Treace(TMCI) - 2022 Q4 - Annual Report

PART I Business Treace Medical Concepts, Inc. develops the Lapiplasty® 3D Bunion Correction System™ to surgically correct bunions by addressing the underlying 3D deformity and unstable joint - The company's mission is to establish the Lapiplasty System as the standard of care for bunion surgery by addressing the 3D root cause of the deformity, which traditional 2D approaches often fail to correct[16][19] Annual U.S. Market Opportunity for Bunion Surgery | Market Segment | Patient/Procedure Count | Estimated Market Value | | :--- | :--- | :--- | | Annual Surgical Candidates | 1.1 million | > $5 billion | | Current Annual Procedures | ~450,000 | > $2.3 billion | | Potential Patient Conversion | N/A | $3 billion (incremental) | Revenue and Procedure Kit Growth (CAGR) | Metric | 2020 | 2022 | CAGR | | :--- | :--- | :--- | :--- | | Revenue | $57.4 million | $141.8 million | 57.2% | | Lapiplasty Procedure Kits Sold | 11,113 | 24,656 | 49.0% | Overview of Bunions Bunions are a progressive, painful 3D deformity affecting approximately 65 million Americans, caused by an unstable midfoot joint - A bunion is a complex 3D deformity caused by an unstable joint in the middle of the foot, not simply an overgrowth of bone; a 2015 study indicates that 87% of bunions have a rotational component[19][31][41] - Bunions affect approximately 65 million Americans, with prevalence increasing with age; about 4.4 million patients seek medical attention annually, and 1.1 million are considered surgical candidates[17] Limitations of Traditional Surgical Treatment Approaches Traditional bunion surgeries, 2D Osteotomy and Lapidus Fusion, have limitations including high recurrence rates and failure to correct the 3D deformity's root cause Comparison of Traditional Bunion Surgeries | Feature | 2D Osteotomy | Lapidus Fusion | | :--- | :--- | :--- | | % of Cases | ~75% | ~25% | | Procedure | Cuts and shifts metatarsal bone | Fuses the unstable TMT joint | | Recurrence Rate | 1.8% to 78% | 0% to 38% | | Recovery | 1 day to 6 weeks non-weight bearing | 6 to 8 weeks non-weight bearing | | Limitation | Does not address root cause or 3D deformity | Technically challenging; inconsistent rotation correction | - Failure to correct the third "rotational" dimension of the bunion deformity has been reported to result in a 10 to 12 times increase in the chance of bunion recurrence compared to 3D surgeries[41] Our Solution The Lapiplasty® 3D Bunion Correction System™ corrects all three planes of the bunion deformity, with innovations for smaller incisions and related midfoot issues - The Lapiplasty System is designed to correct, cut, compress, and fixate the unstable joint, restoring normal anatomy in all three dimensions and allowing for an early return to weight-bearing[49][50][51] - Product innovations include the Lapiplasty Mini-Incision System (3.5cm incision), the upcoming Micro-Lapiplasty System (2cm incisions), and the Adductoplasty System for midfoot deformities that occur in up to 30% of bunion patients[54][55] Key Clinical Advantages of the Lapiplasty System The Lapiplasty System offers significant clinical advantages, including consistent 3D correction, low recurrence rates, and rapid return to weight-bearing, supported by strong patient satisfaction data Published Lapiplasty Procedure Outcomes | Key Outcome | Lapiplasty Procedure Result | | :--- | :--- | | Recurrence Rate | 0.9% – 3.2% | | Time to Weight-Bearing | 1 – 11 days (in post-op boot) | | Non-Union Rate | 0% – 2.6% | | Hardware Removal Rate | 0% – 5.1% | - Interim data from the ALIGN3D™ clinical study at 36 months showed a 97% patient satisfaction rating, with a low recurrence rate of 0.9% observed at 24 months post-surgery[61] Commercial Strategy The company's commercial strategy focuses on product innovation, a hybrid sales force, comprehensive surgeon education, and direct-to-patient marketing to drive Lapiplasty System adoption - The sales force is a hybrid model with 168 employee sales representatives and 25 independent sales agencies as of Dec 31, 2022; employee representatives generated 72% of total revenue in 2022, up from 52% in 2021[66] - Surgeon utilization of the Lapiplasty System increases with experience; surgeons who started using the system in 2019 performed an average of 12.0 procedures in the last twelve months, while those who started in 2018 performed an average of 17.7[72][76] - A direct-to-patient outreach program educates potential surgical candidates and directs them to a "Find a Doctor" tool on the company's website to locate experienced Lapiplasty surgeons[78][79] Intellectual Property The company protects its technology with 39 owned U.S. patents and 81 pending global applications, covering core Lapiplasty hardware and surgical techniques Patent Portfolio (as of Dec 31, 2022) | Patent Type | Count | | :--- | :--- | | Owned U.S. Patents | 39 | | Licensed U.S. Patent | 1 | | Owned Foreign Patents | 10 | | Pending Patent Applications (Global) | 81 | - The company owns U.S. trademark registrations for key brands including "Treace Medical Concepts®", "Lapiplasty®", and "Adductoplasty®"[91] Competition The company faces intense competition in the orthopaedic foot and ankle market from larger, well-resourced medical device manufacturers like Stryker and DePuy Synthes - Key competitors in the orthopaedic foot and ankle market include Stryker Corporation, DePuy Synthes Products, Inc. (Johnson & Johnson), Zimmer Biomet Holdings, Inc., Paragon 28, Inc., and Enovis Corporation[103] Government Regulation The company's medical devices are regulated by the FDA, requiring 510(k) clearance for Class II products and adherence to post-market regulations and healthcare fraud and abuse laws - The company's currently marketed products are Class I exempt devices and Class II devices subject to 510(k) premarket clearance from the FDA[109] - After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness may require a new 510(k) submission[112] - The company is subject to extensive healthcare laws, including the federal Anti-Kickback Statute, which prohibits offering remuneration to induce the purchase of items reimbursable by federal healthcare programs, and the Physician Payments Sunshine Act, which requires reporting of payments to physicians[131][136] Employees and Human Capital Resources As of December 31, 2022, the company had 423 full-time employees, a 70% increase, with strong focus on talent development and high employee engagement Human Capital Metrics (2022) | Metric | Value | | :--- | :--- | | Total Full-Time Employees (YE) | 423 | | Year-over-Year Employee Growth | 70% | | Promotions/New Roles | 18% of employees | | Undesired Turnover | < 7% | | Employee Engagement Rate | 87% | Risk Factors The company faces significant risks including net losses, intense competition, product dependency, intellectual property litigation, supply chain reliance, and complex regulatory compliance - The company has a history of net losses, incurring a net loss of $42.8 million in 2022 and $20.7 million in 2021, with an accumulated deficit of $84.7 million as of December 31, 2022[150] - The company's revenue is primarily generated from the Lapiplasty System, making it highly dependent on this single product line for success[170] - The business is subject to intense competition from larger medical device manufacturers with greater financial resources, such as Stryker, DePuy Synthes (Johnson & Johnson), and Zimmer Biomet[157][158] - Relationships with physicians and payors are subject to federal and state healthcare fraud and abuse laws (e.g., Anti-Kickback Statute), and violations could lead to substantial penalties[226][227] Unresolved Staff Comments None Properties The company leases approximately 125,000 square feet for its corporate headquarters in Ponte Vedra, Florida, under a lease expiring in July 2032 - The company leases approximately 125,000 square feet for its corporate headquarters in Ponte Vedra, Florida, with the lease expiring in July 2032[305] Legal Proceedings The company is not currently a party to any material legal proceedings, though it may face claims in the ordinary course of business Mine Safety Disclosures Not applicable PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "TMCI" since April 2021, has not paid dividends, and retained $107.6 million IPO proceeds for growth - The company's common stock trades on the NASDAQ Global Select Market under the symbol "TMCI" since April 23, 2021[310] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining funds for business operations and growth[312] - The company received net proceeds of approximately $107.6 million from its IPO in April 2021[314] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, revenue grew 50.2% to $141.8 million, but increased operating expenses led to a net loss of $42.8 million, despite strong product sales and a $107.5 million public offering Key Financial Results (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $141.8M | $94.4M | 50.2% | | Gross Profit | $114.3M | $76.6M | 49.2% | | Gross Margin | 80.6% | 81.1% | (0.5 p.p.) | | Loss from Operations | ($34.8M) | ($16.5M) | 111.0% | | Net Loss | ($42.8M) | ($20.6M) | 108.3% | - The number of Lapiplasty Procedure Kits sold increased by 41.0% in 2022, and the number of active surgeons grew by 33.9% to 2,387[327] - In February 2023, the company completed a public offering of common stock, resulting in net proceeds of approximately $107.5 million[322] - The company expects seasonality to continue, with higher sales in the fourth quarter and lower sales in the first quarter due to patient insurance deductibles resetting and weather[335] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Treace Medical Concepts, Inc. is not required to provide this information Financial Statements and Supplementary Data FY2022 consolidated financial statements show revenue growth but increased net loss of $42.8 million, with total assets at $159.0 million and liabilities at $98.5 million, bolstered by a new loan and public offering Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents & marketable securities | $81,252 | $105,833 | | Total Current Assets | $133,402 | $137,972 | | Total Assets | $159,024 | $140,821 | | Liabilities & Equity | | | | Total Current Liabilities | $30,245 | $18,210 | | Long-term debt, net | $52,711 | $29,365 | | Total Liabilities | $98,495 | $47,748 | | Total Stockholders' Equity | $60,529 | $93,073 | Consolidated Statement of Operations Data (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $141,838 | $94,419 | | Gross Profit | $114,315 | $76,593 | | Total Operating Expenses | $149,159 | $93,103 | | Net Loss | $(42,815) | $(20,552) | Consolidated Cash Flow Data (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(30,648) | $(17,193) | | Net cash used in investing activities | $(76,518) | $(2,705) | | Net cash provided by financing activities | $20,806 | $107,652 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes identified - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[526] - Management concluded that as of December 31, 2022, the company's internal control over financial reporting was effective based on the COSO 2013 framework[527] Other Information None Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement Executive Compensation Information on executive compensation is incorporated by reference from the company's 2023 Proxy Statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the company's 2023 Proxy Statement Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement; GRANT THORNTON LLP is the auditor PART IV Exhibits, Financial Statement Schedules This section lists financial statements, notes the omission of schedules, and provides an index of exhibits filed with the Form 10-K Form 10-K Summary None