TELA Bio, Inc's (TELA) CEO Tony Koblish on Q2 2022 Results - Earnings Call Transcript

Aug. 10, 2022 8:11 PM ETTELA Bio, Inc. (TELA)
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TELA Bio, Inc. (NASDAQ:TELA) Q2 2022 Earnings Conference Call August 10, 2022 4:30 PM ET

Company Participants

Louisa Smith – Gilmartin Group

Tony Koblish – President and Chief Executive Officer

Roberto Cuca – Chief Operating Officer and Chief Financial Officer

Conference Call Participants

Frank Takkinen – Lake Street Capital Markets

Caitlin Cronin – Canaccord

Matthew O'Brien – Piper Sandler

Dave Turkaly – JMP Securities

Operator

Good afternoon, ladies and gentlemen, and welcome to the TELA Bio Second Quarter 2022 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 is being recorded.

I would now like to turn the conference over to Louisa Smith from the Gilmartin Group. Please go ahead.

Louisa Smith

Thank you, Lue, and good afternoon everyone. Earlier today, TELA Bio released financial results for the second quarter of 2022. 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 and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's 2021 Form 10-K and 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. 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.

Tony Koblish

Thank you, Louisa. Good afternoon and thanks for joining us today on our second quarter 2022 earnings call. I am very pleased to report that TELA Bio achieved its first double-digit revenue quarter with net sales of $10.4 million, growing 38% year-over-year and 26% sequentially from the first quarter. On today's call, I'll describe how we plan to continue growing revenue and taking market share, update you on the progress of our sales force expansion, discuss the signing of the Premier contract and what that means for our business and review our latest clinical news. Then Roberto will provide a financial review of the quarter and I will make some closing comments before we take your questions.

As I've described before, TELA's revenue and market share capture can be thought of as the product of five factors: one, the size of our sales force; two, per sales rep productivity; three, the number of products in our portfolio; four, GPO and supply chain access; and five, clinical data. Throughout the past year and certainly within the second quarter, we've improved each of these dimensions resulting in continued financial and operational performance. As we've disclosed previously, we ended 2021 with just under 45 sales reps. Our goal was to grow to 55 reps by mid-year and 60 by the end of 2022. I am pleased to report that we had 57 sales reps at the end of June and remain on track to reach our target for the end of 2022.

More important than the number of reps though is their quality. We are continuing to see that strong reps with prior experience within the med-tech industry are eager to join TELA having seen our success over the past few quarters and hearing about the culture and compensation potential from current sales reps within their professional networks, who have already found success here. We've had two training sessions in the first half of the year yielding reps, who are thoroughly knowledgeable in Playbook90 and who have hit the ground running in generating sales.

Our most recent metrics on new reps continue to show that on average they have covered their costs within the three – first three to six months of hiring quickly contributing to the top-line without negatively affecting profitability. We're in the process of planning the pace of sales force expansion in 2023 and evaluating whether it makes sense to accelerate any of that into 2022. We'll update you on that later in the year. COVID-19 still seems to be affecting the market, presenting both challenges and opportunities. Although our second quarter got off to a strong start, we saw some softness in June, such that the last typically strongest revenue month of the quarter was only slightly above May.

That said, we continue to believe there is considerable backlog in hernia repair due to COVID-19. Based on market growth rates before and after the March 2020 initial COVID-19 lockdown and more recently we estimate there may be as many as a 100,000 hernia repair procedures that have been deferred due to COVID-19 that they need to be treated in the coming quarters. This represents potential for the use of OviTex products and is the reason we remain confident about performance over the full year. Roberto will have more on that shortly.

Toward the end of July, we announced our entry into a group purchasing organization agreement with Premier for our OviTex hernia and PRS products. The contract becomes effective on October 1st. Premier is the second largest GPO in the U.S. covering over 4,400 hospitals and 225,000 providers. This is a meaningful achievement for TELA. We've already seen the impact of GPO contracts can have on our business with HealthTrust now comprising approximately one third of our revenue. Premier is an even larger organization and offers us an excellent opportunity to grow our business even faster.

Additionally, Premier gives us access to many west coast markets we have not fully penetrated to date. We believe the potential downstream impact of this agreement is substantial and will serve as an important driver of our future growth. We were pleased to announce recently that 24 month results from BRAVO and ReBAR studies were accepted for presentation at the American Hernia Society Meeting in September. In our BRAVO study, the recurrence rate for eventual hernias repaired with OviTex was only 2.6% at 24 months, which we believe compares favorably to reported recurrence rates from competitive products in these types of procedures.

A separate retrospective study examined the recurrence rates of patients, who underwent inguinal hernia repair utilizing OviTex in a minimally invasive technique known as the ReBAR technique. After two years, only three recurrences were identified from the 157 inguinal hernias repaired using the ReBAR technique, a rate of 1.9%. High quality outcomes data is one of the factors contributing directly to OviTex revenue and market share capture. We will continue to develop further supportive data with one area of focus being outcomes from OviTex using robotic repairs as in BRAVO II.

Today, approximately 60% of OviTex repairs employ minimally invasive procedures and we expect this to grow. Developing additional products compatible with surgical robots and laparoscopy and the data supporting their outcomes is therefore a high priority for TELA. On that note, the final important factor for revenue growth is portfolio expansion. We continue to advance projects in both R&D and business development and expect to be able to discuss some details of this more fully by the end of the year. Our sales force is exciting to get additional high quality products to discuss with their customers. And we take seriously the goal of being a broader tissue preservation and restoration company, we look forward to providing updates in the future.

With that, I'll turn the call over to Roberto for a more detail – for more details on our second quarter financial results.

Roberto Cuca

Thanks, Tony. Revenue for the second quarter of 2022 increased 38% year-over-year to $10.4 million. Gross profit percentage was 63% in the second quarter of 2022 compared to 67% in the same period last year. Cost of revenues included a one-time cumulative amortization charge of approximately $462,000. This charge related to the final $1 million milestone payment to our contract manufacturer for the attainment of $5 million of cumulative sales in Europe, which we expect to occur next year.

Sales and marketing expenses were $11.1 million in the second quarter of 2022 compared to $7.5 million in the same period of 2021. This increase was mainly due to higher salaries, benefits and commission costs as a result of the expansion of our commercialization activities, higher travel and consulting expenses and additional employee related costs due to increased headcount, particularly in our consumer facing roles. G&A expenses were $3.6 million in the second quarter of 2022 compared to $3 million in the same period of 2021. This increase was primarily due to higher salaries and benefits and increased professional, consulting and legal expenses.

R&D expenses were $2.1 million in the second quarter of 2022 compared to $1.9 million in the same period last year. The increase was primarily due to higher salaries and benefits. Loss from operations was $10.2 million in the second quarter of 2022, compared to $7.3 million in the prior period – prior year period. Net loss was $12.7 million in the second quarter of 2022, compared to $8.3 million in the same period in 2021. We ended the second quarter of 2022 with $27.2 million in cash and cash equivalents. For the full year 2022, we expect revenue to range from $42 million to $45 million, representing growth of 43% to 53% over the prior year. As Tony said, this assumes that the potential impacts of COVID-19 will be no more disruptive in 2022 than in 2021. However, a significant increase in COVID-19 infections beyond our estimates could negatively affect this projection.

I'll now turn the call back to Tony for closing remarks.

Tony Koblish

Thank you. Thank you, Roberto. As you've heard today, our momentum is strong and we expect it to continue despite any COVID-19 headwinds. Everything is in place to drive significant multi-year revenue growth. We deliver both market leading innovation and value to payers and providers. Our products are supported by an outstanding sales and service organization and the performance data on OviTex is extremely compelling. Finally, the importance of the Premier agreement should not be underestimated. This is a huge win for TELA and our sales and business teams will be laser focused on maximizing the potential of this opportunity.

With that said, I'll now ask Lue to open the line for your questions.

Question-and-Answer Session

Operator

Thank you so much, Tony. All right. So your first question comes from the line of Frank Takkinen from Lake Street Capital Markets. Please go ahead and ask your question.

Frank Takkinen

Hi, Tony. Hi, Roberto. Congrats on the results and guidance and all of the above Premier and new data. I wanted to start with a question on Premier and just dig in a little bit deeper, so maybe a two parter. First starting with positioning how is OviTex positioned within the Premier contract and why is that important? And then two, just curious if there's any volume based incentives built into the contract yet, or if that's potentially a negotiation at a later date?

Tony Koblish

Yes. So Premier is an important agreement for us, but it's not just the size of the GPO, the footprint and the opportunity. It's the nature of what the agreement says, right? So the category that we've been placed in is called the biosynthetic category. So in the HealthTrust agreement, we were definitely placed in the biologic category. Now, biologics over the years have been used in more and more complicated complex abdominal wall procedures, which means you're sort of in that smaller segment of the market. This segment that we're in now, this bioabsorbable segment is really sort of in the middle. It's in that sort of simple ventral, moderate ventral area. But the potential of these natural repair products that reside in this sort of middle zone means that we can go upstream into the complicated and then downstream into the simple.

So in many ways, I think, this is a clear signal that OviTex has sort of gotten beyond that niche complex opportunity, which is high priced, low volume, and now we're being viewed as a more complete provider capable of doing everything from the most simple inguinal robotically to the most complicated open ab walls, which puts us very much on a level playing field with our competitors. So we like being in the zone that we're in. It allows us to take advantage of the breadth of the opportunity in the foot – within the footprint of those hospitals. And the second part of the question, Frank, sorry.

Roberto Cuca

Volume based incentives…

Frank Takkinen

Yes, just if there was any – yes, volume based incentives.

Tony Koblish

Yes. I mean, there's some tiers there. We're not going to really be able to talk about that. The contract is proprietary, I would say. But there's some pricing tiers and volume issues that are at play. I think we're sort of new to the game on that, structuring those kinds of deals. So we've walked into that fairly carefully, but we're very satisfied with the way that works and our ability, again, to reach across all the hernia types is just excellent. So the big news is, is that we won the contract. The bigger news is that we're in that bioabsorbable category. That's just absolutely huge news. It takes us from a niche player to a broad provider.

Frank Takkinen

Okay. Really helpful. And then maybe just shifting over to competitive landscape and I hope I don't put you in an uncomfortable position asking this, but just curious if you had any recent thinking or comments to provide on the synthetic lawsuits that are ongoing specifically in the Providence, Rhode Island case that's developing in real-time.

Tony Koblish

Yes, yes. I mean, so there is – we're early, I think, in the process right now with this class action litigation. I'm not sure how many cases have gone, have started in the early phases, maybe two or three, but there's certainly a new case going on right now. I assume if you're talking about Providence, you're referring to the Trevino versus Davol and C.R. BARD case. I can't really get into any details. We don't know any details. All I can do is talk about what we've read in the press. Specifically there was an article that came out a little while ago in Bloomberg, which I think cracked open some of the internal issues, which I'm not going to discuss here, but that's free for anybody to take a look at that may be in play here.

So whatever has been reported in the press is what we know. We can't comment on anything specific. What I can comment on is what we think the overall trends are that that this is starting to kick off, right? And we do believe that this will increase this case specifically perhaps and maybe that article that's come out already on it may increase the negative attention that gets focused on permanent synthetic meshes. So this should accelerate the ongoing market trends towards natural repair products, which at this point really are resorbable plastic meshes, biologic meshes, and then products like OviTex that are a combination of all of those things, right? So I think this pushes things more towards natural repair, which dovetails beautifully with the fact that our Premier contract puts us in the high usage category.

We also know that just from The Street intelligence sales force kind of reading the tea leaves, that BARD, they understand exactly what's happening in this market. They're in the middle of all this, right? So we know that they're reducing commissions or maybe even eliminating commissions, they're certainly creating incentives we believe to move their customers away from permanent synthetic meshes and more towards their resorbable mesh platforms. Their bioabsorbable, their natural repair product called PHASIX. So this may take the form of incentivizing on multiple fronts. This is good news for us as well. I think the more players, credible players, big players, strong players that validate the need for this natural repair, the better for us. And the reason is simple. We offer a tremendous comparison, right?

So our product has superb clinical data in comparison to any permanent or resorbable plastic mesh. Our recurrence rates are superb. And we also have a great cost advantage when it comes to these resorbable products as well, could be as high as 20% to 25% from what we're seeing. We need to let that shake out a little bit and see where that goes, but we certainly offer a cost advantage when it – in comparison to these resorbable plastics. We cost a bit more than permanent mesh depending on the technology level, whether it's coded or not coded. But if the market is moving towards natural repair, this is good for us.

So the extent of this litigation creates any kind of awareness in physicians and patients to move towards natural repair. We are just situated exceptionally well with our OviTex platform, our dataset and our recurrence rates to perform very well in this market. So we like where we are. And like I said, we're in the early stages of this litigation unfolding. There's many sort of bellwether early cases that we'll decide how this goes. So that's about all I can say.

Roberto Cuca

I just add one sentence, which is that, that move from permanent synthetic to resorbable synthetic was already happening. And it's probably just being accelerated by the additional light that's being shown by the litigation.

Frank Takkinen

Okay. That's helpful. Maybe if I could just test my luck with one more question on the same topic, and it's a peer speculation ask on my part, but understanding the case and how it's unfolding. Do you think that there could be a case where BARD thinks that their best strategy is to elect to pull their synthetic products from the market to try and protect some downside? Or is that maybe going a little bit too extreme into the situation?

Tony Koblish

I think we're way out over our skis. We have no idea. Yes, I mean, we don't even know how these cases are going to turn out yet.

Roberto Cuca

Yes. If you compare it to the pelvic meshes, it took a lot of cases before companies started pulling products in many years. So given that, I think, this is only the fourth case. It's probably a ways off before BARD would be faced with a decision like that, if at all.

Frank Takkinen

Okay. That's great. Congrats again on all the progress and really appreciate all the color. Thanks for taking my questions.

Tony Koblish

Thanks, Frank.

Operator

Thank you so much. And your next question comes from the line of Caitlin Cronin from Canaccord. Please go ahead and ask your questions.

Caitlin Cronin

Hi, good afternoon. Thanks for taking the questions. This is Caitlin on for Kyle Rose. So just a couple of questions. On SiteGuard, how is the launch going? Has it helped to drive pull through into accounts for your other products? And then how is the market environment turning into Q3? Have COVID pressures eased? Or are you guys still seeing a buildup of backlog? Thank you.

Tony Koblish

Yes, I'll start with the second part first. So, it looks like there is hotspots or flare ups, right, at least that's our Q2 experience, right. We started Q2 exceptionally strong as our opening comments reflected. The first two months were excellent and we thought we were going to knock the cover off the ball even more than what we did. And we just had a little bit of a two week sort of turbulent patch, right, in late June – mid to late June. And it felt like it was a little bit of nursing shortages, hospital staffing and then it sort of cleared up and we had a strong finish to the month. So the good news is, is that these patches seem to be getting shorter and smaller.

The bad news is they still rear their head and they're maybe a little bit unpredictable for some reason. It could be these BA.4 or BA.5 Omicron variants are highly contagious. They don't do too much damage relative to the older variants perhaps. And there is such good home testing now that maybe everybody is not reporting that they get it, but when they do get it, they fall out of the system, right. They're – the patients fall out, the doctors fall out, et cetera. So, I think, it's just going to be patchy here. And our job is to figure out how to navigate through that patch.

Regarding SiteGuard, I think, we're in an evaluation period with this product. We're still learning. So we'll keep you posted as that unfolds. It's a very minor contributor right now. Most of the business, if not the bulk of the business is still within the hernia and the PRS platform, but we're learning a lot with that market. And I think we're – it's guiding us on how to position products in the antimicrobial space. I think that's going to pay great dividends for us in the future. So we're in learning mode right now.

Caitlin Cronin

Great, thanks.

Tony Koblish

Thanks, Caitlin.

Operator

Thank you, Caitlin. And your next question comes from the line of Matthew O'Brien from Piper Sandler. Please go ahead and ask your question.

Matthew O'Brien

A clarification one. Roberto, did you say there was a one-time purchase in the quarter? I don't think I caught that.

Roberto Cuca

No. So there was a one-time GAAP accounting based charge in the quarter.

Matthew O'Brien

Okay.

Roberto Cuca

So under our contract with our contract manufacturer when we achieved 5 million in cumulative sales in Europe, we owed them $1 million milestone payment. We expect to hit that milestone and pay them the $1 million sometime next year, probably in the first quarter. For GAAP accounting purposes, though, we needed to take it – and that $1 million gets amortized from the launch of the European business through the expected lifetime of the business. Because we launched a couple years ago, we had to make a catch up charge to the tune of $462,000 in the second quarter even though it was a non-cash charge. So if you were to figure out the – get the cash basis or cash gross profit percentage, you just add that $462,000 back to our gross profit.

Matthew O'Brien

Okay, perfect. Thank you. And then the – obviously OviTex stayed well in the quarter, but the standout was clearly PRS. I know you probably don't have as much COVID pressure there, but – so that's certainly helping. What is going on with PRS specifically? I know it's an area that you expect to be a big contributor in the coming years. What have you seen kind of underneath the hood as far as new accounts and new clinicians and share taking within that category? And then I do have one more on Premier.

Tony Koblish

Yes. So Matt, so PRS did well. It may be a bit more insulated given that it's related to cancer compared to hernia. That has certainly been our experience up until now. But really, we're just seeing the maturity of the launch start to take shape, right? So we have a process. It's very methodical. It involves training, learning, feedback loops, iterative-type approach. And the same approach we did with hernia, right? Hernia started off in end of 2016 or so. PRS started off in 2019 or so. So we're two to three years behind the launch with PRS.

But what you have to understand is PRS is being rolled out with the same process but into a much more mature organization, right? When we rolled out hernia initially, we might have had 5, 8, 9, 10 reps, something like that. Now we have 57 reps. We have our processes in place. We have our ecosystem, our Playbook90, and we're just slowly but surely systematically work in the process, and it's paying dividends.

And you're just seeing the overlay of how we did hernia how we're doing hernia is the same way how we're doing PRS, and you're seeing the benefits of just being into a bigger footprint, more mature, just a more maturing company and process. And our commercialization process particularly is getting quite sophisticated with the ecosystem. And we're also benefiting from the contracting also and the rep talent. It's all including. It's a virtuous cycle of improvement, which is going to uplift everything.

Matthew O'Brien

Got it. Okay. Okay. And then just one more, I could ask a bunch more, but just sticking with one more. On Premier, it's great that you've got this broader number of cases that you can address. I think you said HealthTrust is a third of revenue, so call it, $10 million to $12 million on an annual basis. Do you get a buy-in right away in Q4 of note? And then how quickly can you get to a HealthTrust kind of level revenue and surpass that? I mean, how big could this be, could it be 2x HealthTrust or even more? Thanks.

Tony Koblish

Well, yes, those are great questions, Matt. Thanks. So look, I think HealthTrust is underperforming for us right now, right? Because 18 months of the three-year contract has been in COVID where we've had no access to install into HealthTrust for the bulk of the contract, right? So that hopefully will not be the case with Premier. Now all the hospitals within HealthTrust and Premier don't do PRS and hernia procedures, right? But if you just look at a proxy, right, 1,600 hospitals for HealthTrust and 4,400 for Premier, that's a pretty good ratio proxy for what the ultimate potential could be for this market.

And then again, like I said before, we're a healthier, more mature organization. Our clinical data is now more mature. Our sales force is improving that virtuous cycle of uplift is in place when we start Premier, right? So our expectation is that we're going to grow like crazy within both HealthTrust now that things are clearing out in terms of COVID and Premier, is going to be sort of that ratio that mimics the ratio in hospitals. So yes, it's a big deal. And we invested heavily early in our commercialization process in building the talent and the experience to master contracting, and I think it's paying off. We're going to get every major contract in time. They only come due every three years, but we offer a compelling value proposition, compelling innovation, compelling cost savings and compelling clinical performance delivered by a first rate selling organization.

So yes, I expect everything to be explosive once we gain traction. Does it happen overnight? No, right? Nothing goes from 0 to 100 in med-tech, right? You've got to work your way into it. You got to be patient, diligent. And when we start the contract in October, that's the way we're going to approach it. But I like our chances with a third of our revenue in HealthTrust in the middle of COVID, I like our chances with Premier given all those factors.

Matthew O'Brien

Great, thanks so much.

Tony Koblish

Thank you.

Roberto Cuca

Thank you, Matt.

Operator

Thank you. And our next question comes from the line of Zachary Weiner from Jefferies. Please go ahead and ask your question.

Unidentified Analyst

It's Chris filling in for Zach. Thank you for taking the question. You guys talked a little bit about how net excess has trended through the quarter. Has excess returned to pre-COVID? And kind of as a result of this, how has your utilization of reliance on TELA LIVE shifted?

Tony Koblish

Well, TELA LIVE is a permanent part of the landscape now for us, right? I mean we're doing TELA LIVE as part of our normal course of business. We can reach more surgeons. We can offer that service to our sales force. They can get a touch, a high touch with senior leadership. But we're also doing in-person VIPs. Those have started up again and those are picking up quite nicely. So it's going to be a permanent part of the landscape. The VIPs are coming back in-person. I think we're sort of way beyond where we were in a post-COVID era in terms of those activities, high touches with surgeons.

In terms of our reps and their excess, I can't even remember what pre-COVID was like, to be honest with you, given we were pretty underdeveloped back then, right? We – this was pre-IPO for us, and we didn't have the capital, didn't have a big sales force. So all we know is what we're in now. I don't feel like we have a big problem with excess right now. I think our reps are getting to where they have to go. I think these patches that erupt are coming from the surgeons, the nurses and the patients either getting these later variants of COVID or just shortages, right, on the labor side. So that's more the issue for us. I don't think our reps are having any kind of problem making contact with customers and presenting. That is really strong for us right now. It's really this up and down flow that we're seeing these patches that erupt every now and then.

Unidentified Analyst

Awesome. Thank you. And kind of going off that last point you made, how have you guys been affected by the broader supply chain pressures that we've been seeing across the industry?

Roberto Cuca

So we – we haven't had too much pressure on supply chain. So as you know, we get most of our products from New Zealand. The ECM materials sourced from slaughterhouses there, and the cost of that manufacturing are borne by that contract manufacturer, we compensate them with a revenue share. So the cost for us of our primary products have not been increasing. There's – we do pay for shipping, and there's obviously been some constraints on that, but that's not a huge contributor to our expenses. And then there's more competition for expertise. This applies more to R&D and G&A because our sales forces are still compensated based on a base salary and then a commission based on how much they sell. So we're reasonably well insulated from cost pressures. There's a little bit that effect this, but not much this material.

Unidentified Analyst

Thanks.

Tony Koblish

Thanks, Chris.

Operator

Thank you so much. And our last question comes from the line of Dave Turkaly from JMP Securities. Please go ahead and ask your question.

Dave Turkaly

Great, thanks. Tony, you mentioned culture and sort of the compensation potential for the reps. I was wondering if you can maybe expand on that a bit. I mean, are they able to make more? Are you doing something different than, say, you did at other med-tech entities in the past in terms of the rate you're paying these folks? And what specifically would you highlight from the culture side that is allowing you to attract these folks?

Tony Koblish

Yes. I mean our comp plan is, I think, rather typical for what I've done in the past. And what we've done in the past, we've got – our whole team here virtually has built sales forces and have grown from $0 to $100, $0 to $200 million, which is what our goal is, right? So we have a very experienced crew here. Typical for companies that have that ambition is uncapitated, incentive compensation, right, I mean get paid less, up-sell quota, and then get paid much more beyond quota. We do some things that, again, that I think are typical that introduced some non-linearity into the pay scale, right? The more you beat your quota, the more you get paid beyond the percentage that you beat and the more you miss your quota, the less you get paid beyond the percentage that you missed by, right?

So it's a culture that rewards high performance I don't think there's anything crazy about it, but it's just the opportunity that these Hunter style reps can see coming from a large, more established company they can see the opportunity here. And some of our competitors have been bought and then bought again and then we've been bought again. And they wind up working for big pharma or big giant, giant med-tech that's a different story than working for a hungry, nimble, agile, mobile, a little bit hostile, company like TELA Bio right? And I think that permeates the culture.

We try to create a superbly supportive environment. We have your back is one of the things that we say all the time. That's our piece of the equation, and your piece of the equation is you got to deliver. We believe in transparency, understanding what's going on, you're part of the team, we're supportive, and we're building a great culture. And I think that culture is attracting people, both internally and in the commercial organization, and this culture construction is very intentional. And the reason why I'm waffling on about it now is because I hope people are listening, and consider this an invitation. If you have what it takes and you want to be a part of this culture, contact us. Thanks for the advertising time, Dave.

Dave Turkaly

I'll send my resume. I guess as a quick follow-up, you mentioned the 100k or so deferred hernia procedures. I guess, what are your thoughts on timing in terms of how fast you work through that backlog? I imagine that's the market backlog, but is this something you think you get through this year? Or is this something that drags on?

Roberto Cuca

So we had an interesting conversation with a hospital administrator a couple of days ago in part to validate the size of the backlog that we'd estimated, and he did confirm that, that's reasonable to him, and then to talk to exactly what you just asked. So he made the point that to work through a backlog, if you're getting new – additional new patients in at the same rate you previously did, you have to be doing surgeries at more than 100% of the rate that you did pre-COVID-19 because you have to do both the surgeries that come in the normal course and then dip into that backlog and work it down.

What he said is that his hospital is doing something on the order of 80% to 85% of what they were doing pre-COVID-19, and that he sort of other hospitals doing even less than that. So at those rates, you're not working through much of the backlog. I mean some of those patients are getting their hernias repaired, but you're contributing and expanding potentially the backlog because you're not doing even 100% of what you're doing before.

The additional point he made is that many of those patients who are in the backlog by deferring their hernias are coming in with larger hernias that require, in some cases, more invasive procedures. So that's kind of a long run about way of saying that the backlog is not going to get worked through very quickly. It's going to require getting back to prior staffing levels with hospitals plus, and we don't see that happening anytime soon. But we expect that all of the backlog patients and all the new patients are going to be ripe for use of our OviTex products.

Dave Turkaly

It sounds like there could be some potential upside there as we look ahead and so thank you for that.

Tony Koblish

Yes, thanks, Dave.

Operator

Thank you so much to everyone. And I would now like to turn the conference back to Tony for closing remarks.

Tony Koblish

Thanks, Lue. Thank you, everybody, for joining us this evening. We appreciate your interest in TELA Bio. We look forward to meeting up with you again in about three months time. Thank you.

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