Medartis Holding AG (MED) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Publication of the Annual Figures 2020 Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christoph Brönnimann, CEO. Please go ahead, sir.

Good morning, ladies and gentlemen. It's a pleasure to welcome you to our conference call for the publication of our 2020 full year results of Medartis, which we have published earlier this morning. My name is Christoph Brönnimann. I'm the CEO of Medartis, and I'm joined on the call today with our CFO, Dominique Leutwyler; and our Head of Investor Relations, Patrick Christ. It's our pleasure to have you all in the call today. Let's start the presentation. In this session, we would like to walk you through our full year results presentation, which is available on the Medartis website. You can also follow it online if you have joined this call via the link we provided in our invitation. After the presentation, we will be happy to answer your questions. Please also note the disclaimer on Page 2. And furthermore, I would like to inform you that our call is being recorded. And a replay will be available on our Medartis website later today. So let's start and go directly to Page #4. Our full year results at the glance. We have achieved a sales revenue of CHF 124.7 million, which is minus 4% in Swiss francs, but it's 1% growth in local currencies. Our EBITDA margin has slightly improved to 16%, or in absolute figures CHF 19.7 million. We have also increased our headcount compared to end of 2019 by 27 employees, and we're now at 636 employees for the company worldwide. If you look at our 2020 sales growth of 1% in local currency. It clearly comes from a fast recovery after the lockdown in the second quarter, mainly to building a strong sales momentum in the second half of 2020. Our second half in local currency posted 9% growth for the company, whereas our direct markets grew 13%, especially strong performance was noted in the DACH region, with year-on-year 12%; Asia Pacific growing at 23%, with an excellent performance in Australia at 27%. The Latin American region with the direct markets and also the distributors continue to be impaired throughout the year by the COVID-19 pandemic. The new sales management team in the U.S. has created a good sales momentum in the course of the second half, achieving above 20% growth in the fourth quarter and for a full half year growth of 18% in local currency. While mitigating the financial risk, we continue to invest in our strategic and growth opportunities. Selective cost savings have successfully led to a slight increase of our adjusted EBITDA margin of 16%, while we continued to invest by reallocating funds and reallocating savings into market accelerations and growth initiatives. So we have launched 5 new innovative product systems and fully achieved the business plan of CHF 4 million for all the launches. We have strengthened the executive management board and the organization and selectively invested in markets with growth momentum, namely the U.S. posting growth or achieving growth at the end of 2020 with 20% or the Australian market, achieving a half year growth of 27%. We continue to invest in our most recent markets like Japan, China and the building up of Spain, where we are going direct at the beginning of this year. We have also taken the opportunity to refine our strategic framework, which led to the investment and the strategic partnership with KeriMedical. The partnership includes a distribution agreement with KeriMedical for a comprehensive portfolio in hand and wrist as well as the joint development agreement for the developing of new products in the future. We are now in a very competitive position to offer a comprehensive portfolio in our key segment and in wrist, where we see a huge potential for future growth. I will get into the KeriMedical collaboration and the strategic framework in more details later in the presentation today. With this, I would like to hand it over now to Dominique Leutwyler to walk you through the full year financial review.

Thank you, Christoph. And also from my side, I would like to welcome you all to this conference call. I start on Slide 1 to give you the overview of the key financial results. I will walk you through the adjusted number 2020. The adjustment upfront or impairment on intangible assets of CHF 1.7 million and additionally, inventory provision of CHF 600,000. The sales in constant currency ended at CHF 131.2 million, that's a plus of 1%. On the gross profit and OpEx, I will show you the details on the following slides. The EBITDA at constant currency, adjusted ended at CHF 22.4 million, that's a plus of 12% and the margin EBITDA at 17% compared to 15%, adjusted in 2019, that's a plus of 2%. The operating cash flow increased by 40% to CHF 12.6 million. The cash flow used for investing activities is CHF 22.9 million, that's including the investment in KeriMedical of CHF 10 million and addition of assets for our business of CHF 5 million. The net working capital increased by 5% and the headcount ended by 636 people, that's an addition of 27. On the next slide, I would like you to walk you through the different regions. The biggest region with 55% of the sales with CHF 68.2 million is EMEA, where we have, in local currency, 0% in increase. We had a strong 12% growth in half year 2 in DACH, Switzerland, Germany and Austria. In U.K., it's still a difficult situation due to the COVID-19. Good performance, we achieved the markets like Netherlands, Ireland, Slovenia. However, distributors are behind the direct markets overall due to the corona-related restrained investments. For Europe, we had a solid 4% growth in half year 2, a minus 4% in half year 1 year-over-year in local currency. The market in North America, that's 70% of our sales, ended with 21.3% for the full year and increased by 4%. We strengthened the management team with Lisa Thompson, the territory alignment with focus on sales quota and heat mapping. Additionally, we had growth impact in new collaboration with selected distributors. Overall, we had a dynamic 18% growth in the half year 2 and minus 10% in half year 1. Asia-Pacific ended with 25.4%, that's 20% of sales, increased by 12%. We had an outstanding performance in Australia with 27% in half year 2 year-over-year in local currency. A strong performance in the distributor markets, Japan for the upper extremities, South Korea and Thailand. We launched of -- the business in China in quarter 4, 2020, and a good momentum in the new Japan subsidiary for the lower extremities. Overall, a dynamic 23% growth in half year 2 and stable in half year 1. LATAM, we ended at CHF 9.7 million, that's 8% of the market, with minus 18%. The sales strongly affected by the difficult economical situation, combined with the pandemic. Brazil and Mexico had a strong quarter 4 year-over-year in local currency, but clearly behind the previous year. In Costa Rica, the distributor won a major tender. Overall, we had a minus 9% growth in half year 2, a minus 26% in half year 1. On the next slide, I show you the business segment by product. The biggest segment, the upper extremities, 72% of our sales. We have there a solid growth in wrist, the largest line, a strong full year elbow growth despite COVID-19, thanks to training and sales offensive. The successful market launch of the wrist-spanning plate in Europe and APAC, the forearm fracture system and the clavicle system with significant sales above plan. 8% growth in half year 2, minus 5% in half year 1 year-over-year, plus 1% for the full year. In the lower extremity, that's 50% of our business, we ended at CHF 18.8 million, that's a plus of 8%. We had a dynamic growth in half year 2 in all lines. The market launch in half year '21 for midfoot correction and distal ankle fracture system based on excellent market feedback. The introduction of the CCS compression screws extension in June with a good momentum. Overall, a dynamic 21% growth in half year 2, minus 4% in half year 1. On CMF and others, we ended at CHF 16.6 million, that's 13% of the total Medartis sales. Overall, minus 8%. That's the most affected business segments by the impact of the corona pandemic. The revenue declined of around 25% in elective CMF procedure due to deferral of elective cases. In April, the new MODUS 2 product generation was launched as planned. First complex cases were supported by the CMX digital planning and 3D printing platform. Overall, 3% growth in half year 2, minus 19% in half year 1 year-over-year. On the next slide, some words about the gross margin. On the top right side, you can see the gross margin from 2017, '18, '19 and '20. We had outstanding margin 2019. This positive effect from 2019 leads to the manufacturing efficiency gain and the high production output for the start of the 5 new product lines. For 2020 we are -- onwards, we are expecting an improvement in the gross margin. Corona-related reduction in demand and related introduction of short-time working in 2020 led to a temporary decline in the production capacity utilization. On the next slide, the overview of the OpEx costs. Overall, the OpEx went down by 6% in Swiss franc. On the research and development, we ended at CHF 15.5 million, that's the same level as the previous year. We have ongoing investments into the innovation. The MDR readiness affects the cost base and cost savings through the disciplined cost management. On the administration cost, we ended at 21.8%, that's a plus of 2%. We invested in the subsidiaries for process improvements in U.S., Australia and for new countries as China and Spain. We are enhancing the end-to-end digitalization process, and we maintained the due diligence capacity for M&A projects. The selling and distribution ended at 16.2% (sic) [ 60.2% ], that's minus 10%. We strengthened the sales organization with 19 additional employees, digitalization of the education and congress resulting in cost saving and restricted access to hospitals lead to short-time work cost savings. Anyhow, we had the cost savings in local currency of CHF 3.6 million from the head corporate and in the existing DACH region by CHF 2.8 million. On the other side, we invested in markets where we had an excellent momentum like Australia, an additional CHF 1.5 million; the U.S., an additional CHF 600,000 and new markets as China, Japan and Spain, CHF 1 million. The last slide shows the EBITDA margin in 2020, where we had increased by 1% from 15% to 16%. We had solid sales in the second half year and disciplined cost management leads to a slightly improved the EBITDA margin from 16% versus the 15% in 2019. As mentioned, we were able to reallocate headquarter savings to market. The net profit 2020 adjusted of CHF 0.9 million compared with the net profit of CHF 1.8 million in 2019. The main impact is the FX loss of CHF 5.4 million versus CHF 2.4 million in 2019. And now I will hand over to Christoph Brönnimann for the next part of the presentation.

Thank you Dominique. Our midterm view of the market potential remains unchanged. The potential continues to be driven by demographics and the need for innovation. So hence, our priorities remain on enhancing the sales focus, expanding our innovation pipeline and reduce time to market and continue to build our U.S. business. We have made progress on our growth initiatives. First, on enhancing the sales focus by adding and appointing Lisa Thompson to lead the North American region and Mareike Loch to lead EMEA. Both are members of the executive management team. By shifting the focus of our sales force much more towards converting new accounts, launching new products, and hence, make changes in the adaptations in the incentivation system, which is now being incentivized much more for growth. We have also invested in the internal and external education through the appointment of Peter Cologna as the Head of Education. And we have taken the time to extensively train our sales force in product indications and also new products to be launched during the lockdown of last year, which we believe was one of the reasons for the strong recovery in building the sales momentum in the second half of last year. Second, we continue to expand the innovation pipeline. We have appointed Manuel Schaer as the new Head of R&D as Chief Technology Officer. Also he will be and is a member of the executive management Board. With the launches we completed further our plate and screw portfolio in all areas, upper extremities, lower extremities and also in the head. We have started with a pipeline review under the new strategic framework and under the U.S. market needs and also continued to become ready for the go-live of the new MDR regulation during the year '21. The third initiative, we continued to pursue our strategy to become very local in the U.S. market. Lisa has expanded its sales management team from 4 to 5 sales areas, and the management team has taken a territory analysis and the heat mapping that has already resulted in territory alignment in our distributor and direct sales force. The new growth-oriented incentive system is ready to be rolled out. The U.S. leadership team has now laid the foundation for a continued sales force expansion and hence expected sales acceleration in the U.S. The team has built a strong sales momentum in the course of the third quarter, but especially into the fourth quarter of last year and has been able to take the sales momentum in the beginning of '21, which I believe indicates that the U.S. team is on the right track. In the upper extremities, we are going to focus the direct sales force on the upper extremities plate and screw portfolio and we will add the Keri Medical portfolio, as it becomes available through registration. In the lower extremities, we're going to continue to expand and scale our sales using distributors, or mainly distributors, and will complement the portfolio with the full launch of the foot and ankle system in the first half year of '21. The R&D pipeline is under review to better address the U.S. markets, and we have and we will continue to expand our U.S. KOL network for development and also education in upper and lower extremities. We have also established IBRA with a U.S. chapter, which is now becoming the training partner of the medical associations, and we have added KOLs to our faculties. We are now ready to significantly increase our cost offerings in the U.S. once the situation normalizes and courses will be feasible again. In the meantime, we are currently offering a combination of digital faculty and local workshops. We have and will continue our M&A activities, focusing on innovation that has the potential to change the standard-of-care to complement our extremities portfolio. We'd like to give you an update on our launches, where I'm very proud that we have achieved the full year target for all the product launches despite the challenges during the COVID-19 pandemic, especially the difficulties that we have accessing the hospitals and getting new sets installed in the various hospitals. We have fully launched the forearm fracture system and the clavicula system in June and September, which have been received very well by the surgeon community. Also fully launched the CCS compression screw extension in EMEA and at the end of the year in the U.S. We are now covering and increasing the range of indications with our well-known and established CCS screws in the upper and also in the lower extremities. During the lockdown, we already have made the decision not to go into a full launch with the foot and ankle system, which is the mid-hind foot correction system and the distal ankle fracture system that you see here on the slide. We postponed the launch into the first half of this year, just for the fact that during the lockdown, most elective surgeries has been postponed and we did not see enough documented cases to support a full launch. In CMF, we have launched a new CMF motor system in the DACH market and we have also made available the CMX platform, which allows for 3D planning software and cutting guides. I would like to take the opportunity to thank all our teams for the professional and for their agility to make the success in launching our product systems despite a challenging environment. Let me comment on the strategic framework. We have taken the time to review our strategic framework. And as Medartis will continue to be positioned as a specialist in upper and lower extremities in CMF, we built the framework on 3 pillars: first and foremost, our confidence in place and screws, where we play in our core market in excess of CHF 3.5 billion, where we see substantial opportunities ahead of us. But going forward, we would also like to add new technologies and expand our portfolio beyond the screws and plate, so build a suite of technologies around our surgeons that will help them to treat all the indications of their patients going forward. Second, we want to become more than just a product company. Especially with the launch of the CMX platform, Medartis has entered the market for digital planning, 3D printing cutting guides and patient-specific implants and will drive the expansion of the CMX platform across all the indications in the upper and lower extremities included. We're going to offer individualized solutions for our surgeons that will help them to improve patient outcomes, shorten surgical time and reduce inventory. Third pillar of the strategic framework is our global footprint, whereas the building up of the U.S. business remains our top priority, but we're going to continue to gain market share in our key markets, especially in Europe and also in Asia Pacific. As opportunities arise in the midterm, we will also take the opportunity to go direct in distributor markets, as we did at the end of last year, starting with the Spanish subsidiary. Let me comment on our investment in KeriMedical, where we see three distinct levels for future value generation. The first one is entering into the distribution agreement where we have exclusive distribution rights for the entire KeriMedical products in selected markets. Namely, Germany and Austria, we have started at the beginning of the month. The U.K. will be followed in April. And U.S. market and Australia will follow as soon as we receive registration for the portfolio of KeriMedical in those markets. The second level, we see the financial support for market access for the first dual mobility CMC-I prosthesis, which is used to treat osteoarthritis in the thumb. There we see an opportunity to enter into new markets, but also given the high prevalence of CMC-I osteoarthritis and the very low penetration of arthroplasty devices, we see a huge opportunity not only to penetrate, but also to expand the market for small joint replacements. The third level is the collaboration agreement, where we believe there is an ideal complementation of our screw and plates competence with the KeriMedical competence, especially in nitinol technology, soft tissue fixation and arthroplasty devices. To give you an overview of the Keri Medical portfolio as it stands today, first and foremost, the Touch prosthesis, which is the first dual mobility prosthesis to treat the osteoarthritis of the thumb. It has a superior outcome, which is supported by clinical studies and clinical data, especially in the fast recovery time of the patient but also in the mobility and the strength, which is enormously important for the outcome as the mobility of the thumb and the strength in the grip allows the patients to go back to their quality of life. The KeriFlex is a new silicon-based implant, which is designed for the treatment of osteoarthritis of the finger joints. It has been designed with leading international surgeons. The portfolio also includes Reaxon, which is a chitosan nerve tube, which is used for transected nerves. And also, this product line is supported with clinical outcome studies that suggest a superior outcome in the nerve regeneration. And last but not least, KeriFix and KeriLock are small joint suture anchors that are used for soft tissue management in small bone surgeries. We believe that the market for small joint replacement has a huge potential and is currently underserved. We see many opportunities to expand a fast-growing market through a significantly increased outcome and changing -- the potential of changing the standard-of-care for patients with the touch prosthesis. On the left-hand side, if we look at the prevalence of osteoarthritis in joint in the population of 55 to 74 years old age group, we can see that the prevalence of osteoarthritis in the hip is only 3%; in knee, it's 10%; in the foot, 40%, climbing up to 70% in the hand. Despite the low prevalence of osteoarthritis in the joint, about 50% of the patients receive a joint replacement. In the hand, it's completely opposite. We have a high prevalence of 70%, but only about 1% of the patients receive surgery with a joint replacement. This is why we believe we have a huge opportunity, not only to penetrate, but expand the market with a superior product. In absolute numbers, there is about 40 million patients affected in EMEA and about 20 million people affected in the U.S. suffering from osteoarthritis in the hand. If we translate those numbers into a total market, we look into about the market potential only in the U.S. of about CHF 300 million. And with even a low market penetration of 5% rising up to 50%, there would be a potential opportunity to grow topline up to CHF 150 million. But the big opportunity that we see is increasing that 1% of the patients that receive a joint replacement up to 10% or even higher. A few comments on our CMX platform. It is a web-based portal, which allows the surgeon to upload CT scan and to plan very complex cases from the very beginning until the OR technique. It also allows for the manufacturing or production of patient-specific plates for complex reconstructions. Right now, it's indicated for mandible plates, for reconstructive procedures of bridging load-bearing bone segments in the mandible, but we will expand the indications across the entire portfolio offering also in the upper, lower extremities. The portal also allows for 3D printed cutting and drilling guides, which helped the surgeon to achieve a much better, more accurate outcome for the patient according to the planning. We also have the opportunity to print bone models that could help to illustrate the intraoperative planning and also helps the surgeon to visualize how he wants to proceed with the procedure. The orthopedic patient-specific market is estimated to be currently around CHF 500 million, but please note that this market is growing faster than the standard product market. With those comments, I would like to conclude and summarize and give an outlook for '21. We assume that 2021 will not be back to business as usual. But we are going to continue to execute our strategy and invest in our key markets and innovation. While maintaining an eye on managing the COVID-19 situation, we will be focused on continuing to build the U.S. business, expanding sales force, focus on the U.S.-specific market needs, but continue to build the surgeon network of KOLs, but also continue to develop our most recent markets, especially Japan, China and Spain. The third priority continue to launch our products, especially the foot and ankle system now in the first half year, expand the CMX platform across APTUS wrist and expand the CMF offering in the second half of this year, and we will continue to review our pipeline in light of the new strategic framework, and assess potential M&A opportunities going forward. On the outlook, based on the results delivered for last year, managing the COVID-19 pandemic, but focusing on the growth initiatives, delivering 16% of EBITDA margin in 2020. The solid growth of 1% in local currency and especially building the growth momentum in the third and the fourth quarter and taking it into '21, we are confident to issue a guidance for the full year 2021, where we expect a sales growth of at least 15% in local currency and stable EBITDA margin. You will understand this is all subject to any unforeseen events, especially from COVID-19. Thank you very much for your attention. I would like to open it up for questions now if you have any questions.

[Operator Instructions] The first question comes from the line of Mr. [indiscernible] with ZKB.

The first one, maybe a little bit on the current business environment. I remember in early November you said that for November and December, you were expecting markets to be down 20%, again because of stricter lockdown measures. So when did we spend here now? And how was the January and February, which have been -- we have some first insight numbers already. And in general, how would you expect based on the current market environment to -- for these headwinds to persist? Then the second question on your US operations. I mean you have quite ambitious expectations there in the mid to long-term and you want the group sales that -- to reach market level in terms of importance for the overall group. And now you also mentioned you have a proper management and new management in place, new structure, and all that sounds quite promising. So when do you expect these targets now to be realistic? And in general, how do competitors react? Don't they see Medartis because of the relatively small size? Or, yes, they invest also more in innovation? Or how do you see the market situation in the U.S. at the moment? That's it from myself for the beginning.

Okay. Sure. On your first part of the question, yes, we did see a recovery of the market during the third quarter getting into the fourth quarter, but then also we selected lockdown measures in slowing down and postponement of elective surgeries. We did see a contraction again towards the second half of the fourth quarter, so November and December, yes, we did see the slowdown. We are probably running at about 85% to 90% case loads for the year ending. And we assume it's about the same case load getting into the first quarter. Now we still see difficulties accessing hospitals in Germany, France, the U.K. is still slow. We have also some slowdowns in Switzerland, regionally in the U.S. as well. The Latin American region remains to be depressed. So I would say we will continue or we estimate that we will continue about at the case load that we have seen until about the first quarter. We would expect that in the spring, as of last year, April, May, that we should see a recovery, hopefully, getting back to a more normal case load. That is also related to less lockdown measures, more people getting out, the higher mobility of the people, more leisure time activities, first of all. And then second of all, we would also expect that some of the elective procedure will start to catch up during the second quarter of this year. That's for the COVID assumptions. For the U.S. team, yes, we still hold on to what we announced last, a year ago, that we want to quadruple the sales. I think last year, we said CHF 24 million, probably now it's going to be CHF 25 million. So we're still holding on the same plan. It's going to be shifted out for one year. I believe, yes, we have the management team. The management team has put the right measures in place. We have seen the momentum building up in the third and the fourth quarter. We see the same momentum to continue into the first few months of '21. This is for the entire group. So this is also why we're confident that we're running at plan that we have put in place, which led to the guidance. Do we see competitors reacting to us? Yes, absolutely. We see -- it's been noted that we have significantly gained market share in some of the key markets. In the U.S., I would say we're probably still at the lower share, but on a regional level, we all noted. But I think what the advantage was for us is focusing on the ASCs, the ambulatory surgical centers, where we probably had about 60%, 65% of our business. We have seen during the lockdown that trauma surgeries have been moved from the larger hospital to the ambulatory surgical centers. That's where we have a stronger position, and that's also where we have a strong presence. So as the big competitors are also now following the trauma indications, trying to get into the ASCs, it absolutely helps us that we have a much better presence in those centers and the large -- than the large competitors. Does that answer your question?

Yes. That's very helpful.

The next question comes from the line of Dylan van Haaften with Bryan Garnier.

Excellent. And congrats on the results and the solid outlook and just as a small side, Dominique, this is your last results presentation, so we wish you all the best and hope to run into you in the future and hopefully less Zoom-based environment. So just on my questions, just two from my side. Just could you tell us a bit about sort of the LATAM exit rates. And if we can sort of see a rebound emerge already in the fourth quarter? Or if it's going to remain challenging for a prolonged period and we shouldn't count on anything material coming from that angle? And just on the EBITDA level, if we look at the gross margin, there was a roughly 2% gap year-over-year. But also EBITDA performance was actually quite good this year. Do you expect that with growth increasing, that brings us roughly flat as you reinvest into the business? Or do you expect we could see some operating leverage coming in, in this year as well?

So thank you for your question. The first question is the situation in lockdown. We are expecting that this region, due to the COVID situation, still becomes challenging for the next year, as this mutation of the virus are there. We have seen in the second half year, an increase in Brazil of 2%. And the issue is also on the distributor side, where we have minus 43%, where they stopped to invest in our products. On the side on the EBITDA margin, we are expecting that the gross profit is slightly increasing. But anyhow, we want to invest in our new markets as China started just in quarter 4 from 2020, so to continue to build up this important market and also to start further on the Japanese market and also our focus, U.S., that we want to invest in those markets, therefore, we have a plan to have a more flat EBITDA in our forecast. Answer that your questions?

That's perfect, Dominique.

The next question comes from the line of Chris Gretler with Crédit Suisse.

I have -- I just have three questions on this Keri collaboration. Could you give some insight by when you actually expect the portfolio to get approved for the U.S.?

Yes, I can. If we look at the entire portfolio, the PIP, the KeriFix and to KeriFlex is expected to be submitted now in the -- over the next 2 to 3 months. So we would expect an FDA approval, which is a 510(k) approval by around midyear towards June. So we would start with those product lines, probably in the course of the third quarter in the U.S. The touch prosthesis is still unknown, as we are still clarifying what's the most efficient regulatory pathway for the procedures will be.

Okay. And then just on the order pipeline review, you mentioned, what does this likely, kind of, will lead to? Or will this reduce the number of projects or kind of lead to complete, kind of, for reshaping of the pipeline portfolio here? I understand that you focus on the U.S., but what does it likely mean specifically?

Okay. It means that we will rather expand the number of projects, and therefore, also invest in additional R&D resources. So we will continue to focus on the completion of our plate and screw portfolio, in the upper and lower extremities. So as an example, reworking the hand system, investing in a minimally invasive distal radius plate, while in the lower extremities complete our portfolio for the arthrodesis of the joints. Those are the big systems. Now looking into the U.S. needs, especially the lower extremities, the U.S. market demands, as an example, [indiscernible] implants, nitinol staples, which is more addressed towards the DPM market. So those are type of projects that we include in our pipeline. And now we are assessing what of the technologies do we bring to in-house? And what are maybe projects that we can work with external partners together, where we may not have the competency? And this is also how we look at KeriMedical, where KeriMedical has development capabilities, especially in the nitinol range, in the joint replacement and also in the soft tissue. So this is why we also entered into joint -- in the joint collaboration for R&D. So it's not only in-house, but also working together with partner external companies, where we do not have a core competency. That's how we want to complement our pipeline going beyond just plates and screws. So does that answer your question?

Yes, sir. And then just on the last point, also on the U.S., how do you think about, kind of, with respect to, kind of, using agent versus no building out your direct sales reps at this stage of the development?

Yes. It's still the same. I think in high-value territory where we have a complete portfolio, our preference is to have a direct rep. That's where you have a much better control. That's where you own the surgeon interaction. In portfolio, where you may not have a full portfolio as we did in the past in lower extremities as an example, using distributor reps will help to scale much faster at the lower end. So maybe about up to CHF 20 million, CHF 30 million sales, it makes absolutely sense to use mainly distributor reps for the lower extremities, faster scale and then start placing direct in the high-value territories. At the end, if you look at the U.S. -- covering the entire U.S., there is most of the companies, even the big ones, they have a combination of direct reps and distributor reps. That's how we look into. This is why I made the comment that the direct reps that we have, we're going to focus them exclusively on the upper extremities. We want to expand and scale fast in the lower extremities using distributor reps. And then over time, start adding direct reps also in the lower extremities.

We have another question coming from the line of Sibylle Bischofberger with Vontobel (sic) [ ZKB ].

I have a question about the strategy. You say that the aim is to offer surgeons a comprehensive implant portfolio that covers all their indication needs. But this does not mean that you are going out of the extremities to new areas? Or does this also include new areas additional to craniomaxillofacial and extremities?

No, absolutely, not. Thanks for asking and clarifying the point. This is why I made the comment. We remain upper and lower extremities and CMF, but expanding the portfolio and an example that I can give you is often a fracture or an injury in the hand, in the distal radius, for example, is not only related to the bone. With the plating screw, we treat the bone. But in most times in injuries, there is also making a rupture in the tendon. There might be a rupture in the nerve. This is why we want to add these technologies to the portfolio, so that the surgeon in the very same or that he can treat the bony injury, but also the soft tissue using an anchor system or a nerve tube. By adding joint replacement like the touch prosthesis, now we give the surgeon an option to either use a plate and screws for the arthrodesis of the joint or the replacement of the joint. And in most of those cases, there is also some soft tissue injury or soft tissue strengthening that needs to be done. So we want to complement the back to cover more share of the same surgery by the same surgeon. But we remain focused upper extremities, lower extremities and CMF. Does that clarify?

Yes, absolutely. I just wanted to make sure. Then the second is the start of MDR at 1st of May. Had anything changed? And are you completely ready? And does something change in May for you as Medartis?

The only thing that has changed that the date of go-live was postponed from May 2020 to May '21. Other than that, nothing has changed. We remain on the same schedule. We have completed now all the documentations, the validation for sterile packaging. The entire portfolio is now updated to meet the MDR requirements and we will go -- and we have already scheduled the [indiscernible] now for this recertification. So we still expect to be fully MDR ready beginning of '22, I believe. That's where we have scheduled the audit. So there is nothing changed. It's only postponed by a year.

And then the next question is, there was a trend to single packaging. Could you tell me what happened in the second half year? And how do you see the trends now?

That means mainly the sterile or in fact, it's the sterile packaging, which is a single package for screws. There is some markets that are higher in the adoption of sterile packs, which is mainly the U.K., which is probably the market which is the furthest advanced. So we are already in process of exchanging portfolio in offering sterile pack solutions. There are other markets that are adopting a little bit, which is in Italy. Also Germany has started. But it's not a significant increase that we have seen. So it's not a significant shift in our portfolio. We will be ready to offer both sterile as well as unsterile package. But right now, we do not expect that there will be a very steep change in the near future.

There are no more questions on the phone at the moment. We'll now move to questions coming from the webcast. The first set of question is coming from Mr. Daniel Jelovcan with Mirabaud. The first one is, why you are only guiding for flat margin in 2021, despite such strong expected growth? The second one would be, where was the slowdown in Q4 as you flagged that the USA and Australia was very strong. Then the last one is, was the U.S. business with such a strong 80% -- 18% growth in H2, not at all affected by COVID restrictions?

Yes. So I'd like to answer the question. I think question one is already answered. Question two, there was the slowdown in Q4, that's mainly coming in Europe with the direct markets, with exceptions of Switzerland, Germany and distributor markets, especially Spain. On question number three, the business with a strong 18% growth in half year 2 was comparable year-over-year. So we are comparing half year 2, 2019, that was pre-COVID with the 18% now in half year two. Therefore, it's not affected when we look on the comparables of the 18% with the COVID restrictions. Are there any more questions?

Yes. We have another follow-up from Mr. Jelovcan from Mirabaud. Can you elaborate for the Chinese district launch distribution launch with priority in big cities first or just on East Coast or all over the country?

Okay. Thank you for the question, Ms. Jelovcan. In China, we have started focusing on 3 cities, which is Beijing, Shanghai and Guangzhou. That's where we have submitted for the tenders. And once we get tenders awarded, we will start with the distributors, but those are the three cities we will focus on at the beginning.

[Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Mr. Brönnimann for any closing remarks.

Thank you very much. I would like to conclude if there are no more further questions, and I would like to conclude on a personal note. I would like to thank Dominique Leutwyler for all his contributions over the past 20 years to Medartis, as he has led Medartis in many different functions, not only CFO. And as he has decided to leave the company, I would like to wish him all the best going forward. It's with great regret because losing so much confidence and success is always a significant change, but I would like to wish him all the best for his private and professional endeavors. Stay healthy, and I wish you all the best. Thank you, Dominique.

Thank you, Christoph. I would like to thank the Board of Directors, the Executive Board, the team and my colleagues. They have been wonderful and in reaching years that I have given me a great deal of pleasure. I remember back in December 2004 the first TriLock set delivery where this TriLock today is a key technology for Medartis and the IFRS conversion project as one part of the IPO in 2018, where a lot of you guys listening were also a part of, thanks a lot. I wish Medartis all the best and much success in the future, and I'm sure, not only as shareholder, that Medartis success story will continue. Thank you.

Thank you, Dominique. On the same note, I would like to welcome Dirk Kirsten as the new CFO of Medartis as of tomorrow. I wish him a great start and lots of success and also fun in the new EMB team. At the end, I would like to thank you for your attention and interest into Medartis and in case of any questions, as usual, please feel free to contact Patrick Christ directly. And with this, I would like to conclude our conference call, and I wish you all a great day and stay healthy. Thank you very much, and goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.