Kuros Biosciences AG (KURN) Earnings Call Transcript & Summary

Okay. As people are coming into the meeting, I want to say good morning, good afternoon, depending upon your location, and welcome to the first half earnings and strategic update for Kuros Biosciences. My name is Chris Fair. I'm the CEO, and I'll be joined by Daniel and Joost, CFO and Founder, Joost, and President of Innovation, as we discuss the first half earnings update and a look forward. Next slide. This disclaimer will highlight -- and you can read in its entirety when it's posted online, but this is a disclaimer that we will be discussing forward-looking statements. Next slide. We are extremely excited to announce our first-half results as an organization. When we look back at the past 6 months of the organization, we have clearly positioned ourselves as a high-growth medtech business. We have derisked the business from our transition of the Fibrin-PTH platform and as well as looking at our MagnetOs platform and -- with recently published Level 1 evidence. And our commercial execution has been a tremendous first half of the year with 148% growth. So much to be very excited about with the organization. When we look at the revenue increase in the first half of '24 over the second half of 2023, again, impressive results when looking at our MagnetOs sales. Total revenue rose by 148% from CHF 12.9 million to CHF 31.8 million, again, from a continuous expansion in commercial execution as well as focus of the organization. In addition, we've done this while maintaining a strong financial foundation, and we have no debt in the organization. Our CHF 4 million EBITDA adjusted for the Fibrin-PTH costs as well as share-based compensation, again, ahead of plan, again, a testament to the commercial execution as well as being fiscally responsible as an organization. We also believe with the CHF 14.3 million in cash, we are securely financed for the organic path forward and do not see an immediate need for dilutive financing. Next slide. When we look at the market share growth and we look at the commercial rollout, we'll talk specifically about the United States first. In 2023, we initiated a plan much of a Western expansion in the United States. We continue that expansion. And now when we look at our revenue across the United States, we do see a balanced representation. And so now it's a little bit greater penetration in larger metropolitan marketplaces and spreading the good word of MagnetOs. The clinical data that we've published in Spine Journal, which is the premier journal for orthopedic and neurosurgeons globally due to its high rigor and its standards, has bolstered our position in the marketplace with really the best evidence available for a synthetic bone graft material. We've trained over 400 surgeons through various outreach programs. Our independent sales agents have grown 25% from the second half of '23 to '24. We anticipate that continue to grow as we expand into new marketplaces. Our international market presence, which we're extremely proud of, 39% growth in the second half of '23 to the first half of 2024. And the investments in the production capacities, as we announced in the first quarter announcement that those are on track and moving forward so that we can keep up with the demand. When we look to the number of hospitals and the hospital penetration, again, supporting the trend of the revenue growth, it's -- we are growing both in surgeons as well as accounts and hospitals that are ordering our product on a regular basis. But with all of this great growth and great penetration of the marketplace, we are looking at only a 2.4% penetration amongst the surgeons, which truly tells us that there is so much more upside relative to where this product line can take us. And so continued growth. So we're very excited about the future as well. Next slide. When we talk about balance within the global landscape, in the United States, we're expanding Westward and looking at balanced approach across the country. A little about 95% of our revenue comes from the United States. And in the United States, as a reminder, we sell through independent sales agents. These sales agents will sell our product and receive a commission where we receive the end dollar revenue. Outside the United States, in international marketplaces, we partner with distributors who purchase the product and resell it for us. And there, we have been commercialized in 16 countries, cleared in 22, with additional launches that are imminent. This is up from 11 countries that we were selling in last year. So again, tremendous growth, different challenges in the international marketplace as we certainly can discuss. But globally, expanding our footprint using the data that we've been -- that's been published from Spine, but also the clinical success that surgeons are sharing amongst themselves. So very excited about the growth that we've achieved, but also so much more that we can do. Next slide. Joost?

Yes. Thanks, Chris. Yes. So our clinical and technological differentiation has continued to drive rapid growth. And as you see here in the first half of the year, we reached several important milestones, one Chris already mentioned, the pivotal Level 1 clinical study with MagnetOs. The next slide, I show a bit more detail on that, but it showed or indicated that MagnetOs is superior over the gold standard, which is patient [ own ] bone tissue. Next to that, we have reached several or obtained several FDA clearances, which means that now the entire MagnetOs portfolio has been cleared for interbody use in the U.S. And interbody use or interbody gauges relate to about 50% of the 1.7 million spine procedures only in the U.S. So it's a huge opportunity there. Next to that, we have also obtained stand-alone clearance for several of our MagnetOs products, which basically differentiates us not only from the competition, but also shows to surgeons that they do not need to use bone in combination with our MagnetOs product. And then last but not least, in line with the strategy that we set in the first half of the year, we have also expanded FDA clearances outside of spine, so in extremities specifically. And this non-spine area has increased the addressable market to $3.9 billion annually. Next slide. So this is the MagnetOs study that has been published in Spine. I should say this is an independently performed study, Level 1 prospective study in 5 centers, where at one side of the patient, the gold standard product was placed, which is patient-owned bone tissue. And at the other side of the spine, MagnetOs was implanted. Altogether, 91 patients were evaluated, and this showed that MagnetOs demonstrated 73% higher fusion rate compared to the gold standard autograft. So tremendous results, first time that this has ever been shown that a synthetic product like MagnetOs is superior to autograft. And next to that, it also shows that in a real-life patient population, including smokers, and here, we had about 19% smokers; MagnetOs is not negatively affected. You can see in the bottom right that patients that were smoking had a reduction in fusion from 47% to [ 30% ], whereas MagnetOs remained almost constant. So great data, and we're really excited about this. Next slide.

Yes. So basically, also from my end, a warm welcome. As Chris already alluded to, we had a tremendous growth now in the first half of '24. And what we're also going to show here and demonstrate is that we also grow quarter-over-quarter sequentially. So what you have seen from Q4 to Q1 was about an increase of 1.6 and then another increase of about 3.8 from Q1 to Q2, which equates, as I said, to a growth compared to last half year of about -- or prior year -- half-year of about 148% total revenue. On a constant currency basis, we even grew by 157%. Important is also that we have been able to obviously increase the volume, so we almost tripled compared to H1 '23 and continue to see a growth trend similar to what we have seen in the past, but we'll talk about the forward-looking in the future. So basically, from a cash perspective, as Chris as well alluded to, is we have currently about CHF 14.3 million in the bank. We can now clearly confirm that we are securely financed. There's no need for external debt in order to finance the organic growth path as it is planned. We have also some plans, obviously, as we announced already; to grow outside of Spine. And we have currently, as it stands, also the means to support that, but we'll talk about that also later on. In terms of ownership and shareholder, we were slightly able to increase the institutional shareholder base. But as you can see, this is a very stable strategic shareholder community. And we continue to obviously do on the IR front, a lot of activities where we also participate in a lot of investment conferences and will continue to basically get to know Kuros to the rest of the world. If we then look at the segments, as discussed, MagnetOs grew over last previous half year, almost [ 160% ] which again is the seasonal pattern we have now also thrown out in the outlook. We will come to what around 60% means. But this pattern, we have seen 40%, 60% is about stable. And again, it's a testament of the high growth trend we are still in. If you look at the sales and marketing costs, they are now clearly coming down, which was the anticipation from the start. So we want to keep that obviously well close -- below 60%. On a go-forward basis, we also see it about in that corridor. This translates then basically in a fantastic EBITDA of almost 27%, which, in essence, helps us to fund all the other segments, and is also now for the first time, almost bringing the group to a cash flow breakeven. If you look at Fibrin-PTH or Pharmaceuticals segment, as we indicated at year-end, we're going to discontinue this segment now. We have also been able to reduce the cost from our initial estimate, which was on the cautious side. Initially, we estimated that we will incur for the full year roughly CHF 2 million to CHF 3 million, and we can now say that it will max come out at 1.5 million to 2 million. We will see certain catch-up. There was some time lag, which will eat some of the EBITDA in the second half. But overall, we are comfortable that we're going to be able to compensate that to a certain extent. Then last but not least, the corporate functions or the G&A functions, here, important to note is that out of this proportion we see of roughly 22%, about CHF 1.8 million of that is relating to this one-off share-based payment effect we had out of the CEO transition. And if you factor that in, then we are at the run rate of roughly 15%, 16% compared to revenue, which again is going in the direction we want to have and is on track. At the same time, obviously, we want to stress again that this is still a growth phase we are in, and we will continue to invest into different corporate functions. So we need to build on, as said, investor relations, but we also build on legal and M&A activity. But again, we will come to that also later on. But overall, obviously, there is a trend to invest into digitization and automation. And last but not least, and this is now the non-GAAP measure we have introduced. As you can see, the group EBITDA was roughly CHF 0.7 million for the full year, will also be a positive single digit. But if you factor out the noncash effect, which almost equate to CHF 3 million and the Fibrin, which I said is a discontinued business in the long run, then we added -- ended up at roughly CHF 4 million, which equates to 12.5% adjusted EBITDA margin. Again, a testament to the success of the company, and we will continue to obviously manage this that we can further drive that up.

So when we look at the overall marketplace from a spine market and then a non-spine market opportunity, by 2030, this becomes a $5 billion global spine and non-spine market opportunity. Currently, we're operating at -- again, if you look at our revenue base and you look at our market penetration, with tremendous success year-to-date and over the past several years, there is a tremendous amount of upside for us to achieve. And so as we look to the non-spine market opportunity of an incremental $1 billion and looking at our efforts in that, we will be investing resources, people, clinical studies to ensure that we attack that marketplace as effectively as we have attacked the spine marketplace. So next slide. So when we look at the organization and we look at the first half of the year, what we have set out to do and what we have informed our investors what we were setting out to do, we have achieved and then some. We have developed an organization we are growing from a top line, but also doing it in a fiscally responsible manner, where when you compare our results to industries, competitors out there and other benchmarks, we're clearly ahead of others. And this is a testament to our team that we've been developing. We're recruiting and retaining the best-in-class talent and continue to do so. The business has been derisked. We have no debt. In order for our organic path forward, we do not see a need for debt. When we look at the data, we are the first group to show from a synthetic biomaterial that we are better than the gold standard by a high factor. And so with the high growth coming from the U.S., the tremendous opportunity we have outside the U.S. in our commercial channel, we're extremely positive about the future. Being EBITDA and cash flow generating this early is also a positive and a testament to being focused on the fundamentals as an organization. So again, we're extremely excited about our results in the first half. As far as the future and our path forward, we continue to see a pipeline of growth opportunity. I think that as we set out the goals from a -- to be a $100 million business within 5 years, I think we stated that about 2 years ago, we're well beyond that clip. And so now it's where we set the mark going forward. I think the growth rates from a surgeon attainment, our sales agents, that will continue into the future. And the future is extremely bright and the opportunity is even greater for Kuros. So with that, that will conclude the formal presentation. I'll hand it over to Laura to handle any questions.

Yes, I'm sure. So good afternoon also from my side. And thank you, Chris...

I apologize, there was this last slide. I forgot about this.

I thought so.

Sorry about that. No, just briefly, I wanted to touch on the -- we've talked about the 60-40 split within revenue, and where that comes from having predominantly our U.S. revenue base, the fourth quarter from a procedure tends to outpace the other quarters. And that's just how the health care system in the U.S. is set up. So we do see a blend of procedures leaning more towards the second half than the first half. On average, it's somewhere in the 40- 60, 43% to 57% split. So when we look at our revenue and we look at the go-forward basis and we look at the first-half revenue, we use that as an indicator on a go-forward basis. And that's the fundamental reason why we discuss about a 40% to 60% split. It's procedure volume when you're a U.S.-based business, whereas 95% of our revenue does come from the U.S. So that is the explanation there. I apologize for missing that slide. And then again, we continue to look at a single-digit EBITDA, both unadjusted and adjusted for nonrecurring and noncash items, and breakeven in cash flow for the first time as an organization. And that's tremendous from a company at our size and our growth rate and our revenue. In our marketplace, it's unheard of to be at this stage this early. So again, a testament to the product, a testament to our people in growing this business in a responsible manner. So with that, I'll turn it over to Laura. I apologize.

Okay. Thank you, Chris. So we will now start with the moderated Q&A session. I have prepared some questions on the H1 financials, but also, of course, on the strategy and the midterm outlook. And as usual, at the end, we will open then the floor for further questions from the audience. So maybe starting with the strong sales performance that you have shown in H1, which is really impressive, almost 160% growth in local currencies and also the sequential growth every quarter with close to CHF 18 million in sales. Can you maybe give some more color on the growth pattern, especially after you released the MAXA data? I mean, what were the reactions in the market? Have you seen a further uptick even? And also, what is your estimate of the share of sales in the new interbody fusion indications that you have now across your product portfolio?

Great question, Laura. A couple of things to note. The sales cycle process, if we're focusing on the domestic U.S. revenue, it tends to be around 6 months from initiation to use product to actually being able to use it. And that 6-month pipeline timeline is affected by getting access at a hospital, being on a pricing contract and getting through [ VAT ] committees and things of that nature. So we literally can look at our pipeline at 6-month intervals. And we will -- so all the work that was done in the effectiveness and the wins that we had in the first half of the year were really seeds that were planted in the second half of last year. And so when we look at the effect of MAXA on our marketplace, we're going to see that on a go-forward basis. And so what it really has done for us in the short term, has bolstered our position in negotiations with hospitals from a pricing and a positioning and showing other products that we can be seen equivalent to for replacing in a hospital system. And so that -- and that also has helped from a reputational standpoint with getting new clinicians on board. Being published in Spine Journal is not something that's easy to do. It is the premier journal for a reason. And so being able to be published -- accepted and published in such a quick time frame is really a testament to Professor Moyo's work as well as the quality of the study and the quality of the technology. And so we're -- we believe that the results from that are yet to be seen. Again, we look at these -- the pipeline, it seems relatively robust with the opportunities that we're growing into just on the spine side, let alone the non-spine opportunity. So we look at this pipeline relatively quickly. As relative to the interbody indications, it's much like the MAXA data, in that it supports our positioning within the hospitals to show clearances that other products do not have. So when they're looking to minimize the number of vendors in a contract, we can walk in and say this product can be used stand-alone, here are the clearances in the interbody, here are the clearances in posterior and extremities, et cetera. That helps us from a competitive advantage standpoint. So -- and again, from a market share perspective, as the previous slides noted, we have single-digit market share. And so there's plenty of upside to grow from there. But that's really how we utilize the data from the FDA clearances and then also the MAXA data.

Okay. I think that's very clear. Then maybe on the sales outlook for this year, which you just explained with this H2 contribution of 57% to 60% of sales, I mean, this basically implies up to CHF 80 million in sales for the full year. So partly maybe already answered by you, but anyway, so what gives you the confidence to achieve this? It's still quite a big number in absolute sales to be delivered in the second half. And also, how should we think about the growth trajectory in the medium term, given the increasingly higher base that you will have?

No -- thank you, Laura. And again, we've been very busy, obviously. So I think that, first and foremost, we are spending more time, and Daniel made this point earlier, investing into infrastructure as well as personnel to make sure we're tracking the revenue, the pipeline, understanding where the revenue is coming from, the number of surgeons we're onboarding, ensuring that they stay onboarded and continue to use the product. And so we are -- so we feel more confident when we look at our data on the daily and we look at the pipeline of opportunities, how quickly those are transitioning. And we are seeing those transition a little bit quicker over time because, again, as you build up revenue and you build reputation within the marketplace and people get the results that the clinical studies have bolstered, you get this wave of clinician support. And that just -- the best type of selling is surgeon-to-surgeon selling when they're telling their friends and their colleagues, "Hey, I've been using this product and getting great results." And we're starting to really see that impact in the marketplace. And so the confidence on achieving such numbers by looking at the pipeline and looking at really where our revenue and the surgeons we've added just in the second quarter over the first quarter gives us that confidence in the short term. In the midterm, clearly, growing with a much -- from a percentage basis, it's difficult to continue to grow that percentage basis when your base gets much larger, right? And so that's kind of an obvious statement. But I think when we really start looking at market penetration by surgeons, market penetration by just usage and indications in spine, we are going to continue on that growth clip on a go-forward basis. I think the non-spine opportunity will also add fuel to that revenue growth on the midterm. I think that what we'll see our transition into the non-spine marketplace in the short to midterm, will be tremendous. I think that one of the quick things we look at is we've already done a lot of heavy lifting into getting into hospital systems across the country being put on the shelf and cleared as a spine indication now with extremity indications, one of the simplest tactics to move forward with would be to really to sell and market to physicians within those hospital systems. And so in the second half of this year, going into the first half of next year, those will be some of our immediate tactics, which will see uptick in the revenue. So we're extremely positive about the outlook going forward.

Great. So could you maybe update us on how many independent sales agents you currently have in the U.S. with how many sales reps. And also, how much this will increase in the coming years?

So when we look at the percent -- I don't think we've disclosed total number of sales agents, but when we look at the percentage increase in the first half of this year from the second half of last year, we've increased to 25% on the number of sales agents. And just for the audience, each sales agent will have anywhere between 1 and on average, 5 to 6 sales reps. So depending upon the location and depending upon their individual geography, that kind of will color how many feet on the street there are for us as an organization. The 25% pickup in second half to the first half, we anticipate maintaining that cadence going forward. And part of that is, again, as we mentioned before, in the U.S., we're expanding Westward geographically. But now we're going a little bit deeper in each of those geographies, not just to paint the territory, but also to get the right people and to penetrate certain marketplaces. We may be selling in, say, in the city of New York City, but we may not have enough representation to touch on all points. So now it's a matter of continuing to deepen that reach. In addition, adding nonsales -- non-spine sales agents to the mix will also feed to that growth. So we can anticipate a 25% first half -- 25% second half over first half and that continued growth going forward into the near future.

Okay. Then maybe outside of the U.S., sales seem to be picking up, although, of course, they are still at a very low level compared to the U.S. So what is your strategy and maybe also your financial objectives here?

So outside the U.S., we use stocking inventory distributors, where we sell it at a cost-plus model. So the revenue will always be different model than, say, in the U.S. where we receive end-dollar revenue and also take expenses like SG&A out. However -- so they purchase the inventory from us outside the U.S. and resell it. The challenges outside the U.S. are greater because each marketplace, each country has its own set of individual rules, regulatory clearances, distributor engagements, finding the right partner. And so I have tremendous kudos to our team, our dedicated team that is focused on the international efforts from the sales to the marketing, as well as to the quality and operations and -- because each country is different. And so the traction we've received moving from 11 markets into approaching 20 countries this year alone is a huge accomplishment. So where would we like to see the OUS revenue contribution? I think over -- in the midterm, we'd like to see that climb to about 10% contribution of our revenue. And we are extremely excited about the progress in the countries that we're entering into and the transition that's happening. And when we think about the product in general, outside the U.S., there are limitations on what products from a bone grafting can be used. There are limitations on whether cadaveric tissue can be used in each given marketplace just due to safety concerns or due to religious reasons or whatever they might be. There's also even bans in certain marketplaces on advanced biomaterials such as BMP, where they're not available. So a product like ours, which is proven as an advanced biomaterial for bone grafting that is synthetic in nature with no human tissue is really ideal for OUS marketplaces. And so we are seeing that uptick, and we're seeing that excitement. And now with the published data in a global journal like Spine, that is really assisting our efforts. And so we, again, tremendously excited about outside the U.S. And the progress we've made in such a short period of time is, again, a testament but not to the market -- but not just to the market, but also to our team who are focused on it.

Okay. So part of your strategy, as you just explained before, is to enter into non-spine markets. I think combined, you said it's a $1 billion market opportunity, and you can leverage your existing footprint. So what is your initial experience with this strategy? And also, how much revenue are you already generating revenue coming from these incremental indications?

So we announced in the first quarter of our intention to enter this marketplace. And as an organization, historically and to this day, we remain a very focused and methodical organization on how to do things the right way, ranging from how we build from the science and product development portfolio that Joost will talk about, as well as our commercialization strategy. So we announced in the first quarter that we would enter the non-spine marketplace. And in the second quarter, we started doing -- deploying resources, interviewing KOLs, looking at the marketplace, identifying the right opportunities to where to position, say, our clinical studies. And so we'll have future announcements in the very short term of our progress. Our revenue to date is relatively de minimis at this point in time. So it's completely all upside to the revenue that we're seeing today. What we have seen is that there is a need for a product that is proven, a product that has the qualifications that ours does. And when we speak to surgeons, it's making them aware of the clinical data, especially when we start talking about the data of MAXA and smokers, and we start talking about vascularly challenged patients and extremities, there's a tremendous opportunity there for us. So we're extremely excited about this. We are deploying resources. And as we move to the second half of this year, into next year, we'll start to see a revenue uptick. And as I mentioned before, I think the easiest thing for us to do from a tactical standpoint is, as we've already entered hospital systems and gotten on contract, expanding our usage from spine users to non-spine users within a hospital system, we don't have that 6-month waiting period. And so then it's just a matter of identifying the right physicians to partner with and the right sales agents and moving forward. So in essence, we should see a faster uptick in the non-spine marketplaces where we're already in there as a spine product.

Okay. Thanks for that. So new product development is a key of your strategy. Please, could you walk us through your various projects that you have on the MagnetOs family, but also maybe other interesting developments? And also, what are your expected timelines for the launch?

I'll let Joost handle that.

Chris, yes. So we continue to innovate with our MagnetOs portfolio. That includes developing devices and formulations, which are suitable for new applications and minimally invasive surgical approaches. I think we mentioned that before. And there, we expect already the first launch of a new product in the first half of next year. Next to that, we are -- and we also mentioned that, I think, in Q1, we are exploring new osteopromotive platforms using our surface technology for other implants and devices, which have a huge potential value. These studies are -- obviously, we followed a staged approach. First, scientific, we are scientific based. So evaluate in the lab. Then we go to preclinical studies, which means animal studies. And ultimately, we go to [ clinical ] and human studies followed by regulatory clearance or regulatory approval. So those technologies or those new product technologies are now in the animal stage. So that will take some time before they will be commercial.

Okay. And maybe just to follow up on that. So this H1 '25 launch that you mentioned is minimally invasive formulations, this would be for spinal fusion, I guess?

Yes.

Okay. But it would be like MagnetOs new formulation in a refilled syringe? Or how should we envision that?

Yes, there will be a MagnetOs for use in a minimally invasive surgery. So you need a certain device to allow the product to be inserted in and around the spine.

Okay. But it would not include this device, it would be just a formulation?

No, it's the entire thing.

It's the entire thing. Okay. Okay. And then the new product you mentioned, you said like the new surface technologies for devices. Would this also include that you would also then do the hardware by yourself? Or would it require a partnering with another company? That's the first part of the question. Then the second one, you say it's now an animal testing. So when could it be ready for launch?

Yes. So a very good question. So basically, it's in the first stages. So there could be several iterations that are required before it's shown that the topography works. So we have to evaluate that first. And whether we will develop our own device or use others or existing devices, that still needs to be determined.

Okay. So maybe staying with the product innovation or the clinical studies, you still have a couple of clinical studies underway on your MagnetOs products, where you compare them to other competing products. I think this includes bone graft, but also cell-based -- bone graft such as cell-based products and if I remember correctly, even the [ Medtronic's Infuse ] or another growth factor. So when might all this data be available?

Yes. So should we realize that we are doing prospective and retrospective studies. In some of those studies, most of the prospective studies actually are investigator-led, so they're not sponsored and not done by us. And several of the competing products that you mentioned will be done in those types of studies. So they're not driven by us. We know about them, and we support with our MagnetOs. The initial -- so we already have several studies purely based on MagnetOs retrospective studies, which a couple of them have already been submitted for publication that would -- should allow actually first publications already this year. Some of the other studies, comparative studies, retrospective and prospective studies, data will be -- the first data will be there first half of next year and continuing that. All these studies are in different stages of progress. So it's -- it will be the coming years that we will have a continuous line of results or data that we can put out.

Okay. Maybe then I would like to come back to the financials for Daniel. Question, so in H1, you achieved an adjusted EBITDA margin of 12.5%. I think MagnetOs, on a stand-alone basis, was even 27%. So now you also updated your guidance for this year for the single-digit EBITDA, both adjusted and unadjusted. And to me, this implies a flat margin or maybe even a slightly lower margin H2 versus H1 despite the higher revenues. So is there anything kind of unusual in the numbers that I should consider? I have, for example, noticed that the sales and marketing ratio fell quite below 60%. I think your initial target range was 65%. And I think the R&D piece you already mentioned before. So I think I would like you to walk us a little bit through the building blocks of the guidance and also the assumptions on the cost base.

Yes. Yes. So as said, our assumption currently is that we will land somewhere in the 10% to 12% adjusted EBITDA range. If you look at what is in this P&L, which is either nonrecurring or noncash, then you have two items, which you already adjusted in the EBITDA. One is, as said, the Fibrin-PTH cost, which we will see the total of 1.5 million to 2 million. So if you look at current expenses, which is, let's say, around 400, you will see another 1.6 max going into the P&L, right? So this will eat some of the EBITDA. But then obviously, what we also will see continuing is the share-based payment expense. As said in H1, we had roughly 3 million. If you look at it from a recurring and nonrecurring perspective, total is about 4.5 million to 5 million, somewhere there where we see it. Again, this is would factor in the recurring and demand recurring. And if you consider all of that, then I think a range of 10% to 12% is about reasonable. So now having said that, if we go to the building blocks, the gross margin is not a miracle. I think we always say that it's somewhere in the range of 90%. The gross margin sales and marketing cost, as said, our target is that we keep that around the 60%, which we are currently trending towards. We were even a little bit below that, that's correct. In H1, roughly 58%. But as Chris alluded to, we obviously want to continue to invest in growth. And we also want to invest into growth outside of spine. And this will mean that we have to invest into personnel as well and will, to a certain extent, a little bit increase it. If you look at R&D from a run rate perspective, we are somewhere in between 7% to 9%. And there, I just look at the MagnetOs business now. And then we have [ QA, RA ] between 2% and 3%. And GA, as said, we have a run rate of 15%, 16%. And if we continue like that, obviously, with the sales growth, we should further bring that down, but that's about the building blocks we are looking at right now. This would lead us to this positive single-digit unadjusted and adjusted EBITDA.

Okay. Thanks, very clear. So given the progress you have made, which I think is also ahead of the plan, so what level of sustainable profitability do you expect medium term? And also maybe how should we think about the margin development progression over the next few years? On a group level, maybe...

I mean, as I said, I mean, our target is to obviously catch up with the benchmarks. As Chris alluded to, we are still in this high-growth phase, which means that we will continue to invest into systems, but also personnel. So one of the things we are currently tackling is a new [ ERP ] system, which is fundamental to automate the full value chain. And obviously, if you follow a SaaS model, you're not able to capitalize that. So it will flow into OpEx, as an example. So things like that, we'll continue to invest. And that said, we also need to invest into functional expertise, which means that we will continue to invest into people and in-source people, given we, to a certain extent, worked with an outsourcing model in several aspects, right? So things like that, we continue. But we also continue obviously is the production capacity, needs to be increased, I mean, which is obviously a good problem to have for a CFO and the CEO, right? So basically, what we are currently looking into is how can we further expand the production facilities outside of the current building we are in, so there is an opportunity, which we are looking into in several aspects. But in the end, that's certainly also something we need now to factor in, given the growth trend we see. So having said all of that, we see potential, definitely, to further improve the EBITDA margin. But let's say, this adjusted EBITDA margin of 10% to 12% will probably grow slightly over the next 2, 3 years. That's about the target we currently have.

Then on the operating cash flow, you said that you expect to be around breakeven this year. So what is here your assumption for the CapEx and also the net working capital requirements going forward? And also, as you approach -- that's a little bit a housekeeping question. But nevertheless, as you approach the profitability, do you have any tax loss carryforwards to use? And also, what is the tax rate we should assume in the future?

Yes. So if we start with net working capital, we see roughly consistent investment in comparison to sales of roughly 20%. We need to further invest into net working capital. This is obviously always an upfront investment, which then obviously turns into cash flow. At the same time, as said, from a CapEx perspective, we are growing out of the structure we are currently in. We have mentioned at the beginning of the year that we had to do minimal CapEx so far of well below 1 million for additional [ ovens ] , but we now see again that this will hold for a certain time, and then we outgrow that again. So this will mean that we will certainly spend more than this rough 1 million CapEx we had on a yearly basis. And this will, in the next 2 to 3 years, grow to overall over the next 3 to -- 2 to 3 years, yes, 5 million to 6 million, somewhere there. So on a yearly basis, we haven't looked at the timing, but we will certainly have to invest more into a facility. That's clear. I mean if you just look at Atlanta office, they're running out of space now in the very near future. And things like that, we just need to continue to grow in that respect, which again is a good thing to have. And then last but not least, your last question was -- can you remind me?

The tax loss carryforward and the tax rate.

Yes. So the tax rate in the U.S. is roughly 27%. The U.S. is acting as a limited risk distributor, which is kind of a normal benchmark approach. So we [ leave ] about 5 -- 3% to 5%, which is a traditional benchmark from a tax perspective. So this is the only country where we currently pay cash tax. In the Netherlands, we have the [ IP box ], as you probably know, which basically lowers the cash -- the tax rate to 19%. And there, we can more or less make use of all the recognized deferred tax assets. So we're also not paying there currently any tax. What's the left is the unrecognized tax loss carryforward, which equal at year-end, roughly 40 million, which translates into an asset of about $8 million. We are currently looking into tax structures how we can make use of that. I mean when we moved into Switzerland, the first reason was not tax, but obviously, we were looking into what kind of tactics we can apply there to make use of that because as you probably know, some of it will fade in the foreseeable future. But as said, that would be the target. Currently, the tax rate we apply on a go-forward basis is somewhere in between 19% to 20% on a blended basis.

Okay. Then I'm almost at the end of my questions before we open up. So maybe just on the funding situation, this looks very solid. You had CHF 14 million cash at the end of June also said that you are well funded to pursue your organic growth path. Now I'm just wondering if you would perhaps share your thoughts on potential external growth opportunities. Is this something you already look at? Or is it something you might consider in the future? And if so, what areas might be of interest?

Yes. So I mean, I can say something about the financing strategy, and then I will pass it on to Chris. As said, the CHF 14.3 million clearly gives us sufficient cash to run the organic growth path. And as I alluded to already in my part, it will also allow us to look into potential technologies, which compensate or basically enlarge our product offering. So that's certainly an option we are looking into. We obviously will build up some [ BD ] M&A function internally and externally. But as said, currently, we are still at that stage where we explore the situation and the landscape. And yes, with that, I hand over to Chris.

Thanks, Daniel. I think that when we look at how this organization has been built from a commercialization and profitability perspective and we compare against our peers, it's doing things in a fiscally responsible way. You'll see some companies that will sacrifice profitability for high-level growth. We have been able to achieve both. We've been able to achieve a high level of growth, but doing it in a fiscally responsible manner. When we talk about nonorganic type growth opportunities, we're going to do it in the same methodical way. We're going to be very selective about the technologies that we entertain and the types of technologies we think from the reputation that we've been -- that we've built within the community that represents our values, that are scientifically sound, that are musculoskeletally driven and so -- and biologically focused. So I think that we've initiated those efforts. I think as Daniel alluded to, we are going to invest in some [ BD ] resources internally and externally to continue to move towards that. We are, as an organization, are rare. We have no debt, especially in this day and age, no debt, high growth and profitable. And so that allows us to be a really good partner for another technology that might make sense for our sales force. So we're excited about that opportunity as well, and we'll be investing in that. But it's early stage and early days relative to the that opportunity.

Great. So thank you very much. Chris, I will now open up the floor for further questions from the participants. [Operator Instructions]

A few questions. So maybe I can start with the first one. Could you please discuss the competitive landscape as some of the players -- the question mentions explicitly. BoneSupport indicated that they want to go into the spine by next year? Any comments to that?

Certainly. When we look at the technologies, say, BoneSupport, which is an excellent company in its own right; they are market adjacent, really not a competitive marketplace to us. Using a cement for fusion procedures is not something that's normally done. And so they are market adjacent. They're talking to spine surgeons using a cement product or non-spine surgeons using a cement product, not a advanced bone grafting material like ours. So it's market adjacent, it's not market competitive. And antibiotics, I'm sorry, with their cement. So again, not a direct competitor to the company, but certainly in the same marketplace.

Okay. And there's, I think, a follow -- or let's say a question which you touched upon in some areas. As the market for orthobiontics looks rather fragmented, would you expect more consolation here? Is Kuros an M&A target or the other way around? Would you be interested in buying competitors?

I think as we just addressed, looking at the right M&A opportunities for us to acquire would have to make sense. We wouldn't be interested in combining companies with similar products, right? So I think we'd be looking at spreading our category. We believe we have best-in-class advanced biomaterials for fusion. I think looking at market-adjacent opportunities for growth utilizing our infrastructure would make the most sense from an M&A perspective. Relative to us being a target for acquisition, I can't comment on that. I don't -- I think that, that is one of the things we're not in control of that. We're going to continue to grow this business. And if that becomes attractive to somebody else, so be it. But we're just going to grow this business the best we can.

Thank you, Chris. There is another question more on the guidance. Isn't the revenue guidance just very low for H2 with your 60-40 pattern, as you have increased the sales reps on the one side and it does take 6 months for those sales reps to get productive? In addition, you said you want to continue to increase the number of sales by 25% in H2. Does that imply a reduction of the productivity of your sales force? Or how would you comment that?

So there's a little nuance there, right? So when we look at -- when we talk about a 60%, 40% split, that's relative to the procedure volumes that we see in the United States. And so that ends up driving revenue. So if we have existing customers and they do 60% of the procedures in the second half, and the 40% of that will see a lift in our existing revenue. When we talk about the 6-month pipeline, that's bringing a customer, a surgeon or a hospital onboard. And then sometimes, you may be working with a surgeon and hospital A, but hospital B is not onboard. It will take 6 months to get that account up and ordering. And so that's where that 6-month comes in. From a timeline perspective on how we actually go about getting our customers, when we engage a sales agent, and then we take that sales agent and we train that sales agent, then they find a customer who becomes interested; then it adds 6 months. So it's a -- the 6-month timeline is related to once we have interest in a customer, but it starts well before that with the pipeline with the sales agent. So when you start stacking that up, the 6 months is actually a little bit longer when we start adding sales agents. You can't achieve the future numbers without incrementally increasing your sales agent base and -- because that gets you access to the customer. So there is a bit of a change. So I think the question is a valid question. It is not a -- certainly not a collapse and inefficacy of sales as indicated, but it's really showing that there is a long time frame from getting a sales agent onboard to getting an interest with customer, to getting it through the hospital. The 6 months just refers to that last segment.

And then there is one more. Are collaborations with the an option you consider to further speed up market penetration for the MagnetOs family? For example, in additional indications, where you have no interest in your own for example, dental applications or trauma mentioned here.

So I think it's something we would consider, so long as it's not something that would take focus off the core business. I think that we are focused on the musculoskeletal space. We certainly are aware that technology can be used in dental other applications. But right now, with the early days of market penetration in musculoskeletal, we still see a lot of opportunity to focus our efforts there, so as to not dilute the efforts of that. If a partnership were to present itself that was like that, was beneficial to the shareholders in the company, we would consider it, but it's not something we're focused on. We are focused on growing our market share within spine and kicking off the non-spine efforts and doing that in a fiscally responsible manner.

That's all from my side. Handing back to Chris, I guess, for concluding remarks.

Thank you, everybody. I want to say thank you to Laura and Serge and team for hosting this. I also would like to say thank you to all of our team members globally for their efforts in the first half. We have seen a tremendous uptick as an organization. The future is extremely bright for our company. We have many more achievements to reach this year as well as going forward in non-spine marketplaces, and we're excited. And so again, I want to say thank you to everybody who spent the time to hear our story today, and thank you to Joost and Daniel and all those who are putting this together. So with that, I will conclude and say to each of you, have a good afternoon and the rest of your day.