Bonesupport Holding AB (publ)

Good morning, everyone. Thank you very much, operator, and welcome to the Bone Supports Quarter 1, 2023 results call. My name is Emil Bilbeck, and sitting next to me is Håkan Johansson, our CFO. So we will use the next 20 to 25 minutes to guide you through the presentation of the first quarter results, 2023, and then open the line for a question and answer session. So before starting the presentation, I would like to draw your attention to the disclaimers that might be covering any forward-looking statements that we will do today. We go to slide three in the presentation. So first, I would like to begin by sharing some condensed highlights from the report that we released this morning. Overall, quarter one sales were 120 million SEK. which corresponds to a growth of 80% year over year. In constant exchange rate, the growth was 66%. The operating results before incentive provision was 4.6 million SEK. This is an improvement versus last year of 17.1 million SEK. The reported EBIT was at 0.8 million SEK, making Quarter one, 2023, our first quarter of profitability. The main highlight of the quarter was, of course, the ongoing launch of Sermon G in the U.S. Sermon G reached sales of 35 million SEC in the U.S. for the quarter, driven by increasing use and a good pace in hospital system approvals. As an example, we have signed the very prestigious Johns Hopkins Hospital during the quarter and have immediately seen strong interest and orders from their surgeons. We were also granted access to the Veterans Affairs Administration. This concludes about 171 hospitals. In Europe, we're now finally seeing a gradual recovery of procedures after the pandemic. And I will come back and describe these highlights further in my presentation. But let's get into it and go to the next slide. So slide four, please. This is one of our standard charts for the quarterly report. I think many of you have seen it before. It shows the last 12 months sales every quarter since early 2016, split by segment and product category. I think purely graphically, it's visible that a new chapter of sales acceleration has been entered. Sales growth is strong in all segments, with the largest driver being Sermon G in the U.S., reaching a sale of 35 million SEC in the quarter. We're starting to see some cannibalization between Sermon G and Sermon BVF in the U.S., but despite this, Sales of cerament BVF in the US grew with 25% in the quarter versus quarter one 2022. In Europe, antibiotic eluting cerament, that is the G and V version combined, grew with 40% in the quarter versus last year. So in the next slides, we will look at the details of each region or segment, as we call them, as we will share additional observations on sediment G in the US. So let's turn to the next slide and start with the US. So slide five. Sales of 86 million sec corresponds to a reported growth of 109 percent year over year. At a constant rate, the growth would have been 87 percent. Sequentially, growth was 17 percent, and that means the comparison to quarter four 2022. The strong sales traction with both products is attributed to Cerament gaining strong preference of the customers and hence taking market share from all other treatment options. Let's turn to the next slide and cover some more details on Sermon G, slide six. So first, just a few words about the market dynamics. A small clinic or a small practice, a small orthopedic practice in the US have large discretionary selection in the authority of choosing new therapies. For medium and large clinics, and for medium and large hospitals for that matter, a regular and continuous use of a new product is preceded by a contract inclusion and hospital system approval. In our case, with a breakthrough device, the hospital system approval process is usually running in parallel with a few prominent surgeon pilot users. These surgeons are building concrete experience with Saruman G that is being fed into the hospital system approvals process. As reported earlier, we have succeeded with GPO inclusions slightly above our initial expectations. We have also seen more hospital system approvals and many more ongoing pilot trials. Sermon G has a clear positioning as well as unique, appreciated and recognized benefits. In the US, there are 420 hospital systems relevant for orthopedic procedures. Up to the end of March, Sermon G has received approval at 50 of these with a gravity towards the medium and large ones. Where approved, We can see that the use of the product is taking off at a steady pace, yet at a low level since it's very early days of the launch still. We have sales registered in 26 states and all sales that we have reported is related to consumption. There have been no bulk sales. The average selling price we can again confirm to be around five thousand seven hundred US dollars. So far, we have had positive feedback on product handling as well as the transition to a one stage procedure. All in all, the recognition of the clinical benefits have been positive. The surgeons have had the first follow ups of patients treated in November and December last year. Outcome is positive. in line with the clinical studies on which the FDA approval is based. This was, of course, expected, but it's nevertheless positive to get a strong validation from the surgeons that have decided to switch to sediment, where they see that the clinical benefits are also as promised by previous clinical studies. are progressing the data collection with our label extension application and expect to submit our 510k in quarter three of 2023. So that's on the US and on Sarman G. Let's go to slide seven and cover Europe. So for the quarter we saw sales of 34 million sec, which corresponds to a growth of 34% year over year, which is then 32% at constant exchange rates. We have seen a steady recovery in general surgical procedure volumes in quarter one when comparing with quarter two and quarter four last year. However, healthcare staffing shortages remain challenging and capacity is still some five to eight percent below pre-pandemic levels. Even though surgical capacity increased during the quarter, the inflow of patients seeking care remains higher than what the health care system can cope with. In the UK and Sweden, we have access to public data, making them valuable data points in understanding the market dynamics. In the last 12 months, the UK backlog increased with 1.2 million people, meaning that 1.2 million people were waiting to get their surgery done. More than 1.2 million are waiting this year in March 2023 versus March 2022. With Sermon playing an important role to influence and reduce this specific backlog, especially those people in line for waiting to get procedures on skeletal injuries, we see a favorable market dynamic ahead as the healthcare systems have a need to catch up and reduce the backlog. We have now filled all previous vacancies in the sales team, and we've also chosen to increase our marketing and sales activities to further drive market penetration as we are anticipating a continued pickup in surgical capacity going forward. We've just received information from the French CREAC network regarding the conviction study. And as with many other studies that started during the pandemic, there has been slow onset in the recruitment pace. We have received information that the last patient into the study will be in quarter four 2024. With a follow up of 24 months, the study is then expected to close in quarter four 2026. So the study is somewhat delayed. I would also like to provide a brief update on the Solario study. This study was launched in 2019 to address the growing threat of antibiotic resistance. Despite delays in recruitment caused by the pandemic, we are pleased to report that the recruitment phase is now almost complete. There is 464 patients of the targeted 500 that have already been randomized and included in the study. The study objective is to determine whether the use of local antibiotic eluting bone grafts as an adjunct therapy can help to shorten the duration of systemic antibiotic treatment, reduce antimicrobial resistance, minimize adverse events, and lower cost. If successful, this research could have significant impact on regional and global treatment guidelines. Completion is expected for early summer 2024, so the patients have a 12-month follow-up. Now with that, I hand over to Håkan for a bit more of a deep dive into the financial statements. Håkan, over to you.

Thank you, Emil. So let's move to slide number nine. The net sales improved from sixty six point three million to one hundred and nineteen point seven, equaling a growth of 80 percent or 66 percent in constant exchange rate. Emil has already spoken about the strong performance in the two segments and the major drivers behind the sales acceleration. So let me comment on the currency changing currencies. measured in year-to-date averages in 2023 versus 2022 had a positive impact of a total of 9.5 million, of which 8.9 million relate to a stronger US dollar. The depreciation of the Swedish currency versus other currencies also drives expenses, as you will see in the latest slides. Let's move to the next slide. So, the contribution from the segment North America improved with 18 million and was reported to a regional contribution of 24.9. The improved contribution relates to increased sales after effect from increased costs. Sales and marketing expenses during the quarter amounted to 55.7 million compared with 30.1 million previous year, of which sales commission to distributors and fees amounted to 29.5 million compared with 14.3 million the same period last year. The increase of 10.4 million excluding sales commission and fees was driven by currency effects of 2.6 million and an increased activity level. As we have announced previously, the US booster positions are up and running And there is a strong focus on medical education and increased market presence also contributing to the cost in the quarter. The contribution was also charged by R&D costs related to studies. These decreased from 1.9 million last year to a million this reported quarter. From the lower graph showing net sales as bars and gross margin as the orange marker, It can be noted that the gross margin is improving compared to previous quarters following a favorable product mix. In Europe and rest of the world, the table on the graph to the right, a contribution of 7.3 million was reported to be compared with 5.6 million previous year. The improved contribution relates to increased sales after effect from increased costs. Sales and market expenses increased with 4.2 million. The increase is attributable to field vacancies and to a generally higher level of market activity. As Emil mentioned, we are pushing for a higher market penetration in the anticipation of the health care systems clearing backlogs eventually. From the lower graph and orange marker, you can see a drop in gross margin following market mix, but also minor increase in manufacturing costs. The latter is anticipated to be mitigated by increased sales price, having gradual effect during the remainder of the year. Let's move to the next slide. Selling expenses increased with 13.8 million versus last year, of which 2.6 million relates to currency effects. As we mentioned before, the US booster is up and running, and we start to see the first results on top line. In Euro, we have increased with two headcounts on the sales side, and our total Euro commercial organization is now 30 people. The increase in the quarter relates to a ramp up in activity level at congresses, medical education, and of course, the launch program for CRM&G in the US. We see strong customer response to our programs as apparent from the top line development. R&D. remains largely in line with previous year and administration remaining on a stable level, excluding effects from the long-term incentive programs equaling 11.7 million compared with 10.6 million previous year and 12.1 million in the previous quarter. Next slide, please. The operating profit was reported to 0.8 million compared with a loss of 16.5 million for the same period previous year. a 17.3 million improvement following a strong sales performance. The profit also includes expense provisions regarding long-term incentive programs, amounting to an expense of 3.8 million this year compared with 3.9 million previous year. Of the total cost of 3.8 million in the period, only 0.3 million is cash flow impacting in the future. The operating profit improvement before the long-term incentive programs was 17.1 million, confirming a strong underlying positive trend. The reduced provisions for incentive programs in the quarter compared with the end of 2022 relate to the share saving program LTI 2019 that closed in the end of 2022 and reported the cost of 9.3 million in the second half of 2022. And with this, I hand back to Emil.

Thank you very much, Håkan. So we're going to wrap up this morning presentation. We'll go to slide 14, please. So I think for everyone seeing our report this morning or listening to this call, that it's obvious that there is a strong acceleration in our sales growth and that bone support is only in the beginning of a very exciting journey. The sales uptake in the US for Sermon G is faster than what we saw when the product was launched in Europe a couple of years ago. The clinical evidence available now that are displaying superiority in outcome are many more than what existed at that time point. The fact also that CERAMENT-G is the only approved antibiotic eluting bone graft on the U.S. market. That helps. We also see that there's a very strong match between the health economic benefits that CERAMENT-G offers and the immediate prioritization in the U.S. healthcare system and the U.S. orthopedic clinics. 2023 and 2024 are going to be a very exciting year. We have several milestones coming and there are more solid evidence on the way, which we are confident will support the therapy standard transformation that is taking place in the US, in Europe and in other markets. So with that, I would like to conclude our presentation for the first quarter of 2023 and open the line for questions.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Christopher Liljeberg from Carnegie Investment Bank. Please go ahead.

Thank you. Three questions, two on cost and one related to the cash flow. First, selling cost level in the first quarter, would you say that's a good proxy for the coming quarters, or were they higher than normal number of trade shows impacting this figure?

Again, as we mentioned, Kristoffer, it's been a high activity level in the first quarter, and we assume this to continue also in the quarters to come. So yes, I would say that the quarter is going to be a good reference point going forward as well.

Do you have additional questions, Kristoffer? No, okay.

The next question comes from Matthias Vadsten from SEB. Please go ahead.

Hi. Coming on from another call, so sorry if I missed these parts during the presentation. But first one would be on the gross margin. It is falling quarter over quarter despite sort of higher sales, you know, share of sales in North America and higher share of sales of Ceramics G in the mix as well. That's true for both regions. So yeah, just some clarification there maybe. Thank you.

Thank you, Mattias. And as we mentioned during the call, we've seen increasing manufacturing costs in the late 2022 that has got impact in the third quarter. These are our insights that will be mitigated by price increases having a gradual effect in the remainder of the year.

So someone is typing frantically. We appreciate it, but it's difficult to hear. So if someone is typing, please pick yourself up on this.

Sorry, I guess that was me. As last time around. The next one would be, you know, demand seems obviously to be significant for you. Maybe just a short question. Is capacity constraints anything that is holding you back whatsoever in terms of cement decels in the US? Just to make that clear.

Well, the answer is no. There's no capacity constraint holding us back. But at this this accelerated pace we will also have to look at our entire capacity infrastructure and potentially expand it further and increase our capacity more in the future than we probably earlier had anticipated. So it will take planning but there's no constraints right now.

That's good and the last one would be you know for Cermet G in the US if you could single out you know the deltas to think of when we enter q2 if you could say anything about you know the number of customers purchasing the product um you know when john hopkins and those major um counterparties were online and so on timing of that um yeah this kind of question yeah so the the beat rate of course on ceremony is a very um

very interesting and important number for us as it is for you when you build your models and we keep emphasizing also that it can be difficult to give a full year market penetration pace predication. What we saw in quarter one was an unprecedented high number of pilot use and this pilot use from the prominent and KOL surgeons is done in parallel to many of the hospital system processes. If those hospital system processes turn out into approval, yeah, well, then we can look forward to a very strong sales development on ceremony. And if that process drags out time, well, then it will be this kind of staircase model that I've displayed before. So it all comes down to how that how that metric develops. But that's what we did also different in this presentation. We released to the market for the first time that we have 50 approvals so far out of the 420. And the way to look at that is that 50 is a very impressive number that is far from the number we had when we went independent with Zimmer Biomet on the BVF. It took longer to reach that stage. So I think that gives you a hint, at least on how many doors have been opened. But then, of course, the sales has to come by converting procedure by procedure. That's all we can say. We don't have more insight than that ourselves, really, to make any predictions.

I really appreciate that. I think it helps. Then on Europe, last question. Good to see that it's picking up the pace. We could just, you know, speak about the maybe trading activity in March, April, how you think about it. You know, going forward, it seems like the activity is becoming a little bit better at least. And if you could shed some light on where we are versus pre-pandemic, I guess we're still below in terms of activity. But yeah, that would be the last one.

Sure. So I think in activity level, we are back at pre-pandemic level. We are really fueling up the engine in Europe and I have a really good team there. They are launching a lot of activities, congresses, individual meetings, approaching new hospitals. So we actually have an attempt active right now to increase our market presence. All the vacancies have been filled. And we do this because we see that the market dynamics is about to move going forward. It's about to change going forward. The capacity with the hospitals are still between five to eight percent below pre-pandemic levels. But we think that our activities should ramp up before the capacity starts to rise and not the opposite around. So that's why you see also slightly higher costs in Europe, because we are taking the opportunities where we see them.

Thank you.

The next question comes from Sten Westerberg from Analyseguiden. Please go ahead.

Yes, good morning to everybody. I wonder if you could attempt to break up the procedures in any way at this very early stage. Are we primarily looking for patients with existing infections in long bones? It may be also related to treatment of diabetic foot. And of course, if you see any use at all outside the current approval.

Yeah, thank you, Stian. Of course, bone infection is a very difficult and problematic indication. And those surgeons where we have good, strong use so far is with some of these hospital structures and systems that we have mentioned, big university hospitals, structures and systems, and Johns Hopkins, for example, and the Cleveland clinics. Most of the patients that have received CRMNG have had, exactly as you said, an existing infection and condition in the long bones, mostly as the result of a previous fracture or previous trauma. The other part is the diabetic feet. There are also observations. There are quite some feedback that surgeons have used it also on other indications that are not approved. There's no way that we are endorsing this or encouraging this. We've heard about it and we tell the doctor that this is not the intended use, but that the doctor has the discretionary right. But to quantify this would be impossible. You can just think that clear majority of the sales are in those first two indications that you mentioned.

Thank you very much for that answer. That concludes my questions. Thank you.

The next question comes from Christopher Liljeberg from Carnegie Investment Bank. Please go ahead.

Thank you. I actually have three more questions. The first one of these is the sales commission line. It was 25% of sales this quarter versus 27% in Q4. Is there some form of seasonality here and how to think about that percentage going forward?

Thank you, Kristoffer. And it's a valid question. Again, somehow, the commission is somewhat dependent on also what distributor is performing the sale in each quarter, etc. So there is a certain underlying volatility in that. It's been on a higher level in the final quarters 2022, giving a strong performance with certain distributors, enabling them to reach a higher commission level due to an underlying incentivization in the structure. So commission level can continue to show a certain variety over the periods. Maybe worthwhile mentioning is that in commission and fees, we see a reduced freight cost in percentage of sale in the first quarter, and this is related to

about the the average selling price in the us increasing so the the cost for freight as a percentage of sales is going down so that's also supporting the lower level in the quarter and on the topic of uh that it depends on on how distributors are performing uh does this mean that you will always have a higher level in in q4 or do you estimate already How do you know about bonuses or I should call it?

Not necessarily, Kristoffer, because the quotas that is the measurement somewhere where the distributors are measured is made on quarterly basis.

OK, that's helpful. The tied up working capital you have here. Is that related to the increased number of products you must have on the shelf at hospitals?

The increase in capital tied up is purely on accounts receivable layer, you could say. So it's totally related to the sales growth.

Okay. And finally, the price increases you talked about, is it possible to quantify that?

Again, we have announced price increases in the European markets of between 3% and 5%. And all of that will come to effect. It will take some time to get the effect. And we also have certain underlying contracts where we have longer commitments. so so uh uh uh over time we estimate the the gross margins to be the the stable and and some of the gap that we see in this quarter to be closed okay thank you very much the next question comes from eric castle from abg please go ahead

Hi, good morning Emil and Håkan. So first off, the monthly cadence of ceremony sales in the US up roughly 60% Q&Q. Is it possible to say how much of that is driven by new customers versus increased use of the ones you already had in Q4?

It is possible to say it. It doesn't mean we're going to say it. No, I'm just joking with you, Erik. It's important, of course, question you raise. Here's the dynamic we see. With Sermon G coming to market, the recruitment of new accounts has accelerated. Sermon BVF is a fantastic product, but Sermon G is even more special and have unique benefits. So that also drives the attention of new customers that we can acquire. The majority of the sales that we see, though, is with customers that were already existing because those new customers take longer before they reach a certain value to have impact enough. But the interesting thing is that with those customers that are existing, CERAMENT G comes in new use. So you see there is not a one-to-one replacement of CERAMENT BVF at those accounts. When we look at those big hospitals individually, where we have introduced CERAMENT G and they are using it at a steady state, CERAMENT BVF is also growing. And as I mentioned in the presentation, CERAMENT BVF in the quarter compared to a quarter a year ago is grew with the same quarter a year ago, grew with 25%. I think that's slightly higher maybe than what we thought before we launched CERM-NG. Eventually there will be some cannibalization, but I think time will tell exactly how much that will be.

Okay, thank you. Interesting points. Then you talked about pilot approvals and if you get approvals for the ones, all the pilots that are processing now, you're going to have good results. But, you know, the pilots that have been around and the 50 sites that you have now, as I sort of understood it, what has the so-called success rate been so far from, you know, pilots converting?

Right. It has been a strong success rate, higher than what we saw in Europe when we launched a ceremony. and also higher than what we saw with Sarment BVF when we went independent in 2019. I mean, one can quickly do the math looking at how many hospital system approvals we have, how many pieces that 35 million sick would correspond to, and someone can conclude that we have maybe taken between 1 and 2 percent in the market. So I think there's plenty of room for penetrating the market, both those 50 where we have the approval, which is, by the way, a number which is constantly increasing even as we speak today, and then also to expand that further. So as an indication, CEREMENT BVF that has been available since 2019 under our own direct control, we have about 247 hospital system approvals. So that gives you a good flavor. Perfect.

Thank you. And then for the label extension into trauma, given that you can now do the 510k normal pathway instead of the normal extension, you get a shorter review time, but Does this decision from the FDA also signal some sort of change to likelihood of approval in your view?

Well, it doesn't. It shows that FDA clearly see that CEREMENT-G in the first instance of approval for the bone infection has provided a very strong set of documentations. so that we now can use the extended label application with predicate device to the 7G that is now on the market. So we use ourselves as predicate device. I think that's a strength and it shows the solidity of the data that we already have provided. Now, theoretically, Yes, it would mean a slightly faster and a slightly more straightforward process with 510 versus the normal. The unfortunate thing with FDA is that, as we've seen, it depends very much on their workload and who is actually in charge of driving it within the organization. But theoretically, you're correct. That's also how FDA themselves describe it. 510 is the slightly less complex process of the three that are available for this kind of product.

Perfect. And would you say that it also kind of implies that you can get basically all labeling sensors that you're going to do through the easier 510K with 90 days review?

I have not made that conclusion, but I hear your point and I understand why you think that's a fair assumption.

Okay, and then lastly, can you give any information on the timing of the submission? Is it early or late Q3?

Yeah, so it depends. You know my team already. I mean, you know I have some, I would say some of the best people in the entire industry working on this. But it's not just up to us. There's the data that has to be collected just as when we got the first approval. collected externally so we're working with several different partners and have to dig through quite extensive loads of patient material so if it will be one month earlier or one week later, back and forth. It totally depends on how we can extract this data. So for now, I know it's not fully satisfying, but for now, I prefer to say that it will be in quarter three. And as we come closer, I will give more details on exactly when we expect that submission to leave the office in Lund and show up at the FDA.

Okay, perfect. That's all I have. So thank you very much, Emilie Håkan, and also I guess congratulations are in place. Thank you.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Very good. Well, thank you. Well, we don't have much more that we would like to add. We believe that we have delivered a very strong quarterly result. It shows an accelerated sales growth and it shows that bone support is in early stage of a very exciting journey ahead. I would like to thank everyone for taking the time to come to This presentation call I know it's a busy reporting season. So thanks everyone and take care and have a good day. Bye. Bye