In the 2025 first half ARX sold around $18.5m of product to their US distribution partner Telabio (Tela). This was a little less than half ARX’s total sales of $39.1m. Tela is a NASDAQ listed company with a current market cap of around US$90m. Tiny Tela are based in Pennsylvania and market a particular ARX product called Ovitex which is used mainly for hernia repair. So the financial health of Tela is very important to ARX, and an underlying market concern was always the strength of Tela.
Tela itself has been a disaster for shareholders. In the years 2020 to 2023 they averaged losses of around US$34m per year. In the FY24 they lost $38m.
How have they stayed afloat? By going back to the market and raising capital on the promise of: “Hey we are close to break even and making it big! Come on guys chip in a few more mil, we’re nearly there!” And back in October last year US investors duly put in another US $43m. A lifesaver for them.
Today Tela released their quarterly update which said in part:
“Revenue was $17.6 million in the fourth quarter of 2024, an increase of 4% compared to the same period in 2023. The increase was due to an increase in unit sales of our products resulting from the addition of new customers and growing international sales. This growth was partially offset by a decrease in average selling prices caused by product mix as the share of smaller-sized units increased following the introduction of robotically compatible OviTex IHR and our increased focus in growing market share in high-volume minimally invasive and robotic procedures.”
Revenue for the full 2024 year was $69.3m an increase of 19%.
As part of the commentary they indicated: “Our fourth quarter results fell short of our expectations due to a confluence of disruptions, some of which we believe are transient and others that have already been redressed.”
"2025 Financial Guidance:
Full year 2025 revenue is projected to range from $85.0 million to $88.0 million, representing growth of 23% to 27% over full year 2024. First quarter 2025 revenue is projected to range from $17.0 million to $18.0 million, representing growth of 2% to 8% over the first quarter of 2024. 2025 operating expenses are expected to be flat to 2024.”
In the FY 2024 they lost $37.8m. Worse, the Q4 sales growth was an anaemic 4%.
Why?
The CEO Antony Koblish spent nearly all the conference call trying to explain. He put it down to the mass resignation of Territory Managers and their support staff that took place in the November and December of last year + the US East Coast hurricane. Tela lost 11 key TMs and got down to just 71 and are now back up to 88, and want to get to 97 by the end of the year. The CEO said smaller companies had been very aggressive in chasing market share and had poached the staff. No mention of who these companies were (PNV, AVH?).
Antony talked about the remedies now in place to fix including: changes to staff renumeration, sales organisational changes, expanding products (“Liquifix”), more clinical data, more conferences and more inroads into breast reconstruction market. He stated the surgeon and industry trends were away from synthetics.
The CEO statement about getting costs further under control was at odds with his obvious problem of not sufficiently renumerating his sales staff.
Tela have $52m cash as at the end of December and CEO when asked about the cash drain, said: “We are confident we can get there with existing liquidity”. Well he would wouldn’t he. I will say however Antony can talk, and it is hard not to be beguiled by his optimism and win attitude. He is not defeated, or at least did not sound defeated. Antony made David Williams sound like an introverted adolescent. It is interesting he also let slip: "We are not at the stage where the product sells itself".
Brian Ward (CEO ARX) said in a December 2024 Strawman interview Tela would be “breakeven” when its sales hit $120m/yr and when that happened he would get drunk for a week. (He didn’t actually say that aloud, but you could hear him think that).
Optimistically it would seem Tela will not reach breakeven sales until early CY 2027, assuming further sales growth rate of 25% beyond this calendar year. The $52m of cash may or may not see them through. However you would think if they are in a jam, at some point optimistic US investor would be there to stump up more cash assuming Tela at that time looks any sort of a proposition.
What’s it all mean for ARX?
Well, if Tela is squeezed they will squeeze ARX with inventory levels and pricing. Not good. And who knows if ARX are about to get smacked with a 25% tariff soon.
You might think of Tela as a ARX dialysis life support machine, with two clear 3mm diameter plastic tubes running from the suburbs of Philadelphia across the US and under the Pacific Ocean all the way to Auckland and CEO Brian Ward’s skinny forearm. Well the blood is still flowing, but this morning it is like someone just sat on one of the little plastic tubes and constricted them a little.
Not good news, and no one wants to see Brian Ward become nauseous and slowly turn yellow. (Outside of some weirdo Shorters or maybe secretly David Williams).