Bonesupport Holding AB

STO:BONEX

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, and welcome to the Bonesupport conference call. [Operator Instructions] Please note, this event is being recorded.

I would like to turn the conference over to Emil Billbäck, CEO. Please go ahead, sir.

[Emil Billbäck, executive]

Thank you very much, operator, and welcome, everyone, to Bonesupport's Quarter 2 2022 Results Call. Sitting next to me today is Håkan Johansson, our CFO. And we will use the next 30 minutes to guide you through the presentation of the second quarter results and then open the line for a question-and-answer session.

Please go to Slide #2. So before we start this presentation, I just like to draw your attention to the disclaimers that are covering any forward-looking statements that we might make today.

Let's proceed to Slide #3, so that we can begin this presentation and do that by providing some condensed highlights from the report that we released this morning. The overall quarter 2 sales were SEK 75 million, which corresponds to a reported growth of 44% year-over-year, and at constant exchange rate that is a growth of 32%. EBIT was a negative SEK 14.9 million, which is a SEK 14 million profit improvement versus quarter 2 2021, before incentive provisions.

From a business operations perspective, of course, the major highlight was the FDA marketing approval in the U.S. for CERAMENT G. This is the most important milestone to date for the company, and we're in the midst of preparing for the launch on October 1. I will come back to this later in my presentation.

Furthermore, the U.S. Center for Medicare and Medicaid Services, CMS, has awarded a new technology at additional payment for -- sorry, of USD 4,920 for CERAMENT G. This means that the reimbursement, when using CERAMENT G, is extended for at least 2 years with an increment of about USD 4,900.

All in all, our continued growth trajectory is a confirmation of our unique technology and strong commercial model. I think this is well illustrated on the next slide that shows the long-term trending. Slide 4, please. So I trust that most of you recognize this slide. We have shown this at almost all previous quarterly reports. The bar chart shows the last 12 months sales displayed every quarter since quarter 1 2014.

The result of CERAMENT's advancing market positions is visible. And we have now delivered 8 consecutive all-time high quarters, and we have strong tractions in both regions. We see 2 main vectors of growth: one, a rapidly expanding new customer base with current geographic markets; and two, a broadened use of CERAMENT within existing customers.

We believe that the sales growth in the future will be further augmented with opening up new geographies, adding innovation and, of course, recording the first sales with CERAMENT G in the U.S. in about 3 months.

So let's turn to the next slide and go into some more details regarding the highlights of the different regions. Slide 5, please. So sales in the U.S. grew with 58% in the quarter and by 40% at constant exchange rate. It is quite clear that we're advancing our market position significantly.

CERAMENT is gaining strong appreciation due to the ease of use, the mode of action and the improved patient outcome. Some great examples of our extended customer base are the Mayo Clinic and Duke University Hospital, where the first patients were successfully treated with CERAMENT during the quarter. The Mayo Clinic is one of the most reputable academic medical centers in the world, with 4,500 physicians and scientists.

In the last 24 months, during the most intense period of the pandemic, the recruitment of new accounts fell back a bit. This is due to limited access to physicians and decision-makers. We have seen a gradual return of new customer acquisition since the recess of the Omicron wave, and we're now back at a pace even higher than pre-pandemic.

We are in preparation mode for the launch of CERAMENT G, October 1 of this year. Our training and promotion material is being updated as we speak, and everything is set and in place for manufacturing of the U.S. volumes in the first week of August.

The extensive clinical documentation on which our market approval is based on shows that CERAMENT G dramatically reduces the risk of recurrence in bone infections, which is a crucial benefit in the clinical positioning of CERAMENT G.

To drive penetration with procurement managers, hospital finance managers and private health insurers, we have concluded a U.S. cost-effectiveness model comparing CERAMENT G in bone infections in a single-stage surgery to standard of care. The model, which is built to simulate the U.S. health care system, is based on a literature review of all available published literature on osteomyelitis surgeries up until December 2020. The study report has been submitted for publication. So we will not be able to share the results just yet. But given the European data and experience, we do believe that the study will be an important tool to demonstrate cost effectiveness for payers to implement new and more effective treatment alternatives and also to understand how to spend their budget efficiently.

Furthermore, CERAMENT G is being added to existing CERAMENT BVF contracts and to GPO agreements. Our U.S. distribution model has shown excellent reach and market access, which means that we have a great base to build on for our future launch.

Now turning to Slide 6 and Europe and the Rest of the World. We're finally starting to get back to full activity level in the marketplace. We are experiencing a gradual return of surgical volumes, but these are not yet back to pre-pandemic levels.

The ability to increase capacity utilization for the hospitals are restricted by health care staff shortages as well as the more rigorous safety protocols implemented to restrict COVID from on-site transmission. We are still experiencing some hospitals, mainly in Germany and in parts of Southern Europe, where visiting restrictions are still in place.

In the quarter, we saw good traction, though, in some of the distributor and hybrid market that has been in recent focus. One such example is South Africa, where the largest private health insurance company, Discovery Health, announced that it had completed its HTA, which means the Health Technology Assessment, for CERAMENT G and for CERAMENT V, and that it would include the 2 products within their reimbursement system. As a result of Discovery Health's decision, the private hospital organizations, Life Healthcare, Netcare, Melomed, and Busamed have all consequently decided to include CERAMENT G and CERAMENT V in their compensation system.

So overall, South Africa is not the biggest market in the world. We estimate the annual market to be about 10,000 to 15,000 procedures. But we share these news as it shows the appreciation of the unique benefits of CERAMENT even when it's validated completely and thoroughly in its clinical and health economic data benefits.

With that, I will hand over to Håkan, our CFO, to comment some on the financial results.

[Håkan Johansson, executive]

Thank you, Emil. So please let us go to Slide 8. So net sales improved from SEK 51.8 million to SEK 74.6 million, equaling the growth of 44%, or 32% in constant exchange rate. The organic growth in the segment North America measured in fixed currencies was SEK 11.6 million or 40%, confirming a continued strong growth trend. And the organic growth in Europe and Rest of the World was SEK 5 million or 22%.

Changes in currencies measured in year-to-date averages in 2022 versus 2021 had a positive impact in comparison with the second quarter last year of in total SEK 6.3 million, of which SEK 5.4 million relates to a stronger U.S. dollar. The quarter confirmed a strong traction as use among current customers are increasing and new customers are being acquired.

Next slide, please. The contribution from the segment in North America improved with SEK 7.4 million and was reported to a profit of SEK 7.1 million. The improved contribution relates to increased sales after effect from increased costs.

Sales and marketing expenses during the quarter amounted to SEK 34.8 million compared with SEK 22.8 million previous year, of which sales commissions to distributors increased with SEK 4.9 million to SEK 14.2 million. The increase in sales and marketing expenses is mainly due to a higher activity, but also includes currency effect of SEK 4.2 million. The contribution was also charged by R&D costs related to studies. These decreased from SEK 4.6 million last year to SEK 1.1 million this reported quarter.

From the lower graph showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin remains stable and in line with previous quarters. In Europe and Rest of the World, the contribution of SEK 7.1 million was reported to be compared with SEK 3 million previous year. The improved contribution is explained by the increase in sales.

Sales and marketing expenses remain in line with previous year, increasing with SEK 0.2 million.

From the lower graph, you can see a drop in gross margin, mainly following the market mix with a high ratio of distributor sales during the reported quarter. Good momentum in the business as we are entering into Q3, which is usually a slow quarter due to European vacation schedule, potentially accentuated by staff shortages.

Next slide, please. The operating profit (sic) [ loss ] was reported to be negative SEK 14.9 million, an improvement with SEK 11 million compared with a loss of SEK 25.9 million for the same period previous year. The lower loss included expenses regarding long-term incentive programs amounting to SEK 5.7 million this year compared with an expense of SEK 3 million previous year. The increased expense mainly relates to the share price appreciation during the quarter.

Operating profit improvement before the expense for the long-term incentive program was SEK 13.6 million. Cash at period end was reported to be SEK 171.8 million and remaining with a substantial headroom in funding until we can reach the point of cash flow breakeven.

Next slide, please. Selling expenses increased with SEK 6.7 million, of which SEK 4.2 million related to currency effects. The high cost level, partially related to the investments in hybrid markets, Italy and Spain, the higher cost also relates to gradual normalization of marketing activities this year, albeit with regional differences compared with a lower activity level last year due to COVID restrictions.

R&D expenses reported SEK 1.4 million below previous year. The phasing out of the FORTIFY study has gradually reduced the quarterly run rate. Administration remaining on a stable level, excluding effects from the long-term incentive programs, equaling SEK 11 million, which is the same as previous year.

And with this, I hand back over to Emil.

[Emil Billbäck, executive]

Thank you very much, Håkan. So let's go to Slide 13. I think this slide is actually rather self-explanatory. So it's an updated time line on the near-term milestones. And here, nothing has changed from the previous webcast that we had.

So instead, let's go to Slide 14, which is the last slide in our presentation, to wrap up the key findings from the presentation today and also give a bit of an outlook for the journey ahead. So currently, we're ramping up for our U.S. CERAMENT G launch, and we're very encouraged by the strong momentum we have in our existing business.

Despite post-pandemic market dynamics, we are seeing a strong commercial acceleration. CERAMENT G being the first of its kind means that we will need to build the U.S. market. However, gentamicin is a well-known, effective and well-proven antibiotic and a high local dose without any systemic impact goes well in line with the principles of antibiotic stewardship promoted by WHO and the global medical community. Further, the mode of action for CERAMENT is already becoming well known and well appreciated through the inroads that are made with CERAMENT BVF in the U.S. So the 3.5 years that we are now into our new commercial setup in the U.S. have made us well established with close to 380 distributor sales reps that are well trained on the CERAMENT technology.

The indication bone infection covers approximately 50,000 procedures per year. Local antibiotics are also used in approximately 90,000 procedures per year, where there is a high risk of infection. In total, the market potential for CERAMENT G for these 140,000 procedures per year is around USD 780 million. And CERAMENT G is the best-suited product to address this market opportunity.

We're working on expanding CERAMENT G's approved indications to include other orthopedic procedures that are in need of infection prevention. The biggest in this category is, of course, trauma. We expect to submit an application to FDA by mid-2023.

In terms of Europe and the Rest of the World, we're pleased to see that our build-out European structure is capitalizing from a gradual return of surgical volumes. As we are entering the European vacation period, the recovery of surgical volumes in the near to midterm is dependent on renewed COVID impact and the strained hospital staffing situation.

More long term, though, we believe that the structure we have put in place is very well positioned to capitalize from the tailwinds likely to be created by the large pandemic surgical backlog. We believe that there are many exciting milestones for Bonesupport in the near term and in the midterm. And as we are also progressing our market disruptive innovation pipeline, there should be even further levers in the future to augment our growth story. Our corporate target is to grow top line by 40% per year.

Before I open up for questions, please note that we will be hosting our Capital Markets Day on September 1 this year. We will send out more information ahead of this event, but please already now save the date.

And with that, I conclude our presentation and open up for questions and answers.

[Operator]

[Operator Instructions] Our first question is from the line of Erik Cassel from ABG.

[Erik Cassel, analyst]

So I have 4 questions for you today. I'm just starting off from some high-level market commentary. I mean, could you talk about the surgical capacity trend throughout Q2? And then also you see that trending into Q3 and current levels of momentum. Any comments on the effect of prevention of relevant elective surgeries during this quarter and backlog would be interesting to sort of understand the underlying market dynamics as well.

[Emil Billbäck, executive]

Yes. Thank you, Erik. So when it comes to the surgical volumes, we haven't seen a lot of public data yet. But if we judge it by the conversations we're having with the hospitals and the principals, one would say that U.S. is basically on the same level as quarter 1 in terms of surgical volumes. Some regions, a few percentage points higher, a few percentage points lower. But what was noticeable in quarter 2 was that there was a higher degree of acute surgeries and fewer elective surgeries.

What we saw in Europe, and, of course, it differs a little bit country by country, but overall, we saw a bit of a gradual return of surgeries in quarter 2 compared to quarter 1. But the levels of capacity utilization are still not at pre-pandemic level. So what we saw, if we conclude a little bit the first 6 months is, at quarter 1, where at the end of quarter 1, surgical volumes increased significantly. And we didn't see that continue throughout the whole of quarter 2. And that also makes it a bit difficult to predict what to anticipate for quarter 3.

It is clear that health care systems have not come even close to depleting the surgical backlog. And the biggest hinder here is the ability to gather staff to conduct the surgeries. There are also much stricter safety protocols that have been in place for the entire pandemic, they're still there, to avoid that there is transmission in the hospital. So there has to be further action, both government actions and hospital administration actions, to continue to improve capacity. And we're quite sure that this will happen. It's not a matter of when -- if, it's rather a question of when this will take place. And if this is in place for quarter 3 already, well, then there will be very strong volumes, but likely is that it will be slightly further out in time.

[Erik Cassel, analyst]

Okay. But if we're trying to bridge the 32% organic growth that you had this quarter, how much would you say is from underlying market growth year-over-year versus just market share gains from your end.

[Emil Billbäck, executive]

Well, I haven't seen the public figures, so I have to just give you my own, let's say, estimate. I would say that compared to last year, the market is basically flat. So the growth of 32% means that we are taking significant market shares away from other treatment options.

[Erik Cassel, analyst]

Okay. Good. And just thinking about the U.S., I mean, which areas are you gaining the most ground right now in terms of market share? I mean, interesting to hear where the main volume expansion is happening in terms of customers and also indications, if that's possible?

[Emil Billbäck, executive]

I cannot answer that with a very good precision. The analysis we have been able to do since we closed the quarter is to see that the recruitment of new customers, which a year ago, when we reported quarter 2, was quite poor. Most of the growth a year ago came from penetration of existing customers. But since the autumn, I would say, of 2021, and accelerating after the Omicron wave receded, we have seen again the new customer recruitment kicking in and representing a fair share of the growth that we see in the U.S. So in the U.S., in the quarter, we grew almost with 60%. And when I compare the number of doctors that are using the product and the number of accounts we have versus last year, it has significantly increased.

[Erik Cassel, analyst]

All right. Good. And then just another top line question, I guess. I mean, the gradual price increases over Q2 and Q3 that you talked about in the Q1 report, I mean, how much of that has gone into effect and supported the sales now in Q2? And how much is left?

[Emil Billbäck, executive]

None of that is visible in quarter 2. So the price increases that we announced then with a bit more than 5% were mainly for the European direct market. And the implementation started in April. So the earliest you could see some signs of that will be in quarter 3, but most likely in quarter 4, because it means amendments to contract and price list, and unfortunately, in a very strained health care apparatus, it's not their top priority to change the system. So it even takes a little bit longer now than it used to do. But to reply to your question, none of it in quarter 2, a little bit always in quarter 3, and you should see about half of the effect kicking in for quarter 4.

[Erik Cassel, analyst]

Okay. Okay. Good. But good volume expansion that is. And then it's my last question for today. I mean, has there been any change in either direction on the launch prospects of CERAMENT G in the U.S. when it comes to timing ramp-up and potential near-term uptake as well now that we're this close to the launch date and you potentially have gained some visibility on that?

[Emil Billbäck, executive]

We are sticking to the plan meticulously. There are no changes whatsoever. The production of material is all on schedule. The manufacturing, the components, everything is on schedule. The only thing that is changing possibly is the excitement is increasing every day. And as we're getting closer and this becomes a reality, there are also more surgeons and hospital groups that are contacting us directly. So being a small player in a big market is usually, you have to hunt quite hard to acquire customers. And this is the first time we're noticing that customers are actually coming to us. So everything is in line for an October launch.

[Operator]

Our next question is from the line of Kristofer Liljeberg from Carnegie.

[Kristofer Liljeberg-Svensson, analyst]

Three questions. The first one is a follow-up here on existing versus new customers and impact on the sales growth. You mentioned that larger share of sales is not coming from new customers, but is it possible to quantify that in any way?

[Emil Billbäck, executive]

Yes, thank you, Kristofer. We will do an attempt of doing that, and that will be, in that case, a topic for the Capital Markets Day. The way we have to see it is that when a new customer comes on board and we recruit a new customer, the sales is usually quite small. And then that sale keeps growing for 3 to 4 years before, let's say, an individual server or specific account is fully penetrated.

So while we see a lot of new accounts come on board, especially in August, September, October of last year, and then again now in February, March, April, May, those are numerically promising. But value-wise, the biggest part of the growth still comes from those accounts recruited before that period that are using CERAMENT more and more often and on more and more of their indications.

[Kristofer Liljeberg-Svensson, analyst]

Okay. And do you think this pattern would change with the launch of CERAMENT G in the U.S., that you would see lot of more new customers coming on board?

[Emil Billbäck, executive]

I think we will see both. I think that the introduction of CERAMENT G being such a unique product and also with that rather generous reimbursement will attract customers that before maybe made their own reasons to why not to allow us to meet them or to switch to CERAMENT. But I also think that the customer base that we now have grown for CERAMENT BVF, I think we have an excellent platform to introduce one more product in our portfolio. So I think it will be like a double lever. And to what extent the pickup of CERAMENT G will come from new accounts or the penetration of existing accounts, it's difficult to speculate because it's completely new market and a completely new product.

[Kristofer Liljeberg-Svensson, analyst]

Okay. Then you mentioned a little bit about situation in Europe. But could you say specifically in Germany and the visiting restrictions for hospitals and doctors, and also the improved growth we saw here in Europe and Rest of the World, was that in any way helped by any larger contracts in the Rest of the World region?

[Emil Billbäck, executive]

Yes. So the situation in several of the big hospitals in Germany, if we take that as an example, we have 1 or 2 completely new customers that have ordered CERAMENT. And in such case, we always go there and make sure that the customer is well educated on the product before it's used. We have that as an internal process. But in some cases, it has been very difficult, if even at all possible, to visit those customers because they have installed restrictions for any company representative to enter the hospital as to limit the number of people that enter the building.

And this is, of course, bringing obstacle for us to recruit new customers. And given that our whole journey right now is to penetrate the market, we are a little bit held back with that kind of dynamic. And they're also, in Spain, Italy and France, similar situations, some of the hospitals that have made a local decision simply that company representatives are not allowed on the premises. Even though CERAMENT is a very intuitive product, it's not so easy to sell it just over phone. So we try with video conferences and such, but it is influencing us definitely. So hopefully, these restrictions also, over time, will disappear, so that we can go back to a more normal mode of action.

And if we look at sales in the quarter, there were some really strong orders both from South Africa and from Switzerland and other markets that are indirect. These are not to be viewed as stocking orders, but rather a ramp up, let's say, in great activities from these distributors approaching new customers. So in the quarter, the indirect market had a slightly higher share of the sales than it would on a regular basis.

[Kristofer Liljeberg-Svensson, analyst]

Okay. And coming back to German and the visiting restrictions. So the situation right now is rather similar to what you have seen earlier in Spain. It's not that these restrictions will be gone here for a large part of the third quarter.

[Emil Billbäck, executive]

No, I don't think so. I think, unfortunately, what we see in the last 4 weeks is that the COVID incidence is again rising. And even if these symptoms and the impact seems to be much less than it has been in previous occasions, the hospitals are still, in many cases, in parts of Europe, still withholding their restrictions to minimize the risk that COVID gets traction within the hospital. So yes, I think, for Germany, I think it's likely to see these restrictions continue in quarter 3. But what we see is that the volumes in quarter 2 in Germany have gone up versus quarter 1, but yes, the restrictions are still in place for hospitals.

[Operator]

Our next question comes from [ Mathias Sebastian ] with SEB.

[Unknown Analyst]

Many of my questions asked, but I have 2. So maybe if you can give some comments on Q3. We know you typically show lower activity sequentially and thus also lower sales in Q3 compared to Q2, at least in a sort of normal year. At the same time, market surgical activity, at least it's not getting any worse, you have further penetration of current customers and maybe additional new customers as well sequentially. So just some color or thoughts from your side on how you would reason, if that's possible. That's my first one.

[Emil Billbäck, executive]

Yes. Yes. I mean it's always difficult to look into the future. But I mean, we have our finger on the pulse, on the hospitals in the health care. How situation is now, things are moving on and progressing well. I think, though, that if COVID would get renewed impact, there are not only patients that are influenced, there's also health care staff that is influenced. And in this situation, mostly in Europe, and not so much in the U.S., there's no health care staff on the bench. There are no reserves. So if you have a surgical department where 3 people get ill, well, then the surgical activities will be pulled down to a minimum.

And I think what I'm saying is not, say, unique or revolutionary, if you look at the ordinary newspapers, there are constantly reports of departments in hospitals that are very strained. And I think this is probably a situation we have to live with. And it might be further accentuated when there are some people on vacation, some people might fall ill, and I think our very brave health care staff has very well deserved their vacation. I think they're also very unlikely to go in and work when they have applied for vacation.

In the U.S., it's less accentuated, as I said, where there's a high variability of salary there. So salaries for health care staff has increased significantly over 1 year, and part of that has been to attract back the resources that left during the pandemic.

[Unknown Analyst]

Perfect. I appreciate this. No, it was a difficult question. And then last one. I mean previous questions have gone into this a little, I'm aware, but some color on how you think about the pickup of CERAMENT G in the U.S. then for bone infections? I guess, current customer relationships, current sales reps and so forth certainly helps. But then you also think or talk a little bit about building the market for this unique product. So just may be a practical example on how to approach a customer or something to get some color on the pickup would be helpful for me.

[Emil Billbäck, executive]

Yes. Yes. Let's try to bring it to a very concrete level. If you take our customer base in the U.S., there are, of course, orthopedic surgeons that started using CERAMENT already 1 or 2 or 3 years ago and that are very pleased with it. They're using it on more and more of their indications. Most likely, if it's on a general level, these orthopedic surgeons also have infection cases. Sometimes they have cases where they expect an infection to break out, even though that's not in our indication yet. And the trend we have seen is that once the surgeon starts using CERAMENT and have very positive experience on patient outcome, they use it on more and more of their patients. They use it on more and more indications and a variety of different orthopedic injuries.

So we believe that the customers that we have on CERAMENT BVF, we will have the chance now to offer them a product that also addresses needs that previously have been unanswered by anyone in the industry. We're the only one that has such a product.

On top of that, there are specialty clinics focusing very much on bone infections. Before, we have been in contact with them, but we haven't really had the perfect solution to offer them. And as such, there's only so much value you can attribute to a relationship. I believe that we have now a product that on European basis has proven very valuable, specifically for those medical institutions. There I think we will add customers. I think also there could be customers historically that have been fence-sitting that maybe have not had the interest to meet representatives from a small Swedish company, that now, when they see the clinical study and the recognition from FDA and the breakthrough designation, will change their mind because they say, well, there must be something to such a product to have such an outstanding record. So there's a few different levers here, which lead me to think that CERAMENT could be doing quite well on the U.S. market.

Of course, the U.S. market is also more driven by financial incentives than what we see in Europe. And I think that all those medical centers attending to CMS-listed patients have also a strong encouragement from the NTAP to see what this new product really is about. That's probably as much as I can elaborate on that point because this is just based on the experience we have in Europe and how it will translate that to the situation in the U.S. And then as soon as we get going, we'll make sure we communicate very tightly into the market.

I understand the question. I think everyone is looking also maybe not quarter-by-quarter, but we are looking at it from a much, much longer perspective. And we are here for the long run with the first ever product on the U.S. market. So we'll keep you informed on how we will progress.

[Operator]

Our next question is from Hans Bostrom with Trinity Delta.

[Hans Bjorn Bostrom, analyst]

I had a couple of questions regarding your operating expenses. If you look at Europe, it seems your cost contribution is going up at a very healthy rate and your marketing and sales expenses are flat, which is pretty impressive. I'm just wondering if that flat marketing expenses is a reflection of your change between distributor and direct market or are there other factors at play on that one?

[Emil Billbäck, executive]

It's rather other factors in this side. It's related to a few vacancies that we have. So some of that gap is standing staffing expenses, whilst the marketing activity level is slightly higher than previous year and it's netted out, and that's why you see a flat comparison to previous year in Europe and Rest of World.

[Hans Bjorn Bostrom, analyst]

So if you take Germany, for instance, where you highlight the access issues you have and your sales staff, you wouldn't have seen a reduction in our expenses there, or maybe that is one of those markets where you have one of those vacancies. I'm just curious to understand.

[Emil Billbäck, executive]

No, it's correct. We have a few vacancies in Germany, and in Germany, we also remain low in our market activities given the restrictions that remains in Germany.

[Hans Bjorn Bostrom, analyst]

Okay. Great. And in North America, and I have touched on this on the last call, but just to understand the dynamic of your expansion of the distributors, it seems like you're continuing at pace with increases in your sales and marketing expenses, up SEK 5 million quarter-on-quarter. And your actual cost contribution increases, if anything, possibly slowed down a bit. I'm just wondering whether we should see this expansion in the sales marketing expenses leveling off at this level? Or do you see opportunities for them, obviously, for considerable increases with the move to CERAMENT G in Q4?

[Emil Billbäck, executive]

Again, if we start with the cost base, again, the cost base is largely moving if we talked about the commission in line with sales development and also the remaining sales and marketing expenses includes costs that also relates to the sales growth such as transport costs and similar within the U.S. So when we look at some activity-based costs, et cetera, it remains relatively flat over time.

[Operator]

Our next question comes from Sten Westerberg with Analysguiden.

[Sten Westerberg, analyst]

First one, just to have some more granularity about this pie of 90,000 noninfected patients treated with local antibiotics. This is included in your market size, but we still see it as an off-label indication, just to be sure, is that correct?

[Emil Billbäck, executive]

Yes. Sten, that is correct. So if you look at the cases where local antibiotics are used in the U.S., it's 140,000 procedures, 50,000 where there is an infection and 90,000 where there is prevention of infection or suspicion about an upcoming infection. And the approval we have now is only for the 50,000. And why do we say that the whole 140,000 is the potential. Well, it's because we're pursuing the broadening of indication also to cover the 90,000. So we count that as a future potential, but it's not the accessible market, if you like, but rather what we're aiming for. And I do think there will be some off-label use, yes, because CERAMENT G is the only product approved. But we are, of course, waiting to eagerly penetrate this market segment once we get the formalized approval, which we hope will come at the very end of 2023.

[Sten Westerberg, analyst]

Yes. So just to understand the granularity of that pie chart, once you get the trauma approval, how much more or less would be converted into on-label?

[Emil Billbäck, executive]

If we would get a trauma extension to the label, I haven't done that calculation, but give or take, it will be between 75% and 80% of those 90,000 procedures.

[Sten Westerberg, analyst]

Also to understand the dynamic in this market, because the huge potential must rather be where systemic antibiotics are used exclusively currently. Do you see any overall increased use of local antibiotics in this kind of orthopedic procedures?

[Emil Billbäck, executive]

Yes, I do. Actually, Sten, it's an interesting question because when we claim today that the market where local antibiotic is used is 140,000 procedures, that is in a market where there's no approved remedy. Until now, it's CERAMENT G, but we haven't launched yet. But what you normally see is that when the first product comes with an official approval in such a category, the use also increases. So if we look 5 years from now in time, 5 years out, I believe that number is not 140,000 anymore. It will be a much bigger number, because the increase of local antibiotic will be one of the preferred options, of course, going forward. It's also a well-accepted paradigm given the antibiotic stewardship, which is a broad-based global initiative. So yes, the market is likely to -- the overall use of local antibiotic is supposed to increase as you get proper treatment alternative.

[Sten Westerberg, analyst]

Okay. My final question would be to hear some comments from you. Is it correct that Zimmer Biomet, that they will now reenter the bone graft market with this cooperation with biocomposites that they recently announced? And if that is the case, how will this impact the competitiveness in this marketplace?

[Emil Billbäck, executive]

Yes. So Zimmer Biomet, in my view, they never left the space. When we terminated the distribution agreement, Zimmer had several products already in their portfolio, everything from pure bone cement to other modalities. So they were always in that space. There are constantly, in the U.S., different distribution relationships and changes of model. We're very happy with ours. We continue as we do. The product that Zimmer Biomet now will distribute, I think, for biocomposites are products that have been on the market for some 10 to 14 years, I guess. So I do not anticipate that it will have any impact actually on us. We are taking serious market shares away from bone cement. We're taking serious market share away from biocomposites, regardless who distributes it.

[Operator]

This concludes our question-and-answer session. I would now like to turn the conference back over to Emil Billbäck for any closing remarks.

[Emil Billbäck, executive]

Yes. Thank you, everyone, for joining the call today. I'm sure we're competing with the beautiful weather outside. I just wish everyone a great summer, and please stay tuned. I think there are many more exciting things to happen at Bonesupport, and look forward to speak with all of you again in short-term basis. Thank you, and goodbye.

[Operator]

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Emil Billbäck, executive]

Thank you, operator.