Good morning and thank you for joining us at this year's Canaccord Genuity Growth Conference. My name is Caitlin Cronan, and I'm one of the medical device analysts here at Canaccord Genuity Corp. With us today is TELA Bio, a public company focused on novel soft tissue solutions for hernia repair and reconstructive plastic surgery. With me today is Antony Koblish, President and CEO, as well as Roberto E. Cuca, CFO and COO. Before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and our firm website. We'll begin with a brief presentation by the TELA team, followed by a fireside chat. With that, I'll hand it over to Tony.
Thank you, Caitlin, and thank you to Caitlin and the research team and Canaccord Genuity Corp. for inviting us to this conference, and thank you for attending. First, we'll acknowledge the forward-looking statement. As Caitlin said, we're a commercial stage, soft tissue restoration and preservation company. We work in two key areas, all things hernia repair. The hernia repair market is undergoing radical transformation, and we are both driving it and going to be a beneficiary of it in the future. The first transformation in hernia repair is the movement away from legacy-based polypropylene mesh, which has had a checkered history of litigation, patient problems, and settlement, both in the OB-GYN area first, and then followed up with a roughly $2 billion settlement on the hernia side, most recently.
That's driven, and we have been a very big catalyst in pushing both the industry and caregivers to give what patients want, which is a non-permanent plastic solution to repair their hernia in their belly. TELA Bio has been one of the progenitors and drivers of pushing this agenda, and we have definitely been a disruptor, and the whole industry is starting to move in this direction after we've been pushing it for several years. The other area is the advent of the robot. Robotic hernia repair is probably about 30% of all procedures. It may be closer to 70% of the simple hernia procedures, such as inguinal and hiatal procedures. We have developed our natural repair solution to be highly robot compatible. When you look at those two trends, at the end of the day, we're probably going to have about 80% of all hernias being repaired robotically.
We're going to see a radical shift away from permanent synthetic materials. We are perfectly situated to be both a disruptor and a beneficiary of those trends based on how we've set the company up. The second area that we work in is plastic and reconstructive surgery, particularly breast reconstruction. This area of the market is also undergoing a transformation. For the last 30 or 40 years, cadaver skin has been the main reinforcement agent, and now we're starting to see that product become commoditized. It's a bit too expensive. It stretches a bit too much. It integrates slowly. There's a big interest in new and novel technologies and materials. Again, we will be the beneficiary of that with a wide portfolio. Both of our product categories are filled with multiple products that can do almost any procedure with any surgeon preference type.
We're very well situated in two big markets. Those markets total to well over $2 billion. We are on track to be an $85million- $88 million company this year, up from about a $69 million company last year. We've had a good, strong start to the first half of the year. We're slightly ahead of our internal plan, and we look forward to driving this company forward. We brought in a very strong new commercial leadership team most recently from AbioMed. They came to us after the acquisition by J&J. The crew that we've brought in were responsible for the surgical division within AbioMed, which went from zero to about $500 million. We are on our way to being a $100 million business with very novel and disruptive products. Now we have a commercial team in place that has experience in scaling from that $100 million- $500 million.
All of the processes and systems, upgrading and talent acquisition, all of that, I think, is well in hand. That team has been on board for about 10 months, and we look forward to their contributions in the second half of the year. Just a couple of details here before I turn it over to Caitlin. I talked about the leadership team. Our pathway is all DRG reimbursement, so there's really no problems in getting paid for these procedures. Very common procedures, both hernia repair and post-mastectomy breast reconstruction. Our product offers an exceptional value proposition both clinically and economically. We've been very successful as a small entrant into this space in attaining all the major GPO contracts, which is leading to IDN contracting, which gives us access to the hospital. I talked about our robot compatibility, which is absolutely critical. I think I covered most of that.
Soft tissue restoration and preservation. We want to be able to get the patients healthy, up and moving without destroying their tissue. If the product ever has to be removed, we want it to be done in a minimally damaging way. This just gives you a sense for our scale. We are well over 73,000 implantations at this point. We've got well over 40 publications. Our published clinical data in both areas is exceptional. By any measure, the recurrence rate, so the re-op rate in hernia, is in the low single digits, orders of magnitude, in some cases, better than our competitors. We've got a large number of hospitals covered through GPO contracting, and our PRS business is also growing. This product launched about three years after hernia, so it's a little earlier in its launch curve, but we're well over 16,000 implantations.
What I'm really, really happy to share is that for the first time now, we have about 400 patients in various clinical studies that have been published and presented for our PRS business. On the hernia side, we're overflowing with solid clinical data, which has helped drive our business exceptionally well. On the PRS side, we now have the baseline of that clinical data to help drive that business going forward as well. I think I'll stop there for Q&A. I think we can cover most of the detail in the rest of the presentations through the questions, Caitlin, if that's OK. All right.
Great. Maybe just starting with the Q2, some thoughts on where we are as you guys exit the first half of the year. What do you want investors to understand coming out of the Q2 results?
Yeah. We had a hiccup in Q4 of last year. I think we had a little bit of a perfect storm where there were several large companies putting plastic surgery sales forces together for the first time. In the last presentation, the wound care saga, there's a lot of shenanigans going on with skin substitutes and amniotic tissue in particular, with reimbursement that is probably excessive, and it's attracting a lot of bad practices and behaviors. A lot of reps were attracted to that opportunity with large sign-on bonuses and a lot of solid guarantees. I think the fact that CMS is starting to take a good hard look at that, that's put a good chill on that. We did lose a solid number of reps in Q4. We bounced back really well. By the first quarter, we had the morale. We made adjustments.
Reps don't just leave for no reason. We made some leadership changes, and we just did what we had to do. We came out very strong in the first quarter with very good growth relative to Q4. Then 26% growth in Q2, albeit a smidge behind consensus. If you look at the first half block for our company, we were a little bit ahead of our internal plan, driven by a strong first quarter. We've got Jeff Blizard and Jim Hagan, two guys that we brought over from AbioMed. They've been in situ now for about 10 weeks. In their first three weeks, they met every single employee in the company, including every single sales rep. They went to every single one of our regional training sessions. They've had the ability to assess the talent that we have, assess the morale, assess the product and the value proposition.
Now they're in the process of figuring out what their moves are and their recommendations, which probably leads to your next question.
Yeah, no, that's great. Perfect. You noted the appointment of Jeff Blizard. Why now? What are some of the early initiatives that Jeff has implemented?
Yeah. We initially installed Greg Firestone, who was originally our Chief Business Officer, who was probably one of the top supply chain IDN/GPO relationship builders in the country. He actually had a company that he ran, the IDN Summit, which he sold. That IDN Summit is still going on. He knows everybody. He has been exceptionally strong in getting us GPO and IDN contracting. He developed a plan last year to create our own category so that we could get outside of the large corporate bundling across our service line. We call that the RTM, the reinforced tissue matrix exit plan. Reinforced tissue matrix is our product. We're the only company in the world that can have this product. It's patent protected for decades. I think we have 22 patents, and the patents are still issuing. There is a very long runway on those patents.
We have taken advantage of the fact that we have something that no other company has. We have been able to work with supply chain to convince them that we should have our own category, which means we would fall outside of any corporate bundling structures. We started this process at the end of last year. Usually, it's a bureaucratic slow process when you're dealing with GPOs and hospital systems. I'm happy to say that Greg's been quite successful, and we have about 25 of these RTM contracts in place. That's faster than we thought. I think the more that fall, the more we will get since it's sort of a safety in numbers kind of model. The benefits of cost reduction and focusing on our products from a patient perspective are truly real. I think we have an exceptional shot of accelerating this RTM categorization process.
That becomes a full-time job. That means that we can bring in a team from AbioMed that has that experience of scaling and putting process and talent in place to get to that $500 million, which is our long-term goal. We think we have the product portfolio to do it. Now we've basically gone from one guy to two strong teams focused on the two most important aspects, which is care and feeding and development of a highly profitable functional sales force, along with making sure that we get that access point that we want outside of the bundle structure of our competitors.
You noted the 25 IDNs. Why start with the IDNs, and then what's the status with the GPOs?
It's interesting. GPOs are very honorable in the way they treat their contracts. If it's a three or four-year contract, they're not going to break that contract and just restructure it because you showed up with a bright idea one day. You have to start at the IDNs. What's interesting is a lot of the IDNs or sub-hospital systems that roll up to the GPOs have the ability to follow or not follow the GPO. Some of those RTM contracts that we have are in IDN systems that roll up to GPOs. Even though we don't have the RTM categorization in the GPOs yet, we're starting to pick off the substrate organizations that roll up to those GPOs. Starting where we can, in time, we will have those RTM contracts across everyone else. Of course, we still have one big GPO to get, that's Vizient. We don't have that yet.
I think that process will start by the end of this year, I believe. They keep delaying it a little bit. One good thing is there's a subdivision of Vizient called Aptitude, which has given us the RTM contract. Like I said, we're just chipping away at it until we filter up and get all of them in place. That takes some work.
You know, with Vizient, would you see the RTM categorization in place at the time of the GPO if you did win that?
Yeah. Now that we have this model, and the model is simple, we can walk into the hospital. We can show them what we think their usage data is based on our knowledge of competitive contracting structures, show them how their costs are going to rise as competitors switch them from legacy polypropylene to their more natural repair resorbable polymer products. They will invariably go back and check the math. They don't have great IT screens to see how data changes in real time, but they can go back and see that the tsunami is going to hit them. They become quite interested in integrating our RTM categorization because our price point is lower than the products that they're being switched over to. It does allow them to have a good economic benefit and, frankly, a better clinical benefit. Our clinical data is super strong.
We always lead with the patient benefit first.
You know, and you have your commercial team. I'm now with Greg, really focusing on these contracting relationships. Does he have anyone to help him with that, or is it just Greg?
Yeah, no, we've got a great team that consists of six or seven what we call SDRs, strategic accounts folks, that are covering each one of the regions or every two of the regions that we have in the country. We have a great succession plan for Greg. His number two has worked with him for a very long time. We've got a strong market access team. In fact, it's so strong, and now that Greg is focused on this RTM, we're also going to have him start looking at some reimbursement and market access issues in Germany, France, and some other markets that we can help our friends, our team members over in Europe to crack that open. They're doing well in Europe, and we think they can do even better. There's just going to be a whole new vertical built in the company underneath Greg around market access.
That will allow sales, marketing, and commercial operations to thrive under really specific, really talented leadership that we put in place.
Just on the OUS point, you noted a couple of updates this past quarter with the NHS update, as well as the OviTex IHR being cleared in Europe. Where do you see OUS going longer term?
Yeah, I mean, I've been very impressed. We have a very strong leader that was with me at my last company running that organization. He's done it very quietly, hands-off, as we've been focusing on the U.S. market, which is much bigger. We pick our heads up today, and we recognize it's about 15% of our revenue, which is pretty good for a small U.S.-based med tech company. I think my last company, we got to about 10%, and we're pretty happy with that. 15% is super good. It's even better when you consider we don't have the PRS product line over there. That product got caught on the wrong side of the MDR updates, the regulations. We're filing the design dossier for that product by the end of this year. A lot of the revenue they're driving is in the UK in large, complex applications.
There's a great opportunity for us to grow outside of the UK, which is the next focus while we're focusing on market access in some of those other countries. I think the IHR product will start the process of making us a more holistic hernia player in the UK, getting both the simple and the complex procedures, whereas now we're mostly on the complex. There are some good growth legs ahead of us in Europe that will be driven by IHR, expansion in the UK, expansion on continental Europe, and then getting the PRS product into Europe. Hopefully, that's about two or three years of solid runway there.
Maybe turning back to the commercial org in the U.S. and Jeff, it seems like the sales team was pretty steady quarter over quarter. How would you say the new members are ramping? Is break even still about six months?
It is. It's been fairly consistent. It may actually get better in time as our Territory Manager Account Specialist model continues to mature. We're seeing great traction with the Account Specialists. For example, we had a couple of reps last year that were about $3 million territories. We gave them two or three Account Specialists to help them, and they're now vectoring towards $4 million territories. That story goes right through the stack rank. If you look at our $2 million players, our $1 million players, everyone is benefiting from having these associate reps be able to help them drive their business. I think that has the potential to help us out a lot. I think we're going to start to double down in cities and MSAs where we already have good momentum and good access.
For example, in an extreme example, we don't really have any reps right now in Chicago, which is a sore spot for us. We will shortly. They're in Chicago right now today as we speak, fixing that situation. I wouldn't be surprised if we had two or three reps in Chicago fairly soon. You look at a place like LA or even Boston or New York where we've got two or three reps in each one of those cities, and you can just see it going and going and going. I think we put more reps in places where we have momentum, sort of adjust territory so that we can fit more in. That may result in a quicker start as well. That may be offset by some of the virgin territories that don't have anything going on yet. Those may take a little while to go.
I think with the management processes they're bringing in place, the talent and the nurturing and the messaging, everything's being upgraded. I feel like we'll get those territories going well. Let's say for now, six months is about the right, still the right time frame for paying for themselves.
It sounds like Jeff was supportive of the TM and the AS model. He noted that he wasn't really making many major changes to the sales force or structure of the strategy, other than having this patient-centric approach. How does that differ from, I think, prior? You mentioned it was more of a transactional approach.
Yeah. You can get caught up in closing the quarter. We got to deliver this, that. You wind up with a transactional mindset where perhaps you're more focused on what the supply chain is thinking and doing. We don't want our reps doing that. We want them in the ORs working with the surgeons. One of the byproducts of having Greg be that transitional leader until we got Jeff on board might have been more of a focus on the transaction and the supply chain. Taking a big step back, this is a mission-based company. Our mission is to get polypropylene plastic out of people's bellies. The reason why that mission exists is because before we founded the company, I watched plastic being removed from patients, and it was the most horrific thing I've ever seen.
You go from a hernia that's this big to a zone of injury now that's this big. I think they're death-defying, heroic procedures that just do not have to happen. If you put a reinforced tissue matrix like ours in, you pull that product out, it looks almost like the day you put it in. It doesn't do damage. That became my personal mission, and it's now the company's complete mission. It's a noble mission. If this company didn't exist, all of the major players would just be happily pushing cheap polypropylene. We are forcing the issue, and everyone is trying to figure out how to match what we're saying, what we're doing, and how to create natural repair solutions.
I just found out the American Hernia Society meeting is coming up, and we just found out that every single mesh company that is presenting there and has a booth has asked personally not to be near our booth. It tells you that we are the disruptor and the pariah, and that's just where I like to be. I do think we are doing a massive service to patients and to society. These are terrible operations when plastic mesh has to come out. I can't tell you how bad they are. They either go in when they ball up in a road or they come out. Either is bad. It hits bad things. It does bad things. It ruins the patient's life. If we can fix that, no matter what happens, I will be happy when I retire. It's my thing right now.
Jeff also discussed driving medical education initiatives. Are there people that are already in place for that, or do you need to hire more to execute those?
No, we have an excellent, truly excellent medical education team led by Marissa Conrad, who is one of our strongest executives. She runs our clinical programs, which has been super productive in developing our clinical data proof sources. We're fusing the med ed program with her. I think it makes sense to have all the data collection and presentation in one place, and KOL management and surgeon relationship development all in one place. We have the team in place. What we're probably going to do is adjust the style of what we do. We generally do two to three large 30- 40 surgeon meetings a year, and then a whole bunch of small presentations. We're probably going to shift away a little bit from cadaver labs and more towards didactic sessions, which are a little more cost-effective to do and create a little more positive dialogue.
I think everyone knows how to do these procedures at this point. It's probably just reallocation of what's already in place, both from a dollars perspective and a people perspective. One of the things Jeff made very clear on the call is there is no new capital required for his programs other than to pay for himself and his teammate that he brought over. We have the envelope of resources required to do what he wants to do. There's just going to be reallocations within that envelope.
In the medical education program, I think Jeff talked about it being focused on teaching hospitals. Is that somewhere where you already have a large presence, or would this be?
It's hard to crack into the teaching institutions when you're a small company, smaller than we even are today. We do have some good anchor points at places like MGH, at Stanford, at Scripps. There's a whole range of great institutions in our roster right now. We need to expand the user base within those institutions. That's going to be a primary focus. What I've noticed is when we do our VIP R&D tours, we bring surgeons in quite a bit to meet with us at the facility and take a look at what we're doing. It's the young attendings that are fresh out of their residency. They're fresh out of their fellowships. These are the ones that are gravitating towards our technology. These young attendings are looking to create a niche for themselves in their market when they go out in their own practice.
Being a natural repair solution or being a plastic surgeon that focuses on reinforced tissue matrices, I think, gives them a differentiating position. They're just less tied to what was done in the past. 60 years of putting plastic into people, it's a hard habit to break. There's a lot of inertia structures in place. These young folks are much more malleable and are ready to embrace the new stuff, as evidenced by their adoption of the robot. At some point, no one's going to know how to sew with their hands anymore. It's all robotic. I think we are the future. Young physicians that come out of these teaching programs and spin out is probably what he was talking about and expanding usage in the institutions that we're already at.
Great. In the last minute, Roberto, I'll give you some airtime. How are you thinking about just cash burn and OPEX spend going forward? I know on the call you noted kind of flat quarter over quarter OPEX expectations. How are you thinking about that?
Yeah, OPEX should be flat over the course of the year. You saw it was pretty flat from the first to second quarter. With growth of revenue on top of that, we're seeing leverage begin to drop to the bottom line. Because of some of the disruptions last year, I think that was a little bit less evident to investors. I think that'll become much clearer this year. You'll be able to see the trajectory of both operating loss and cash consumption declining pretty precipitously over the course of the year. We reiterated that we believe we have sufficient cash on hand to get to profitability. That story should become clearer and clearer.
Great. You got it there. Thanks both.
Thank you for your time.