TELA Bio, Inc. — Form 10-K Summary
Business context and reporting period
TELA Bio is a commercial-stage medical technology company developing and selling soft-tissue reconstruction products, primarily the OviTex and OviTex PRS reinforced tissue matrix portfolios. OviTex addresses hernia repair and abdominal wall reconstruction; OviTex PRS addresses plastic and reconstructive surgery. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The company sells predominantly in the United States through a direct sales force and relies exclusively on Aroa Biosurgery Ltd. for manufacturing and supply.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $29.5 million | $18.2 million | +62% |
| Gross profit | $18.8 million | $11.2 million | +67% |
| Gross margin | 64% | 62% | +2 percentage points |
| Operating expenses | $48.3 million | $36.5 million | +32% |
| Loss from operations | $29.5 million | $25.3 million | Loss increased 17% |
| Net loss | $33.3 million | $28.8 million | Loss increased 16% |
| Net loss per share | $2.30 | $2.23 | Loss increased |
| Cash used in operations | $30.4 million | $24.5 million | Use increased $6.0 million |
| Cash and cash equivalents | $43.9 million | $74.4 million | Down $30.5 million |
OviTex revenue was $23.0 million, while OviTex PRS revenue was $6.5 million. Unit sales increased 57% for OviTex and 90% for OviTex PRS. Sales and marketing expense was $29.1 million, general and administrative expense was $12.5 million, and research and development expense was $6.7 million. Stock-based compensation totaled $3.7 million.
At December 31, 2021, total assets were $62.5 million, total liabilities were $42.4 million, working capital was $48.5 million, and stockholders’ equity was $20.1 million. Inventory increased to $7.7 million from $3.9 million, including a $1.4 million excess and obsolete inventory charge during 2021.
Material changes versus the prior comparable period
- Revenue growth reflected increased unit volumes, expansion of the commercial organization, greater penetration of existing accounts, and stronger international sales.
- Gross margin improved from 62% to 64%, primarily due to lower excess and obsolete inventory expense as a percentage of revenue.
- Operating expenses grew faster in absolute dollars than gross profit, resulting in a larger operating loss and net loss.
- Sales and marketing expense increased 31%, reflecting higher personnel, commissions, travel, consulting, and commercialization costs. Cost containment measures taken in 2020 were not repeated.
- Research and development expense increased 58%, including $0.7 million of non-cash stock-based compensation related to amendments to equity awards following the death of the company’s co-founder and former Chief Medical Officer.
- Cash declined by $30.5 million, primarily because operating cash use increased and the company did not receive the $44.7 million follow-on offering proceeds received in 2020.
- The company entered into an exclusive distribution agreement with Next Science in November 2021 for an antimicrobial surgical wash, with private-label marketing planned for plastic surgery in 2022.
- The company expanded to 46 U.S. sales territories and had 123 employees worldwide at year-end.
Debt, liquidity, outlook, and risks
The company had $30.0 million of principal outstanding under its OrbiMed senior secured term loan, with a carrying value of $31.5 million after the end-of-term charge and issuance costs. The loan bears interest at 7.75% plus the greater of one-month LIBOR or 2.0%; the reported rate at December 31, 2021 was 9.75%. Principal matures on November 16, 2023, and the facility requires a minimum cash balance of $2.0 million. Contractual obligations totaled $53.5 million, including debt principal, interest and end-of-term charges, lease commitments, and purchase commitments.
Management stated that existing cash resources were expected to fund operations and capital requirements for at least the next 12 months from issuance of the filing. However, the company continues to incur recurring losses and negative operating cash flow and may require additional equity or debt financing. Its $50.0 million at-the-market facility had no sales in 2021 or 2020.
COVID-19 continued to affect elective procedure volumes, hospital access, staffing, sales activity, and demand. Management believed revenue was affected in January, September, and December 2021 by COVID-19 resurgences and variants, including Delta and Omicron. The near-term revenue outlook remained uncertain, and the filing provides no formal revenue or profitability guidance.
- The company expects operating losses for the foreseeable future and has an accumulated deficit of $229.9 million.
- Aroa is the exclusive manufacturer and supplier and operates primarily from a single facility in Auckland, New Zealand. Capacity expansion was under construction and expected to be available in 2022.
- OviTex products represented 78% of total revenue in 2021, creating substantial product concentration.
- Products are subject to extensive FDA, European, and other regulatory requirements. A breast reconstruction indication for OviTex PRS would require a PMA rather than a 510(k) clearance.
- Clinical evidence remains limited for OviTex PRS; the BRAVO study supporting OviTex was single-arm and included 92 patients. The 12-month analysis reported a 2.7% recurrence rate, while 24-month recurrence remained below 5% pending final publication.
- Competitive, reimbursement, product liability, intellectual property, supply chain, inventory expiration, cybersecurity, and healthcare compliance risks could materially affect results.
The company reported that disclosure controls and internal control over financial reporting were effective as of December 31, 2021. KPMG LLP issued an unqualified audit opinion on the consolidated financial statements; the auditor was not engaged to audit internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and improved gross margin can continue as sales and marketing spending expands.
- The company’s ability to reduce operating cash burn and fund the $30.0 million debt maturity in November 2023 without substantial dilution or refinancing risk.
- The pace of elective surgery normalization and the continuing effects of COVID-19 variants, staffing shortages, and hospital inventory policies.
- Aroa’s manufacturing expansion, supply reliability, regulatory compliance, and the terms and duration of the Aroa license.
- Final 24-month BRAVO results and the development of clinical evidence supporting OviTex PRS.
- Regulatory progress and funding requirements for any breast reconstruction indication requiring a PMA.
- The financial commitments under the Next Science distribution arrangement, including $10.8 million of purchase commitments and annual license fees over ten years.
- Product concentration, reimbursement coverage, competitive pricing, inventory shelf-life exposure, and potential future write-downs.