Medartis Holding AG (MED) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Medartis Half Year Results 2024 Conference Call and Live Webcast. I am Sandra, 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 Rebecca Brook, Head of Corporate Communications. Please go ahead, madam.

Thank you very much. Good morning, everyone and welcome to this webcast where we will present Medartis' 2024 half year results. We do appreciate the time of talking to you today and you taking the time to dial in. So my name is Rebecca Brook. For those of you who haven't met me yet, I joined Medartis as Head of Corporate Communications in June. And for today's call, I am joined by our CEO, Christoph Bronnimann; and our CFO, Dirk Kirsten. As usual, we will refer to the slide deck that was published this morning on our website, along with our press release and our half year report. Before we get started, I would like to draw your attention to the disclaimer on the second slide, which is regarding forward-looking statements. Then on Slide 3, you will see today's agenda. At the end of the presentation, we will be happy to answer your questions. [Operator Instructions] We very much look forward to your active participation. And with this, I would like to hand over to Christoph for his opening remarks and the key highlights of the first 6 months.

Thank you, Rebecca. Good morning, everyone, and welcome to our half year '24 presentation. I'm looking forward to leading you through our key figures and business update this morning. Overall, I am pleased with the progress of the company in the execution of our strategy, delivering strong growth in key markets while improving our gross and EBITDA margins. Let's go through the key figures on the left side of the slide. Our underlying global growth reached 13.1% versus prior year, while we have seen a strong performance in the U.S. and EMEA markets, our gross margin has significantly improved to 8.3%. The underlying EBITDA margin, excluding one-offs reached 17.2%. While we have seen a strong performance in key markets like the U.S. with 21% and AU with 18%, the growth in LatAm and Asia Pacific was weaker than expected, which was mainly driven by government-induced price reductions in Australia and price erosion in Brazil as a result of the merger of health care insurance companies. The underlying EBITDA margin has improved due to a strengthened gross margin and cost management. The slower-than-expected NSI product commercialization, mainly LapiPrep, caused CHF 9.6 million one-off depreciation, which is partially compensated by the release of earnout provisions. The cash flow preserved and strengthened and total cash reserves increased after successful issuance of the convertible bond at attractive terms earlier in the year. We have made progress in the commercialization in the U.S. through expanding our commercial team, investing in strengthening our sales channels in the upper and also lower extremities and further investments in trading and education of sales reps and surgeons. The introduction of the new product launches in upper and lower extremities is on plan and we have further built our organization through attraction, relocation and development of talent worldwide. With these initial comments, I would like to hand over to our CFO, Dirk Kirsten, for the operational and financial review. Dirk, please?

Thank you, Christoph and good morning, everybody. In the next 15 minutes, I'll lead you through our operational and financial performance for the first 6 months of 2024. Let me start with a short summary on Page 7 of our presentation. In the first 6 months, we have grown 13.1% at CER in our underlying business. Our third-party manufacturing business in the U.S., which we acquired from former NSI has decreased according to plan and according to strategy. The underlying CER growth, combined with a decreasing third-party manufacturing sales has led to the group growth of 10.8% year-on-year in H1 '24. Our gross margin has improved to 80.3% and supported an improvement of more than 300 basis points results from higher volumes, better manufacturing efficiency in Basel and as mentioned above, from a lower stake of the third-party manufacturing business in the U.S. Excluding the latter, our margin would even be at above 83%. Our cost management remains balanced with continued spending in growth areas with tight management in all support functions, wherever possible. Our cost ratio stood at 77%. But this also includes some one-offs such as costs for the announced CEO change and costs for the transfer of our Japanese business from indirect to direct. As a result, our underlying EBITDA margin was 14.6% in H1 '24, the respective underlying EBIT margin was 4.9%. If you exclude above one-off factors, both margins would have been about 2% higher, that's leading to an EBITDA margin of more than 17%. However, I shall also inform you that we had to make an adjustment of revaluation of the NSI acquisition, which we had announced in early '22. Some of the acquired technology is yet not generating sales as expected. We booked an impairment of CHF 9.6 million into the P&L for the first 6 months. However, these noncash expenses were mostly compensated by the release of a contingent liability for a later earnout milestone, which had been planned for early '26. As the payment of this earnout was strongly linked to the sales of exactly those products, which we had to impair, the total NSI acquisition price is likely to be reduced by USD 10 million as well. Moving to our balance sheet. We were able to further gradually improve working capital and CapEx spending, including set investments. Additional spending was focused on growth areas and new product introductions. And the combination of growth, better gross margin, good cost management and improved balance sheet management allowed us to improve our cash flow before M&A and financing by about CHF 40 million year-on-year. Together with the successful issuance of a convertible financing in the size of about CHF 150 million earlier this year, this has increased our cash position significantly now and prepared us to execute any upcoming acquisitions. After this short summary, let me give you some more details on our regional performance on Page 8. The U.S. core business grew about 21% at CER. Some of you might be disappointed at first glance but keep in mind that this is clearly faster than the underlying market has grown. Also, it reflects a 60% higher monthly run rate than just after the acquisition of NSI in Q1 '22. That being said, our H1 U.S. sales are not where we expected them to be, especially in lower extremities. The reasons for this is that the channel building in lower extremities takes more time than assumed. On the positive side, we nicely grew in distal radius our flagship product. We also made progress with selling our partner products from Field Orthopedics and KeriMedical. For the latter, we've started to prepare launching the Keri Touch prosthesis in the U.S. if and once FDA approval is confirmed. Hopefully, it should be possible in the next 12 months. This will also be the moment when we will consider increasing our stake in Keri up to 100% control. Foot and ankle products have not shown the traction which we were expecting. The conversion of customers with the acquired NSI technology requires more channel building as well as training and education and plans. In Q1 '24, Medartis performed a national bunions boot camp to leverage LapiPrep and Lapidus Cut Guide. Feedback from surgeons and distributors was very positive. However, the sales uptake is lagging. We will evaluate the potential to accelerate sales from these new products once the CEO change has happened also in context with the opportunity we have in upper extremities, including Keri and Field. In the first half of the year, we focus on strengthening our teams, bringing new talent into the organization and moving highly experienced product experts into the U.S. to support and execute our growth plans. In EMEA, we grew almost 18%. And with all modesty, this performance is outstanding and it also was above our own plans and expectations. A couple of positive factors came together. The weather in Q1 caused higher than normal trauma business. Also, we've seen accelerated growth from countries in which we have systematically invested over the last 3 years, investing into the organization, into people, into training and education and investing into assets. Examples are France, or the U.K. Spain once again achieved significant growth above 40% and now reaches the first time [indiscernible] size for the entire region. The German-speaking countries continue to grow remarkably despite the already strong market shares of 30% and more in Hand & Wrist. Keri Touch, which we distribute in Germany, Austria and the U.K. has gained further size, this is expected to grow much more. Once again, we are very proud to present such strong figures from EMEA as of today. On the contrary, APAC continued to face further price challenges in Australia next to the planned price cuts. Now the third year in a row, we were informed earlier this year that specific products are subject to additional price reductions. In the first 6 months, we generated high single-digit volume growth. However, due to the price cut, this did not convert into U.S. dollar -- into Australian dollar growth. The Australian team had successfully started to develop its own go-to-market model towards a hybrid strategy, consisting of own reps but also independent sales agents in some regions. Doing so, we are able to keep the number of [Technical Difficulty] in the market while making some of our costs more proportional to sales. We will continue investing into the Australian market, into sales, into channels, into training and education to the benefit of our customer relationships. In July, we had our first cath lab for KeriMedical, Keri Touch and the response from surgeons was very positive. The first visible uptake from Keri Touch is expected as from '25. In Japan, where we are currently transferring the business from a former distributor to Medartis, sales has been almost doubled year-on-year. Since recently, we are offering also sterile products to our customers. We have significantly invested into a much larger team over the last 12 months. This goes along with costs and investments into sets, which are expected to turn into sales momentum in the next 12 months. Unfortunately, they're yet small absolute size of the Japanese business and also the good growth for most of our distributor markets in H1 would not make up for the flattish sales growth in Australia. On a regional level, we report only 3.1% at CER versus H1 '23. We are confident that the situation will get better in the next 12 months but the combination of the Australian price challenges and the uncertainty around the speed of the transfer from indirect to direct in Japan have made us revise our group guidance for the second half of the year as well for the full year. Christoph will come back later to that. Unfortunately, also in LatAm, we faced unexpected challenges. An insurance merchant in the Brazilian health care system required us and most competitors to renegotiate prices directly with hospitals. These negotiations have created new price pressure in elective procedures, especially in CMF. The result of this was a decrease of the CMF business of about 30% year-on-year. Also the lower extremity business, which is mainly driven by elective cases was affected. Good growth from Mexico distributor markets could make up for these losses. As a consequence, at the end of June '24, we report minus 9.5% growth at CER for the region in LatAm. As you may know, our future CEO, Matthias Schupp has a lot of experience with similar market dynamics in the LatAm region. We will address opportunities to reaccelerate growth on different price levels once he will arrive later this year. For the second half 2024, we expect a slight improvement versus H1 but still a remaining visible impact for the region and Medartis [ scope ]. Next to APAC, this is also relevant, when Christoph later reports on the revised full year outlook. Now with respect to time, let me directly go on to Page 10 of our presentation. As I mentioned before, we improved our gross margin more than 300 basis points and this was possible as some of those factors in '23 didn't repeat again. Our volumes increased, the '23 IT hack impact was averted. And most importantly, manufacturing efficiency has improved due to an in-sourcing of packaging of sterile and nonsterile products. And finally, we're also able to slightly improve some of our supplier costs. Excluding the Warsaw production, which faces overcapacities due to the decrease of third-party NSI products, while growth from the new NSI technology is yet not materializing, the margin would have been above 83%. With the exception of Australia, price discipline could be kept and the product and country mix was also favorable. We remain confident that we can keep or even improve our gross margin readily over time once we refill existing capacities in Warsaw, in line with the volume growth of Medartis products. Moving to Page 11. Our underlying EBITDA margin also improved and stood at 14.6% for the first half of '24. If you adjust this number for some one-off effects related to the CEO change as well as for a contractual payment to the former Japanese distributor to hand over the business to Medartis, this margin was even 17.2%. Depending on top line development, we can further increase this margin and raise it to 20% and above. For this year, however, we remain cautious due to uncertainty from Latin and APAC. Despite the top line challenges, we will continue to invest into both regions, with the objective to gain further market share. Also in the U.S., we will further increase customer-facing activities, channel building, which will be only possible with continued spending. Within that context, let me also explain to you the earlier mentioned NSI revaluation factors and their impact on EBITDA and EBIT. I already reported earlier that the launch of selected NSI products hasn't happened according to our own expectations. As a result of this, we decided to revalue the acquired technology. At the same time, we released the contingent liability, which had been created at the time of the acquisition for a later earnout milestone to former NSI shareholders. As of now, as the product growth is behind of expectations, it's also unlikely that we will need to pay this earnout. Thus the M&A transaction will get cheaper retroperspectively as well. The release and the revaluation of assets just about net out each other or be it with different P&L lines, purely technically. And accounting-wise, the reported EBITDA increases to -- well, increases by CHF 7.6 million, while the reported EBIT decreases around CHF 2 million. In order to eliminate these noncash extra factors, we've shown you the so-called underlying EBITDA and EBIT separately. Page 13, you see net profit development coming from underlying EBITDA, ongoing depreciation and amortization, the NSI revaluation effects and finally, our finance and tax results. The latter has been influenced by positive FX movements in the first half of the year, which disappeared by the way, in July and August, again but also includes the accounting expenses for the newly issued convertible as of April '24. While the cash changes is only 3%, the accounting expenses are higher due to IFRS requested bifurcation of debt and equity costs. Last but not least, on Page 14, we show you the increase of our operating cash flow before M&A and financing due to improved working capital management and CapEx, including the set investments, we were able to improve this cash flow by CHF 40 million versus H1 '23. Our midterm target is much higher and it envisages 5% to 10% from the underlying business -- for the underlying business. The improvement will come over time from our operating leverage, a better gross margin, lower OpEx ratio as well as further improvements in working capital and set management. This will give us higher financial strategic flexibility, [indiscernible] for M&A and/or allow us to pay back our outstanding debt in the next 5 to 7 years. And with that, let me hand over to Christoph Bronnimann again.

Thank you, Dirk. Let's move on to the business update and outlook. On the next page, we have broken down the execution of our strategy into 10, what we call, must-win initiatives, which are all aligned with our objective to drive profitable growth. From top to bottom, our key priorities are, winning share in distal radius. The distal radius is our core business despite our leading positions in many of our EMEA markets. We still have significant growth potential with one of the most competitive and differentiated portfolios. We continue to invest in training our reps and surgeons worldwide and our worldwide growth of 8% is above market though. However, we have accelerated our share gain in the U.S. with 18%. And even in EMEA, the growth has reached remarkable 10%, in light of the high market shares. As you may appreciate, the slow performance in LatAm and APAC has also left its mark in our strongest business segment. The second, increasing share in foot and ankle, we have built a more comprehensive portfolio and our efforts in building dedicated sales teams and investing in training and education in foot and ankle continue to accelerate growth at 43% in the ankle and 20% in the foot. The lower extremity segment gains importance as growth driver worldwide, especially provides growth opportunities in markets like EMEA, where we have high and leading market share positions in our EMEA markets. #3, drive growth in KeriMedical. The strong growth trajectory of the KeriMedical portfolio, mainly the CMC-1 prosthesis Touch continues in our markets, Germany, U.K. and Austria. Most recently, we have started to launch the Touch prosthesis in the Australian market with very positive feedback and high interest of our top [indiscernible] surgeons. We also see opportunities in cross-selling our Hand & Wrist portfolio in the Australian market as a result of the Touch launch. On to next one, expand the sales channel and launch NSI products in the U.S. market. We have made further progress in the first half of this year, the building up and strengthening of our sales channel in upper and especially lower extremities takes time, especially the training of reps and surgeons in the complex procedures in the foot. I will further elaborate on the measures that we have taken to accelerate the commercialization later in this presentation. #5, going direct in Japan. We are currently in the business transfer of the upper extremities business in Japan from our former distributor. We estimate to conclude on the handover activities -- and handover activities in Q4 and then start building our upper and lower business as a direct business. The introduction of products that have not yet been registered in Japan, especially in the upper extremities and the conversion to the sterile portfolio is scheduled over the coming years. #6, protection of our gross margin. As Dirk has elaborated in his part, our operations team have delivered efficiency gains in manufacturing to allow for a significant increase of more than 300 basis points in our gross margin. Higher volumes and reduced third-party business also contributed to this improvement. #7 is the improvement of capital efficiency. This is an initiative where we seek continued and gradual improvement in finished goods inventory, set investment, improving our set turns and set management and focus on innovation in high-growth products. The next one, SAP Hana project has been realized and was a major milestone in the implementation, allowing now for an integrated and more robust processes as a foundation for future growth. The project was completed in May. #9, continue to drive forward our culture journey. We have made further progress in various global initiatives and hired key talents across the company on a worldwide basis. The introduction of a value strategy or its evaluation at least will be a topic that Matthias Schupp, as my successor, with his experience in launching value lines in the Latin American market in his former responsibility and function will be taking on. On the next page, we have continued to introduce new products to our markets to cover new indications and anatomies in the upper as well as lower extremities. In the first half of '24, we have started with the launch of the Foot 2 System, the dorsal olecranon plate, the extension of the CCS line as well as the extension of the scaphoid plates. The Foot 2 System is a system which is used mainly in the elective surgeries for the correction of deformities in the mid and hindfoot, like, for example, flat foot corrections as well as fusion of individual joints in the foot. The system is highly versatile and provides a wide range of options for the surgeons with adaptable plates. The dorsal olecranon plate closes an indication gap in the elbow and complements our dual plating system for the treatment of various fractions in the elbow. With this system, the surgeon will be able to cover a much broader range of elbow solutions, especially when it comes to trauma fractures. The CCS line extension provides an improved design, reduced insertion torque, improving insertion precision and expanding our indications. The scaphoid plate is a line extension with additional plate sizes to better cater for different scaphoid size and shapes. On the next page, I would like to share a case study that we have received from Dr. Stevelinck in the U.S., in Michigan. He has treated a young patient with severe bunion deformity in both feet, as you can see on the X-ray picture on the left. With such a severe deformity, you may appreciate the shift from a nonguided free hands towards a guided surgery using an instrument like the LapiPrep. The instrument allows for a controlled correction in 3 planes, precision in cuts, compression and diffusion and surgeons choice of fixation, which leads to a more predictable and better outcome for the patient. The surgeons appreciate the ease of use of the LapiPrep guide, the range of correction options and the first [indiscernible] option of the guide. As you can take from the patient's quote, it's an excellent feedback in terms of outcome and easy and early mobility. Despite the step-by-step surgery, such type of corrections remain a complex procedure, which requires training of the surgeons, as well as a high level of confidence and hence, confidence of the sales reps. And this is why it takes time to build a dedicated, competent sales force with significant investment in surgeon education. We remain confident on the technology based on the surgeon feedback and patient outcome, however, balance the investments to build a profitable lower extremities business. Let me further elaborate on our progress in the commercialization in the U.S. market on the next page. We have a diversified, differentiated and balanced portfolio. The Hand & Wrist is our core business with a high adoption rate of over 60% convert surgeons. The portfolio in foot and ankle is attractive but the procedures are more complex. We have made investments in our commercial team, including the hiring of field trainer, medical training, education and also marketing. Our priority remains building and expanding a focused, dedicated upper extremity sales channel while strengthening the existing lower extremity sales channel. As a result, we have shifted investments towards accelerating share gains in Hand & Wrist through our portfolio in that segment but also our partner portfolio of KeriMedical, especially through KeriFlex prosthesis and the NX Nail of Field Orthopedics. We continue to address underperformance in our upper extremity sales channel by shifting towards focused distributors, where Medartis is the main line and increase along our investments in training the sales reps. The dedicated and focused distributors outperform nonfocused multiline distributors by far. And year-to-date, in the dedicated distributor segment, we are growing 46% versus 16% in the multiline distributor segment. While we continue to build more dedicated distributors in the upper extremities and shifting towards more dedicated distributors, we focus our investments on our existing lower extremity distributors in selected markets. We have intensified surgeon education, our training efforts for sales reps in foot and ankle focusing on key indications. A team of field trainers is going to support the sales rep, surgeon education and conversion. For this purpose, we have rolled out several training series such as IBRA courses, Lapidus Your Way, Bunion Bootcamp and [indiscernible]. And we have also significantly increased the lab offering for training for the surgeons in both the lower and the upper extremities. I would like to conclude my presentation with the full year outlook and guidance. Based on the H1 growth below our expectations, mainly in APAC and LatAm, we reduce the top line guidance for the full year. While the group remains confident that it will outperform the underlying market, it is adjusting its outlook for CER growth to 12% to 15% for the full year. The absolute run rate should further increase in the second half of 2024. At the same time, adjusted guidance reflects a higher comparison based on H2 '23. The EBITDA margin expectations of around 15% at constant exchange rates. With these comments, I would like to conclude my H1 '24 presentation. As you all know, this is my last period reporting for Medartis. I'm proud of our people, the talented leadership team and of what we have achieved together over the past 5 years. I remain convinced of the potential of this company ahead. I would like to take the opportunity to thank you for your trust, your collaboration in the past 5 years. I have always enjoyed your engagement and interest, not only for numbers but also for the technology and the treatment of our patients and enjoyed very much the various conversations we had together. Maybe that our paths will cross again and I wish you all the best in the meantime and thank you.

Thank you very much, Christoph and Dirk. Before we move on to the Q&A session, I would just like to say thank you to Christoph, on behalf of the whole organization, for your hard work, passion and dedication to Medartis over the last 5 years and for bringing the company so much further along its growth journey. So I'm sure I speak for everyone when I say that you've been a pleasure to work with and also that you'll be missed. And of course, we wish you all the very best on your next adventure. [Operator Instructions] And with that, I would like to hand back to the operator to start taking your questions.

[Operator Instructions] Our first question comes from Ed Hall from Stifel.

Just 2 questions initially from me. The first one, just on the EBITDA guidance. So this is a 15% underlying guidance. I guess, could you just confirm H1 underlying guidance for the 14.6% as the H1 metric? Just a bit confused, given that the full year '23 results, the underlying was effectively the adjusted. So it's not the 17.2%, I should be looking at the 14.6%. And then second question initially would just be on the LapiPrep. Could you just talk about the outlook you see in this procedure, not just for yourself but maybe the wider market, especially given sort of KeriMedical's weaker outlook this year? And the reason on your side for the change in outlook, is this a more competitive market or is just slower or more -- let's say, more dedicated training regime from your side?

Dirk, you want to start with the EBITDA?

Yes. Thanks very much for the question. EBITDA. Last year, we had the IT hack and in order to make it comparable, we took it out again so that you get a clean comparison basis. This year, we did have some extra effects. I mentioned them earlier, which was the CEO change, a little bit of spending regarding this. But then also most importantly, we had the transfer from the direct -- from the indirect business to the direct business in Japan, which has caused some extra pains and that had to go through the P&L. I would say both are not really underlying. Now having said that, we have guided for the 15%. I'm also confident we can achieve them or outperforming even. This is the margin as it's shown. So that means all of the other things are included in there. But it depends very much on how growth comes in the U.S. On the one hand, we're ambitious to drive it up, in the second half of the year but then also Latin America and Asia Pacific, which are the biggest uncertainty factor. And you know operating leverage is coming in. So if you miss CHF 5 million on sales, so you have CHF 5 million more, it already has an impact of 1% or 2% on EBITDA and on EBIT. That's the reason why we've been rather cautious. I'm confident we can achieve that 15% all in. And then second question, Christoph.

Okay. Thank you, Dirk. Thank you for the question. LapiPrep. Let me explain a bit what is behind. I think it's -- the LapiPrep is a guided procedure for the treatment of the Lapidus procedure, which is a more proximal but also more sustainable treatment of the bunion surgery. So there is 2 fundamental assumptions. One, a significant shift from the bunion treatment towards using the Lapidus procedure. And the second one from the free hand to the guided instrumented procedure, which makes the procedure easier for the surgeons to follow and allows for a more predictable outcome. I think those are the fundamental assumptions. This is also why we have seen more competitors coming in. I think in the meantime, almost everyone who has lower extremities portfolio does have some sort of a guided procedure for the Lapidus. That's certainly an increased competition. But I think we should not underestimate that the Lapidus procedure remains a complex procedure, as I've tried to show in the case study. The correction is severe, especially when it comes to stronger deformities, which means that the investment in surgeon education remains high. And also in order to support the case from a sales force perspective and also the investment in training the sales force to be confident and knowledging -- and knowledgeable to run the entire case together with the surgeon is certainly a significant investment. And I would say that is probably what we have underestimated. This is also why we have slowed down our perspective on the ramp-up, the commercialization of the LapiPrep. In addition to the weakness of our sales channel, I mean we had a sales trend, which was mainly on the upper extremities. We had some dedicated lower extremity sales, distributors and also rep. And that ramp-up was the reason why we slowed down. As we say, we're going to continue to focus on the existing distributors. We have very good sales reps in selected markets but we want to make sure that we train and focus on the surgeon education for the commercialization and then build the lower extremities business on their back. Does that answer your question?

Perfect. Yes, that's perfect. And best of luck in your future endeavors, Christoph.

The next question comes from Sandra Dietschy from Octavian.

Yes. I also have 2. The first one is on the U.S. I'm trying to better understand what the sustainable growth rate in the U.S. could be? I mean the previous target of the CHF 80 million by 2025 implied around 30% sales CAGR, which is obviously too optimistic but you also mentioned that we should expect acceleration of growth from the 21% we have seen in the first half. Now do you expect the measures to already bear fruits now in the second half? And what midterm growth rate do you think is a reasonable one to assume for the U.S., given that you have a very strong product portfolio? And then my second question is a more strategic one on the launch of Keri Touch in the U.S. You're currently mainly selling your products via independent sales agents in the U.S. Do you plan to build for Keri Touch a dedicated sales force? Or do you aim to sell this product also via agent?

Thank you for your questions. Let me start with the U.S. I think what we have seen based on the run rate, this 21% growth, which is about in the same range as we have seen it last year, so therefore, an acceleration is missing. And I think that's probably at the lower end of our own expectations and would indicate a gap or potential gap towards the CHF 80 million next year. On the other side, I think we're looking at it a little bit more differentiated. What we have started at the end of '22, going through '23, shifting towards more focused distributors with Medartis as the main line. In that segment, we are still growing and continue to accelerate and growing at year-to-date about 46% compared to the 16% of the multiline distributors. So it basically -- it indicates that we're working on the right shift towards more focus and more dedicated sales channels, which have the potential to significantly accelerate the growth. So that's the underlying assumption to accelerate the overall top line growth, which we've always said and we discussed it many times, I would expect to -- grow this now steadily towards the mid-20% range and then getting closer to the 30%. So I think that acceleration is dependent strongly on our shift, the acceleration of moving and bringing on or exchanging multiline distributors for more dedicated distributors. Second, what we expect an acceleration as well is -- and I've tried to explain a bit, the shift from upper and lower towards more upper growth as we are strong in the sales channel, more comprehensive, differentiated and competitive portfolio. I think we should be able to accelerate in the upper extremities by focusing on the lower extremities, by focusing on the existing distributors that we have, train the reps, convert surgeons but accelerate more in the upper extremities. So that should also give us an acceleration in the overall top line or within the months and years to come. So I think the key for us to further accelerate in a higher growth rate will be the shift to more dedicated and stronger sales channels. On your second question, Touch, it's a great question. I think that's what we are currently evaluating. We will certainly make sure that at the very beginning, we will have fully dedicated support in the field as it is enormously important that we focus on training, get very good outcomes at the very beginning, which includes not only training of the surgeons but also an intense training of the reps. So our initial thinking is to start with dedicated and then we will need to think about how we're going to scale as we potentially will roll out then to a larger community. I think we can make a case for more direct sales force in the Touch. And I would say early thoughts are that a higher dedication to the CMC-1 prosthesis may absolutely make sense versus giving it into broad portfolio, into the independent sales reps. But that's very early thinking. But dedication is certainly what we try to build around the Touch prosthesis, once we get ready to launch.

The next question comes from Daniel Jelovcan from ZKB.

As well, 2 questions. The first is, in the region APAC, I'm a bit puzzled about the statements when you -- in the press release, you mentioned the 10% volume growth, I guess but also in the context with Australia. So I'm not sure if the 10% volume growth was for the full APAC region or just for Australia. And also, you mentioned that the typical price cuts and so on, they also led to a waiting list of patients. And I'm not sure if that's in Japan or I guess it's in Australia, most likely and, yes, maybe just a bit more flesh on the bone for this region? That's the first question.

And the second?

And the second is in Brazil. You mentioned, I think, 30% sales decline for just Brazil, if that's correct. And so the question is, this consolidation amongst hospitals and so on, I mean I can imagine in Brazil, it's quite complex. So when do you see a solution to fix that? I mean, you are -- I mean, of course, obviously, the Brazilian has set up but when do you expect that Brazil is going to recover for your sales?

Do you want me to start? So Dani, thanks very much for the questions. Yes, you're right, the 10% growth, the volume growth refers to Australia. This is not with respect to the entire region. If you look at Japan, the number is much, much, much higher and also the value growth also when you look at the distributors is higher. But that was a number to give you and all of you. If you look at almost 0% growth in value terms, in dollar terms, I said earlier and then 10% growth in volume terms, you see how huge the impact is, which is coming from the pricing side but it also should give you the confidence that we're still growing and that we're increasing our business even if it doesn't convert into value at this point of time. With respect to Brazil, yes, you're right, 30% refers to Brazil as well, refers even more precisely to the CMF business. You may know that 90% of the CMF business is fully elective. That means if you are in negotiations with hospitals on the pricing and they defer or even cancel cases in the hospital, it's a 1:1 loss, which goes to the P&L starting top line and then also affecting profitability. So the 30% is in CMF more than it is for the overall business. As I said earlier that some of the business, lower extremities has been also affected because this is also elective. What we saw in trauma and upper extremities was, that was better. And here we're growing also in value terms. Now you asked a question about this 30%, what does it mean? In the short term, we have to turn it around. On the one hand, some of these negotiations will hopefully be ready. We also expect sales to come from new products, over the next couple of months. So that gives us the confidence to guide for, I wouldn't call it a turnaround but an improved overall situation, nevertheless. But the question is, if you are on this price level in a market such as Brazil and Latin America in more general, is that just a situation which will disappear or is the situation going to last longer or is it actually changing a little bit with the dynamics in the market. And he has said earlier, good that we have a new CEO now coming. He's a lot of experience in what we call value line without [indiscernible]. But I think they have shown very, very successfully that it's possible to have different segments with different prices and different offers and different services and that's something which we have to consider and to discuss also with him once he's arrived, has a more structured, has a more strategic answer to your question.

Okay. So but for the time being, we can maybe base case model a similar weak Brazil also in the second half, I guess, it's not a quick fix?

It's not going to be minus 30%. I hope it's getting much better but I wouldn't guide for any positive number for Brazil specifically for the full year.

But I mean, you haven't really answered Australia with the waiting list and so on. I don't really see the connection between price cuts and waiting lists.

I didn't say that one with a waiting list. Maybe Christoph has commented on this or it's been misunderstood. What we referred to in Australia was just that there are these price cuts. That was the first one in July 2 years ago, which was 10% and another one last July, 5%. And by the way, this July, 1st of July, another 5%. We were informed about some SKUs, especially in the SKU business but there will be additional price cuts on an SKU level, which are up to 20% or 30%, which had to be implemented by 1st of July as well. So this explains a little bit the situation here. Nothing to do with waiting list of patients, at least. I haven't said it but maybe you misunderstood slightly, Dani.

It was in press release, actually.

Okay. Let me come back to that.

There was surgeries delayed in Brazil. That was in the press release.

So maybe there was something confusing or whatever but the delay and even canceling of cases is something which is very specific in Brazil, where the surges couldn't take place. I'm just reading through that. Yes, I'll come back to that, Dani. Let me just read and then clarify.

[Operator Instructions] We have a follow-up question from Sandra Dietschy from Octavian.

I have one on Europe and the Keri Touch. Can you give us an indication of how much of the strong European growth was driven by Keri Touch? Is it may be fair to assume that the sales generated with products from KeriMedical in the first half year is a mid-single-digit million number showing a growth of more than 50% year-over-year? Is that a fair assumption?

We don't declare growth numbers on the product level. But as we have discussed on the growth trajectory of doubling sales on a yearly basis for the Touch prosthesis remains. So I think we see a continuous fast growth of the Touch prosthesis mainly in all our European markets.

Gentlemen, so far there are no further questions from the phone. Back over to you for the written questions from the webcast.

Thank you very much. Yes. We will now go through the remaining questions that were submitted via the webcast platform.

I'll take the first one, which is from [ Simon Stursberg ]. Could the Touch prosthesis already get U.S. approval in '24? It's not expected. Potentially, yes but we do not expect an approval in '24. Then the next question also from [ Simon ] is, when could we potentially see some impact on the financial from the Touch prosthesis launch in Australia? We will certainly see some top line growth. But our priority and that's for every single market that we start launching the Touch prosthesis, our priority is not the top line, it's not the growth. Our top priority is to make sure that we have good outcomes, a thorough training of the sales force and also of the surgeons. I think that will be the key for a long-term sustainable success of a natroplasty device by having and making sure that the learning curve of the surgeons is well supported. They get very good outcomes in the patients and then we will see an acceleration in the top line. But our first objective is not the top line growth. But the demand is enormously high. I can share in almost every single country that I travel to. When I talk to hand surgeons, there is no other topic than CMC-1 prosthesis replacement and the availability of the Touch.

And Dani, I take the opportunity to come back to your question on Australia. The point you're referring to is a statement which came from our head of the region, that she was making, it's not -- nothing to do with the price cuts directly but what you are saying is also that there is some uncertainty sometimes in the reimbursement process before cases are done in the OR, sometimes there needs to be a confirmation from the insurances that this is fully covered. And this has caused a bit of trouble from a process perspective. You should not understand it in the sense of that there is some pent-up demand or whatever waiting in the queue and the business will be coming in the next quarter. So it was more to explain the operational difficulties which, by the way, also these price things from an organizational perspective and from a procedure perspective and, of course, within the Australian system. And that was the feedback which we also received from our region. And that's the reason why we put it into -- as a comment.

Okay. And there seem to be no further questions. So we would like to thank you all for your engagement, the excellent questions and also your interest in Medartis. We're now going to conclude our session. Before we terminate though, I'd like to draw your attention to our IR calendar, which is in the slide deck. We will be adding to this during the course of the second half year and hope to meet as many of you as possible in person. And in the meantime, we wish you all a pleasant day and goodbye.

Thanks very much.

Thank you very much.

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.