It just came public a few days ago at $5, and yet today it finds itself trading north of $30. With only 12M or so shares outstanding after selling 3.6M in the IPO, I doubt the borrow is great, but several items sorta jumped out at me while browsing around, so I thought I’d put together some brief notes on this new highflier.
Tenon Medical has a 510 (k) FDA approved medical device called the CATAMARAN SIJ Fusion System that is designed to fuse one or both sacroiliac joints as a treatment for severe lower back pain. Though the Catamaran System was approved by the FDA back in June 2018 https://spinalnewsinternational.com/catamaran-sacroiliac-fusion/ their prospectus https://www.sec.gov/Archives/edgar/data/1560293/000157587222000346/cm056_424b4.htm list 2021 revenues of only $159K, which is up a bit from 2020’s $44k, but still relatively tiny. The company finds itself in a position found by many companies with approved products but little or no way to really publicize themselves. By coming public, the company is hoping the $15M or so they raise will help them get the word out about their product and thus drive some top line revenues. Will it?
The company was founded in 2012 by Khalid Mentak, currently a venture capitalist chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.wsgr.com/email/Go-Global-in-Life-Sciences/Kal_Mentak.pdf, but one of those “serial entrepreneurs” in the medical field who appears to jump from project to project. TNON is one of those projects that his company Catalyst Technology Innovation Group founded, and which his current VC partner is an approximate 22% beneficial owner. CTIG was founded to focus on companies and products in the medical field that will serve “unmet clinical needs.”
While the “unmet clinical need” scenario may have been true in 2012, the market appears to have focused on this one specific need, and today there are more than a couple dozen players in this little corner of the market. https://orthostreams.com/2020/07/26-players-in-the-si-joint-market/ While there are quite a few obscure names on the list, a few names like Medtronic, Zimmer Biomet, Globus Medical, and Orthofix jump out as names with the resources to get their products out into the market. While the first 3 names on the list are rather large, one can compare them to something like OFIX, which operates in the spinal implant market but also in bone growth therapies and orthopedics. They do close to $500M a year in annual revenues and have a market cap in the $600M range, so a little over 1x revenues. They are also profitable and trade at maybe 30x earnings and 10x EBITDA. Compare that to a single product company like TNON and there really isn’t much of a comparison. Perhaps a better comp would be competitor XTNT: $55M market cap and $80M in annual revenues, which at the $5 offering price, is just about where these folks would find themselves.
When you talk about lower back pain, you think that it must be a pretty large addressable market. The company believes that up to 30% of the 30M Americans that have lower back pain would ultimately be eligible for a procedure featuring their product, and that could add up to around 279k annual procedures in the US each year to address this problem, which is why the company believes there is a potential $2.2B market opportunity to be had. Surgical solutions currently account for only 5-7% of the 475k or so patients who get treated every year, usually by non-surgical treatments like a temporary injection to the SI Joint or some form of medication.
This recent press release https://www.prnewswire.com/news-releases/sacroiliac-joint-fusion-market-size-worth-2-49-billion-by-2030-grand-view-research-inc-301523649.html highlights a new report on the industry and believes that the Sacroiliac Joint Fusion Market size will be $2.5B by the year 2030 and will grow by 19% a year until then. Using those numbers and doing a little math, that should mean that the current market is maybe in the $700M range. However, if you check out this press release by the same folks doing the market prognostication https://www.prnewswire.com/news-releases/sacroiliac-joint-fusion-market-size-worth-661-45-million-by-2028-grand-view-research-inc-301446111.html but a year earlier, and they thought the market would be $661M by 2028 and grow by 17.5% every year until then. That would place the current market in the $250M range. Now, both can’t be right, obviously, but perhaps the higher number is the reason we’re seeing something like TNON come public at this present time. Oh, and neither report appears to list TNON as one of their primary technologies worth highlighting.
There are a host of crappy little medical device companies out there trying to market their approved devices into a market that doesn’t really appear to need them. The folks over at XTNT came public a few years back and have been trying to increase the adoption rate of their Silex Sacroiliac Joint Fusion System since then, and they are not a single product company like TNON. In the past 8 years, XTNT has gone from a $50 stock to a 50 cent stock while managing to grow overall money-losing revenues only into the $80M range. Even if TNON had the market completely to themselves, or if they had simply built a better mousetrap that significantly improved the old way of doing things, it would be a tall order to convince people to adopt an invasive surgical procedure where some local injections and medication have been show to help; but that’s not the case. TNON is coming public into a crowded market of limited current size that appears to be much smaller than what they are hypothesizing. Is it possible that they will succeed? Sure, but it would also appear to be highly unlikely.