OssDsign AB
STO:OSSD
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Hello, and welcome to today's webcast with OssDsign with CEO, Morten Henneveld and CFO, Anders Svensson, will present the first -- the report for the First Quarter of 2023. [Operator Instructions] And with that said, I hand over the word to you, Morten.
Thank you very much, and welcome to the first quarter 2023 webcast. My name is Morten Henneveld, I'm the CEO of OssDsign. And with me, I have our CFO, Anders Svensson.
Good morning.
Today, we want to walk you through our Q1 results and highlights for the quarter. As always, when we do these presentations, the normal disclaimer. But before we go into all the details, really, the key takeaway from today's presentation is what you see here. OssDsign is now delivering exceptional growth everywhere in the business, but Anders will walk you through the details later on.
As always, I want to start off with what we are trying to solve as a company, which is that today current bone replacement products fail to heal a wide range of skeletal defects. For cranial, 10% or perhaps even more of implants that are used end up becoming infected of which many need to be removed. For spine, we see that [ 1/5 ] patients do not achieve a so-called fusion. So ultimately, for both patient groups, it means they must undergo revision surgery, which is not only painful for the many thousands of patients that this happens to, but it's also extremely costly to the health care system, and therefore, this is in a society.
When we look at the highlights for first quarter, we had another record quarter, and we are very pleased with the momentum we see in the business. The growth we're seeing is not only sustainable, but is also accelerating. We are now also increasingly becoming a U.S. company, which, as you know, it's highly accretive to both top line and margins in our industry, but also outside the U.S. in our focus markets in Germany and France, we continue to build momentum and witnessed in Q1, a continued very strong growth rate.
As you also know, lead time on our cranial business has been a hurdle and in the quarter, we managed to reduce lead time by up to 40%, which now means that we can deliver an implant, patient-specific regenerative implant everywhere in the world in less than 3 weeks.
And last but certainly not least, as you saw earlier this month, we announced that we have achieved the milestone of 1,000 catalyst patients being treated in the U.S. which is a number that has doubled since the beginning of January, and it is a testimony to the acceleration we see in the bone graft business.
And with that, I'll hand you over to Anders to walk you through the financial results before we go into some of the highlights in a little bit more detail.
Thank you, Morten. So if we turn to the results for the first quarter, we reported SEK 21.5 million in sales, which equals an outstanding 203% growth on the same quarter last year. And if you adjust for currency effects, 177% growth on a constant currency basis. Now of course, the comparable quarter, Q1 '22 was a weaker quarter due to Omicron especially in the U.S. However, that does not take away the fact that we're showing substantial growth all throughout the company.
Moving to the growth development. As Morten mentioned, we are seeing both sustainable and also accelerating growth in the business. And what you see here in the slide is the last 5 quarters where the bars are the quarterly sales and the line showing the growth rates in constant currency against the same quarter previous year. So as you can see, both the sales and the growth are increasing at a very meaningful rate.
Now looking at where the sales, the growth is coming from. You can see that the U.S. business accelerated again in Q1, SEK 14 million in sales, continuing the very strong momentum we saw in Q4 and even before that, and came in at a spectacular growth of 399% growth for the quarter. This is now the fourth consecutive quarter where we have triple-digit growth in the U.S. And the share of total revenues from the U.S. has increased to 65% compared to 40% in the same period last year.
And encouragingly, also the markets outside the U.S. showed very strong growth in the first quarter, 74% versus the same period last year. So all in all, a very strong quarter again. And as usual, we talk a little about the U.S., it's a very important market. I want to deep dive a little bit in it just to see how the U.S. is not only taking off, but it's also showing sustainable growth with more hospital approvals, more customers and more repeat customers.
This is clearly driven by the acceleration OssDsign Catalyst. And what you see in this bar chart is the last 12 months, or LTM sales in each bar. And we started to see this trend in Q2 of last year, and now this has accelerated further in the first quarter '23. That also means that this last quarter alone have contributed more in incremental terms then it took the company to reach in the first 5 years in the U.S., which clearly highlights there's an exponential momentum that we have in the U.S. right now, very strong development, and we are really satisfied with that one.
More on the U.S. then, this is quite a shift in the company over just a few years. In line with our strategy, we're becoming an increasingly U.S.-focused company. So in 2020, about 1/3 of the business was U.S. And now in Q1 '23, 2/3 of the business, the global business are U.S. and we expect this to continue over the coming quarters and years. And one might ask why this is important.
Well, the U.S. has considerably higher prices in that market. So accelerating in the U.S., it will, first of all, be key to generating future revenue. But equally important, it will be highly accretive to future margins and therefore, profitability in the company. Moving to the sales by franchise. So we started reporting on this last quarter or a couple of quarters ago, and we still continue to see a very healthy development in both businesses. So if we start with cranial, we reported SEK 12.7 million in sales accelerating the business even further. So for this quarter, we reported a 100% growth. That's a significant acceleration even despite the weak market that we still see suffering from a low level of elective procedures.
Moving on to our bone graft franchise. We saw a further acceleration during the quarter, very good momentum, and that's very much a result of more hospital approvals happening. Now whilst I wouldn't pay too much attention to the actual growth numbers, it's more than 1,000%. It's so early that the comparative base, of course, is very small. But reporting SEK 8.8 million in sales during the quarter, that clearly indicates scalability and transformative potential that we have with OssDsign Catalyst.
And as you can see here, the pie chart shows now we're up to 41% of sales for catalysts. It continue to become a larger and larger part of the business and as we know that it has a higher gross margin, this will positively impact both the profitability and also the cash flow in the future.
And by that, I will now hand you back to Morten, who will talk to some of the other key highlights and achievements we've seen.
Thank you very much, Anders. I want to start here, as I said before, after the quarter ended, we announced that we've now treated more than 1,000 patients with OssDsign Catalyst. This is a great milestone to reach because it resonates strong resurgence. I think we all know we are still early in the commercialization phase and surgeons will ask who else is using and is it safe to use, as we've mentioned before. And broader usage clearly mitigates the risk and the concerns that surgeons may have and it also clearly is a testimony, as I said before, to the very high interest we are seeing in the product.
But it wasn't the only milestone that we reported during the quarter. We also hit a number of milestones on our cranial business where we now reach and accumulated 750 implants in Germany. We also hit 200 accumulated implants in France, many of which have actually come in, in the last 1 to 2 years alone. And as already mentioned, we've optimized our manufacturing process so we can now deliver a regenerative patient-specific cranial implant in less than 3 weeks worldwide. I also want to take the opportunity here to give you a brief update on our clinical progress, which, as you know, is 1 of the top 5 strategic priorities in the company.
For cranial PSI, we continue to focus on 2 things: our post-market surveillance data and building a cranial registry. The next updated post-market surveillance market evens report will be published as usual at the end of the year, and we hope to launch the prospective registry in the U.S. in the third quarter. As some of the previous publications have shown, we know that more publications -- the more publications we have, the stronger the evidence on cranial PSI.
For our bone graft franchise, no update on TOP FUSION as such. We have, as you know, completed all patient enrollments. And the last patients are now coming up to 1 year, and we expect to be able to publish the data from this study in the early part of 2024. I also just want to remind everyone that this is the first-in-man study on 17 patients for 15 evaluable. So you're not going to see a large statistical report, but it certainly will allow us to talk to both the safety and the efficacy of the product.
PROPEL is also going as planned, I would say. We continue to roll in more sites and therefore, also expect that patient enrollment will continue to increase. And the sooner we collect the clinical data, the faster we can generate publications with clinical evidence. So this remains a top priority for us.
Now as a final comment before we go to questions and answers, I want to take the opportunity to take a step back here. And look a little bit on our strategy and the achievements that we have on our top 5 strategic priorities. And as you can see, the progress that we are showing in the company is clearly following the strategic priorities. Our first priority is to win in the U.S., as Anders mentioned, we focused a lot in the U.S., and we're delivering to that plan. The business has now been running in an exponential growth mode for several quarters, rolling 12 months momentum is up nearly 3x. U.S. is now 65% of revenue and therefore, creating a much healthier mix effect in the business, and we're seeing the growth being sustainable with a broader customer base and more return users.
The second priority was to build an orthobiologics business, with SEK 17 million in the first year, SEK 8.8 million reported now in the first quarter and more than 1,000 patients treated and the fact that we've attracted some very leading surgeons as ambassadors are all testament to a very successful launch. And that means that we are well underway and have set out the company for continued acceleration. On the third priority to innovate the portfolio, new product development in the med tech field takes time, as you know, having said that, we've already launched the line extension, as you know, on Catalyst, the 1cc, which means that we have a full-sized family now to take to market.
Our fourth priority is around clinical. We've already talked to some of that. The reason we want to talk about it here is because we are making some very significant strategic investments in this area. This is not only about doing more, but it's also to fundamentally operate with a new clinical agenda to do programs in the markets we operate in with real surgeons and real patients. The rapid uptake we've seen in the market on OssDsign Catalyst clearly confirms a large potential. But to fully capture that opportunity we will need clinical evidence to support its differentiation going forward. And therefore, we are consciously making strategic mid- and long-term investments to produce clinical evidence as cost effectively as possible.
And by combining a small clinical study TOP FUSION with the prospective multi and the registry in the U.S., we are building stronger clinical evidence in a fast and cost-effective way. Of course, these investments short term will have an adverse impact on operating profit, but we believe this is a very well-balanced approach that will enable us to drive the growth of OssDsign Catalyst building a substantially bigger and more profitable business to come.
The fifth and the last priority is driving operational efficiency. And as we mentioned, we have now cut lead time on creating new PSI by 40%. So to sum it up, as you can see, we continue to deliver on the key promises in the strategy. We are certainly accelerating the value we are building in the company, and we are also building a much stronger company with much greater scalability.
And with that, I want to thank you all for listening to the presentation and hand over to the operator for questions.
[Operator Instructions] We've got a lot of questions. I think we will go straight ahead and start with them. The first 1 is U.S. seems to be really going well. Can you give us some more details?
Yes, absolutely. I can probably talk about the U.S. all day. I mean clearly, what you're seeing is an impact of launching OssDsign Catalyst and the scalability we are seeing in that business. Having said that, as we also said, which seems ages ago when we acquired Sirakoss and we decided to focus on the spine business. This is a business we know well. We know the dynamics, we know the -- how to differentiate, we know the competitive products, we know surgeons, and we know the processes of getting into hospitals.
All that, of course, has been working in our favor as we took the product to market, and I think largely because of that is why we are seeing this very strong uptake so early on in the commercialization phase.
Catalyst is accelerating fast. Can you explain what is driving this and what we can expect going forward?
Yes. Maybe it's a little bit what I just said. It is going well. It's a great product. It has differentiated features clearly both in terms of what we call the mechanism of action, but also very importantly, on the handling capabilities, which is extremely meaningful to surgeons, and we're executing well on that plan. Now relative to the future, we are certainly expecting a continued acceleration. We expect to see, as Anders said, that Catalyst will continue to grow and very likely during this year become the biggest part of sales in the company, at least getting to a more 50-50 level.
You talked about how you are doing strategic investments in clinical, which, of course, drives the cost. Can you give us an idea of the level of spending here?
We're not really prepared to divulge line item costs also for competitive reasons. But I can say though that if we were to stop all clinical programs tomorrow, you will see a very meaningful improvement on the profit line.
There seem to be many factors impacting your cash flow in the quarter. Can you explain this?
Sure. Sure. To make it a bit -- it's simplified . There's really 2 main factors, and they're both within the net working capital. So 1 is the -- we had a much higher sales quarter than we had last year, which just simply generates higher receivables and ties up more working capital. So that's a natural effect, and it's a positive one, even though it type of capital temporarily. And the second -- the second reason there is that we had very high accruals at year-end '22, which were due for payment in Q1. So as we pay those cash went out and our liabilities went down. That's also an effect of working capital, it's unavoidable. I would say it's a pretty normal effect when you compare Q1 to Q4. And the combined effect of those 2 is minus SEK 6 million. So if you then talk in relative terms and comparing to Q1 '22 only, then you could also have -- you also have to add the accounting effect that we had between those 2 quarters of the revaluation of the U.S. dollar hedge. That's another SEK 1.3 million.
Thanks. The delta in employee growth seems to be slowing down. Are you now comfortable with the organization? And could we see the personnel cost remaining at around SEK 20 million?
We certainly will not see the same sort of growth that we're seeing so far. There could be minor increases. But I would say this is a pre-destabilizing picture we see right now on the personnel costs.
If we move on a bit, you seem to be gaining a lot of ground in France. And if my math is somewhat correct, for France, growth support, Germany and U.K. is relatively slow. Could you comment on the national dynamics in those countries?
Yes. Well, I think it little depends how you define growth. Of course, Germany has been by far the biggest market for a long time in Europe. So maybe on a percentage, clearly, France will be growing faster, but that's more a result coming from a lower base. We have 2 focus markets. As you know, we restructured the sales force last year to focus on Germany and France. U.K., initially, when the company went to market many years ago was 1 of the key focus markets. What we see right now is a very poor state of the health care system, and it seems to be deteriorating. We already started to see this about 1 year, 1.5 years ago, and that essentially means that at the moment, we don't see the U.K. as a focus markets in the company, it is increasingly difficult to do business there.
And also we are simply to see a health care system that is offering so heavily on elective procedures and staff shortages and a range of other problems.
If you can tell us in rough terms, given current outlook, do you expect to turn -- when do you expect to turn cash flow positive? Is it the first year -- second half year of 2024 or start of the 2025?
I think as we've said before, once we are ready to come out with that update, then we will certainly do so. At this point of time, that's not something we answer.
Yes. Do you intend to revive the plans to seek a stand long clearance for Catalyst? If not, is there a possibility to get clearance for mixing a smaller proportion of [ how to ] graft with when doing a spinal fusion?
Yes. Sorry, I'm laughing a little bit here. We seem to be getting that question. I'm not really sure why there is this preoccupied with -- why some people are so preoccupied with a stand-alone clearance. The fact is, yes, that there are other products on the market that has a stand-alone. The reality is that virtually every surgeon will always mix in some shape or form, either with what is the -- has been the gold standard called iliac crest, so harvesting from the hip or using local bone from the surgical side.
So yes, as we may be doing clinical studies going forward, then we will certainly see if we can get a stand-alone clears, it is not something that I think is that necessary to be honest, to build the business, knowing the surgical habits and how they tend to do the surgeries anyway but I don't know if that was answer to the question, but I think the answer is both yes and no.
Yes. Does all of OssDsign U.S. sale subject to 30% commission and are the commissions included in other external costs in your quarterly report here?
Well, I can confirm that virtually all of the U.S. sales is subject to commission because it goes through distributors or they are involved in the process. And yes, those costs are certainly part of the other external costs. I can't comment on the exact level though.
Roughly what percentage of the U.S. customers that starting using Catalyst for spinal fusion a year ago or earlier still using it?
I don't think we want to go too much into operational details. I can say that the vast majority of surgeons that are using are still using it. You have a natural fluctuations that surgeons that retire that maybe moved hospitals where the product is not approved. So you're always going to see those kind of swings, but we are seeing a very, very good stickiness in the usage of our product.
You had a phasing effect in Q4 pulling about SEK 0.7 million from Q1 sales due to faster deliveries of cranial. If you now further improved lead times during Q1, does that imply a pull forward Q2 as well?
Can we just...
I'm not sure, I understand the question.
Yes, I can read it once again. You had a phasing effect in Q4, pulling about SEK 0.7 million from Q1 sales due to faster deliveries of cranial. If you now further improve lead times during Q1, does that imply a pull forward from Q2 as well?
There could be an effect like that, yes. I mean once you had the effect in 1 quarter, it's likely to stabilize, so you won't see it every quarter. But at some point, we hope to see that effect. But if the question is, if I can just comment what happened last quarter is that we had implants that were scheduled for delivery in January that we managed to pull forward. That's why we communicated in the report that there was a SEK 0.7 million impact. That has not been the case. But I think what we will see with a -- with an underlying improvement in manufacturing is that all things equal, we will be able to get things out of the door faster.
Thanks. Moving on to the last question here. To give some context as to the acceleration in Europe on cranial, how long did it take to go to get 100 patients in France? And when was that reached? And how long did it take to get to 500 patients in Germany?
I don't think that's necessarily numbers. It's not some numbers necessarily that we want to tell to anyone. We will communicate when we reach certain milestones, which I think is what we are doing. But as I said in the beginning, we have seen a good portion of the implants in Germany and France, coming through in the last couple of years. So if you're asking me if we are seeing an acceleration in the last couple of years in Germany and France, then the answer is very clearly, yes.
Thanks for the presentation today, and thanks for answering questions, and good luck going forward, and thank you all for tuning in.
Thank you very much. Thank you very much.