8-K: Nuwellis Enters Supply Agreement with Kluge Design for Aquadex Product Line

Nuwellis, Inc. has entered into a three-year supply agreement with Kluge Design, LLC for the manufacture and servicing of its Aquadex product line, effective May 9, 2025.

Summary

• Nuwellis, Inc. has entered into a Supply & Quality Agreement with Kluge Design, LLC (KDI) effective May 9, 2025.
• KDI will manufacture the Aquadex Blood Circuit, Aquadex dELC Catheter, and Aquadex SmartFlow Console, and perform related calibration and repair services.
• Nuwellis retains exclusive ownership of the intellectual property rights for the Aquadex products.
• Nuwellis is obligated to pay KDI an upfront payment for start-up activities by August 1, 2025, and varying payments based on volume and unit assumptions.
• Certain Nuwellis employees will be transferred to KDI to facilitate manufacturing.
• The agreement has an initial term of three years, with automatic one-year renewals unless terminated.
• KDI may terminate the agreement if the start-up fees are not paid on time.
• The parties will share the start-up costs, with KDI providing a credit to Nuwellis for its share, applicable to future orders of the Aquadex Blood Circuit.
• Nuwellis will provide KDI with a security deposit for raw materials purchases.
• KDI is the exclusive supplier of the Goods to Nuwellis during the Term, and KDI is the only contract manufacturer permitted by Nuwellis to manufacture the Goods globally or to perform the Console Services in the US.

Sentiment

Score: 7

Explanation: The agreement is a positive development for Nuwellis as it secures a manufacturing partner for its Aquadex product line. However, there are some risks and costs associated with the agreement, such as the upfront payment and potential for price increases.

Positives

• Nuwellis secures a manufacturing partner for its Aquadex product line, ensuring continued supply.
• The agreement allows Nuwellis to focus on its core competencies while outsourcing manufacturing.
• Nuwellis retains exclusive ownership of the intellectual property rights for the Aquadex products.
• The agreement includes provisions for quality control and compliance with relevant standards.
• The agreement includes a credit from KDI to Nuwellis for its share of start-up costs, applicable to future orders of the Aquadex Blood Circuit.

Negatives

• Nuwellis is obligated to pay KDI an upfront payment for start-up activities by August 1, 2025, which represents an immediate cash outlay.
• Nuwellis is transferring certain employees to KDI, which may result in restructuring costs or loss of expertise.
• KDI may increase prices at any time, in good faith, due to material costs, labor costs, or other taxes and fees (including, but not limited to tariffs) applicable to the Goods or the Console Services.
• Nuwellis is responsible for the costs of product recalls, even if the defect is due to KDI workmanship, although KDI's liability is limited.

Risks

• KDI may terminate the agreement if the start-up fees are not paid on time, potentially disrupting the supply of Aquadex products.
• There is a risk of quality issues or delays in manufacturing, which could impact Nuwellis's ability to meet customer demand.
• The agreement relies on KDI's ability to maintain necessary licenses, permits, and certifications.
• Nuwellis is responsible for the costs of product recalls, even if the defect is due to KDI workmanship, although KDI's liability is limited.
• KDI's total liability for damages related to its workmanship is limited to the amount recoverable under its insurance policies, up to a maximum of $1 million USD.

Future Outlook

The agreement aims to secure a stable supply chain for Nuwellis's Aquadex product line for the next three years, with potential for long-term collaboration through automatic renewal clauses.

Industry Context

This agreement reflects a common trend in the medical device industry to outsource manufacturing to specialized contract manufacturers, allowing companies like Nuwellis to focus on product development, marketing, and sales.

Comparison to Industry Standards

• Outsourcing manufacturing is a common practice in the medical device industry.
• Companies like Medtronic and Boston Scientific often use contract manufacturers to produce components or finished devices.
• This agreement is similar to other supply agreements in the industry, with terms addressing quality control, intellectual property, and liability.

Stakeholder Impact

• Shareholders: Securing a manufacturing partner could be viewed positively, ensuring continued product availability.
• Employees: Some employees will be transferred to KDI, impacting their employment.
• Customers: The agreement aims to ensure a stable supply of Aquadex products, benefiting customers.
• Suppliers: KDI will be responsible for procuring raw materials, potentially impacting Nuwellis's existing suppliers.

Next Steps

• Nuwellis needs to ensure timely payment of the start-up fees to KDI by August 1, 2025.
• Nuwellis and KDI will collaborate on the transfer of employees and Designated Assets to the KDI Facility.
• Nuwellis will provide KDI with forecasts of its anticipated purchases of Products.
• The parties will conduct a true-up process to reconcile any discrepancies between the contributions made by each Party and the actual costs.

Key Dates

Keywords

Nuwellis, Kluge Design, Aquadex, Manufacturing Agreement, Supply Agreement, Medical Devices, Outsourcing, Contract Manufacturing