TELA Bio: Appears to be like Like A Purchase, However Some Items Lacking To Make This A Sturdy Purchase

TELA Bio (NASDAQ:TELA) is a small-cap medtech firm targeted on soft-tissue preservation and restoration. Their portfolio of merchandise consists of OviTex, a strengthened tissue matrix that was designed to deal with a few of the shortcomings of at present obtainable tissue matrices. OviTex is at present in the marketplace to be used throughout hernia surgical procedures, and OviTex PRS is at present in the marketplace to be used throughout plastic and reconstructive surgical procedure.

A hernia often happens within the belly area, when an organ pushes via the muscle or tissue that accommodates it. Hernia restore is among the commonest surgical procedures carried out within the US, with over 1.1M procedures carried out annually. This determine contains reasonable ventral/belly wall reconstruction, easy ventral hernia restore, inguinal hernia restore, and hiatal hernia restore. Administration estimates that these 4 procedures symbolize a mixed market alternative of $1.5B (this means a mean value per process of $1,351 for OviTex, which is about 20%-40% cheaper than competing meshes).

Presently, the usual of take care of hernia restore has been to implant an artificial or biologic mesh to be able to fortify the tissue rupture. Sadly, each sorts of meshes include drawbacks.

Artificial meshes are a lot stronger and longer lasting, however can result in long-term complications corresponding to ache, website an infection, inner bleeding, bowel obstruction, and many others. Working example, there are at present thousands of pending lawsuits in opposition to mesh producer Bard (a subsidiary of Becton, Dickinson and Firm (BDX)), offering proof of the unfavorable tolerability profile.

Biologic meshes, then again, are a lot better acquired and tolerated by the host. However long-term, their sturdiness and energy start to weaken, leading to diminished efficacy.

OviTex was designed to deal with these two shortcomings. Its base consists of ovine rumen (sheep intestines), with a small quantity of artificial polymer combined in. The speculation is that with a majority of the fabric being biologic, the host’s physique will higher tolerate it. And the small quantities of polymer will give it some additional sturdiness in comparison with a purely biologic mesh.

Provided that OviTex was initially launched within the US in July 2016, the query that traders ought to instantly ask is why gross sales haven’t taken off but. Usually, a drug takes 5-7 years to hit peak gross sales, so gross sales of solely $29M in 2022 ought to be trigger for concern.

One doable rationalization for why gross sales haven’t taken off but is the shortage of a head-to-head research evaluating OviTex to rivals. The long-term, 24-month BRAVO research checked out utilization of OviTex in ventral hernia procedures. As you may see within the slide under, the outcomes had been encouraging. Out of the 92 sufferers that had been handled with OviTex, the speed of surgical website an infection (SSI) was 20.7%, which compares favorably to different meshes. The speed of surgical website occurrences (SSO) was 38%, which is way increased than a few of the different research exhibiting SSO charges of 21% and 22%. Nonetheless, the BRAVO research included SSIs within the SSO calculation, whereas the opposite research excluded SSIs of their SSO calculation. So the tolerability profile appears acceptable.

The info level to get most enthusiastic about is the recurrence price of two.6%. That is extraordinarily favorable in comparison with recurrence charges of 18%-40% for different merchandise.

Nonetheless, the info must be taken with a grain of salt. The info is just not from a head-to-head trial, however relatively a comparability of a single OviTex arm in opposition to the outcomes of different mesh research.

Whereas it’s encouraging, we are able to’t but say that OviTex is definitively superior to the competitors.

Sadly, of the 4 new research proven on Search of: ovitex – List Results – ClinicalTrials.gov, three will even be single arm research, the place all sufferers will obtain OviTex. The fourth, “Mesh Vs Pledgets for Repair of Paraesophageal Hernia”, shall be a randomized research, however the comparability shall be between sufferers receiving OviTex and sufferers receiving a non-mesh therapy (pledgeted sutures). Because it stands proper now, this lack of direct comparability information is what retains TELA from being a extra compelling funding.

Outcomes for 3Q23 had been announced on November 9. By the primary 9 months of 2023, complete income was $41M, matching complete revenues for all of 2022. Administration steerage for full yr 2023 is for complete income to be within the vary of $57M to $60M, representing development of 38% to 45% year-over-year (yoy). This could be a continuation of the sturdy pattern seen in recent times, the place income grew by 41% in 2022 and by 62% in 2021. Whereas OviTex represents upwards of 70% of complete income, OviTex PRS (for plastic and reconstructive surgical procedure) can be a significant contributor to income, bringing in $12M in 2022 (+41% yoy), and can be seeing sturdy development since launching in Might 2019.

This 2016 article from Consider mentioned the acquisition of Acelity’s LifeCell unit by Allergan for $2.9B. Among the many portfolio of merchandise that LifeCell had had been Strattice, a porcine (pig) tissue-based mesh used for hernia restore, and AlloDerm, a human allograft tissue matrix used for plastic and reconstructive surgical procedure. Annual gross sales in 2016 had been $160M for Strattice and $280M for AlloDerm, with estimated mixed peak gross sales of $467M by 2022. These figures validate the market alternative for OviTex and OviTex PRS, and present that relative to the present market cap of $164M, there may be room for some good upside potential, assuming gross sales proceed to exhibit sturdy development off of the present $60M stage.

As of September 30, 2023, money and money equivalents stood at $58M. Assuming quarterly money burn stays regular at round $10M, TELA might be all the way down to round $47M when the subsequent earnings are introduced. They filed a $150M shelf providing on November 13, and it’s extremely probably there shall be a dilutive inventory providing within the close to future, provided that they’re nonetheless a bit away from break-even. The rise within the salesforce has brought about bills to rise considerably, so the necessity for money actually presents a further danger that traders ought to contemplate.

However all in all, I feel there is sufficient to like right here to justify a small purchase. The truth that we don’t have head-to-head information in opposition to OviTex rivals is what retains this from being a compelling purchase. However there may be clearly a marketplace for hernia mesh merchandise, and the shortcomings of present artificial and biologic meshes have been well-documented. OviTex makes an attempt to treatment these shortcomings, and the latest gross sales development offers hope that medical practitioners are responding favorably to the info we do have, even when it isn’t absolutely conclusive but. I feel TELA inventory is a Purchase.