Business Overview and History
TELA Bio, Inc. (NASDAQ:TELA) is a commercial-stage medical technology company dedicated to providing innovative soft-tissue reconstruction solutions that prioritize the preservation and restoration of the patient's own anatomy. The company's flagship products, OviTex and OviTex PRS, are designed to address unmet needs in hernia repair, abdominal wall reconstruction, and plastic and reconstructive surgery.
TELA Bio was incorporated in the state of Delaware on April 17, 2012, with the initial focus on commercializing its first portfolio of products, the OviTex Reinforced Tissue Matrix (OviTex). The company's founders recognized the limitations of traditional synthetic meshes, which can lead to complications such as infection, erosion, and chronic pain. To address these issues, TELA Bio developed OviTex to combine the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price.
The company achieved a significant milestone in July 2016 when it first commercialized OviTex in the United States. This was followed by the European launch of OviTex in February 2019, marking the beginning of TELA Bio's international expansion. In May 2019, TELA Bio further expanded its product offerings by introducing the OviTex PRS Reinforced Tissue Matrix (OviTex PRS) in the U.S. market, addressing unmet needs in plastic and reconstructive surgery.
The OviTex PRS portfolio consists of three product configurations, each featuring two or three layers of high-quality tissue derived from ovine rumen. These layers are reinforced with either permanent or resorbable polymer to provide added strength, stabilization, and controlled stretch, making them suitable for various plastic and reconstructive surgery applications.
TELA Bio has faced several challenges throughout its history. In 2023, the company's business was directly impacted by the COVID-19 pandemic, with government restrictions on elective procedures and surgical staffing challenges leading to the deferral of elective surgeries and lower surgical procedural volumes overall. More recently, in the second quarter of 2024, TELA Bio encountered multiple cybersecurity events, including ransomware attacks and other similar system disruptions and outages, in both the U.S. and Europe. These events adversely impacted procedural volumes at some of the company's customer accounts.
Despite these obstacles, TELA Bio has continued to make progress and achieve important milestones. In March 2024, the company sold its distribution rights for its NIVIS Fibrillar Collagen Pack product to MiMedx Group, Inc. in exchange for an initial $5 million payment and additional future payments. This strategic move allowed TELA Bio to focus on its core product lines while generating additional revenue.
From a regulatory perspective, TELA Bio has made significant strides. The company received its first 510(k) clearance from the FDA for its OviTex PRS products in April 2019. This was followed by an additional 510(k) clearance for its OviTex PRS Long-Term Resorbable device in March 2023, further expanding the company's product offerings and market potential.
TELA Bio's products have received 510(k) clearances from the FDA, with the company's exclusive contract manufacturer, Aroa Biosurgery, holding the relevant clearances. The company's intellectual property portfolio, which includes differentiated product construction and materials, as well as its exclusive manufacturing agreement with Aroa, provide significant barriers to entry.
TELA Bio has invested heavily in building a direct sales force, predominantly in the U.S., to drive awareness and adoption of its products. As of September 30, 2024, the company had 75 sales territories in the U.S. Additionally, the company has contracted with three national group purchasing organizations (GPOs) covering its OviTex and OviTex PRS products, and plans to continue expanding its GPO and integrated delivery network (IDN) partnerships to increase hospital access and penetration.
Financial Performance and Outlook
TELA Bio has experienced significant revenue growth in recent years. For the full year 2023, the company reported revenue of $58.45 million. In the most recent quarter (Q3 2024), TELA Bio's revenue reached $19 million, representing a 26% increase compared to the same period in 2023. This growth has been primarily driven by increasing unit sales of OviTex and OviTex PRS, as the company has expanded its customer base and made inroads in international markets, particularly in Europe.
Despite the company's top-line growth, TELA Bio has yet to achieve profitability. For the full year 2023, the company reported a net loss of $46.66 million. In the most recent quarter (Q3 2024), TELA Bio reported a net loss of $10.37 million. The company's investments in sales and marketing, research and development, and infrastructure to support its growth have contributed to its ongoing operating losses.
However, TELA Bio has taken steps to improve its financial performance, implementing cost-cutting measures in the third quarter of 2024 that are expected to result in $5 million to $10 million in annualized operating expense reductions, with some of the savings expected in the fourth quarter of 2024 and the full impact manifesting in 2025. Additionally, the company recently completed a public offering that added $43 million in cash to its balance sheet, which, combined with the cost-saving initiatives, should allow TELA Bio to reach breakeven while maintaining a solid growth trajectory.
For the full year 2024, the company is reiterating its previously issued revenue guidance of $74.5 million to $76.5 million, reflecting growth of 28% to 31% over 2023. This guidance does not include the potential effects of any disruptions to elective surgical procedures due to factors such as IV fluid shortages or other supply chain challenges, which the company is closely monitoring.
International Expansion and Adoption of Natural Repair Solutions
TELA Bio's international expansion efforts have been a particular bright spot, with the company achieving its first $1 million month in Europe during the third quarter of 2024. The company's European business grew 67% year-over-year in Q3 2024. The company's OviTex products have gained significant market share in key European markets, such as the U.K. and the Netherlands, supported by encouraging clinical data presented in journals and at medical conferences.
The shift towards natural repair solutions, like TELA Bio's OviTex and OviTex PRS products, is gaining momentum globally, driven in part by initiatives like the U.K. National Health Service's "Get It Right the First Time" program, which encourages shared decision-making between surgeons and patients on the most appropriate treatment options. TELA Bio believes this trend aligns well with its mission and positions the company for continued growth, as surgeons and patients increasingly opt for biologic-based implants over traditional synthetic meshes.
Strengthening the Commercial Organization and Driving Productivity
TELA Bio has made significant investments in its commercial organization, hiring a Chief Commercial Officer in May 2024 and implementing a range of initiatives to improve sales force productivity and efficiency. These efforts have included enhanced training programs to enable balanced selling across the company's hernia and plastic and reconstructive surgery product lines, as well as a reorganization that has streamlined the sales force and reduced reliance on auxiliary support functions.
The results of these initiatives were evident in TELA Bio's strong third-quarter performance, with the company reporting a 26% year-over-year increase in revenue and robust growth in unit sales for both its OviTex and OviTex PRS product lines. The company believes these operational improvements, combined with its recent cost-cutting measures and successful public offering, position it well to drive continued growth and progress towards profitability.
Risks and Challenges
TELA Bio, like any medical technology company, faces a range of risks and challenges that could impact its future performance. These include:
1. Macroeconomic conditions: The company's business has been affected by factors such as the COVID-19 pandemic, inflationary pressures, and disruptions to the supply chain, which have the potential to impact surgical procedure volumes and adoption of its products.
2. Regulatory environment: Changes in the regulatory landscape, particularly around the use of biologic-based implants, could create uncertainty and impact the company's ability to obtain necessary approvals for new products or product enhancements.
3. Competition: TELA Bio operates in a highly competitive market, with larger, well-established players offering alternative solutions for hernia repair, abdominal wall reconstruction, and plastic and reconstructive surgery.
4. Intellectual property: The company's ability to maintain and defend its intellectual property portfolio is crucial to its competitive positioning and long-term success.
5. Reimbursement: Securing and maintaining favorable reimbursement coverage for its products is essential to driving adoption and revenue growth.
TELA Bio's management team is keenly aware of these risks and is actively working to mitigate them through strategic initiatives, ongoing product development, and strengthening of its commercial infrastructure.
Financials
TELA Bio's financial performance has shown steady improvement over the past few years. For the full year 2023, the company reported revenue of $58.45 million. In the most recent quarter (Q3 2024), revenue reached $19 million, representing a 26% increase compared to the same period in 2023. This growth has been driven by increasing unit sales of both OviTex and OviTex PRS products, partially offset by a decrease in average selling prices due to product mix as the share of smaller-sized units increased.
Despite the revenue growth, TELA Bio is still operating at a loss. For the full year 2023, the company reported a net loss of $46.66 million. In the most recent quarter (Q3 2024), TELA Bio reported a net loss of $10.37 million. These losses are primarily attributed to ongoing investments in sales and marketing, research and development, and infrastructure to support the company's growth initiatives.
The company's gross profit margin for the nine months ended September 30, 2024, was 68%, showing a slight decrease from 69% in the same period of 2023. This decrease was primarily due to a higher charge for excess and obsolete inventory as a percentage of revenue.
TELA Bio's cash flow metrics for the full year 2023 show an operating cash flow of -$40.86 million and a free cash flow of -$41.47 million, reflecting the company's continued investments in growth initiatives.
Liquidity
As of September 30, 2024, TELA Bio had cash and cash equivalents of $17.3 million. The company's recent public offering added $43 million to its balance sheet, significantly improving its liquidity position. This improved cash position, combined with the company's cost-cutting initiatives, is expected to provide sufficient liquidity to fund operations and support growth initiatives in the near term.
TELA Bio's debt-to-equity ratio stood at -6.62 as of September 30, 2024. The company has a $40 million term loan facility with MidCap Financial Trust, providing additional financial flexibility if needed.
The company's working capital position remains strong, with a current ratio of 2.62 and a quick ratio of 1.81 as of September 30, 2024. These ratios indicate that TELA Bio has sufficient short-term assets to cover its short-term liabilities.
TELA Bio's management believes that the current cash position, along with expected revenue growth and cost-saving measures, will be sufficient to fund operations for at least the next 12 months. However, the company may seek additional capital in the future to fund expansion plans or to weather any unforeseen challenges.
Product Portfolio and Market Opportunity
TELA Bio's product portfolio consists of two main lines: OviTex Reinforced Tissue Matrix and OviTex PRS Reinforced Tissue Matrix.
The OviTex Reinforced Tissue Matrix, first commercialized in the U.S. in July 2016 and in Europe in February 2019, is designed for hernia repair and abdominal wall reconstruction. The company estimates the annual U.S. total addressable market opportunity for its OviTex products to be approximately $1.5 billion, based on the volume weighted average selling price. Hernia repair is one of the most common surgeries performed in the U.S., representing approximately 1.1 million procedures annually.
The OviTex portfolio includes multiple product configurations for various surgical procedures, including ventral, inguinal, and hiatal hernia repair. In November 2018, the company introduced OviTex LPR for laparoscopic and robotic-assisted hernia repair. TELA Bio has continued to expand this line, launching two larger configurations of OviTex LPR for ventral and incisional hernias in February 2023, and introducing OviTex IHR Reinforced Tissue Matrix for robotic and laparoscopic inguinal hernia procedures in April 2024.
The OviTex PRS Reinforced Tissue Matrix, first commercialized in the U.S. in May 2019, is designed for plastic and reconstructive surgery. Based on current sales of biologic matrices in the U.S., TELA Bio estimates the annual U.S. current addressable market opportunity for its OviTex PRS products to be approximately $700 million. In August 2023, the company launched its OviTex PRS Long-Term Resorbable product configuration, featuring bi-directional stretch and a fully resorbable, long-term polymer for reinforcement.
Conclusion
TELA Bio is a compelling medical technology company that is pioneering the use of biologic-based implants in soft-tissue reconstruction. With its innovative OviTex and OviTex PRS product lines, the company is well-positioned to capitalize on the growing demand for natural repair solutions in hernia repair, abdominal wall reconstruction, and plastic and reconstructive surgery.
While the company has yet to achieve profitability, its recent cost-cutting measures, successful public offering, and strengthened commercial organization suggest that TELA Bio is making significant strides towards that goal. Additionally, the company's strong international growth, particularly in Europe, and the broader shift towards biologic-based implants provide a promising outlook for its long-term success.
Investors interested in the medical technology sector may want to closely monitor TELA Bio's progress as the company continues to execute on its mission to transform soft-tissue repair through the innovative use of natural materials and technologies. With a robust product portfolio, expanding market opportunities, and a focus on operational efficiency, TELA Bio appears well-positioned for continued growth in the coming years.