TELA Bio, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
TELA Bio is a commercial-stage medical technology company focused on tissue reinforcement materials for soft-tissue reconstruction. Its principal products are OviTex for hernia repair and abdominal wall reconstruction and OviTex PRS for plastic and reconstructive surgery. Products are manufactured and supplied exclusively by Aroa Biosurgery Ltd. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $5.877 million | $3.726 million | Up 58% |
| Gross profit | $3.465 million | $2.200 million | Up 58% |
| Gross margin | 59% | 59% | Unchanged |
| Operating expenses | $10.734 million | $8.699 million | Up 23% |
| Loss from operations | $(7.269) million | $(6.499) million | Loss increased $0.770 million |
| Net loss | $(8.136) million | $(7.220) million | Loss increased $0.916 million |
| Net loss per share | $(0.56) | $(0.63) | Improved on higher share count |
| Cash used in operating activities | $(8.585) million | $(7.307) million | Use increased $1.278 million |
Revenue included $4.667 million from OviTex and $1.210 million from OviTex PRS. Unit sales increased to 1,486 OviTex units from 1,081 and to 270 OviTex PRS units from 101. Management attributed growth primarily to expansion of the commercial organization and increased penetration of existing hospital accounts.
Cost of revenue was $2.336 million, including a $0.2 million year-over-year increase in excess and obsolete inventory adjustments. Sales and marketing expense increased 20% to $6.299 million, general and administrative expense increased 9% to $2.756 million, and research and development expense increased 84% to $1.679 million. Stock-based compensation expense was $0.694 million, compared with $0.449 million.
Cash and cash equivalents were $65.829 million at March 31, 2021, compared with $74.394 million at December 31, 2020. Working capital was $69.6 million, compared with $76.6 million at year-end. The company reported an accumulated deficit of $204.8 million and expects to incur additional losses.
Long-term debt consisted principally of $30.0 million borrowed under the related-party OrbiMed Term Loan, presented at $30.982 million net of unamortized costs and including the end-of-term charge. The loan matures on November 16, 2023, bears interest at 9.75% as of March 31, 2021, requires a $2.0 million minimum cash balance, and is secured by substantially all assets other than intellectual property and certain other assets.
Material changes versus the prior comparable period
- Revenue increased $2.151 million, or 58%, while gross margin remained 59%.
- Operating expenses grew faster than gross profit, driven by expanded commercialization activities and higher product development, salary, benefits, testing, and analysis costs.
- Net loss increased 13% to $8.136 million, and operating cash use increased to $8.585 million.
- Cash decreased $8.565 million during the quarter; financing provided only $36,000, primarily from stock-option exercises, and investing activities used $22,000.
- Inventory increased to $4.688 million from $3.907 million, while accrued expenses declined to $4.673 million from $5.953 million.
- No shares were sold under the $50.0 million at-the-market offering program during the quarter.
Guidance, outlook, commentary, and risks
Management stated that existing cash resources and short-term investments are expected to fund operations and capital requirements for at least the next 12 months from issuance of the filing. The company expects continued operating losses and plans further investment in sales and marketing, research and development, additional OviTex and OviTex PRS products, robotic and laparoscopic applications, and potential clinical development for breast reconstruction. No formal revenue or earnings guidance was provided.
COVID-19 continued to affect demand through deferred elective procedures, lower surgical volumes, hospital resource constraints, and volatility in customer inventory replenishment. Management reported that manufacturing and supply-chain operations at Aroa had been largely uninterrupted but could be affected by future staffing, production, shipping, or travel disruptions. Near-term revenue growth and product-development timing remained subject to considerable uncertainty.
Key ongoing risks include dependence on Aroa for manufacturing and supply, product-market acceptance, competition, reimbursement and coverage, regulatory approvals, intellectual-property protection, adverse safety events and product liability, retention of qualified personnel, the need for additional financing, and the company’s recurring losses and negative operating cash flow. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether revenue growth and hospital-account expansion continue after COVID-19-related procedure disruptions subside.
- Whether operating expenses and cash burn can be reduced relative to revenue growth.
- The company’s ability to fund operations beyond the stated 12-month period without issuing equity or additional debt.
- Compliance with the OrbiMed facility’s covenants, including the minimum cash requirement, and the November 2023 maturity and related exit fee.
- Inventory levels, excess and obsolete inventory charges, and potential effects on gross margin.
- Reliance on Aroa, including supply continuity, the 27% of net sales product-cost arrangement, and license-term provisions.
- Clinical, regulatory, reimbursement, and safety developments for OviTex and OviTex PRS.