OssDsign AB

STO:OSSD

Earnings Call Transcript 2021-Q4

[Kristofer Berggren]

Hello, and welcome to this Q4 presentation with OssdSign. With us today, we have CEO, Morten Henneveld; and CFO, Anders Svensson.My name is Kristof Berggren, and I work for FinWire Media. After the presentation, there will be a Q&A session. So if you have any questions, please visit Finwire.tv, and click on this Q4 webcast. And to the right on the page, you will find the question forum.And with that said, I hand over the word to Morten and Anders.

[Morten Henneveld, Chief Executive Officer]

Good morning, everyone, and welcome to this Q4 webcast covering Q4 '21, but also the full year for '21. My name is Morten Henneveld, and with me today, I have our CFO, Anders Svensson. And today, we really want to walk you through our Q4 results and the highlights of the quarter as well as our full year results. '21, of course, been a year dominated by the pandemic and I think we've navigated this in a real good manner.Of course, the market has been depressed throughout the year. We've seen cancellation of surgical procedures, the shortage of staff and so on. But as we'll show you today, we have still managed to grow the business substantially. And I think equally important, actually, we have succeeded with getting many important building blocks in place, including a number of strategic investments that will allow us to accelerate even further in the future.To me '21, therefore, marks the start of a new era for OssdSign, and I do believe we ended '21 in a much better place than where we started in January. As always, when we have these presentations, the normal disclaimer.And with that, I'll hand over to Anders to walk us through some of the highlights of the quarter, and then we'll go into detail on those a little bit later.

[Anders Svensson, Chief Financial Officer]

Yes. Good morning, Anders Svensson. So this quarter has been quite an exciting time, again, and a number of big events happening both within the quarter and also after the quarter ended. I'll just run quickly through a few of those.So we had a record-breaking sales quarter in Q2 and then another one in Q3. And we managed despite the Omicron spread in Q4 to actually come up a little bit better still, so it's another all-time high on sales.In Q4, we also -- well, our first case is on OssDsign Catalyst, which was launched in Q3 -- first cases in Q4. And parallel to that, we also started our TOP FUSION clinical study for OssDsign Catalyst. We have had a few big GPO wins in the U.S. And in Q4, we had Vizient, of the really big GPOs over there. And finally, we had expanded market clearance for our -- from FDA regarding our Cranial PSI products.Okay. So continuing on the highlights, we have had updated post-market surveillance data, which shows very low complication rates with OssDsign Cranial PSI, even lower than previously shown. We have got the IRB approval in the U.S. to start our PROPEL, multi-center prospective spinal fusion registry, which will be very valuable to us. And a few weeks ago, we also announced that we recruited Melanie Marshall in a new position as VP of Clinical & Medical Affairs.

[Morten Henneveld, Chief Executive Officer]

Thank you very much, Anders. So we'll go through in -- some of these highlights in a bit more detail. But as you can see, an extremely -- yet another extremely eventful quarter for us. Just before we get into the results, I do want to spend some time on why we are actually here and the clinical challenges that we are solving.As you know, we now have 2 franchises. We have our Cranial franchise and we have our bone graft franchise that we are right now targeting as spinal surgery. If we start on the Cranial side, then, unfortunately, a lot of people get into it and the current bone replacements fail to heal those skeletal defects. And for Cranial, we are seeing 10%, or perhaps even more of implants that end up with post-op infections, many of which who needs to be removed.For spine, we are seeing an even higher number of what we call unsuccessful outcomes with probably a median in the literature around 20% of spinal fusions. So we are dealing with some very real unmet clinical need that has a profound impact today on patients, but certainly also a profound impact on the cost of care worldwide, because these number of revisions, of course, are extremely costly.So what is our response? Well, essentially, what we have for both Cranial and also for our bone graft catalysts is really the next-generation bone replacement products. And what is it that makes the different? Well, we are using cutting-edge biomaterial science, and we're working very closely with some of the well-leading surgeons to really develop the next-generation products that stimulate the body's own healing capabilities. That is a significant difference, and we'll go through it in a little bit more detail in a second.If we start on the Cranial PSI, then what we have shown -- the Cranial PSI is essentially made up of a reinforced 3D-printed titanium mesh and then we have a regenerative calcium phosphate composition, which is essentially the secret ingredient here. And those 2, in combinations, have just constantly shown a much, much lower complication rate -- or certain complication rate. And as Anders said, recently now with 1.6%, and we're also seeing a growing body of peer-reviewed evidence.If you go to our Catalyst, then this is really a highly innovative synthetic bone graft, because it is composed of proprietary nanocrystalline structure of calcium phosphate as well. And what really makes this different is that instead of mimicking bone on a macro level, Catalyst is actually so much nano, if that's the right way to put it, that what we're mimicking is the minimal crystals inside the bone. And essentially, that is leading to a both biology response, which is much more profound, it's faster and is growing -- simply growing more bone.As you know, Catalyst received FDA clearance in 2020 based on some extremely strong results that were later published in the Spine Journal on this demanding discriminating model called the bone model, which is also used for Medtronic's BMP-2 or Infuse. And what we've seen in that model is results that are significantly better than any other synthetic bone graft. And why is that relevant?Well, it is because this model essentially is a strong predictive model also for the clinical outcome in human beings. So we truly believe that OssDsign Catalyst has the potential to dramatically improve the success rates of spinal surgeries, which, as you know, and as said before, would be a very much welcome innovation into the market. So we are dealing with some very unmet clinical needs and now have 2 very strong offerings that is resonating with the market and the needs that are out there today.So I think with that, we'll go into the numbers, and I'll hand back to Anders.

[Anders Svensson, Chief Financial Officer]

Okay. If we look at the fourth quarter first, we reported SEK 9.2 million in sales. That's about SEK 200,000 -SEK 300,000 better than Q3. And more importantly, it's 34% better than Q4 last year, which we are quite happy with. A similar picture on -- if we look at the full year, SEK 31.7 million in reported sales, which is 33% growth versus 2020.And just breaking it down a touch into U.S. and Europe, we can see that U.S. grew very well in Q4, 100% growth, so doubling up on sales. For the full year, 52% growth. They had a more challenging start to the year because the year before was such a good -- had such a good start, but still 52%. We are very happy with that.For Europe, 5% for the quarter and 15% for the full year. And of course, both the U.S. and Europe were heavily impacted by COVID towards the end of the year, very much so in our main markets Europe, which tends to explain some of that actually, lower growth in Europe versus the U.S.And as we're on the subject of COVID-19, just pointing out a couple of things here. We've had seen again stuck or postponement of elective procedures, which impact both our products, prolonged processing time for product approvals means it takes longer to get into the hospitals, especially with the new catalyst.We've seen a no-visit hospital policy being reinstated towards the end of the year with Omicron. And we've also seen some impact from our vendors in terms of raw material supply, but we've actually managed to manage those. So we've had no adverse impact on sales from raw material shortages.

[Morten Henneveld, Chief Executive Officer]

All right. So let's go a little bit into the highlights. Some of those we've talked about before, as well we will go a little bit line on them. But as Anders said, we launched in Q3, we started treating the first patients with OssDsign Catalyst. The real focus, as you've heard me say before, is around building these early ambassadors and centers of excellence and really go deep into some very targeted KOL engagement in the U.S. to make sure that you're building a strong foundation when you start to go forward in the market and target even more customers going forward.So it is out there. There's a lot of stuff happening right now on the product. As Anders also said, we received a innovative technology contract from Vizient. And previously, we informed you that in July, we were -- we announced that we were selected to showcase the solution to the member-led councils in Vizient. And during the quarter, we were, therefore, extremely proud to actually announce that we did get the contract, which is based on a recommendation by hospital and experts who serve on Vizient member-led councils.And I think, particularly for getting a contract are quite relevant here, because they need to signify unique qualities that potentially bring improvement to the health care industry. So that is the criteria you need to fulfill. And we, therefore, also see it as a very clear and a very strong testimony to the high level of innovation present in our bone replacement technology.And I also just want to remind you. And this is really the first time for me in all my time, I have never been part of a company that has won 3 major U.S. GPO contracts within a period of 6 months. We have done that with Vizient. We won Premier earlier in the year. And as you remember, we also won, what we call, the DAPA contract. So the contract with the military and selected VA centers.During the quarter, we also obtained an expanded market clearance for Cranial PSI. It's building on the initial market clearance we got in 2017. And what it means is that FDA has now cleared the osteoconductive ceramic component of our Cranial PSI and acknowledge that it is resolved and replaced with bone tissue during the healing process. And to our knowledge, we are the only Cranial implant in the U.S. that can actually claim this right now.Equally important, we also came out with post-market surveillance data. And as we've said before, we believe now that actually the results that we are showing that really should set the standards for what should be expected by patients and surgeons and hospital systems going forward. The new data covers almost 1,500 implants. It spans across 214 -- sorry -- clinics. And it showed now that the infections leading to implant removal is only 1.6%. Now that needs to be seen in the context of the 10% that I talked about before. This is also done in a medium follow-up of 22 months.So we are now constantly confirming the unique qualities of this product and even this time with better results. So extremely strong data, probably the strongest one that you see in the market right now globally, and we are more than happy with it I can tell you.Just after the quarter ended, we also made a very important announcement for PROPEL, which is our multi-center prospective spinal fusion registry that we are setting up in the U.S. is really one of the core pillars in our long-term strategy. And why is that? Well, a registry as such play a very important role in bridging the gap between device performance in clinical trials that tend to be a lot more controlled and they're used in daily practices over time.Given the fact that it's a multi-center and prospective registry means that we can collect clinical data on a large number of patients that receive care in very diverse settings. The primary endpoint, as we've said before, is really the FUSION rate at 2 months. That is done through CT radiography.All -- but we also have secondary points where we look at the quality of life, neurological functions, as well as, of course, as you always do, a safety profile of this spinal implant. This has immense value for us.It is a very strong complement to the clinical trials that we're already running and contemplate to run in the future. And what it allows is access to a very large amount of data that we can mine. We can drive communications on it. We can look into specific topics, patient groups, indications, procedure types, et cetera, et cetera. So as I said, really one of the core pillars and getting the approval also means that we can start to enroll patients now during 2022, and we are already doing that.And then last but not least, you heard me talking about this is since we launched a strategy early in '21. Clinical is one of the most important priorities in the company's -- in our 5-year strategy. And we need to do a lot more, but we also need to do different types of medical program or clinical programs.Previously, we've probably done a lot more, what we call preclinical, so animal testing and so on. What you're OssDsign now is a lot more active working for surgeons and with surgeons on generating data. So the seer nature of the clinical programs we are running are different.And therefore, I was extremely happy, we decided to create a new Vice President role to lead that effort, extremely happy that we managed to attract Melanie. She is a U.S. native. She's coming with global experience across U.S., EU, Australia. She has been working also even in smaller company, scaling them, but she is also seeing what could have -- looks like in some of the biggest in the world -- Boston Scientific, Baxter, Medtronic and so on. And she is really covering the full range. She's done virtually everything that you can within clinical studies, including a number of very large IDE studies. And she also has 20 years' experience, specifically within spine and bone graft and therefore, also an extremely well-established network of key opinion leaders, both within neuro, but also orthopedic spinal surgeons and of course, giving her native status, a lot of those in the U.S. So again, being able to attract someone like Melanie is something we are very proud of.Now that we are the topic of clinical, I also wanted to give you some more insight into our progress. As we shared last time, there are some key components we are working on within our Cranial PSI franchise, but also with our bone graft franchise with OssDsign Catalyst.Post-market surveillance, as I said last time, is extremely important. You've seen the very strong results. We are, of course, collecting them on an ongoing basis and publish them on an annual basis.You also do talked about last time about the cranial registries that we are working with KOL to set up, essentially because we know that the more data we get published, the better for us given the outcome data that we are continuously able to report. So those are really the most important ones.On TOP FUSION, as Anders said, we started that just after we launched -- we launched Catalyst in the U.S. Also very happy to report we now have 75% of all subjects recruited. We expect to complete that within the coming months.And as I said before, on our PROPEL registry, we now have what we call the Western Institutional Review Board approval, but we also have our principal investigator identified and signed on. So we're really ready to go there, and we will start to enroll sites fairly soon. So some really good progress. And I feel, in particular, when it comes to clinical, we are really delivering on what we said we would do and accelerating the effort here.I think with that, I'll just hand over to Anders.

[Anders Svensson, Chief Financial Officer]

Yes. So a few words about strategy execution. This will not come as any news to you because we've been -- we mentioned this several times before, but we will continue to work along the lines of the ASCENT25 strategy that we launched earlier in '21. It will focus -- we will focus on neuro and orthopedic spinal surgeons, primarily. So we will move away from being a niche player in CMF and now also enter the orthobiologics and spine space.And the 5 very clear strategic priorities we've set both for this year and for years to come is what we are executing on now, investing heavily towards the U.S., building a global bone graft business starting in the U.S., of course, driving innovation in the product portfolio and accelerating the clinical work, as Morten was talking about, PROPEL, et cetera. And also focusing hard on driving operational efficiency, especially in terms of delivery time and COGS for our Cranial PSI products.And just as a final note from me in today's presentation, if we look into first half of 2022, we are pretty confident and excited that we have some important milestones in the first half, the first one being the big Paris tender, APHP, where we have submitted our bid. That's the largest tender in France. So that's the really important one for Europe.We will be enrolling our first sites into PROPEL in the U.S. in the first half year. We will complete the patient inclusion for the TOP FUSION study. And last, but not least, we are preparing to launch in Japan with the Cranial PSI. So we have started to take the first steps there. We've entered what I would call a soft launch mode. However, we've now got Omicron and it's arrived late in Japan. So the body still have some uncertainty and challenges there with respect to the exact timing, but it's happening.

[Morten Henneveld, Chief Executive Officer]

Good. Thank you very much. So I think just a final word for me really around the '21 recap. This was truly a very exciting and eventful year for us. We launched a new strategy, targeting neuro and orthopedic spinal surgeons. We also built a brand-new bone graft franchise that will contribute with scalability and higher margins, and we managed to launch this in August. And despite the pandemic, we've managed now to break our quarterly sales records for the last 3 consecutive quarters, and we've also won 3 giant GPO contracts in the U.S. within a period of 6 months.And finally, we delivered on the promise to really accelerate our clinical work. We launched TOP FUSION, which is, as you know, our first study in OssDsign Catalyst, and we've started to set up PROPEL our multi-center U.S. spinal registry. But simultaneously, as we also talked about today, we've continued to build more and better clinical evidence on our cranial business, and we also obtained an expanded FDA that really sets us apart in the marketplace in the U.S. right now.So all in all, I believe 2021 is a year we can be extremely proud of, and it's also a year that really marked the start of a new era for OssdSign. We managed to grow the business substantially, and we have started to get a lot of important building blocks in place for future growth, both of which brings us into 2022 in a much better place than where we started, and therefore, look forward to '22 with a great deal of excitement.And I think with that, I want to thank you all for listening on today's webcast, and I'll hand over to the operator for questions.

[Kristofer Berggren]

Great. Thank you, Morten and Anders for the presentation. So let's start the Q&A session.So the first question, could you please comment on how sales performance measures up to your own internal forecasts and budgets?

[Morten Henneveld, Chief Executive Officer]

I think it's fair to say that we always aim higher. So we had higher hopes and aims for '21 as well. But I think equally fair to say that we had counted on the pandemic not being with us for the whole year. So that's the main reason.

[Anders Svensson, Chief Financial Officer]

But I think it's important, and if I could just jump in, Kristofer. I think it's important when you look at what other companies also reporting and so on. I mean, 33% in a year with a full pandemic and the arrival of Omicron having an even bigger impact in Q4, I think we can be extremely pleased with the results we are showing right here. But of course, we had hope without -- in the world, without a pandemic that things were higher. But given that the world -- that the market conditions are where they are these days, we are extremely pleased with the results that we're showing here.

[Kristofer Berggren]

Okay. Thank you.The next question then. In your report, you partially attributed the increase in operating expense to higher levels of personnel costs. Could you please comment on this?

[Morten Henneveld, Chief Executive Officer]

Well, we had a few organizational changes during the year. And I think we spoke about this before as well that in Q3, we were unusually low on personnel costs because we had some people have left us, and we've taken the cost for that, and we haven't got the new ones on board yet. And the new people, plus some extras have come on board in Q4. So we are scaling up.

[Anders Svensson, Chief Financial Officer]

And to me, I think this is a natural consequence. We are a growth company. We are on a journey of transforming the company. And therefore, we are also making some strategic investments in both the business but also in people to make sure that we can drive that forward. You will also see that in the executive management team where there's also been a number of changes. So I think that explains that. And it's all its planned -- it's all part of the plan here.

[Kristofer Berggren]

Okay, thank you.Next question, could you give any high-level information on the revenue or number of patients that you have treated with Catalyst so far?

[Morten Henneveld, Chief Executive Officer]

Yes, I think I don't think we want to go in to give a way for obvious reasons about the exact number of patients that are treated. But you can see in the TOP FUSION study, we are now 75% in. And things are going well in the U.S. I mean we are covering fairly okay board now. We are starting to set up these centers of excellence. We are seeing a really good momentum in the military and some of those accounts.Of course, the pandemic, as Anders said, we -- you need to get back approvals in the U.S. I think we've seen a delay to the processing time in some of those. We -- I think we actually have a few that are up to 5 months right now. We've also seen others go faster. So of course, there was an impact on the pandemic now, but things are going -- things are going well, and we feel good about what's happening in the U.S., and it's virtually on plan.

[Kristofer Berggren]

Okay, thank you. Next question. Any noteworthy sales contribution from Catalyst this quarter?

[Morten Henneveld, Chief Executive Officer]

No, it's still fairly low. The vast majority is still Cranial PSI. Q4 was still in the ramp-up phase. We're going through lots of back approvals that I just talked about before. So I would say it's fairly insignificant still in Q4 relative to the total number.

[Kristofer Berggren]

Okay, thank you. Volumes up Q-on-Q, but gross margins down. Could you shed some light on the dynamic and the likely mix effects?

[Anders Svensson, Chief Financial Officer]

Well, the reason margin going down and volume is still keeping okay in Q4 is basically a country mix. And so if you compare quarter-on-quarter, you will see in Q3, we had a very good margin quarter. We had very high sales in the U.S -- they were a large part, took a large share of our sales.In Q4, it was the reversed. So the Omicron effects hit very hard in the U.S., slowing down sales there a bit. Meaning that new -- other countries, especially in France, moved ahead, keeping volumes up. But as soon as the U.S., with their much higher prices go down in share, then we had a margin effect. That's the major reason.

[Kristofer Berggren]

Okay, thank you. Regarding the clinical registry for Catalyst, when do you believe there is enough data for you to utilize in marketing and sales?

[Morten Henneveld, Chief Executive Officer]

Well, it depends what do you mean in terms of utilizing, right? I mean the registry is still going to have the primary endpoint being the 12-month data. But what we will have is that we will have access to CT scan, the minute they are into, right? The first CT scan go in, data on the patients go in on the day of the surgery. So this will be something that we're gradually building on. But I can tell you it will be much faster than what you typically see in clinical trials where you don't really do a lot on so you have the full cohort and you are 1 or 2 years into the future. This will be something that we -- on an ongoing basis, we'll be able to use both in terms of initial case stories, but also actually in terms of showing potentially early pictures of patients and how they're healing with Catalyst.

[Kristofer Berggren]

Okay, thank you. The next question then. The data we're tracking for elective surgery activity has recovered very rapidly during February. Are you seeing a similar trend reflected in orders?

[Morten Henneveld, Chief Executive Officer]

Yes. I think we, as Anders said, when he talked about COVID, I think we saw -- probably the biggest impact we've seen actually during the 2 years of the pandemic coming in towards end of Q4, in particular, in Europe from November onwards and then really hitting U.S. again in December. And coming into January, it was pretty bad. I think what we are seeing now is, it's not like it's something that happens overnight, of course, but we are starting to see here in -- particularly in the last couple of weeks, some gradual improvements. Both in Europe, but also now in the U.S., we've seen cases go down in states again. So, of course, we're all hoping now that it's peak and we can get out on the other side. But yes, we are seeing some -- we are seeing improvement here in the second half of February.

[Kristofer Berggren]

What are the quarterly cost run rate related to TOP FUSION and PROPEL?

[Anders Svensson, Chief Financial Officer]

That's not data we are going to go into. This is a reimbursement cost that we contract we have with the [indiscernible]. So I think we won't answer that question. It's all part of our total OpEx.

[Kristofer Berggren]

Are there any investments that have to be made regarding production facilities if sales volumes rapidly increases for Catalyst?

[Morten Henneveld, Chief Executive Officer]

No. I can't say that. As you know, our production is outsourced, and there's plenty of volume spare volume capacity available. So I can' see that happening.

[Anders Svensson, Chief Financial Officer]

And I think it's also important to note here, given the high margin we have on Catalyst, any kind of, what I would say, the production increase you won't see that in a significant way on the COGS as such, right? It is a fairly low-cost production. So even accelerating that even if that comes at a marginal cost to lose more, the impact of that would be fairly insignificant. So it's not something that we see as a risk in the company.

[Kristofer Berggren]

Okay, thank you.The next question, the launch in Japan, is it still in collaboration with Muranaka Medical?

[Morten Henneveld, Chief Executive Officer]

Yes, it is. Yes, it is. We are still and as Anders said, we've moved closer now to -- simply also because we are running out of patients and similar to I'm sure you are getting tired of hearing us talking about Japan. We have taken first step now on -- so we have what we call a soft launch mode. But of course, right now, Omicron is spreading heavily in Japan. We actually can't travel there right now. The big events in Japan are in Q2. So of course, right now, we are hoping that those events will not be canceled because of Omicron then that's probably the timing we should be looking at for what we would call a full launch mode. But we are actually working on a weekly basis with Muranaka to start to spread the word and warm up the market.

[Kristofer Berggren]

What's the potential from the APHP tender?

[Morten Henneveld, Chief Executive Officer]

Well, it's difficult. I can tell you it's the largest in France. It's covering, well, at least 7 main hospitals in the Greater Paris region, there may also be some satellites in there. I think this is something where you could easily look at up to 100 implants a year or maybe even more. In these centers, they are very reluctant to say anything. If they state a number, it will be probably much lower than what's the reality, because they don't want to be held accountable to that number. But it is by far the biggest tender in France. And of course, if we were to win that, it would have an important impact on the priority for France going forward.

[Kristofer Berggren]

Okay, thank you.Next question. Are you seeing any contribution from the 3 new GPO contracts yet?

[Anders Svensson, Chief Financial Officer]

Yes. I mean the contracts are not volume committed, right? But we are -- so we'll see and we are seeing continuous contributions there, but primarily initially from the DAPA contract, the military, we've seen a fair bit of business already.

[Morten Henneveld, Chief Executive Officer]

I think it's important to note here that when you combine the Vizient and the Premier contract, they're essentially covering the vast majority of the U.S. So you will see a ramp-up in those contracts on a gradual basis going forward, in particular, as the market hopefully starts to normalize and elective procedures start to take place again. So measuring a specific impact from any of those 2 won't be on be a one to one. But of course, the DAPA contract, as Anders says, is black and white. Without the contract, you're simply not allowed to enter the facility, now we are. And we have actually sold to a fair amount of customers within that group already both Catalyst and PSI.

[Kristofer Berggren]

Okay, thank you.Next question. Do your competitors have a clinical registry like PROPEL? Is it a unique advantage for OssdSign?

[Morten Henneveld, Chief Executive Officer]

I mean some have and some don't. I think it really depends on who you define as the competitors. There are a few that we know of that also are running their own registry. But it's not something I would say that is omnipresent. If you look at the many competitors in the U.S. that everyone has that. That's certainly not the case. But there are a few others we know of that also has a registry.

[Kristofer Berggren]

Okay, thank you.I think that was the final question. Well, that was the time that we have for the Q&A session during this presentation. I will go through the questions again. And if there's any questions that haven't been answered, I would send them to the company and they could answer you via e-mail.And with that said, big thank you to Morten and Anders for the presentation and a big thank you to all of our viewers and all of you who have sent-in questions. I hope to see you next time on the quarterly webcast with OssdSign. Thank you, and have a good day.

[Morten Henneveld, Chief Executive Officer]

Thank you very much.

[Anders Svensson, Chief Financial Officer]

Thank you very much.