,000 esophagectomies occur in Europe annually. We believe that approximately one half of the world’s esophageal cancer cases occur in China, which would represent the largest potential patient population for our adult esophageal product candidate. We believe that our CEI,esophageal implant, if approved, has the potential to provide a major advance over the current esophagectomy procedures for addressing esophageal disease, which have high complication and morbidity rates.

The current standard of care for the esophagectomy requires either (A) a gastric pull-up, where the stomach is cut and sutured into a tubular shape, then pulled up through the diaphragm to replace a portion of the esophagus resected by the removal of the cancerous tumor; or (B) a colon interposition, where a portion of the colon is resected and used to replace the portion of the esophagus resected by the removal of the cancerous tumor. Esophagectomies have 90-day mortality rates of up to 19%. Serious complications, such as leakage at the anastomoses, which can lead to infections and sepsis, and pulmonary complications, such as impaired pulmonary function or pneumonia, occur in up to 30% of esophagectomy cases. Other complications from esophagectomies, such as a narrowing of the esophagus post-surgery, gastroesophageal reflux and dumping syndrome (repetitive nausea, dizziness and vomiting) can also pose significant quality of life issues for patients.

We believe that our CEIesophageal implant has the potential to provide physicians a new, simpler procedure to restore organ function while significantly reducing complication and morbidity rates compared with the current standard of care, and without creating significant quality of life issues for patients. Our current CEI product candidate that was removed from clinical hold by the FDA on March 19, 2020 will treat patients with esophageal disease, absent of cancer, in adults that would require a short segment esophageal implant following clinically indicated short segment resection of the thoracic esophagus with our CEI product candidate.

Pediatric Esophageal Atresia

Each year, it is estimated that approximately 1,000 children in the U.S. are born with a congenital birth defect known as esophageal atresia. Esophageal Atresia (EA)atresia is a rare congenital abnormality in whichcondition where an infant is born without partwith an esophagus that does not extend completely from the mouth to the stomach. When a long segment of the esophagus. About 1 in 4,000 infants in the U.S.esophagus is born with EA. In some cases, the two sections can be connected surgically. However, in cases where the gap is too great for a simple surgical reconnection,lacking, the current standard of care is a gastric pull-up, a colon interposition, or a procedure known as the Foker process. In the Foker process, traction devicesseries of surgical procedures where sutures are surgically attachedapplied to the two ends of the esophagus. Traction is then applied, usually for several weeks during which time the infant remains in an Intensive Care Unit, to stimulate theboth ends of the esophagus in an attempt to growstretch them and narrowpull them together so they can be surgically connected at a later date.

This surgical process can take several weeks, and the gap. Ifprocedure often involves serious complications and high rates of failure. The infant usually must remain in the Fokerneonatal intensive-care unit for this time which can cost thousands of dollars per day. This process is successful in narrowingalso requires at least two separate surgical interventions. Other surgical options include the gap sufficiently, a second surgery is necessary to connect the two endsuse of the esophagus. In additionchild’s stomach or intestine that would be pulled up into the chest to allow a connection to the Foker process being complex, it is also a verymouth. These methods are similar to the use of gastric pull ups and interpositioning used in adult patients and carry similar side effect and safety profiles. We are working in collaboration with the Connecticut Children’s Medical Center, to advance an esophageal implant solution to address esophageal atresia that we believe will be more effective, safer, and less expensive procedure becausethan the infant will normally becurrent procedures.

Colon Cancer

Based on input from our Scientific Advisory Board, which includes certain well-known surgeons in the hospital for several months duringfield of regenerative medicine, we are planning to research regenerating other parts of the process.gastro-intestinal tract such as the stomach, intestine and colon. All these organs require replacement when they are damaged by cancer, injury, and birth defects. There are over one million patients diagnosed with colon cancer every year.

We believe that a pediatric CEI may provide pediatric surgeons with a better procedure to treat EA that would result in a connected esophagus with higher success rates, lower complications and lower overall costs to the healthcare system.Bronchial (Central Lung) Cancer

Central Lung Cancer

Lung cancer is the most common form of cancer and the most common cause of death from cancer worldwide. There are more than 450,000700,000 new lung cancer diagnoses annually in the U.S. and Europe. In approximately 25% of all lung cancer cases, the cancerous tumor resides only in a bronchus and not in the lobes of the lungs and is known as central lung cancer. Approximately 33,000 central lung cancer cases diagnosed in the U.S. and Europe are Stage I and II and are considered eligible for surgical resection, often with adjuvantadjuvanted chemotherapy and radiation.

Approximately 5,000 of thosethese patients are treated via pneumonectomy, a surgical procedure involving the resection of the cancer tumor, the whole bronchus below the tumor and the entire lung to which it is connected. It is a highly complex surgery and due to the removal of a lung, results in a 50% reduction in the patient’s respiratory capacity. The procedure has reported rates of post-surgical, (in hospital)or in-hospital, mortality of 8% to 15%. Complication rates associated with pneumonectomy are reported as high as 50%, and include post-operative pneumonia, supraventricular arrhythmias, and anastomotic leakage, placing patients at significant mortality risk post-discharge.

We believe thatintend to develop a CellspanBiostage bronchial implant once developedto treat bronchial cancer, bronchial fistulas (holes), and approved for marketing, hasbirth defects in the potential to provide physicians a treatment alternative superior tobronchus. Based on discussions with surgeons in the sleeve pneumonectomy to address central lung cancer, a simpler procedure to restore organ functionfield, we estimate that approximately 7,000 of these conditions in the bronchus without sacrificing one of the patient’s lungs, resulting in fewer post-surgery complications, improved mortality ratesU.S. and improved quality of life for the patient.Europe would be potentially treatable with our technology.

Life-threatening conditions of the Trachea

There are approximately 8,000 patients per year in the U.S. and Europe who suffer from a condition of the trachea that put the patient at high risk of death. These conditions can be due to tracheal trauma, tracheal stenosis or trachea cancer. There are approximately 40,000 tracheal trauma patients diagnosed each year in the U.S. Of those, approximately 1,000 are severe enough to need surgical resection procedures. Tracheal stenosis is a rare complication from tracheostomies but may have a devastating impact on respiratory function for patients. Approximately 2,000 patients are diagnosed with stenosis from tracheostomy in the U.S. each year. Trachea cancer is a very rare but extremely deadly cancer. Trachea cancer patients in the U.S. have a median survival of 10 months from diagnosis and a 5-year survival of only 27%. There were approximately 200 cases of primary trachea cancer diagnosed in the U.S. in 2013. Based on these facts, we estimate that there are approximately 8,000 patients in the U.S. and Europe with conditions of the trachea that put them at high risk of death, but for whom there is currently no clinically effective tracheal implant or replacement method currently available.

We believe that a CellspanBiostage tracheal implant may potentially provide physicians a treatment to re-establish the structural integrity and function of a damaged or diseased trachea to address life-threatening conditions due to tracheal trauma, stenosis, cancer, or cancer.birth defects.

We have not performed regeneration of a trachea using a Biostage tracheal implant. However, based on the regeneration observed in the bronchus, we believe that regeneration of the trachea may be possible.

Our History

We were incorporated under the laws of the State of Delaware on May 3, 2012 as a wholly-owned subsidiary of Harvard Bioscience, Inc. (Harvard Bioscience), or Harvard Bioscience, to provide a means for separating its regenerative medicine business from its other businesses. Harvard Bioscience decided to separate its regenerative medicine business into our company, a separate corporate entity, (the Separation),or the Separation, and it spun off its interest in our business to its stockholders in November 2013. Since the Separation we have been a separately-traded public company and Harvard Bioscience has not been a stockholder of our common stock or controlled our operations. Following the Separation, we continued to innovate our bioreactors based on our physiology expertise, we developed our materials science capabilities and we investigated and developed a synthetic tracheal scaffold. By that time, we had built and staffed cell biology laboratories at our Holliston facility, to give ourselves the ability to perform and control our scientific investigation and developments internally. At that point, we began the second phase of our company’s development.

In mid-2014, we increased the pace of our scientifically-based internal analysis and development of our first-generation tracheal implant product candidate, the HART-Trachea. From large-animal studies conducted thereafter we found that the product candidate elicited an unfavorable inflammatory response after implantation, which required additional development and testing. These requirements extended our expectations regarding our regulatory milestones, and we announced the additional testing and extended milestone expectations in January 2015. During 2015 we isolated and tested all major variables of the organ scaffold and the cell source and protocols, examining the effects of alternatives against the then-existing product approach. Through extensive in vitro preclinical studies, and small-animal and large-animal studies, we made dramatic improvements, and discovered that the mechanism of action of our current approach was very different from our hypothesis regarding that of the first-generation product.product candidate. Our technology uses a different scaffold material and microstructure, a different source and concentration of the patient’s cells and several other changes from our earlier trachea initiative.

We believe These changes resulted in a scaffold that our technology, although built on learnings from our earlier-generation product initiative, represents a new technology platform resulting from our rigorous sciencewas temporary and development. We have focused our development efforts on our Cellframe technology and Cellspan product candidates, which we have and will continue to develop internally, and with our collaborators,could be removed via a rigorous scientific development process.

Clinical Trials

Our CEI has been designated by the FDA as a combination product. We believe that this is a favorable designation as it allows for orphan designation and a more participatory path to approval. We have conducted numerous pre-clinical studies in our esophageal implant programs and continue to see consistent regeneration. Additionally, our CEI product candidate was usedmouth in an FDA-approved first-in-human compassionate use successfully in 2017. In October 2019, we filed an Investigational New Drug (IND) application with the U.S. Food and Drug Administration (FDA) to treat patients with esophageal disease in adultsendoscopic procedure that woulddid not require a short segment esophageal implant following clinically indicated short segment resection of the thoracic esophagus with our CEI product candidate. In November 2019, we received notice from the FDA placing our IND on clinical hold and providing a preliminary list of clinical hold and non-clinical hold questions. In December 2019, we received the formal letter with clinical hold and non-clinical hold questions and submitted our response to the clinical hold questions on February 18, 2020. On March 19, 2020, the FDA notified us that the IND for our CEI product candidate has been removed from clinical hold and that we can proceed with our study. This FDA approval enables us to start the transition to a clinical-stage biotechnology company, and start clinical planning, engaging with a clinical research organization and site readiness in advance of starting the clinical trial for our CEI product candidate.

We are also pursuing a pediatric program and plan to file a protocol amendment to our CEI clinical program after the initial adult patients are treatedmajor surgery in the esophageal disease trial, subject to FDA approval. In order to market our product candidate for both esophageal disease and pediatric esophagus atresia, we will need to successfully complete applicable clinical trial requirements.

We believe that we have excellent pre-clinical and clinical support of the pediatric atresia program through our collaboration with Connecticut Children’s Medical Center and our primary investigator Dr. Christine Finck, who is also a member of our Scientific Advisory Board. Essentially, we liken the pediatric atresia market to a rare disease market. Accordingly, the clinical trial population should reflect the ultra-orphanchest. The temporary nature of the disease state.scaffold reduces the risk of long-term complications that can arise from permanent implants such as those from hernia meshes and breast implants.

Because life-threatening conditions ofClinical Trials

The FDA has approved our first clinical trial.

Based on both the esophagus requiring a short segment esophageal implant following clinically indicated short segment resection ofsuccessful human experience at the thoracic esophagus affects a small population inMayo Clinic, and our extensive large-animal research (we have performed surgeries on over 50 pigs including for both adult and pediatric diseases), the U.S., and based on our IND submission, we anticipate thatFDA has approved our clinical trial. The trial using our CEI product candidate will involve up to 10 patients. Therefore, once commenced, we expect to be able to conduct a clinical10-patient combined phase 1 and phase 2 trial in a relatively short period of time compared to clinical trials in indications with larger patient populations. We intend to work closely with regulatory agenciesthat measures both the safety and clinical experts to design and size the clinical studies appropriately based on the specific conditions our products are intended to treat. We also intend to request expedited review from the FDA for our CEI product. Receipt of expedited review would reduce the overall time through the regulatory approval process. These expedited requests are submitted during the IND process.

We believe that receiving regulatory approval to treat pediatric esophageal atresia with our CEI product candidate may provide a shorter time to a commercial product and the greater overall potential value in the U.S. market. In addition to providing a novel solution for a great medical need, approvalefficacy of our pediatric esophageal atresia product candidate may result in receipt of a priority review voucher, which if achieved, could potentially provide significant value to our company in the future. We have continued to advance our CEI pediatric esophagus program and plan to file a protocol amendment with the FDA to our CEI esophageal disease clinical program after the initial adult patients are treated in the esophageal disease trial, subject to FDA approval.

We intend to initially pursue regulatory approval for our CEI product candidate in the U.S.patient population. This clinical trial is for any patient that requires removal of a part of the esophagus that is less than 6cm long for any reason. The primary endpoint in the trial is the establishment of a continuous biological neoconduit, or tube, by three months. In the human patient, this tube was seen in one month. In the pig research, we have seen the formation of a conduit by one month and sometimes by 14 days. One of the secondary endpoints will be the development of a mucosal lining in the esophagus by 12 months or earlier. In the one human patient treated so far, this mucosal lining was seen at three months. In the pig research, we have seen this mucosal lining in three months.

The FDA approval for our clinical trial allows us to treat babies born without a complete esophagus once we have established safety in adults.

Our esophageal implant will not be tested for safety on healthy volunteers (the usual goal of a phase 1 trial) or for dose-response and maximum-tolerated dose (the usual goals of a phase 2 trial). Measuring safety and efficacy in the patient population is normally the goal of a phase 3 clinical trial. Hence, our approved trial is more similar to a small phase 3 trial than a typical first clinical trial. We expect to add patients to this trial, including in Europe and China until we have sufficient data to gain approval.

Unlike the normal drug discovery process, which assesses a drug for its ability to treat a single disease, we can pursue multiple diseases with a single clinical trial. This is because any medical condition that requires the removal of part of the esophagus can be repaired with the our esophageal implant. It does not matter that the need to surgically remove part of the esophagus is caused by esophageal cancer, Barrett esophagus (damage to the lower esophagus caused by the reflux of stomach acids into the esophagus), howevera fistula (a hole in the esophagus), a birth defect, or a wound or injury to the esophagus. Our esophageal implant can be used to treat any of these conditions. Because of this, we believe that the available market in treating the esophagus to be far larger than that for treating esophageal cancer alone. In addition, we can access that large patient population without having to conduct a new clinical trial for each underlying medical condition. Compared to the development of new drugs, this greatly reduces our costs to expand the market size for our products.

We intend to request Fast Track status, Breakthrough Therapy designation, Regenerative Medicine Advanced Therapy, or RMAT, designation, Accelerated Approval, Priority Review and a Priority Review Voucher from the FDA. There are many benefits of such designations, including reduced costs and faster times to market. Please refer the Regulatory Strategy section for more details.

Our first clinical trial will be in the U.S. for patients with cancer, injury, or birth defects in the esophagus. However, there are far more patients with these conditions in Europe and Asia than there are in the U.S. For this reason, we intend to expand our clinical trial to include patients in Europe and Asia and to seek regulatory approval in those countries as described above we are assessingwell.

In addition to having large patient populations, for product candidates like ours, both the European Union, or E.U., and some countries in Asia allow for “conditional approval”. Conditional approval is country specific but, in general, it would allow us to market our products, and obtain revenue from the sales of the respective product, after successful phase 2 results. Conditional approval is granted subject to the regulatory authority being able to rescind the approval pathway in China andif something goes wrong as more patients get treated. Hence, it is possible that this pathway may end up beingwe could see revenue in either Asia or the initial pathway. We believe that approximately one half ofE.U. before we see revenue in the world’s esophageal disease cases occur in China, which would represent the largest potential patient population for our adult esophageal implant product candidate, and we are consequently preparing to address that market. Following clinical trials in other foreign markets, we expect to pursue regulatory approval for our CEI in those foreign markets.U.S.

Research and Development

Our primary research and development activities are focused in three areas: materials science, cell biology and engineering. In materials science, we focus on designing and testing biocompatible organ scaffolds, testing the structural integrity and the cellularization capacities of the scaffolds. In cell biology, we focus on developing and testing isolation and expansion protocols, cell characterization and fate studies, investigating the effects of various cell types and concentrations, evaluating the biocompatibility of scaffolds, experimenting with different cell seeding methodologies, and developing protocols for implantation experiments. Our engineering group supports the materials science and cell biology groups across an array of their activities, i.e. designing, engineering and making our proprietary bioreactors and autoseeders. All three of our R&D groups combine to plan and execute our in vitro studies. A fundamental part of our R&D effort in developing our technology has been dedicated to the discovery and development of small and large-animal model studies. The large-animal model employs the use of Yucatan mini-pigs. Our Cellspan scaffolds were implanted in the cervical portion as well as the thoracic portion of the esophagus and the airways in studies to date.

In addition to our in-house engineering and scientific development team, we collaborate with leaders in the field of regenerative medicine who are performing the fundamental research and surgeries in this field to develop and test new productsproduct candidates that will advance and improve the procedures being performed. We will work with our collaborators to further enhance our productsproduct candidates to make them more efficient and easier to use by surgeons. In the U.S., our principal collaborations have been with Mayo Clinic and Connecticut Children’s Medical Center. Collaboration typically involves us developing new technologies specifically to address issues these researchers and clinicians encounter, and then working together to translate our technology from pre-clinical studies to clinical trials. In certain instances, we have entered into agreements that govern the ownership of the technologies developed in connection with these collaborations.

We incurred approximately $2.1$1.7 million and $4.9$1.6 million of research and development expenses in 20202022 and 2019,2021, respectively. As we have not yet applied for or received regulatory approval to market any clinical products, no amount of these research and development costs have been passed on to our customers.

On March 28, 2018, we were awarded a Fast-Track Small Business Innovation Research, (SBIR)or SBIR, grant by the Eunice Kennedy National Institute of Child Health and Human Development, (NICHD)or NICHD, to support testing of pediatric Cellspan™ Esophageal Implants (CEIs).version of our esophageal implant. The award for Phase I provided for the reimbursement of approximately $0.2 million of qualified research and development costs which was received and recognized as grant income during 2018.

On October 26, 2018, we were awarded the Phase II Fast-Track SBIR grant from the Eunice Kennedy NICHD grant aggregating $1.1 million to support development, testing, and translation to the clinic through September 2019 and represented years one and two of the Phase II portion of the award. On August 3, 2020, we were awarded a third year of the Phase II grant totaling $0.5 million for support of development, testing, and translation to the clinic covering qualified expenses incurred from October 1, 2019 through September 30, 2020. In September of 2020, we filed and were granted a one year, no-cost extension for the Phase II grant period extending through September 30, 2021.

For the years ended December 31, 20202022 and 2019,2021, we recognized $0.4 million$0 and $0.5$0.2 million of grant income, respectively, from Phase II of the SBIR grant. The aggregate SBIR grant to date providesprovided us with a total award of $1.8 million, of which approximately $1.3$1.5 million hashad been recognized through December 31, 2020.2021.

In March 2021, we received additional cash proceeds of $0.2 million from theThe Phase II grant.portion of the award expired effective September 30, 2021.

The research conducted under this grant led to the publication on the regeneration of the esophagus in piglets that was published in January 2022 in collaboration with Connecticut Children’s Medical Center.

Manufacturing and Resources

Biostage has developed a comprehensiveThe bioreactor and scaffold are made in our clean-room facilities in Holliston, Massachusetts and the cell seeding is currently performed at the FDA-approved clinical-grade human cell culture facility at the University of Texas Medical Branch.

Our manufacturing process for our product candidates, including cell biology, scaffold production, cell isolationthe bioreactors and expansion, seeding of cells onscaffolds has been approved by the scaffold, incubation and expansion processes in the bioreactor and product transportation. We currently perform certain manufacturing steps in-house and subcontract certain processes and activities, primarily those related to cell expansion, seeding and incubation, to experienced partners.

For our scaffolds we use a process called electrospinning to create the fabric part of the scaffold. Electrospinning is a well-known fabrication process. It is useful for cell culture applications as it can create extremely thin fibers (much thinner than a human hair) that can make a fabric with pores approximately the same size as a cell. The electrospinning process parameters can be tuned to create a structure that is very similar to the natural structure of the collagen fibers in human extracellular matrix. Our process and end product have been developed over many years and involve many trade secrets and proprietary know-how. Our Cellspan scaffolds are made from polyurethane, an inert polymer that is not bioresorbable. However, we also perform studies on the use of scaffolds made from bioresorbable materials. While we do not manufacture the cells, as they will come from the patient’s adipose tissue, for regulatory purposes we are responsibleFDA for the quality control of the cells and the seeding of the cells onto the scaffold in the bioreactor. For this we have, in collaboration with our partners, developed standard operating proceduresclinical trial. Additional development is likely to be necessary for the seeding of cells on the scaffold. For U.S. clinical trials we anticipate that the seeding will be performed using our Cellspan automatic cell seeder with our bioreactor at a pre- qualified third-party contract manufacturer using current Good Manufacturing Practices (cGMP) using our proprietary protocol and under the supervision of our staff.product approval.

For our scaffolds, our primary materials are medical-grade plastic resins and solvents used to liquefy the resins in our manufacturing process. These materials are readily available from a variety of suppliers and do not currently represent a large proportion of our total costs. For our autoseeders and bioreactors, we perform final assembly and testing of components that we buy from third parties like machine shops, parts distributors, molding facilities and printed circuit board manufacturers. These manufacturing operations are performed primarily at our Holliston, MAMassachusetts headquarters.

Sales and Marketing

We expect that most surgeries using our CEI productesophageal implant will be performed at a relatively small number of major hospitals in the U.S., ChinaAsia and other countries that will establish themselves as specialized centers of excellence based on countries that we receive regulatory approval in. We believe that a relatively small number of centers of excellence in each country would be able to treat a large percentage of that country’s patients annually, given the expected number of patients to be treated each year. So, we expect our markets to be served by a concentrated number of treatment centers. Further,Europe. In addition, our technology platform is forinitially aimed at treating the esophagus, the bronchi, and the trachea, three organs all of which are treated by thoracic surgeons. Therefore, all of those product candidates, once approved, would be marketed primarily to physicians practicing inAs a single surgical specialty, so we expect that the total number of physicians using our products will be a much smaller population than if our products were to be used by physicians in multiple areas of surgical specialties. Due to our expectation of a population of physicians in one surgical specialty being the primary users of our products in a concentrated number of centers of excellence in each national market,result, we expect to be ableemploy only a small sales force as compared to support our markets with a fairly small field sales force.companies selling treatments for larger patient populations.

We expect to price the product commensurate with the medical value created for the patient and the costs avoided with the use of our product. Because our products are likely to save or extend lives, improve the quality of life, and save money by reducing the complications associated with current surgical repair techniques, we expect to charge approximately $250,000 per product in the U.S.

We further expect to be paid by the hospital that buys the product from us. Finally, we expect that the hospital would seek reimbursement from government payers, private health insurers and other third-party payers for the entire transplant procedure, including the use of our products.

Harvard Bioscience will be the exclusive distributor for the research versions of our bioreactors. Harvard Bioscience can only sell those products to the research markets in accordance with the terms of a distribution agreement we entered into with Harvard Bioscience. We retain all rights to manufacture and sell all our products for clinical use.

Intellectual Property, Licenses, and Related Agreements

We actively seek to protect our productshave twelve issued U.S. patents that cover the bioreactor, the scaffold, and proprietary information by meansthe surgical procedure. The patent claims cover the use of U.S. and foreign patents, trademarks and contractual arrangements. Our success will depend in part on our ability to obtain and enforce patents on our products, processes and technologies to preserve our trade secrets and other proprietary information and to avoid infringing on the patents or proprietary rights of others.

We anticipate that we will sell products in various marketssynthetic scaffolds for any use in the U.S.gastro-intestinal tract and various jurisdictions under brand name, logo and product design trademarks and service marks and that these marks will attain material importance in the future.

We also own select U.S. Patentsairways. These patents include the claim of having a removable scaffold. The patent claims cover patches as well as certaintubes. We intend to research the patch-based approach to treat damage to solid organs. We also have two issued patents in Germany. TheseChina and there are numerous other filings pending. We expect these patents cover aspects of device and processes currently under development by our company. Patents for various processes and devices extend for varying periods according to provide protection into the date of patent filing or grant and the legal term of patents in the country or countries in which the patent was obtained. The actual protection afforded by a patent can vary from countrymid to country and depends on factors such as the type of patent, scope of protection and available legal remedies.late 2030’s.

In addition to issued patents, we have several pending patent applications in the U.S. and key target jurisdictions. We believe that one or more of these pending patent applications may be of importance to material position depending upon factors such as the relevant patent jurisdiction, type of patent granted, and scope of patent claims ultimately allowed in a given jurisdiction. Depending upon factors such as the type of grant and the date on which the patent application was filed, we anticipate that the term of certain pending patents may extend to 2036.

We also rely on unpatented proprietary technologies in the development and commercialization of our products, and we depend upon the skills, knowledge and experience of our scientific and technical personnel, and those of our advisors, consultants and other contractors. To help protect our proprietary know-how that may not be patentable, and our inventions for which patents may be difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we require employees, consultants and advisors to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions that arise from their activities for us. Additionally, these confidentiality agreements require that our employees, consultants and advisors do not bring to us, or use without proper authorization, any third party’s proprietary technology.

Sublicense Agreement with Harvard Bioscience

We have entered intoown the right to use the brand name “Harvard Apparatus Regenerative Technology” in the medical sciences field under a sublicenselicense agreement with Harvard Bioscience pursuant to whichUniversity via a sublicense from Harvard Bioscience has granted us a perpetual, worldwide, royalty-free, exclusive, except as toBioscience. Harvard Bioscience and its subsidiaries, licenseBioscience’s right to use the mark “Harvard Apparatus”name arises from a license agreement, effective December 19^th, 2002, between it and the President and Fellows of Harvard University. Harvard Bioscience began at Harvard University in 1903 as Harvard Apparatus and has a license to the name Harvard Apparatus in research and industrial fields. Our right to use the names in the medical field arises from the sublicense signed when Biostage, Inc. (then known as Harvard Apparatus Regenerative Technology) was separated from Harvard Bioscience in 2013 (as more fully described below). Harvard Bioscience delegated its right to use the name in the medical field to us and Harvard Bioscience has no right to use the Harvard mark in the medical field. We intend to use this brand name on our products in the future. We do not have the right to use the Harvard or Harvard Apparatus marks alone but only as Harvard Apparatus Regenerative Technology. The mark “Harvard Apparatus”We believe we are the only licensee of the Harvard name in the medical products’ field. This license is used underperpetual, worldwide and royalty-free. There are restrictions on our use of the name such as not using it in the color crimson and not using it in a license agreement between Harvard Bioscience and Harvard University, and we have agreed to be bound by such license agreement in accordance with our sublicense agreement.serifed font. We currently have no affiliation with Harvard University.

Separation Agreements with Harvard Bioscience

On November 1, 2013, to effect the Separation, Harvard Bioscience distributed all of the shares of our common stock to the Harvard Bioscience stockholders, (oror the Distribution).Distribution. Prior to the Distribution, Harvard Bioscience contributed the assets of its regenerative medicine business, and approximately $15 million in cash, to our company to fund our operations following the Distribution.

In connection with the Separation and immediately prior to the Distribution, we entered into a Separation and Distribution Agreement, Intellectual Property Matters Agreement, Product Distribution Agreement, Tax Sharing Agreement, Transition Services Agreement, and Sublicense Agreement with Harvard Bioscience to effect the Separation and Distribution and provide a framework for our relationship with Harvard Bioscience after the Separation. These agreements govern the current relationships among us and Harvard Bioscience and provided for the allocation among us and Harvard Bioscience of Harvard Bioscience’s assets, liabilities, and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to the Separation.

Government Regulation

AnyOur product that we may develop based oncandidates and our technology, and any other clinical products that we may develop, will beoperations are subject to considerableextensive regulation by governments. We were informed by the FDA that our previous-generation tracheal product candidate would be regulated under the BLA pathway in the U.S. FDA and we were informedother federal and state authorities, as well as comparable authorities in foreign jurisdictions, which are discussed below. The FDA is divided into various “Centers” by product type such as the European Medicines Agency (EMA) thatCenter for Drug Evaluation and Research, or CDER, the previous generation tracheal product would be regulated under the Advanced Therapy Medicinal Products (ATMP), pathway in the European Union (E.U.). On October 18, 2016, we also received written confirmation from FDA’s Center for Biologics Evaluation and Research, (CBER), thator CBER, and the FDA intends to regulate our CEI as a combination product under the primary jurisdiction of CBER. We further understand that CBER may choose to consult or collaborate with the FDA’s Center for Devices and Radiological Health, (CDRH), with respect to the characteristics of the synthetic scaffold component of ouror CDRH. Different Centers review drug, biologic, or device applications. Our product based on CBER’s determination of need for such assistance. Although our current technology differs in design and performance from the first-generation product candidate, we expect that cellframe-based products will be regulated by the FDA and EMA under the same pathways as the first-generation tracheal product candidate. This expectation is based on the fact that the cellframe-based technology is centered on the delivery of the patient’s own cells seeded on an implanted synthetic scaffold in order to restore organ function and our belief that the cells provide the primary mode of action. Of course, it is possible that some of our current and future products may use alternative regulatory pathways.

Regulatory Strategy

Domestic Regulation of Our Products and Business

The testing, manufacturing, and potential labeling, advertising, promotion, distribution, importing and marketing of our productscandidates are subject to extensive regulation by governmental authoritiesas combination products, biologics and medical devices, in the U.S. and in other countries. In the U.S., the FDA,United States under the Public Health Service Act, the Federal Food, Drug, and Cosmetic Act, or FDCA, and itsthe Public Health Services Act, or PHS Act, and their implementing regulations as implemented and enforced by the FDA.

CBER regulates medical devices related to licensed blood and cellular products by applying appropriate medical device laws and regulations. Specifically, CBER regulates the medical devices involved in the collection, processing, testing, manufacture and administration of licensed blood, blood components and cellular products. The medical devices regulated by CBER are intimately associated with the blood collection and processing procedures as well as the cellular therapies regulated by CBER. CBER has developed specific expertise in blood, blood products and cellular therapies and the integral association of certain medical devices with those biological products supports the regulation of those devices by CBER. CBER also regulates biologics, which includes cells and tissues, serum, vaccines, blood and blood products, and analogous substances.

After receiving FDA approval or clearance, an approved or cleared product must comply with post-market safety reporting requirements applicable to the product based on the application type under which it received marketing authorization. In the case of current good manufacturing practices, or cGMP, the applicant may take one of two approaches: (1) complying with cGMP for each constituent part, or (2) a streamlined approach specific to combination products, subject to certain limitations.

Regulatory Strategy

Domestic Regulation of our Product Candidates - FDA Approval Process

The FDA extensively regulates, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and import and export of medical device products. The FDA governs the following activities that we may perform or that may be performed on our behalf, to ensure that the medical products we may in the future manufacture, promote and distribute domestically or export internationally are safe and effective for their intended uses:

The labeling, advertising, promotion, marketing and distribution of biopharmaceuticals, or biologics and medical devices also must be in compliance with the FDA and U.S. Federal Trade Commission, (FTC),or FTC, requirements which include, among others, standards and regulations for off-label promotion, industry sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing us to correct deviations from regulatory standards and enforcement actions that can include seizures, injunctions and criminal prosecution. Further,Recently, promotional activities for FDA-regulated products of other companies have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims. In addition, we are required to meet regulatory requirements in countries outside the U.S., which can change rapidly with relatively short notice.

The FDA has broad post-market and regulatory enforcement powers. Manufacturers of biologics and medical devices are subject to unannounced inspections by the FDA to determine compliance with applicable regulations, and these inspections may include the manufacturing facilities of some of our subcontractors. Failure by manufacturers or their suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or other regulatory authorities. Potential FDA enforcement actions include:

In addition, other government authorities influence the success of our business, including the availability of adequate reimbursement from third party payors, including government programs such as Medicare and Medicaid. Medicare and Medicaid reimbursement policies can also influence corresponding policies of private insurers and managed care providers, which can further affect our business.

Combination Products

A combination product is the combination of two or more regulated components, i.e., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are combined or mixed and produced as a single entity; packaged together in a single package or as a unit; or a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling, is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect.

To determine which FDA center or centers will review a combination product candidate submission, companies may submit a request for assignment to the FDA. Those requests may be handled formally or informally. In some cases, jurisdiction may be determined informally based on the FDA’s experience with similar products. However, informal jurisdictional determinations are not binding on the FDA. Companies also may submit a formal “Request for Designation” to the FDA Office of Combination Products. The Office of Combination Products will review the request and make its jurisdictional determination within 60 days of receiving a Request for Designation.

The FDA will determine which center or centers within the FDA will review the product candidate and under what legal authority the product candidate will be reviewed. Depending on how the FDA views the product candidates that are developed, the FDA may have aspects of the product candidate reviewed by CBER, CDRH, or CDER, though one center will be designated as the center with primary jurisdiction, based on the product candidate’s primary mode of action. The FDA determines the primary mode of action based on the single mode of action that provides the most important therapeutic action of the combination product candidate. This would be the mode of action expected to make the greatest contribution to the overall intended therapeutic effects of the combination product candidate. The review of such combination product candidates is often complex and time consuming, as the FDA may select the combination product candidate to be reviewed and regulated by one, or multiple FDA centers identified above, which could affect the path to regulatory clearance or approval. Furthermore, the FDA may also require submission of separate applications to multiple centers.

Once commercialized, manufacturers of combination products must generally comply with the applicable regulations governing each constituent part. For example, in January 2013, the FDA finalized 21 CFR Part 4, “Current Good Manufacturing Practice Requirements for Combination Products”, which was effective July 22, 2013. Associated guidance was also issued in January 2017. Both the rule and guidance reiterate that combination product manufacturers are responsible for compliance with both biologic and device cGMPs when engaging in manufacturing both constituent parts. The guidance allows the use of an abbreviated approach as well. Manufacturers of combination products also must comply with post marketing safety reporting, or PMSR, requirements in accordance with 21 CFR Part 4.

We have been informed by the FDA that our CEI product candidates areesophageal implant is a combination biologic/device products.product. Biological products must satisfy the requirements of the Public Health ServicesPHS Act and the Food, Drug and Cosmetics ActFDCA and their implementing regulations. InThe lead reviewing FDA Center will be the Center for Biologics Evaluation and Research or CBER. The CBER may choose to consult or collaborate with the FDA’s Center for Devices and Radiological Health, or CDRH, with respect to the characteristics of the synthetic scaffold component of our product based on the CBER’s determination of need for such assistance. Because the CBER is the lead, in order for a biologic productour esophageal implant to be legally marketed in the U.S., the product must have a BLA approved by the FDA.

We discuss both the CBER and the CDRH regulatory paradigms below, as potential future products may implicate elements of each, largely at the CBER’s discretion to involve the CDRH in the review and approval process.

The BLA Approval Process

The basic steps for obtaining FDA approval of a BLA to market a biopharmaceutical, or biologic product in the U.S. include:

In order to obtain approval to market a biological product in the United States, a marketing application must be submitted to the FDA that provides sufficient data establishing the safety, purity and potency of the proposed biological product for its intended indication. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety, purity and potency of the biological product to the satisfaction of the FDA.

The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of a BLA requesting approval to market the product. The submission of a BLA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances. The FDA initially reviews all BLAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA generally completes this preliminary review within 60 calendar days. The FDA may request additional information rather than accept a BLA for filing. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. FDA may refer the BLA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The approval process is lengthy and often difficult, and the FDA may refuse to approve a BLA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. FDA reviews a BLA to determine, among other things whether the product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. Before approving a BLA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA may issue a complete response letter, which may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the BLA, or an approval letter following satisfactory completion of all aspects of the review process.

BLAs may receive either standard or priority review. Under current FDA review goals, standard review of an original BLA will be 10 months from the date that the BLA is filed. A biologic representing a significant improvement in treatment, prevention or diagnosis of disease may receive a priority review of six months. Priority review does not change the standards for approval but may expedite the approval process.

If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will either issue “not approvable” letter or an “approvable” letter. A “not approvable” letter means that the FDA refuses to approve the application because the BLA or manufacturing facilities do not satisfy the regulatory criteria for approval. An “approvable” letter means that the FDA considers the BLA and manufacturing facilities to be favorable, but the letter will outline the deficiencies and provide the applicant with an opportunity to submit additional information or data to address the deficiencies. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. If a product receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase IV testing which involves clinical trials designed to further assess a drug’s safety and effectiveness after BLA approval and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. Separate approval is required for each proposed indication. If we want to expand the use of an approved product, we will have to design additional clinical trials, submit the trial designs to the FDA for review and complete those trials successfully.

The Food and Drug Administration Safety and Innovation Act, or FDASIA, which was enacted in 2012, made permanent the Pediatric Research Equity Act, or PREA, which requires a sponsor to conduct pediatric studies for most biologics with a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, BLAs and supplements thereto, must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before pediatric studies can begin. After April 2013, the FDA must send a non-compliance letter to any sponsor that fails to submit a required pediatric assessment within specified deadlines or fails to submit a timely request for approval of a pediatric formulation, if required.

Priority or Expedited Review Pathways for BLAs

Companies may seek fast track designation for their products. Fast track products are those that are intended for the treatment of a serious or life-threatening condition and that demonstrate the potential to address unmet medical needs for such a condition. If awarded, the fast track designation applies to the product only for the indication for which the designation was received. Fast track products are eligible for two means of potentially expediting product development and FDA review of BLAs. First, a fast track product may be approved on the basis of either a clinical endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit. Approvals of this kind may be subject to requirements for appropriate post-approval studies to validate the surrogate endpoint or otherwise confirm the effect on the clinical endpoint, and to certain other conditions. Second, if the FDA determines after review of preliminary clinical data submitted by the sponsor that a fast track product may be effective, it may begin review of portions of a BLA before the sponsor submits the complete BLA, thereby accelerating the date on which review of a portion of the BLA can begin. There can be no assurance that any of our other products will receive designation as fast track products. And even if they are designated as fast track products, we cannot assure you that our products will be reviewed or approved more expeditiously for their fast track indications than would otherwise have been the case or will be approved promptly, or at all. Furthermore, the FDA can revoke fast track status at any time.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-approval clinical trials to verify and further define the drug’s clinical benefit and safety profile. There can be no assurance that any of our products will receive accelerated approval. Even if accelerated approval is granted, the FDA may withdraw such approval if the sponsor fails to conduct the required post-approval clinical trials, or if the post-approval clinical trials fail to confirm the early benefits seen during the accelerated approval process.

Fast-Track designation and accelerated approval should be distinguished from priority review although products awarded fast track status may also be eligible for priority review. Products regulated by the CBER may receive priority review if they provide significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious or life-threatening disease. Products awarded priority review are given abbreviated review goals by the agency. Under the Prescription Drug User Fee Act of 2007, the agency has agreed to the performance goal of reviewing products awarded priority review within six months, whereas products under standard review receive a ten-month target. The review process, however, is often significantly extended by FDA requests for additional information or clarification regarding information already provided in the submission. Priority review is requested at the time the BLA is submitted, and the FDA makes a decision as part of the agency’s review of the application for filing. We plan to seek priority review for our trachea transplant products but cannot guarantee that the FDA will grant the designation and cannot predict if awarded, what impact, if any, it will have on the review time for approval of our product.

We intend to request Fast Track status, Breakthrough Therapy designation, Regenerative Medicine Advanced Therapy, or RMAT, designation, Accelerated Approval and Priority Review. If we are awarded any of these designations, combined with our Orphan Drug designations, discussed below, we believe that our future clinical trial designs and approval pathway may be streamlined and expedited. Although, if granted, Fast-Track designation, accelerated approval, and priority review may expedite the approval process, they do not change the standards for approval. On September 30, 2020, Congress provided a short-term extension of the rare pediatric disease Priority Review Voucher Program. According to the current statutory sunset provisions:

The Creating Hope Reauthorization Act, which was received in the Senate on September 30, 2020, proposes to replace those cutoffs with “September 30, 2024” and “September 30, 2026,” respectively, thus extending the authorized period for RPD designation and granting of RPD priority review vouchers from the 21^st Century Cures Act by four years. We cannot be certain that this extension will be granted.

Clinical Trials

BLAs generally require clinical data in order for FDA review and approval. Clinical trials are subject to extensive monitoring, recordkeeping and reporting requirements. Clinical trials must be conducted under the oversight of an IRB for the relevant clinical trial sites and must comply with FDA regulations, including but not limited to those relating to GCP. Adverse events must be reported and investigated timely. To conduct a clinical trial, a company is also required to obtain the patients’ informed consent in form and substance that complies with both FDA requirements and state and federal privacy and human subject protection regulations. The sponsor, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks to trial subjects outweigh the anticipated benefits. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each site at which the trial is conducted must approve the protocol and any amendments. Foreign studies performed under an IND must meet the same requirements that apply to U.S. studies. The FDA will accept a foreign clinical trial not conducted under an IND only if the trial is well-designed, well-conducted, performed by qualified investigators in accordance with international principles for GCP, and conforms to the ethical principles contained in the Declaration of Helsinki, or with the laws and regulations of the country in which the research was conducted, whichever provides greater protection of the human subjects. The FDA, however, has substantial discretion in deciding whether to accept data from foreign non-IND clinical trials.

Clinical trials involving biopharmaceutical products are typically conducted in three sequential phases. The phases may overlap or be combined. A fourth, or post-approval, phase may include additional clinical trials. These phases are described generally below. Briefly, the phases of clinical development generally include the following:

Medical devices, however, typically rely on one or a few pivotal studies rather than Phase I, II, and III clinical trials.

During the development of a new medical product, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND or IDE, at the end of Phase II, and before a BLA or PMA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the end of Phase II meeting to discuss their Phase II clinical results and present their plans for the pivotal Phase III clinical trial that they believe will support approval of the new biologic. Similarly, sponsors typically use the end of feasibility studies to do the same for planning for their pivotal trial or trials for a medical device.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of a biologic and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. For biologics, the manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. Before approving a BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHSA in particular emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.

Based on the FDA’s approval of our clinical trial for any condition that requires removal of part of the esophagus, we believe that we are able to pursue the treatment of multiple diseases, injuries or birth defects with a single clinical trial. As a result, we believe that this clinical trial will advance our esophageal implant for numerous indications including to treat esophageal cancer, Barrett esophagus, fistulas, traumatic injury to the esophagus and birth defects in the esophagus. Compared to developing treatments for a single underlying medical condition, we believe that addressing multiple medical conditions in a single clinical trial has the potential to significantly reduce our costs to expand the market for our products. Based on discussions with the FDA, we also expect clinical trials for our esophageal implant product candidates to be conducted in two sequential phases:

ClinicalAs with any clinical trial, clinical testing of our esophageal implant may not be completed successfully within any specified time period, if at all. The FDA closely monitors the progress of each phase of clinical trials that are conducted under an IND and may, at its discretion, reevaluate, alter, suspend, or terminate the testing based upon the data accumulated to that point and the FDA’s assessment of the risk/benefit ratio to the patient. The FDA or the sponsor may suspend or terminate clinical trials at any time for various reasons, including a finding that the subjects or patients are being exposed to an unacceptable health risk. The FDA can also request that additional pre-clinical studies or clinical trials be conducted as a condition to product approval.

Companies alsoWe will submit a BLA once we have sufficient data from the clinical trials to assess the safety and efficacy of our esophageal implant. We estimate that this process may seek Fast Trackspan a period of three to six years, or Breakthrough Therapy designation for their products. Fast Track or Breakthrough Therapy products are those that are intended forlonger, considering the treatmentuncertainty of a serious or life-threatening condition and that demonstratesuccessful clinical trial. We anticipate approvals in countries outside of the potential to address unmet medical needs for such a condition. If awarded, the Fast Track or Breakthrough Therapy designation applies to the product only for the indication for which the designation was received.

If the FDA determines after review of preliminary clinical data submitted by the sponsor that a Fast Track or Breakthrough Therapy productUnited States may be effective, it may begin review of portions of a BLA before the sponsor submits the complete BLA (rolling review), thereby accelerating the date on which review of a portion of the BLAshorter, however, we can begin. There can begive no assurance that any of our products will be granted Fast Track or Breakthrough Therapy designation. And even if theysuch approvals.

Post-Approval Requirements

After BLA approval is obtained, companies are designatedrequired to comply with a number of post-approval requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping. For example, as Fast Track or Breakthrough Therapy products, we cannot ensure our products will be reviewed or approved more expeditiously for their Fast Track or Breakthrough Therapy indications than would otherwise have been the case or will be approved promptly, or at all. Furthermore, the FDA can revoke Fast Track or Breakthrough Therapy designation at any time.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive Accelerated Approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval of a BLA, the FDA may require that a sponsor of a product receiving Accelerated Approval perform adequatepost-approval testing and well-controlled post-approval clinical trialssurveillance to verify and further definemonitor the product’s clinical benefitsafety or efficacy. In addition, holders of an approved BLA are required to keep extensive records, to report certain adverse reactions and production deviations and problems to the FDA, to provide updated safety profile. There canand efficacy information and to comply with requirements concerning advertising and promotional labeling for their products. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered, we could be no assurance that anysubject to administrative or judicially imposed sanctions or other setbacks. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

Specifically, our products will receive Accelerated Approval. Evencould be subject to voluntary recall if Accelerated Approval is granted,we or the FDA maydetermine, for any reason, that our products pose a risk of injury or are otherwise defective. Moreover, the FDA can order a mandatory recall if there is a reasonable probability that our device would cause serious adverse health consequences or death. In addition, the FDA could suspend the marketing of or withdraw such approval ifa previously approved product from the sponsor fails to conductmarket upon receipt of newly discovered information regarding the required post-approval clinical trials,drug’s safety or if the post-approval clinical trials fail to confirm the early benefits seen during the Accelerated Approval Process.effectiveness.

Priority Review VoucherOrphan Drug Designation

Fast Track or Breakthrough Therapy designation and Accelerated Approval should be distinguished from Priority Review designation although products awarded Fast Track or Breakthrough Therapy designation may also be eligibleIn November 2016, we were granted Orphan Drug Designation for Priority Review designation.

Products regulatedour esophageal implant by the CBER may receive Priority Review designation if they provide significant improvement inFDA to restore the safety or effectivenessstructure and function of the treatment, diagnosis,esophagus subsequent to esophageal damage due to cancer, injury or prevention of a serious or life-threatening disease. The agency has agreed to the performance goal of reviewing products awarded Priority Review designation within six months, whereas products under standard review receive a ten-month target. The review process, however, can be significantly extended by FDA requests for additional information or clarification regarding information already provided in the submission. Priority Review designation is requested at the time the BLA is submitted, and the FDA makes a decision as part of the agency’s review of the application for filing.

Separately, but somewhat related, is a product’s ability to qualify its sponsor to receive a Priority Review Voucher (PRV). For a product aimed at prevention or treatment of a “rare pediatric disease” as defined in the Food, Drug and Cosmetics Act, and thatcongenital abnormalities. We also meets certain other qualifying attributes, the product’s sponsor may qualify, apply for and receive a PRV, from the FDA. A PRV entitles its holder to Priority Review for a drug application, and the PRV is transferable. Some companies who have received PRV’s have sold their PRV’s to other companies who have then used the PRV to receive Priority Review for a drug application with the FDA. Recent transfers of PRV’s from one company to another have occurred at prices in the $80 – 125 million range. We intend to apply for rare pediatric disease designation for our pediatric esophageal implant product candidate as a first step in pursuit of a PRV. A PRV is earned only upon marketing approval of the product. There is no certainty that our pediatric esophageal product will achieve marketing approval from the FDA, or that if it does, that FDA would award us a PRV. Further, if received, there is no certainty that the value of a PRV at that future date will compare favorably with the values reflected in recent transfers of PRVs.

were granted Orphan Drug DesignationsDesignation for trachea on September 4, 2014.

The Orphan Drug Act provides incentives to manufacturers to develop and market drugs and biologics for rare diseases and conditions affecting fewer than 200,000 persons in the U.S. at the time of application for Orphan Drug Designation. In September 2014 the FDA granted orphan drug designation, to our HART-Trachea productor more than 200,000 individuals in the U.S. In November 2016, we were grantedand for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the U.S. for this type of disease or condition will be recovered from sales of the product. Orphan Drug Designation for our CEIproduct designation must be requested before submitting a new drug application, or NDA, or BLA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA to restoreFDA. Orphan product designation does not convey any advantage in or shorten the structure and functionduration of the esophagus subsequent to esophageal damage due to injury congenital abnormalities, or cancer.regulatory review and approval process. The first developer to receive FDA marketing approval for an orphan biologic is entitled to a seven-yearseven year exclusive marketing period in the U.S. for that product.product as well as a waiver of the BLA user fee. The marketing exclusivity prevents FDA approval of another application for the same product for the same indication for a period of seven years.years, except in limited circumstances where there is a change in formulation in the original product and the second product has been proven to be clinically superior to the first. In addition, Orphan status also entitlesDrug Designation provides a seven-year marketing exclusivity period against competition in the U.S. from the date of a product’s sponsorapproval for marketing. This exclusivity would be in addition to any exclusivity we may obtain from our patents. Additionally, orphan designation provides certain other benefits, such asincentives, including tax credits and a waiver of the Biologics License Application, or BLA, user fee, which is currentlyfee. We also plan to apply for Orphan Drug Designation for our esophageal implant in Europe. Orphan Drug Designation in Europe would provide market exclusivity in Europe for a $2 million value. Orphan product designation does not convey any advantage in or shortenperiod of ten years from the durationdate of the regulatory review andproduct’s approval process.for marketing.

International

We plan to seek required regulatory approvals and comply with extensive regulations governing product safety, quality, manufacturing and reimbursement processes in order to market our products in other major foreign markets.

In addition to having large patient populations, both the E.U. and some countries in Asia allow for “conditional approval” for product candidates like ours. Conditional approval is country specific but, in general, it would allow us to market our products, and obtain revenue from the sales of them, after successful phase 2 results. Conditional approval is granted subject to the regulatory authority being able to rescind the approval if something goes wrong in as more patients get treated. Hence, it is possible that we could see revenue in either Asia or the E.U. before we see revenue in the U.S.

The regulation of our products in the Asian and European markets, and in other foreign markets varies significantly from one jurisdiction to another. The classification of the particular products and related approval or CE marking procedures can involve additional product testing and additional administrative review periods. The time required to obtain these foreign approvals or to CE mark our products may be longer or shorter than that required in the U.S., and requirements for approval may differ from the FDA requirements. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

Legislation similar to the Orphan Drug Act has been enacted in other jurisdictions, including the E.U. The orphan legislation in the E.U. is available for therapies addressing conditions that affect five or fewer out of 10,000 persons. The marketing exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available evidence establishes that the product is sufficiently profitable not to justify maintenance of market exclusivity. We intend to apply for orphan drug-designation for our esophageal implant in Europe.

We have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and regulatory approval pathway in China as to our product candidates. We have other subsidiaries in the U.K. and Germany. Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development and financing, among others. Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

Employees and Human Capital Resources

As of December 31, 2020,2022, we had 78 employees working in our business, of whom 67 were full-time and one was part-time. At that date, all of our employees were based in the U.S. None of our employees are unionized. In general, we consider our relations with our employees to be good. Our employees are highly skilled, and many hold advanced degrees. Our future performance depends significantly upon the continued service of our key scientific, technical and senior management personnel and our continued ability to attract and retain highly skilled employees. We have taken proactive steps throughout the COVID-19 pandemic to protect the health and safety of our employees. We expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business. We may take further actions, in compliance with all appropriate government regulations, that we determine to be in the best interest of our employees.

Competition

We are not aware of any companies whose products are directly competitive with our cell-seeded biocompatible synthetic scaffoldsynthetic-scaffold system. However, in our key markets we may in the future compete with multiple pharmaceutical, biotechnology, and medical device companies, including, among others, Aldagen, Asterias Biotherapeutics, Athersys, BioTime, Caladrius Biosciences, Cytori Therapeutics, E. I. du Pont de Nemoursmany of which have substantially greater financial, technological, research and Company, InVivo Therapeutics, Mesoblast, Miramatrix Medical, Nanofiber Solutions, Neuralstem, Orgagen, Organovo, Osiris Therapeutics, Pluristem, Smiths Medical, Tissue Genesis, Inc., Tissue Growth Technologies, United Therapeutics, Vericel Corporationdevelopment, marketing and W.L. Gore and Associates.personnel resources than we do. In addition, there are many academic and clinical centers that are developing regenerative technologies that may one day become competitors of ours.

Many of our potential competitors have substantially greater financial, technological, research and development, marketing, and personnel resources than we do. We cannot forecast if or when these or other companies may develop competitive products.

We expect that other products will compete with our products and potential products based on efficacy, safety, cost, and intellectual property positions. While we believe that these will be the primary competitive factors, other factors include, in certain instances, obtaining marketing exclusivity under the Orphan Drug Act, availability of supply, manufacturing, marketing and sales expertise and capability, and reimbursement coverage.

JOBS Act

Effective December 31, 2020, we are no longer considered an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012.

Information about our Executive Officers

The following table shows information about our executive officers:officers as of March 6, 2023:

Junli (Jerry) He – Chairman and Chief Executive Officer

Mr. He was appointed as our Chairman and Chief Executive Officer on March 1, 2023. He has served as a member of our Board of Directors since September 1, 2021. Mr. He serves as the Executive Vice Chairman of Bright Scholar Holdings and has been in that position since January 2019. Prior to the promotion, Mr. He had served as the CEO of Bright Scholar. Prior to joining Bright Scholar, Mr. He was a Managing Director at Tstone Corp, and served as CFO, CEO and a director of Noah Education Holdings Ltd., a former NYSE listed private education services provider in China. Mr. He was a portfolio manager at Morgan Stanley Global Wealth Management from June 2008 to June 2009 and was employed by Bear Stearns from November 2006 to May 2008. Mr. He obtained a bachelor’s degree in science from Peking University and an M.B.A. with Honors from the University of Chicago, Booth School of Business. Mr. He is also a CFA charter holder.

Hong Yu, BS, MS, CFA – President

Mr. Yu has served as our President since May 31, 2018.2018 and has raised over $20 million in capital for Biostage. Mr. Yu is a seasoned executive with extensive knowledgeexperience in fundraising, strategic analytics, wealth management, and investment research. Prior to Biostage, Mr. Yu was most recently a Senior Vice President responsible for strategic analytics at Bank of America, where he was employed for nearly 20 years. During his career, Mr. Yu has built strong business connections in various industries, including biotech/healthcare, financial services, and robotics/artificial intelligence. He developed an expertise in matching emerging companies with cross-border investors, often providing U.S. companies with market access to the vast capital supply in China.investors. Mr. Yu graduated from Huanggang High School (Hubei, China) in 1990 and obtainedholds a B.S. in biophysicsdegree from Peking University (Beijing, China), and a M.S. in biostatisticsdegree from School of Public Health, University of Illinois (Chicago, IL). Mr. Yu is a charterholder of Chartered Financial Analyst (CFA).Analyst.

Dr. William Fodor -– Chief Scientific Officer

Dr. William Fodor has served as our Chief Scientific Officer since July 2017. On July 2, 2018, Dr. Fodor became an employee of Biostage after serving viaas a consulting arrangement.consultant to the Company. Dr. Fodor was a founding scientist at Alexion Pharmaceuticals, where he served as an executive management team member and Senior Director of the Cell/Tissue Engineering, Transgenic Animal and Transplant Programs. He has also served as an Associate Professor at the University of Connecticut Department of Molecular Cell Biology and the Center for Regenerative Biology, extending research areas into cells and cell engineering. Dr. Fodor was Senior Director of Product Development at ViaCell Inc., leading programs in hematopoietic stem cell process development and manufacturing, mesenchymal stem cell basic research and manufacturing for cardiac repair and pancreatic stem cell research. He was a consultant for the biotechnology industry, serving clients in stem cell research, gene therapy, stem cell manufacturing and stem cell genome engineering. Dr. Fodor has expertise in programs targeting transplant immunology, hematopoiesis, cardiac repair, stem cell potency, gene therapy for liver diseases, tissue engineering, design and oversight of pre-clinical non-GLP and GLP animal models and IND Applications (Pre-clinical and CMC Modules). Dr. Fodor earned a PhD. inIn genetics from Ohio State University. He completed post-doctoral work at Yale University School of Medicine in the department of immunobiology, investigating the regulation of MHC class I and MHC class II genes in the histocompatibility complex.

Peter PellegrinoJoseph Damasio, Jr. – InterimChief Financial Officer

Mr. Damasio has served as our Chief Financial Officer since August 8, 2022. He has over 20 years of finance and accounting experience. Prior to joining our company, he was Vice President of Finance

Mr. Pellegrino has been working as at Inhibikase Therapeutics, a consultant for the Company since March 1, 2020 pursuant to our engagement of Point Providence Consulting, a financial consultancy firm that specializes in working with life sciences companies. Mr. Pellegrino was appointed as our Interim Vice President of Finance prior to the filing of this Form 10-K and is currently President of Point Providence Consulting. In his tenure at Point Providence, Mr. Pellegrino serves in a variety of financial roles to a number of public and private companies in various stages of research,publicly-traded clinical development and commercialization. Immediately prior to forming Point Providence Consulting, Mr. Pellegrino served as Vice President, Corporate Controller and Treasurer of Verastem, Inc., a publicly tradedstage biopharmaceutical company, since October 2021. Before joining Inhibikase, Mr. Damasio was Controller at Cue Biopharma from 2018June 2020 to 2019. FromOctober 2021, Controller at XL Fleet from February 2019 to June 2020, and Chief Financial Officer at Pressure BioSciences, Inc. from April 2017 to 2018,February 2019. Mr. Pellegrino was employed by Merus, Inc.,Damasio earned a publicly traded oncology company, as Vice President, Corporate Controller. Previously, Mr. Pellegrino was Corporate Controllerbachelor’s degree in accounting, with honors, from the University of Aspen Aerogels, Inc.,Massachusetts. He holds an MBA and MSF from Boston College and is a publicly traded designer, developer, and manufacturer of insulation products from 2009 to 2017. Prior to 2009, he servedCertified Public Accountant in various managerial positions in the areas of accounting and financial reporting. Mr. Pellegrino holds a B.S. in business administration from Bryant University.Massachusetts.

Available Information and Website

Our website address is www.biostage.com. Our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and exhibits and amendments to those reports filed or furnished with the Securities and Exchange Commission, (SEC)or SEC, pursuant to Section 13(a) of the Exchange Act are available for review on our website and the SEC website at www.sec.gov. Any such materials that we file with, or furnish to, the SEC in the future will be available on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information on our website is not incorporated by reference into this Annual Report on Form 10-K.

Item 1A. Risk Factors.

Summary of Risk Factors

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the SEC before making an investment decision regarding our common stock.

Risk Factors

The following factors should be reviewed carefully, in conjunction with the other information contained in this Annual Report on Form 10-K. As previously discussed, our actual results could differ materially from our forward-looking statements. Our business faces a variety of risks. We describe below what we believe are currently the material risks and uncertainties we face, but they are not the only risks and uncertainties we face. Additional risks and uncertainties of which we are unaware, or that we currently believe are not material, may also become important factors that adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment in our securities. The risk factors generally have been separated into three groups: (i) risks relating to our business, (ii) risks relating to the Separation and (iii) risks relating to our common stock. These risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K.

Risks Relating to Our Financial Position, Need for Capital and Operating Risks

Our audited financial statements for the year ended December 31, 20202022 contain a going concern qualification. Our financial status creates doubt whether we will continue as a going concern. We will need additional funds in the near future and our operations will be adversely affected if we are unable to obtain needed funding.

We ended December 31, 20202022 with approximately $1.0$1.2 million of operating cash on-hand and will need to raise additional capital in the second quarter and beyond to fund operations. If we do not raise additional capital from outside sources before or during early June 2021,the second quarter of 2023, we willmay be forced to further curtail or cease our operations. Based on these circumstances, our ability to continue as a going concern is at risk and our independent registered public accounting firm included a “going concern” qualificationexplanatory paragraph as to our ability to continue as a going concern in their audit report dated April 13, 2021,March 30, 2023, included in this Form 10-K. Our cash requirements and cash resources will vary significantly depending upon the timing, and the financial and other resources that will be required to complete ongoing development and pre-clinical and clinical testing of our products as well asproduct candidates, regulatory efforts and collaborative arrangements necessary for our productsproduct candidates that are currently under development. In addition to development and other costs, we expect to incur capital expenditures from time to time. These capital expenditures will be influenced by our regulatory compliance efforts, our success, if any, at developing collaborative arrangements with strategic partners, our needs for additional facilities and capital equipment and the growth, if any, of our business in general. We will require additional funding to continue our anticipated operations and support our capital and operating needs. We are currently seeking and will continue to seek financings from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. We may also pursue debt financings, other financing mechanisms, strategic collaborations and licensing arrangements. We may not be able to obtain additional financing on terms favorable to us, if at all. In addition, general market conditions, including the effecteffects of Russia’s invasion of Ukraine and attendant economic sanctions, high inflation, rising interest rates and the COVID-19 pandemic on financial markets, as well as the effects of laws and regulations on foreign investment in the United States under the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS), and other agencies and related regulations, including the Foreign Investment Risk Review Modernization Act (FIRRMA), adopted in August 2018, may make it difficult for us to seek financing from the capital markets.

Any additional equity financings could result in significant dilution to our stockholders and possible restrictions on subsequent financings. Debt financing, if available, could result in agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or paying dividends. Other financing mechanisms may involve selling intellectual property rights, payment of royalties or participation in our revenue or cash flow. In addition, in order to raise additional funds through strategic collaborations or licensing arrangements, we may be required to relinquish certain rights to some or all of our technologies or products.product candidates. If we cannot raise funds or engage strategic partners on acceptable terms when needed, we may not be able to continue our research and development activities, develop or enhance our products,product candidates, take advantage of future opportunities, grow our business, respond to competitive pressures or unanticipated requirements, or at worst may be forced to curtail or cease our operations.

We have generated insignificant revenue to date and have an accumulated deficit. We anticipate that we will incur losses for the foreseeable future. We may never achieve or sustain profitability.

We have generated insignificant revenues to date, and we have generated no revenues from sales of any clinical products,product candidates, and, as of December 31, 2020,2022, we had an accumulated deficit of approximately $69.0$83.0 million. We expect to continue to experience losses in the foreseeable future due to our limited anticipated revenues and significant anticipated expenses. We do not anticipate that we will achieve meaningful revenues for the foreseeable future. In addition, we expect that we will continue to incur significant operating expenses as we continue to focus on additional research and development, preclinical testing, clinical testing and regulatory review and/or approvals of our productsproduct candidates and technologies. As a result, we cannot predict when, if ever, we might achieve profitability and cannot be certain that we will be able to sustain profitability, if achieved.

Our productsproduct candidates are in an early stage of development. If we are unable to develop or market any of our products,product candidates, our financial condition will be negatively affected, and we may have to curtail or cease our operations.

We are in the early stage of product development. OneInvestors must evaluate us in light of the uncertainties and complexities affecting an early-stage biotechnology company. Our productsproduct candidates require additional research and development, preclinical testing, clinical testing and regulatory review and/or approvals or clearances before marketing. In addition, we may not succeed in developing new products as an alternative to our existing portfolio of products.product candidates. If we fail to successfully develop and commercialize our products,product candidates, including our esophageal or airway products,product candidates, our financial condition may be negatively affected, and we may have to curtail or cease our operations.

We have a limited operating history and it is difficult to predict our future growth and operating results.

We have a limited operating history and limited operations and assets. Accordingly, oneinvestors should consider our prospects in light of the costs, uncertainties, delays and difficulties encountered by companies in the early stage of development, particularly companies in new and evolving markets, such as bioengineered organ implants, and regenerative medicine. These risks include, but are not limited to, unforeseen capital requirements, delays in obtaining regulatory approvals, failure to gain market acceptance and competition from foreseen and unforeseen sources. As such, our development timelines have been and may continue to be subject to delay that could negatively affect our cash flow and our ability to develop or bring productsproduct candidates to market, if at all. Our estimates of patient population are based on published data and analysis of external databases by third parties and are subject to uncertainty and possible future revision as they often require inference or extrapolations from one country to another or one patient condition to another. The effect of any or all of the foregoing could cause a material adverse effect on our business, financial condition or results of operations.

If we fail to retain key personnel and/or attract satisfactory replacements, we may not be able to compete effectively, which would have an adverse effect on our operations.

Our success is highly dependent on the continued services of key management, technical and scientific personnel and collaborators. Our management and other employees may voluntarily terminate their employment at any time upon short notice. In February 2020, our Chief Executive Officer James McGorry resigned; and in July 2019, our Chief Financial Officer Thomas McNaughton resigned; and in October 2020, we determined that Peter Chakoutis, our former Vice President of Finance, who had been on a temporary leave of absence for personal reasons, would not be returning to us. The loss of the services of any member of our senior management team, including our Chief Executive Officer David Green, our President Hong Yu, our Chief Scientific Officer Dr. William Fodor, and our interim Vice President of Finance, Peter Pellegrino,Chief Financial Officer Joseph Damasio, and our other key scientific, technical and management personnel, may significantly delay or prevent the achievement of product development and other business objectives. We can give no assurance that we could find satisfactory replacements for our current and future key scientific and management employees, including recently terminated executives, on terms that would not be unduly expensive or burdensome to us.

If our collaborators do not devote sufficient time and resources to successfully carry out their duties or meet expected deadlines, we may not be able to advance our productsproduct candidates in a timely manner or at all.

We are currently collaborating with multiple academic researchers and clinicians at a variety of research and clinical institutions. Our success depends in part on the performance of our collaborators. Some collaborators may not be successful in their research and clinical trials or may not perform their obligations in a timely fashion or in a manner satisfactory to us. Typically, we have limited ability to control the amount of resources or time our collaborators may devote to our programs or potential productsproduct candidates that may be developed in collaboration with us. Our collaborators frequently depend on outside sources of funding to conduct or complete research and development, such as grants or other awards. In addition, our academic collaborators may depend on graduate students, medical students, or research assistants to conduct certain work, and such individuals may not be fully trained or experienced in certain areas, or they may elect to discontinue their participation in a particular research program, creating an inability to complete ongoing research in a timely and efficient manner. As a result of these uncertainties, we are unable to control the precise timing and execution of any experiments that may be conducted.

Although we have co-development collaboration arrangements with Mayo Clinic and Connecticut Children’s Medical Center, we do not have formal agreements in place with other collaborators, and most of our collaborators retain the ability to pursue other research, product development or commercial opportunities that may be directly competitive with our programs. If any of our collaborators elect to prioritize or pursue other programs in lieu of ours, we may not be able to advance product development programs in an efficient or effective manner, if at all. If a collaborator is pursuing a competitive program and encounters unexpected financial or capability limitations, they may be motivated to reduce the priority placed on our programs or delay certain activities related to our programs. Any of these developments could harm or slow our product and technology development efforts.

We havepreviously identified a material weakness in our internal control over financial reporting. Our ability to remediate this,reporting that has been remediated. This prior weakness, our discovery of any additional weaknesses, and our inability to achieve and maintain effective internal control over financial reporting, could adversely affect our results of operations, our stock price and investor confidence in our company.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting. As disclosed in more detail under "Controls“Controls and Procedures"Procedures” in Part II, Item 9A of this Annual Report on Form 10-K, we have identifiedremediated a material weakness that existed as of December 31, 2020 in our internal control over financial reporting resulting from our failure to design or maintain effective internal controls over the timely identification and recording of financial statement adjustments. Specifically, we did not identify, analyze, record, and disclose certain non-routine accounting matters, such as a lease extension and a grant contract, timely and accurately.

Our managementWhile this weakness has taken immediate action to begin remediating this material weakness. Additional details regarding the initial remediation efforts are disclosed in more detail under "Controls and Procedures" in Part II, Item 9A of this Report. In addition,been remediated, we may in the future identify additional internal control deficiencies that could rise to the level of a material weakness or uncover errors in financial reporting. During the course of our evaluation, we may identify areas requiring improvement and may be required to design additional enhanced processes and controls to address issues identified through this review. In addition, there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts or that any such future deficiencies identified may not be material weaknesses that would be required to be reported in future periods.

If, as a result of deficiencies in our internal control over financial reporting we cannot provide reliable financial statements, our business decision processes may be adversely affected, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and our ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected. In addition, if we fail to remediate this material weakness and maintain an effective system of internal control over financial reporting, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulations. Any of these could result in delisting actions, result in investigation and sanctions by regulatory authorities, impair our ability to produce accurate financial statements on a timely basis, lead to a restatement of our financial statements and adversely affect our business and the trading price of our common stock.

Public perception of ethical and social issues surrounding the use of cell technology may limit or discourage the use of our technologies, which may reduce the demand for our products and technologies and reduce our revenues.

Our success will depend in part upon our and our collaborators’ ability to develop therapeutic approaches incorporating, or discovered through, the use of cells. If either bioengineered organ implant technology is perceived negatively by the public for social, ethical, medical or other reasons, governmental authorities in the U.S. and other countries may call for prohibition of, or limits on, cell-based technologies and other approaches to bioengineering and tissue engineering. Although the surgeons using our productsproduct candidates have not, to date, used the more controversial stem cells derived from human embryos or fetuses in the human transplant surgeries using our products,product candidates, claims that human-derived stem cell technologies are ineffective or unethical may influence public attitudes. The subject of cell and stem cell technologies in general has at times received negative publicity and aroused public debate in the U.S. and some other countries. Ethical and other concerns about such cells could materially harm the market acceptance of our products.product candidates.

Our products will subject us to liability exposure.

We face an inherent risk of product liability claims, especially with respect to our products that will be used within the human body, including the scaffolds we manufacture. Product liability coverage is expensive and sometimes difficult to obtain.obtain, if it can be obtained at all. We may not be able to obtain or maintain insurance at a reasonable cost. We have and in the future may be subject to claims for liabilities for unsuccessful outcomes of surgeries involving our products, which may include claims relating to patient suffering and death. We may also be subject to claims for liabilities relating to patients that suffer serious complications or death during or following implantations involving our products, including the patients who had surgeries utilizing our first-generation scaffold device or our bioreactor technology or our esophageal implant, or patients that may have surgeries utilizing any of our products in the future. As further described below under the heading “Item 3. Legal Proceedings,” on April 27, 2022, we and Harvard Bioscience executed a settlement, relating to an ongoing wrongful death lawsuit, which resolved all claims relating to the litigation. The settlement resulted in the dismissal with prejudice of the wrongful death claim, and neither we nor Harvard Bioscience admitted any fault or liability in connection with the claim. The settlement also resolved any and all claims by and between the parties and our products liability insurance carriers, which resulted in the dismissal with prejudice of all claims asserted by or against those carriers, us and Harvard Bioscience. Our current product liability coverage is $10$5 million per occurrence and in the aggregate. We will need to increase our insurance coverage if and when we begin commercializing any of our products. There can be no assurance that existing insurance coverage will extend to other products in the future. Any product liability insurance coverage may not be sufficient to satisfy all liabilities resulting from product liability claims. Furthermore, insurance carriers may deny that coverage exists after a claim is made. A successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable items, if at all. If claims against us substantially exceed our coverage, then our business could be adversely impacted. Regardless of whether we are ultimately successful in any product liability litigation, such litigation could consume substantial amounts of our financial and managerial resources and could result in, among others:

Any of these results would substantially harm our business.

If restrictions on reimbursements or other conditions imposed by payers limit our customers’ actual or potential financial returns on our products, our customers may not purchase our products or may reduce their purchases.

Our customers’ willingness to use our products will depend in part on the extent to which coverage for these products is available from government payers, private health insurers and other third-party payers. These payers are increasingly challenging the price of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved treatments and products in the fields of biotechnology and regenerative medicine, and coverage and adequate payments may not be available for these treatments and products. In addition, third-party payers may require additional clinical trial data to establish or continue reimbursement coverage. These clinical trials, if required, could take years to complete and could be expensive. There can be no assurance that the payers will agree to continue reimbursement or provide additional coverage based upon these clinical trials. Failure to obtain adequate reimbursement would result in reduced sales of our products.products, which could have a material adverse effect on our business, financial condition and results of operations.

We depend upon single-source suppliers for the hardware used for our proprietary automatic cell seeder, bioreactor control and acquisition system. The loss of a single source supplier, or future single-source suppliers we may rely on, or their failure to provide us with an adequate supply of their products or services on a timely basis, could adversely affect our business.

We currently have single-source suppliers for certain components that we use for our proprietary automatic cell seeder, bioreactor control and acquisition systems as well as materials used in scaffolds. We may also rely on other single-source suppliers for critical components of our products in the future. If we were unable to acquire hardware or other products or services from applicable single-source suppliers, we could experience a delay in developing and manufacturing our products.products, which could have a material adverse effect on our business, financial condition and results of operations.

We use and generate hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.

Our research, development and manufacturing involve the controlled use of hazardous chemicals, and we may incur significant costs as a result of the need to comply with numerous laws and regulations. For example, certain volatile organic laboratory chemicals we use, such as fluorinated hydrocarbons, must be disposed of as hazardous waste. We are subject to laws and regulations enforced by the FDA, foreign health authorities and other regulatory requirements, including the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current and potential federal, state, local and foreign laws and regulations governing the use, manufacturing, storage, handling and disposal of our products, materials used to develop and manufacture our products, and resulting waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, our operations could be interrupted. Further, we could be held liable for any damages that result and any such liability could exceed our resources.

Our products are novel and will require market acceptance.

Even if we receive regulatory approvals for the commercial use of our products,product candidates, their commercial success will depend upon acceptance by physicians, patients, third party payers such as health insurance companies and other members of the medical community. Market acceptance of our products is also dependent upon our ability to provide acceptable evidence and the perception of the positive characteristics of our products relative to existing or future treatment methods, including their safety, efficacy and/or other positive advantages. If our products fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, both within and outside of our control. If our products receive only limited market acceptance, our business, financial condition and results of operations would be materially and adversely affected.

Our long-term growth depends on our ability to develop products for other organs.

Our growth strategy includes expanding the use of our products in treatments pertaining to organs other than the esophagus and airways, such as the lungs, GIgastrointestinal tract, amongand others. These other organs are more complex than the esophagus and airways. There is no assurance that we will be able to successfully apply our technologies to these other more complex organs, which might limit our expected growth.

Our success will depend partly on our ability to operate without infringing on, or misappropriating, the intellectual property or confidentiality rights of others.

We may be sued for infringing on the intellectual property or confidentiality rights of others, including the patent rights, trademarks and trade names and confidential information of third parties. To the extent that any of such claims are valid, if we had utilized, or were to utilize, such patent applications or patents without an agreement from the owner thereof, it could result in infringement of the intellectual property rights of the respective owner. Intellectual property and related litigation is costly and the outcome is uncertain. If we do not prevail in any such intellectual property or related litigation, in addition to any damages we might have to pay, we could be required to stop the infringing activity, or obtain a license to or design around the intellectual property or confidential information in question. If we are unable to obtain a required license on acceptable terms or are unable to design around any third-party patent, we may be unable to sell some of our products and services, which could result in reduced revenue.

We may be involved in lawsuits to protect or enforce our patents that would be expensive and time consuming.

In order to protect or enforce our patent and trademark rights, we may initiate patent litigation against third parties. We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings would be costly and may divert our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits should they occur. An adverse determination of any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of being rejected and patents not being issued.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. Securities analysts or investors may perceive these announcements to be negative, which could cause the market price of our stock to decline.

If we are unable to effectively protect our intellectual property, third parties may use our technology, which would impair our ability to compete in our markets.

Our continued success will depend significantly on our ability to obtain and maintain meaningful patent protection for certain of our products throughout the world. Patent law relating to the scope of claims in the biotechnology, regenerative medicine, and medical device fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. We may rely on patents to protect a significant part of our intellectual property and to enhance our competitive position. However, our presently pending or future patent applications may not be accepted and patents might not be issued, and any patent previously issued to us may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents which have been issued or which may be issued to us in the future may not be sufficiently broad to prevent third parties from producing competing products similar to our products. We may also operate in countries where we do not have patent rights and in those countries we would not have patent protection. We also rely on trademarks and trade names in our business. The laws of various foreign countries in which we compete may not protect our intellectual property to the same extent as do the laws of the U.S. If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive could be materially impaired. It is also possible that our intellectual property may be stolen via cyber-attacks or similar methods.

In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade-secrets and proprietary information, we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners upon the commencement of a relationship. However, we may not be able to obtain these agreements in all circumstances in part due to local regulations. In the event of unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful protection for our trade-secrets or other confidential information. In addition, adequate remedies may not exist in the event of unauthorized use or disclosure of this information. The loss or exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a materially adverse effect on our operating results, financial condition and future growth prospects.

Our competitors and potential competitors may have greater resources than we have and may develop products and technologies that are more effective or commercially attractive than our products and technologies or may develop competing relationships with our key collaborators.

We expect to compete with multiple pharmaceutical, biotechnology, medical device and scientific research product companies. In addition, there are many academic and clinical centers that are developing bioengineered or regenerative organ technologies that may one day become competitors for us. Many of our competitors and potential competitors have substantially greater financial, technological, research and development, marketing, and personnel resources than we do. We cannot, with any accuracy, forecast when or if these companies are likely to bring bioengineered organ or regenerative medicine products to market for indications that we are also pursuing. Many of these potential competitors may be further along in the process of product development and also operate large, company-funded research and development programs.

We expect that other products will compete with our current and future products based on efficacy, safety, cost, and intellectual property positions. While we believe that these will be the primary competitive factors, other factors include obtaining marketing exclusivity under certain regulations, availability of supply, manufacturing, marketing and sales expertise and capability, and reimbursement coverage. Our competitors may develop or market products that are more effective or commercially attractive than our current or future products and may also develop competing relationships with our key collaborators. In addition, we may face competition from new entrants into the field. We may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. The effects of any such actions of our competitors may have a materially adverse effect on our business, operating results and financial condition.

If we do not successfully manage our growth, our business goals may not be achieved.

To manage growth, we will be required to continue to improve existing, and implement additional, operational and financial systems, procedures and controls, and hire, train and manage additional employees. Our current and planned personnel, systems, procedures and controls may not be adequate to support our anticipated growth and we may not be able to hire, train, retain, motivate and manage required personnel. Competition for qualified personnel in the biotechnology and regenerative medicine area is intense, and we operate or plan to operate in geographic locations where labor markets are particularly competitive, including Boston, Massachusetts, where demand for personnel with these skills is extremely high and is likely to remain high. As a result, competition for qualified personnel is intense and the process of hiring suitably qualified personnel is often lengthy and expensive, and may become more expensive in the future. If we are unable to hire and retain a sufficient number of qualified employees or otherwise manage our growth effectively, our ability to conduct and expand our business could be seriously reduced.

All or a portion of the PPP Loan may not be forgivable and our application for the PPP Loan could in the future be determined to have been impermissible which could adversely impact our business and reputation.

On May 4, 2020, we obtained a loan (the “Loan”) from the Bank of America (the “Lender”) in the aggregate amount of $404,221, pursuant to the Paycheck Protection Program (the “PPP”), established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Our application for the PPP Loan could in the future be determined to have been impermissible which could adversely impact our business and reputation. Under the CARES Act, we may be eligible to apply for forgiveness of all loan proceeds used to pay payroll costs, rent, utilities and other qualifying expenses, provided that we retain a certain number of employees and maintain compensation within certain regulatory parameters of the PPP. However, we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven.

In applying for the PPP Loan, we were required to certify, among other things, that the then current economic uncertainty made the PPP Loan necessary to support our ongoing operations. We made these certifications in good faith after analyzing, among other things, the requirements of the PPP loan, our current business activity and our ability to access other sources of liquidity sufficient to support our ongoing operations in a manner that would not be significantly detrimental to our business. We believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent with the broad objectives of the PPP of the CARES Act. The certification regarding necessity described above did not at the time contain any objective criteria and continues to be subject to interpretation. If, despite our good-faith belief that we satisfied all eligibility requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to civil, criminal and administrative penalties. Any violations or alleged violations may result in adverse publicity and damage to our reputation, a review or audit by the SBA or other government entity or claims under the False Claims Act. These events could consume significant financial and management resources and could have a material adverse effect on our business, results of operations and financial condition.

Risks Associated with Clinical Trials and Pre-Clinical Development

The results of our clinical trials or pre-clinical development efforts may not support our product claims or may result in the discovery of adverse side effects.

Even if our pre-clinical development efforts or clinical trials are completed as planned, we cannot be certain that their results will support our product claims or that the U.S. Food and Drug Administration, (FDA),or FDA, foreign regulatory authorities or notified bodies will agree with our conclusions regarding them. Although we have obtained some positive results from the use of our scaffolds and bioreactors for esophageal and trachea implants performed to date, we also discovered that our first-generation trachea product design encountered certain body response issues that we have sought to resolve with our ongoing development of our Cellframe implant design. We cannot be certain that our Cellframe implant design or any future modifications or improvements with respect thereto will support our claims, and any such developments may result in the discovery of further adverse side effects. We also may not see positive results when our productsproduct candidates undergo clinical testing in humans in the future. Success in pre-clinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and pre-clinical studies. Our pre-clinical development efforts and any clinical trial process may fail to demonstrate that our productsproduct candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Also, patients receiving surgeries using our productsproduct candidates under compassionate use or in clinical trials may experience significant adverse events following the surgeries, including serious health complications or death, which may or may not be related to materials provided by us. In 2017, our Cellspan Esophageal Implant (CEI) productesophageal implant candidate was used in a human surgery at Mayo Clinic via an FDA-approved single-use expanded access application. In 2013 and 2014 we had provided a previous generation trachea scaffold device that was used in implants in human patients under compassionate use. To date, we believe that at least four of the six patients who received those tracheal implants have died. While we believe that none of those patients died because of a failure of the applicable device, these and any other such adverse events have and may cause or contribute to the delay or termination of our clinical trials or pre-clinical development efforts. Any delay or termination of our pre-clinical development efforts or clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our products and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product’sproduct candidate’s profile.

Regulatory approval delays due to COVID-19

COVID-19 may impede clinical trials and slow down regulatory actions. It could adversely affect the entire clinical trial spectrum from enrollment to data analysis. Assuming patients enroll, clinical trials may face disruptions to protocol schedules for treatment and follow-up visits. Reports from Europe have noted overwhelmed facilities where all non-critical visits have been postponed or canceled. Many U.S. hospitals have followed suit to limit exposure and allow for care of COVID-19 patients. Deviations from trial protocols could present challenges when it comes time to analyze the related data set. Some clinics may stop allowing clinical trial monitors on site. Without reconciling the data, we may be unable to “lock” the trial database, an essential step that precedes the analysis of the data.

We rely on regular interaction and guidance from the FDA and other regional/country regulatory authorities/agencies to plan research and development activities across all stages. Due to the COVID-19 pandemic, the FDA and worldwide regulatory authorities have a great deal of resources dedicated to COVID-19 related matters, resulting in disruption in their ability to fully support the regulatory clearance/approval processes. As resources continue to be diverted, regulatory clearances/approvals may continue to be delayed, until the pandemic is under control. Therefore, delays with approvals, clearances, inspections, and meetings that are currently being experienced may continue for the foreseeable future. Postponement of these interactions could delay us from bringing our product candidates to market.

Clinical trials necessary to support a biological product license or other marketing authorization for our productsproduct candidates will be expensive and will require the enrollment of sufficient patients to adequately demonstrate safety and efficacy for the product’s target populations. Suitable patients may be difficult to identify and recruit. Delays or failures in our clinical trials will prevent us from commercializing any products and will adversely affect our business, operating results and prospects.

In the U.S., initiating and completing clinical trials necessary to support Biological License Applications, (BLAs),or BLAs, will be time consuming, expensive and the outcome uncertain. Moreover, the FDA may not agree that clinical trial results support an application for the indications sought in the application for the product. In other jurisdictions such as the E.U., the conduct of extensive and expensive clinical trials may also be required in order to demonstrate the quality, safety and efficacy of our products,product candidates, depending on each specific product candidate, the claims being studied, and the target condition or disease. The outcome of these clinical trials, which can be expensive and are heavily regulated, will also be uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product candidate we advance into clinical trials following initial positive results in early clinical trials may not have favorable results in later clinical trials.

Conducting successful clinical trials will require the enrollment of a sufficient number of patients to support each trial’s claims, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomfort and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance. 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 our products,product candidates, or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomfort. Also, patients may not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products. In addition, patients participating in clinical trials may die before completion of the trial or suffer adverse medical events unrelated to investigational products.

Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such protocols to support clearance and approval. Further, the FDA and foreign regulatory authorities may require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. In addition, despite considerable time and expense invested in our clinical trials, the FDA and foreign regulatory authorities may not consider our data adequate to demonstrate safety and efficacy. Although FDA regulations allow submission of data from clinical trials outside the U.S., there can be no assurance that such data will be accepted or that the FDA will not apply closer scrutiny to such data. Increased costs and delays necessary to generate appropriate data, or failures in clinical trials could adversely affect our business, operating results and prospects. In the U.S., clinical studies for our products will be reviewed through the Investigational New Drug (IND), pathway for biologics or combination products.

If the third parties on which we rely to conduct our clinical trials and to assist us with pre-clinical development do not perform as contractually-required or expected, we may not be able to obtain regulatory approval for or commercialize our products.product candidates.

We do not have the ability to independently conduct our pre-clinical and clinical trials for our productsproduct candidates and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct, or assist us in conducting, such trials, including data collection and analysis. We do not have direct control over such third parties’ personnel or operations. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or any regulatory requirements, or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to seek or obtain regulatory approval for, or successfully commercialize, our productsproduct candidates on a timely basis, if at all. Our business, operating results and prospects may also be adversely affected. Furthermore, any third-party clinical trial investigators pertaining to our productsproduct candidates may be delayed in conducting our clinical trials for reasons outside of their control.

Risks Associated with Regulatory Approvals

If we fail to obtain, or experience significant delays in obtaining, regulatory approvals in the U.S., China or the E.U. for our products, including those for the esophagus and airways, or are unable to maintain such clearances or approvals for our products, our ability to commercially distribute and market these products would be adversely impacted.

We currently do not have regulatory approval to market any of our implant products,product candidates, including those for the esophagus, or trachea and airways (trachea and bronchus).bronchus. Our productsproduct candidates are subject to rigorous regulation by the FDA, and numerous other federal and state governmental authorities in the U.S., as well as foreign governmental authorities. In the U.S., the FDA permits commercial distribution of new medical products only after approval of a Premarket Approval, (PMA),or PMA, New Drug Application, (NDA)or NDA, or BLA, unless the product is specifically exempt from those requirements. A PMA, NDA or BLA must be supported by extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the product for its intended use. There are similar approval processes in China, the E.U. and other foreign jurisdictions. Our failure to receive or obtain such clearances or approvals on a timely basis or at all would have an adverse effect on our results of operations.

The first bioengineered trachea implant approved in the U.S. using our first-generation trachea scaffold in an implant was approved under the IND pathway through the FDA’s Center for Biologics Evaluation and Research, (CBER)or CBER, for a single compassionate use. Such initial U.S. surgery was led by Professor Paolo Macchiarini, M.D., a surgeon pioneering tracheal replacement techniques. Dr. Macchiarini was not employed or affiliated with our company, and we did not pay him any compensation or consulting fees. In June 2014, shortly after our Chief Medical Officer joined our company, we ceased support of any human surgeries with Dr. Macchiarini. Since the time we withdrew from involvement with Dr. Macchiarini, allegations that Dr. Macchiarini had failed to obtain informed consent and accurately report patient conditions, among other things, for surgeries performed at the Karolinska Institutet in Stockholm, Sweden, were made public.

The Karolinska Institutet investigated the allegations and concluded that while in some instances Dr. Macchiarini did act without due care, his actions did not qualify as scientific misconduct. Subsequent to this investigation, further negative publicity and claims continued to be released questioning the conduct of Dr. Macchiarini, the Karolinska Institutet, the Krasnodar Regional Hospital in Krasnodar, Russia as well as our company relating to surgeries performed by Dr. Macchiarini and other surgeons at such facilities. In February 2015, the Karolinska Institutet announced that it would conduct an additional investigation into the allegations made about Dr. Macchiarini and the Karolinska Institutet’s response and actions in the earlier investigation. In March 2015, the Karolinska Institutet announced that it was terminating Dr. Macchiarini’s employment, and in December 2016 the Karolinska Institutet found Dr. Macchiarini, along with three co-authors, guilty of scientific misconduct. In May 2022, Dr. Macchiarini was tried in Solna District Court in Sweden for aggravated assault against three patients treated at the Karolinska University Hospital. On June 16, 2022, Dr. Macchiarini was acquitted in two of these cases and in the third was found guilty of causing bodily harm to the patient and was given a suspended sentence for two years. These allegations, the results of the investigation and any further actions that may be taken in connection with these matters, have and may continue to harm the perception of our product candidates or company and make it difficult to recruit patients for any clinical trials.trials, which could have a material adverse effect on our business, financial condition or results of operations.

The FDA has informed us that our CEIesophageal implant would be viewed by the FDA as a combination product comprised of a biologic, (cells)or cells, and a medical device component. Nevertheless, we cannot be certain how the FDA will regulate our products. The FDA may require us to obtain marketing clearance and approval from multiple FDA centers. The review of combination products is often more complex and more time consuming than the review of products under the jurisdiction of only one center within the FDA.

While the FDA has informed us that our CEIesophageal implant would be regulated by the FDA as a combination product, we cannot be certain that any of our other products would also be regulated by the FDA as a combination product. For a combination product, the Office of Combination Products, (OCP)or OCP, within FDA can determine which center or centers within the FDA will review the product and under what legal authority the product will be reviewed. Generally, the center within the FDA that has the primary role in regulating a combination product is determined based on the primary mode of action of the product. Generally, if the primary mode of action is as a device, the FDA’s Center for Devices and Radiological Health, (CDRH)or CDRH, takes the lead. Alternatively, if the primary mode of action is cellular, then the CBER takes the lead. On October 18, 2016, we also received written confirmation from the CBER that the FDA intends to regulate our CEIesophageal implant as a combination product under the primary jurisdiction of CBER. We further understand that CBER may choose to consult or collaborate with CDRH with respect to the characteristics of the synthetic scaffold component of our product based on CBER’s determination of need for such assistance.

The process of obtaining FDA marketing approval is lengthy, expensive, and uncertain, and we cannot be certain that our products,product candidates, including productsproduct candidates pertaining to the esophagus, airways, or otherwise, will be cleared or approved in a timely fashion, or at all. In addition, the review of combination products is often more complex and can be more time consuming than the review of a product under the jurisdiction of only one center within the FDA.

We cannot be certain that the FDA will not elect to have our combination productsproduct candidates reviewed and regulated by only one FDA center and/or different legal authority, in which case the path to regulatory approval would be different and could be more lengthy and costly.

If the FDA does not approve or clear our products in a timely fashion, or at all, our business, and financial condition or operations will be adversely affected.

In the E.U., our esophagus product candidate will likely be regulated as a combined advanced therapy medicinal product and our other products,product candidates, including for the trachea or bronchus, may also be viewed as advanced therapy medicinal products, which could delay approvals and clearances and increase costs of obtaining such approvals and clearances.

On May 28, 2014, we received notice from the European Medicines Agency, (EMA)or EMA, that our first-generation trachea product candidate would be regulated as a combined advanced therapy medicinal product. While we have not had any formal interaction with the EMA with respect to our Cellframeesophageal implant, technology, including pertaining to the esophagus, we believe that such implant technology would likely be regulated as a combined advanced therapy medicinal product. In the event of such classification, it would be necessary to seek a marketing authorization for these products granted by the European Commission before being marketed in the E.U.

Other products we may develop, including any products pertaining to the airways or otherwise, may similarly be regulated as advanced therapy medicinal products or combined advanced therapy medicinal products. The regulatory procedures leading to marketing approval of our products vary among jurisdictions and can involve substantial additional testing. Compliance with the FDA requirements does not ensure clearance or approval in other jurisdictions, and the ability to legally market our products in any one foreign country does not ensure clearance, or approval by regulatory authorities in other foreign jurisdictions. The foreign regulatory process leading to the marketing of the products may include all of the risks associated with obtaining FDA approval in addition to other risks. In addition, the time required to comply with foreign regulations and market products may differ from that required to obtain FDA approval, and we may not obtain foreign approval or clearance on a timely basis, if at all.

Risk Associated with Product Marketing

Even if our products are cleared or approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain clearance or approval in the U.S., China, or Europe, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and foreign regulatory authorities or notified bodies. In particular, we and our suppliers are required to comply with the FDA’s Quality System Regulations, (QSR),or QSR, and current Good Manufacturing Practices, (cGMP),or cGMP, for our medical products, and International Standards Organization, (ISO),or ISO, regulations for the manufacture of our products and other regulations which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain clearance or approval. Manufacturing may also be subject to controls by the FDA for parts of the system or combination products that the FDA may find are controlled by the biologics regulations. Equivalent regulatory obligations apply in foreign jurisdictions. Regulatory authorities, such as the FDA, China’s National Medical Products Administration, the competent authorities of the E.U. Member States, the EMA and notified bodies, enforce the QSR, cGMP and other applicable regulations in the U.S. and in foreign jurisdictions through periodic inspections. The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory authorities or notified bodies in the U.S. or in foreign jurisdictions, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions:

The occurrence of any of these events could have a material adverse effect on our business, financial condition or results of operations.

Post-market enforcement actions can generate adverse commercial consequences.

Even if regulatory approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses for which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDA or a foreign regulatory authority determines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with medical products reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.

Risks Related to Our Separation from Harvard Bioscience

We may have received better terms from unaffiliated third parties than the terms we received in our agreements with Harvard Bioscience.

The agreements related to the Separation, including the separation and distribution agreement, tax sharing agreement, transition services agreement and the other agreements, were negotiated in the context of the Separation while we were still part of Harvard Bioscience and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements we negotiated in the context of the Separation related to, among other things, allocation of assets, liabilities, rights, indemnifications and other obligations among Harvard Bioscience and us. We may have received better terms from third parties because third parties may have competed with each other to win our business.

Third parties may seek to hold us responsible for liabilities of Harvard Bioscience that we did not assume in our agreements.

In connection with the Separation, Harvard Bioscience has generally agreed to retain all liabilities that did not historically arise from our business. Third parties may seek to hold us responsible for Harvard Bioscience’s retained liabilities. Under our agreements with Harvard Bioscience, Harvard Bioscience has agreed to indemnify us for claims and losses relating to these retained liabilities. However, if those liabilities are significant and we are ultimately liable for them, we cannot assure you that we will be able to recover the full amount of our losses from Harvard Bioscience.

Any disputes that arise between us and Harvard Bioscience, with respect to our past and ongoing relationshipswhich could harmhave a material adverse effect on our business, financial condition or results of operations.

Disputes may arise between Harvard Bioscience and us in a number of areas relating to our past and ongoing relationships, including:

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with a different party.

Risks Relating to Our Common Stock

Our principal stockholders hold a majoritysignificant percentage of our voting power and will be able to exert significant control over us.

The stockholders who purchased shares of our common stock and related warrants pursuant to a Securities Purchase Agreement dated December 27, 2017 collectively hold shares of common stock that represent approximately 37%32% of all outstanding voting power, and as such may significantly influence the results of matters voted on by our shareholders. The interests of these stockholders may conflict with your interests. These stockholders have the right to nominate a majority of our Board of Directors and, therefore, effectively could control many other major decisions regarding our operations. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with controlling stockholders.

A trading market that will provide you with adequate liquidity may not develop for our common stock.

The current public market for our common stock has limited trading volume and liquidity. We cannot predict the extent to which investor interest in our company will lead to the development of a more active trading market in our common stock, or how liquid that market might be.

Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.

Variations in our quarterly and year-end operating results are difficult to predict and may fluctuate significantly from period to period. If our revenues or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.substantially, which could have a material adverse effect on our ability to raise additional capital, to use our stock as consideration for future acquisitions or for compensation of our employees. In addition to the other factors discussed under these “Risk Factors,” specific factors that may cause fluctuations in our operating results include:

Item 2. Properties.

On November 1, 2013 we entered into a sublease of approximately 17,000 square feet of mixed-use space of the facility located at 84 October Hill Road, Suite 11, Holliston, Massachusetts, which is our corporate headquarters, from Harvard Bioscience. Our principal facilities incorporate manufacturing, laboratory, development, sales and marketing, and administration functions. We believe our current facilities are adequate for our needs for the foreseeable future.

OnItem 3. Legal Proceedings.

As previously disclosed, on April 14, 2017, representatives for the estate of a deceasedan individual plaintiff filed a civil lawsuit inwrongful death complaint with the Suffolk Superior Court, in Boston,the County of Suffolk, Massachusetts, against us and other defendants, including Harvard Bioscience, Inc., or HBIO, the former parent of the Company Harvard Bioscience and other defendants.that spun off the Company in 2013, as well as another third party. The complaint allegessought payment for an unspecified amount of damages and alleged that the decedent’s injury and death wereplaintiff sustained terminal injuries allegedly caused by two tracheal implants that incorporated synthetic trachea scaffoldsproducts provided by certain of the named defendants and a biologic component combinedutilized in connection with surgeries performed by the implanting surgeon with a bioreactor, and surgically implantedthird parties in the decedent in two surgeries performedEurope in 2012 and 2013. The civil complaint seeks a non-specific sum of money to compensate the plaintiffs. This civil lawsuit relates to the Company’sour first-generation trachea scaffold technology for which the Companywe discontinued development in 2014, and not to the Company’sour current Cellframe technology nor to its lead development product candidate, the CEI. The litigation is in the discovery stage andesophageal implant.

On April 27, 2022, the Company intends to vigorously defend this case. Whileand HBIO executed a settlement with the Company believes that such claim lacks merit, the Company is unable to predict the ultimate outcome of such litigation. In accordance with a separation and distribution agreement between Harvard Bioscience and the Companyplaintiffs (the “Settlement”), which resolves all claims relating to the spin-off,litigation. The Settlement resulted in the dismissal with prejudice of the wrongful death claim, and neither we nor HBIO admitted any fault or liability in connection with the claim. The Settlement also resolved any and all claims by and between the parties and our products liability insurance carriers, which resulted in the dismissal with prejudice of all claims asserted by or against those carriers, the Company would beand HBIO. However, based on review of the circumstances surrounding the Settlement, we recorded an accrual for this matter of approximately $3.3 million in general and administrative expenses during the year ended December 31, 2021.

In relation to the litigation, we have incurred approximately $5.9 million of aggregate costs, all of which has been paid as of December 31, 2022. This aggregate amount includes the cost of both the accrual for contingency matter of approximately $3.3 million and approximately $2.6 million of legal and related costs incurred by us which consist of attorney’s fees and advisor and specialist costs as part of our defense in this matter. For the year ended December 31, 2022, we incurred legal and related costs of approximately $1.3 million recorded in general and administrative expenses. On March 3, 2022, we received a cash payment of approximately $0.1 million from Medmarc, our insurance carrier. This amount represented a reimbursement of previously incurred legal costs and was recorded as a reduction to general and administrative expenses during the year ended December 31, 2022.

With respect to such $5.9 million of costs described above, we were required to either pay such costs directly or indemnify Harvard Bioscience against lossesHBIO as to such amounts it incurs. With respect to the indemnification obligation of the Company to HBIO pertaining to such costs, we and HBIO entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the PIA. In connection with the PIA, we and HBIO agreed that Harvard Bioscience may sufferonce HBIO had paid at least $4.0 million in such costs, to satisfy our indemnification obligations with respect thereto, in lieu of paying cash, we would issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA, including the term sheet attached thereto. On June 10, 2022, following the execution of a resultsubscription agreement and HBIO providing evidence of this litigation. Thepayment of the requisite $4.0 million amount, we issued HBIO 4,000 shares of Series E Preferred Stock at a price of $1,000 per share to satisfy our related indemnification obligations aggregating $4.0 million, which included the accrual for contingency of approximately $3.3 million and approximately $0.8 million of legal and related costs paid on behalf of the Company has been informed by its insurance provider that the case has been accepted as an insurable claim under the Company’s product liability insurance policy.HBIO.

From time to time, the Companywe may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the above matter, there are no such matters pending that the Company expectswe expect to be material in relation to its business, financial condition, and results of operations or cash flows.

Item 4. Mine Safety Disclosures.

Not Applicable.

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock was initially quoted on the OTCQB Venture Marketplace at the opening of business on October 6, 2017 under the symbol “BSTG.” Prior to that time, our common stock traded on the NASDAQ Capital Market also under the symbol “BSTG.” From our initial public offeringlisting on October 21, 2013 until April 1, 2016, in connection with our name change, our common stock traded on the NASDAQ Capital Market under the symbol “HART.”

There were 155141 holders of record of our common stock as of April 8, 2021,March 20, 2023, which does not include persons or entities that hold their stock in nominee or “street” name through various brokerage firms. We believe that the number of beneficial owners of our common stock at that date was substantially greater.

Dividend Policy

We have never declared or paid cash dividends on our common stock in the past and do not intend to pay cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors our Board of Directors deems relevant.

Recent Sales of Unregistered Securities

During the fiscal year ended December 31, 2020, in addition to2022, all of our unregistered sales wewere previously disclosed in our Quarterly Reports on Form 10-Q or in Current Reports on Form 8-K in relation to the applicable periods, other than during the fourth quarter of 2022, we also completed the following transactionsissued 558,825 shares of common stock in connection with cashless exercises of 775,000 warrants that were issued in December 2017, which such issuances were done without registration under the Securities Act of 1933 (the Securities Act) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 promulgated under the Securities Act as sales to an accredited investors,investor, and in reliance on similar exemptions under applicable state laws.

Item 6. Selected Financial Data.

Not Applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.

In some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “could,” “would,” “target,” “seek,” “aim,” “believe,” “predicts,” “think,” “objectives,” “optimistic,” “new,” “goal,” “strategy,” “potential,” “is likely,” “will,” “expect,” “plan” “project,” “permit” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail in Item 1A.“”Risk Factors” of this Annual Report on Form 10-K. You should carefully review all of these factors, as well as the comprehensive discussion of forward-looking statements on page 1ii of this Annual Report on Form 10-K.

Overview

We are a clinical-stage biotechnology company developing bioengineered organ implants based on our novel technology. Our technology is comprised of a proprietary biocompatible scaffold, which is the foundation of our Cellframe^TM technology, that is seeded with the recipient’s own mesenchymal stromal cellsintends to form our Cellspan^TM implant, combining the clinically proven principles of tissue engineering,use cell biology and materials science. This technology is being developedtherapy to treat life-threatening conditions ofcancer, injuries, and birth defects in the esophagus, trachea and bronchus with the objective of dramatically improving the treatment paradigm for those patients.esophagus.

We believe our technology will provide surgeons with new waysis likely to address damagebe used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus, bronchus, and trachea due to congenital abnormalities, diseases, infections and traumas. Products being developed based on our technology for those indications are called Cellspan^TM products. Our Cellspan Esophageal Implant (CEI)esophagus. Additional product candidates have beenin our lead development product candidates. At this time our resources have been primarily focused on pursuing a development program that addresses conditions of the esophagus: esophageal atresia in pediatric patientspipeline may treat bronchial cancer, intestinal cancer and esophageal disease in adult patients. colon cancer.

Our Cellspanfirst esophageal product candidate, is intended to provide a surgical solution to stimulateour esophageal implant was used in the first successful regeneration of a segment of the esophagus missing due toin a congenital abnormality or following surgical removal, to establish or reestablish the organ’s continuity and integrity.

We are working to develop a CEI product candidate to address newborns’ esophageal atresia to provide a simpler, more effective and potentially organ-sparing solution.

A portion of all patients diagnosedpatient with esophageal diseases, infections traumas or congenital abnormalities are treated via a surgical procedure known as an esophagectomy. The current standard of care for an esophagectomy requires a complex surgical procedure that involves movingcancer. This successful first-in-human experience, plus the patient’s stomach or a portion of their colon into the chest to replace the portion of esophagus resected by the removal of the tumor. These current proceduresresearch we have high rates of complications, can lead to a severely diminished quality of life and require costly ongoing care. Our CEIs aim to simplify the procedure, reduce complications, result in a better quality of life and reduce the overall cost of these patients to the healthcare system.

In November 2016, we were granted Orphan Drug Designation for our CEI by the U.S. Food and Drug Administration (FDA) to restore the structure and function of the esophagus subsequent to esophageal damage due to cancer, injury or congenital abnormalities. Orphan drug status provides market exclusivity in the U.S. for seven years from the date of the product’s approval for marketing. This exclusivity is in addition to any exclusivity we may obtain due to our patents. Additionally, orphan designation provides certain incentives, including tax credits and a waiver of the Biologics License Application (BLA) fee. We also intend to apply for Orphan Drug Designation for our CEI in Europe in the future. Orphan drug status in Europe provides market exclusivity there for ten years from the date of the product’s approval for marketing.

In October 2019, we filed an IND application withperformed on over 50 pigs, led the FDA to treat patients with esophageal disease, absent of cancer, in adults that would require a short segment esophageal implant following clinically indicated short segment resection of the thoracic esophagus withapprove our CEI product candidate. In November 2019, we received notice from the FDA placing our IND on10-patient combined phase 1 and phase 2 clinical holdtrial. This combination trial will measure both safety and providing a preliminary list of clinical hold and non-clinical hold questions. In December 2019, we received the formal letter with clinical hold and non-clinical hold questions and submitted our response to the clinical hold questions on February 18, 2020. On March 19, 2020, the FDA notified us that the IND for our CEI product candidate has been removed from clinical hold and that we can proceed with our study. This FDA approval enables us to start our transition to a clinical-stage biotechnology company, and start clinical planning, engaging with a clinical research organization and site readiness in advance of starting the clinical trial for our CEI product candidate. On May 7, 2020, we submitted responses to certain non-clinical hold questions and finalized a majority of remaining non-clinical hold responsesefficacy in the third quarterpatient population.

We were incorporated and commenced operations on November 1, 2013 as a result of 2020, and submitteda spin-off from Harvard Bioscience, Inc., or Harvard Bioscience. On that date, we became an independent company that operates the remaining responses inregenerative medicine business previously owned by Harvard Bioscience. The spin-off was completed through the fourth quarterdistribution of 2020, except for responsesall the shares of common stock of Biostage to our clinical trial details that we will submit once a clinical research organization is selected. The COVID-19 pandemic could adversely impact our business, including planned clinical trials, as discussed elsewhere in this document.Harvard Bioscience stockholders.

We have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and regulatory approval pathway in China as to our implant products. We are not certain at this time as to which market, including U.S. or China for example, may provide the most viable initial pathway for regulatory approval to a commercial product. This will depend on a number of factors, including the approval and development processes, related costs, ability to raise capital and the terms and conditions thereof, as well as the ongoing impact of the COVID-19 pandemic, among other factors. Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development and financing, among others. Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

We were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc. (Harvard Bioscience). On that date, we became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience. The spin-off was completed through the distribution of all the shares of common stock of Biostage to Harvard Bioscience stockholders.

Since our incorporation, we have devoted substantially all of our resources to developing our programs, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from the sales of common stock and preferred stock. In December 2017, we sold the inventory and rights to manufacture and sell research-only versions of our bioreactors to Harvard Bioscience. We did not recognize any revenues during the years ended December 31, 20202022 and December 31, 2019.2021.

Our productsproduct candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

We have incurred substantial operating losses since our inception, and as of December 31, 20202022 had an accumulated deficit of approximately $69.0$83.0 million and will require additional financing to fund future operations. We expect that our operating cash on-hand as of December 31, 20202022 of approximately $1.0$1.2 million along with proceeds of approximately $0.2 million during the first quarter of 2021 from the receipt of Phase II of the SBIR grant will enable us to fund our operating expenses and capital expenditure requirements into Junethe second quarter of 2021.2023. We expect to continue to incur operating losses and negative cash flows from operations for 20212022 and in future years. Therefore, as disclosed in Note 1 to our consolidated financial statements,Consolidated Financial Statements, these conditions raise substantial doubt about our ability to continue as a going concern.

We will need to raise additional funds to fund our operations. In the event we do not raise additional capital from outside sources inbefore or during the second quarter of 2023, we may be forced to curtail or cease itsour operations. Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of products,product candidates, as well as regulatory efforts and collaborative arrangements necessary for our products that are currently under development. We are currently seeking and will continue to seek financings from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. We may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. We may not be able to obtain additional financing on favorable terms, if at all.

Our operations will be adversely affected if it iswe are unable to raise or obtain needed funding and may materially affect our ability to continue as a going concern. Our consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

20202022 Financing Activities

During 2020the year ended December 31, 2022, we completed the following financing activities:

2021 Financing Activities

During the year ended December 31, 2021, we completed the following financing activities:

2019 Financing Activities

During 2019 we completed the following financing activities:

Small Business Innovation Research Grant

On March 28, 2018, we were awarded a Fast-Track Small Business Innovation Research, (SBIR)or SBIR, grant by the Eunice Kennedy National Institute of Child Health and Human Development, (NICHD)or NICHD, to support testing of a pediatric Cellspan™ Esophageal Implants (CEIs).esophageal implant. The award for Phase I provided for the reimbursement of approximately $0.2 million of qualified research and development costs which was received and recognized as grant income during 2018.

On October 26, 2018, we were awarded the Phase II Fast-Track SBIR grant from the Eunice Kennedy NICHD grant aggregating $1.1 million to support development, testing, and translation to the clinic through September 2019 and represented years one and two of the Phase II portion of the award. On August 3, 2020, we were awarded a third year of the Phase II grant totaling $0.5 million for support of development, testing, and translation to the clinic covering qualified expenses incurred from October 1, 2019 through September 30, 2020. In September of 2020, we filed and were granted a one year, no-cost extension for the Phase II grant period extending through September 30, 2021.

For the years ended December 31, 20202022 and 2019,2021, we recognized $0.4 millionapproximately $0 and $0.5$0.2 million of grant income, respectively, from Phase II of the SBIR grant. The aggregate SBIR grant to date providesprovided a total award of $1.8 million, of which approximately $1.3$1.5 million has been recognized through December 31, 2020.2022.

In MarchThe Phase II portion of the award expired effective September 30, 2021.

Management

Effective as of November 26, 2021, we received additional cash proceedsappointed David Green as Chief Executive Officer. Effective as of $0.2 million fromMarch 1, 2023, we transitioned the Phase II grant.

Management

We disclosed in our Current Report on Form 8-K dated February 7, 2020 that James McGorry, our formerrole of Chief Executive Officer resigned from histo Junli (Jerry) He, our existing director, and Mr. Green remains on our Board of Directors.

On August 8, 2022, we appointed Joseph Damasio Jr. as Chief Financial Officer. In such role, effective February 7, 2020. We also disclosed in our Current Report on Form 8-K dated August 31, 2020 that Peter Chakoutis, our Vice President of FinanceMr. Damasio serves as the Company’s principal accounting officer and Principal Accounting Officer, had taken a leave of absence from his role for personal reasons effective August 24, 2020. We disclosed in our Current Report on Form 8-K dated October 30, 2020 that Mr. Chakoutis would not be returning to the Company and we named Peter Pellegrino as Interim Vice President of Finance. We are currently in the process of evaluating our options to fill these positions.principal financial officer.

As of December 31, 2020,2022, we had 78 employees, 67 of whom were full-time and one part-time.

Components of Operating Loss

Research and Development Expense. Research and development expense consists of salaries and related expenses, including share-based compensation, for personnel and contracted consultants and various materials and other costs to develop our new products, primarily: synthetic scaffolds, including investigation and development of materials and investigation and optimization of cellularization, autoseeders, and 3D3-D bioreactors, as well as studies of cells and cell behavior. Other research and development expenses include the costs of outside service providers and material costs for prototype and test units and outside laboratories and testing facilities performing cell growth and materials experiments, as well as the costs of all other preclinical research and testing including animal studies and expenses related to potential patents. We expense research and development costs as incurred.

Selling, General and Administrative Expense. Selling, generalGeneral and administrative expense consists primarily of salaries and other related expenses, including share-based compensation, for personnel in executive, accounting, information technology and human resources roles. Other costs include professional fees for legal and accounting services, insurance, investor relations and facility costs.

Other Income (Expense)Forgiveness of Notes Payable. On May 23, 2021, we were notified by our lender that provided our related Loan that the SBA determined that our application for loan forgiveness was approved, and the SBA remitted the forgiveness amount to our lender. We have accounted for this loan forgiveness as an extinguishment.

Grant Income. Grant income reflects income earned under the SBIR grant. Grant income is recognized based on timing of when qualified research and development costs are incurred.

Changes in Fair Value of Warrant Liability. Changes in fair value of warrant liability represent the change in the fair value of outstanding common stock warrants that were classified as liability awards during the years ended December 31, 20202022 and 2019.2021. We use the Black-Scholes pricing model to value the related warrant liability. The costs associated with the issuance of the warrants have been recorded as an expense upon issuance.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles in the United States (U.S. GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Share-based Compensation

We account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance. Share-based awards, including stock options, are measured at fair value as of the grant date and recognized as expense over the requisite servicevesting period (generally the vestingservice period), which we have elected to amortizerecognize on a straight-line basis. Expense on share-based awards for which vesting is performance or milestone based is recognized on a straight-line basis from the date when we determine the achievement of the milestone is probable to the vesting/milestone achievement date. We estimate the fair value of options granted using the Black-Scholes option valuation model. Significant judgment is required in determining the proper assumptions used in these models. The assumptions used include the risk-free interest rate, expected term, expected volatility and expected dividend yield. We base our assumptions on historical data when available or, when not available, on a peer group of companies. However, these assumptions consist of estimates of future market conditions, which are inherently uncertain and subject to our judgment, and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards.

Total share-based compensation expense for each of the years ended December 31, 20202022 and 20192021 was $1.1 million and $1.7 million, respectively.approximately $1.0 million. Share-based compensation is further described in Note 15 to our consolidated financial statements.Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K.

Warrant Liability

Most of the warrants to purchase shares of our common stock have been classified on our consolidated balance sheets as equity. We classify warrants as a liability in our consolidated balance sheets if the warrant is a free-standing financial instrument that may require us to transfer cash consideration upon exercise and that cash transfer event would be out of our control. Such a “liability warrant” is initially recorded at fair value on the date of grant using the Black-Scholes model, net of issuance costs, and it is subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrant are recognized as a component of other income (expense) in the consolidated statements of operations. We will continuecontinued to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrant.warrant liability in February 2022.

Results of Operations

The following table summarizes the results of our operations for the years ended December 31, 20202022 and 20192021 ($ in thousands):