Ladies and gentlemen, welcome to the BONESUPPORT Q2 Report 2020. All along the call, all participants will be in listen-only mode, and afterwards, there will be a Q&A session. Just to remind you, this conference call is being recorded. Today, I am pleased to present the CEO, Emil Billbäck, and CFO, Håkan Johansson. Please begin your meeting.
Thank you, operator. To everyone, very warm welcome to BONESUPPORT's Q2 2020 results call. I'm Emil Billbäck. I will cover the first part of the presentation. Next to me is Håkan Johansson, our CFO, who will cover the financial part today. This morning will take around 20 to 25 minutes to run through the presentation of the second quarter results. Then we will open the line for questions and answers. If we could please go to Slide two. Before we actually go into the details of the presentation, I would like to draw your attention to the disclaimers that covers the forward-looking statements that we will make today. Next slide, please. Slide three. I would like to begin this presentation with some highlights from the report that we released this morning.
Overall, Quarter 2 sales were SEK 36 million, which is down 3% year-over-year. Sales has been negatively influenced by the COVID-19 pandemic, which I will cover a bit further later in my presentation. Despite these challenging times, we're seeing strong progress in a number of areas, providing confirmation that the company is indeed continuously moving in the right direction. Sales in the segment Europe and rest of the world were down 35% to SEK 15 million, and for the antibiotic-eluting product, sales were down 34%. In the segment North America, where we are currently leveraging a strong increase in customer base, we delivered SEK 22 million in sales, which corresponds to a growth rate of 46% year-over-year. A significant improvement on EBIT was registered due to reduced expenses in the period. I would like to mention a few operational highlights in addition.
In May, we raised 378 million SEK through a directed share issue, and we are happy, of course, to welcome a number of well-renowned long-term shareholders. Shortly after the exciting news in March that CERAMENT G had been granted Breakthrough Device designation by FDA, we submitted a De Novo application. The De Novo application for CERAMENT G in the U.S. is aimed at the indication osteomyelitis or bone infection and can potentially result in an approval in the U.S. in the late part of 2020. We also closed the recruitment of patients to the FORTIFY trial, and I will come back to some of these operational details later on, but we'll first cover the impact that the coronavirus pandemic has had on the company. Next slide, please. This is Slide four.
The outbreak of the pandemic has had hospitals redistributing resources, and many elective surgeries have been deferred to a later date. According to industry estimates, non-critical surgeries in the field of orthopedics have decreased by around 80%-90% in March and April compared to the previous year. There's also been a larger impact on university hospitals compared to regional and local hospitals, as the university hospitals have been assigned to take care of COVID-19 cases with extended intensive care units. In several cases, the beds dedicated to orthopedic patients have been remodeled to instead be proactively ready for anticipated COVID-19 cases. The incidence of trauma cases have been markedly reduced in regions and geographies influenced by lockdowns, stay-at-home orders, or quarantines. These have all caused a reduced mobility of the population in those areas.
As many of you know, the most common reason for trauma cases is normally traffic incidents. Furthermore, the pandemic has restricted and delayed BONESUPPORT's recruitment of new customers as interactions between potential customers and company representatives have been limited. BONESUPPORT is in a commercial phase, and a large part of our operational expenses is related to the selling activities. With restrictions being imposed, close to all congresses and events have been canceled or moved to a later date. Simultaneously, we have taken measures to reduce expenses without interfering with the business or our ability to quickly scale up activities when the pandemic so permits. As an example, we have made work time reductions, mainly for salespeople, and we've also had voluntary and temporary salary reductions across the organization. COVID-19 has no impact on the underlying need for CERAMENT, nor is there influence on the need to treat skeletal injuries.
We are certain that the number of orthopedic surgeries will return as the pandemic wears off. We believe that the benefits of a one-step procedure, as conducted with CERAMENT, will be even greater as healthcare systems around the world open up to even longer queues to surgeries and treatment than before the pandemic. Slide five, please. Next, I will guide you through the development of our quarterly sales performance. The slide you see here shows sales in the last 12 months, with the dark orange part of the bars representing Europe and the light blue and dark blue part of the bars displaying sales in the U.S. Total LTM sales, or last 12-month sales, in Q2 2020 was more or less flat versus Q1, and this is due to the pandemic impact. The pandemic also caused the first Euro quarter that was not being a consecutive all-time high.
Encouraging is that the U.S. LTM, last 12-month sales, has surpassed the peak sales that was accomplished under Zimmer Biomet with a strongly growing and solidified customer base. We terminated the contract with Zimmer Biomet based on a strong vision to bring CERAMENT to its full potential, and we are making progress on that journey. Next slide, please. Focusing a bit more on the details regarding Europe and rest of the world. At the top of the slide, you can see the sales performance that I already covered at the beginning of this presentation. Our direct markets represents around 85% of sales in Europe. On July 1st, the Netherlands was turned into a direct market for BONESUPPORT. The Netherlands is a country with very similar market dynamics as our surrounding direct markets.
Over the last two years, sales has not grown as strong as it has with the direct markets. I'm convinced that our proven and scalable business model will successfully drive market penetration for CERAMENT, and we are well underway with recruiting sales reps for the market, and we have already hired a well-experienced sales director. In the first quarter, we appointed new and upgraded distributor partners in Italy and France to better capture the sales potential in these markets. In the second quarter, we could see a slight short-term disruption on sales related to this change. In the longer term, we are convinced about the great potential from these tactical alterations. We have converted a large part of our customer interactions to digital meetings and digital communication during the pandemic.
We have hosted several webinars with key opinion leaders on our digital platforms, sharing the science and the experience made with CERAMENT. We have been presenting, the key opinion leaders have been presenting both clinical studies and case series where CERAMENT has been used. There has been a very high presence and participation from surgeons with up to 240 participants. Next slide, please. Turning the focus now to North America. The strong sales depicted at the top of the chart, I have already mentioned. The sales growth is attributed to the ongoing buildup of a solid customer base in the U.S. CERAMENT BVF has a developing foundation of both heritage and new customers, as well as received endorsement and high cadence use from several national key opinion leaders. The establishment of customer structure bodes very well for the future launch of CERAMENT G.
The De Novo application to the FDA for the indication osteomyelitis of bone infection was submitted in April. On July 3rd, we received a number of clarifying questions in line with the regular and formal process. Those questions were on the level that we expected. With regards to the FORTIFY study, we have finalized enrollment in agreement with FDA and thereby ended the patient recruitment at 200 patients. Despite the disruption from the ongoing pandemic, our commercial team has made great progress in increasing CERAMENT market presence, geographic coverage, and building rapidly expanding customer base. Just as in Europe, we have converted a large part of our customers interactions to digital meetings, and they have been well-intended with interactive webinars hosted by key opinion leaders. Finally, I'm happy to welcome Michael Roth as head of our commercial operations in North America.
Michael is well-experienced in the orthopedic market, but above all, he's a strong commercial leader. Next slide, please. Slide eight. In light of the communicated use of proceeds from the directed share issue, the De Novo application file, and the close of the FORTIFY patient recruitment, I would like to elaborate a bit further on the U.S. market potential and the route to market strategy. The De Novo application, if approved by the FDA, provides a potential to commercialize CERAMENT G in the market for indications bone infections by the end of 2020. The market side for bone infections is represented by the orange segment in the chart below right. The PMA pre-market approval application will be based on the results from the large FORTIFY study. As a refresher, the FORTIFY study is a trauma study, and it's designed to deliver level 1 evidence.
After careful consideration and with the anticipation that the pandemic outbreak will slow down the recruitment pace, we worked with our independent advisors to conclude that it is a wise decision to close the recruitment early. This decision was made after the study statistician reviewed the blinded material and after consultation with the FDA. A total of 200 patients were enrolled, and the last patient was included in June of this year. Follow-up is in 12 months, which means the last follow-up is in June next year. The primary outcome of the study will give answers to the ability with CERAMENT G to avoid infections and also to avoid the additional procedures that otherwise are required. Of course, bone healing is measured throughout the whole period, but the efficacy of CERAMENT in relation to standard care is already well proven and is of less interest specifically in this study.
A successful outcome and PMA registration will be giving a broadened indication span versus the De Novo pathway. What is visible in the red segment in the chart is that broader indication anticipated. The study will also give strong arguments for a modification of the standard of care. Enabling a one-stage treatment will have significant financial incentives for the U.S. hospitals and clinics. The FORTIFY study is, as you know, a superiority study. With that brief update, I will hand over to Håkan, who now will cover the financial overview.
Thank you, Emil. Let us go to slide 10. This is a graph that presents the net sales by quarters as bars and last 12 months sales as a line. Net sales in the second quarter amounted to 36.2 million SEK, compared with 37.3 million SEK in the same period previous year, equaling a decrease of 3%. We noted the first signs of impact from COVID-19 already in February, and BONESUPPORT was affected in both the U.S. and Europe during the second quarter due to a decline in mainly elective surgery, but also from a reduced number of trauma surgeries. The North America segment reported, despite the pandemic, an increase in sales with 46%, and the Europe and Rest of World segment reported a 35% decline compared with the same period last year.
Net sales for the last 12 months amounted to 165 million SEK compared to 107 million SEK last year, an increase of 54%. The segment North America increased its last 12 months sales with 178%, being a strong confirmation of our strategy to reach the U.S. market more efficiently with a new distributor structure. The segment Europe, Rest of World increased last 12 months sales with 4%, both segments impacted by the COVID-19 pandemic. Next slide, please. In the segment North America, sales for the period amounted to 21.6 million SEK, compared to 14.8 million SEK previous year. The continuously strengthened customer base contributes to a sales increase that exceeds the temporary sales decline of several established customers as a direct effect of the ongoing COVID-19 pandemic. The contribution from the segment was -4.2 million SEK, compared to -3.4 million SEK last year.
The reduced loss is due to increased sales as well as savings and lower cost because of the pandemic. The previous year included a one-off charge of SEK 11 million regarding the repurchase of inventory items from the former distributor. Sales and marketing expenses during the quarter amounted to SEK 18.6 million compared to SEK 18.8 million previous year, excluding the one-off charge, of which sales commission to the distributors amounted to SEK 6.9 million compared to SEK 4.7 million previous year. Next slide, please. Sales for the Europe and Rest of World segment decreased as a direct impact of the pandemic by 35% compared with the previous year and amounted to SEK 14.6 million compared to SEK 22.5 million previous year. The decline is explained as we are mainly established in university hospitals, which are the hospitals most affected by the pandemic.
Sales in direct markets accounted for 84% of the segment sales, and sales of the antibiotic eluting products, CERAMENT G and CERAMENT V, followed the sales decline in the segment and decreased by 34%. The contribution from the segment was SEK 2.3 million compared to SEK 3 million previous year. The reduced contribution is explained by lower sales and lower gross profit of close to SEK 12 million, offset by lower cost and savings. Sales and marketing expenses decreased by SEK 5.7 million, compared with the corresponding period last year, and amounted to SEK 9.4 million, compared to SEK 15.1 million previous year.
The decrease is partly due to a lower level of activity in the market as a direct effect of the pandemic and the restrictions on physical meetings that have been applied, and partly due to lower staff costs as a result of the working time reductions and voluntary salary reductions implemented during the period. Next slide, please. Sales in the second quarter declined with 3% and has already been well covered during the presentation. If we look at the gross margin, gross margin reached 6.7% in a quarter and was in line with previous year, but was temporarily suppressed in the quarter by fixed production costs in combination with lower net sales.
Operating loss improved by SEK 24.3 million to -SEK 23.5 million compared to -SEK 47.8 million previous year, and improved by SEK 5.6 million compared to the first quarter this year, as the material cost reduction and cost saving compensated for the net sales impact from the pandemic. After the second quarter, we are well-funded to execute our strategy after the successful and oversubscribed direct new share issue conducted in the quarter, which brought the company SEK 378 million before issue costs. Next slide, please. Total expenses in the last quarter is down with SEK 25 million compared with the same period last year, despite an increase in sales commissions over SEK 2.1 million. The previous year included a one-off charge of SEK 11 million. The substantially reduced cost level confirmed the company's ability to quickly adapt the business to current circumstances.
Reduced working hours for sales staff and a temporary voluntary salary reduction for the organization have led to significant cost savings in the quarter. Selling expenses in the quarter is impacted by the COVID-19 pandemic as restrictions on physical meetings and switching to digital contacts in Europe and in North America resulted in fewer and lower cost for virtual events and other completed marketing and sales activities. We plan to start reversing some of the savings in the third quarter this year at a pace determined by how quick the level of surgeries are returning. We also believe that the adaptive digital way of working, such as virtual events, are here to stay and will result in somewhat lower expenses also going forward. With this, I hand over back to Emil.
Thank you so much, Håkan. Let me sum up the presentation and the journey ahead. Would ask for the operator to take us to slide 16 of the presentation, with the headline "Strategic Execution and Situational Adaptation." I would say that apart from the effect of the pandemic, I'm very glad to see that the quarter has further confirmed the strength of our implemented strategy. Our focused distribution strategy in the U.S. has resulted in a continuously increasing customer base. We now have a stronger control of the market penetration and are constantly adding new important accounts in areas that were not covered under relationship with Zimmer Biomet. The U.S. is the largest and most important market in the world for bone grafts and bone infections.
We have made true advancements towards registering CERAMENT G in the U.S. market by filing a De Novo application and by finalizing the FORTIFY patient recruitment. To further secure and advance the rollout of our strategy, we successfully raised SEK 378 million before costing a direct share issue. The direct issue was oversubscribed with a factor of three. The proceeds are aimed to be used in commercializing CERAMENT in the U.S., continued investment in the European commercial rollout, and capacity increasing improvements in the manufacturing process. We are grateful to the current shareholders supporting the share issue, and that we have broadened the shareholder base with several long-term investors such as Alcur Fonder, Deka, Allianz, Svenskt Näringsliv, and Grenspecialisten. We're continuing to leverage the value of our rich amount of clinical and health economic evidence, which we believe will help to transform an outdated standard of care.
In the quarter, we have shown that we effectively can adapt to challenging market conditions and reach out to our customer base with our evidence through digital communication and new interactive tools. I believe that we are well positioned for strong market growth. We are navigating with a clear strategy and objectives through the challenging market conditions that the pandemic has brought. The impact of the coronavirus is making the outlook for 2020 very hard to assess. Beyond this, we have high confidence in our corporate target of an annual growth of 40%. On the last slide of my presentation, slide 17, you can see the milestones on our journey. There has not been any changes to this slide since the last update. That concludes my presentation, and I would like to open the floor for questions and answers.
Ladies and gentlemen, if you wish to ask a question by phone, please press 01 on your telephone keypad to enter the queue for the Q&A session. We already have a question from Rickard Anderkrantz from ABG. Sir, the floor is yours.
Good morning, and thank you for taking my questions, and congratulations to a solid quarter given the circumstances. My first question relates to elective surgical procedures. Can you say anything on where we are currently in terms of volumes year-over-year? Do you have any estimates of how long it could take to reach similar levels as we saw in 2019? Obviously, it's a moving target, but we have seen some estimates of clinics initially opening up at 30%, 40% of normal volumes in the ramp-up phase to maintain social distancing and such. Are these any figures that sounds accurate, or can you say anything about the elective ramp-up here?
Absolutely. As always, Rickard, you are very well read on the material, and when I read your reports, we have usually the same numbers as you from the same industry sources. I don't dare to give any predictions. I don't dare to give any estimates. The industry associations and the various different orthopedic forums are speculating that the volume of surgeries will only return to the normal or to the 2019 level, sometimes during the first half of 2021. I can confirm that in the end of quarter 2, we saw a pickup in the level of surgeries, both acute surgeries and the elective surgeries. It's very patchy, and it's very much region to region.
If you look at Europe, for example the lockdowns and the stay-at-home orders have influenced the whole country in a quite binary fashion, while the U.S. has been more influenced state by state or metropolitan region by metropolitan region. That also explains a bit in the U.S. why we can show a very strong sales growth because the lockdowns have influenced mainly the Northeast Coast, Texas and California, and other states have been less influenced, and that's also where a significant portion of sales has been generated during the quarter. With the recent rise in cases in the U.S., it makes it even more difficult to give any kind of prediction. I think we both have to rely just on what the industry association is assuming here.
Excellent. Thank you for that, Emil. Moving on to understanding a bit of the dynamics in the U.S. in the quarter. I suspect that the growth we're seeing here comes from, as you confirm in the report as well, from new accounts, and I suppose they have been signed in the last six to nine months. Is this correct, and will this sort of new account dynamic on sales be hampered in the second half given the reduced ability to sell product? I guess it will be a sort of a push and pull between increasing volumes of surgeries and perhaps hampered ability to add new contracts. Is that a fair assessment, would you say in the U.S.?
I think that's a fair assessment, Rickard. What happened in quarter two is we saw some of the big and very well-reputed orthopedic clinics in the U.S., let's say key opinion leader clinics that have started to use CERAMENT with a high cadence, had a limited use given the high level of COVID patients. While the new accounts that we had acquired and generated over the last six to nine months had quite a ramp-up in use. With the outbreak of COVID, there will be a certain delay and disruption in the acquisition of new accounts. That will somehow be visible. At the same time, the accounts that we have won over the last six to nine months the use that we have seen with them in quarter two is nowhere near their full potential.
Difficult to say how these two parameters will play against each other for quarter three. We are very cautious to give any indications on what to expect for the rest of the year, simply because the situation is changing day by day. Your assumption on the underlying drivers
Are definitely correct.
Excellent. Just a quick question on gross margin there. Just to clarify, as you said this, it was somewhat hampered by fixed costs. Could you perhaps quantify that or at least add some details on the meaning or the background of this effect? Obviously, it's transient, but I would just like to understand.
Fair enough. It's a good question. Again, we don't quantify the exact amounts, but this relates to standard production overhead and depreciation of equipment related to our production chain. I think that if you look backwards and look into the third quarter last year, where we had net sales levels at the equal level as the second quarter this year, you would see a correlation to that gross margin and how then the sales relates improved margin the following months. We're expecting gross margin to improve with increased net sales going forward.
Great, thank you. Just a final question from my side. Do you have any update on the CONVICTION study going on in France or do you have any guidance as well, what we can expect in terms of upcoming updates there for a readout, just so we can get a bit of a sense of what's going on there in France?
Unfortunately not. The study is government sponsored and managed through the French CRIOAc network, which is a network of hospitals specifically dedicated to treating patients with bone infections. We get data from them on a regular basis when there's something to report, and no data has been released. This is not a study that we are controlling, and therefore we can also not give any information today, unfortunately. As soon as we have anything to report on this, we will definitely share that with the market.
Great. Thank you very much, and thanks for taking my questions again, and have a great weekend. Take care.
Thank you. Thank you. Same, Rickard.
Ladies and gentlemen, if you wish to ask a question as a reminder, you can press zero one on your telephone keypad to enter the queue for the question and answer session. Another reminder, ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad.
It sounds like we have provided a very clear report with few questions, which is delightful in a way.
Well, it seems indeed that we have no further question for the moment.
That is fine. We conclude this session by thanking everyone that joined this call. After this now follows a vacation both for me and Håkan, my CFO. We believe that we have today delivered a report that shows that BONESUPPORT, despite the challenging circumstances in our environment, are making a really good progress on those strategic targets and visions that we have outlined. We continue to do so and look forward to report back to the market on the progress we're doing. Thank you so much and have a great summer, everyone.