Q4 2021 TELA Bio Inc Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to the Tela Bio fourth quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
Western and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to Luisa Smith from the Gilmartin Group you may begin.
Thank you to Wanda and good afternoon, everyone earlier today Tela bio released financial results for the fourth quarter and full year 2021 a copy of the press release is available on the company's website.
Joining me on today's call are Tony Cobalt, President and Chief Executive Officer, and Roberto Luca.
<unk> operating officer, and Chief Finance Officer.
Before we begin I'd like to remind you that during this conference call. The company will make projections and forward looking statements regarding future events.
I encourage you to review the company's past and future filings with the SEC, including without limitation, the company's Twenty-twenty Form 10-K , and subsequent form 10, Qs, which identify the specific factors that may cause actual results or events to differ materially from those described.
These forward looking statements.
These factors may include without limitation statements regarding product development product potential the impact of COVID-19, the regulatory environment sales and marketing strategies capital resources or operating performance.
With that I'll now turn the call over to Tony.
Thank you Luisa and.
And good afternoon, everyone. Thanks for joining us today.
I'm pleased to report that Tela bio finished the year with fourth quarter revenue of $8 4 million up 9% from the third quarter and 48% from the fourth quarter of 2020.
As COVID-19 subsided in the fall of last year. Our Q4 revenue started off quite strong however, the impact of the omicron variant and second procedures and performance in December compared with our expectations absent Amacrinal. We believe we would have seen even stronger performance in the quarter.
Sales for the year were $29 5 million, reflecting growth of 62% from 2020, the benefits of using Overtax are clearly gaining traction with surgeons as we have continued to capture share and grow faster than the market as you can imagine introducing innovation and changing the status quo requires us to educate various.
When our sales reps have the opportunity to make the case for our products, especially in person our business thrives. However, due to COVID-19 traditional in person opportunities. We're always we're not always an option. So our sales representatives were quick to employee virtual sales and educational sessions their tenacity helps to keep our business momentum going through.
The most challenging periods of the pandemic.
We expect that momentum to continue into 2020. Therefore, we are projecting year over year revenue growth in 2022 of approximately 44% at the midpoint of our guidance range, assuming COVID-19 related disruptions are not greater than we experienced in 2021.
In the fourth quarter, we entered into an exclusive distribution agreement with NEC science for site Gardner <unk> antimicrobial solution for use in plastic reconstructive surgery. This was the first step in our evolution from a focus on high quality reinforcement materials to more broadly prioritizing the preservation and restoration of the.
The patient's own anatomy through soft tissue reconstruction solutions and complementary technologies, having had the opportunity to work with thank God for several months now we are even more optimistic about the future success of this product. We believe it is an excellent way for us to build on our expertise and tissue repair procedures and has also been key.
With our record of providing patients clinicians and payers with effective and cost saving solutions.
We expect to continue to leverage our sales force to expand our total addressable market with additional synergistic products are.
Our confidence in our future both in 2022 and beyond is only increasing as we grow.
And rest on to compete.
Our growth rests on two key competitive advantages.
Taylor, we offer innovative products backed by compelling data, we have a high performing and improving sales force and support functions.
We know all the taxes is a great product line that provides excellent outcomes for patients. However, changing physician behavior requires data the compelling results from the Bravo study are helping to drive over text adoption and increase use recall that Bravo demonstrated that overtax performed exceptionally well with an overall hurry hernia recurrence rate of only $2.
7% at 12 months and below 5% at 24 months.
There will be more data to follow when the full results are published and even more from a bravo to study in the future.
Additionally, a number of overtaxed presentations have been optimized.
To capitalize on the growing use of robots and repair procedures and the need for reinforcement materials compatible with these technologies.
In the fourth quarter of 2021, 57% of Overtaxed hernia repairs were done by a laparoscopic robotic surgeries in the next several years, we expect the market to evolve such that the large majority of hernia repair procedures will be done with robotic existence, except for the most complex or extensive repairs oba.
<unk> was designed to be flexible enough to be used in robotic surgery, but still offers the surgeon strong support where needed. So we believe this is well placed in the market for this market development.
Our Prs franchise continues to perform on a unit basis sales were up 90% in 2021 compared to 2020.
And as with the rest of the older tax products. We continue to develop data in support of Prs in both clinical and preclinical studies as the plastic plastic and reconstruction markets continued to move away from cadaver skin based products, we expect prs to be a substantial contributor to our overall performance in the fourth quarter of 2021 12.
Of our reps were selling at a $1 million right Andrew.
Annualized.
These two reps, who are selling out a $2 million right that type of exceptional productivity was a result of having an innovative product portfolio combined with what we're calling playbook 90, which we launched in early 2021.
They book 90 provides comprehensive sales and resource training combined with performance measurement that permits us to quickly get high potential reps up to speed, while providing an early indication of those who might not be successful with our products. The effectiveness of playbook 90 has given us the confidence to expand our sales force to them.
Proximately 55 by midyear and 60 by year end up from just under 45 at the end of 2021.
Another critical component to our success as physician training when elective surgery cases decrease due to Covid. We took this as an opportunity to educate surgeons on the benefits of our products. As a result, we've seen an increase in the number of surgeons attending remote live and in person training sessions when they haven't had access to the operating.
In addition, we have found that once a doctor who has been trained with overtax. They are likely to adopt the technology to date over 300 physicians have been trained on our products.
With that I'd like to turn the call over to Roberto Cooker, or C O O and CFO for a more in depth review of our fourth quarter and full year results.
Thanks, Tony Rep.
Revenue for the fourth quarter of 2021 increased 48% year over year to $8 $4 million as a result of the expansion the expansion of the commercial organization and the accelerated productivity ramp from new sales reps, we've been seeing as a result of playbook 90.
Gross profit in Q4 was $5 $7 million as opposed to $3 $7 million in the fourth quarter of 2020.
Gross profit percentage was 68% for the fourth quarter compared to 65% for the same periods in 2020 the increase was.
Was primarily due to a decrease in the reserve for excess and obsolete inventory as a percentage of revenue as compared to the prior year.
Sales and marketing expenses were $8 $3 million in the fourth quarter of 2021 compared to $6 $4 million in the same period in 2020. This.
This increase was mainly due to the expansion of our commercialization activities.
G&A expenses were $3 $3 million in the fourth quarter of 2021 compared to $2 $9 million in the same period in 2020.
This increase was mainly due to higher compensation and increased professional consulting and legal expenses.
R&D expenses were $1 7 million in the fourth quarter of 2021 compared to $1 2 million in the same period in 2020, primarily due to additional testing and development work.
Loss from operations was $7 7 million in the fourth quarter of 2021 compared to $6 $7 million in the prior year period.
Net loss was $8 $6 million from the fourth quarter of 2021 compared to $7 $8 million in the same period in 2020.
We ended the fourth quarter of 2021 with $443 $9 million in cash and cash equivalents.
Turning to the full year 2021 revenue was $29 $5 million, an increase of 62% compared to $18 $2 million in 2020.
2021, gross profit was $18 8 million compared to $11 $2 million in 2020, an increase of 67%.
Sales and marketing expenses were $29 $1 million for the full year, G&A and R&D were $12 5 million and $6 $7 million respectively.
Loss from operations was $29 $5 million in 2021 compared to $25 $3 million in the prior year and net loss was $33 3 million for 2021 compared to $28 $8 million for full year 2020.
Now turning to the outlook for 2020, we anticipate revenues to be in the range of $40 million to $45 million representing growth of 36% to 53% over the prior year.
This assumes that the impact of COVID-19 in 2022 is no worse than it was in 2021 further disruption from COVID-19 could negatively negatively affected his projections.
As of today's call, we have good visibility into performance in the first quarter of 2022.
As Tony mentioned earlier, the omicron negatively affected sales in December and this impact continued into the early part of this year suppressing January and February revenues below our expectations.
We believe march's rebounding, but the overall effect is that we expect first quarter revenues to be down slightly from the fourth quarter at approximately $8 million.
This expectation is incorporated into our full year projection of revenues from $40 million to $45 million with that I'll hand, the call back to Tony for some additional remarks.
As you heard our business was strong in the fourth quarter of 2021, even with the headwinds from COVID-19 in December .
<unk> from October and November gave us a glimpse of how we can perform in an operating environment minimally impacted by the pandemic.
Fortunately despite a winter flareup as of March things appear to be opening up again and our results are quickly reflecting that.
We anticipate maintaining durable growth and increasing market penetration with our strategic product portfolio in 2022 thinking.
Thinking beyond 2022, we believe <unk> has in place the key elements to be very successful medical device company, great products that offer needed solutions compelling clinical data a strong sales force and infrastructure established reimbursement a compelling value proposition and a vast market opportunity we look for.
To becoming a market leader in soft tissue preservation and restoration.
Toronto, Please open up the call for questions.
Thank you, ladies and gentlemen to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
That's all I wanted to ask the question.
Our first question comes from the line of Matt O'brien with Piper Sandler Your line is open.
Hi, guys. Good afternoon. This is drew on for Matt and thanks for taking the questions and congrats on a solid engineered here.
I do want to start off on the guidance I got your comments on Q1, but you are providing a relatively wide range almost 17 points of growth from the top end to the bottom. So I assume you're baking in a couple of scenarios into each of those assumption. So maybe you could just run through some of the factors that get you to the high versus the low end of that guidance.
Great.
Sure. Thanks for the question drew.
So obviously as I described we included into our assumptions that COVID-19 is no worse in 2022 than it did in 2021.
But we did build in some ability for it to flare up in different parts of the year.
As you know our fourth quarter tends to be one to one of the strongest quarters of the year, which is one of the reasons you see the step down from the fourth quarter to the first quarter of this year.
And so if the COVID-19 would impact one of our bigger quarters.
Theres room in that range of guidance to absorb that.
And then we followed the standard procedures that we do generate our guidance, which is building up by territory and by sales Rep.
Based on their current ramp and on expectations based on our playbook 90 for how they would grow over the course of the year.
And that all combined to produce the revenue guidance range of $40 million to $45 million for 2022.
Okay very helpful. Thank you for that.
And then just on the sales Rep expansion side, you know it really seems like youre starting to lean into things a little bit maybe you could just flush out those comments is that the right read.
And then just the productivity comes as well you know what I think last year, you were targeting 50% of your reps, reaching that $1 billion run rate, what's the right way to think about the productivity of that group in 2022.
Yeah I mean.
We feel very confident in rep rep productivity right playbook 90 is a very precise prescriptive methodology.
Following steps on how each individual rep can build the franchise and the business and their geography, it's based on the ecosystem that we've built.
That enables every rep to succeed.
Around every rep and it also is based on a formula that our most successful reps have employed so it's based on actual data it's rigorous it's quantitative and it's measurable.
By implementing it we feel that there's been an acceleration in productivity.
We're seeing reps to be able to pay for themselves.
Very quickly.
Three to six months.
We are seeing reps jumped to create productivity.
Sustained growth if they are able to follow the playbook.
Very consistently so.
That's a lot of the work that Roberto did coming into the company to analyze the data.
And it's clear to us that that is the right inflection point for us to start the process of scaling up the sales force more meaningfully.
So certainly rep productivity.
<unk> the time to that productivity all of that works together that gives us the confidence to keep growing the sales force. The other factors involved are.
Clinical data is maturing.
Contracting and IBM processors maturing.
And we are at the cusp of launching an array of new products in the next 24 months.
Which we wanted to have in the hands of more and more reps. We've also done a great job of building a training and coaching department.
Proud of that team we ran our first sales school with this in house coaching team and development team and it was it was a great success.
16 reps or so worked through the program.
And its really a hallmark of quality I also feel like we're able to attract.
Exceptional talent to the company now.
At that $30 million play.
Place, which is a great place to be for a development stage Med Tech company Youre sort of beyond the concept of does it work.
Can we prove ourselves can we build that that income for reps and now we're starting to see the benefits of that in the talent starting to come our way so theres a lot of excellent momentum.
And indicators that tell us we're doing the right thing here.
Got it thank you.
Thank you.
Our next question comes from the line of Kyle Rose with Canaccord. Your line is open.
Great. Thank you for taking the questions just wanted to talk about just overall.
I guess expansion at the organization I mean, obviously you made you've made some sales rep hires in the year and I think you talked about getting to 55 by mid year and 60 by year end, if I have those correct. But then you're also talking about you're adding to the overall education team and things of that so I Wonder if you can just put some goalposts around overall head count at the company and how we should kind of think about.
Operating.
Expenses on a go forward basis, given the investments that we're making right.
Sure Kyle.
We ended last year with about 120 employees.
You know the vast majority of those employees are in.
Customer facing roles.
Salesforce clinical development specialist business managers et cetera.
Our cast this year, if we expand and hire.
Everyone that we plan is about 174 175 employees roughly.
Again with a big focus on the commercialization, but also making sure that we're resourcing appropriately the expansion of our product portfolio right, there's going to be sources of new products there.
That come from multiple places.
We're going to continue to co develop and expand the rollout product portfolio, you're going to see some new stuff coming out this year and next year there.
We are starting to work on our in house.
Do it yourself product portfolio.
Youll start to see some of that roll out probably next year.
We're doing in license activities youre going to see some more of that.
<unk> Gard is the first example, there and then we have some co development activities.
With other players as well so theres multiple sources that we're gonna have to draw from here and we're going to put some investments into R&D and product development.
Putting some investments into marketing we haven't done much there yet.
And we're putting investments into medical education.
We haven't done much there yet so those are the main areas that youre going to see that head count grow and it's all designed to wrap around the sales force to feed it products feed of data.
Phoebe.
Our surgeon customers educational activities and just expanding grow. So this is an execution story and we are at that point.
Hope it comes out clean this year, we're going to we're going to see some aggressive growth.
Okay and then.
Maybe just tie that to how we should think about.
The overall trajectory of operating expenses moving forward I mean, when I look at the sales and marketing line. This quarter is that a good proxy moving forward.
And then just overall on guidance.
You've obviously got multiple vectors of growth both Prs overtaxed as well as some of the new technologies, how much of that growth for 2022 is organic in house versus bringing on some of these new products.
So let me start first with the guidance. So the guidance range of $40 million to $45 million includes overtaxed Prs inside card. So it does not include any additional acquisition of products.
With regard to Opex, we haven't provided any guidance.
But the way to think about it is.
To summarize what Tony said, the majority of growth will be in the sales and marketing line.
Second in R&D and minimal growth G&A.
And that growth will be hiring will be occurring over the year, so youre not going to see as steep a step up as you might think based on the figure of going from 45 to <unk>.
60 sales reps by the end of the year.
Okay, great. Thank you, Brian Kyle that we're hiring reps at a pace as they pay for themselves as well. So that's that's a factor to think about as well, they're not going to be burning cash for the long periods of time as they have in the past.
Okay. That's helpful. Thank you.
Thank you.
Our next question comes from the line of <unk> with Jefferies. Your line is open.
Hey, Thanks for taking the question I just wanted to ask on data. If you can give some color on Bravo, one bravo to any of the other trials or anything that we should be watching for over the next couple of months absolutely. So Bravo one.
A final write up of the two year data is.
He is in development right now the goal is to get that done in the next month or so and then.
We have journals picked out and we'll be we'll be submitting to journal so as long as it takes for the journal's two to improve the data.
The publication, that's when when it'll be available I'm hopeful in the next three to six months, depending on where their profit journal journals process.
Bravo to Ah is.
As a robot specific study and that's been up and running now.
For a bit of time its had a slow start due to IRB and contracting being slowed down due to COVID-19 , we expect to enroll that study over the next 12.
12 to 24 months.
It's going to incur.
Include many different types of hernia repairs, including inguinal and simple ventral all done robotically. So that's a ways out, but I think it's going to be valuable data.
We have also had about three or four different publications.
<unk>.
Come to fruition in the last couple of months that represent a wide array of superb clinical data around different types of hernia procedures from rebar in England, all two very complex.
Wall procedures.
We're gonna be discussing those in the coming months as well there's a few more of those publications that will come to fruition and we'll probably.
Do some type of announcement as we roll those out together in a in a grouping that makes some sense.
All told right now we have probably over 1000 patients.
In various types of studies that range and complexity.
And different types of hernia and so we have a wealth of data that will continue to rollout over then over the course of this year.
Got it that's very helpful.
Moving onto the list.
Financials.
Gross margin through 'twenty, one has been a bit lumpy, there's several moving parts, but how should we think about gross margin and.
In 2022, and how the shelf stabilization levels of price impact to that.
Sure. So one of the things that affected gross margin in 2021 was we made a large purchase to put inventory into our European operations ahead of some regulatory changes occurring there when we made that purchase we've had to take an accrual for the potential exploration dating.
So the passengers the expiration dating for some of that product and we took it all at once so one of the ways to think about the lumpiness is that accruals for potential exploration.
Not in sync with the actual sales of the products. So given that we now have those products in inventory have already taken those accruals.
The gross margin percentage is likely to be at the higher end of the range that you saw in 2021, then at the lower end of the range in 2022.
Okay.
That's also helpful. And then I just wanted to hit one you guys noted that COVID-19 impact.
Number were more pronounced which is similar commentary we've heard throughout med tech.
Does that lead to any level of backlog or is that something that you guys are able to track.
And if you could give any commentary there I understand that COVID-19 continues to be a bit of a headwind at least through the beginning of <unk>. So maybe not a backlog recapture early in the year, but is there an opportunity for backlog to capture as the year progressed and is that in our current guidance. Thanks for taking the questions.
Yes so.
So Q4 was excellent and very strong.
Our strongest months, where we're November and actually December was fairly good although it could have been better right.
In the back half of December we started to see.
Impact on crime.
And a bit of a slowdown that continued into January and I'd say, mostly in the early part of February it's definitely starting to lift now.
So we haven't seen any benefit of backlog on the hernia side yet.
I expect that that should come along it's difficult to say whether that will be April may or June or whether it'll sort of be spread across the rest of this year.
You will recall from previous discussions that when there is an issue with COVID-19 or nursing shortage et cetera in elective surgeries.
It tends to be impacted a little bit more than our plastic and reconstructive and and so right now even though we're looking very very strong in March.
Plastic and reconstructive.
Is right on target in hernia remains a little bit behind so I think it's going to be a little bit of a mix between the two procedures until we get the effect of that backlog, which will occur.
Tough to say when these procedures are going to have to get it done.
Okay.
And yes.
To the best of our ability to predict the backlog its in the guidance.
Got it that's helpful. Thanks for taking the questions.
Thank you.
Our final question comes from the line of Dave.
Kelly with JMP Securities. Your line is open.
Great. Thanks.
Tony just a quick one on site guard I think youre, saying that its being used with Prs.
But could it be used elsewhere and could you maybe comment on sort of the.
ASP in the margin profile for you for that specifically.
Sure. So thank God, it's going to start off in the plastic surgery market. It can be used in conjunction with Prs and it can be used outside of the usage of Prs.
We do have the ability to expand.
I think from there.
<unk>.
Developed a relationship with NEC science that says once the hernia application is available there.
That will have it for that application as well. So we're very optimistic about the use of <unk> across all of the procedures that our reps cover.
The margin profile, it's going to come in a little lower than our other products I would say.
But theres going to be a mixed here, Dave as we go forward as we rollout new products this year and next year.
That are going to be puts and takes.
The margins right. So I think net net.
Once the full portfolio over the next 24 months rolls out it's going to be to the positive side on the margins, but site guard may be a little lower to start out before we get to all those other products, but the key for site guard east to drive usage of our other products right. We view it as a companion product.
Eventually I think it could be a standalone product.
But we're starting it out as a companion product in design to make our products work better for patients and for surgeons.
I mean, it seems pretty intuitive theres, probably not is there a reason and any of the cases like that you wouldn't use that.
There's not there's not a reason now now we're going to just expand methodically like we usually do Dave.
Got it and then you mentioned capturing share I was just.
Curious when you look at biologics that are out there.
Maybe even some of the things that are sort of in between.
I mean, the competitors are they still growing.
Based on your estimate today those specifically.
I know the core market is not hernia repair is probably not wrapped.
Rapid growth, but I'm just curious are we saying.
Versus those competitors that might be.
Most related to tell us or are you just saying versus the overall.
Well, Dave we track IQ via data pretty closely right and if you look at.
Essentially every quarter since Covid hit we are the only company that are supplying these types of products that have had growth every single quarter.
Obviously, we're not the incumbent everywhere, but were rising up the stack rankings in league tables, and you know there are some reports out of high acuity that show that we may be the number two biologic.
In hernia repair at this point or close to it. So we're just keeping our heads down and methodically grown the business and yes. Indeed, we are growing share and every quarter. We've been in the green when most others have been underway even throughout all this COVID-19 period. So we are very bullish and optimistic when we have a clean market with <unk>.
Put COVID-19 impact and we have all of these factors that will come together are productive and growing sales force and new product additions that that's an excellent recipe for continued growth strong continued growth.
Great. Thank you very much.
Thanks, Dave Thank you.
I am showing no further questions in the queue I would now like to turn the call back over to Tony for closing remarks.
Thanks Joanna.
I want to thank everyone again for your time this afternoon and your interest in <unk> have a great evening, we will see you next time.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.
[music].
Okay.
[music].
Okay.
[music].
Sure.
[music].