TELA Bio Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 9 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the TeleBio 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Louisa Smith from The Gilmore Group.

Speaker 1

Thank you, Michelle, and good afternoon, everyone. Earlier today, Tel Aviv Bio released financial results for the Q4 full year 2023. A copy of the press release is available on the company's website. Joining me on today's call are Tony Koblish, President and Chief Executive Officer and Roberto Cuca, Chief Operating Officer and Chief Financial Officer. Before we begin, I'd like to remind you that during this conference call, the company may make projections including without limitation, the company's annual report on Form 10 ks and quarterly reports on Form 10 Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements.

Speaker 1

These factors may include, without limitation, statements regarding product development and pipeline opportunities, product's potential, the impact of various macroeconomic conditions, including lingering effects of the COVID-nineteen pandemic, recessionary concerns, banking instability and inflationary pressures, the regulatory environment, sales and marketing strategies, capital resources or operating performance. With that, I'll now turn the call over to Tony.

Speaker 2

Thank you, Louisa. Good afternoon, everyone, and thanks for joining us today for TELUS Q4 and full year 2023 earnings call. Today, I'd like to cover 2 main topics. How we did in the just completed quarter year and I'm delighted to report that we have never been better positioned for success in our history as you will hear today. As a result of our outstanding Q4, we entered 2024 with considerable momentum, which is reflected in our guidance.

Speaker 2

4th quarter revenue was $17,000,000 up 13% sequentially from the 3rd quarter and 46% over the Q4 of 2022. I'll note that this is the 12th consecutive quarter we've had at least 35% year over year top line growth with an average growth rate over those 12 quarters of 49%. In the Q4, we sold more than 5,000 pieces of OVERTEX and OVERTEX PRS combined and PRS now accounts for approximately 1 third of our total revenue. PRS revenues grew 70% 75% year over year versus 34% for the hernia products and we expect this pattern to continue given that PRS is the more recently launched product line. When we last spoke to you in November, we described several initiatives we had launched to increase sales productivity after we experienced some disruption in the Q3.

Speaker 2

Specifically, we rolled out updated continuous training programs for our new reps, more intensive training on OVATEK's PRS for all reps and incentive programs targeted at those reps who appear to be falling short of quota as well as those who are on track to surpass it. We believe these programs are part of what helped us achieve record revenues in the Q4. So we are going to continue the training and over quota incentive programs while adding a new incentive target targeting balanced selling across our product lines. As we've described to you in the past, accounts that buy both our hernia and PRS products tend to be more than twice as valuable as accounts that only buy 1 or the other product. That is 1 plus 1 doesn't equal 2, it comes to something more like 3 or 4.

Speaker 2

Leveraging the new PRS training we've launched, we are going to start incentivizing reps to sell both products, providing greater compensation to those who succeed in doing this. We expect this initiative to be a real contributor to revenue growth in 2024 and beyond. One big difference in 2024 from last year is that we are beginning the year with essentially the full complement of reps we expect to end the year with. Our goal last year was to grow to a field sales force of 75 to 80 reps and we achieved that and beyond expanding from 61 reps we exited 2022 with to 86 reps and 8 assistant reps at the end of 2023. As of the end of February, we had 86 reps and 6 assistant reps.

Speaker 2

We plan to remain at these levels throughout 2024 perhaps adding a few opportunistically with some of the assistance likely converting to full reps over the course of the year. What this means is that the variability in our rep count is not likely to negatively affect sales in 2024. And from a productivity perspective, more than 75% of our reps have been with us for 6 months or more, which remains the average for a rep to reach breakeven or the point where they are covering their own variable costs. We expect we will continue to see turnover in 2024 although at lower rates than in prior years and with little expected negative impact. Our focus for the year then is not on recruiting, but on training and improving the productivity of the reps we have on board.

Speaker 2

Playbook 90 remains the cornerstone to these efforts supplemented with the additional more intensive training described earlier. I am actually speaking to you today from our national sales meeting where we have rolled out 2 significant new product offerings for our sales force to promote. Earlier today, we announced the full formal U. S. Commercial launch of 2 Liquifix products we have licensed exclusively from our partner Advanced Medical Systems.

Speaker 2

These are the Liquifix Fixate laparoscopic and Liquifix Precision open hernia mesh fixation devices. The first is indicated for minimally invasive femoral and inguinal hernia repairs and for approximation of the peritoneum, while the second is indicated for open inguinal and femoral hernia repairs. Both products have been available and successful in European markets for more than 3 years. We're really excited about the opportunity to bring LiquiFix to the U. S.

Speaker 2

Because it is the only FDA approved PMA product that affixes mesh and approximate tissue with liquid anchors reducing the use of intrusive mechanical tax, sutures or staples. The 2 Liquifix products are designed to minimize the risk of mechanical tissue trauma. As we've often said, we want to create a portfolio that drives growth, increases awareness, expands market share for products across our entire hernia franchise and demonstrates our commitment to improving all aspects of hernia repair. We believe Liquifix will do just that by offering greater utility for surgical mesh in inguinal hernia repair by enabling mesh fixation to sensitive areas such as the triangle of doom and the triangle of pain, regions in the groin where other penetrating fixation methods could result in vascular or nerve injuries and cause chronic pain. We also introduced our reps to OVITEX IHR, our new OVITEX inguinal hernia repair product, a next generation soft tissue repair platform designed specifically for inguinal hernia repair.

Speaker 2

Just like our other Ovitex devices, Ovitex IHR uniquely utilizes layers of sheep room and reinforced with just enough polymer suture for added strength. And of course, all OVATEX devices are designed to leverage a patient's natural healing response, facilitate tissue remodeling and optimize strength. OVATEK IHR will be available in 3 configurations, 2 anatomically shaped and 1 rectangular, all of which are specifically designed for inguinal hernia repair via robotic and laparoscopic approaches. TELA remains committed to the future of robotics and minimally invasive surgery with Ovatex and we're taking many steps this year to advance the recognition of our products as the first choice for minimally invasive hernia repair. We expect to formally launch OVATEX IHR in the U.

Speaker 2

S. In the Q2 of 2024. I also wanted to elaborate on our announcement yesterday of the sale for $8,000,000 to $12,000,000 in total cash consideration of our distribution rights to our Nivus Tubular Collagen Pack, a wound care product co developed and designed to tell us specifications with REGENITY Biosciences. Nivus represents an innovative high quality wound healing product and we expect it to perform even better as part of a portfolio of its acquirer. As part of the consideration, we received $5,000,000 upfront and we retain an interest in seeing that it succeeds in the form of additional future payments totaling between $3,000,000 to $7,000,000 based on net sales of Nidus over the next 2 years.

Speaker 2

The cash contribution from this divestiture strengthens our financial position and puts us on an even more solid path to profitability. I'll now turn the call over to Roberto to review our financial results and 2024 outlook.

Speaker 3

Thanks, Tony. As Tony mentioned earlier, revenue for the Q4 of 2023 increased 46% year over year to $17,000,000 and grew 41% for the year to $58,500,000 with OVERTEX growing 36% and OVERTEX PRS growing 51% for the year. These increases were primarily due to an increase in unit sales of our products and the continued expansion of our commercial organizations. Each of these resulted in increased penetration of our existing customer counts as well as the addition of new customers and growth in international sales. Gross margin was 68% for the Q4 and 69% for the full year compared to 70% 65% for the prior year periods respectively.

Speaker 3

The slight decrease in the Q4 of 2023 versus the Q4 of 2022 was primarily due to an increase in our excess and obsolete inventory adjustments incurred during that period. For the full year, the gross margin improvement was driven by improved inventory management processes and lower amortization of intangible assets. Sales and marketing expense was $17,200,000 in the Q4 of 2023 compared to $11,600,000 in the same period in 2022. This increase was mainly due to higher salary benefit and commission costs as a result of the expansion of our commercialization organization, higher travel and consulting expenses and additional employee related costs due to increased headcount. As Tony mentioned earlier, we hired in the Q4 of 2023 to achieve the steady state sales force size we expect for 2024.

Speaker 3

The effect was to increase expense at the end of 2023, but once that normalizes over the Q1 of 2024, we expect sales and marketing expense to be relatively level for the rest of 2024. General and administrative expense was $4,100,000 compared to $3,200,000 in the same period in 2022. R and D expense was $2,700,000 in the 4th quarters of both 2023 2022. Loss from operations was $12,300,000 in the Q4 of 2023 compared to $9,400,000 in the prior year period. Net loss $12,900,000 in the Q4 of 2023 compared to $10,000,000 in the same period in 2022.

Speaker 3

We ended 2023 with $46,700,000 in cash and cash equivalents. This does not include any of the $8,000,000 to $12,000,000 consideration for the sale of Nivus distribution rights or the value of Nivus inventory we sold as part of the transaction, both of which occurred in the Q1 of this year. Note that in 2023, Nivus accounted for less than $300,000 of TELUS total revenue. Turning to the outlook for 2024, we anticipate revenues to be in the range of $74,000,000 to $76,000,000 representing growth of 27% to 30% over the full year of 2023. As we have said in the past, we expect operating loss and net loss to be less in 2024 than in 2023 even excluding the contribution from the divestiture of Nimbus.

Speaker 3

Moreover, we expect operating expenses to be reasonably steady over the course of the year, notwithstanding some typical seasonality and expense. And since we expect revenue to grow sequentially, both operating loss and net loss should decline directionally over the course of the year, again, even excluding the contribution from the divestiture of Nippus. As we have said in the past, we believe that our cash and cash equivalents even before the proceeds from the divestiture of NIBIS are sufficient to fund us to profitability and the incremental $8,000,000 to $12,000,000 will only provide additional cushion to this. We have an exciting year ahead of us and I look forward to updating you over the course of it. With that, I'll hand the call back to Tony for closing remarks.

Speaker 2

Thanks, Roberto, and thank you everyone for your interest in Telebio. I'm proud of what our team accomplished in 2023. We made exceptional progress in expanding awareness around the OVA text and OVA text TRS portfolio and the efficacy of our mesh in optimizing clinical outcomes and soft tissue preservation. Throughout 2023, dedicated resources to introduce more than 10,000 specialized hernia and plastic reconstructive surgeons at 72 industry and society meetings to our brand and product portfolio and we educated more than 1500 surgeons globally through telebio labs and other educational program offerings on the safe and effective use of our products. 1 of TELUS key differentiators is the compatibility of our reinforced biologic products with hernia procedures performed robotically and laparoscopically.

Speaker 2

In 2024, we plan to continue educating the market with a particular emphasis on the use of OVA tax in minimally invasive robotic cases. As part of that initiative, we are excited for Teva to be part of the upcoming Intuitive Surgical Connect meeting next month. In closing, our team is poised to deliver another strong year of financial performance and solid execution. I would like to thank all those at TELA for their part in making 2023 such a success and setting us up for continued outstanding work in 2024. With that, I'll now ask Michelle to open the line for your questions.

Operator

Thank And our first question is going to come from the line of Frank Kakinen with Lake Street Capital Markets. Your line is open. Please go ahead.

Speaker 4

Great. Thanks for taking the questions. Congrats on a really strong finish to the year. I was hoping to start with 1 on the 2024 guidance. Obviously, you had a strong start or strong end of the year and typical med tech seasonality supports that.

Speaker 4

How should we be thinking about Q1? Obviously, we're a good portion of the way through that. And then the ramp of revenues to achieve the guided range throughout 2024?

Speaker 3

Sure. Thanks for the question, Frank. So we expect that the seasonality that we've seen in previous years is likely to replicate in 2024. So that means that the first quarter is typically flat to slightly downish from the preceding Q4. And then the quarters succeeding the Q1 grow from that, with the step up from the 1st to the 2nd quarter typically being one of the larger incremental steps in the year.

Speaker 3

We've talked about some of the factors that drive the very strong Q4 and then are essentially pulling some revenue from the Q1 into the Q4 and past. Those are a couple of things. One is a lot of patients like to use up HSAs at the end of the year, if they have co pays for surgeries. We understand that patients some patients will schedule their surgeries around the holidays, so they have family at home to look after them. And then both physicians and sales reps are trying to make numbers for the end of the year.

Speaker 3

So that typically pushes produces a bit of a push at the end of the year. So we do expect not standing the leveling off of our sales force that sort of seasonality to persist.

Speaker 5

And I'll just add

Speaker 2

a little bit of color, Frank, additional to what Roberto said. I don't think Q1 is going to behave much differently than the normal seasonality patterns that Roberto suggested. But by us building out the sales force to the desired size in Q4 and getting the time and tenure and maturity on them, we're really setting up for that Q2 and beyond, which is generally a great step up for us. So that's a little bit behind the thinking.

Speaker 3

Okay, that's helpful.

Speaker 4

And then let me go just ask one more and then hop back in queue. Clearly a lot of conversation about robotic, inguinal, IHR, I'm assuming is going after that market. A lot of volume there in the inguinal space. Maybe just kind of recap that whole topic of positioning yourself correctly in the robotic tailwind as well as the volumes in Inguinal, the opportunity there, IHR specifically and the excitement around that area and how we should be thinking about that throughout the year and going forward?

Speaker 2

Sure, Frank. So we've got about 4 or 5 years of experience in the inguinal space, but it's a little bit not optimized, but it was a very ideal period of time to learn and to make sure that we baked in our product portfolio design, technique design and pricing scheme to work. So it gave us a great test bed. We started off with templates that the surgeon could trace out the unique shapes. We developed various rolling techniques to get it down the intuitive trocars and then various techniques from there.

Speaker 2

And we had some success, but we were using the basic product portfolio that is more applicable to the ventral space. So the pricing is a little bit misaligned. So what we've been able to do is take all the learning from that template program and just bake it right into the product. We've made the product thinner. We've added a little bit more polymer.

Speaker 2

We've gone from a grid shape pattern to a triaxial pattern, which I think is ideal for deployment, maybe a little stickiness inside the body and superb for strength given that the product is a little bit thinner. We've been able to maintain a similar strength to other products. And finally, we're taking all those technique learning and we're adjusting the price for this set of products to be super competitive without in what I will call the premium segment of the inguinal market. And so as we mentioned in the script, we'll have this product on the shelf at some point in April or Q2 and we expect to roll it out with the sales force after all this learning that's taken place over the years. And we're really pleased to expose our company to this our sales team to this product at the National Sales Meeting today.

Speaker 2

So we're getting great head start on the launch.

Speaker 4

Perfect. That's good color. I'll stop there. Congrats on the progress.

Speaker 2

Thanks, Frank.

Operator

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Caitlin Cronin with Canaccord Genuity. Your line is open. Please go ahead.

Speaker 6

Hi, everyone. Thanks for taking my questions and congrats on an awesome quarter. Just to start, can you touch on GPO contracts and how you were ramping in your existing contracts?

Speaker 2

You were a little blurry there, Caitlin. We're sitting in hotel room with a landline, which is now ancient technology. So if you could just repeat that, that would be great.

Speaker 6

Sure. Yeah. No worries. It was just on GPO contracting and how you're ramping in your existing contracts.

Speaker 2

Okay. Thank you. Yes, so we're about a 60% revenue within our GPO partners. Our target for this year is to be around 70%. We think that's very, very attainable.

Speaker 2

And if you look at the longest tenured GPO Health Trust and particularly the subset of Health Trust known as HCA, we may have about a 30% to 35% market share within that organization within hernia. So I think given time, pressure, addition of clinical data, maturity of our commercial structure and team that we're slowly proving that we can penetrate into GPOs over the long haul. Obviously, we've had the longest start with HCA and HealthTrust, but we should be able to continue that march through the other GPOs. We are in the process of working through contracting for Liquefix to get access to that product. And then also other GPOs are going to be coming up for contract late this year.

Speaker 2

So in addition to focusing mostly this year on implementation and growth within the footprint we have, we also keep our eye on the further processes involved in getting more contracts. So we're very confident that not only will the number of contracts grow, but our penetration will grow as well.

Speaker 6

Awesome. And then just on liquefix, since the current indication is for polypropylene and polyester mesh, will you be o line based mesh?

Speaker 2

Absolutely. Yes. Very, very good reading to fine print on that one. Thank you. Yes.

Speaker 2

So what's powerful about Liquifix is that it is hyper aligned with Inguinal to start. And it's very much a product that is going to be used with the vast majority of the inguinal mesh is used today that is to say polypropylene and polyester. So it's going to give us the ability to interact with surgeons who do not use our products today And it's going to give us a tremendous entry point and platform to present our new IHR portfolio, our new our whole hernia portfolio really. And so I think it's going to be a very important driver of the hernia franchise for this year. And then as the contracting, etcetera, starts to come into place, as this year goes forward and through next year, I think liquidated Salus will start to become an excellent contributor in the business as well.

Speaker 2

So there's a couple of things that have to happen that we have our eye on working with AMS who've been a tremendous partner so far in the launch phase very much participating with us in the rollout here at the National Sales Meeting. One is expanding indication to things like ventral hernia and 2 is expanding indication to our product and biologic products. In Europe, LiquiFix has been used for several years. There's 100 of thousands of procedures that are done with it. It's very good learning curve and tips and pearls for us to tap into.

Speaker 2

There's a published paper, one of the surgeons out of the UK, Mr. Wilson has done 100 of cases of LiquiFx in combination with all biologic products, including our products. So we know that it works. We just have to do the work to drive the expansion of indications and different products. That said, there's more than enough to work with the LiquiFx label that we have now since most inguinals are repaired with synthetic mesh and it's a great door opener for us as well.

Speaker 6

Awesome. Thanks so much for taking the questions.

Speaker 5

Thanks, Kevin.

Operator

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Michael Sarcone with Jefferies. Your line is open. Please go ahead.

Speaker 7

Good afternoon and thanks for taking my question.

Speaker 2

Thank you.

Speaker 7

Just on the sales incentive programs, you talked about how there are synergies excuse the background noise when you can get a rep selling multiple more than one product into accounts and I think you said it could be 3 to 4, not 1 to 2. I was wondering if you can give us a little more color on what proportion of the sales force today is kind of selling 1 product versus 2 or just any kind of split with sales force and where that could ultimately go over time?

Speaker 3

Thanks for the question, Mike. So pretty much all of our sales reps today are selling some of each product. What I'd say is that, those who are selling close to balanced selling, what we're trying to achieve with the incentive program represent probably about a third of our sales force. So if we can move the other 2 thirds of the sales force to something closer, we believe that that dynamic of the 1 plus 1 equaling 3 to 4 will benefit the whole portfolio. So we're not going to put in place incentives that require them to jump from selling, let's say 5% PRS or 5% hernia to fifty-fifty immediately.

Speaker 3

But we're putting in a plan that will gradually grow them, incentivize them to grow to a much more balanced selling, something that will look more similar to the breakdown between the two products across our portfolio.

Speaker 7

Got it. That's helpful. Thank you. And then just second question for me, just on cash burn. Can you talk about how you expect cash burn to trend through the year?

Speaker 3

Well, in the same way that with reasonably level OpEx over the course of the year and increasing revenue, we should be seeing operating income and actually operating loss and net loss decrease directionally over the course of the year. We expect cash burn to be doing the same thing. There is a little bit of seasonality in how our cash is spent with building of inventory and payment of incentive compensation, for example. But directionally, cash burn should be decreasing somewhat similarly to the decrease in operating income or loss.

Speaker 7

Thank you.

Speaker 3

Thanks.

Operator

Thank you. And one moment while we move on to our next question. And our next question is going to come from the line of Dave Turkaly with JMP Securities. Your line is open. Please go ahead.

Speaker 5

Hey, good evening, guys. You mentioned the accounts using both are twice as valuable. I'm just curious, are you able to give us an update on how many of those accounts you have now? And maybe if you have a target for where you think that's going to go in 2024?

Speaker 3

Sorry, you're breaking up at the beginning. What kind of accounts were you asking about?

Speaker 5

Essentially, how many are using both today? Like you mentioned, they're twice as high. And then where do you think that's going this year, if you could maybe throw out an estimate of how that could progress?

Speaker 3

Yes. So probably about 50% of accounts are using both products. They may not be using them in the same proportion as we sell across our portfolio. There's some smaller hospitals that really don't do one kind of repeat procedure or another. And so those are just never going to convert.

Speaker 3

But the larger hospitals that typically do both hernia repair and reconstruction, we do have some of those that really sell primarily or buy primarily one product or the other, which means we're just not getting to the physicians who are doing the other sort of procedure. So to the extent that we can get our reps talking to and pitching to those physicians as well, they just become more efficient. They can do all their selling in one institution rather than having to get in their car and drive across town, which means that they can be more efficient and effective. So the goal is to get as many of those potential hospitals that could sell, excuse me, buy both kinds of products up and running and buying both. And so at some point, it will be closer to 80% or 90% of our accounts are buying fairly evenly across our portfolio.

Speaker 5

Great. And then on Liquifix, I was wondering if you might comment on ASP and margin profile. I think I saw that the applicator can deliver something like 40 anchors, something like that per procedure. So I'm just curious how that's going to how we should think about that as we look to this year and then beyond? Thank you.

Speaker 3

Sure. So we haven't disclosed the price point, the exact price point. It's going to be similar to Cackers and Staplers. And the margin will be at or better than depending on the exact ASP that we're able to achieve the rest of our portfolio. These are smaller dollar items.

Speaker 3

They're really used only a single one even though they have 40 deployments. They only used a single one per patient and 40 anchors is quite a bit for these sorts of applications.

Speaker 5

Thank you.

Speaker 3

Thanks, Dave.

Operator

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Matthew O'Brien with Piper Sandler. Your line is open. Please go ahead.

Speaker 8

Hey, this is Phil on for Matt. Thanks for squeezing us in here and taking our questions and congrats on the outstanding quarter. On the rep side of things, can you provide any additional color on the way that I think about is 2 different cohorts, one being the cohort before the sales force disruption and the other being post that disruption. Can you give any color on the productivity of each group? How quickly the newer reps might near the productivity of the more tenured reps?

Speaker 8

And is double digit productivity gains the right way to think about the group as a whole here in 2024?

Speaker 3

Yes. So, as I said in the prepared remarks, about 3 quarters of our reps have been with us for more than 6 months. So those would be reps that were preceding that disruption that occurred in the Q3. So about a quarter then are with us for under 6 months or just about 6 months. What we're seeing is that they are trending towards the same productivity metric that we've seen in the past of achieving breakeven, so covering their own expenses within that 6 months on average.

Speaker 3

And we expect that with the additional training that we're giving them with the greater breadth of our regional managers now who manage fewer reps individually, that they will be able to at least achieve the sorts of productivity curves that reps have in the past.

Speaker 8

That's helpful. And then any color on the pipeline of additional GPOs that might be weighted in the wings? Might we see another one of those here in 2024? And is anything like that contemplated in the guidance? Thank you.

Speaker 2

Yes. I mean the next big national scale one is Vizient. That's probably in end of this year or early next year kind of event given when the process starts. It's less critical for us given that it's a lesser compliant organization and that means that we're able to go the harder route in terms of value analysis committees and process, etcetera. But we're able to get into the IDNs that roll up to Vizient for the most part.

Speaker 2

So right now we've got our hands full with the 3 primary GPOs and all smaller IDNs and other contracts that we have. But that would be the next national one. We're working on some of the really tight regional ones like Kaiser and things like that. I don't have a good feel for when these are going to come. So far we've had excellent track record.

Speaker 2

We haven't really been rejected anywhere. So I think it's a matter of time that's going to be driven off of when the bid process starts, how long it takes them to process and award the contracts and then start the contracts. It's generally a long process. So like I said, this is the year of implementation more than new contracts, but we can keep the new contract machine going. And I expect it to be end of this year or sometime early next year where you'll start to see some additions.

Operator

Thank you. And I'm showing no further questions at this time. And I'd like to turn the conference back over to Tony Koplish for any further remarks.

Speaker 2

Thank you, Michelle, and thank you to everybody for joining us and for your continued interest in Telebio. We look forward to catching up with you next time and have a great rest of your afternoon.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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