Bonesupport Holding AB

STO:BONEX

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to Bonesupport Q1 Report 2024. [Operator Instructions] Now I will hand the conference over to CEO, Emil Billback; and CFO, Hakan Johansson. Please go ahead.

[Emil Billbäck, executive]

Thank you very much, operator, and good morning, and welcome, everyone, to Bonesupport's Quarter 1 2024 Results Call. My name is Emil Billback. I'm the CEO of Bonesupport, and sitting next to me is Hakan Johansson, our CFO. So we will use the next rough 25 minutes to guide you through the presentation of the first quarter results and then we will open up the line for questions and answers.

So next slide, please. So before starting this presentation, I would like to draw your attention to the disclaimers that might be covering any forward-looking statements that we will make today. Let's move forward. So I would like to begin the presentation by drawing your attention to some of the highlights that we have displayed in the report released this morning. So overall, quarter 1 sales were at SEK 184 million, which corresponds to a reported growth of 54% year-over-year. In constant exchange rate, the growth rate was as well at 54%. The operating results before incentive provision was SEK 42 million, which is a profit improvement versus the same period last year of SEK 37 million. The reported EBIT was SEK 32 million, marking our fifth quarter as a profitable company.

The main highlight in the period has been the continued strong market penetration of CERAMENT G in the U.S. Sales reached SEK 93 million. And we see a good momentum in the business within most of our geographies and indications. The market dynamics are positive. And at a growth rate of more than 10x market growth, we are taking large chunks of market share.

There were 2 important U.S. regulatory milestone achievements in the quarter. We received FDA market authorization for CERAMENT G for open fracture trauma, and we received FDA market authorization for CERAMENT BVF for spinal interbody fusion. These market authorizations are enabling the future execution of our strategy. And I will come back to the possibilities we see with the CERAMENT platform. But first, let's look at the sales development on the next slide.

So you're probably familiar with this chart. It shows the last 12-month sales in Swedish currency every quarter since quarter 1 2017 in stacked bars per region and per product category. The top line is advancing with a solid and steep trajectory. It is mainly the antibiotic eluting CERAMENT which is driving the development with 103% growth in quarter 1, 2024 versus quarter 1, 2023. CERAMENT G has been in the U.S. market for about 6 quarters. And there is some cannibalization on BVF, but I anticipate much less than anyone expected. We have come out of the pandemic with full speed, and we see strong progress in both geography segments with an almost linear development since quarter 1, 2022.

So I will offer 1 more slide on this theme, actually, where we can see this a bit clearly, where we have looked at sales per quarter in constant currency. So if you go to the next slide, what you see here that in the most recent quarter, quarter 1, 2024, with the sales of SEK 184 million, we can conclude that in constant currency, sales have tripled over the last 8 quarters, and it has doubled in the last 5. There was already a very strong trend in the business even before CERAMENT G in the U.S. was launched. But from quarter 4 in 2022, that trend has really moved up a notch.

We also see a rather straight and solid penetration traction, which is common for a unique and successful orthopedic products such as CERAMENT, where the promotion is preceded by necessary hospital system approvals, and the winning of surgeons takes place surgeon by surgeon rather than in big chunks.

Let's go into the details for North America on the next slide. So with sales of SEK 141 million in the quarter, it corresponds to reported growth of 65% year-over-year and same number there also in constant exchange rates. One of the highlights of the quarter was, of course, the strong sales of CERAMENT G. In quarter 1, we saw really strong uptake and sales reaching SEK 93 million, which is up SEK 17 million or 22% sequentially. The strong continuous pace in hospital approvals have remained at the same pace as in previous quarters. However, the overall priority of our sales teams right now lie in the training and education of newly recruited surgeons at hospitals where contracts have been achieved.

The other highlight is, of course, the market authorizations for CERAMENT BVF and CERAMENT G. And I thought I'd go through that a bit more in detail on the coming slide. So if we start on the next slide with the spinal fusion authorization. I think most of you are aware that the main reason for fusion surgery of the spine is to stabilize the spinal column and reduce pain caused by certain spinal conditions. And the fusion surgery involves joining 2 or more vertebrae together to create a solid bony bridge with a purpose to eliminate motion between the [ infused ] vertebrae.

Interbody fusion, IBF, is the procedure where a damaged disk is replaced with a cage, which is then filled with organic bone graft or a bone graft substitute and then accomplishing the fusion. The posterolateral fusion involves fusion of the transversal process in proximity of screws, [ road and potential play ], as I think it's clear on the picture. So CERAMENT BVF had already regulatory clearance for posterolateral fusion. And since March of this year, CERAMENT BVF is now also approved for interbody fusion. This means that we're allowed to fully enter the spinal fusion segment in the U.S., adding about 750,000 procedures of addressable market. And this is a market where 1 out of 5 spinal procedures fail to fuse and 40% of the procedures are made with off-label use of local antibiotics. So we will enter this market segment with a strong value proposition.

CERAMENT is an orthobiologics platform for bone healing and where local substance delivery can be used. And it is the solid evidence behind CERAMENT's strong bone remodeling capabilities that has facilitated the fast IBF approval. In preparing for entering the market, our focus lies on building preclinical application data, collecting and analyzing the necessary observations and building training programs for surgeons. We will also work methodically to ensure the right skills and the right resources within a distributor-led sales force as well as building a strong network of key opinion leaders. All in all, these important activities mean that we will enter the market in quarter 4, 2025 at the earliest. We are thorough in our preparations, and we know what it takes to make and achieve a solid market penetration and market launch.

Let's also turn to the next slide and look at the open trauma approval. So in regards to open trauma, we wanted to be clear that CERAMENT G has received a broad and wide approval. That means that all extremities are included on the label. The only limitations given are that CERAMENT G volumes should not exceed 10 [ milliliter ]. And we have also [ on the maybe the wording ] that the Gustilo-Anderson IIIC trials are not supported by clinical evidence for CERAMENT G. The Gustilo-Anderson IIIC open traumas are only about 8% of the total number of procedures in open traumas, so a very small part.

In the data submitted to FDA, close to 500 patients were demographically matched and compared, and a total cohort of 3,060 patients was used to build the definition of standard of care. The patient outcome in the evidence of [ letters ] is very impressive. In the summary letter, FDA wrote that "The infection rate for CERAMENT G in the treatment group is extremely low." And that bone remodeling, at 96%, is favorable to standard of care. As a consequence of the low infection rate and the high [ unit ] rate, the amputation rate in the extensive study material submitted to FDA for the treatment group was only 3.7%.

Now this can be compared to the reference material for amputation rate historically for these kind of injuries is at [ 16% ]. So we're currently working to ensure that the more than 100 hospital systems where CERAMENT G is approved already for bone infections also get a registration for CERAMENT G on open trauma. We're already seeing some surgeons requesting use of CERAMENT G for open trauma, but we should take in mind that it will take a few months before all the system updates and registrations are done. And only after that, when we see a tangible uptake within this indication.

We are currently also assessing the merits to file for an [ NTAP ] for CERAMENT G in open trauma. The deadline for this is October 1 this year. And finally, I would say, with the 2 recent market authorizations, I believe that CERAMENT really establishes its role as an orthobiologics platform with broad applications on various indications require bone healing.

So if we go to the next slide, just to -- quick refresher on the U.S. market. We have earlier concluded -- and this is from the Capital Markets Day data in 2022 -- that there are about 380,000 procedures a year in the U.S. where bone grafts are used to enable healing. And the most common reason -- the most common [ etiology ] for these surgeries and procedures is open trauma, as you can see on the pie chart to the left. With the most recent regulatory clearance, another 132,000 procedures will be on label for CERAMENT G in the open trauma. And here, I deduct the 8%, which Gustilo-Anderson IIIC. Our estimate, though, if you look at the total open trauma procedures, is that off-label antibiotics are used in about 40% of the cases. And all of that, as I said before, is off-label.

Now let's also turn to Europe before we hand over to Hakan in the financial part. So for the quarter, we saw sales of SEK 43 million, which corresponds to a growth of 27% year-over-year, and that is 24% in constant rates. We see a strong market dynamics in most of the European countries, that there's a continued catch-up of the surgical backlog. Our strong development is also a reflection of significant market share gains. The antibiotic eluting CERAMENT, which is CERAMENT G and V combined, grew with 28% in the quarter versus last year.

Now that's for the focus in this report admittedly has been on the U.S., given the recent approvals, but I want to underscore that we've seen strong progress in Europe as well, with hybrid markets, which is Spain and Italy, performing especially good. To achieve this, we have continuously ramped up tactical initiatives, participating in conferences and arranging symposium. There's a high interest in the product, and it's a high interest in the different application techniques.

In total, over 400 orthopedic surgeons attended our symposia held at the key conferences in U.S. and Europe. These symposia were facilitated by faculty members of distinguished orthopedic service and featured a blend of clinical evidence, presentations, patient cases and panel discussions. Also, to meet the evolving demand and increasing demand in Europe, we have recruited additional resources within medical education and event execution. And some of those additional headcount, you will see reflected also in the financial part and the cost that Hakan will now present. So over to you, Hakan, for a more detailed view on the numbers.

[Håkan Johansson, executive]

Thank you, Emil. So net sales improved from SEK 119.7 million to SEK 184.4 million, equaling a growth of 54%, with the same 54% in constant exchange rates. Emil has already spoken about strong performance in the 2 segments and the major drivers behind the sales acceleration. So let us move to the next slide.

The contribution from the North America segment improved with SEK 30.9 million and amounted to SEK 55.8 million. The improved contribution relates to the increased sales after effect from increased costs. Sales and marketing expenses during the quarter amounted to SEK 78.4 million compared with SEK 55.7 million previous year, of which sales commission to distributors and fees amounted to SEK 47.8 million compared with SEK 29.5 million in the same period last year. The increase of SEK 4.4 million, excluding sales commission and fees, was mainly driven by the organizational investments made following the launch of CERAMENT G and the underlying sales growth. From the lower growth, showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin continues to strengthen at a reported 95.3%.

In Europe and the Rest of the World, a contribution of SEK 10.7 million was reported, to be compared with SEK 7.3 million previous year. Sales and marketing expenses increased with SEK 5.4 million and was driven by field vacancies, an increase in sales representatives and a high level of market activities to capture the momentum we now see in Europe, but also by one-off expenses of SEK 1.1 million. From the lower growth and the [ overall ] market, you can see the gross margin remaining stable with a minor impact from product and market mix.

So let's go to the next slide, please. Selling expenses in [ Europe ] increased from SEK 5.4 million versus last year, of which SEK 1.1 million relates to onetime expenses and [ SEK 4 million ] to currency effects. In Europe, we have filled vacancies and increased our total euro commercial organization with 5 heads compared to previous year. The sales cost increase in North America in the quarter related to organizational investments, a ramp up in activity level of congresses, medical education and, of course, the continued launch of CERAMENT G in the U.S.

If we look at R&D, as presented at our Capital Markets Day in November, R&D is focused on execution of strategic initiatives such as spinal fusion and the planned marketing authorization submission for CERAMENT V in the U.S. These initiatives have been in a preparatory design phase during the quarter, with increasing expenses estimated for the coming quarters. And finally, covering administration, underlying administration expenses, excluding effects from the long-term incentive programs, remain on a stable level.

So let's move to the next slide, please. The adjusted operating profit was reported to SEK 41.6 million compared with SEK 4.6 million for the same period previous year, so an improvement of SEK 37 million following a strong sales performance and further supported by the favorable impact from currencies of SEK 6.8 million. The difference between adjusted EBIT and reported EBIT operating results are provisions regarding long-term incentive programs amounted to an expense of SEK 9.3 million this year compared with SEK 3.8 million previous year, as you could see on the previous slide.

The share saving program approved by the AGM in May of last year with vesting starting at the first of January this year represents the higher shareholder expense of SEK 3.8 million relates to the programs ended end of 2023. And following the share price depreciation from year-end 2023 [ to end ] allotment of shares was executed and social charges were paid. Of the total cost of SEK 9.3 million in the period, only SEK 0.3 million is cash flow impacting.

A positive cash flow from operations was reported at SEK 17 million despite the continued and planned buildup of both semi-finished and finished products, ensuring full flexibility to future market needs but also including preparation to launch the third-generation CERAMENT G in the U.S. in second quarter this year. The third generation was launched in euro during last year, involving both increased ease of use and reduced environmental impact. And with this, I hand it over back to you, Emil.

[Emil Billbäck, executive]

Thank you, Hakan. So let's wrap up this quarter 1 presentation. Both of us, of course, together with the entire organization, very pleased with the performance that we've seen in the quarter, as well as the continuous trend that the entire business is moving at. The strong growth is mainly attributable to the continued successful launch of CERAMENT G in the U.S. But we're also growing steadily in Europe, adding CERAMENT users in all geographies.

Apart from the strong financial performance, the highlight of the quarter is that CERAMENT, through the 2 market authorizations, proved its role as an orthobiologics platform with broad applications on various indications requiring bone healing. Thanks to clinical superiority to standard of care, CERAMENT is constantly increasing its user base and enabling surgeons to drive towards a better patient outcome. We feel strong confidence in the market guidance given to grow sales in 2024 with more than 40%. I thank you for your attention. And with this, we conclude our call and open up for questions.

[Operator]

[Operator Instructions] The next question comes from Mattias Vadsten from SEB.

[Mattias Vadsten, analyst]

First 1 to start, where you ended, Emil, with above 40% growth target organic. When you set for this target at the 2023 CMD, did you have in mind back then the open fractures with CERAMENT G, that it was approved so fast? Then the reimbursement codes will be in place, I guess, around September for open fractures. And I understand -- or my guess is at least a boost in sales towards the end of the year. So just maybe talk a little bit about that, to start with.

[Emil Billbäck, executive]

Yes. Thank you, Mattias. The -- when we defined the guidance at the Capital Markets Day, we concluded that there are so many moving parts. There are so many opportunities, and there's so many pending -- both regulatory authorizations and initiatives that we will only give guidance for 1 year at the time currently. So that's when we said above or over 40% growth. At that time, I could not have anticipated that the open trauma authorization would have come so fast. As a matter of fact, I've been asked before, and the above 40% or more than 40% growth was a definition of guidance that was given even excluding open trauma. So you could almost say that comes on top.

Then the open trauma indication has immediate reimbursement coverage in the U.S. as when the patient comes in, the injury is categorized on a DRG coding system. And then the surgeon is basically free to more or less use products of their liking to heal and take care of the patient. But what we will apply for before October 1, if our analysis point in that direction, is to get an NTAP with CMS. We did that before for bone infection, which was granted, and we're going to do now the same. If it's granted also for open trauma, I want to remind everyone that it's specifically only for the CMS patients in the Medicare program. And it would then be, if granted an incremental reimbursement, above what is given in the regular DRG.

[Mattias Vadsten, analyst]

Good. Now you covered the next 1 as well. But maybe another one, further -- new interesting data showing here later in the year with Solario question here. To what extent would the Solario dataset be crucial for you? We obviously always try to triangle down how imported all study readouts are for the commercial success. So of course, your thinking here is much appreciated as well.

[Emil Billbäck, executive]

Yes. Yes, thank you, Mattias. I think we all learned that in orthopedics breakthrough devices like this, which is pioneering the market, there's -- there are not this huge volatility in sales, but rather win surgeon by surgeon, contract-by-contract hospital system. Now back to Solario. Solario, if it comes out positively for CERAMENT, would, of course, be a formidable tool for us on this journey going forward, both to drive even faster the conversion from an outdated standard of care where there's already plenty of studies showing superiority for CERAMENT with antibiotics. Solario would then be a major milestone in actually proving that local antibiotics distributed in a synthetic bone graft to ensure bone healing is indeed a favorable option versus the more antiquated treatment methods.

But the other thing is also that such study results would help us in our discussions regarding the value of the product and the health economic benefits to -- I think everyone knows that systemic antibiotics is 1 of the biggest reasons for antibiotic resistancy. And there clearly has economic effect also of keeping the patient longer in hospitals and enduring more infections and more complications. So there's a lot of dimensions on a positive Solario study that could help us to even further accelerate the journey in the future.

[Mattias Vadsten, analyst]

That's a clear answer. Then my last 1 may be good cash flows once again and the cash position, of course, rising. I appreciate this is probably a long answer, but maybe if you could share a few words on sort of capital allocation ahead? That's my last one, and then I jump back to the queue.

[Håkan Johansson, executive]

Again, I think that it's good to see that some of the operational leverage is also then supporting the cash flow. And as we communicated also previously, is much short term, it gives us the assurance to have the necessary funds also to the investment initiative and the initiatives that we have revealed and presented at the Capital Markets Day. So short term, that's where we have had the focus and how to use the cash flow that is not generated by the business.

[Emil Billbäck, executive]

Yes. I think also it's -- to Hakan's point here, it makes us very resistant to variability in the business. It gives us the freedom to fully realize those strategic plans that we have communicated at the Capital Markets Day. So in 1 hand, you can say, yes, we're out of the tunnel and the open land is ahead of us now.

[Mattias Vadsten, analyst]

Good. Thank you.

[Emil Billbäck, executive]

Thank you, Mattias.

[Operator]

The next question comes from Erik Cassel from Danske Bank.

[Erik Cassel, analyst]

First, just sort of a housekeeping question. I was wondering what the one-off expense of SEK 1.5 million in Europe relates to?

[Håkan Johansson, executive]

So it's -- thank you, Erik. The biggest part is -- for the first time since I joined Bonesupport, we had to do provisions for debt in the euro segment, and that's the biggest part of that amount.

[Erik Cassel, analyst]

Okay. Got it. And then, I mean, since you're talking about having your sales [ cater ] more to existing users, I mean, can you tell us anything about the effect that's having on getting surgeons to use it more? Can you say or maybe quantify anything, what you've seen in the past year in same surgeon sales growth on average?

[Emil Billbäck, executive]

Okay. So the line broke up a little bit. I think I heard the question, but if I shoot off the mark, you just correct me and repeat yourself there. So the -- the hospital system approvals last year took off really fast. I mean, faster than the group here had anticipated. And when we receive a hospital system approval, we find it also important to quickly [ announce ] to the potential future users to get out to the hospitals, to get out to the surgeons. Because it is by at least the surgeons that have been part of the user committee and the medical advisory committee that they get further information about the products. So I can, I think, say that with a high level of hospital system approvals, we have been very focused on getting to those big clinics, the big users, the prominent orthopedic surgeons. And over the last I would say, 8 to 9 weeks, we have had a record pace of new users of CERAMENT G. And I don't think that's controversial in any way because if you get a lot of hospital system approvals, that also facilitates and opens the door to promote the product. And we know that when we can promote the product in daily use, we have a strong conversion from the more antiquated standard of care or the label uses that the doctors have used before.

[Erik Cassel, analyst]

Okay. Then next question, I mean, I hope you hear me more, just say if you don't, but high rate of cannibalization in the U.S., I mean, of BVF, that is. I mean, is some of it being lost to other alternatives, say, other synthetic bone grafts? Or does it all relate to switching over to CERAMENT G?

[Emil Billbäck, executive]

Yes, you see, I don't think the cannibalization -- I think it's rather modest. I think it's less than we, but also a lot of the analysts would have anticipated. So if you look in the numbers, let's say, the sales of BVF in the quarter, I think it was down some 7%, which is quite trivial, I think, given the pace of CERAMENT G. But -- but there's 1 more thing we have to take into consideration here. Before, we had recruited almost 400 sales reps, and the only product they had from us was CERAMENT BVF. And that got full attention from the salespeople when they also were selling their metal products and their prosthesis and others. And now with CERAMENT G, of course, all focuses on CERAMENT G. So the cannibalization mainly takes place in the time allocation of the salespeople, and I think not so much in the sales yet. But the few percentage points that the reduction has been in CERAMENT BVF is probably the similar pattern that we've seen in Europe that when the doctor has CERAMENT available with antibiotics, they can get the same great bone remodeling capabilities and they can also get protection and now also this approval prevention from infection, they start using that more and more as a first-line therapy even if the infection incidence might be low. We don't see that we've lost customers. The surgeons have stayed within the family, so to say.

[Erik Cassel, analyst]

Okay. But we still have BVF down 9% year-over-year in the U.S. And if there is no real cannibalization, then just maybe the effect of sales not focusing on it, should we just expect BVF to sort of fade away? I believe the previous answer been that it was supposed to be more likely more stable, so to say. Has that changed?

[Emil Billbäck, executive]

Clearly, there are clearly accounts that have used CERAMENT BVF and they now have switched to CERAMENT G or account and the specific surgeons, of course. Absolutely. I don't think it will fade away. I think we can look at the European sales and we see that the CERAMENT BVF as a poor bone remodeling treatment has its place, especially for well-planned surgeries, elective surgeries with very low risk of infection. There will be surgeons that will then select BVF to favor the slightly lower price on that product. So where BVF and CERAMENT G will park itself, I think it's for the future. It's too difficult for [indiscernible] that right now.

[Erik Cassel, analyst]

Okay. I'll just squeeze in 1 last one, and that's on the [indiscernible]. I mean we do see a lot of PMA use and other antibiotic used in grafts. And you choose to not really account for it in your, say, market size. I'm just wondering why wouldn't surgeons just use that off label when they are using sort of alternative products as of now?

[Emil Billbäck, executive]

Yes, I have to apologize. There's so much noise on the line that I couldn't hear this part of the question.

[Erik Cassel, analyst]

I'm sorry, I'm having a vision in my head. I'll try again. When it comes to [indiscernible], there's a lot of maybes and other antibodies in bone grafts. Why would just surgeons use CERAMENT G off label in that? Because you decided not to really include that indication in your market pricing. Just curious on that point.

[Emil Billbäck, executive]

Did you hear the question?

[Håkan Johansson, executive]

Unfortunately, no.

[Emil Billbäck, executive]

We have to both apologize, Erik, because we cannot hear the question.

[Erik Cassel, analyst]

I'm sorry. It's like a boiler room here today with all the reports. I'll jump back on the queue and see if I can try again later.

[Emil Billbäck, executive]

Maybe you can type the question, Erik.

[Erik Cassel, analyst]

I'll jump back into the queue.

[Emil Billbäck, executive]

Thank you. Okay. Maybe if you type the question, we'll do best to respond to it. Well, it's a little bit difficult to hear. Do we have any further questions from any other participants?

[Kristofer Liljeberg-Svensson, analyst]

Yes. Kristofer is here, I said my line was unmuted. Do you hear me?

[Operator]

The next question comes from Kristofer Liljeberg from Carnegie.

[Emil Billbäck, executive]

There you are. We hear you perfectly.

[Kristofer Liljeberg-Svensson, analyst]

Three topics I would like to ask you about. First 1 is, if I remember correctly, I think you said last quarter that there were a record number of hospital approvals end of last year, and that was something that could accelerate sales growth maybe late spring, early summer. Is this something you have seen already? Or do you still expect this to happen here, maybe late Q2, into the third quarter?

[Emil Billbäck, executive]

Yes. We had -- at the end of the year, we had really good success rate with hospital system approvals. And as soon as they were -- as soon as they landed, as soon as we had signature on paper, the sales team went out with a clear prioritization list and focus list. And indeed, I can confirm that those hospital system approvals have also resulted in a high surgeon conversion rate. So they take place sequentially. First, we need the hospital system approval, and then we can go out into those hospitals that are associated with the contract and promote it. And I mentioned before that for the last 8 to 9 weeks, we've also seen a good pickup in new users, new surgeons and new clinics.

[Kristofer Liljeberg-Svensson, analyst]

Okay. Great. And then on the trauma indication, how do you expect that to impact sales coming quarters? You talked about the hospital approvals, of course. Wondering whether you have noticed surgeons, hospitals being more price-sensitive for this indication than bone infection? And I don't know is it too early to say anything about hospital approvals for this indication is related?

[Emil Billbäck, executive]

Yes. I haven't noticed -- we have not noticed any higher price sensitivity actually. Maybe that's because it's so new. And those surgeons that immediately picked up the phone are the ones very hungry and eager to try the treatment. And so far, we only have a handful of hospital systems where we have been able to change the administration codes and get open trauma on the listing. So I think it's more likely, as you also concluded, Kristofer, that by -- after summer, so maybe we come to early September, that's when we should be through with the big hospital system approvals. And that means also we will intensify our marketing efforts when that is done. There's a couple of big congresses in the autumn on -- focused on trauma, which we target to get out with the message. Did that cover your full question?

[Kristofer Liljeberg-Svensson, analyst]

Absolutely. But do you think -- if you just look at the initial launch for bone infection and the sales you had the first quarter, do you think it's fair to see similar effect on sales on top of current sales and the top of current sales trend for trauma? Or is that a too optimistic scenario?

[Emil Billbäck, executive]

Yes. It's -- I couldn't give such guidance, Kristofer, where I sit now or with the data we have. But what I want you to all remember, though, is we received the market authorization from FDA in May 2022. And because we knew the work that had to be done with the hospital systems, we told everyone that we would launch in October, and then the launch came 5 months later. So it's the same here. I mean, it takes 5 months basically to really get on the system and get everything up and running. And there's quite a few doctors also that would like to use the product, but they're not going to do it until they know that it's fully endorsed in the system because of them ending up in trouble otherwise.

And then the uptake, I couldn't tell. Actually, I don't know myself. Of course, we built different models, but I'm not ready to share that with the market. So I guess we will have to get our first observations and then probably be a little bit clearer in our guidance going forward, looking into 2025 and forward.

[Kristofer Liljeberg-Svensson, analyst]

Yes. Yes, that's fair. Last question, maybe for Hakan, costs. If you could maybe talk a little bit about how you expect both selling expenses and R&D costs going up or moving up, coming years? So maybe, let's say, is it possible to give a sort of indication in absolute terms, how much higher selling expenses and R&D costs would be in 2026 versus 2024, a rough figure?

[Håkan Johansson, executive]

Again, Kristofer, it's very hard to give a very clear guidance. I think that what you can expect and what you will see is that we will continue to make investments step by step following [ my underlying seen ] to continue to support sales growth. And we don't expect that to come in any big change. It would be more somehow following the development, which also means that what you could expect is the selling expenses as a percentage to sales, that should be possible to come down gradually.

[Kristofer Liljeberg-Svensson, analyst]

Yes. On the R&D costs, I guess, at some point, you want to also file CERAMENT G for spinal fusion. When do you -- when should we assume costs for clinical trials related to that happen?

[Emil Billbäck, executive]

So we will announce that at least 1 quarter in advance before that starts, that is not now. So it's for later to be making such an announcement.

[Operator]

The next question comes from Sten Gustafsson from ABG Sundal Collier. Please go ahead.

[Sten Gustafsson, analyst]

Good morning. I was wondering if you could share with us what type of market access you have today? When we look at the bone infection indication with 50,000 procedures annually in the U.S., what -- what type of market access do you have today if you could potentially give some sort of indication there?

[Emil Billbäck, executive]

So I mean, what we shared at the Capital Markets Day was a rough estimate on market shares. You asked for the market access, which then relates more, I think, to how many hospital system approvals do we have so that we can get into the hospitals and start to promote the product. And in the very -- and in the early days of the launch, we also displayed how many hospital systems approvals we had, and then we stopped that reporting. We didn't do it because the numbers dropped, but we did it because they were taking off, actually. And we have more than 100 hospital system approvals. And I mean that roughly corresponds to between 1,200 to 1,500 hospitals. So that means we have a good market access, slightly better than we anticipated. And we have an absolutely full schedule now with getting out to those hospitals where we have gotten approval. Possibly even that we will down prioritize getting more approvals because we are so busy meeting the expectations of those already granted approvals and get out to the clinics and explain what is this new product that have been put on in the system.

[Sten Gustafsson, analyst]

Okay. So -- so do I understand it correctly that you're roughly approved at 1,200 to 1,500 hospitals today out of -- is that like 5,000 potential hospitals or...

[Emil Billbäck, executive]

Yes, it makes sense. Give or take, yes.

[Sten Gustafsson, analyst]

Yes. Excellent. My second question comes to the TPT approval you talked about in the previous quarter for outpatient care facilities. Have you noticed any interest from that group of facilities?

[Emil Billbäck, executive]

Yes. Yes. Thank you. Yes, the TPT was announced and came into effect first of January of this year's value for 3 years. The challenge a little bit with the U.S. market, as always, in everything we do is, there's no central communication. There's no institution that sends out a note and say, "Oh, look at this, this has just been approved or this just has reimbursement." The most reliable source of information for the health care practitioners on this topic is our sales resources. So it's the same. We have to go out and constantly inform sometimes 2, 3 times before we really start to get the traction.

So what I can say is that in quarter 1 of this year, there has been little if any, impact from TPT. So I think we should all anticipate that to have more of a gradual ramp up over the year and hopefully accelerate into 2025 as the coding gets more recognized and as both the health care practitioners and the building office learn how to use this in a proper way for CERAMENT G. It's very unusual for such a product to receive a full TPT. So it also requires a bit of information the health care provider do not want to make mistakes when it comes to a product that will put down expenses of close to $6,000. So there's a bit of work actually behind all of these enablers before you really start them paying tribute.

[Sten Gustafsson, analyst]

Okay. Does this mean that you're approved -- I think you said that there were roughly 2,000 facilities, call it once? Or do you need also individual approvals at each center or group of centers?

[Emil Billbäck, executive]

It varies. The -- I cannot give a solid answer on that because there are centers that require their own approval administrative approval. Some of the ambulatory care centers are linked and associated to hospitals or hospital chains. And if the approval has been given there, then it's more or less automatic. But with such a generous and solid reimbursement, the approval for the roles that require it is usually very fast and quite simple because this TPT is lucrative.

[Operator]

The next question comes from Oscar Bergman from Redeye.

[Oscar Bergman, analyst]

Congratulations on a strong quarter. I only get the crumbs left for the Q&A session, unfortunately, but I still have some. I know there's a lot of attention on U.S. sales, of course. And actually, we're seeing sales progressing very well there. But if we turn our heads to the EU market, can you just explain some -- some challenges or opportunities that are there in the table in the short term? For example, how is it going with the hybrid conversion and access to hospitals and so on?

[Emil Billbäck, executive]

Yes. Thanks, Oscar. Absolutely. We always look forward to your questions. The traction in the hybrid market is very strong. It's going well. It's going slightly above expectations. And here, we have placed both support staff working together with either 1 distributor or several distributors covering part of the country. And this is like a miniature model of what we have in the U.S. So it gives us the opportunity to view and monitor metrics and follow up with the salespeople and really see that CERAMENT gets the proper market introduction.

We can conclude that CERAMENT is not a product that fits all distributors without any handholding. It is a much more sophisticated product. It requires explanation. It's not generic. It's probably easier to sell a generic metal plate than it is to sell CERAMENT, which is a breakthrough biologic product. The challenge we see a bit in Europe is still the digital stuff, which is holding back acceleration of business, which is holding back further carving into the backlog of surgeries that build up during the pandemic. It has become a little bit better, mainly in the U.K. There's also some relief in France, Italy, Spain. Germany remains challenging, and the nursing -- there's a nursing staff shortage and also shortage of surgeons in general which makes the total market development a bit slow.

So the way we view this, of course, is when we're growing 27%, inevitably, there are a lot of surgeons that are preferring CERAMENT instead of more traditional treatment modalities. So if you're growing that much faster than the market, you are taking market share. And for this, we are very proud of the team, that they keep fighting despite sometimes difficulties to meet the right surgeons due to the staff shortage.

[Oscar Bergman, analyst]

And how would you compare like the surgeons' standings on the hospitals in the U.S. versus the EU market, I mean, in terms of new innovation coming in and then the surgeons having something to say about that? For example, if -- I guess in the U.S., the surgeons have more of a say in what products they want to use for their procedures compared to the European market?

[Emil Billbäck, executive]

Yes. The U.S. is much more open to innovation. There is -- the biggest difference, probably, Oscar, is that in the U.S., the clinician, meaning the person who really treats the patient, is much closer to the procurement office, is closer to the health economics of the clinic and the hospital. In Europe, the clinician and the person looking at the cost of the treatment or the benefit of it are usually separated with a greater distance and different layers and hierarchy. So sometimes I wonder if certain European markets have tardiness as a strategy to avoid innovation. The whole conversation in Europe requires many more stakeholders before there's full acceptance, both of the clinical benefits and the health economic benefits. That process is shorter and more effective in the U.S., where they go more hand in hand.

[Oscar Bergman, analyst]

And how do you sort of overcome that obstacle in -- in an efficient manner? Or is it just something that you have to accept and play along?

[Emil Billbäck, executive]

We work hard. That's what we do. We work hard. And we have -- everyone in the organization have a tremendous passion also for changing the standard of care, because we have seen in clinical studies that we can reduce infection, we can reduce amputation. So that keeps us up at night sometime. But for Europe, unfortunately, we are still a small player. We cannot anticipate that we will dramatically change the system or the modus operandi. So unfortunately, sometimes we're forced also to be patient and accept that the system in Europe is slower. But we do what we can with both continuing with clinical studies and doing health economic investigations so that whenever there are different stakeholders that haven't understood the concept, that we're ready with tailored material to answer to those obstacles that different stakeholders might present in front of us. I think you see this with any medical device company that Europe is, in general, slower due to the more sclerotic administration and systems.

[Oscar Bergman, analyst]

Okay. I think I will really only have 1 more question. I mean, you have CERAMENT now, a lot of hospitals in the U.S. and in the EU. Are there any cases, any hospitals where CERAMENT G has become sort of the standard of care that was built for those related procedures?

[Emil Billbäck, executive]

Yes. I think it's starting. It's, of course, a great question. We see, especially on some of these university hospitals, where they have done structured and methodological evaluation of the product, and the results of that clinic has completely mirrored the strong results from the centrally produced studies with the best in mind for the patient and for the health economic impact. Several of these university hospitals have adopted CERAMENT G or V as standard of care with bone infections, but also in an increasing pace with open trauma.

[Oscar Bergman, analyst]

Okay. And would you define that as, well, 50% of all procedures carried out by the hospital or well above that?

[Emil Billbäck, executive]

Yes. Yes, that's about right. So somewhere between 40%, 50% of the procedures. Or if you want to, you can say, rather 60% to 70% of the relevant procedures, CERAMENT is then used.

[Oscar Bergman, analyst]

Okay. Great. Okay. Thanks. That's all for me.

[Emil Billbäck, executive]

Thank you, Oscar.

[Operator]

The next question comes from Mattias Vadsten from SEB.

[Mattias Vadsten, analyst]

I was trying to go off the queue after -- if it's running over, but now I'm here. And then I have 2 short questions maybe. On spine, this data that you will collect, how will this be presented to the market, that with the press release? And then also to spine, would you say that the bone graft substitute part of the market is growing faster in spine compared to extremities over autograft and allograft? If you have any insights, we are interested. That's the only question.

[Emil Billbäck, executive]

Okay. So we usually don't make a press release on preclinical study. I think our standard is that when we have clinical studies that are of milestone character, then you will see us issue a press release. So for example, Solario, the study will definitely be a press release on those results. On application data, I'm not so sure. I mean the studies will, at 1 stage, be available, so everyone can see the results. But I doubt that they will render attention enough to issue a release. I think rather, let's say, when we have our first patient case, when we have reached the first 100 cases, maybe on patients was fine, that's something we will be more happy to speak about.

When it comes to growth rates in spine, spine has had a formidable growth over the last 15 to 20 years. But right now, the growth rate is around 5%. And I do not have a split on how the different segments, autograft, allograft or synthetics are growing. I have data over the last 2 years, but they're going a little bit in different directions. So I think right now, we just conclude saying that the market is growing at about 5%.

[Mattias Vadsten, analyst]

Thank you very much.

[Emil Billbäck, executive]

Thank you, Mattias, and thanks for coming back.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Emil Billbäck, executive]

Yes. Okay. So thank you, everyone, for joining in on our presentation of the quarter 1, 2024 results. I know it's a busy morning for all of you. Thank you also for your insightful questions. And if there are further topics that you would like to discuss, don't hesitate to contact me and Hakan for support, we'll be happy to support you to describe also our journey going forward. Thank you, everyone, and have a good continuation of the week. Bye-bye.