Lemaitre Vascular (LMAT) Risk Analysis

The FDA regulates human tissue pursuant to Section 361 of the Public Health Services Act, which in turn provides the regulatory framework for regulation of human cellular and tissue products. The FDA regulations focus on donor screening and testing to prevent the introduction, transmission, and spread of HIV-1 and -2, Hepatitis B and C, and other communicable diseases and disease agents. The regulations set minimum requirements to prevent the transmission of communicable diseases from human tissue used for transplantation. The regulations define human tissue as any tissue derived from a human body which is (a) intended for administration to another human for the diagnosis, cure, mitigation, treatment, or prevention of any condition or disease and (b) recovered, preserved, stored, or distributed by methods not intended to change tissue function or characteristics. The FDA definition excludes, among other things, tissue that currently is regulated as a human drug, biological product, or medical device, and it also excludes kidney, liver, heart, lung, pancreas, or any other vascularized human organ. The current regulations applicable to human tissues include requirements for donor suitability, processing standards, establishment registration, product listing, testing, and screening for risks of communicable diseases. The FDA periodically audits our tissue preservation facilities for compliance with its requirements and has the authority to enjoin the distribution, force a recall, or require the destruction of tissues that do not meet its requirements. Our activities in preserving and transporting human hearts and certain other organs are also subject to federal regulation under the National Organ Transplant Act, or NOTA, which makes it unlawful for any person to knowingly acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate commerce. NOTA excludes from the definition of "valuable consideration" reasonable payments associated with the removal, transportation, implantation, processing, preservation, quality control, and storage of a human organ. The purpose of this statutory provision is to allow for compensation for legitimate services. We believe that, to the extent our activities are subject to NOTA, we meet this statutory provision relating to the reasonableness of our charges. Some states have enacted statutes and regulations governing the preservation, transportation, and storage of human organs and tissues. The activities we engage in require us to be either licensed or registered as a clinical laboratory or tissue bank under California, Delaware, Florida, Georgia, Illinois, Maryland, New York, and Oregon law. We have such licenses or registrations, and we believe we are in compliance with applicable state laws and regulations relating to clinical laboratories and tissue banks that store, preserve, and distribute donated human tissue designed to be used for medical purposes in human beings. The Human Tissue Act 2004, or the HT Act, covers England, Wales, and Northern Ireland and established the Human Tissue Authority, or the HT Authority, to regulate activities concerning the removal, storage, use, and disposal of human tissue. Our office in the UK is licensed by the HT Authority for the import, storage, and distribution of human tissue from our tissue banking operations in the United States. As such, we are subject to periodic inspections and required to demonstrate continued compliance with the laws promulgated under the HT Act. While we believe we are in compliance with the patchwork of laws and regulations that apply to our human tissue cryopreservation services, we cannot guarantee that is the case, and any failure to comply could result in the suspension of licenses, fines, and penalties, any of which would have a negative impact on our ability to conduct our business and our operating results.

We are subject, from time to time, to legal proceedings and litigation, including, but not limited to, actions relating to product liability, employment matters, intellectual property, contract disputes, and other commercial matters. Because the outcome of litigation is inherently difficult to predict, it is possible that the outcome of litigation, or even simply the defense of litigation, could entail significant cost for us, divert management's attention, and adversely affect our reputation. The fact that we operate in international markets also increases the risk that we may face legal exposure as we seek to comply with a large number of varying legal and regulatory requirements. If any such proceedings were to result in an unfavorable outcome, it could adversely affect our results of operations.

Our principal worldwide executive, distribution, and manufacturing operations are located in five leased facilities in Burlington, Massachusetts. We also have a manufacturing site in North Brunswick, New Jersey as well as a tissue processing, preservation and distribution facility in Fox River Grove, Illinois. These facilities and the equipment we use to manufacture our products and services would be difficult to replace and could require substantial lead-time to repair or replace in the event of a natural or man-made disaster. In the event of a disaster, we may be required to shift production or processing to alternate manufacturing facilities, and we would be forced to rely on third-party manufacturers, if available. Although we carry insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses, including potential damage to our reputation, and may not continue to be available to us on acceptable terms, or at all.

Each of our Chief Executive Officer, Chief Financial Officer, President, and Senior Vice President, Operations have significant tenure with the company; are highly knowledgeable of the Company's business, operations, budgeting, strategy, product offerings, resources, and personnel; maintain key external relationships on behalf of the Company; and have been integral to the success of the Company. The unexpected or unplanned departure of one or more of them could be disruptive to day-to-day operations. Significant resources and attention may need to be expended at the executive and Board levels to identify and onboard successors in the event of an unexpected or unplanned departure. Joseph P. Pellegrino, Jr. has served as our Chief Financial Officer since 2007 and a member of our Board of Directors since 2016. In August 2024, Mr. Pellegrino announced that he will retire as Chief Financial Officer as of March 7, 2025. He will remain a member of the Board of Directors. Mr. Pellegrino will be replaced by Dorian LeBlanc. The loss of key personnel could be disruptive to our operations and materially adversely affect our financial performance. We do not carry, nor do we currently intend to obtain, significant key-person life insurance on officers or other employees. Our success will depend on attracting and retaining qualified personnel and rapidly replacing and developing new management, as needed. The number of potential employees who have the extensive knowledge needed to develop, sell, and maintain our offerings is limited, and competition for their services is intense. There can be no guarantee that we will be able to attract and retain such personnel. If we are unable to do so, our business, operating results, and financial condition could be materially adversely affected. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications.

We are subject to inspection and marketing surveillance by the FDA to determine our compliance with all regulatory requirements. If the FDA finds that we have failed to comply with any regulatory requirements, it can institute a wide variety of enforcement actions, including, but not limited to, warning letters, fines, and penalties, injunctions, civil or criminal charges, mandatory recalls, and withdrawal of clearances to sell products. We and some of our suppliers must comply with the FDA's QSR, which governs the methods used in, and the facilities and controls used for, the design, testing, manufacture, control, quality assurance, installation, servicing, labeling, packaging, storage, and shipping of medical devices. Our Fox River Grove, Illinois operations must comply with the FDA's current Good Tissue Practices. The FDA enforces its regulations through pre-announced and unannounced inspections. We are subject to such inspections by the FDA and other regulatory bodies. The timing of future audits is unknown, and it is possible that audits may result in one or more unsatisfactory results. If we or one of our suppliers fails an inspection, or if a corrective action plan adopted by us or one of our suppliers is not sufficient, the FDA may bring an enforcement action against us. We participate in the MDSAP, which allows manufacturers to undergo a universal quality system audit that is accepted in the U.S., Japan, Australia, Canada and Brazil in lieu of individual routine audits by each regulator. Maintenance of this certification is a requirement to maintain sales in certain geographies, including Canada. Failure to maintain this certification in good standing could result in suspension of our sales efforts in Canada or other geographies. We are also subject to the FDA's general prohibition against promoting our products for unapproved or off-label uses and to the medical device reporting regulations that require us to report to the FDA if our products may have caused or contributed to a death or serious injury, or if our device malfunctions and a recurrence of the malfunction would likely result in a death or serious injury. We must also file reports with the FDA of some device corrections and removals, and we must adhere to the FDA's rules on labeling and promotion. If we fail to comply with these or other FDA requirements or fail to take adequate corrective action in response to any significant compliance issue raised by the FDA, the FDA can take significant enforcement actions, which could harm our business, results of operations, and our reputation. In addition, most other countries, such as Japan, require us to comply with manufacturing and quality assurance standards for medical devices that are similar to those in the United States before marketing and selling our products in those countries.

Our success depends in part on maintaining and enforcing our intellectual property rights. We take precautionary steps to protect our technological advantages and intellectual property. We rely upon patent, trade secret, copyright, know-how, and trademark laws, as well as license agreements and contractual provisions, to establish our intellectual property rights and protect our products. These measures may only provide limited protection. We have a relatively limited intellectual property portfolio. Even where we do have patents, the issuance of a patent is not always conclusive as to its validity or enforceability. Our patents could be circumvented or designed around by third parties. Furthermore, patents expire after a certain duration, depending on the jurisdiction in which they are issued. To the extent any manufacturers are successful in challenging our patents or they enter the market following the expiration of our patents, this could have an adverse impact on our business. In the absence of patent protection, we avail ourselves of trade secret and confidentiality arrangements where appropriate. We have a policy of requiring employees and consultants and corporate partners with access to trade secrets or other confidential information to execute confidentiality agreements. Our confidentiality agreements also require our employees to assign to us all rights to any inventions made or conceived during their employment. We also generally require consultants to assign to us any inventions made during their engagement with us. There can be no assurance, however, that these arrangements will provide meaningful protection or adequate remedies for us in the event of unauthorized use, transfer, or disclosure of trade secrets, confidential information, or inventions.

In terms of marketing and sales efforts, our primary call point focus is the vascular surgeon. Some of our products are sold to a call point that is different from this main call point. For example, historically, a significant portion of CardioCel sales have been to the pediatric cardiac surgeon. Our success in selling products like CardioCel will depend, in part, on our sales representatives devoting a portion of their time 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 lower CardioCel sales. Cross-selling opportunities to pediatric cardiac surgeons are limited at LeMaitre. Also, if our sales representatives spend less time focused on vascular surgeons, the sales of our vascular products could decrease.

We derive a significant portion of our net sales from outside of the United States. For the year ended December 31, 2024, 41% of our net sales were international. Our international sales operations expose us and our representatives, agents, and distributors to risks inherent in operating in foreign jurisdictions. These risks include: - fluctuations in foreign currency exchange rates;   - the imposition of additional U.S. and foreign governmental controls or regulations, including export licensing requirements, duties and tariffs, and other trade restrictions;   - the risk of non-compliance with the Foreign Corrupt Practices Act or other anti-corruption laws by our personnel, distributors, and other agents;   - changing medical device regulations that may impede our ability to register our products in one or more jurisdictions;   - the imposition of U.S. or international sanctions against a country or party with whom we do business;   - changes in third-party reimbursement policies;   - clawback of funds spent on healthcare in excess of budgeted amounts by foreign governments;   - the imposition of restrictions on the activities of foreign agents, representatives, and distributors;   - scrutiny of foreign tax authorities, which could result in fines, penalties, and additional taxes;   - pricing pressure;   - laws and business practices favoring local companies;   - longer payment cycles;   - difficulties in enforcing agreements and collecting receivables;   - difficulties in enforcing or defending intellectual property rights;   - exposure to different legal, data privacy, and political standards; and   - political, economic, or social instability. We cannot assure you that one or more of these factors will not harm our business. Any material decrease in our international sales would adversely impact the results of operations.