I know about operating. I don't know anything.
He has that card.
Yes, he does.
All right. Afternoon, everybody. Thanks so much for joining us. My name is Matt O'Brien. I'm one of the med tech analysts here at Piper. Extremely excited and blessed to have TELA Bio here. From the company, we've got Tony, who's the CEO, and then Roberto, who's the CFO of the company. Thanks so much for making the trip. Really do appreciate it. I'm just gonna start off with a blunt question, and you know, forgive me. I think you, you know me.
No forgiveness needed.
Okay. You have the best hernia product on the market. There's no question.
We believe that, yeah.
You've got the data. You if you know this space, you need to have the strength of a synthetic in a biologic. You have that.
Yeah.
Why don't you sell more of this product? Why is it so hard for your sales reps to go out to accounts and displace these synthetics that you know cause infection or the biologics that are just not strong enough? Why can't they do that?
Okay. I'm glad you asked that question. You know, I think this is a common thought process, and some days, I wish we were in the pharmaceutical business, right? Where if the data is straightforwardly better, you know, the formulary changes and the subscriber behavior changes instantly. I think, you know, surgeons, particularly surgeons that aren't used to having innovative products come at them at a regular cadence, and I would consider hernia and general surgery to be a very classic example of that. You know, they get used to what they do day in and day out, how they were trained, how their mentors trained them, and you know, they sorta continue with that.
The good news for us is I think we're exhibiting the exact profile of, you know, starting with the innovators, getting to the early adopters, and then to the mainstream. I think we are firmly in the early adopter phase right now. I think we're poised to start to enter that mainstream fatter part of the bell curve. But to sort of reset perceptions just a little bit, respectfully, you know, the last time a company emerged from nothing, a zero, sort of startup company in hernia and plastic and reconstruction was probably 25 or more years ago, and I would think of LifeCell as a classic example of that, right? A biological-based hernia product and a biological-based, plastic and reconstructive product.
If you look at that pathway, you know, I think it took LifeCell, you know, all those, all those years ago, probably, you know, between 10 and 15 years as a commercial entity, not including any pre-commercial activities, to get to the point where they were about a $130 million business when they were sold for the first time to KCI. If you just look through that lens and look at where TELA Bio is right now, we really didn't have the resources to start a commercialization effort until around 2020, right? Our IPO was at the end of 2019. We were very small commercially, if you remember. I think it was like $10 million-$12 million. So it was very embryonic. At the start of 2020, you know, we had the capital and started building.
Today, we are an $80 million business that's focused on, you know, hernia repair and breast reconstruction, plastic reconstruction. If you look at it through that lens, you know, it's, we have done a good job of getting through those early phases of the innovators and well into the early adopter phase. I think if you can get to 80, you can get to 100. If you can get to 100, you can get to 130. If you look at the product portfolio that we have today and you match it up with the two obvious proxy companies, which would be Becton, Dickinson's Bard portfolio, they're probably running around $600 million just in hernia. Most of that is in their resorbable Phasix product, which we match up with quite well.
And then you look at where LifeCell is today, all these years later with investments and commercial execution. They're probably a $500 million business, right? Roughly speaking. So I think our product portfolio is at that level. I think it's actually better, in some ways than both of those companies. Certainly, LifeCell's portfolio, you know, our hernia portfolio can do everything from the complex stuff where they focus to the simple inguinals on up to the complicated things. And, you know, by the end of 2026, we'll have four or five different plastic and reconstructive products. We're launching two products in the second half of 2026. So we'll have probably the best plastic and reconstructive portfolio in the business. So on the sales force side, right, we just brought in a new commercial leadership team, right? We upgraded our board.
We got some new talent on our board to help us with supply chain and C-suite executive experience for a big hospital system. We got another board member that can help us communicate with the street more effectively. I think upgrading the board, upgrading the management team, you know, the team that we brought on come from Abiomed, which is arguably one of the most successful med tech stories in history. They built the surgical division of med tech from zero to about $500 million, which is where it stands today as part of J&J. And so there's a professionalization and accountability and the ability to attract talent to a sales force, which they're bringing to the table, right? And we are going hard after, you know, upgrading our sales force to be at that level and that execution level.
If you look at, you know, our situation from a sales and marketing point of view, we've never had the whole country completely filled, right? Even this year, we have 13 different selling regions. Three of our regions this year did not perform well. Leaders got outstripped. Then we sort of waited on those because we knew we were gonna bring these guys over. It took a little longer than we wanted to bring these guys over. But we wanted to make sure that we're filling in those empty gaps with those players. So I would argue that a zero to $80 million ramp since essentially 2020 shows that we can get to that $100 million and be well beyond level. I do think that, you know, that we are seeing great traction with younger attending surgeons.
We do a VIP program, bring them in to show up in our R&D labs, walk through the data, walk through the product pipeline. We're doing 10 or 12 of these a quarter right now. And for this year, most of the attendings coming in are fresh out of training, right? They're either out of their fellowships or out of their residency. And they're moving from being, occasional or sometime users of our product to complete conversion. And it's simple, right? They wanna differentiate themselves in their local market. They wanna make a name for themselves. Natural repair, latest technology is a big deal. And so to a certain extent, it's a generational shift, right?
As we go through this adoption profile, you know, the generational shift is gonna organically happen. The biggest player, Bard, is trying to shift their portfolio from polypropylene to their resorbable polymer product. We match up superbly with that resorbable polymer product. And that's really where we wanna stay focused on. That's really where the high value is. And the faster that transition happens towards those natural repair products, we are the number two brand in that space. So we got to hold the line, improve our execution.
I think going through those early phases with, you know, a classical startup kind of sales force to get to $80 million is a pretty darn good signal. Now, with this professional organization, this generational shift that's slowly gonna happen, you know, I think we absolutely, you know, can get there to be and, and we have probably the number two brand in that sort of category of, what's in line to replace Phasix. You know, if you look at the way this works, you show our product. We have a shared decision-making model that we use in the U.S. You show our product and all the competitive products to patients. They pick our product 100% of the time.
Right? So what we're up against is the institutional sclerosis, right, that's in the system, whether it's the older attendings that are wedded to the old ways or supply chain, right, with the big players doing rebates and bundling. We have an answer for that. We can create our own category within that bundle and have a broad enough product portfolio that we can break that, right? But we have to do it. We have to work through all these issues. So I do think we're on track. The criticism that I think I would give on ourselves is we have to do a better job of managing the volatility of getting from 0 to 80, right? When we go to 80 to 200, we've got to manage that volatility better.
Execution, making sure the territories are filled, operating well, and, you know, just making sure that we forecast correctly, that we set the guide externally, better, right? That's all a part of this program of resetting the company, right? We deflated this last financing we did. We deflated the guidance down to be more manageable. I think that's a step everyone felt good about. We put cash on the balance sheet to be a permanent solution, right? We ended Q3 with about $30 million in the bank. We have access now with our debt facility and a small equity that we did almost $65 million-$70 million. Our burn rate is coming down, right? Cash usage was down in the $5 million range. It's gonna bounce around as we continue to invest and grow. I think we're starting to show leverage.
One of the great signals is our sales and marketing spend went from 93% of sales. It's down now, down to 70%-73%, right? So we got to continue to drive that, efficiency and work through all of that. Once the patients and the surgeon generational shift starts to happen, we become established, we will be the company that can do, you know, that $200+ million business. I think if we can get to 80%, we can get there.
Got it. And Roberto, I will ask you a bunch of f inancial questions in a little bit. But not to be too simplistic, Tony, if you were private, if you cut the price by 10%-15%. Would your market share go up dramatically or maybe even a little bit more than 10% to 20 %?
I'm not sure about that. I'll start with our pricing strategy, right, from where we started a nd really, it's similar to where we are now. Doesn't mean we're not gonna change our pricing strategy going forward. But when we came on the scene, there was polypropylene mesh for between $500 and $1,000. And then there was first-generation biologic products for $20,000. And there was nothing in between. We just saw Bard as the market leader, you know, back in 2013 or so. We're starting to get active with their resorbable polymer product. And so we decided that that was the future, right? If Bard was going to be able to move the market towards natural repair, post-litigation settlement more towards natural repair, that's where we wanted to be. So they set their pricing somewhere between the biologics pricing and the synthetic pricing.
So we banked off of that mid-tier and then went to the left a little bit towards the lower. I think that's the right solution for us to keep our ASPs up, make revenue generation more efficient, and still offer a discount to the market along with great clinical data. Now, in the first half of 2026, we're gonna double our hernia portfolio. We're launching a product that's going to be reinforced, not with permanent, but with a long-term resorbable polymer. So this is going to give us a beautiful matchup to whatever is out there in the resorbable polymer range, particularly Bard's product and if there are any others that are coming up. So I think we can hold the line on our pricing with our portfolio right there, a little bit left of center, still offering an economic value proposition, with the clinical value proposition.
But now our permanent reinforced product, which is the workhorse now, we may be able to play with pricing a little bit there, come down, and get into, you know, some of those simpler eventual procedures. So I think it's stepwise for us that we can get there. And a great proof source of that is our inguinal portfolio, right? We started off in complex where, you know, we're going from a $20,000 product to an $11,000 product. Great value, great performance. But about mid-last year, we launched our inguinal portfolio. I just checked the numbers on the train ride up. You know, between our LiquiFix business and our IHR product, we're gonna be well over $3 million this year at about $500 ASP.
So that's 6,000 procedures. We're the only company that has an inguinal offering that's not polypropylene. So we have confidence. We can hit a price point that's only a $100-$200 more expensive than polypropylene. We've, we've proven that we can do that on the inguinal side. Robot compatibility, great, great results. Clinical data is superb, even on inguinal, same as the complex. And so I do think we're gonna have more flexibility with our portfolio to think about the permanent reinforced product maybe a little lower to match up and then replace it with the high-end permanent, long-term resorbable product. So we're not gonna go all the way to dropping the price down to polypropylene. I don't think that's wise for us. But I think we're, we're going to have a more flexibility going forward.
Why would somebody switch away from Bard in that inertia that they have to your next generation, product that's coming out?
It's going to be the results, right? Our next generation product, it's the same polymer that's current, currently in our LCR, PRS product so c linical mileage on it's excellent. It works well. Clinical data on the PRS side looks excellent. It's basically the same construct, same everything. It's a duplication of the portfolio. All of our clinical data is gonna be supportive of this new version of the product as well. The clinical data on that product is gonna stand, which means lower recurrence, no contraction, no erosion. You do see that with resorbable plastics, you know? If they resorb too fast, you get a recurrence. If they resorb too slow, you can get contraction and erosion, which is a polypropylene problem. I do think we're very well situated for that.
Got it. And do you have that data to go along with it? That you launched too?
Yeah. Well, we're going to use the data from, you know, right now we have about 20%-25% of our hernia business comes from a short-term resorbable product and t hat clinical data is the same as our permanent, right? There's really not that much difference. So the data, for a reinforced tissue matrix with about 5% polymer suture to reinforce, whether it's permanent, short-term, or long-term resorbable, you know, the data is all the same. So I think we have the data set already in hand. It's well over 1,000 patients and various studies.
Got it. Okay. All right. So maybe we talk a little bit about the sales force, you know, because I know that's been kind of a rebuild there. I think that's fair.
I'd say more of a improvement. Yeah.
Okay. All right. Fair enough. You said 76 reps in place now, w hat kind of productivity on the hernia side can you get out of this group?
I mean, we haven't really thought about it, just on the hernia side. We think about the whole portfolio, right? They sell everything. So even in Q3, and I think this will tie back to having some unproductive regions still that we're dealing with. But even in Q3, if you look of the 70-some-odd reps that we have, 52 of those reps had been on board for six months or longer, which connotes stability and efficiency. So that cohort of reps collectively were at 100% of quota, which is set quite a bit higher than external numbers are set, obviously, and they produced very well. The average sales on an annual basis for that cohort of 52 reps was about $1 million.
Wow. Okay.
So, you know, if we can get to that tenure and stability with 76 and then 86 and then 96, this thing is going to grow. And that's really the charge and what our new commercial leadership team is working on.
How do you keep the group around? I mean, you're highly training them. And then I'm just wondering if they're not, you know, easy pickings for some of the big guys with bigger resources. How do you keep them around?
Yeah. We have a very classical comp plan, incentive comp plan, that rewards growth. It rewards particularly exceeding quota exceptionally well. These jobs, if you're well adept at med tech, in the OR sales, don't grow on trees these days. You know, the bigger companies, they have capitations. We don't have any of those capitations, right? So, you know, I think we're looking for reps who are hunters, who've demonstrated leadership capability in their past jobs and wanna help build a company and be handsomely rewarded for it. So we're filtering out kind of the farmers that wanna hang out and collect the check. Get to the guys that want to grow and drive and build the business. The Abiomed team that we've put in place is attracting those people in spades.
Can you talk about that group a little bit? Because I'm very familiar with them and they are hard chargers. So. Those guys, I mean, just like, how do they compare versus, you know, previous leadership?
Yeah. So, you know, the history of our organization is we had a chief commercial officer, I would say back in 20, end of 2023, early 2024 that we had to move on from, right? He was at his capacity. So I didn't have a great solution. So we put one of our internal guys as an interim because I had a bead on the Abiomed crew. We had him on our board. And I had been talking to him about how it was gonna go in the J&J acquisition. And you're a builder, man. Come on.
And so that took a little bit of time, but I kind of had a sense that there was an opportunity there. So we had the interim guy in place. He did a great job. He's back to doing our supply chain stuff. He's good at getting contracts and market access. He's excellent at that. And so I had an eye on, you know, okay, let's not overhire and overbuild until I get this crew in 2025 was more like, all right, let's take the six months, make sure we can get them on board. Then we, you know, got lucky to get them on board in June. You know, I think they're off to the races. They met our entire commercial organization within the first months that they were here. Triage assessed, obvious where the weak spots are. They've just been starting that upgrade process ever since. The goal is to have the sales force completely upgraded, with as close as we can get to 90 reps, by the end of Q1 of next year. If you believe the 52 rep cohort, six months stability, you can see where this thing could run to.
Right. Right. Okay. Good to have a good group in place that can sell the best product on the market.
Yeah. They're hard chargers. They take accountability and discipline and rigor seriously. That's, you know, the classic transition to get from a run-and-gun startup phase, which got us to 80, to get us beyond the 200.
Understood. All right. Roberto, you've been sitting there quiet or, you know, patiently and w hat do I do? So sorry about that.
He was supposed to jump in and help me with that first tough question.
Yeah. No, I kept waiting, so, so do you want respond to the first question?
Yeah. Throw, you had some extra.
I'm kidding, so let's talk a little bit about the guide for next year. You know, I think you said 15% revenue growth next year is kinda the floor. You know, what gives you the confidence in that? And then maybe just, I don't want you to get out here and talk about guidance for next year and upside opportunities. But what could actually, you know, lead to much better performance next year on the top line versus that 15% floor?
Sure. So starting with what makes us comfortable with at least 15% growth next year. And, you know, we did announce that earlier than we normally would for next year. So we did set it as a floor. What Tony was talking about as far as the hiring and recruiting of new reps. You know, if you think about, you know, our goal being to end the first quarter with 90 reps. You know, if you do that at the end of January versus at the end of March, those two months make a big difference in what you're producing during the year.
So, that gives you, you know, that produces a lot of variability in what we can achieve. But even if it's at the very end of the quarter, you know, all of those new reps, by the end of six months will be covering their own costs, so not negatively affecting the bottom line, and contributing to the top line. So building up from our existing group of 76 reps and then looking at what the timing of the additional hires could be and projecting what the existing reps could be doing and then what we are adding on top of that, that's what makes us comfortable with the 15% growth. And so to your question about, you know, what can give us further upside, you know, there are a couple of things. You know, one is if we bring them on earlier, we're doing the hiring now.
So some of them are gonna be on board even before the beginning of the first quarter. And then, you know, we have some new products rolling out next year that Tony mentioned. We did not specifically add growth from those products 'cause some of them will be replacing existing products and, you know, expected surgeries. Some of them will be incremental though. So depending on what that mix is, that could be additional upside as well.
The two plastic and reconstructive products will effectively be de novo new markets for us. So I think there's factor of safety baked in there. And then we talked about the long-term resorbable. We have that match up against the hottest product, you know, Phasix in the market. That should give us upside as well. There will be some cannibalization, but.
I wanted to keep with you, Roberto, but.
No, no.
Can you quickly talk about those two new plastic products and like the expansion?
Yeah. So, you know, we have a product coming that's an implant, right, that is not gonna have any tissue matrix involved with it at all. It's gonna be strictly a resorbable polymer product. And I think it's going to be able to be priced flexibly to get us into those cosmetic spaces and expand our market opportunity, right? If you look at the plastic and reconstructive market, it's mostly cadaver skin, but there's a big interest in alternative materials, right? Our reinforced tissue matrices are one of them.
But, you know, if you look at what Integra and Bard are doing on the synthetic resorbable side, those are decent numbers that are starting to be generated there emanating from cosmetic. We will have what we think is a Goldilocks product that fits right in between those two in terms of resorption time and profile. So I think that's gonna be a sleeper product for us. And hopefully that's second half of 2026. And then the second product is an accessory product that's designed to get fluid out of drains more efficiently in a simple and inexpensive way. So that's. I don't know what that's gonna do, but it's gonna be pretty interesting.
Yeah. That'll be interesting for sure.
Okay. All right, and sorry, Roberto. How are you gonna keep expenses essentially flat next year as you're expanding the sales force?
Sure. So the way we think about the sales force and the sales and marketing function generally is, people who are carrying quotas are the most important ones in the organization. So we wanna maximize those. Those are the ones who are growing from 76 to 90, 92. There are a lot of people who support them, and so thinking about how to use those numbers appropriately, Jeff and Jim have already been making some adjustments this year to some of those, particularly the higher, the more expensive people who do that supportive work. And then, you know, we've talked about our associates, the account specialists who support the quota carriers. We've had a number of them on now for nine months to a year. Those are the people who are gonna help us grow quickly to the larger sales force size. So as we promote them, you know, we're not going to backfill them or we're gonna. Think carefully about backfilling them such that that growth is not gonna be purely incremental growth.
Got it. Okay. Makes sense. And then I think you said, you know, high 20s, $20 million, in order to get to break even. Is that an operating income break even or bottom line break even?
Operating income.
All right. I mean, that's not too, too far away here. And then what about the spend on R&D? It's still about 10% of sales. Are those the new products that you're really developing there? Is that what we're gonna focus on? Those are, yeah.
It's more data. So, clinical studies of existing products. The actual, true discovery and innovation is a small fraction of that.
Understood. And then maybe last question, just, you know, maybe in Tony, you started to touch on it a little bit, but just the capital position of the company at this point.
Sure.
And then, you know, as you're kinda scaling up the sales force, etc., are you in a position where you're gonna need to raise more money eventually, or how do we think about that?
So, we ended the third quarter with $30 million, $29 million. We added $14 million incrementally when we upsized our debt facility. And then we raised $12 million in the equity raise that we did alongside. So we're at roughly $56 million. There's a second tranche available in the debt facility of $10 million that we can take down the first quarter of 2027. So that, all that together, we believe it puts us in a very strong position to not have to raise money again.
Got it. Okay. All right. Well, as I'm looking at the clock here, I think we're just about out of time. We'll go ahead and end it there. Tony, Roberto, thank you so much for being here and all the feedback.
Thanks for the good question. Thanks for having us. Appreciate it.