Business Overview and History
Tenon Medical, Inc. (NASDAQ: TNON) is a medical device company at the forefront of transforming care for patients suffering from certain Sacroiliac Joint (SIJ) disorders. The company's flagship product, the Catamaran SI Joint Fusion System, offers a novel, less invasive approach to addressing the most common types of SI Joint dysfunction that cause severe lower back pain.
Tenon Medical was incorporated in the State of Delaware on June 19, 2012, and was initially headquartered in San Ramon, California. In June 2021, the company relocated to Los Gatos, California. Tenon Medical has developed a proprietary, FDA-approved surgical implant-system, the Catamaran SI Joint Fusion System, which features a single, robust titanium implant designed to fuse the SI Joint along its longitudinal axis. This innovative approach aims to disrupt the articular portion of the joint and facilitate a fusion response, providing pain relief and restoring function for patients.
The Catamaran System received FDA clearance in 2018, and Tenon Medical initiated its national launch in October 2022. Prior to the launch, the company had incurred net losses since its inception in 2012 and had financed its operations primarily through public equity offerings, private placements of equity securities, certain debt-related financing arrangements, and sales of its product. The company is primarily focused on three key commercial opportunities: primary SI Joint procedures, revision procedures of failed SI Joint implants, and SI Joint fusion as an adjunct to spine fusion constructs.
Tenon Medical's strategy is centered around building a robust clinical research program to reinforce the safety and effectiveness of the Catamaran System. The company has devoted substantial resources to research and development, regulatory matters, and sales and marketing of its product. In September 2024, the company announced the first peer-reviewed publication of its interim analysis from the MAINSAIL study, an ongoing prospective, single-arm, multi-center post-market study evaluating clinical and radiographic outcomes of patients treated with the Catamaran System. The interim results demonstrated statistically significant reductions in SI Joint pain and disability scores, a robust safety profile, and high patient satisfaction, as well as definitive evidence of fusion response at 12 months.
In 2024, Tenon Medical effected two reverse stock splits to meet Nasdaq's minimum share price requirements - a 1-for-10 reverse stock split in November 2023 and a 1-for-8 reverse stock split in September 2024. These actions combined the company's outstanding common stock to maintain its Nasdaq listing. Despite these challenges, Tenon Medical has continued to make progress in developing and commercializing its Catamaran System, experiencing fluctuations in revenue, gross profit, and operating expenses as it has worked to build its commercial infrastructure and market presence.
Financial Performance
Tenon Medical's revenue for the nine months ended September 30, 2024, was $2.5 million, an 18.3% increase compared to the same period in the prior year. Gross profit margin improved significantly, reaching 54% for the nine-month period, up from 32% in the prior year. This improvement was driven by the absorption of more production overhead costs into the company's standard costs and operating leverage due to higher revenue.
The company's net loss for the nine months ended September 30, 2024, was $10.6 million, an improvement from the $12.6 million net loss in the same period of the prior year. Tenon Medical's operating expenses for the nine-month period decreased by 10% year-over-year, primarily due to the restructuring of its sales operations and a decline in research and development expenses.
For the third quarter of 2024, Tenon Medical reported revenue of $887,000, down 6% from the same period in 2023. The decrease was primarily due to a 15% decline in the number of surgical procedures using the Catamaran System during the quarter. Management attributed this to a longer timeline for implementation, training and development of the company's restructured sales operation, as well as unexpected reimbursement pre-authorization impacts leading to fewer surgeries performed.
In the third quarter, cost of goods sold was $469,000, resulting in a gross profit of $418,000 and a gross margin of 47%, compared to gross profit of $535,000 and a gross margin of 57% in the prior year period. Research and development costs decreased 11% to $657,000, while sales and marketing expenses decreased 21% to $1.21 million. General and administrative costs increased 7% to $1.76 million. The company reported a net loss of $3.18 million for the third quarter, compared to a net loss of $3.33 million in the prior year period.
For the most recent fiscal year (2023), Tenon Medical reported revenue of $2.12 million, with a net loss of $12.45 million. Operating cash flow was negative $9.90 million, and free cash flow was negative $12.87 million.
Liquidity
As of September 30, 2024, Tenon Medical had $9.2 million in cash and cash equivalents, a significant improvement from the $2.4 million reported at the end of 2023. This strengthened balance sheet was the result of recent equity financings, including a $4.5 million public offering in September 2024. The company has no outstanding debt, providing it with the financial resources to execute its growth initiatives.
Tenon Medical's debt-to-equity ratio stands at 0, reflecting its debt-free status. The company's current ratio is 3.52, and its quick ratio is 3.33, indicating a strong short-term liquidity position. The company has not disclosed any available credit lines or facilities.
Operational and Strategic Developments
Tenon Medical has made considerable advancements in its commercial and technical capabilities. In September 2024, the company announced the introduction of the Catamaran SE, a second-generation and smaller version of its implant and access profile. The Catamaran SE offers a 30% reduction in implant width, providing physicians with more options to accommodate varying patient anatomy and treatment strategies.
The company has also made significant progress in its clinical research efforts. In addition to the positive interim results from the MAINSAIL study, Tenon Medical was granted the issuance of three U.S. patents related to its enhanced Catamaran prosthesis, including unique drug delivery compositions and structures to correct failed SI Joint stabilization with alternative implants.
To support its growth initiatives, Tenon Medical has been actively expanding its sales force and commercial infrastructure. The company has reported building momentum in its restructured sales operations, which were completed in the second quarter of 2024. Looking ahead, the company plans to further expand its sales efforts to drive increased market penetration and adoption of the Catamaran System.
Future Outlook
Tenon Medical expects future coding clarity and the recent publication of their clinical data to positively impact the reimbursement pre-authorization headwinds they experienced in Q3 2024, which they believe to be transient in nature. The company plans to use the $9.6 million in net proceeds from recent equity financings to expand their sales force, continue their post-market study, and launch the new Catamaran SE product.
Management anticipates the trend of building momentum in their restructured sales operations to continue into 2025 as they develop and grow. They believe their solid balance sheet will allow them to be positioned for future growth and accelerate investment in their growth initiatives. However, the company has not provided specific quantitative guidance for future revenue, gross margin, or other financial metrics.
Risks and Challenges
While Tenon Medical has made promising strides, the company faces several risks and challenges that investors should be aware of. The highly competitive nature of the medical devices industry, potential reimbursement and regulatory hurdles, and the company's limited operating history and history of losses could all impact its ability to execute its growth strategy.
Furthermore, Tenon Medical's reliance on a single product, the Catamaran System, exposes the company to risks associated with potential product failures, competition from alternative treatments, and the ability to develop and commercialize new products. The company's small size and limited resources compared to larger, more established competitors could also pose challenges in terms of R&D, manufacturing, and marketing capabilities.
Conclusion
Tenon Medical is a promising medical device company that has developed an innovative solution to address the significant unmet need in the treatment of certain Sacroiliac Joint disorders. The company's Catamaran SI Joint Fusion System has demonstrated positive clinical outcomes, and Tenon Medical is strategically advancing its commercialization efforts, supported by a strengthened balance sheet and a robust intellectual property portfolio.
As Tenon Medical continues to navigate the competitive landscape and regulatory environment, investors should closely monitor the company's progress in expanding market adoption of the Catamaran System, the successful execution of its clinical research initiatives, and its ability to manage the risks and challenges inherent to the medical device industry. With a focus on innovation and a commitment to improving patient outcomes, Tenon Medical appears well-positioned to capitalize on the significant opportunities within the Sacroiliac Joint treatment market, despite the challenges it faces as a small-cap company in a competitive industry.