0001558370-22-017464 | 10-Q | XBRL Viewer

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Leases - Future minimum lease payments (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Undiscounted future minimum lease payments under non-cancelable leases
Remainder of 2022	$ 88
2023	358	$ 300
2024	366	400
2025	375	400
2026	383	400
2027	392	400
Thereafter	165	$ 500
Total undiscounted future minimum lease payments	2,127
Less imputed interest	(507)
Total operating lease liabilities	$ 1,620

Stock-Based Compensation - Restricted Stock Units (Details) - Restricted stock units	9 Months Ended
	Sep. 30, 2022 shares
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Outstanding at January 1, 2022	163,043
Granted	190,450
Vested	(40,783)
Canceled/forfeited	(5,988)
Outstanding at September 30, 2022	306,722

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2022	Dec. 31, 2021
Consolidated Balance Sheets
Preferred stock, Par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, Par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	19,159,145	14,529,606
Common stock, shares outstanding (in shares)	19,159,145	14,529,577

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Schedule of warrants outstanding to purchase common stock


			Exercise	Expiration
	Outstanding		price	dates
Common stock warrants	8,379	$	28.65	2028
Common stock warrants	80,177		28.65	2027
	88,556

Stock-Based Compensation - Early Exercise Of Stock Options (Details)	9 Months Ended
	Sep. 30, 2022 shares
Stock-Based Compensation
Early exercised stock options, Unvested balance at beginning of period	29
Vested	(29)

Long-term Debt - OrbiMed Term Loan (related party) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($) tranche	Sep. 30, 2021 USD ($)	Dec. 31, 2021 USD ($)
Debt
End of term charge	$ 2,000		$ 3,000
Loss on extinguishment of debt	$ (1,228)
OrbiMed Term Loans (related party)
Debt
Number of Tranches \| tranche	2
Interest Rate (as a percent)	7.75%
End of term charge	$ 3,000
Loss on extinguishment of debt	(1,200)
Interest Expenses	1,500	$ 2,700
Amortization of debt issuance costs	$ 300	$ 500
OrbiMed Term Loans (related party) \| LIBOR
Debt
Variable Interest Rate (as a percent)	2.00%
OrbiMed Term Loans (related party) \| Maximum
Debt
Debt amount	$ 35,000
OrbiMed Term Loans - Tranche One
Debt
Debt amount	30,000
OrbiMed Term Loans - Tranche Two
Debt
Debt amount	$ 5,000

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the SEC, which permits reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying consolidated balance sheets and statements of operations and comprehensive loss, stockholders’ equity and cash flows have been made. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes the disclosures are adequate to make the information presented not misleading. The unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. The unaudited interim consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant judgments are employed in estimates used to determine the fair value of stock-based awards issued and recoverability of the carrying value of the Company’s inventory. As future events and their effects cannot be determined with precision, actual results may differ significantly from these estimates.

Revenue Recognition

Under ASC Topic 606, Revenue from Contracts with Customers, an entity recognizes revenue when its customer obtains control of the promised good, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods. The Company performs the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

A significant portion of the Company’s revenue is generated from product shipped to a customer or from consigned inventory maintained at hospitals. Revenue from the sale of consigned products is recognized when control is transferred to the customer, which occurs at the time the product is used in a surgical procedure. For product that is not held on consignment, the Company recognizes revenue when control transfers to the customer, which occurs at the time the product is shipped or delivered. For all of the Company’s customer contracts, the only identified performance obligation is providing the product to the customer.

Revenue is recognized at the estimated net sales price which includes estimates of variable consideration. The Company enters into contracts with certain third-party payors for the payment of rebates with respect to the utilization of its products. These rebates are based on contractual percentages. The Company estimates and records these rebates in the same period the related revenue is recognized, resulting in a reduction of product revenue.

Payment terms with customers do not exceed one year and, therefore, the Company does not account for a financing component in these arrangements. There are no incremental costs of obtaining a contract that would rise to or enhance an asset other than product costs, which are a component of inventory. The Company expenses incremental costs of obtaining a contract with a customer (e.g., sales commissions) when incurred as the period of benefit is less than one year. Fees charged to customers for shipping are recognized as revenue.

The following table presents revenue disaggregated by our portfolio of products (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
OviTex	$	7,839	$	6,072	$	20,528	$	16,500
OviTex PRS		3,287		1,582		9,188		4,589
Other		33		—		80		—
Total revenue	$	11,159	$	7,654	$	29,796	$	21,089

Sales outside of the United States were immaterial for the three and nine months ended September 30, 2022 and 2021.

Fair value of financial instruments

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction among market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments are made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other assets, and accounts payable are shown at cost, which approximates fair value due to the short-term nature of these instruments. Due to the related-party relationship of the credit facility (the “OrbiMed Credit Facility”) with OrbiMed Royalty Opportunities II, LP (“OrbiMed”) (Note 6), it was impractical to determine the fair value of the debt.

The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

●

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

●

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

●

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):


	Fair value measurement at reporting date using
	Quoted prices in
	active markets		Significant other		Significant
	for identical		observable		unobservable
	assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
September 30, 2022:
Cash equivalents – money market fund	$	50,677	$	—	$	—

December 31, 2021:
Cash equivalents – money market fund	$	41,396	$	—	$	—

Net loss per common share

Basic and diluted net loss per common share is determined by dividing net loss by the weighted-average shares of common stock outstanding during the reporting period. A net loss cannot be diluted, so when the Company is in a net loss position, basic and diluted net loss per common share are the same.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding for the periods presented, as they would be antidilutive.


	Three and nine months ended September 30,
	2022	2021
Stock options (including shares subject to repurchase)	2,009,189	1,708,601
Unvested restricted stock units	306,722	163,978
Common stock warrants	88,556	88,556
Total	2,404,467	1,961,135

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

In February 2016, the FASB issued ASU No. 2016-02, Leases, (“ASU 2016-02”) which requires a lessee to record a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the consolidated financial statements as its date of initial application. The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective transition method and elected the transition practical expedients to not reassess lease identification, lease classification and initial indirect costs related to those leases entered into prior to the date of application.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The standard is effective for the Company beginning January 1, 2023, and the adoption of this guidance is not expected to have a significant impact on the consolidated financial statements and related disclosures.

Background

9 Months Ended

Sep. 30, 2022

Background

Background

(1) Background

TELA Bio, Inc. (the “Company”) was incorporated in the state of Delaware on April 17, 2012 and wholly owns TELA Bio Limited, a company incorporated in the United Kingdom. The Company is a commercial-stage medical technology company focused on providing innovative soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy. OviTex Reinforced Tissue Matrix (“OviTex”), the Company’s first portfolio of products, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), the Company’s second portfolio of products, addresses unmet needs in plastic and reconstructive surgery. The Company’s principal corporate office and research facility is located in Malvern, Pennsylvania.

The Company has been impacted by the pandemic resulting from the coronavirus and the disease it causes, including variants thereof (“COVID-19”). To date, among other impacts on the Company’s business related to the pandemic, physicians and their patients have been required by state mandates, or have chosen or are still choosing to, defer elective surgery procedures in which the Company’s products otherwise would be used. There remains uncertainty and lack of visibility regarding the Company’s near-term revenue growth prospects and product development plans due to the rapidly evolving environment and continued uncertainties resulting from the COVID-19 pandemic and its effects on the frequency of surgical procedures using the Company’s products, including through reduced patient access to hospitals, labor and hospital staffing shortages, and other similar actions taken to address COVID-19. Although the Company continues to monitor developments related to COVID-19, the full extent of the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including revenue, expenses, manufacturing capability, supply chain integrity, staffing availability, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain. This includes new information that may emerge concerning COVID-19, the actions taken to mitigate the spread of or treat COVID-19, or to address challenges related to or arising from the COVID-19 pandemic, the emergence of new variants of COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

Related-Party Transactions

9 Months Ended

Sep. 30, 2022

Related-Party Transactions

Related-Party Transactions

(9) Related-Party Transactions

On November 16, 2018, the Company entered into a senior secured term loan facility with OrbiMed, an entity affiliated with an owner of a material amount of the Company’s outstanding voting securities. The terms of the debt and related components are described in more detail in Note 6. On May 26, 2022, the Company entered into the MidCap Credit Agreement and upon closing used a portion of the proceeds to repay all borrowings under the OrbiMed Credit Facility, and terminated the OrbiMed Credit Facility.

Summary of Significant Accounting Policies - Potentially dilutive securities (Details) - shares	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Potentially dilutive securities
Potentially dilutive securities excluded from computation of diluted weighted average shares	2,404,467	1,961,135
Stock Options
Potentially dilutive securities
Potentially dilutive securities excluded from computation of diluted weighted average shares	2,009,189	1,708,601
Restricted stock units
Potentially dilutive securities
Potentially dilutive securities excluded from computation of diluted weighted average shares	306,722	163,978
Common Stock Warrants
Potentially dilutive securities
Potentially dilutive securities excluded from computation of diluted weighted average shares	88,556	88,556

Long-term Debt - Schedule of long term debt (Details) - USD ($) $ in Thousands	Sep. 30, 2022	May 26, 2022	Dec. 31, 2021
Debt
End of term charge	$ 2,000		$ 3,000
Unamortized end of term charge and issuance costs	(2,234)		(1,509)
Longterm debt	39,766		31,491
MidCap Term Loan
Debt
Long Term Debt	$ 40,000	$ 50,000
OrbiMed Term Loans (related party)
Debt
Long Term Debt			$ 30,000

- Definition

Amount, excluding unamortized premium (discount) and debt issuance cost, of long-term debt. Excludes lease obligation.

+ References + Details

Stock-Based Compensation - Narratives (Details) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2022 USD ($) item shares	Sep. 30, 2022 USD ($) item $ / shares shares
Stock-Based Compensation
Number of equity incentive plans \| item	2	2
Aggregate intrinsic value of outstanding options	$ 1,200	$ 1,200
Aggregate intrinsic value of exercisable options	1,200	1,200
Aggregate intrinsic value of exercisable options	$ 1	$ 11
Stock Options
Stock-Based Compensation
Weighted average grant date fair value, Options (per share) \| $ / shares		$ 6.61
Inducement grants \| shares	312,075	312,075
Unrecognized compensation expense	$ 5,400	$ 5,400
Weighted average period for recognition of unrecognized expenses		2 years 6 months
Restricted stock units
Stock-Based Compensation
Vesting period		4 years
Weighted average grant date fair value, Equity Instruments (per share) \| $ / shares		$ 11.30
Aggregate intrinsic value	2,600	$ 2,600
Unrecognized compensation expense	$ 2,800	$ 2,800
Weighted average period for recognition of unrecognized expenses		2 years 10 months 24 days
2019 Equity Incentive Plan
Stock-Based Compensation
Shares available for future issuance \| shares	989,491	989,491
Potential Common Shares Added Annually To Equity Plan Evergreen Option \| shares	432,442	432,442
Potential Common Shares Added Annually To Equity Plan Evergreen Option, Percentage Of Shares Outstanding Last Day Of Fiscal Year	4.00%	4.00%
2019 Equity Incentive Plan \| Stock Options
Stock-Based Compensation
Vesting period		4 years
Vesting term		10 years

Summary of Significant Accounting Policies - Revenue Disaggregated (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Disaggregation of Revenue [Line Items]
Revenue	$ 11,159	$ 7,654	$ 29,796	$ 21,089
OviTex [Member]
Disaggregation of Revenue [Line Items]
Revenue	7,839	6,072	20,528	16,500
OviTex PRS [Member]
Disaggregation of Revenue [Line Items]
Revenue	3,287	$ 1,582	9,188	$ 4,589
Other [Member]
Disaggregation of Revenue [Line Items]
Revenue	$ 33		$ 80

- Definition

Amount, excluding tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value added and excise.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 30
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8906-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9031-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9038-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8933-108599

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8933-108599

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 4
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130543-203045

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8736-108599

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8736-108599

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9054-108599

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 5
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130545-203045

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 924
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SAB Topic 11.L)
-URI https://asc.fasb.org/extlink&oid=6472922&loc=d3e499488-122856

+ Details

Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Accrued Expenses and Other Current Liabilities
Compensation and related benefits	$ 5,126	$ 4,976
Third-party and professional fees	2,431	2,233
Amounts due to contract manufacturer	2,248	842
Current portion of operating lease liabilities	338
Research and development expenses	90	31
Other	125	79
Total accrued expenses and other current liabilities	10,358	$ 8,161
Accrued milestone payment	$ 1,000

Long-term Debt (Tables)

9 Months Ended

Sep. 30, 2022

Long-term Debt

Schedule of long term debt

Long-term debt consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
MidCap Term Loan	$	40,000	$	—
OrbiMed Term Loan (related party)		—		30,000
End of term charge		2,000		3,000
Unamortized end of term charge and issuance costs		(2,234)		(1,509)
Long-term debt	$	39,766	$	31,491

Long-term Debt

9 Months Ended

Sep. 30, 2022

Long-term Debt

Long-term Debt

(6) Long-term Debt

Long-term debt consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
MidCap Term Loan	$	40,000	$	—
OrbiMed Term Loan (related party)		—		30,000
End of term charge		2,000		3,000
Unamortized end of term charge and issuance costs		(2,234)		(1,509)
Long-term debt	$	39,766	$	31,491

MidCap Term Loan

On May 26, 2022, the Company entered into the Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent (the “Agent”), and certain lender parties thereto. The MidCap Credit Agreement provides for up to $50.0 million in term loans (the “MidCap Term Loans”), consisting of a $40.0 million Tranche 1 (“Tranche 1”) and a $10.0 million Tranche 2 (“Tranche 2”). Upon closing, the Company borrowed $40.0 million of Tranche 1 and used a portion of the proceeds to repay borrowings under the OrbiMed Credit Facility (described below) and intends to use the remaining proceeds to fund operations and other general corporate purposes. The Company will be eligible to borrow Tranche 2 at the Company’s option upon meeting certain conditions, including, but not limited to, reaching $65.0 million of net product revenue over the preceding four quarters by fiscal year end 2023.

Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future acquired assets, including intellectual property, owned by the Company. The MidCap Credit Agreement contains certain covenants that limit the Company’s ability to engage in certain transactions that may be in the Company’s long-term best interests, including the incurrence of additional indebtedness, effecting certain corporate changes, making certain investments, acquisitions or dispositions and paying dividends.

The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) termination of a pension plan, (xi) regulatory matters, (xii) material adverse effect and (xiii) breach of material contracts.

In addition, the Company must maintain minimum net revenue levels tested quarterly. In the event of default under the MidCap Credit Agreement, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 2%.

The MidCap Term Loans mature on May 1, 2027 and bear interest at a rate equal to 6.25% plus the greater of one-month Term SOFR (as defined in the MidCap Credit Agreement) or 1.0%. The Company is required to make 36 monthly interest payments beginning on June 1, 2022 (the “Interest-Only Period”). If the Company is in covenant compliance at the end of the Interest-Only Period, the Company will have the option to extend the Interest-Only Period by 12 months to 48 monthly interest payments, followed by 12 months of straight-line amortization, with the entire principal payment due at maturity. If the Company is not in covenant compliance at the end of the Interest-Only Period, the Company is required to make 24 months of straight-line amortization payments, with the entire principal amount due at maturity.

Subject to certain limitations, the MidCap Term Loans have a prepayment fee equal to 3.0% of the prepaid principal amount for the first year following the closing date of the MidCap Term Loans, 2.0% of the prepaid principal amount for the second year following the closing date and 1.0% of the prepaid principal amount for the third year following the closing date and thereafter. The Company is also required to pay an exit fee at the time of maturity or prepayment event equal to 5% of all principal borrowings (the “End of Term Charge”) (or in the event of a prepayment event, the amount

of principal being prepaid). Interest expense associated with the MidCap Credit Facility recorded for the nine months ended September 30, 2022 was $1.4 million, of which $0.2 million was related to the amortization of debt issuance costs.

OrbiMed Term Loan (Related Party)

In November 2018, the Company entered into the OrbiMed Credit Facility with OrbiMed, a related party as the lender is affiliated with a stockholder of the Company, which consisted of up to $35.0 million in term loans (the “OrbiMed Term Loans”). The OrbiMed Term Loans consisted of two tranches, a $30.0 million Tranche 1 (“First Tranche”) and a $5.0 million Tranche 2 (“Second Tranche”). In November 2018, the Company borrowed $30.0 million of the First Tranche. The Company elected not to borrow the Second Tranche prior to its expiration on December 31, 2019. On May 26, 2022, the Company entered into the MidCap Credit Agreement and upon closing used a portion of the proceeds to repay all borrowings under the OrbiMed Credit Facility.

The OrbiMed Term Loan bore interest at a rate equal to 7.75% plus the greater of one-month LIBOR or 2.0% until the aggregate principal, interest and End of Term Charge of $3.0 million were paid with part of the proceeds received from the MidCap Credit Agreement. As a result of these payments, a $1.2 million loss on extinguishment was recorded during the nine months ended September 30, 2022. Interest expense associated with the OrbiMed Credit Facility recorded for the nine months ended September 30, 2022, was $1.5 million, of which $0.3 million was related to the amortization of debt issuance costs. Interest expense associated with the OrbiMed Credit Facility recorded for the nine months ended September 30, 2021, was $2.7 million, of which $0.5 million was related to the amortization of debt issuance costs.

Stockholders' Equity - Public Stock Offerings (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Aug. 31, 2022	Sep. 30, 2022	Dec. 31, 2020
Stockholders' Equity
Received net proceeds of after deducting underwriting discounts, commissions and other offering expenses		$ 34,675
Over-Allotment Option
Stockholders' Equity
Common stock issued and sold (in shares)	4,600,000
Offering price (in dollar per share)	$ 8.00
Received net proceeds of after deducting underwriting discounts, commissions and other offering expenses	$ 34,400
Equity Distribution Agreement
Stockholders' Equity
Value Of Shares Authorized To Be Sold		$ 0	$ 50,000

Summary of Significant Accounting Policies - Revenue Recognition (Details)	9 Months Ended
	Sep. 30, 2022 USD ($)
Summary of Significant Accounting Policies
Incremental costs of obtaining a contract	$ 0

Summary of Significant Accounting Policies - Fair value of financial instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Recurring \| Level 1 \| Money market funds
Fair value of financial instruments
Cash equivalents	$ 50,677	$ 41,396

Risks and Liquidity (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Aug. 31, 2022	Sep. 30, 2022	Dec. 31, 2021
Unusual Risk or Uncertainty [Line Items]
Accumulated deficit		$ (264,246)	$ (229,929)
Received net proceeds of after deducting underwriting discounts, commissions and other offering expenses		$ 34,675
Over-Allotment Option
Unusual Risk or Uncertainty [Line Items]
Common stock issued and sold (in shares)	4,600,000
Offering price (in dollar per share)	$ 8.00
Received net proceeds of after deducting underwriting discounts, commissions and other offering expenses	$ 34,400

Accrued Expenses and Other Current Liabilities (Tables)

9 Months Ended

Sep. 30, 2022

Accrued Expenses and Other Current Liabilities

Schedule of Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Compensation and related benefits	$	5,126	$	4,976
Third-party and professional fees		2,431		2,233
Amounts due to contract manufacturer		2,248		842
Current portion of operating lease liabilities		338		—
Research and development expenses		90		31
Other		125		79
Total accrued expenses and other current liabilities	$	10,358	$	8,161

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 54,226	$ 43,931
Accounts receivable, net	5,688	4,234
Inventory	12,138	7,658
Prepaid expenses and other assets	1,903	3,232
Total current assets	73,955	59,055
Property and equipment, net	1,748	1,186
Intangible assets, net	2,594	2,303
Right-of-use assets	1,266
Total assets	79,563	62,544
Current liabilities:
Accounts payable	4,856	2,414
Accrued expenses and other current liabilities	10,358	8,161
Total current liabilities	15,214	10,575
Long-term debt	39,766
Long-term debt with related party		31,491
Other long-term liabilities	1,282	380
Total liabilities	56,262	42,446
Stockholders' equity:
Preferred stock; $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding
Common stock; $0.001 par value: 200,000,000 shares authorized; 19,159,145 and 14,529,606 shares issued and 19,159,145 and 14,529,577 shares outstanding at September 30, 2022 and December 31, 2021, respectively	19	15
Additional paid-in capital	287,266	250,064
Accumulated other comprehensive income (loss)	262	(52)
Accumulated deficit	(264,246)	(229,929)
Total stockholders' equity	23,301	20,098
Total liabilities and stockholders' equity	$ 79,563	$ 62,544

Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Stock-Based Compensation

Stock-Based Compensation

(8) Stock-Based Compensation

The Company has two equity incentive plans: the 2012 Stock Incentive Plan and the Amended and Restated 2019 Equity Incentive Plan. New awards can only be granted under the Amended and Restated 2019 Equity Incentive Plan (the “Plan”). At September 30, 2022, 989,491 shares of common stock were available for future issuances under the Plan. The Plan is subject to an annual increase, subject to prior approval by the Company’s board of directors, equal to the lesser of (i) 432,442 shares, (ii) 4% of the shares outstanding on the last day of the immediately preceding fiscal year and (iii) such smaller number of shares as determined by the board of directors. The Plan provides for the grant of incentive

stock options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The Company estimates forfeitures that it expects will occur and adjusts expense for actual forfeitures in the periods they occur.

The Company measures employee and nonemployee stock-based awards at grant-date fair value and records compensation expense ratably over the vesting period of the award. The Company recorded stock-based compensation expense in the following expense categories of the accompanying consolidated statements of operations and comprehensive loss (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Sales and marketing	$	353	$	257	$	1,000	$	694
General and administrative		522		359		1,521		1,110
Research and development		152		117		429		1,035
Total stock‑based compensation	$	1,027	$	733	$	2,950	$	2,839

Stock Options

The Company’s stock options vest based on the terms in each award agreement and generally vest over four years and have a term of 10 years. The following table summarizes stock option activity:


				Weighted
				average
		Weighted		remaining
	Number of	average exercise		contractual term
	shares	price per share		(years)
Outstanding at January 1, 2022	1,706,409	$	11.88
Granted	380,360		10.44
Exercised	(2,204)		6.08
Canceled/forfeited	(75,376)		13.30
Outstanding at September 30, 2022	2,009,189	$	11.57	7.32
Vested and expected to vest at September 30, 2022	1,956,285	$	11.55	7.27
Exercisable at September 30, 2022	1,167,504	$	10.99	6.32

Included in outstanding options at September 30, 2022, were 312,075 stock options granted outside of the Plan. These grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq listing rule 5635(c)(4). At September 30, 2022, the aggregate intrinsic value of both outstanding options and exercisable options was $1.2 million.

The 2012 Stock Incentive Plan provided the holders of stock options an election to early exercise prior to vesting. The Company had the right, but not the obligation, to repurchase early exercised options without transferring any appreciation to the employee if the employee terminates employment before the end of the original vesting period. The repurchase price was the lesser of the original exercise price or the then fair value of the common stock.

The following table summarizes activity relating to early exercise of stock options:


		Number of
		shares
Unvested balance at January 1, 2022		29
Vested		(29)
Unvested balance at September 30, 2022		—

The weighted average grant-date fair value per share of options granted was $6.61 during the nine months ended September 30, 2022. The aggregate intrinsic value of options exercised was $1,000 and $11,000 for the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the total unrecognized compensation expense related to unvested employee and nonemployee stock option awards was $5.4 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.5 years.

Estimating Fair Value of Stock Options

The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Certain of these inputs are subjective and generally require judgment to determine.

Expected term – The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average time to vesting and the contractual life of the options.

Expected volatility – Due to the Company’s limited operating history and lack of sufficient company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers, including the Company, whose share prices are publicly available.

Risk-free interest rate – The risk-free rate assumption is based on U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected dividend – The Company has not paid and does not intend to pay dividends.

The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model and the weighted average assumptions in the table below:


	Nine months ended
	September 30, 2022
Expected dividend yield	—
Expected volatility	68.9	%
Risk‑free interest rate	2.28	%
Expected term (in years)	6.19

Restricted Stock Units

The Company’s restricted stock units (“RSUs”) vest based on the terms in each award agreement and generally vest over four years. The following table summarizes restricted stock units for the Plan:


		Number of
		shares
Outstanding at January 1, 2022		163,043
Granted		190,450
Vested		(40,783)
Canceled/forfeited		(5,988)
Outstanding at September 30, 2022		306,722

The weighted average grant-date fair value per RSU granted was $11.30 during the nine months ended September 30, 2022. The aggregate intrinsic value of RSUs outstanding was $2.6 million at September 30, 2022. The total unrecognized compensation expense at September 30, 2022 related to RSUs was $2.8 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.9 years.

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2022

Stock-Based Compensation

Schedule of stock based compensation expense categories in statement of operations


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Sales and marketing	$	353	$	257	$	1,000	$	694
General and administrative		522		359		1,521		1,110
Research and development		152		117		429		1,035
Total stock‑based compensation	$	1,027	$	733	$	2,950	$	2,839

Schedule of stock option activity


				Weighted
				average
		Weighted		remaining
	Number of	average exercise		contractual term
	shares	price per share		(years)
Outstanding at January 1, 2022	1,706,409	$	11.88
Granted	380,360		10.44
Exercised	(2,204)		6.08
Canceled/forfeited	(75,376)		13.30
Outstanding at September 30, 2022	2,009,189	$	11.57	7.32
Vested and expected to vest at September 30, 2022	1,956,285	$	11.55	7.27
Exercisable at September 30, 2022	1,167,504	$	10.99	6.32

Schedule of activity relating to early exercise of stock options


		Number of
		shares
Unvested balance at January 1, 2022		29
Vested		(29)
Unvested balance at September 30, 2022		—

Schedule of weighted average assumptions


	Nine months ended
	September 30, 2022
Expected dividend yield	—
Expected volatility	68.9	%
Risk‑free interest rate	2.28	%
Expected term (in years)	6.19

Schedule of restricted stock units (RSUs)


		Number of
		shares
Outstanding at January 1, 2022		163,043
Granted		190,450
Vested		(40,783)
Canceled/forfeited		(5,988)
Outstanding at September 30, 2022		306,722

Leases - Narratives (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended	9 Months Ended
Leases - Narratives (Details) - USD ($) $ in Thousands	Jan. 01, 2022	Dec. 31, 2020	Sep. 30, 2022	Sep. 30, 2022
Lessee, Lease, Description [Line Items]
Lease liability			$ 1,620	$ 1,620
Right-of-use assets			1,266	1,266
Operating lease cost			100	200
Operating lease payments made			100	300
Operating Lease, Liability, Current			$ 338	$ 338
Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration]			Accrued Liabilities, Current	Accrued Liabilities, Current
Operating Lease, Liability, Noncurrent			$ 1,300	$ 1,300
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration]			Other Liabilities, Noncurrent	Other Liabilities, Noncurrent
Office and laboratory space \| Pennsylvania
Lessee, Lease, Description [Line Items]
Lessee, Operating Lease, Existence of Option to Extend [true false]		true
Renewal term of operating lease		60 months
Incremental borrowing rate	9.75%
Remaining lease term			5 years 8 months 12 days	5 years 8 months 12 days
Office and laboratory space \| Pennsylvania \| ASU 2016-02 \| Cumulative Effect, Period of Adoption, Adjustment [Member]
Lessee, Lease, Description [Line Items]
Lease liability	$ 1,800
Right-of-use assets	1,400
Deferred rent and tenant allowance netted off against right-of-use asset	$ 400

Stock-Based Compensation - Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Stock-Based Compensation
Total stock-based compensation	$ 1,027	$ 733	$ 2,950	$ 2,839
Sales and marketing
Stock-Based Compensation
Total stock-based compensation	353	257	1,000	694
General and administrative
Stock-Based Compensation
Total stock-based compensation	522	359	1,521	1,110
Research and development
Stock-Based Compensation
Total stock-based compensation	$ 152	$ 117	$ 429	$ 1,035

Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2022	Nov. 01, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
Document Transition Report	false
Entity File Number	001-39130
Entity Registrant Name	TELA Bio, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	45-5320061
Entity Address, Address Line One	1 Great Valley Parkway, Suite 24
Entity Address, City or Town	Malvern
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19355
City Area Code	484
Local Phone Number	320-2930
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	TELA
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		19,159,145
Entity Central Index Key	0001561921
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false

Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Consolidated Statements of Operations and Comprehensive Loss
Revenue	$ 11,159	$ 7,654	$ 29,796	$ 21,089
Cost of revenue (excluding amortization of intangible assets)	3,745	2,976	10,219	7,707
Amortization of intangible assets	95	76	709	228
Gross profit	7,319	4,602	18,868	13,154
Operating expenses:
Sales and marketing	11,172	6,948	31,605	20,749
General and administrative	3,532	3,462	10,620	9,184
Research and development	2,102	1,409	6,211	5,018
Total operating expenses	16,806	11,819	48,436	34,951
Loss from operations	(9,487)	(7,217)	(29,568)	(21,797)
Other expense:
Interest expense	(1,032)	(922)	(2,877)	(2,675)
Loss on extinguishment of debt			(1,228)
Other expense	(195)	(127)	(644)	(185)
Total other expense	(1,227)	(1,049)	(4,749)	(2,860)
Net loss	$ (10,714)	$ (8,266)	$ (34,317)	$ (24,657)
Net loss per common share, basic	$ (0.64)	$ (0.57)	$ (2.24)	$ (1.71)
Net loss per common share, diluted	$ (0.64)	$ (0.57)	$ (2.24)	$ (1.71)
Weighted average common shares outstanding, basic	16,758,573	14,485,688	15,293,094	14,461,174
Weighted average common shares outstanding, diluted	16,758,573	14,485,688	15,293,094	14,461,174
Comprehensive loss:
Net loss	$ (10,714)	$ (8,266)	$ (34,317)	$ (24,657)
Foreign currency translation adjustment	133	38	314	28
Comprehensive loss	$ (10,581)	$ (8,228)	$ (34,003)	$ (24,629)

Stock-Based Compensation - Stock Option Activity (Details) - $ / shares	9 Months Ended
	Sep. 30, 2022
Number of shares
Balance at beginning of period	1,706,409
Granted	380,360
Exercised	(2,204)
Canceled/forfeited	(75,376)
Balance at end of period	2,009,189
Vested and expected to vest at end of period	1,956,285
Exercisable at end of period	1,167,504
Weighted average exercise price per share
Balance at beginning of period (in dollars per share)	$ 11.88
Granted ( in dollars per share)	10.44
Exercised (in dollars per share)	6.08
Canceled/forfeited (in dollars per share)	13.30
Balance at end of period (in dollars per share)	11.57
Vested and expected to vest at end of period (in dollars per share)	11.55
Exercisable at end of period (in dollars per share)	$ 10.99
Weighted average remaining contractual term (years)
Weighted average remaining contractual term, outstanding	7 years 3 months 25 days
Weighted average remaining contractual term, Vested and expected to vest	7 years 3 months 7 days
Weighted average remaining contractual term, Exercisable	6 years 3 months 25 days

Leases

9 Months Ended

Sep. 30, 2022

Leases

Leases

(4) Leases

The Company leases office and laboratory space in Malvern, Pennsylvania under a noncancelable lease (the “Malvern Lease”). The Malvern Lease, which was concluded to be an operating lease, was amended in December 2020 to extend the term of the lease from May 2021 to May 2028. The Malvern Lease has annual scheduled payment increases and provides the Company a renewal option for an additional term of 60 months at the end of the lease term. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. As the Company is not reasonably certain to exercise the renewal option, the additional 60-month term has been excluded.

On January 1, 2022 and upon adoption of ASU 2016-02, the Company recorded an operating lease liability of $1.8 million and an operating lease ROU asset of $1.4 million related to the Malvern Lease. The Company also eliminated approximately $0.4 million of deferred rent and tenant allowance liabilities as of January 1, 2022 as these components are reflected in the operating lease ROU asset.

Operating lease leasehold improvements are depreciated over the lesser of the useful lives of the leasehold improvements or the lease term. The tenant allowance was historically amortized over the initial, non-cancelable term of the Malvern Lease.

The Company's lease does not provide an implicit rate, and therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company used an incremental borrowing rate of 9.75% to discount the Malvern Lease payments included in the operating lease liabilities recognized upon adoption of ASU 2016-02.

The Company recognized $0.1 million and $0.2 million of lease cost during the three and nine months ended September 30, 2022. Cash paid for amounts included in the measurement of operating lease liabilities was $0.1 million and $0.3 million for the three and nine months ended September 30, 2022, and this amount is included in operating activities in the consolidated statements of cash flows. As of September 30, 2022, the remaining lease term for the Malvern Lease is 5.7 years.

The following table reconciles the undiscounted future minimum lease payments (displayed in aggregate by year) under non-cancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the consolidated balance sheets as of September 30, 2022 (in thousands):


Remainder of 2022	$	88
2023		358
2024		366
2025		375
2026		383
2027		392
Thereafter		165
Total undiscounted future minimum lease payments	$	2,127
Less imputed interest		(507)
Total operating lease liabilities	$	1,620

At December 31, 2021, the Company’s future minimum lease payments under non-cancelable operating leases for the five years ending December 31, 2022 through 2026 and thereafter were as follows: $0.3 million, $0.4 million, $0.4 million, $0.4 million, $0.4 million and $0.5 million, respectively.

As of September 30, 2022, $0.3 million representing the current portion of operating lease liabilities is included in accrued expenses and other current liabilities in the consolidated balance sheets and $1.3 million representing the long-term portion of operating lease liabilities is included in other long-term liabilities in the consolidated balance sheets.

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

(3) Summary of Significant Accounting Policies

The Company’s complete summary of significant accounting policies can be found in “Note 3, Summary of Significant Accounting Policies” in the consolidated financial statements included in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2021. Any reference in these notes to applicable guidance is meant to refer to generally accepted accounting principles (“GAAP”) in the United States as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

Interim Financial Statements

Use of Estimates

Revenue Recognition

The following table presents revenue disaggregated by our portfolio of products (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
OviTex	$	7,839	$	6,072	$	20,528	$	16,500
OviTex PRS		3,287		1,582		9,188		4,589
Other		33		—		80		—
Total revenue	$	11,159	$	7,654	$	29,796	$	21,089

Sales outside of the United States were immaterial for the three and nine months ended September 30, 2022 and 2021.

Fair value of financial instruments

●

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

●

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

●

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):


	Fair value measurement at reporting date using
	Quoted prices in
	active markets		Significant other		Significant
	for identical		observable		unobservable
	assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
September 30, 2022:
Cash equivalents – money market fund	$	50,677	$	—	$	—

December 31, 2021:
Cash equivalents – money market fund	$	41,396	$	—	$	—

Net loss per common share

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding for the periods presented, as they would be antidilutive.


	Three and nine months ended September 30,
	2022	2021
Stock options (including shares subject to repurchase)	2,009,189	1,708,601
Unvested restricted stock units	306,722	163,978
Common stock warrants	88,556	88,556
Total	2,404,467	1,961,135

Recently Issued Accounting Pronouncements

Leases (Tables)

9 Months Ended

Sep. 30, 2022

Leases

Schedule of future minimum lease payments under non-cancelable operating lease agreement


Remainder of 2022	$	88
2023		358
2024		366
2025		375
2026		383
2027		392
Thereafter		165
Total undiscounted future minimum lease payments	$	2,127
Less imputed interest		(507)
Total operating lease liabilities	$	1,620

Stock-Based Compensation - Weighted average assumptions (Details)	9 Months Ended
	Sep. 30, 2022
Stock-Based Compensation
Expected volatility	68.90%
Risk-free interest rate	2.28%
Expected term (in years)	6 years 2 months 8 days

Stockholders' Equity

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Stockholders' Equity

(7) Stockholders’ Equity

In December 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Piper Sandler & Co (the “Sales Agent”) in connection with the establishment of an at-the-market offering program under which it may sell up to an aggregate of $50.0 million of shares of the Company’s common stock, from time to time through the Sales Agent. No sales were made under the Equity Agreement during the nine months ended September 30, 2022.

In August 2022, the Company completed an underwritten public offering in which the Company issued and sold 4,600,000 shares of its common stock at a public offering price of $8.00 per share. The Company received net proceeds of $34.4 million after deducting underwriting discounts, commissions and other offering expenses.

Warrants

The Company had the following warrants outstanding to purchase common stock at September 30, 2022:


			Exercise	Expiration
	Outstanding		price	dates
Common stock warrants	8,379	$	28.65	2028
Common stock warrants	80,177		28.65	2027
	88,556

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-URI https://asc.fasb.org/topic&trid=2208762

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
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-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
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-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496171-112644

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 14
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496171-112644

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI https://asc.fasb.org/extlink&oid=120397183&loc=d3e187085-122770

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 18
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496189-112644

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (g)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 18
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496189-112644

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (h)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 14
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496171-112644

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 18
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496189-112644

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 16
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496180-112644

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (i)
-URI https://asc.fasb.org/extlink&oid=126973232&loc=SL123496158-112644

Reference 15: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(e)(1))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 16: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 40
-Section 50
-Paragraph 6
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126731327&loc=SL126733271-114008

+ Details

Risks and Liquidity

9 Months Ended

Sep. 30, 2022

Risks and Liquidity

Risks and Liquidity

(2) Risks and Liquidity

The Company’s operations to date have focused on commercializing products, developing and acquiring technology and assets, business planning, raising capital and organization and staffing. The Company has incurred recurring losses and negative cash flows from operations since inception and has an accumulated deficit of $264.2 million as of September 30, 2022. The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from its products to cover its expenses.

The operations of the Company are subject to certain risks and uncertainties including, among others, the uncertainty of product development, the impact of COVID-19 and the emergence of any variants thereof on the business, ongoing economic uncertainty, including as a result of inflationary pressures and the measures undertaken by various governments to address them, geopolitical factors such as the conflict between Russia and Ukraine, technological uncertainty, commercial acceptance of any developed products, alternative competing technologies, dependence on collaborative partners, uncertainty regarding patents and proprietary rights, comprehensive government regulations, and dependence on key personnel.

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash flows from operating activities:
Net loss	$ (34,317)	$ (24,657)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	271	170
Noncash interest expense	507	488
Noncash loss on extinguishment of debt	1,228
Amortization of intangible assets	709	228
Net changes in operating lease ROU assets and liabilities	(26)
Inventory excess and obsolescence charge	1,809	1,334
Stock-based compensation expense	2,950	2,839
Change in operating assets and liabilities:
Accounts receivable, net	(1,531)	(896)
Inventory	(6,540)	(3,701)
Prepaid expenses and other assets	1,322	180
Accounts payable	2,291	1,586
Accrued expenses and other current and long-term liabilities	799	1,561
Foreign currency remeasurement loss	763	24
Net cash used in operating activities	(29,765)	(20,844)
Cash flows from investing activities:
Purchase of property and equipment	(826)	(338)
Net cash used in investing activities	(826)	(338)
Cash flows from financing activities:
Proceeds from sale of common stock, net of underwriting discounts, commissions and offering costs	34,675
Proceeds from issuance of long-term debt	40,000
Repayment of long-term debt	(30,000)
Payment of debt financing costs	(3,460)
Proceeds from exercise of stock options	13	411
Payment of withholding taxes related to stock-based compensation to employees	(157)
Net cash provided by financing activities	41,071	411
Effect of exchange rate on cash and cash equivalents	(185)	13
Net increase (decrease) in cash and cash equivalents	10,295	(20,758)
Cash and cash equivalents, beginning of period	43,931	74,394
Cash and cash equivalents, end of period	54,226	53,636
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	2,370	2,187
Supplemental disclosures of noncash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities	8	97
Offering costs in accounts payable and accrued expenses and other current liabilities	275
Reclassification of liability-classified stock-based compensation awards to equity-classified		$ 82
Intangible asset in accrued expenses and other liabilities	1,000
Operating lease ROU asset exchanged for operating lease liabilities	1,376
Tenant improvement and deferred rent reclassified to operating lease liabilities	380
Operating lease liabilities assumed for operating lease ROU assets	$ 1,756

Accrued Expenses and Other Current Liabilities

9 Months Ended

Sep. 30, 2022

Accrued Expenses and Other Current Liabilities

Accrued Expenses and Other Current Liabilities

(5) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Compensation and related benefits	$	5,126	$	4,976
Third-party and professional fees		2,431		2,233
Amounts due to contract manufacturer		2,248		842
Current portion of operating lease liabilities		338		—
Research and development expenses		90		31
Other		125		79
Total accrued expenses and other current liabilities	$	10,358	$	8,161

The Company has a License, Product Development, and Supplier Agreement with its contract manufacturer which requires payments upon the achievement of certain cumulative product sales. In June 2022, it became probable that the Company would achieve the sales milestones in the European territory, and as such, the Company recorded a liability of $1.0 million included in amounts due to contract manufacturer above and a corresponding developed technology right intangible asset.

Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Disaggregation of Revenue

The following table presents revenue disaggregated by our portfolio of products (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
OviTex	$	7,839	$	6,072	$	20,528	$	16,500
OviTex PRS		3,287		1,582		9,188		4,589
Other		33		—		80		—
Total revenue	$	11,159	$	7,654	$	29,796	$	21,089

Schedule of fair value of assets and liabilities measured on recurring basis

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):


	Fair value measurement at reporting date using
	Quoted prices in
	active markets		Significant other		Significant
	for identical		observable		unobservable
	assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
September 30, 2022:
Cash equivalents – money market fund	$	50,677	$	—	$	—

December 31, 2021:
Cash equivalents – money market fund	$	41,396	$	—	$	—

Schedule of dilutive securities excluded


	Three and nine months ended September 30,
	2022	2021
Stock options (including shares subject to repurchase)	2,009,189	1,708,601
Unvested restricted stock units	306,722	163,978
Common stock warrants	88,556	88,556
Total	2,404,467	1,961,135

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

+ References + Details

Long-term Debt - MidCap Term Loan (Details) - USD ($) $ in Thousands		9 Months Ended
	May 26, 2022	Sep. 30, 2022
Debt
Proceeds from issuance of long-term debt		$ 40,000
MidCap Term Loan
Debt
Debt amount	$ 50,000	$ 40,000
Eligibility Requirement To Borrow Tranche 2	65,000
Interest due to unpaid obligation		2.00%
Interest Rate (as a percent)		6.25%
Number of Installment		36 months
Exit fee (as a percent)		5.00%
Interest Expenses		$ 1,400
Amortization of debt issuance costs		$ 200
MidCap Term Loan \| Maximum
Debt
Extension for interest only payment period		48 months
MidCap Term Loan \| Minimum
Debt
Extension for interest only payment period		12 months
MidCap Term Loan \| First year
Debt
Percentage of prepayment penalty on prepaid principal amount		3.00%
MidCap Term Loan \| Second year
Debt
Percentage of prepayment penalty on prepaid principal amount		2.00%
MidCap Term Loan \| Third year
Debt
Percentage of prepayment penalty on prepaid principal amount		1.00%
MidCap Term Loan \| SOFR
Debt
Variable Interest Rate (as a percent)		1.00%
Tranche One
Debt
Debt amount	40,000
Tranche Two
Debt
Debt amount	$ 10,000

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common stock	Additional paid-in capital	Accumulated other comprehensive income (loss)	Accumulated deficit	Total
Balance at Beginning of period at Dec. 31, 2020	$ 14	$ 245,736	$ (71)	$ (196,653)	$ 49,026
Balance at Beginning of period (in shares) at Dec. 31, 2020	14,437,107
Vesting of common stock previously subject to repurchase (in shares)	118
Vesting of share-based awards and exercise of stock options	$ 1	410			411
Vesting of share-based awards and exercise of stock options (in shares)	54,293
Foreign currency translation adjustment			28		28
Stock-based compensation expense		2,839			2,839
Stock-based compensation expense (in shares)	12,000
Reclassification of liability-classified stock-based compensation awards		82			82
Net loss				(24,657)	(24,657)
Balance at Ending period at Sep. 30, 2021	$ 15	249,067	(43)	(221,310)	27,729
Balance at Ending period (in shares) at Sep. 30, 2021	14,503,518
Balance at Beginning of period at Jun. 30, 2021	$ 14	248,076	(81)	(213,044)	34,965
Balance at Beginning of period (in shares) at Jun. 30, 2021	14,471,774
Vesting of common stock previously subject to repurchase (in shares)	36
Vesting of share-based awards and exercise of stock options	$ 1	258			259
Vesting of share-based awards and exercise of stock options (in shares)	31,708
Foreign currency translation adjustment			38		38
Stock-based compensation expense		733			733
Net loss				(8,266)	(8,266)
Balance at Ending period at Sep. 30, 2021	$ 15	249,067	(43)	(221,310)	27,729
Balance at Ending period (in shares) at Sep. 30, 2021	14,503,518
Balance at Beginning of period at Dec. 31, 2021	$ 15	250,064	(52)	(229,929)	20,098
Balance at Beginning of period (in shares) at Dec. 31, 2021	14,529,577
Vesting of common stock previously subject to repurchase (in shares)	29
Vesting of share-based awards and exercise of stock options		13			$ 13
Vesting of share-based awards and exercise of stock options (in shares)	42,987				2,204
Shares withheld for employee taxes		(157)			$ (157)
Shares withheld for employee taxes (in shares)	(13,448)
Foreign currency translation adjustment			314		314
Stock-based compensation expense		2,950			2,950
Sale of common stock, net of underwriting discounts, commissions and offering costs	$ 4	34,396			34,400
Sale of common stock, net of underwriting discounts, commissions and offering costs (in shares)	4,600,000
Net loss				(34,317)	(34,317)
Balance at Ending period at Sep. 30, 2022	$ 19	287,266	262	(264,246)	23,301
Balance at Ending period (in shares) at Sep. 30, 2022	19,159,145
Balance at Beginning of period at Jun. 30, 2022	$ 15	251,846	129	(253,532)	(1,542)
Balance at Beginning of period (in shares) at Jun. 30, 2022	14,557,560
Vesting of share-based awards and exercise of stock options		1			1
Vesting of share-based awards and exercise of stock options (in shares)	2,115
Shares withheld for employee taxes		(4)			(4)
Shares withheld for employee taxes (in shares)	(530)
Foreign currency translation adjustment			133		133
Stock-based compensation expense		1,027			1,027
Sale of common stock, net of underwriting discounts, commissions and offering costs	$ 4	34,396			34,400
Sale of common stock, net of underwriting discounts, commissions and offering costs (in shares)	4,600,000
Net loss				(10,714)	(10,714)
Balance at Ending period at Sep. 30, 2022	$ 19	$ 287,266	$ 262	$ (264,246)	$ 23,301
Balance at Ending period (in shares) at Sep. 30, 2022	19,159,145

Stockholders' Equity - Warrants outstanding (Details)	9 Months Ended
Stockholders' Equity - Warrants outstanding (Details)	Sep. 30, 2022 $ / shares shares
Stockholders' Equity
Warrants outstanding	88,556
Common stock warrants expiring in 2027
Stockholders' Equity
Warrants outstanding	80,177
Warrants exercise price \| $ / shares	$ 28.65
Expiration dates	2027
Common stock warrants expiring in 2028
Stockholders' Equity
Warrants outstanding	8,379
Warrants exercise price \| $ / shares	$ 28.65
Expiration dates	2028