TELA Bio, Inc. — Form 10-Q Summary
Reporting period: Quarterly and nine months ended September 30, 2023; filed November 13, 2023. TELA Bio is a commercial-stage medical technology company focused on soft-tissue reconstruction products, principally the OviTex and OviTex PRS portfolios.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $15.1 million | $11.2 million | $41.5 million | $29.8 million |
| Gross profit | $10.4 million | $7.3 million | $28.5 million | $18.9 million |
| Gross margin | 69% | 66% | 69% | 63% |
| Loss from operations | $(10.2) million | $(9.5) million | $(31.8) million | $(29.6) million |
| Net loss | $(11.0) million | $(10.7) million | $(33.8) million | $(34.3) million |
| Net loss per share | $(0.45) | $(0.64) | $(1.51) | $(2.24) |
- Q3 revenue increased 35%; nine-month revenue increased 39%. Growth reflected higher unit sales, expanded commercial coverage, new customer accounts, deeper penetration of existing accounts and increased international sales.
- OviTex revenue was $10.2 million in Q3 and $28.2 million for nine months. OviTex PRS revenue was $4.8 million in Q3 and $13.1 million for nine months.
- Q3 OviTex unit volume increased 30% and OviTex PRS unit volume increased 45% year over year. Nine-month unit volume increased 37% and 43%, respectively.
- Gross margin improved primarily because of lower excess and obsolete inventory charges as a percentage of revenue.
- Operating expenses rose 22% in Q3 and 24% for the nine-month period, led by expanded sales and marketing investments. Nine-month sales and marketing expense increased 35% to $42.5 million.
- Interest expense increased to $1.3 million in Q3 and $3.9 million for nine months, reflecting variable-rate debt and higher interest rates.
Cash flow, liquidity and debt
- Cash and cash equivalents were $58.2 million at September 30, 2023, compared with $42.0 million at December 31, 2022. Working capital was $66.9 million versus $50.0 million.
- Cash used in operating activities was $29.8 million for the first nine months, approximately unchanged from the prior-year period. Investing cash use was $0.4 million, while financing activities provided $46.2 million.
- In April and May 2023, TELA Bio sold 5,219,190 shares in an underwritten offering for net proceeds of approximately $46.3 million. Shares outstanding increased to 24.5 million at September 30, 2023 from 19.2 million at December 31, 2022.
- Long-term debt was $40.4 million, consisting principally of the $40.0 million MidCap Term Loan. The loan matures in May 2027 and bears interest at 6.25% plus the greater of one-month Term SOFR or 1.0%.
- The debt agreement is secured by substantially all company assets, including intellectual property, and includes minimum quarterly net-revenue covenants and other restrictive covenants. A potential $10.0 million Tranche 2 requires, among other conditions, $65.0 million of net product revenue over the preceding four quarters by fiscal year-end 2023.
- Management stated that existing cash resources are expected to fund operations and capital requirements for at least the next 12 months from the filing date, although additional financing may be required thereafter.
Material changes, outlook and risks
- The company remains unprofitable, with an accumulated deficit of $308.0 million, and expects additional losses for the foreseeable future.
- Management plans continued investment in its sales organization, product development, clinical activities and expanded product offerings. As of September 30, 2023, the company had 85 U.S. sales territories.
- New or expanded offerings include larger OviTex LPR configurations, OviTex PRS Long-Term Resorbable, NIVIS Fibrillar Collagen Pack and distribution of LiquiFix hernia mesh fixation devices.
- COVID-19-related hospital staffing constraints, elective-procedure volumes and financial pressures remain sources of uncertainty. Reimbursement, product adoption, pricing pressure, competition, supply-chain performance and dependence on exclusive contract manufacturer Aroa are material risks.
- Interest-rate exposure is significant because the MidCap debt is floating-rate; management estimated that a 1% rate increase would have increased nine-month interest expense by approximately $0.3 million.
- On October 18, 2023, the company amended its Malvern lease, adding space and extending the lease through May 2030. The amendment is expected to increase contractual obligations by approximately $2.0 million from December 2023 through May 2030 and required an additional $0.3 million security deposit.
- On November 13, 2023, TELA Bio established a new at-the-market equity program with Piper Sandler and terminated its prior 2020 equity agreement. The filing does not state that shares had been sold under the new program as of the filing date.
- No material legal proceedings were reported, and management reported effective disclosure controls with no material changes in internal control over financial reporting.
Investor verification checklist
- Verify whether revenue growth and improving gross margin continue after the benefit of lower inventory-obsolescence charges.
- Track operating cash burn, cash runway and the timing or terms of any additional equity or debt financing.
- Review compliance with MidCap revenue covenants and the conditions for accessing the additional $10.0 million tranche.
- Assess the impact of continued sales-force expansion and research and development spending on the path to profitability.
- Monitor elective-surgery volumes, hospital staffing, reimbursement trends and customer adoption of OviTex and OviTex PRS.
- Evaluate concentration and continuity risks related to Aroa’s exclusive manufacturing and supply relationship.
- Consider dilution from the April 2023 offering, the new at-the-market program and outstanding options, RSUs and warrants.