Integrum AB (publ)

Hello, and welcome to today's presentation, where we have Integrum presenting their Q2 report. With us presenting, we have Acting CEO, Scott Flora, and CFO, Juergen Svonström. If you have any questions, please use the form located to the right, and we'll take that up during the Q&A after the presentation. And with that said, please go ahead with your presentation.

Juergen? Yeah, here we can see the agenda for today. We will have a brief introduction from Scott and then a business update. And myself, I will do a financial update. And after that, a summary and some Q&A at the end. So with that said, over to you, Scott.

Thanks. Thanks, Jorgen, and good morning. if you're here in the East Coast US and good afternoon to all of you in Sweden. And I'm very happy to present this Q2 report today and spend a little more time on what we think are the critical things the company needs to do. First, why do I get involved with Integra and why am I here? This is a phenomenal product. If you look at the orthopedic marketplace, hasn't been a lot of true innovation and a lot of PMAs that have been done that really impact patients lives the way we do. And, and therefore I think this is a real game changing device. Now with that, we're on a, we're on a market adoption journey. And with that market adoption journey, there's some key levers that we need to execute better on. The team here at Intagram, we're really not very happy with the, our second quarter results with the exception of the bright spot in the S1 surgeries returning in the US. But we know we've got to execute better against driving market adoption. And what that means for the team, it's not an easy thing. We're changing how we think around just being a science company to transitioning to more of a commercial execution company. And that requires some funding changes and that requires some people thinking differently. And I'll tell you that for the first quarter in, I think the team has done a great job of getting their head around the mission at hand because they also buy into the fact that this is a tremendous game-changing technology. So let me take you through what we're focused on and what we think is going to drive what I call tangible, real change. market adoption results, which is getting more patients implanted and those patients being happy and becoming, um, mission, mission referrers of ours, and then having more prosthetists and surgeons, um, also, uh, driving and adopting this procedure. So, like I said, you know, the financial summary, uh, um, we're disappointed, uh, uh, you know, and we think the, uh, but the S1 focus, I think has, has paid off and I'm going to talk some more about that. Um, And, you know, if you talk about the highlights from Q2, we did rebound in S1s. And, you know, there's a process that we're driving now on a monthly basis where we review the patients in the pipeline. And it's a standard commercial activity that's done, you know, across any company where you look at your leads, you look at what's going on and how do you push those? How do you get those leads and get them into revenue faster? So we've, we're doing that with the patients and with the prosthetists and education. We also, uh, purchased some new software that helps us read CT scans faster and help the surgeons identify what's the right implant to use. So that's, that's been a key focus. Salesforce productivity, you know, getting the team focused on the critical activities that meet the needs of the customers that drive revenue and then, um, fighting, um, Defending our on-label use in the U.S., we have a PMA for above the knee in the U.S. That is a huge tamp, and we're not even close to being 1% penetrated. We would be a very decent-sized company if we could achieve that. We have got to laser focus on driving our FDA-approved product And getting more patients done with that surgery. Yes, there's a lot of things in the pipeline. There's humerus. There's all this other stuff. But all that can be defocusing. And all of it needs to be in the right queue at the right time. But we really need to drive our PMA approved product in the U.S. There's other products we can. driving the EU. And we'll talk about that later. So we are also, we also have some people in the U.S. that have seen this opportunity and they drive, they try to get creative and use different regulatory paths. And we've been defending and we're out there educating patients and surgeons about why this PMA procedure is the one to use. It's the one that invented this technique and it's why it's the market leading procedure and implant in the U.S., Around portfolio and product launch, we've done a rebalancing activity with the team, and we now have prioritized all the R&D projects on importance, and we're using time-tested measurements like time to revenue, does it support the strategy, size of market, ROI, those types of measures that say this product should be focused on. We cannot work on all We got to work on the critical few at our size company because that's the best use of our cash. So our focus strategy to accelerate commercialization and win is all about Salesforce productivity, defending our PMA, marketing our PMA, thinking through our leadership portfolio and product launches more thoughtfully, and then focus growth. So I've had a lot of questions that came in about ecosystems and things, and I'm going to share that in a second with you, but we're focused. You know, every, in the last 40 years, every company I've been with, it's all about focus and you got to focus on a few critical markets that you think you can win in. And right now we're focused on three markets in Europe, one in the U S and that's where we're going to spend our money. And we're going to go deep. Um, and we've got to, um, we've got to fight the temptation of wandering off the trail. And we've got to stay very focused and win in those markets. And then developing a strategic, that's why I just talked about the key U.S. and European partners. And we'll talk about that in a second. Jorgen? So if you talk to any large strategic company or any acquirer, they look at what is a company's penetration in critical accounts? And the one thing that we've identified here is that we need a playbook. So in the U.S., we're going to partner with two large users of ours, and we're going to create a playbook on how do you create an osteointegration center of excellence. And then we'll take that playbook, and then we can partner that playbook across the country. Now, currently, we've got 18 to 20 centers that are well-trained on osteointegration, know how to use our implant. But what we have to do is then partner with those hospitals and those surgeons and connect those to the right certified prosthetists so the flow of patients goes into those centers. And that's what we're going to work on this playbook about. And I've seen early traction that I'm pleased with. You know, it's nothing to share or forecast with you, but I'm pleased early days on how that playbook is working. Jorgens? So this is the sort of the roadmap for the team as they think about what they're supposed to do every day. You know, how do we get patients through the pipeline? How do we defend our market position? We are the market leader. We, we, we, we need to reinforce that and defend that project portfolio management. We're working hard as a team around what are the right projects to spend money on and a partnership with specific clinics. And then the last one is the XR experience for patients, you know, in, in, When we do surgery on a patient, that patient becomes ours for life. And we have an opportunity to delight them with our axor. We just announced that we're going to start doing axor repair in the US for faster turnaround. And we are thinking about new axors and we're thinking about lifestyle axors. And that's a patient strategy that we think is going to help differentiate us in the future. Juergen? So just a reminder, We've got Jorgen as our interim CFO, and Jorgen has been a great partner in this. Inger Ryden is running the operations for me in Europe. And then Jeff Zani, president of the U.S., he runs the commercial activities. And our board of directors over there have been good partners through this transition. These transitions are, you know, they're never easy. And there's a lot of things that need to be done, and they've been good partners in guiding me through it. Jorgen? So I'll turn it over to Jörg and take you through the numbers.

Thanks, Scott. Okay, so looking at the numbers, we can see for the quarter, we have $21.8 million in net sales in comparison to 2020. 27.6 for the comparable quarter or the same quarter last year. This is a decrease of about 21%. And of course, last year's quarter two was an increase of 36% over the year before that. Operating profit is minus 11.3. And last year, in the same quarter, we made a profit of 6.5 million SEC. Of course, this leads to a negative EBIT margin, whereas last year we had 23%. For the full year so far, or year to date, the revenue is 40.2 million in comparison to 48 last year, so a little bit behind. And looking at the 12 months rolling, or last 12 months, we're currently at 96.7. And after the full year last year, we were at 104. But I'd like to sort of call to your attention the graph we saw in one of the first slides. 96.7 is still historically quite a good number. And it leads to a CAGR of 26%. And of course, historically, we've been a lot higher than that. And we are not happy about that number and we intend to increase it. That's our absolute goal. The cash position end October is 34.1 million in comparison to 33.3 million in the same quarter last year. Yeah, and here, again, you can see every quarter, the revenue going back a few years. And we're at 21.8, which is quite a good increase from the first quarter this year. So I guess we're heading in the right direction, although we're not happy about that number. so uh so uh yeah looking at the ebit uh also quite big uh negative numbers uh and uh we uh intend to uh to um and aim for improving the ebit as well uh but again uh we have sequential growth of uh 18 18 from uh last quarter so uh We hope to keep that momentum going. Mostly, the increase is, of course, created from increase in S1 procedures and actual sales. Looking at the full year, we're at 40.2, as I said. I also want to mention that we have unrealized currency effects in the result that is net of about 2.1 million negative. And yeah, looking at how the dollar has gone over the year, it's still high. I just want to remind you that since it's high, again, sort of our average sort of AR currency rate is also increasing. So So as long as we keep the same sort of effects rate, we will see a sort of a decrease in the volatility in the currency effects. But when it moves, of course, the currency effects will also be there. Oh, sorry. Okay, so that was it for the financial update. Back to you, Scott.

Yes, so... You know, the last slide here is why invest in Integrum. We have an amazing product and we have a market leading position in bone anchored prosthetics. And we need to leverage that position in one of the largest TAMs I've seen in the orthopedic industry. We're going to do that. We're going to win. We're going to focus on winning in the U.S. And we've got to shift. We are under clubbed. in the US on resources to drive this penetration. But first, we're going to prove and understand how to win, and then we'll deploy resources against the winning formula. So it's a term I like to use called test and learn. So we're going to figure it out first, and then we're going to execute. We're going to win in Europe by focusing on Germany and the UK. Sure, there will be other one-off opportunities in Europe that we'll consider doing, but these are two Good markets, two good markets to win in, and they're leading markets within the European market. Again, leadership portfolio and product launches. We cannot launch a product. We cannot start doing work on a product or think about doing a PMA unless we understand how the U.S. is going to pay for it, how Europe's going to pay for it. What's the return on investment? What's the market size? And what are the resources we need to take it across the finish line? So we're going to have a very focused leadership portfolio business model that we're putting in place that there's more thought on. We do a really good job on how to get this product to market, but we need to think more about why are we getting this product to market? And then, again, developing this strategic roadmap with the Integrum Centers of Excellence. And I think that this is a great opportunity. And I think this company has a great runway ahead of it. And, you know, I look forward to, you know, helping the board find the next leader and then supporting that next leader from the board position. But until then, we're just going to keep doing what we're doing and stay focused.

All right, so I guess we can hand over to a bit of Q&A.

Okay, thank you very much, Scott and Jörgen for that presentation. And let's dive into the Q&A section here. We'll start with the first one. What is the company's objective on achieving profitability? And when is this likely to happen?

We're focused on being profitable. Anybody with our margins should be able to figure out how to be profitable. But that's also based upon growth and penetration and what's the outsized opportunity. And the when, you know, we don't give guidance, so I won't go there.

Okay, thank you. How did the resource allocation to the hangar partnership impact sales in Q2?

So I'm going to hit this straight up because there's been a bunch of questions about our strategic partner. We have a contract with them, and they are a great company and a good partner. In the contract, it specifically says you will not talk about us in your public announcements or partnerships. So I'm just going to refer to our strategy with CPOs. going forward. So, um, we have a CPO strategy, which is for the certified prosthetists. Um, uh, certified prosthetists, um, want education, um, around osseointegration. Not all of them do. And it's about finding the right certified prosthetists and connecting them to the right, um, orthopedic hospital. There are some certified prosthetists that like to do other things. You know, they fit, um, They fit orthotics and things like that. So we've got to find the ones that want to take care of these surgical patients, and then we train and partner with them. So we hired, as you know, last quarter, somebody who is experienced from the prosthetic marketplace, somebody that knows how to market and connect with prosthetists. And so early days on that, I'm pleased.

Okay. Thank you, Scott, for clarifying that. The next question here, when can we expect the FDA application submission for ARMS?

So we are collecting data for the humoral application. That data collection is still in progress. And then when it's done, we'll submit it to FDA and we'll see what they say. But I don't have a timeline on that yet.

Okay, and during the Q1 presentation, you showed four focused ecosystem accounts. Are these four accounts up and running, doing surgeries, et cetera?

Yeah, yes. Those four ecosystems are up and running. So we shared an ecosystem strategy, and I think that's a good strategy to explain how the market works, where there's patients, prosthetists, and surgeons all intertwined, and then the hospitals themselves. that create a center of excellence around doing osseointegration. What we decided to do since then is to become extremely focused, and this was part of a board strategy exercise we went through, was to get extremely focused on two. And the reason we chose the two is one of them, the one in Carolina has an amazing program center set up. They actually have housing for patients. They help patients with reimbursement. They have a great surgical process. There's two surgeons there. There's a prosthetist on staff that works with the patients that's part of a large CPO organization. But it is the right milieu to study and understand how do we take that footprint and go elsewhere with it. So that's why we've refined it to two. We actually have a number of centers that implant. But we want to understand how do you unlock large market adoption within these centers where you start driving 10 to 30 procedures. When is that going to happen? I don't know. But we're going to study it and figure out how we unlock it.

Okay. And what would you say are the main reasons that revenue in the U.S. has been declining over the past four quarters? Yeah, Jorgen?

Yeah, I think that premise is a little bit flawed. I don't think revenue has declined sequentially quarter over quarter. But I will say that S1s have picked up lately. And I think it's important to understand that why we We talk about S1s because people rarely or ever do an S1 without doing an S2 and then buying an Axor. So for us, that's a strategically important number. But S2s are also important for revenue. So if we don't do S1s, we're not going to get S2s later. And when we do S1s now, and while we didn't do S1s before or had smaller numbers before, that's going to hit revenue now because we don't get the S2s. So this is sort of an explanation that doing S1, if we do S1s, the rest will follow. So that's why that strategy makes sense. And also, can be part of an explanation in the sort of volatility in revenue.

Thank you, Jörgen, for that answer. Several surgeons have recently encouraged the use of OPERA directly after amputation or shortly thereafter. Is this a patient flow you see a potential in going forward?

So, I'm aware of that. I think it's very interesting, but I cannot market that because it's not FDA approved. In the US, a surgeon is allowed discretion to do what they think is best for their patient, and they can make that decision. But we cannot market it, and we can't even suggest to a surgeon that they do it. Would it be an interesting market in the future, especially for infected total knees? Yeah, I think that could be something very interesting. But again, that would have to be a clinical study. We'd have to go to FDA and we'd have to do the right way to be able to promote it. So no forward thoughts on that yet, but I said that it could be an interesting opportunity.

Thank you, Scott, for that answer. And the next question is directed to you, Scott. We're asking you to clarify how your sales team has prioritized ecosystem training for certified orthopedic engineers and prosthetic experts has progressed and what the current challenges are with the training and where the skepticism toward OI lies.

Great question. So first, we looked at the U.S. organization And we now have a certified prosthetist who is actually connected to large prosthetist organizations that provides training and educational programs in a number of ways. Then we also have a sales activity going in and helping prosthetists understand why it's in their best interest to get involved in osseointegration. And then we have two really good clinical people in the U.S., that go out and partner with U.S. surgeons who want to do, let's say somebody's doing a first time surgery, they go and partner and do the first cases. And then they also support existing customers on the orthopedic side of things. So we've sort of split our small sales force into three functions. to get very laser focused on the critical activities. So I don't think we get a lot of pushback from prosthetists. I just don't think, like I said, we have to prove that this model works and then we've got to start funding it bigger. And that's where we have to think differently about our uses of cash. But that... You know, that's something we're working on as a team and we'll continue to do. But I'm seeing, I'm happy with what I see early in that effort. And, you know, we'll study it and talk more about it as it becomes tangible.

Thank you for that answer. What about Incentrum? Do they work for you anymore? And what do they do?

So Incentrum is an investment bank that takes a long-term interest in companies. And they work with us on thinking about strategic options. And so we've worked with them off and on, but it's not a big time commitment right now. And we continue to monitor the marketplace, but it's a way to think about how could we think differently about companies maybe more scaled or growing the market. So that works still ongoing.

Okay. And with a focus on the U.S., will you also focus on U.S. investors?

I think there's an opportunity. Since I've taken this job, it's been interesting. I've had a lot of people reach out to me about, you know, what is Integra. And, you know, from orthopedic executives to people who used to work for me to people that I know on the market that work with investors. So I think there's a U.S. opportunity for this device because it's such a large U.S. TAM. And also, it's a device that was invented in collaboration with Walter Reed. You know, there's a there's a military aspect to this, you know, so there should be an appeal. But, you know, we we just need to figure out how to do that and then, you know, get get investors interested. So no, no, I have no forecast on is that going to happen? I'm just you know, it's we're thinking about it.

OK, thank you. We can read about how VA are now starting to scale up OI surgeries on six locations. Can you elaborate on how your cooperation with them is developing and is the increase in stage one surgeries a result of VA increasing their surgeries?

So just a quick aside on VAs. So you can get a government contract that approves you to be used in a VA. It's still up to the independent surgeon within the independent VA hospital to decide what they want to do and what they want to use. So within the VA, there are some VAs that don't do osseointegration. They refer those to Walter Reed and places like that. There are some VAs that want to do it. And then within those VAs, do they want to use Intagram or do they want to think about something else? So I would say that we have partnership with VAs. And I would say that the accounts in the ecosystem are driving more of our revenue currently than the ones in the VAs.

And when do you expect to file for PMA for Humerus?

As soon as I get the data collected and we think it's worth filing, then we'll file and let you know.

What is currently the main obstacle in the process of developing an amputee to choose opera over your competitors? And how do you plan to overcome that obstacle?

So we were behind in this, and we're catching up fast, but we're not there yet. And it's a series of well-thought-out, well-crafted communication pieces that the prosthetist can use to educate their patients. First, you got to educate the prosthetist and we got to continue to educate surgeons on why our PMA approved surgery is better for patients. And it's all about, um, It's all about the differentiation and how the patient is treated during the stage one and stage two steps in the surgery. So it's educating the patients, caregivers, and the market that this is the best approach. And this is why the FDA gave us a PMA. And we are also doing activities to make sure that the market knows that creative ways around the PMA aren't aren't really legitimate. And so that is, it's an education process. But we were under clubbed on on patient education materials. And we're catching up very fast, we got a very creative, we've created a global marketing team, where we put we put the US and European marketing groups together. So they are now thinking through this, and we're leveraging those tools across both continents. And it's a much more cost effective way to do things.

Thank you, Scott, for that answer. Has there been any new additions in terms of ecosystems in the last quarter? And how many potential ecosystems are there currently in your pipeline?

Yeah, so I have plenty of ecosystems for right now. And I think focusing on 25... If we had the playbook up and running, we would be focusing on around 25. And then the whole game is to figure out how to funnel patients to those 25.

Okay. And do you have any updates on the process of below knee FDA study by Walter Reed? Also, are there any plans to also apply for PMA for above and below elbow or thumb?

Yeah. So, uh, first, the first statement I'll make is PMAs are not an insignificant cost. Um, and I want to leverage the first PMA that we have deeper and, and those funds, you know, if I was a $30 million company in the U S with our margins, I could, I could take on a lot of interesting projects. Um, and that's just, you know, I think we can do that by just getting focused on market penetration. So, um, That's why I talk about portfolio. What we're going through right now is to look at the portfolio and say, what is the proper sequence of all these PMAs that we had an appetite for doing and what's the proper sequence to do them? Right now, the first proper sequence is we really think the Humerus is a phenomenal product and we want to move that forward. We are in the work of Digging into all of these R&D projects and figuring out where they're at and what we should prioritize with our limited resources. And then we'll prioritize those. And then once that is a public something I can talk about, I will share it with you. So all these PMAs are great, but we're in the process of thinking them through.

understood. And how is the work going on solving the problems with the insurance companies that arose in Q1?

Yeah, I'm glad you asked that question. Um, so our U S president put a task force together. Um, we hired a, um, uh, a consulting firm that helps you fight this. Um, and they, and they put a body on it and it's a, it's a very cost-effective solution. And, um, We have been early days. We've had some nice wins working with insurance companies. So we really didn't we got two things that have happened. One, we're now educating insurance companies because this this task force that Jeff put together has put a great set of tools together for hospitals to use in defending why they should do osteointegration surgery. Second, we can now go back and look at patients that were denied and we can try to get them back into the queue. So it was a good piece of work. I'm really happy we've got a strategy against that now. Doesn't mean I'm going to win every one. Insurance companies are insurance companies and they love to say no, but you just got to keep fighting the fight. Excuse me.

Okay, thank you. The XOR2 insurance code, how is it structured with cost reimbursement and hourly reimbursement for prosthetics?

It factors all those in. They get paid for the device and they get paid for the hours that they do. And it's very competitive with doing a socket test.

And how do you work with a center of excellence in the U.S.?

You support the surgeon. You support the staff. One of the things that we've started doing, but we need, you know, again, this is, you know, all these ideas take funding, and we've got to figure out where the best ones to deploy. But we've got to, in these two test centers we're doing, these hospitals want to do co-marketing to patients. where we brand the hospital and Enneagram together, very similar to what Intuitive does with robots or Mako does with robots or people do with single incision surgery, those types of things. And then you brand that as a service offering at the hospital. So we're trying to go into these hospitals to say, how do we make this bigger? How do we make this an important piece of your surgical – Um, game plan, how do you, you know, and it's, cause it's a great revenue, uh, generator for hospitals and these patients, um, they come into the system. They're good patients to have in the system. So we work on marketing. We work on having the surgeons, um, be the best that they can be. We work on the staff understanding. We work on logistics. How do these people get entered in the system? And then we work on economics. And that's the last piece. We're really drilling into economics on why this is a good return for a hospital to focus on.

Thank you for that. What do you aim to get out of the Hanger Partnership this fiscal year?

Yeah, I'll stay away from that one. That's given some guidance. Understood. Thank you.

Can you talk a bit more about the dynamic of the competitors in the US that tries to sell non-PMA implants?

Yeah, the dynamic is they sell a different procedure and they go to people and say this is cheaper to do. And then the patient doesn't get the revascularization of tissue around the stump, which is the proper way to do it. They don't have the proper safety device. A lot of these patients are the single stage surgery is done and then they're just dismissed out into the marketplace. And it's left up to the prosthetist to try to invent and build his own safety device. So it's just a you know, it's a good sized market. And anytime there's a good market, people try to invent their way in. We just we just got to take the high ground, defend our PMA. Talk about why this is a documented scientific surgery that's got great clinical studies and great clinical data behind it. And you got to fight the fight. And then, you know, any market that's big, you've always got to fight that fight and just keep educating and keep driving the point that this is the best outcome.

Okay. And regarding payments from Ukraine, are you getting paid for the work you've done there?

Yeah. Jörgen, you want to go through that?

Yeah, we're getting paid regularly. But I mean, I'm glad you asked the question because then I can mention the fact that we're also working with the Swedish Export Credit Authority to fund some of our exports to the Ukraine. So, yeah, that's and they have a special sort of program for that. So that's going to be interesting.

Okay, we'll take one final question here before we wrap up. Is there anything that investors should look out for in 2025?

Jorgen, I don't think I can.

No, I don't know. I mean, I mean, we're going to do our best to both increase revenue and collect cash and so on. But I mean, that's not guidance. That's our ambition, I guess. So not a given.

We're going to focus on what I call sticky, tangible cash. Revenue that creates market penetration. And we're going to we're going to use our we're going to we're going to think about how we use our cash more effectively. And then we're going to execute on payables and driving. I'm not going to say operational excellence because that's a long term goal, but just being much being very focused on operating the business.

Okay. Jørgen and Scott, thank you very much. It's been a pleasure having you on here presenting and answering all of our questions. And I wish you very good luck going forward. Thank you very much.

Thanks, everybody, for calling in. Appreciate it. Thanks, guys.