05 Oct Treace Medical: Helping Bunion Patients “Step” Ahead
Treace Medical Concepts, Inc. (NasdaqGS: TMCI) is a medical technology company driving a fundamental shift in the surgical treatment of hallux valgus (commonly known as bunions) through its Lapiplasty® 3D Bunion Correction™ Procedure.
Treace Medical Concepts, Inc. (NasdaqGS: TMCI)
Market Cap: $737.92M; Current Share Price: 11.99 USD
Data by YCharts
The Company
Treace is advancing the standard of care for the surgical management of bunions and related midfoot deformities. The Company has pioneered its proprietary Lapiplasty® 3D Bunion Correction System™—a combination of instruments, implants, and surgical methods designed to correct all three planes of the bunion deformity surgically.
Although bunions are deformities typically caused by an unstable joint in the middle of the foot that leads to a three-dimensional (3D) misalignment in the foot’s anatomical structure, the majority of traditional surgical approaches focus on correcting the deformity from a two-dimensional (2D) perspective and therefore fail to address the root cause of the disorder.
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To effectively restore the normal anatomy of bunion patients and improve clinical outcomes, Treace addresses the root cause of the bunion. It has developed the Lapiplasty System to correct the deformity across all three anatomic dimensions. To provide a solution that also addresses midfoot deformities, the Company launched its Adductoplasty® Systemin 2021, which brings together implants and precision instrumentation for the first comprehensive system designed for reproducible realignment, stabilization, and fusion of the midfoot.
Treace’s mission is to be the leader in the surgical treatment of bunions by establishing the Lapiplasty System as the standard of care. Below, we will discuss the critical rationale for covering this Company.
- Significant Addressable Market Opportunity
A bunion is a painful, disfiguring deformity characterized by a deviated position of the great toe and easily identified visually by the “bump” at its base. Bunions affect approximately 65 million Americans and generally increase in prevalence and severity over time. Nearly 25% of adults between the ages of 18 and 65, and over 35% of people over 65, have bunions. Approximately 4.4 million patients in the United States seek medical attention for bunions annually; of these patients, an estimated 1.1 million are deemed surgical candidates, representing a total annual addressable market opportunity of more than $5 billion.
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The large patient population often suffers from symptoms that worsen over time, including severe and debilitating pain, emotional burden, and limited mobility. It is susceptible to further degeneration and common concomitant pathologies. Despite the significant limitations of traditional surgical treatment approaches, approximately 450,000 surgical bunion procedures are performed annually in the United States. Thus, a substantial opportunity exists to convert these to Treace’s Lapiplasty Procedure, representing a greater than $2.3 billion market opportunity. In addition, through better clinical outcomes and effective patient education, the Company may increase the number of patients who seek surgical treatment, representing an incremental opportunity of $3 billion.
It is important to note that a 2015 study indicates that 87% of bunions have a 3D, rotational issue in addition to horizontal and vertical misalignments of the metatarsal bone. Traditional 2D approaches to bunion surgery, used in the majority of bunion surgical procedures, fail to correct this third “rotational” dimension of the bunion deformity, which has been reported to result in a 10 to 12 times increase in the chance of bunion recurrence as compared to 3D surgeries.
The Company’s proprietary Lapiplasty System, the first of its kind, is the leading system designed to consistently and reliably correct all three dimensions of the bunion deformity, address the root cause of the bunion deformity, and allow the return to weight-bearing quickly in a post-operative boot with low risk of recurrence.
Since Treace offers a unique and superior way to relieve the suffering of a significant portion of the patient population, it seems poised to capture a considerable share of the existing market.
- Robust Commercial Strategy
The Company pursues an effective five-point strategy that includes rapid product innovations, a bunion-focused direct sales channel, surgeon education programs, direct-to-patient education, and supportive clinical evidence.
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As far as innovation is concerned, the Company launched the Lapiplasty Mini-Incision System in 2021, which is designed to allow the Lapiplasty Procedure to be performed through a 3.5cm incision as compared to the 6cm to 8cm incision with the standard Lapiplasty Procedure. To address midfoot deformities, which may occur in up to 30% of bunion patients. Also in 2021, Treace launched the Adductoplasty System, which combines the implants and precision instrumentation for the first comprehensive system designed for reproducible realignment, stabilization, and fusion of the midfoot. Other new product developments in 2022 include the Lapiplasty 3-n-1™ Guide, the Lapiplasty S4A Anatomic Plating Kit, and the SpeedRelease™ and TriTome™ Release Instruments.
In 2022, Treace previewed the next generation Micro-Lapiplasty™ Minimally Invasive System, which is designed to allow the deformity correction and joint preparation steps of the Lapiplasty Procedure to be performed through 2cm incisions and the SpeedPlate™ Rapid Compression Implant System designed for rapid delivery of titanium compression implants through small incisions. Commercial release of the Micro-Lapiplasty instrumentation and SpeedPlate implants is expected in the second half of 2023. These new technologies demonstrate Treace’s commitment to rapid innovation, focusing on continually iterating the Lapiplasty System with options for reduced incision size and increased procedural efficiency.
Regarding sales channels and related efforts, the Company markets and sells the Lapiplasty System through a combination of a direct employee sales force and independent sales agencies across 193 territories in the United States. As of December 31, 2022, Treace had 168 employee sales representatives and 25 independent sales agencies.
The Company dedicates meaningful resources to expand its sales force and management team in the United States. Treace has hired and expects to continue hiring additional sales representatives and employee field sales management to access more regions with high densities of prospective patients strategically. This strategy should
- accelerate growth and better penetrate the market with Treace’s products;
- further align incentives and allow for improved coordination of the sales team; and
- improve profitability with better operating leverage in the longer term.
- Financial Performance
Finally, it has been seen that surgeon users typically increase usage of the Lapiplasty Procedure over time as they see improved clinical outcomes for their patients relative to traditional bunion surgery approaches. The bar chart below shows, as of December 31, 2022, the average number of procedures performed over the trailing twelve months by surgeons based on the number of years that the surgeons have used the Lapiplasty System.
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Thus, Treace’s superior offerings and sales strategy have effectively won over the surgeon users.
So far, Treace’s commercial strategy has shown excellent results. Since receiving 510(k) clearance for the Lapiplasty System in March 2015, more than 65,000 Lapiplasty Procedures have been performed in the United States. Also, the number of Lapiplasty Procedure Kits sold increased from 11,113 in 2020 to 17,490 in 2021 to 24,656 in 2022, representing a compound annual growth rate of 49.0%, despite the adverse impact of the COVID-19 pandemic on elective procedures in 2020 and 2021.
Given Treace’s consistent efforts toward innovation, sales distribution, and surgeon education, the Company will continue to see exponential revenue increases.
For Q2 FY23, Treace recorded revenue of $42.0 million, a 40% increase over Q2 FY22.
The increase was driven by an increased number of Lapiplasty® procedure kits sold due to an expanded surgeon customer base, increased utilization, and increased blended average selling prices due to increased adoption of the Company’s newer technologies and expanding portfolio of complementary products.
Gross profit for Q2 FY23 was $34.3 million, representing an increase of 39% compared to a gross profit of $24.7 million in Q2 FY22. Gross margin was 81.7%
For FY22, Treace reported revenue of $141.8 million, representing an increase of 50% compared to $94.4 million in FY21. Gross profit for FY22 was $114.3 million, representing an increase of 49% compared to a gross profit of $76.6 million in FY21.
For FY23, Treace has provided revenue guidance of $191 million to $197 million, representing approximately 35% to 39% growth over the Company’s 2022 revenue.
Recent Developments
During the first half of FY23, Treace completed the acquisition of certain assets from RedPoint Medical3D (RPM-3D) to enable patient-specific instrumentation for bunion and related mid-foot surgical procedures. The Company believes that RedPoint’s technologies complement its rapid, focused innovation approach to advance Lapiplasty® & Adductoplasty® therapies, with an opportunity to enhance surgeon & patient education further and optimize clinical outcomes.
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The Company was also granted nine additional U.S. patents year-to-date; the Patent portfolio expanded to 49 granted U.S. patents and 72 pending U.S. patent applications.
In other words, the Company continues to uphold the pillars of its commercial growth strategy, which should lead to an exponential increase in revenues as in the past.
Risks
Treace is subject to certain risks – for example, the industry that the Company operates in is competitive, subject to technological change, and significantly affected by new product introductions and market activities of other industry participants. Treace’s competitors may have considerably greater financial resources, established presence in the market, expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement, and marketing approved products, which can pose a risk to the Company’s future.
Secondly, Treace’s products and operations are subject to extensive regulation by the U.S. Food and Drug Administration (FDA) and other federal and state authorities in the United States, and the Company must always meet those standards. Other than that, specific state and federal healthcare reform measures may be adopted in the future, some of which could limit the amounts that federal and state governments will pay for healthcare products and services, resulting in reduced demand for Treace’s products or additional pricing pressure.
Conclusion
Treace has disrupted the surgical treatment of hallux valgus (commonly known as bunions) through its Lapiplasty® 3D Bunion Correction™ Procedure. The success of its innovative, minimally invasive treatment method is evident through the increase in sales of Lapiplasty Procedure Kits, which has grown at a CAGR of 49% from 2020 – 2022. Even in the future, it seems that Treace will continue to grow from strength to strength.
Nevertheless, Treace operates in a competitive market where its competitors’ innovations and pricing strategies may undermine demand for its offerings. Moreover, there is always the possibility that Treace may be adversely affected by the government’s changing regulations and policies – hence, it is best to proceed with caution.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://investors.treace.com/static-files/bbb87d0c-ce62-4eda-b565-71877a25ad28
https://investors.treace.com/static-files/04033e71-2ed6-4559-a665-7d2c7e55ff6a
https://www.sec.gov/ix?doc=/Archives/edgar/data/1630627/000095017023006603/tmci-20221231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1630627/000095017023040159/tmci-20230630.htm
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