Is Tenon Medical Inc. IPO a Good Buy?

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Contributor, Benzinga
April 28, 2022
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  • Although the mobilization of public and private institutions to address the COVID-19 pandemic was on balance impressive, fears of infection hurt myriad medical practices.
  • Now that those fears are fading, investments geared toward non-pandemic-related medical solutions could enjoy increased demand.
  • Investors will still need to be careful about moving into public market debuts, though sentiment appears to be improving overall.

Given the scope and scale of macroeconomic headwinds, ranging from geopolitical flashpoints to growing fears of a global recession, the very fact that Tenon Medical Inc. — an innovative surgical implant system designed to address chronic lower back pain — is about to make its public market debut is cause for celebration. Up until recently, the roster for new equity launches has been a veritable ghost town.

But for Tenon and the medical-equipment industry specifically, the post-pandemic recovery phase has offered a rare extension of optimism. For one thing, following the initial impact of the COVID-19 crisis, the broader healthcare sector focused first on effective treatments, then on safe, preventative vaccines. This circumstance left many companies not related to infectious disease treatments in the cold.

Second and running concurrently was another headwind: people avoided medical practices, particularly for elective or non-life-threatening conditions like chronic back pain. During the nascent period of the global health crisis, little information was available about the mysterious SARS-CoV-2 virus. Thus, it was better to be safe than sorry.

But as logical deduction would have it, delaying non-critical treatments imposed a devastating impact on many medical practices, to the point of risking financial ruin. Therefore, the recovery phase of this crisis couldn’t have come soon enough for Tenon, which will soon embark on a much-anticipated debut.

What Does Tenon Medical Do?

As mentioned above, Tenon Medical provides alternative therapies for patients suffering from chronic lower back pain, specifically from issues associated with the sacroiliac (SI) joint. A relatively new area of therapeutic focus, Tenon has developed a proprietary surgical implant system that helps optimize SI joint fixation.

According to the company’s prospectus for its upcoming initial public offering (IPO) — or the first time a private enterprise distributes its equity shares to retail investors — in 2019, “approximately 475,000 patients in the United States were estimated to have received an aesthetic injection to temporarily alleviate pain emanating from the SI-joint and/or to diagnose SI-Joint pain.” However, non-surgical methodologies to mitigate the discomfort have largely been ineffective.

Therefore, Tenon seeks to fill the gap, meeting a sizable unaddressed patient base. In addition, the company features key advantages.

  • Regulatory clearance: According to Tenon’s IPO prospectus, the U.S. Food and Drug Administration (FDA) cleared the company’s surgical implant system, facilitating a significant reputational boost.
  • Large addressable market: While nearly half-a-million patients received injections to alleviate SI-joint pain, data from the McCourt School of Public Policy at Georgetown University indicated that nearly “65 million Americans report a recent episode of back pain. Some 16 million adults — 8 percent of all adults — experience persistent or chronic back pain, and as a result are limited in certain everyday activities.”
  • Early market adoption: Historically, per the prospectus, “diagnosing pain from the SI-joint was not routinely a focus of orthopedic or neurosurgery training during medical school or residency programs. Due to its invasiveness, post-operative pain and muscle disruption along with a difficult procedure overall, the open SI-joint fusion procedure was rarely taught in these settings.” But with improved technologies, Tenon is able to provide potentially targeted and effective solutions.
  • Managerial acumen: Unlike some corporations, the core leadership team for Tenon features extensive medical equipment experience throughout the industry’s various pipelines. Thus, the implication is that stakeholders of Tenon stock don’t have to worry as much about getting key executives up to speed with the underlying sector’s nuances.

Finally, Tenon is actively planning the commercial launch of its flagship product, The Catamaran SIJ Fusion System. Tenon claims its proprietary innovation offers multiple distinct competitive factors, including reduced approach morbidity and a single impact “one-and-done” technique.

When is the Tenon Medical IPO Date?

While the IPO calendar remains barren compared to the record-breaking haul of new listings during the prior two years, this unique development could actually be a positive for Tenon. With so few opportunities available, the medical equipment specialist may enjoy outsized attention that may not have materialized had this debut occurred in any other period.

The company is scheduled to launch on April 27, 2022. Shares will list on the Nasdaq exchange under the ticker symbol TNON. The Benchmark Company represents the sole bookrunner for the deal.

Based on its latest revised plan, the Tenon IPO will consist of 4 million shares with an assumed offering price of $5 per share. This figure represents the midpoint of the estimate range, which stands between $4.50 and $5.50. Should the debut hit the median target, Tenon will command a market valuation of nearly $22 million.

To be sure, IPOs are generally risky because of their lack of proven track record. Sometimes, new listings can pop higher from market hype whereas others can tumble for a litany of reasons. The post-COVID reality, combined with the unsettling geopolitical flashpoint in eastern Europe, presents unique variables that no one can account for.

At the same time, between April 22, 2022 and April 27, 2022, only four companies — including Tenon — are scheduled to make their market debut. Last year, it wasn’t unusual for four or more companies to list their equity shares on the same day. Cynically, then, Tenon is poised to benefit from free organic advertising, if only to serve as a benchmark for the health of the current IPO market.

What Analysts are Saying About Tenon Medical IPO

Because of the lower profile of the Tenon Medical IPO, analysts have not weighed in on the viability of TNON stock. Nevertheless, the central pros and cons regarding the underlying company aren’t difficult to decipher.

On the bullish front, Tenon’s total addressable market is compelling. Referencing back to data from Georgetown University, back pain represents the sixth-most costly condition in the U.S., with healthcare costs and indirect costs associated with the condition amounting to over $12 billion a year.

Further, adults with back pain are more likely to use healthcare services than adults without back pain, which suggests that patients are likely to be receptive to the idea of effective, one-and-done solutions. As well, Tenon’s proprietary system could potentially cut down on recurring costs.

However, every coin has two sides, and investors will want to recognize the bearish factors that could affect TNON stock. Mainly, the innovative nature of the Catamaran System necessarily makes Tenon an aspirational investment. As a result, no guarantee exists that physicians will adopt and recommend the proprietary solution.

Indeed, clinical and real-world tests could reveal that Catamaran is no more effective than competing products, one of the risk factors that Tenon admitted in its prospectus. Without uptake, it’s difficult to imagine much success.

Moreover, TNON stock represents a diminutive debut. Even in the best of circumstances, less-capitalized companies are risky because they lack fiscal substance. Given the current set of macroeconomic headwinds, the risk could be exponentially amplified.

Tenon Medical Financial History

Undoubtedly, that private enterprises feel confident enough to launch an IPO under this highly pressurized environment is a noteworthy development. Unfortunately, it’s not entirely clear that Tenon will benefit significantly — if at all — because of its flawed financial profile.

On paper, proponents of TNON stock may point to the impressive revenue growth of 264% between full year 2020 and 2021. Additionally, gross profit more than quadrupled during this period. But that’s not where the story ends.

For starters, 2021’s sales tally only amounted to $159,800. What’s worse, because of myriad expenses, Tenon ran an operating loss of nearly $6.5 million. Throw in other crimson-stained line items, and you have a net loss of slightly over $7 million.

No, prospective investors should not interpret the above assessment as a takedown of TNON stock. But not mentioning the issues here — and subsequently, not recognizing the bearish implications — could leave you vulnerable to volatility risks.

Tenon Medical Potential

Taking the financials aside, Tenon’s ability to effectively address chronic lower back pain is intriguing, especially because the addressable market is so big. Moreover, the COVID-19 pandemic caused people to live a sedentary lifestyle, which if not corrected over time could exacerbate the pain issue.

But as attractive as the upside narrative is for TNON stock, investors should not ignore the fundamentals. As an aspirational investment, you may have to wait several years to see a worthwhile return. And even that is hardly guaranteed.

Where to Buy Tenon Medical IPO Stock

If you want to participate in Tenon Medical’s IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

TNON Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

TNON Pre-IPO

As a relatively obscure offering, no pre-IPO opportunity is available for TNON stock. However, those interested in participating in early bird sessions for soon-to-be-listed companies should open an account with ClickIPO.

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