OssDsign AB (publ)

Hello and welcome to today's webcast presentation where we have Austin Sine who will be presenting the Q2 report for 2024. With us presenting today we have the CEO Morten Henneveld and CFO Anders Svensson. If you have any questions please feel free to use the form that is located to the right and we'll take that up after the presentation and with that said please go ahead with your presentation.

Thank you very much and welcome everyone my name is Morten Henneveld I'm the CEO of Austin Sine With me, I have our CFO, Anders Svensson. And today we want to walk you through our Q2 result and first half year results and highlights of the quarter. As always, when we do these presentations, the normal disclaimer. But first, I want to start off with the fact that the second quarter was not only a strong quarter for us. We also hit a major milestone as our 12-month rolling of the biologic sales exceeded 100 million SAC. And given that it's only two years ago that we recorded the first meaningful sales in the second quarter of 2022, we are of course extremely proud of this achievement. Similarly, during the quarter, we also hit another milestone, which was announced in May that we have now treated more than 5,000 patients with OsterSign Catalyst. And I think both of these milestones clearly show the speed with which we are building the new orthobiologics business. But it's also a strong testament to the differentiation and the innovation that we've brought to market with the OsterSign Catalyst technology platform. If we move on to the more specific highlights of the second quarter, it was also marked by a number of other exciting things. The strong underlying traction in sales accelerated again, and it now means that we have shown triple-digit growth in the US for nine consecutive quarters. Since the start of our prospective spinal fusion registry, Propel, which is approximately two years ago, we've received many questions on when data will be published. And we are therefore very pleased to publish the first two papers during the quarters, and we'll get back to them in more detail later on. As we already covered during our presentation in May in the second quarter, we also won not just one, but two major contracts one with the giant GPO called Premier and one with the VA. And last but not least, we again delivered on the cross-margin guidance, which Anders will tell you more about. And with that, I'll hand you over to Anders to walk you through the financial results for the second quarter and the first half year.

Thank you, Morten. Before we go into the numbers, and as we also mentioned in our first quarter presentation, I just want to clarify that Given that the company no longer operates in the cranial space, during 24, we will only compare to previous periods of orthobiologic sales. But when it comes to gross margin, this cannot be separated out for previous periods. We will therefore only compare to the previous blended margin rate. Now, if we turn to the results for the second quarter, we reported 29.7 million SEC in sales. On a relevant comparison basis, then we grew by 143% versus the same quarter last year and 139% growth on a constant currency basis. It also means that for the first six months, we have now shown 170% growth on a reported basis. And as Morten already mentioned in the beginning, we hit the 100 million sec sales mark on a rolling 12 month basis. in Q2. So what you see in this bar chart is the last 12 months or LTM sales in each bar. And we've seen this trend for many quarters now starting already in Q2 2022. And we see a good underlying acceleration again in the second quarter. So this is an excellent performance and we are really, really satisfied with it. Onto the gross margin then. In the second quarter, it continued to develop favorably compared to last year. It reached 93.2%, which is an 18.6 percentage point increase against a blended rating Q223. And for the first six months, we've now delivered a gross margin of 93.4% against 72.6 in the first half of 23. That's an increase of almost 21 percentage points. As we previously guided, we expected to operate with a gross margin at or above 90% as a pure clay orthobiologics company. So I'm very pleased to see that we're delivering on that. I do want to remind everyone that given the nature of the business we're in with manufacturing of biologics products, they undergo significant testing and so on. We will inevitably have some products that occasionally do not pass those tests. And combined with the fact that we're still in the early stage of commercialization with still relatively low volume, that means that the gross margin may be subject to some percentage points fluctuations between quarters going forward. But as you've seen for the first two quarters of 24, gross margin has been quite stable. Now I will hand you back to Morten to talk about the other significant developments. Thank you, Anders.

As I mentioned initially during the quarter, we published our first two papers from our Propel registry And both of these cases were published in the peer-reviewed journal, Biomedical Journal of Scientific and Technical Research. And there are two important points to make here. One, this is only the start of building a repository of robust real-world clinical evidence, which is something we started from the very beginning of the journey and something we'll continue to focus on. Every time we come out with more clinical evidence, we boost our ability to get us to send catalysts into hospitals and therefore to drive growth. The second point is that in both papers, we are seeing very fast fusion. As you know, the industry standard is to look at fusion rate at one year post-op. And in both of these papers, we're seeing fusion at a much earlier time point at three and six months respectively. And while it's definitely premature to draw any sweeping conclusions on single case studies, these results are very similar to the results in our preclinical studies where fast fusion was also present. And as you know, and as we've talked about before, Fast bone formation is directly correlated to a reduction in complications such as implant loosening, infections, and so on. And therefore, it's a very important parameter for surgeons when they look and assess new products. And as you may remember, and I also highlighted this three months ago in the publication of our first clinical studies of fusion, where we also saw very fast progression to fusion as all patients were either fully fused or had progressed into fusion only after three months, which is what you can see in the red box. So in sum, the preclinical studies, our top fusion study, and now these first papers from Propel, Therefore, all draw a picture of a technology with a very high potency, while at the same time having a very solid safety profile. So this is, of course, something that we will continue to build on, but it is something at the same time that is resonating with a lot of surgeons, and it is driving attention to us design catalysts in the market. I won't spend too much time here as I'm sure everyone now knows that we won the GPO contract with Premier. As you know, this only gives us access and we still have to work hospital by hospital to convert it to win over surgeons and therefore convert it to sales. However, I can tell you that the first hospitals have already been won under this new contract. And similarly, We are already executing on our VA contract and we are now actively doing cases on a monthly basis on this contract. So both of these contracts have already converted into sales and therefore help to drive growth. So to sum up, we've now completed our first half year as a pure play US focused orthobiologics company. And with that, we have undoubtedly entered a new era with high growth, with greater scalability, and with higher margins, not least exemplified by the exceptional increase in gross margin that Anders talked to. We've managed to build broad access. We've managed to build a solid customer base in a very short amount of time. But it is important to remember that the company is still at a very early commercialization stage, and there is significant untapped potential for growth. And to fully capitalize on that growth opportunity, we will continue to focus on and invest in our strategic growth priorities that you see here. So one, we will keep building access in the US market And that means we'll continue to build greater US presence and continue to build greater coverage of the US geographies. We will continue and accelerate the funding of new product development, which was not possible when we had to create new business. Now with that business shut down, we are mobilizing much more heavily on our R&D effort to develop even more products that can drive growth in 2025 and beyond. Thirdly, we have already made meaningful investments in the clinical programs, more or less from the very first day since we launched OsterSign Catalyst. and we will continue to invest in further real-world relevant clinical data. And fourth, as we've also mentioned before, and which is something related to building access and coverage, we have now also started more as a soft launch, I would say, to expand into new orthopedic segments, initially with a focus on foot and ankle surgery. Over time, we are likely to expand this even more. So to sum up, I'm very proud that we've reached the major milestone of 100 million SEC in orthobiologic sales on a 12-month rolling basis, just two years after we recorded the first sales. But yet, we have an even bigger opportunity ahead of us And I look forward to working with MasterSign colleagues, shareholders and other stakeholders to continue building a highly successful growth company. And with those final words, I want to thank you all for listening to the presentation and I'll hand back to the operator for questions.

Thank you very much for that presentation. Like I said, now we'll jump into the Q&A section here. We'll start with the first one. You write in your comments that off-design is still at an early stage. Can you elaborate on this?

Yeah, thank you very much for the question. Well, the reason we're also writing is because I think many people tend to forget how how soon after launch we still are, right? The product was made available in the US market more or less three years to the day. But as you know, it takes time to get into two hospitals and go through the first approvals, which took place around the second quarter of 22. So, while OsterSign as a company was founded in 2011 and therefore a much older company, the new OsterSign as a biologics business is really only two and a half years old, give or take. And I think that is important to remember as we look into the future, as we look into what the company needs to build and invest in going forward. going forward. It's not a 13 year old company. It is really only a two or three year old company that we have had an extremely successful start with and a company that we expect can grow into a very sizable business going forward.

Can you provide a timeline for the expansion into the extremities market?

Yeah, I mean, honestly, we're already there. One of the first cases we ever did actually was a foot and ankle case in the US. So we've probably in many ways been there ever since we launched the product. The reason that we've decided only what we call a soft launch, which means that we are ring fencing this to only a few select people in the US is simply because we don't want to distract attention away from the spine business, which is our core strategic focus. Having said that, we are getting extremely good feedback from foot and ankle doctors, and we are actually right now building a group of ambassadors to help us with the further commercialization. But at this point in time, I would say it's still a soft launch. It is happening right now, but we are doing it in a way where we don't distract the focus on spine.

Okay, and what kind of investments do you need to do and how much do you need to invest to expand into the extremities market?

Well, I think that's a relative. You can argue for both a very high and a very low number. I think it all depends on what your growth ambitions are. Right now, we are running it through the existing sales force, but As you may know, we have a sales team of about eight regional managers right now. That's a fairly small number to cover a geography like the US. So that is, of course, something that we are looking at. How do we get better coverage in the US market?

And what immediate changes to customer negotiations have you seen since the new contracts were announced in the US and Premier?

Well, I don't think there was anything that changes to contract negotiation, right? If we start with the VA, once you're on the contract, you're on the contract and you can go and sell. If you take the GPO, as we've also mentioned a few times before, the contract doesn't give you access directly into each hospital. But what you do encounter is that as you are trying to get into hospitals, And they happen to say buy only through the premier contract. If you're not in that contract, they cannot move forward. And it means you cannot become a vendor to that specific hospital. Now with us as I now being on the premier contract, of course, we've seen cases where we were in discussion with hospitals. And now with that obstacle, being eliminated, since we have a contract, we have been able to convert those hospitals to sales. And as I also mentioned, we we've already had the first hospitals under the contract that are now generating sales.

And can you share a few thoughts on how your thoughts are when it comes to recruiting further sales reps in the US going forward to deliver on growth?

Yeah, I'm not really sure what the question is in number of people. But I think this is something that we are, of course, constantly looking at. We've not added salespeople into the US sales force for two years now. So the growth acceleration that you're seeing in the company is purely driven by higher sales force efficiency. So essentially meaning that each salesperson in the US is selling a lot more than what they used to in the I would say in the in the form of us design, but we also had the brand new business. So we are now seeing very, very meaningful sales per sales rep. And that, of course, also increases the appetite for potentially expanding the sales force in the US because we can see that they are bringing in incremental sales and therefore incremental growth.

And could you come back on the commission and fees rate? Why is it so high and what's the outlook and what will be the impact of winning big GPO on this rate fee?

The impact of GPO wins on the commission line. I don't think that's going to have any particular impact. We've been over this a few times now that this is what you see in the commission cost line is basically where the market is right now. in spine in the US. And it's a percentage that it's higher than it used to be a few years ago. And it's very much been driven by a couple of our competitors. And we expect to see that coming down eventually, but not in the next year or two. So you should expect to see similar rates going forward. It can vary a little bit up or a little bit down between quarters, but no big swings.

And by the end of the year, how many percent of the operations do you estimate will stem from the premier deal?

I mean, that's not even a level we want to go into. I don't think you can look at the premier deal as such. This is a winning a GPO contract is a long play, something that will help us not just the short term, probably less in the short term and much more in the longer term, because as I mentioned, it eliminates an obstacle for a number of hospitals to actually get in and sell. So I don't think I want to guesstimate on a number that would be too speculative.

And you talk in the report about untapped potential for growth. Can you explain how you see this?

Yeah, I think it relates a little bit back to the first question we got here on this call. We have had a fantastic start in the first couple of years, hitting 100 million sales in a fairly short amount of time. But I think what's important to remember is that we are still scraping the surface here. We have built substantial access. But we still have more than 90% of the market we don't have access to. So, of course, this also is related to the amount of investments you're making in the company, the size of your sales force, your marketing team, etc. But I think the point being that we have a a potential which is significantly bigger than anything we've even touched today, right? And we've had a fantastic start here with the first couple of years. So that is why we talk about the untapped potential for growth because we still have more than 90% of the market that we're not touching.

How has the agreement with Premier Inc progressed since its effectiveness in July?

Well, I don't think we want to talk about Julys in Q3, so I think we'll save that for November when we report that report.

Okay, and is there any weaker quarters due to the seasonal fluctuations in demand?

Not really, no. I think the most uncertain quarter would be Q4, since you have the end of the budget year for many hospitals. We haven't seen any fluctuations in Q4 either so far.

And how big is your US sales force and do you have any plans to expand on it?

I think we already answered that question. So right now we have eight territorial managers and total sales force, including our senior leadership is 10 people. And that is certainly something we're looking at right now because we can see that more sales people would bring incremental growth into the company clearly. So I'm not prepared to give any numbers. That's of course something that we'll be discussing with our board.

Okay, we take one final question here. You talked about your growth drivers. Can you elaborate on this?

Yeah, I think it comes a little bit back to the untapped potential for growth, right? As we said first, we need to build more access and better coverage. There's still 90% of the market that we're not touching. Being one, two, we only have one product today, which is Catalyst in what's called a potty formulation. We have that in four sizes. Because of cranial, we've not been able to accelerate New product development as we would have liked to over the last couple of years, so that is one thing that we, we want to accelerate so of course therefore as we look into. into the medium term, we expect to come up with more products, all of which will drive incremental growth and. Then we need to keep building clinical data. We are still in the early phase of commercialization and we have our first clinical data, but we need to build more real world data. We need to build more robust data. And that clearly we know the more clinical data you have, the better the the reception and the higher the likelihood of you winning your business. So of course, that is one-to-one. And then last but not least, there are still segments that we are not pursuing, not least because of the size of our sales force that we could pursue tomorrow if we had a different size. So all of these four areas we see as clearly contributing to an incremental growth in the years to come.

Okay, that's a wrap of the Q&A section here. Thank you very much, Morten Anders, for presenting today and answering all our questions. And also thank you, everyone who followed this presentation with us designed. And until next time, we'll see you in Q3. Thank you very much and have a good day.

Thank you very much.