Treace Medical Concepts, Inc. (NASDAQ:TMCI): Navigating Competitive Headwinds with a Comprehensive Bunion Solutions Strategy

Published on September 24, 2024 | Ticker: TMCI

Treace Medical Concepts, Inc. (NASDAQ:TMCI) is a medical technology company that has pioneered the proprietary Lapiplasty 3D Bunion Correction System, a combination of instruments, implants, and surgical methods designed to surgically correct all three planes of the bunion deformity. The company has experienced strong growth in recent years, reporting annual revenue of $187.1 million and a net loss of $49.5 million in the fiscal year 2023. However, the company is now facing increased competition and market challenges that have prompted it to revise its full-year 2024 guidance.

Business Overview

Treace Medical Concepts was formed in 2013 and received 510(k) clearance for the Lapiplasty System in March 2015. The company has since sold more than 100,000 Lapiplasty Procedure kits in the United States. The Lapiplasty Procedure can be performed in either hospital outpatient or ambulatory surgery center settings and utilizes existing, well-established reimbursement codes.

The company's product portfolio has expanded beyond the Lapiplasty System to include the Adductoplasty System, the Hammertoe PEEK Fixation System, the SpeedPlate Rapid Compression Implant System, and specialized osteotomes and release instruments. These complementary products have allowed Treace to address a broader range of foot and ankle deformities that often present concomitantly with bunions, expanding the company's total addressable market (TAM) by an estimated $750 million without diluting its focus on the $5 billion-plus U.S. bunion market opportunity.

Treace currently markets and sells its products through a combination of a direct employee sales force and independent sales agencies across the United States. The company has been successful in expanding its surgeon customer base, adding 475 new surgeons in 2023 and continuing to add new surgeons in 2024, though at a slightly slower pace due to increased competition.

Financials

In the first quarter of 2024, Treace reported revenue of $51.1 million, a 21.1% increase compared to the same period in 2023. This growth was driven by increased procedure kit volume from the company's expanding base of surgeons, as well as a favorable product mix shift towards newer technologies, such as the SpeedPlate fixation platform and the Hammertoe system. Gross profit margin for the quarter was 80.2%, compared to 80.9% in the prior-year period, primarily due to the product mix shift.

The company's net loss for the first quarter of 2024 was $18.7 million, or $0.30 per share, compared to a net loss of $13.5 million, or $0.23 per share, in the same period of 2023. This increase in net loss was largely attributable to higher operating expenses, which rose 25.1% year-over-year, as the company continued to invest in its sales and marketing efforts, research and development, and general and administrative functions to support the growth of the business.

Treace's adjusted EBITDA loss improved 18% to $8.3 million in the first quarter of 2024, compared to a loss of $10 million in the same period of 2023. As of March 31, 2024, the company had $112.1 million in cash, cash equivalents, marketable securities, and investment receivable, providing a strong liquidity position to fund its ongoing operations and strategic initiatives.

Competitive Landscape and Revised Guidance

Despite Treace's strong start to 2024, the company has faced increasing competition from both minimally invasive osteotomy solutions and new Lapiplasty-like products from both larger and smaller competitors. This competitive pressure has created headwinds for the company's Lapiplasty growth, prompting Treace to revise its full-year 2024 revenue guidance to $201 million to $211 million, down from the previous range of $220 million to $225 million.

Treace's management believes that the increased use of minimally invasive osteotomy solutions and the emergence of "knockoff" Lapiplasty products are the primary drivers of the revised guidance. While the company fundamentally believes that its Lapiplasty system offers superior performance and clinical data compared to the competition, it has seen some surgeons trial these alternative products, which has impacted Treace's efficiency per surgeon and resulted in a slight reduction in the percentage of bunion cases performed using the Lapiplasty procedure.

To address these competitive challenges, Treace is taking several strategic actions. First, the company plans to launch two innovative 3D minimally invasive osteotomy systems in late 2024, which it believes will appeal to surgeons who currently perform a majority of their bunion cases using osteotomy approaches. This will allow Treace to provide a comprehensive suite of bunion solutions to its base of nearly 3,000 Lapiplasty users, who on average use osteotomies for half or more of their cases.

Additionally, Treace is focused on rightsizing its cost structure to align with the revised revenue guidance, with plans to reduce variable expenses related to cost of goods sold, commissions, and corporate incentives, as well as manage discretionary spending in areas such as sales and marketing, research and development, and general and administrative functions. The company expects these cost-saving measures to enable it to maintain its adjusted EBITDA improvement target of approximately 50% for the full year 2024 compared to 2023.

Treace is also committed to asserting and enforcing its intellectual property rights, as it believes some of the competing products may be infringing on its patents. While the company has not provided specific details on its IP strategy, it has indicated that it will communicate any developments as they progress.

Outlook

Despite the current competitive headwinds, Treace remains confident in its ability to capture the significant opportunities ahead. The company's evolution from a Lapidus-focused company to a comprehensive bunion solutions provider is well underway, with the planned launch of its 3D minimally invasive osteotomy systems in late 2024 expected to reinforce its market leadership position in the bunion and related midfoot correction space.

Treace also has a robust product development pipeline, with plans to launch additional innovations, including the Micro-Lapiplasty system, Mini-Adductoplasty, and the RedPoint patient-specific instrumentation, in the second half of 2024. These new products are expected to contribute to the company's growth and help offset the near-term competitive pressures.

Furthermore, Treace's strong balance sheet, with $112.1 million in cash, cash equivalents, marketable securities, and investment receivable as of March 31, 2024, provides the company with the financial flexibility to continue executing on its strategic investments and growth initiatives for the foreseeable future.

Conclusion

Treace Medical Concepts is navigating a challenging competitive environment, but the company remains well-positioned to capitalize on the significant opportunities in the bunion and related midfoot correction market. By expanding its product portfolio to include 3D minimally invasive osteotomy solutions, asserting its intellectual property rights, and implementing cost-saving measures, Treace is taking decisive actions to mitigate the impact of the current headwinds and deliver long-term value to its shareholders. With a robust pipeline of innovative products, a strong balance sheet, and a dedicated team, Treace is poised to continue its evolution as a comprehensive bunion solutions provider.

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