LEMAITRE VASCULAR INC

Our products are regulated in the European Union (EU) under the European Medical Devices Directive (93/42/EC as amended by 2007/47/EC) (MDD). In order to market our medical devices in the EU, we are required to obtain CE mark certifications, which denote conformity to the essential requirements of the MDD, and manufacturers of higher-risk devices generally must use a “Notified Body”—an appointed independent third party to assess conformity. We have received CE mark certifications to sell nearly all of our products, though currently there is a lapse in our CE mark certifications for some of our products due to one of our Notified Bodies abandoning all services related to the MDD. On June 13, 2019, the Notified Body that issued the majority of our CE mark certifications, Lloyd's Register Quality Assurance or LRQA, notified its clients that it would cease providing all Notified Body services relating to the MDD to all clients, including us, as of September 12, 2019, which date was subsequently extended to September 30, 2019. As a result, all LRQA-issued CE mark certifications, unless earlier transferred to a new Notified Body, would lapse as of such date. Prior to receipt of such notice, we had begun transitioning our CE mark certifications to a new Notified Body, TUV SUD. However, TUV SUD was unable to complete all work necessary to reissue our CE mark certifications by September 30, 2019. Under the MDD, only product placed on the European market at our European subsidiary prior to September 30, 2019 is eligible for sale to EU countries. As a result, prior to September 30, 2019, we manufactured and shipped inventory in amounts that for most products we believe would be sufficient to supply our EU customers while we await reissuance of the CE mark certifications by TUV SUD. CE mark certifications were reissued in February 2020 for many of our products. For some products for which CE marks have not yet been reissued, we expect to continue selling product from our inventory reserves already placed on the market in the EU prior to September 30, 2019. However, we do not expect reissuance of our CE mark certifications 1) for XenoSure or AlboGraft until Q2 2020, 2) for Anastoclip AC closure systems, Anastoclip GC closure systems, Flexcel carotid shunts and LifeSpan ePTFE vascular grafts until Q4 2020 and 3) for AlboSure vascular patches until Q4 2021. We have started to experience backorders related to the inventory of such products held by our European subsidiary. If the reissuance of our CE marks for any of our products is materially delayed or withheld, our revenues could be further impacted due to our saleable inventory reserves becoming depleted and our business could be harmed.

Additionally, the CE mark for our Omniflow II graft will lapse due to the delays in the ability of our Notified Body for this product, TUV Rheinland, to review our manufacturing site change application from North Melbourne, Australia to Burlington, Massachusetts. This delay will also subject Omniflow II to an MDR application process earlier than we expected. This will result in a lapse in the CE mark certification for Omniflow II from June 2020 until we receive the CE mark certification of Omniflow II, which we expect to occur by Q3 2021. We expect that the inventory of the majority of such products held by our European subsidiary will only be sufficient to supply our customers until Q3 2021, based on historical sales, and as a result, we may go into backorder for such products until the CE mark is issued. If the CE mark certification for Omniflow II is materially delayed or withheld, our European revenues could be impacted due to our saleable inventory reserves becoming depleted and our business could be harmed.

Historically, the majority of sales of CardioCel have been to pediatric cardiac surgeons, a call point that is different from our main call point focus. We market and sell our products primarily to vascular surgeons, and the majority of our marketing efforts and sales relate to products used in open vascular surgery. As a result, our sales representatives make sales calls predominantly to vascular surgeons and to a lesser extent, cardiac and neuro surgeons. Our success in selling CardioCel will depend, in part, on our sales representatives devoting a portion of their time to making sales calls to, and establishing relationships with, pediatric cardiac surgeons. If they do not undertake these activities or are unsuccessful in doing so, then this could lead to the loss of sales and customers of CardioCel, and our financial condition or results of operations could be harmed. Most of our product lines are used in vascular procedures and as a result, our sales representatives can cross-sell a significant portion of our product portfolio to vascular surgeons.  Cross-selling opportunities to pediatric cardiac surgeons will be limited. Additionally, if our sales representatives spend less time focused on sales of our other product lines to vascular surgeons, the sales of those products could decrease, and our financial condition or results of operations could be harmed.

When we acquire a product line, we often enter into an agreement with the seller of the product line for a period of one to three years for the supply of the acquired product until we can transition manufacturing to our facilities. Those arrangements are always sole source supply arrangements with a supplier that has determined to divest the product it is manufacturing. As a result, the supplier may not allocate sufficient resources to the manufacture of our product in favor of dedicating resources to its remaining business. Additionally, there is significant risk if the supplier does not have the financial means to continue to supply product. For example, in the case of our acquisition of the CardioCel and VascuCel biologic patches, Admedus Ltd and its affiliates have agreed to continue to supply those products to us for up to three years. For the year ended December 31, 2018, Admedus Ltd reported revenue from continuing operations of AU$25.6 million and a loss before income tax from continuing operations of AU$24.7 million, and for the year ended December 31, 2019, Admedus Ltd reported revenue from continuing operations of AU$17.1 million and a loss before income tax from continuing operations of AU$6.2 million.  If Admedus fails to meet its obligations under the supply agreement on a timely basis, or at all, then we may experience interruptions in our supply of the acquired products or we may not receive a future supply of the acquired products until we establish our own manufacturing. If we do not have sufficient supply of an acquired product, this could lead to loss of sales, customer dissatisfaction and damage to our reputation, and our financial condition or results of operations could be harmed.

In addition to the above risks related to our international operations, we also face risks related to disease outbreaks, such as the recent outbreak of Covid-19, first identified in Wuhan, Hubei Province, China.  An outbreak of a contagious disease, particularly to extent it becomes pandemic, could significantly disrupt our business operations.  The effects of such an outbreak include restrictions on our ability to travel to support our sites in Asia/Pacific Rim and other impacted territories or our customers located there, disruptions in our ability to distribute products, reduced sales of our products in territories where widespread quarantines due to the disease have been imposed, and/or temporary closures of our facilities in Asia/Pacific Rim and other impacted territories. In addition, a significant geographic spread of a pandemic such as Covid-19, an increase in the severity of the outbreak and/or a prolonged duration of the outbreak could adversely affect the global economy, which could result in reduced demand for our products.  Any of these events could lead to a loss of sales and harm our financial condition and results of operations.