Kuros Biosciences AG (KURN) Earnings Call Transcript & Summary

Welcome, and thank you for attending our presentation and as we discuss our 2024 earnings and outlook for the future for Kuros. What a fantastic year we've had, and we're very excited to present to you our results. So we'll go through the results of the organization. I'm also joined by my colleague and CFO, Daniel Geiger, and we'll walk through and take Q&A sessions at the very end. So if we can start with the slides. Obviously, our disclaimer slide relative to our business, we can move forward from that. 2024 was an unbelievable year for the company. When we look at what we've accomplished, not just in the order of magnitude of revenue growth, but truly the accomplishments of our team on a global basis. We were able to not just achieve exceptional sales results, which we'll review in greater detail, but also Level 1 published data for a biologics in a space that has no data for products like ourselves. The expanded regulatory clearances that we have in both spine and extremities and in extremities, allowing us to enter new marketplaces and also increase the global addressable market. The strategic agreement with Medtronic, which we signed in very early of this year in January, but we have had a relationship with in a small pivotal trial really sets the stage for our growth going forward and is a major accomplishment for the organization. We now have a very clear focus on our commercial execution path. We have proven it. We have invested in scalable operational expansion, and we'll talk a little bit more about our digitization of the business and what that means to our overall operational efficiency as we move forward. But again, setting the groundwork for increased revenue growth as well as operational opportunities. When we start looking at the revenue growth, it's not just in the U.S. We've made leaps and bounds of growth in the international marketplaces, which really, as we look at the opportunity for a product like ours and MagnetOs, having a synthetic product into international marketplaces is something that from a competitive standpoint, you don't have the opportunity to do with products such as cellular bone allograft, which is traditionally not accepted in those marketplaces. But we look at 136% top line growth of MagnetOs sales. That is a tremendous, tremendous result and really comes as a team, everyone from the operational team, from a manufacturing standpoint, from the sales leadership, our partners and the independent distribution network to our finance and quality people who keep the machine running, a tremendous result for the entire organization. But also when we look at the future, when we talk about what we've actually built over a short period of time, the EBITDA growth, we have a profitable business with no debt, with high growth in a MedTech space. We have derisked this business and set a foundation for growth for the future and Daniel will talk a little bit in greater detail relative to the intricacies of our financial metrics, but going into a $9 million EBITDA or 11.9% margin adjusted after the Fibrin PTH write-off. That is a tremendous result, and there are very few organizations out there in our community that can boast such results. Again, very well financed through finance for our organic pathway. Next slide, please. So when we look at our marketplace and we talk about our penetration, and again, most of our revenue does come domestically in the United States. We have shown in the last previous slide, a 2.5% surgeon utilization. That is now up to 7% of U.S. spine surgeons are currently using MagnetOS. That is a tremendous uptick in 1 year's period of time, but it also highlights how much more we have to -- we can grow within that marketplace. The relationship with Medtronic certainly provides that firepower to allow us to go grow domestically. But also when we start looking internationally, it spills over into that marketplace as well. With the increase of independent sales agents that are representing our products has increased year-over-year 65% and our hospital penetration 85% year-over-year. By expanding with Medtronic and then our expansion efforts into extremities, which we'll talk about shortly, also is a growth engine for us for the future. Next slide, please. When we start looking at the globe in general and we talk about where we started in 2024, we were selling in approximately 11 countries outside the United States. I'm happy to say that our team of international experts have grown that business to well over 20 countries and we are registered and we are growing and as you can see from the marketplaces there from Saudi Arabia to Jordan and Kuwait, Lebanon, Brazil. Brazil is a marketplace we're very excited to enter this year. We will be down at the Global Spine Congress in Brazil this year. And so I think that as we continue to grow this business, it becomes more and more important for us to be a global business. And so our efforts here are ongoing. Next slide, please. So as we've talked about before, as we continue to grow and build the foundation within the spine business, we are now ramping up our efforts in extremities. And extremities, we look at in 2 predominant areas. One is foot and ankle and the other is in trauma. And as we've phased our approach and entrance into the extremities marketplace, we are leveraging our growth in spine. As an example, if we're already present in a hospital system because we're on the shelf and being sold into spinal procedures, our time to spool up and create revenue for the extremities business is very small as compared to if you're going in cold and there's -- it takes about anywhere between 4 to 6 months to go through the registration process to go through hospitals to get your surgeons using again. We are building the extremities business in the same methodical pathway that we built the spine business. We identify in a Phase I approach where we identify key opinion leaders, we identify the clinical studies that are relevant that are required for us to get customer and consumer confidence, and we start to execute on those. That is what's occurring currently. In the first half of this year, it is less focused on growing the revenue fast, but growing the evidence for our customer base. We will have revenue in the extremities business. It's already continuing to grow. But our focus is building on what we've learned in the spine business, extrapolating that over to the extremities business and continuing to grow that. As we see that and as we continue to grow the revenue, we're doing this in a very efficient manner. You can see that the sales and marketing impact as a percentage of revenue has come down drastically quarter-over-quarter or half over half. And we continue to see that going forward. But we are making investments into the extremity business. Essentially, you can think of it as building a business within the business. And there's a great opportunity. It's a $1 billion market opportunity between the foot and ankle and trauma businesses that we're excited to go after. We believe that our product is very well positioned and the early results and the early feedback from our physicians and KOLs that we've already associated with and the independent distributors is amazing. Next slide, please. Leading on the last comment on the G&A expenses as a percentage of revenue, you can see that the slope has come down quite a bit since 2021, but we also have discontinued the operation of Fibrin PTH. We wrapped up all of the costs associated with the Fibrin PTH platform in 2024. So going forward, that is no longer a cost center for us. Also one last moment, the potential to receive the $21.3 million milestone payments and up to $142 million sales milestone payments from the legacy assets still remains within the system. Next slide, Daniel.

So also from my side, a warm welcome to everybody, ladies and gentlemen, a fantastic year, as Chris already alluded to. We achieved our revenue target, which was 75% to 60% for H2, and we landed roughly at 58%. Also, we doubled basically quarter 4 compared to last quarter 4. Again, the revenue and what you can see now on this slide is also how the revenue is basically ramping up over 2 years. So we have seen a volume growth as well as revenue growth of more than 450%. At the same time, we have also seen increase in contribution margin, which was, to a certain extent, driven by product mix price effects but at the same time, we were also able to negotiate volume discounts. And therefore, you see this curve and the steepness of the curve continuing. And at the same time, we were able to reduce the fixed cost. So the fixed cost over the same period just rose about 100% compared to 450% on the revenue and the volumes. And as a consequence of that, we obviously achieved a great operating leverage, which then led to the profitability in the company. And when I say the company, it's also important to understand now that we are now basically one platform and basically have now allocated all the costs to the MedTech segment. And the MedTech segment, and this is really with proudness, I say that we have now achieved, as we discussed at half year, an EBITDA in the high single digit, and we also achieved 2-digit percentage margin. So 11.9% is coming down from 12.5% at the end of H1. But what you need to consider, and this is what Chris basically alluded to is that we have built up and ramped up the extremities team, sales team with now being ready to enter that market as well. Important to understand is also that not only we were positive from an adjusted EBITDA perspective. But if you factor out the impairment charge, which we have seen in the Checkmate asset, you will realize that overall, we now also reached a profitability level. So if you adjust for the $5.1 million impairment we have seen with Checkmate, then we actually achieved in the MedTech business profit of $1.3 million or $1.4 million basically. And that, again, is a tremendous achievement and basically also a testament to the success and the trajectory we are on. If you then look at the financial basis, which has progressed very well, you can see that we were able now to achieve and generate a cash flow breakeven. But more than that, we were able to generate operating cash flow of almost $4.7 million or $5 million rounded, which again, if you look at it from a cash and cash equivalent perspective and factoring in CapEx, which we mentioned at half year that we will double capacity in '24, again, well under $1 million, and this CapEx does not only include production capacity CapEx, but also equipment and other CapEx items. We were able, together with the LTI exercise to achieve almost $3.8 million of additional cash and this additional cash will also help us to now pursue the strategy of organic growth and will basically help the company to continue on a stand-alone basis without any need for funding. And with that, I hand over back to Chris. Thank you.

Thank you, Daniel. Again, tremendous results in a very short period of time. If we can advance the slide, please. So we talk about the future and we talk about our market share and our market opportunity and where we sit in this path. Again, a tremendous 2024 for the organization, 7% penetration of just spine surgeon. But our penetration in the extremities and non-spine marketplace opportunities, which is over $1.3 billion remains. That is complete upside to the organization on top of what we're talking about with spine. I think when we look at the growing business and by the way, demographically, these businesses continue to grow by 2031, achieving about $7.7 billion market opportunity. So in 2024, we have set the framework and the launch pad for the organization going forward. Next slide, please. So let's talk about the extremity marketplace. When we look at this business unit and the opportunity, we look at this in 2 predominant segments, which also correlates with how the physicians are organized and how hospitals view these patient populations. And so in the foot and ankle segment, this is just U.S. only. It's a $440 million market opportunity. It is broken down in different areas of fore foot, mid-foot, hind foot and recon and trauma opportunities, as you can see there. And so as we look at our KOL development and as we look at the procedures as well as the clinical studies we wish to go put forth, not for regulatory clearance, but for our customer acquisition strategy, that is very important to us to look at how big the marketplace the opportunity is and what other players are in that space. Secondarily, if you look at the U.S. trauma marketplace, again, in similar size at $475 million, that is a second half of 2025 strategy to start integrating into that marketplace. We've started development with our KOL strategy, started looking at the studies, but that's a secondary strategy. And so we are focused on the foot and ankle segment. We're seeing very early results, tremendous results and feedback from our clinicians, not just in the U.S. but also outside the United States. And so we're very, very pleased with the early indications. But again, our strategy here is to be thoughtful, purposeful relative to our approach to the marketplace, ensure we have the evidence to go attack this marketplace in the proper way, very similar to how we grew the spine business. Next slide. So when we look at how we have been successful over the past several years from a commercial standpoint, part of what we've done is -- and this leads into our digitization process of connecting the back end to the front end of the business, but really asking the right questions to our customers. When we ask our surgeons, what is it -- why is it they are using our product? What is it that would make you move from competitor A to our product? First and foremost, physicians want data. And when you look at our strategy as a company, the investment that we have made from an R&D perspective into prospective clinical data, there is not a biologics business out there that competes with us on this realm. And so we continuously invest into Level 1 human clinical data. We've also continued to look at the criteria for these fusion models. And so also, we are engaged in studies that are competing directly head-to-head with our competitors in the clinical setting, not just in an animal model, but in a clinical setting with human patients. This is what our physicians and our customers and our hospitals have asked for. When we go to a value analysis committee, the questions they're asking is why are we using this product over that product? And when we can come in with clinical evidence in a [ peer journal ] and our competitors can't, that gives us an advantage. And so to that point, we have kicked off 2 Level 1 Kuros-initiated spine trials in head-to-head versus cellular allograft as well as the mineralized bone matrices. We also have a Level 1 Kuros-initiated foot and ankle trial, which will be launched this year. And we have 4 Level 1 [ investigator initiated ] trials ongoing. Next slide, please. So as we look at our business and we break this into components of clinical operational product, market and finance, you can see that this methodical approach of how we've attacked this business over this past several years, specifically in 2024, is paying dividends. We look at the Level 1 clinical trials, the operational capacity, doubling our capacity over the summer, not just once, but we're in the process of doing that again currently and doing it in a fiscally responsible manner. From a product perspective, on an organic pathway, we will be launching into the MIS portfolio later this year, and we will continue to do organic product development, hopefully getting to a cadence of 2 product launches per year. And from a market standpoint, it's not just growing in from spine into extremities, it's also geographic expansion. As we mentioned earlier, geographic expansion, whether it be in Brazil, whether it be into Asia Pacific markets or others, doing this in a thoughtful manner with the right partners is how we're going to continue to grow within the market. And on the finance and M&A side, having a strong foundation of financial profitability with no debt gives us great leverage into looking at our existing business, how we can digitize that as we launch into an ERP system, connecting the back to the front, but also looking at how we view things such as tariffs and the tax structure, and we'll talk a little bit more about that probably in the Q&A standpoint. But we are very well positioned operationally infrastructure for future growth. And again, as I mentioned before, with all these great opportunities, really setting a launch pad for us going forward. Next slide, please. So in summary, and very proud to provide this last slide, this is the first time in Kuros' history providing some level of guidance on a go-forward basis. We are very comfortable with the business that we anticipate at least 60% growth in 2025 and year-over-year growth. And in 2027, being a company that's representing $220 million to $250 million in revenue, and that's in U.S. dollars. We did mention that we will be switching from a currency perspective into U.S. dollars on a go-forward basis. But as we look at our growth opportunities with the foundation that we have set as an organization, our organic pathway is clear. We can be more opportunistic as we look at nonorganic opportunities as a business. I'm sure we'll talk about that here in the Q&A standpoint. We are sufficiently financed from an organic path. And the future is extremely bright for an organization. And we're very, very pleased with our results in 2024, and we hope that you are, too. And with that, I will hand it over.

Good afternoon. My name is Laura Pfeifer from Octavian. I will now open up and start the Q&A session. So I have a list of questions. We will address this. And then at the end, we will open the floor for further questions from the audience. So maybe starting with the strong sales performance this year and then the outlook for 2025. You said you expect at least 60% growth this year, which implies at least CHF 120 million in sales. So what are the key assumptions behind this growth target? What are the key risks? And also how much sales growth is baked in from the extremities market?

Thank you, Laura. The sales growth opportunity for 2025 is with an agreement with Medtronic that we executed in early January. Our teams collectively with Medtronic and ours and Kuros have been working to find the mutually agreeable territories that we're going to work together. I think within a matter of days after the announcement, our teams are collectively looking at over 100 different opportunities. And so that pipeline is getting -- is quite full at the moment. And as we've mentioned before, the time line to go from opportunity to actual -- to impact tends to be in the 4 to 6-month range. So as we continue to plan that out, onboard independent distributors, talk to physicians, work with the hospital systems to get them in the queue, the pipeline is full and we anticipate that -- those results more towards the second half than the first half going forward. And as I mentioned in prior calls, that's what we tend to see in the pipeline. Opportunities take about 6 months. I think the other part of our growth strategy is on the international expansion. We've been working at a feverish pace to expand into those marketplaces. We got several registrations and partners in the second half of last year that will start to pay dividends on a go-forward basis as well. And I think from an extremity standpoint, as I mentioned during the presentation, we're focused on doing this the right way to ensure we have the clinical evidence. If you chase the revenue too soon and you don't get the clinical evidence, it's a very short-term result. We are interested in long-term growth. And so we are being very methodical about the customers we approach, the distributors we attach ourselves to and the marketplaces we're going after. And so -- what that means is from a revenue perspective, it will not rival the spine revenue in 2025, but we are setting up the future for success. And so I think that where I will judge the extremities business will be based on the execution of our clinical trial based on the partners we associate with. And I think that's a great opportunity. And I think lastly, the assumption, the partnership with Medtronic and having such a great partner also allows us to leverage into the extremity marketplace a little bit faster. If we're in more hospitals, our access to the foot and ankle surgeons or the trauma surgeons becomes that much quicker.

Okay. So also in this context, can you comment on the growth momentum you have seen so far in Q1 and how we should think about the phasing? I mean, listening to your explanations, I guess it's rather a stronger H2 versus H1.

I think from a percentage standpoint, in the previous -- in 2024, we talked about somewhat of -- in and around a 40:60 split, which is because of our domestic exposure and also Q4 tends to be larger from surgical volume just due to the way insurance works in the United States. I think as we continue to grow our business and continue to have such a large percentage attached to U.S. revenue, we're going to see a similar balance that we saw in 2024 and 2025. I think as our international business grows, that tends to get more equalized. But I think you'll see a very similar split in the first half to second half that you saw in 2024 into 2025.

Okay. So today, you have provided them this 2027 sales target of $220 million to $250 million, and this suggests that you will continue to grow at an impressive rate of probably 30% or more beyond 2025. So maybe first to clarify, is this organic? Or does it include an inorganic component? And then like in addition, can you give us an idea on the building blocks of this midterm target? So how do you balance spine versus non-spine growth, maybe U.S. versus ex U.S.? And also, how much will it depend on the clinical data that you still are gathering?

So answering the last question first. So the clinical data, I view as an accelerant to revenue. I believe it's -- since we already have regulatory clearances in the marketplaces to go after these spaces, it really is an accelerant, and we will connect our marketing efforts to the clinical data as it comes available. As we look at the building blocks to achieving that revenue, not going to break down as we haven't done in the past, percentages attached to spine or extremities, et cetera. However, that blend of our effort, it will be done in a way that's fiscally responsible, first and foremost, number one. Number 2, partnering with the right physicians and as well as independent agents. But I think that the growth of the international markets, I think, is going to be impressive as we go forward. I think what we're uncovering in -- outside the U.S. is the true need for a product like ours in that there is no alternative. In many marketplaces, bone morphogenic protein is not available or it's been removed from the country. You can't -- using patient bone or donor tissue is not available just because of how those systems operate. And so having a high-performing biologic like ours, we're seeing an improved need in the international marketplace. So I think that, that growth strategy is going to be driving a fair amount more so than I think we have discussed in the past. Our domestic strategy, getting to the $220 million to $250 million number is continuing to execute on our organic pathway. So in that number does not take into consider any nonorganic opportunity.

Great. I think that's pretty clear. Then maybe we speak a little bit about the alliance with Medtronic. Given that only today, around 7% of the U.S. surgeons use MagnetOS today and considering Medtronic's commercial reach into hospitals, it seems to me that growth should benefit significantly. I guess here, we agree. But can you please elaborate on first, how the partnership is progressing after your initial experience? Also how significant is in terms of revenue it is today and how quickly it can have an impact?

So they are tremendous partners. Medtronic during the pilot program as well as in the early days of this 5-year agreement, they truly believe not just in our team, but also the technology and really the clinical foundation in the studies. What -- what drew them to us was really the evidence and the work that we had put in. And they're tremendous partners. Obviously, from Medtronic standpoint, the global leader in spine, their reach is far and wide. And so we have been working diligently together to ensure we have a seamless approach to the marketplace. There's not a day that doesn't go by where opportunities are not being presented to Kuros from the Medtronic team. And so we continue to work together. We're in the very early days of organizing that effort. And -- but very proud to say that the teams are working in unison in Harmony. As far as breaking down the revenue, we haven't done that in the past, and we won't do that going forward as far as breaking down what percentage of revenue Medtronic sales -- the sales agreement is bringing in. But I would say that as we continue to grow, our goal is to continue to grow together and so to have them more impactful on our revenue stream. So if we're more impactful and we're able to grow into their 30% market share or 25% market share, I think that's a win for all parties. It's a win for Medtronic to be able to present our product to their customer base, but it's also a win for us and our shareholders and stakeholders as we continue to grow the business with the largest spine company in the world.

Okay. Now you have started to expand into the Foot & Ankle market. I think we heard that it is like a very diligent approach. But still, how quickly can you penetrate these new accounts? Do you think it will -- once you have done like the groundwork, you can quickly ramp up and you can go up to a quite significant share? Or do you think it takes longer? And then also judging from Slide 11, I think you mentioned other markets that might also be eligible in the future. So what is kind of your strategy here?

Well, the strategy is to ensure we're able to meet the demands of our customers and our partners, first and foremost. And so we want to set the expectations properly, make sure we meet and exceed them at all times. I think with the Extremities business, we can grow that business faster than we did the spine business. And the reason being is, if we're already registered in, say, 400 hospitals domestically in the United States, we can approach those physicians immediately. The difference is, we have a tremendous amount of spine data. And so we're being thoughtful to make sure that we have the right clinical data to present that customer base. We've started with a small subset of physicians that we have identified and had discussions with. And so we are generating revenue. We'll continue to grow that revenue base, and we're seeing growth within that segment month-over-month. And so again, being thoughtful and responsive once we have more clinical data and the right marketing materials, then we'll get to the second phase, which is penetration. Right now, we're in the ideation and origination part of customer acquisition, identifying the key opinion leaders, the right customers, the right partners, and then we'll expand that going forward as we get into the second phase, which will be in the second half of the year. So, we'll see a greater acceleration in the second half of the year in the Extremity business as we build the foundation in the first half.

Okay. And just as an add-on, when will you have the clinical data available in Foot & Ankle?

So we already have some data that's currently been pushed out there. It's not Level 1 evidence, but it is clinical data. We have been collecting case series from physicians and we're starting those studies. The Level 1 trial will initiate later this year. We've already started the process of drafting the protocol and working with the PIs that will be involved in the study and from an enrollment standpoint, I don't have a schedule just yet, but we anticipate having that study ready to start enrolling patients in 2025. So the data from that study will be forthcoming in several years, right? So there's follow-up time on those patient populations. However, the early anecdotal information and from the podium and non-Level 1 trial data, we are getting on a regular basis, whether it be case presentations, journal clubs, surgeons presenting their early data, we are already feeding that grassroots approach.

And then maybe just staying with the product pipeline, you also expect to launch the new minimally invasive MagnetOs formulation. I think you said in H2 '25.

Yes.

I thought previously that it was Q2, but maybe it has been pushed back a little bit. So, how significant could the impact of this new line extension be just on your spine growth?

So I think what -- it's not just in the spine, actually, what we found is there's actually great applications in Extremities as well. But I think that what it does, it allows us to work with physicians who are doing open procedures, say, in their hospital system, but might be using a minimally invasive approach in their ASC. And maybe our product didn't have the right formulation or user interface that they could use that in their ASC. Now we'll be able to extend with our existing customer base into new opportunities. Also, there are physicians who only focus in, say, endoscopic spine. And so this type of product allows us to go into that fast-growing marketplace. So I look at this line extension and opportunity as new surgeons for us to work with. And by the same token, if we may be approaching a physician who doesn't use us, who may be doing minimally invasive surgery, which is why he's never considered us. And now we will be able to work with that surgeon in a minimally invasive platform and then pull that through over to the hospital situation. So for us, it's an absolute door opener into talking about the science and the technology. So it's a great market opportunity. But there is actually a great opportunity within the Foot & Ankle space as we look at the MIS opportunity and Foot & Ankle is our fast-growing marketplace. And so we -- fortunately, the surgeons and the KOLs that we've attached to ourselves are the leaders in that market as well. And so we're able to dial in the right product development pathway. But you are right, it's a June, July launch relative to minimally invasive.

And I think then you also mentioned that you have new surface technologies you're working on. I'm just wondering at what stage, I guess they're still at an early stage, but when could they be ready?

Right. So in previous calls, we talked about things that we work on that are heavily into the R versus the D. And so we talked about how we can make an osteoinductive surface, knowing what we know about our technology and how it works and Joost and his and our team, it's really tremendous what they've been able to achieve. But we're still heavily into the research phase. We've gone through several animal models. We're back into the lab currently on slight modifications, but very promising research and we'll see where that leads us. But it's -- again, we're talking about trying to develop the very first osteoinductive metal surface. And so it's not something you rush into doing. And it's not an easy feat, but we're very, very positive on so far what we've seen. But again, heavily into the R phase.

Sure. And then just on the ongoing head-to-head trials that you are running against DBX and against the cell-based allograft. Can you remind us when the readouts are expected?

So those are actively enrolling, and I give great kudos to our team for getting those multicenter sites up and running on a prospective study. And again, just to remind the audience that the level of evidence that is out there relative to proxy and cellular allograft is very dismal to say the least. And so this will be one of the first prospective studies done compared to cellular allografts. And so we're very, very proud of that fact. I believe that the readouts will be -- again, we follow these patients after 2 years. So the official papers presented in Tier 1 journals, which is what our target will be, will be several years down the road, but we will have readouts along the way. So I would anticipate that be a 2026, 2027 target.

Okay. So we won't see any kind of interim data? So we just have to wait until you have the final data?

We're just enrolling.

Okay. Good. Maybe then turning to profitability. I think in '24, you delivered an adjusted EBITDA margin of 11.9%. We heard that. Now in your guidance for '25, you do not mention any EBITDA target, neither in absolute terms nor as a margin target range. So how should we think about profitability development this year? Is it fair to assume that it should improve gradually? Or do you expect it to be rather stable? So I think here, it would be great if you could walk us through the building blocks and also the assumptions for the cost base.

Sure. Yes. So what we said at H1, and this still holds true is that we are investing obviously into the infrastructure into foundation and also into the Extremities market, right? And we still see our self in a growth phase and we want to continue to invest into growth. And this will, to a certain extent, eat some of the EBITDA. But as I said last H1 already, we believe that '25, we should at least be even or gradually increase. So that's currently how we would see '25. In terms of building blocks, there are the usual suspect. So we have about 90% gross margin right now, which, in essence, will further improve potentially by 1% or 2%. We will see that. Important is really that we can get this economies of scale, as I mentioned before, that we can see this product mix price effect. But currently, I would leave it at 90% to be on the safe side. In terms of sales and marketing, we are currently scratching at that 60% hurdle, potentially will further with increasing revenue, bring that down. So somewhere in the 58% to 60% range I would see that. And then what we certainly want to continue to do is invest into R&D as a testament that we are a scientific-based company. And we rather see it currently in the 9% -- 8% to 9% range in terms of investments into R&D. And then last but not least, G&A is somewhere in the neighborhood. I mean we have now arrived at 20%, which we have seen came down quite significantly, as Chris presented. And we continue to invest, as Chris alluded to, into digitization of the value chain, right? And this is something which will hit our P&L because we cannot capitalize that. But again, with obviously, the operating leverage kick-in, we would see that somewhere in the 15% to 16% range. So as said, our target is for sure to match the EBITDA margin we have achieved for '24, potentially, we try to come out a little bit better than that.

That's understood. And then with a gross margin of almost 90%, what level of sustainable profitability, also I think in terms of EBITDA margin, do you see for Kuros in the medium term, let's say, maybe '27. Do you have a benchmark in mind that you could share with us?

Yes. The way we build the budget is kind of driver based. So top line is a key target for sure. So as I said, $220 million to $250 million is basically what we're aiming for. And as you probably know, our guidance practice, we try really to match the numbers. So therefore, we have considered that carefully when we build the budget. But in terms of the cost side, we have a peer benchmark group and basically compare against that peer benchmark group. Currently, we see this gradually increasing, as I said. So we hope that we can achieve an increase by 1 or 2 percentage point on an annual basis from '26 going forward.

Okay. Okay. Now I didn't calculate it, but then I would probably be around 15%, 16% by '27, when I take 12% as this [ mid point ]?

Yes, it seems like you did a milestone here, that might be.

Okay. Good, well. Okay. So then in terms of CapEx and production capacity, where are you today? I think you said you doubled last year. But what are your plans for the next couple of years given your growth ambitions? And also maybe you could discuss it a little bit in light of the discussion around the U.S. tariffs and your exposure to the U.S.

Yes. So I start with the tariffs. We have a need to grow anyway, right? So which means we need to invest into production capacity and we have already started half a year ago or almost a year ago now to think about geographical diversification. And as a result of that, we have considered or we are considering plans to expand to the U.S. And now in the light of the tariffs, it's certainly something we will realize. We are currently thinking about a U.S. production footprint. In terms of tariffs, and I come to the CapEx expenditure in a minute. In terms of tariffs, what we also need to consider is that we have obviously a general warehouse in the U.S. We have a forward coverage sitting on the inventory or in the inventory. And basically, this will hedge us to a certain extent if tariffs will come into play. Today, it's still hard to say whether this is going to happen or not, but we are still considering that, obviously, and will, as said, further increase the stock levels to hedge there. Then what we're also doing, and this is also in relation to the tax loss carry forward, we have also -- sitting in Switzerland, we have started to now restructure, as Chris already alluded to, the tax structure of the overall group. And we will now also have Switzerland acting as a wholesaler going forward. And at the same time, we'll also implement a custom price mechanism, which will allow us to also bring down the transfer price when we import goods into the U.S. And this will further protect us. And then last but not least, as discussed, we are considering to now invest into a production footprint in the U.S. In terms of CapEx expenditure and I think we said that number already in H1 as well, for '25, it will be in the neighborhood of CHF 2 million to CHF 3 million. Again, this CHF 2 million to CHF 3 million will allow us again to double what we just doubled, right? So it's a double of the double in essence. And we will continue to further invest after '25. And as I said, the target is to basically have that then reflected as diversification strategy for production capacity in the U.S. But I'm sure Chris also wants to mention something here.

Sure. I think that what's important to talk about, when we discuss the tariff issue, we had been having discussions of how to handle our explosive growth from an operational standpoint. It made a great deal of sense from just a pure derisking of the business to have multiple sites of manufacturing. And so our U.S. expansion efforts will be focused on our growth and being able to service that growth, it just happens to coincide as being a risk mitigation strategy against whether it be tariffs or from a supply chain standpoint and being closer to the customer. So as a business that's growing like ours, it certainly helps to have multiple sites of production. And so that was -- that's been our focus. We have been working on this premise for -- this is not a recent thing. This is a very -- it's an ongoing discussion. As soon as the doubling of the capacity over the summer was finished, we started to double that capacity. It seems like it's an ongoing thing. I give a great deal of kudos and credit to our operational team and keeping up with the cadence and the pace because it's a bit frenetic and fast. So -- but yes, we've been working on this for quite some time.

Okay. And just to clarify, so the CHF 2 million to CHF 3 million that you mentioned CapEx in this year, this is then for the Netherlands or for U.S. already?

No, this is -- no, it's for the Netherlands. As said, we are still basically planning out the U.S., but the U.S. will mainly kick in from a cash outflow perspective in '26. And there, we have several scenarios we are looking at. But yes, it will certainly be, again, probably in that range, even a little bit higher, but there will be an upfront investment in the U.S., and we will get several grants out of Georgia when you basically locate production facility in the U.S., you normally get quite some benefit. So we are factoring that in, and therefore, it's kind of a moving target. But CapEx will not be massive even if we transition to the U.S. to a certain extent.

Sure. And just very briefly on Checkmate, there was a small impairment related to a delay in the expected milestone. So what are the earliest time lines now?

Yes. I mean last year, if my memory is right, we had about CHF 4.4 million impairment, which resulted just purely out of a timing effect, and we see that now again. So we were or we are in close contact with Checkmate and Regeneron. And it looks like that the earliest we would be able to see pre-commercial milestones would now be somewhere in the neighborhood of 2031, 2032.

Okay. Understood. And so perhaps one last question from my side on the long-term strategy. So you had CHF 18 million of cash. You are profitable, you are well funded on your organic growth path, and you mentioned that you might look also at inorganic opportunities. I'm just wondering if you have already started to do that? And if yes, what kind of areas you're interested in?

Great question. And again, when we start talking about what we, as an organization, have achieved in getting to this stability and launch pattern growth, the non-organic strategy is very pertinent to us becoming a global leader in musculoskeletal biologic care. And so when we look at opportunities, and so to answer your -- the first part of the question is, yes, we are becoming more and more inquisitive about opportunities. I think that as we define the opportunities and as we expand into Extremities, we're not just looking at biologically motivated technologies in the spine. We're looking at any musculoskeletal biologically motivated technologies. And those range from -- they can range from a variety of different areas, whether it's implantable analgesics, if it's -- again, we're looking for things that are not going to be your traditional hardware-based businesses, but things that are biologically motivated, dural repair, things like that. Those marketplaces are interesting to us, but we have certain preferences that we look for. First and foremost, we have built a reputation to our clinical community focused on clinical data and proof is in the science. And that is first and foremost to us if we are going to consider taking on an acquisition. But again, sitting here being profitable, with cash on the balance sheet with no debt and a high-growing business, it's actually a fun place to be because it's rarefied air. There's not many other companies out here in this space like us. And so we can be very fortuitous relative to the opportunities we're looking for. But yes, we are becoming more acquisitive. And I think we have the infrastructure now built up that we can sustain taking on an acquisition if it's the right one. But we are going to be very selective in what that might look like.

So great. Thank you very much for this interesting Q&A. I will now hand back to Alex for questions from the audience. Thank you.

So I have a few incoming questions here, which I would like to read and ask obviously to answer them. So we presented also the potential in the Extremities. So -- but mainly in the lower Extremities like Foot & Ankle. So, where do you see the potential also in other Extremities like hands? And is there some attractiveness in other markets as well?

So the upper Extremities certainly is a great opportunity for us. It's not broken out because it is actually categorized within the trauma, which we are focusing on in the second half. We are seeing some of our partners, say, in the U.K. are running studies and looking at upper extremities and -- but we tend to see more of the usage in those pathologies being more traumatic injuries than degenerative injuries, which is why it's lumped into that section. So we're seeing great results certainly in shoulder fractures and hand fractures, et cetera. But that's a second half focus when we start focusing on the trauma business. So for -- purely from a nomenclature standpoint, we've broken it up Foot & Ankle and then trauma. But when you start breaking down those segments, there are upper extremities and broken down by shoulder, by elbow, by toe, et cetera. And so -- but it is an opportunity. Again, our platform technology can approach anywhere where there is a musculoskeletal injury and need for bone healing.

So we have a next question. What are the reasons that revenues in Europe are only about 1% versus such a large stake in the U.S.? And how do you see the potential for the further development outside of the U.S.?

So on the revenue perspective, we should remind everyone that inside the U.S., we record revenue at the end dollar, so we receive the end dollar what the product is sold for. Outside of the U.S., it's through a distributor channel, we sell it at a percentage above cost. And then the distributor will buy that from us and resell it at a higher price and they retain the margin. So there is a little bit of unbalancing relative to the revenue dollar in the U.S. might be represented a percentage of dollar outside the U.S. And so that's number one. But we also really had started our organized pathway into outside international revenue about 12, 18 months ago. So we're still in the early days. And so that requires us getting into registrations, getting into marketplace, working with the clinicians and several different actors. Also, the registration process is much more laborious than, say, in the United States. And so tremendous opportunity for growth. It takes a great deal of dedication to organization to execution on a team perspective and very, very proud of our efforts there and to seeing such high growth outside the United States. And so I do think it's going to continue to be that way. The market opportunity is there. I think when we look at markets like Asia Pacific and we look at the data coming from the MAXA trial when we talk about compromised patients, whether it be smokers or diabetics, certain populations have a higher population of smokers and diabetics. And so we -- in the international marketplace. So I think our penetration by using that data is certainly going to help us. So no, I think there's -- I'm very bullish on what we're doing outside the U.S., and we continue to invest in the resources there, and the team is doing an excellent job.

Thank you, Chris. So the next question is related to our reporting currency. So why are we switching or intend to switch from Swiss francs to U.S. dollar this year?

Daniel?

Yes, I can take this one. So in essence, it's pretty simple. I mean, USD is basically the language we talk internal when it comes to budget, when it comes to performance measurement. And we basically -- as you mentioned in your questions, we generate majority of our revenues in U.S. dollar. And therefore, we concluded that it would make most sense to basically now change the reporting currency. What's also important is that we have expanded our institutional investor base over the last year successfully and talking in U.S. dollars is certainly more international will also be easier to explain to European, but also to U.S. investors. What you could also read or speculate out of that is that we would go to the U.S. that's currently not on the list. So we are not planning a U.S. listing or an IPO. We are very happy with the listing in Switzerland, and we believe that Switzerland has a great med tech industry. And therefore, also in terms of the valuation we get here, there's currently no plan to go to the U.S., just that we are not starting to speculate there. So it's really mainly the dollar language we want to have internally, but also externally, which led us to change the reporting currency.

Okay. That's very clear. So let's go into the next question. Where do you see the potential of having Medtronic as a partner in the U.S. and not doing everything on our own?

Well, I think when you have a market leader like Medtronic and you have an opportunity to collaborate with them in marketplaces that are mutually beneficial, you absolutely should. I mean they have -- they are the market leader for a reason, their representation, their reputation. And so I'm very honored that we're working with them. In marketplaces, much like in any industry, you'll have pockets of who's strong, where. And so we still leverage an independent sales network. We continue to grow our independent sales network outside of Medtronic. And so I think that from how we've organized our relationship through this agreement, it's very beneficial to share to Kuros because we get to pick and choose which marketplaces we wish to partner with Medtronic. And if we felt like we had a better opportunity to do it on our own, we'll continue to do that as well. And the key part here is that we are in control of the revenue line with the contracting and the relationship with the hospital and the customers. And so it's actually -- we get the best of both world. So we're not isolated with just using Medtronic across the country.

Okay. Great. And then we have just last question. We just discussed about tariffs, but there is also an additional question in terms of the nomination of Robert Kennedy as U.S. Secretary of Health and Human Resource Services and how this could impact Kuros?

Yes. I don't believe there will be an impact, quite frankly. I think what we're seeing -- we saw some disruption in the FDA from a registration and initially that was an impact relative to downsizing. It was not an impact of Kennedy by any stretch. I believe the focus of that administration with Kennedy is going to be on the more and the health of the population relative to other areas, not just in med tech. So there's nothing that we look at in the pipeline from a risk standpoint of coming down and changing the pathway of revenue for us on a go-forward basis. I think submission times for FDA and 510(k)s and things of that nature, those will not be disrupted. We've seen -- we have 510(k) filings that are present. I'm here at the American Academy of Orthopedic Surgeons, talking to colleagues and they're not seeing any impact. So we don't believe that there will be any risk attached to Kennedy. Again, his focus is more on the generic FDA relative to health and consumption rather than med tech sector.

Okay. So actually, I hand back to you for the final words as we have no further questions.

Thank you very much. I just would like to say in summary, 2024 was an absolute amazing year on so many levels. And I want to say thank you to the stakeholders, the shareholders, our teammates in the locations, whether it be in the U.S., whether it be in Bilthoven, whether it be in Schlieren. I'm extremely proud. The Board is very, very pleased with our results. But more importantly, how we have grown as an organization and how we have set ourselves up for success on a go-forward basis. The building blocks and the foundation for us to continue to accelerate not just the revenue growth, but the expanding of our technology platforms, the expanding of our customers, but also the reach and being able to provide our product to markets that haven't had access to it as of yet. So really, 2024 was so transformational for us as an organization. I wish to thank you, the investors, to listening to us, to staying with us and hopefully continue to grow with us as we move forward in growing this business into a $220 million, $250 million and beyond business. And so we're extremely excited about the future. And again, I'm very, very pleased and honored to be here at the organization. And so with that, I say thank you, and thank you for attending our call today.