Bonesupport Holding AB (publ) (BONEX) Earnings Call Transcript & Summary

Thank you so much, operator. Good morning, everyone. This is Emil Billbäck. I am the CEO of BONESUPPORT. And I'm also here today with Håkan Johansson, our CFO. So we are pleased to host this telephone conference today and share some more details on the very exciting information that we will leave to the market this morning regarding the path to the U.S. for CERAMENT G. So first of all, I would like you to recognize the disclaimers that we have on Slide 2 on this presentation. And operator, if you please help me to go to Slide #3. So in October 2018, BONESUPPORT started to build its new independent distribution network with the purpose of reaching a broader audience for CERAMENT. Since then, we have gradually built a strong geographic presence in the U.S., and we have, with our 40 contracted distributors, a strong coverage, not only of all states, but specifically strong coverage of all metropolitan regions, key hospitals and a broad coverage of various different indications. The bold move to replace Zimmer Biomet was done in order to pursue the full market potential for CERAMENT BVF and also get a direct interaction and control of the market in anticipation for a future launch of CERAMENT G. The De Novo registration process is a way to register a novel medical device according to solid clinical data where assurance of safety and effectiveness for the intended use is provided. The De Novo process is only suitable where there's no present legally marketed predicate device. In early 2019, modifications were implemented that made the De Novo pathway adapted for combination devices. Since late autumn last year, we have been in dialogue with the FDA regarding the possibility for CERAMENT G to qualify on the De Novo pathway. CERAMENT G has, as you know, a unique work mechanism and unique benefits validated in a series of very strong clinical studies. And it's on the basis of the extensive high-quality clinical documentation that we have decided now to submit a De Novo application in April. The submission is specific for bone infections, which is a condition also called osteomyelitis. If the submission is reviewed positively and registration granted, CERAMENT G would be the first synthetic bone graft with a local antibiotic elution on the U.S. market. A potential approval could come already at the end of 2020. On the next slide, I will explain more about the special breakthrough designation. Slide 4, please. So for the FDA to manage priorities and resources, all applications are categorized or labeled. The breakthrough device designation is a category that gives priority review, dedicated FDA resources and an expedited registration process. This category is exclusively for medical devices or medical device combinations that provides a more efficient and effective treatment for life-threatening or irreversibly debilitating human diseases or conditions. At the bottom part of the page, you can see the specific criteria that needs to be fulfilled for this designation to be granted. Breakthrough device designation is only given for breakthrough technologies where there are no current, approved or cleared alternatives on the market. The product must have clear and specific benefits and the availability on the market is in the best interest of the patients. The designation to the breakthrough category is a granted label for the registration process and not a registration approval by itself. A few days ago, we were informed by the FDA that CERAMENT G has been granted designation to the breakthrough category. This, together with a validation of our already prepared documentation has strengthened us to make the final decision to send in the De Novo application. Next slide, please, Slide 5. The market data that we have shared before with you is based on public data, hospital statistics and company-commissioned market research. A company research was conducted in 2016. So we have taken this opportunity to update the graphs and the numbers to better reflect the 2020 levels, so that our market description is in line with the latest external reports and databases. So there are 720,000 procedures done each year to address insufficient procedures. The occurrence of infection varies for the different indications as shown in the gray box to the right. For trauma, as an example, the average infection rate is 11%, on indications where bone graft is necessary. We have seen in studies such as Jahangir that was published in April, May of last year that open fractures caused by a severe traffic accident has infection rates up to 52%, while a closed and less complicated fracture is likely not to have any infection at all. In general, the treatment of an infected indication is significantly more expensive than if an infection is not present. The value of the bone graft market for infected indications in the top EU 5 markets and the U.S. combined is USD 200 million. The De Novo application for the U.S. is specifically for infected indication, and this market is estimated to be $100 million. Next slide, please. On this slide and the next one, I will go a little bit more in detail regarding the actual product. The unique work mechanism of CERAMENT makes it resorbed and transformed in 2 phases once applied into the bone. So of the first phase, where calcium sulphate is resorbed and the hydroxyapatite scaffold is created, gentamicin is needed directly at the site of the bone injury. In this study done on 31 patients with various different indications, you can see in the upper right diagram, a very high initial concentration of gentamicin at the site of the injury, followed by a smooth and gradual elution over the next 28 days. You'll also see a horizontal line in the graph representing MIC. This line is at 4 milligrams per liter and that is despite concentration, which is the minimum inhibitory concentration. This is the lowest concentration determined for gentamicin to prevent growth of gentamicin-sensitive bacteria. And please note that the scale is logarithmical. The concentration levels for CERAMENT G makes it very effective, not only towards bacteria colonization, but also towards biofilm. Biofilm is a major challenge for the bone healing process, and it's very difficult to address with only systemic antibiotics. Next slide, please. On this slide, you will see data present from the same study showing that despite very high concentrations of antibiotics locally, the systemic serum concentration are very low. And hence, there is no risk for system toxicity or side effects. Local antibiotic treatment is a favorable option in eliminating infections that could lead to impaired healing or other more severe consequences. It's also a very important tool to fight multidrug-resistant bacteria. Slide 8, please. So due to the very favorable therapeutic index, meaning the effect in relation to side effects that we have for CERAMENT G and CERAMENT V, they have both become very successful in several of the influential European university hospitals, regardless if the patient was needing a bone graft and had an infection or not. Many surgeons use it also for fully preventative measure, even if there's no infection to start with. CERAMENT G and CERAMENT V was launched in late 2013, respectively, 2015, and is now collectively making up around 85% of our total sales in Europe. CERAMENT BVF, our synthetic bone graft substitute without antibiotics, however, continues to grow and had a year-over-year growth rate of 21% in 2019. CERAMENT G makes up roughly 70% of the sales of antibiotic eluting CERAMENT and CERAMENT V makes up the remaining 30%. Next slide, please. This is the final slide of our presentation. And on this slide, you will see the milestone chart that we have shown at various occasions before. You will see that we have updated it with the information from the De Novo application and the potential approval that could come at the end of 2020. At this point, I also would like to emphasize that the principles of the FDA is to review and give final verdict on such an application after 150 days, then follows -- sorry not final verdict but to give verdict. Then follows a period of interactions with supplementary information or documentation. So it's difficult to give an estimate on when exactly a final approval could come because it depends on how many questions there will be on the documentation or supplementary information. So -- but with this, we give an indication based on previous submissions that other companies have done with similar devices. By that, we conclude the presentation, and I would now like to open up for questions.

[Operator Instructions] And our first question comes from the line of Kristofer Liljeberg from Carnegie.

And yes, great to see some positive news these days. Could we ask to maybe explain a little bit how you see the potential for CERAMENT G in the U.S. considering that as the sale being in Europe, CERAMENT G is, what is it, 85% of total sales. Nevertheless, U.S. sales, where you only have the standard version approved, still 50% of sales -- of group sales. I guess, maybe soon it will be bigger than European sales. Yes. So how do you see the potential in U.S.? And how quickly -- let's assume you get an approval later this year, how quickly could this become a meaningful part of the U.S. sales?

So as you saw on the presentation today, we made a graph where we split sales between the non-antibiotic and the antibiotic eluting products. What is interesting with that chart is that when the antibiotic products were launched, they really didn't cannibalize the non-antibiotic product. But they grew and quickly became the product of choice for surgeons. So if you look in 2019, the sales of the antibiotic product is 5.7x higher than the regular CERAMENT BVF and the sales of BVF continues to grow. So exactly what to expect from the U.S. is, I say, difficult to predict. What we can say, of course, is we made the big changes in the U.S. because we knew that one day we would launch CERAMENT with antibiotic elution into U.S., and we wanted to have a direct control. So I think it's very fair to assume that our market penetration will be significantly faster now than if we would have stayed with Zimmer Biomet. And there is also, in the last couple of years, more and more national and international guidelines promoting the treatment or prevention of bacteria from local antibiotics versus systemic antibiotics because it has a much more favorable therapeutic index, and it's also such an important driver in the fight against multi-resistant bacteria. So I think if you look at how the European sales have developed with antibiotic products and where we stand with the U.S., I think you can use that to model a few different scenarios, but we haven't done any exact forecast that we decided to release to the market.

And a follow-up on that, could you remind us how you plan pricing U.S. versus Europe?

The price of the nonantibiotic product in the U.S. is about 50%, 5-0, 50% higher than it is in Europe. The price for CERAMENT G has not been negotiated with the authorities. We have to wait until we have first message back regarding anticipation if it will be approved or not.

Our next question comes from the line of Rickard Anderkrans from ABG Sundal Collier.

Congratulations to you to the De Novo application. So my first question actually revolves, if you could add a bit of flavor on in terms of the -- what is the exact sort of fundament for the FDA that they will be looking on. Obviously, they won't be focusing on the FORTIFY study, they would be rather focusing on the established clinical data. Could you add some info on what they will be going on when they do their review?

Yes. Thank you, Rickard, of course. So the De Novo application is in place to bring innovative products to the U.S., products that have better efficacy or products that have positive health and economic impact. And this is also while they're still in modification to the De Novo pathway to allow this to happen. But only products that have a really solid clinical documentation will have a chance to get on this registration pathway. And CERAMENT has more than 160 peer-to-peer ready publications. And some of them are -- have been published also in very reputable magazines. And most recently, just before Christmas, came the publication of CERTiFy that even though it does not -- is not done on one of the products completely at developed stage, provides significant answers in terms of how the product behaves in the bone and how the healing process takes place. So we believe that with all the data we have in Europe, we have more than the solid evidence required to qualify for this registration.

Excellent. And just a final question on the regulatory side as well. How does -- where does FORTIFY come into play? Just wanted to make sure that this is a separate process from the regular PMA and FORTIFY will continue as planned, I guess. Is that correct?

So that is correct. So the De Novo application relates to infected injuries to the skeleton. And that represents about 14% of all the indications that requires bone grafts. And the PMA application that will be based on the completed FORTIFY study will actually be on the remaining 86% of the procedures, the ones that are not having any visible or present infection. So that process will continue and address even bigger part of the market.

[Operator Instructions] And the next question comes from the line of Lala Gregorek from Trinity Delta.

This is great news for you. It's nice to see that the CERAMENT G timelines are being expedited in the U.S. And certainly, with your explanations on the De Novo application, it's a testament to the evidence basically that you've got. I'm going to ask the question about -- sort of following on with what Rickard said about FORTIFY. I was wondering if you were able to provide any comments about FORTIFY and how potentially there may be an impact with the COVID-19 pandemic. Because we see in Europe, the ski season is being curtailed, et cetera, et cetera. Is there any read-through there to the U.S.? Are there any comments about the timelines that you can have there? And a second sort of follow-up question. In relation to FORTIFY and the indication that, that covers, you mentioned in Europe, you see a lot of the surgeons actually using CERAMENT G as a preventative measure. Wouldn't that be something that they could do in Europe, should CERAMENT G become available towards the end of this year, beginning of next year under the De Novo?

Thank you, Lala. So I will address first the question on FORTIFY and potential effects of the COVID-19 pandemic. I think what you've seen in terms of infection prevention of COVID-19 and measures have been quite great only in the last couple of weeks. I think the multi-billion dollar question for everyone is how it's going to influence overall economy and different companies. We don't know that. I think we're as influenced as other companies, but not so -- not more not less. We have no indication that there has been any influence on the recruitment of FORTIFY. If we would see that from COVID-19 or any other reason, we will inform the market if the timeline that we have previously communicated would be, in any way, tampered with. We should remember that FORTIFY is a superiority study done on trauma patients. And trauma patients, of course, is an indication that most of the health cares are still having high on their priority because if you've been, for example, in a car accident, you will need from your healthcare facility regardless if there are more patients also being taken care of in the intensive care unit. So right now, no influence as we can speak of. And if that will change to the effect of altering our timelines, we will announce it. The second question was that we are applying in the U.S. for a De Novo application and specifically for bone infection. And -- well, then that -- if this application is viewed favorably and a registration is granted, that's the label that we have, that's the indication we have. And then what individual doctors would do if they would use it only for that or for other things? I cannot speculate it. I think it's always in the choice of every doctor to decide what is best for the patient. And then the individual doctor takes the responsibility.

And our next question comes from the line of [ Matt Steven ] from [ Vixco Capital ].

Big congratulations and well done on this. Very impressive, and some good news. My major questions were actually answered in your last answered e-mail. But I had 2 follow-up questions. And first of all, I may have missed it, but do you have any data on part of sales in Europe that come from the indication of osteomyelitis? And secondly, just in terms of -- you mentioned that you would base this application on the existing data and publications. But I was curious, wouldn't the FDA demand at least the safety data that you managed to collect from the FORTIFY study in this application? So there would be at least sort of the safety data. And that, for my part, that reads into the last question regarding potential of label use and knowing that there would be at least U.S. safety data available.

So the first question was regarding data surrounding our European sales. And what we have shared today is the split between antibiotic eluting products and non-antibiotic products in the graph. And we've also shared the approximate percentages of different indications that have -- that were preconditioned with an infection when they go into surgery for a bone graft. And we have not released any data outside of that. So we have not shared with the market how much of our sales is in chronic osteomyelitis or infected trauma, non-infected trauma. It would also actually be very difficult for us to know that. In some cases, we can see, based on reimbursement code, how our product is used. But in other cases, it's the privilege of the hospital, and we don't know exactly how the product is used. So unfortunately, no data is available in that area. The second question was on the clinical studies. It's a very good question. And what we should remember then is that BONESUPPORT has been collaborating with many of the university hospitals since its early foundation. And we have good data on safety of the product, toxicological data. We have both preclinical and clinical studies. And a few years ago, there was a big study published that looked at 96 patients with osteomyelitis receiving treatment of CERAMENT G. And this study was done in meticulous details. So there's a lot of data available from that one and other studies that we feel is sufficient for this indication. Now if you go with broader indication as we're targeting with in the PMA, potentially more specific data is necessary, and that's why we're doing the FORTIFY study. So in short, our assessment is that we have more than enough documentation for osteomyelitis. And following the U.S. regulations and specific demands, we believe that with the FORTIFY study we will be able to open up the rest of the market, the 86% of the market, which is not impacted.

And as we seem to have no more questions registered, I hand back to our speakers for any closing comments.

Well, thank you so much, everyone, for joining this call today. Both Håkan and I are happy to share the positive news that we believe there is a fast way to the U.S. market for one of our best selling product. And I hope everyone appreciates that there's some good news in times where otherwise the bad news seems to come like... So please bear with us, follow BONESUPPORT, and I think we have a very exciting journey ahead of us. Thank you very much. Bye-bye.