OssDsign AB (publ) (OSSD) Earnings Call Transcript & Summary

Hello, and welcome to today's webcast with OssDsign with CEO, Morten Henneveld; and CFO, Anders Svensson, will present report for the fourth quarter. [Operator Instructions] And with that said, I hand over the word to you, Morten.

Thank you very much, and welcome to this fourth quarter and full year 2022 webcast. My name is Morten Henneveld. I'm the CEO of OssDsign. And with me, I have our CFO, Anders Svensson.

Good morning.

Today, we want to walk you through our Q4 results and highlights of the quarter as well as the full year. The fourth quarter marked a very strong finish to a very successful year for OssDsign demonstrating greater scalability and sustained high growth. To me, there are really 4 things that stand out as we conclude the year of 2022. We showed very significant sales acceleration in the business on both franchises and both geographies. We managed to build a new highly scalable growth leg in the company. We made solid progress on our mid- to long-term strategic investments and achieved several significant clinical milestones during the year. And last but not least, we also finished the year with a strengthening of the balance sheet. So in a market that remains suppressed, with staff shortages, delays to hospital approval processes and, therefore, is yet to return to pre-pandemic levels, we are very satisfied with the performance in the quarter and for the full year. As always, when we do these presentations, the normal disclaimer. What's also custom now, I do want to go back and talk about why we are really here and what we are trying to solve as a company, which is that today, current bone replacement products failed to heal a wide range of skeletal defects. For cranial, 10% or perhaps even more of implants end up becoming infected, of which many needs to be removed. And for spine and our bone graft product, 1 in 5 patients do not achieve a so-called fusion. And ultimately, for both patient groups, it means that many must undergo revision surgery, which is extremely painful for the patients but also extremely costly to the health care system and, therefore, the society as such. If we move on to the fourth quarter, we made some very significant progress in the company again. We had another record-breaking quarter, demonstrating above 100% global growth with an all-time high for both geographies and all-time high for both franchises. The U.S. continued its strong performance with the third consecutive quarter of triple-digit exponential growth and came in at 162%. We also saw an exceptional strong comeback from the markets outside the U.S. with 73% growth. We hit the milestone, a very important milestone of 500 patients treated with OssDsign Catalyst just as the year ended. On a more broad point, we had some very significant clinical and post-market publications on both our bone graft and cranial businesses. On bone graft, we reached more than 100 patients and our PROPEL registry published the first post-market safety report, and we also had the first clinical publication just after the year ended. And for cranial, we published even more robust and better clinical evidence with updated post-market surveillance data, a key publication showing Cranial PSI being superior to PMMS (sic) [ PMMA ] and we also had the largest case series in the U.S. And last but not least, we also strengthened the balance sheet at the end of the year with a highly successful direct share issue, bringing the company approximately SEK 65 million. And we are, of course, very pleased and thankful for the strong investor support that we saw. And with that, I'll now hand you over to Anders to walk you through the financial results before we go into the highlights of the quarter and the year in a bit more detail. Over to you, Anders.

Thank you, Morten. So if we turn to the results for the fourth quarter, we reported SEK 19.9 million in sales, so very close to SEK 20 million. That equals 117% growth, as Morten mentioned, for the quarter versus the same quarter last year. On a constant currency basis, that corresponds to 89% growth. Now the fourth quarter was positively impacted by a couple of things. We had some positive developments in Cranial PSI manufacturing, which allowed us to ship early some of the products that were actually meant for January surgeries. And we also had an accelerated invoicing effect due to the extra days that followed on annual close. These effects together were worth about SEK 0.7 million. Now looking at the full year, we reported SEK 57 million in sales. That's 80% growth versus '21 and 62% on a constant currency basis, and this is despite a continued very challenging market that we operate in. Now the pandemic has caused fluctuations in sales all during '22, especially in the first quarter when we had Omicron. We saw some slow uptake on elective surgeries in the second quarter, but the staff shortages and delays to hospital approval processes continue to remain a challenge for the health care system even today and going forward. This is -- this leads to a continued depressed market, very far from pre-pandemic levels, for sure. And as an example of this, we saw in December a spike in critical staffing levels and increased flu outbreaks, which led to a sudden retraction in the market that carried on into the beginning of '23. And as if that was not enough, we've seen, as you know, in '22, war, inflation, energy risk and also interest rate risk that have now come up on our agenda. And with this backdrop, of course, we are extremely pleased that we managed these full year results. I also want to spend just a minute on the sales momentum. You can see very good accelerating sales momentum during '22. And if you look at this slide, you'll see we started the year in Q1 SEK 7.1 million and end up in Q4 at SEK 19.9 million, which is 182% higher within the year. And to me, this is a clear testimony to the underlying sustainability in the growth that we see. But looking at where the sales is coming from them and the growth. You can see that the U.S. business accelerated again in Q4, SEK 12 million in sales, continuing the strong momentum that we saw in the third quarter and came in an exponential growth of 162% for the quarter, which means that we ended up with a full year growth in the U.S. of 133%. This is now the third consecutive quarter where we've had triple-digit growth of around 150% in the U.S. And the share of our total revenues from the U.S. increased to 60% compared to 50% in the same period last year. But encouragingly, the markets outside the U.S. also showed significant acceleration and sales amounted to about 17 -- sorry, SEK 7.9 million in the fourth quarter. That's about 73% growth versus the same period last year. In early '22, we restructured the sales force to provide an increased focus on Germany and France. And we are, therefore, very pleased to see a positive effect of these changes in the second half of the year, which means that we ended up with a full year growth of 38% outside the U.S. So all in all, a very strong quarter again and a fantastic full year. As usual, I want to do a small deep dive into the U.S. and just look at how U.S. is not only taking off but also showing sustainable growth. And what you see in this bar chart is the last 12-month rolling sales or LTM in each bar. And we started to see this trend in Q2, and now this has accelerated further in the fourth quarter. It also means that the last 2 quarters alone have contributed as much incremental sales in absolute terms as we took the company to reach in the first 5 years in the U.S., which clearly highlights the exponential momentum that we have in our U.S. business right now, a very strong development, and we are really, really satisfied with it. If we move on to the split by franchise, which we started reporting on last quarter, we continue to see a very healthy development in both businesses. And if we start with cranial, we reported sales of SEK 12.4 million in Q4 and accelerated that business even further. For the quarter that 73% growth, which is a significant acceleration despite the very weak market that still suffers from a low level of elective procedures. The growth in Q4 also increased the full market growth that came in at 34% and for our bone graft franchise then, we saw a further acceleration in momentum during the quarter as a result of more hospital approvals happening both during the third and also the fourth quarter. And whilst I would not pay too much attention to the growth numbers, as this is still within the first year of launch, reporting SEK 7.5 million in sales during the quarter and SEK 17 million for the first full year clearly indicate scalability and transformative potential that we have with OssDsign Catalyst. Now global sales contribution by franchise. As you can see here, the strong Catalyst numbers also mean that bone graft again represented 38% of sales for the quarter, just as it did in Q3. And this means that it ends up representing 30% of global sales for the full year. That's a great result in the first full year. This means already in the first year that OssDsign Catalyst is now a very meaningful part of the business. And due to the higher gross margin, it positively impacts both profitability and cash flow. And I will now hand you back to Morten, who will talk some to the other highlights and achievements we've seen.

Thank you very much for that, Anders. As I said in the beginning, during the quarter, we continued to make significant progress on our clinical programs, and I just want to highlight the key ones. After the quarter ended, we announced that we now have treated more than 500 patients with OssDsign Catalyst. This is a great milestone to reach and resonate strongly with surgeons as broader usage mitigates risk concerns that any surgeon may have. It also clearly shows the high interest we have in the product. And in the extension of this, we also talked a little bit about it in the last quarterly report, we came out with the first post-market safety report on OssDsign Catalyst showing 0% device-related complication rate and therefore, strongly supports the product safety profile. As I alluded to before, when you are launching a new product, surgeons will always ask about the safety of usage. And the results from the report is therefore something we're incredibly pleased with and means that surgeons who consider using our products are likely to be more convinced about it, but it also resonates well with surgeons who are about to use it because it minimizes the risk concerns that they may have. So all in all, establishing a strong safety profile on the product is important when you're commercializing a medtech product. In the beginning of January, we also announced the first inpatient case report of OssDsign Catalyst showing complete spinal fusion 6 months post-surgery. The first case report from our TOP FUSION study was published in the peer-reviewed Biomedical Journal of Scientific & Technical Research, and although this report was based on observations in a single patient, the results are very encouraging with evidence of progression to fusion observed already 3-month post-surgery with complete spinal fusion being achieved at 6 months, and this is accompanied by improvements in both pain and function outcomes. So an outcome, again, we are extremely pleased with and which supports the preclinical data that we already had on OssDsign Catalyst. I also just quickly want to remind everyone, as we announced in Q4, we had an intention to launch our first line extension of OssDsign Catalyst with 1cc size. That product has now been launched in the U.S. And whilst revenue contribution, of course, will be lower due to the small size, the strategic importance of a full-size family is high and will enable improved access to the hospitals and surgeons. So those were some of the highlights on OssDsign Catalyst. If we move into Cranial PSI, then I do want to bring your attention to a paper that was cited, this is not something that we press released as is done by one of our largest centers in Germany, but it is the largest retrospective study to date on Cranial PSI. The paper includes 82 patients over the course of 7 years from 2015 to 2022 and aim to evaluate the feasibility and safety of a biocompatible calcium phosphate implants for cranioplasty compared to PMMA implants. And the clinical outcome is extremely possible -- sorry, positive and clear and the authors conclude that a biocompatible calcium phosphate implant seems to be superior to a PMMA implant in terms of surgical site infection and postoperative complications. The absence of surgical site infection supports the idea of a biocompatible implant material with its ability for osteo-integration. So the results, therefore, again, I'm inclined to say, confirms the very unique properties of Cranial PSI and adds again now in an even stronger format to the growing volume of peer-reviewed clinical evidence. OssDsign Cranial PSI is clearly becoming well established in the orthopedic market with a continuously growing number of users and more and more robust data. In December, as we do once a year, we came out with updated post-market surveillance data and now cover almost 2,000 implants. And it showed that the frequency of infections leading to implant removal was only 1.4%. The outcome here is better than what was observed in previous follow-up evaluations. And with the recent publications in journal on Cranial PSI, it now means that we have more than 10 peer-reviewed preclinical and clinical publications and they are all consistently showing a strong clinical performance as well as clearly proven regenerative capabilities. And combined with the solid post-market surveillance data, OssDsign Cranial PSI, therefore, continues to manifest its very differentiated precision in the treatment of cranial bone defects. As this report also covers the full year, I do want to take the opportunity to take a step back from the quarterly focus and look on the year that passed. Quite often, we get preoccupied with what happens in the single quarter, but what's really important is that we show discipline and we execute well on our priorities over time as this is what creates the building blocks for future growth. And 2022 was clearly marked by several very solid achievements which also meant that we delivered on all the milestones that we communicated. If we start on the top with our bone graft business, the year was characterized by not only strong sales growth but also some very big steps forward in our clinical programs. Early in the year, in January, we got the regulatory approval for our PROPEL registry soon after the first patient was enrolled and in November, we already reached the first 100 patients. For TOP FUSION, we completed enrollment in April. And already in January of this year, we had our first patient report published in the peer-reviewed journal that we talked about a second ago. And in addition to these 2 main programs, we also established a U.S. Strategic Advisory Board with some very high-profile key opinion leaders. We published our post-market safety report and launched our first-line extension. So as you can see, when we summarize the year, a lot of achievements in the first year of commercialization. Equally on our cranial business, we started with a big win in France of the largest and most prestigious tender contract, which was followed by the launch in Japan. And in the second part of the year, as we just shared with you, we built even more clinical evidence with 2 key publications and we wrapped up the year with now an even better and undisputable post-market surveillance data. So when I do the inventory check for the year, we are extremely pleased with the progress we made and we clearly ended the year in a much stronger place than we started. I also want to use this as a segue to take a step back again and relate our achievements to our strategy, ASCENT25 and the 5 key priorities in that. As you can see, the progress we've made in the company clearly follows the strategic priorities. We have delivered on the key promises in the strategy. We have improved value creation, and we became a much stronger company with greater scalability. Our first priority is to win in the U.S. We focused a lot in the U.S. And as you can see, we're delivering to that plan. The business has now been running in an exponential growth mode for several quarters. We have what we call LTM, so the rolling 12-month momentum is up nearly 3x and U.S. now represents 60% of revenue, creating a much healthier mix effect in the business. And not least, the growth is sustainable with a broader customer base with more recurrent users. The second priority in the strategy was to build an orthobiologics business. As you've seen, we've demonstrated SEK 17 million in sales in the first year, 500 patients treated and the fact that we've attracted leading surgeons as ambassadors, all a testament to very successful launch, that means that we are now well underway and have set up the company for continued acceleration. On the third priority, which is to innovate the portfolio. As you know, new product development in the medtech field takes time, but we've already launched our first-line extension with Catalyst 1 cc and have line of sight to more products coming out in the coming years. Our fourth priority was to accelerate our clinical effort and to make some significant strategic investments in this area. And this was not only about doing more, but more importantly, fundamentally implement a new clinical agenda to do programs in the markets we operate in with our surgeons and with real patients. These are all key building blocks for the mid to long term, and therefore, takes time before we will be able to fully capitalize on it. However, with the things we've put in place in 2022 and the evidence we already published, we are clearly on the right track, and we are very pleased, as we've said, with the progress and not least the many achievements within a relatively short period of time. The fifth and last priority we've not really talked so much about as this is a longer-term play to change how we design, manufacture and ship our canal implant which requires a rethinking of many fundamental processes. At the end of 2021, we started a bigger project. And during last year, we already delivered the first improvements in that plan, what we call Phase 1 here. Phase 1 delivered a few days of improvements in the lead time, but at the same time, laid out the plan for much more material reductions that we expect to see during 2023, which, as you know, a shorter lead time means improved competitiveness and increased relevance for more cases. So as I said, when we summarize all this and how we've delivered to the strategy, I do believe that we've delivered on the key promises in the strategy. And I do feel that we are a much stronger company with greater scalability as we come into 2023. So with that, I want to thank you for listening and hand over to the operator for questions.

[Operator Instructions] The first question, how is onboarding of new hospitals for Catalyst going in the U.S.?

Well, I think the sales numbers and the fact that we've now treated 500 patients speaks for itself. It is going well. We are building up that customer base. We are seeing a high degree of recurrence of the new users that are coming on board. As we've also said a number of times in these presentations, we do continue to see some real challenges and delays to hospital approval processes. But for now, I would say we manage it fairly well, and we're certainly building a real business in the U.S. in Catalyst.

How is the VAC approval pipeline looking?

It looks good. As you know, we don't disclose operational items like that. Overall, I would say, number speaks for itself. We are approved in numerous hospitals already, and we have a pipeline to get approved in even more. So that is going absolutely on track.

What is the new reduced order to surge your lead time for the cranial product?

Well, I think as we've said before, typically, it takes 3 to 4 weeks in Europe and 4 to 5 weeks in the U.S. What we saw during the second half of the year here towards the end was a few days of improvements and nothing material. But I think more importantly, we are working through a plan of a redesign of how we work and expect to start implementing that during 2023. But we will keep you updated on that progression as well.

Yes. when and in which form will the TOP FUSION 1-year result be communicated to investors? Will it be some kind of early top line readout? Or will we have to wait for a scientific publication?

No. I think it's still something that we are debating in the company. As you know, this won't be a big statistically significant. We are talking 17 patients for 15 evaluable, but -- so -- but we will come out with something which is more of a typical clinical paper. From a timing perspective, I think that it's important to point out the -- the last patient came in, in April. So that patient will come up to 12 months here in the second quarter. As per the protocol, patients can come back in a 90-day window. So it means that the site is not likely to have all the data on all the patients until Q3. And then you need to extract that, get it validated by third party, analyze it and write. So I think everyone should expect that we are coming out with something in the beginning of '24.

Does the recent announcement of 100 patients included in PROPEL mean that you will consider this as a viable cohort to publish result on a -- 1-year later?

Yes. Yes, in theory, I can't say if it's a viable cohort until I see that patients are also coming back at their 1-year checkup, and we do get the images and the films that's needed. So it's a little bit premature to do that. But yes, the clear anticipation with PROPEL is that as we are coming up to a meaningful cohort at 1 year that, that will also allow us to get publications out. I do want to emphasize that even though it takes time to wait for the 1 year and the more clinical publications, that doesn't mean that it's not adding value as we speak. In TOP FUSION, as we do in PROPEL, we have real-time access to the data to the surgeon to work with it and to the images of patients. So this is, of course, something we are using actively on the NDA with surgeons to show how our clinical data progresses over time. So it does carry immense value as we speak to the commercialization effort. But I do understand the desire to also see the more traditional clinical papers coming out, which, as I said, you should expect in the early part of '24.

When you talk about exponential growth, do you mean quarter-on-quarter percentage or year-on-year?

We're talking compared to the same period last year.

Perfect. What I can see, that was the last question. So I want to thank you for the presentation and asking questions today, and I want to thank all the viewers for tuning in, and have a good day.

Thank you very much.

Thank you very much.