Tenon Medical, Inc. — Fiscal 2023 Form 10-K Summary
Business context and reporting period
Tenon Medical is an early-stage medical-device company focused on the U.S. commercialization of its FDA-cleared Catamaran SI Joint Fusion System, a single titanium implant and inferior-posterior surgical approach for sacroiliac-joint fusion. The filing covers the fiscal year ended December 31, 2023; it is an annual report rather than a quarterly filing.
The company launched Catamaran nationally in October 2022 and is pursuing primary SI-joint procedures, revision procedures, and use as an adjunct to spine-fusion constructs. Products are manufactured by five contract manufacturers and sold primarily through independent distributors and sales representatives.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $2.928 million | $0.691 million | +324% |
| Cost of goods sold | $1.687 million | $1.332 million | +27% |
| Gross profit (loss) | $1.241 million | $(0.641) million | Improved by $1.882 million |
| Gross margin | 42% | (93)% | Improved by 135 percentage points |
| Operating expenses | $16.968 million | $18.084 million | $(1.116) million |
| Loss from operations | $(15.727) million | $(18.725) million | Improved by $2.998 million |
| Net loss | $(15.581) million | $(18.917) million | Improved by $3.336 million |
| Net loss per share | $(8.59) | $(23.62) | Not directly comparable because share counts changed |
| Net cash used in operating activities | $(12.183) million | $(12.025) million | Use increased by $0.158 million |
Revenue growth primarily reflected a 312% increase in surgical procedures using Catamaran. Gross-margin improvement reflected higher volume, operating leverage, and greater absorption of fixed overhead. Research and development expense increased 12% to $3.163 million, while sales and marketing expense declined 13% to $6.778 million and general and administrative expense declined 5% to $7.027 million. Stock-based compensation increased to $4.145 million from $2.897 million.
At December 31, 2023, cash and cash equivalents were $2.428 million, with no short-term investments remaining versus $6.441 million at December 31, 2022. Total assets were $6.345 million, total liabilities were $5.567 million, and stockholders’ equity was $0.778 million. The company reported an accumulated deficit of $55.073 million and has not generated positive operating cash flow.
Debt at year-end included approximately $1.173 million of convertible notes payable and accrued interest, net of discount. The notes were issued in November 2023, bore 10% interest, and were secured by substantially all company assets. In February 2024, the notes were cancelled in exchange for Series A preferred stock and warrants.
Material changes versus the prior comparable period
- Commercial activity expanded substantially following the 2022 national launch, producing a $2.237 million increase in revenue.
- Gross profit changed from a $0.641 million loss to $1.241 million of profit, although the company remained significantly unprofitable after operating expenses.
- Sales and marketing expense declined primarily because 2022 included $3.611 million related to terminating the SpineSource sales agreement; 2023 included higher payroll and sales commissions as the internal sales organization expanded.
- Research and development expense increased due primarily to higher stock-based compensation and payroll costs.
- Operating cash burn remained approximately $12.2 million despite the lower net loss.
- The company raised capital through equity offerings, an at-the-market program, warrant exercises, and $1.250 million of convertible notes. Financing activities provided $6.302 million in 2023, compared with $14.114 million in 2022, which included IPO proceeds.
- On November 2, 2023, the company completed a 1-for-10 reverse stock split. Historical share and per-share amounts in the filing reflect the reverse split.
Guidance, outlook, commentary, risks, and unusual items
Management did not provide formal revenue, earnings, margin, or procedure-volume guidance. Management expects continued operating losses and negative operating cash flow while it expands commercialization, trains clinicians, develops products, and conducts post-market clinical studies. Enrollment in two post-market studies was anticipated to be completed by the end of the second quarter of 2024.
The audited financial statements include a going-concern emphasis. Management states that year-end cash will not fund operating expenses and working-capital requirements for at least the next 12 months from the filing date. Additional capital is expected from equity offerings, debt financings, or collaborations. Failure to obtain financing could require reductions or delays in sales and marketing, research and development, and other operations.
- The company depends on a single commercial product and a limited operating history.
- Adoption depends on physician training, clinical evidence, reimbursement, and acceptance by hospitals, ambulatory surgery centers, and payors.
- Private-payor coverage may be inconsistent, and shifts toward ambulatory surgery centers could increase pricing pressure.
- The company faces larger, better-capitalized competitors, including SI-BONE, Globus Medical, Medtronic, Xtant Medical, and RTI Surgical.
- Production depends on contract manufacturers, with no long-term manufacturing agreements and some single-source or single-location dependencies.
- Medical-device regulation, post-market surveillance, product liability, recalls, intellectual-property disputes, cybersecurity incidents, and healthcare fraud-and-abuse laws create material contingencies.
- Management reported a material weakness in internal control over financial reporting and disclosure controls due to insufficient segregation of duties. The company’s auditor was not engaged to provide an internal-control attestation.
- Nasdaq notified the company in January 2024 that it was not fully compliant with board and committee independence requirements after a director’s resignation. The company has a cure period, and the notice had no immediate effect on trading.
- In February 2024, the company issued $2.605 million of Series A preferred stock and warrants and exchanged the secured notes for additional preferred stock and warrants. These transactions improved near-term capitalization but create potential dilution and preferential rights for preferred holders.
Most important facts for an investor to verify
- Current cash balance, operating cash burn, and the amount and terms of financing completed after December 31, 2023.
- Whether the February 2024 financing provides sufficient liquidity beyond the next 12 months and whether additional financing is required.
- Actual procedure volumes, average selling prices, gross margin trends, customer concentration, and recurring revenue growth following the national launch.
- Clinical-study enrollment, safety results, fusion rates, publication plans, and the effect of clinical evidence on reimbursement and physician adoption.
- Current status of the Nasdaq compliance cure process and any subsequent board or committee appointments.
- Progress in remediating the material weakness in internal controls.
- Potential dilution from preferred-stock conversion, warrants, options, the ATM program, and the Lincoln Park equity line.
- Outstanding accrued commissions and other obligations under the terminated sales-representative agreement.