Welcome to BONESUPPORT Q3 report for 2019. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. Today, I am pleased to present CEO, Emil Billbäck, and CFO, Håkan Johansson. Please begin your meeting.
Thank you, operator. Good morning, and welcome everyone to BONESUPPORT quarter three, 2019 result call. My name is Emil Billbäck. I'm the CEO of BONESUPPORT, and sitting next to me here today is Håkan Johansson , our CFO. This morning, we will take around 20 minutes to go through the presentation of the third quarter, and we will then open the line for a question and answer session. Before starting the presentation, I would like to draw your attention to the disclaimers covering the forward-looking statements that we will make today. Slide two. Please, operator, if you will take me to slide three. I would like to begin the presentation with some highlights of the strong figures that we have released in this report. Quarter three sales were at SEK 39.1 million.
Sales-wise, this is the best quarter ever in BONESUPPORT's history. This is especially pleasing, given that it's not even a year ago that we started implementing the new distribution model in the U.S. Overall, our performance in this quarter is a confirmation. The strategy that we launched in mid-2018 is taking the company in the right direction. Segment Europe and Rest of the World grew with 45%, reaching SEK 20.7 million. I think it's worth highlighting that this strong sales development has come from comparable markets. No new markets have been opened in the period to achieve this growth. In segment North America, we also saw strong continued progress, with sales reaching SEK 18.5 million, up 25% sequentially versus quarter two.
Our distribution setup in the U.S., which was initiated in October last year, enables us to address the entire market potential. We can conclude that strategy is working. With regards to earnings, we delivered strong gross margin of 88% in the quarter. This is the fourth quarter in a row with material gross margin improvement. Moving on to the operation highlights. In the period, we signed a contract with HealthTrust. This is the largest and most important medical organization or group purchasing organization in the U.S. HealthTrust has more than 1,600 affiliated hospitals. I would like to highlight that we're seeing strong progress in our market access in the U.S. We're gaining ground fast in the territories that we have previously been underserved in.
Sales growth quarter-over-quarter is made up by more frequent use of existing customers, as well as adding new customers. As a supplement to our strong clinical data, we released the first and very positive health economic evidence for CERAMENT G and CERAMENT V in the treatment of osteomyelitis patients. This newly released data is an important confirmation of the benefits of our antibiotic-eluting product, and this will help us to further drive sales penetration. More on all of this later in the presentation. Next slide, please. Now I would like to provide you with some more details on our quarterly sales development. This slide shows sales in the last 12 months, with the dark blue part of the bar representing Europe and rest of the world, and the light blue and purple part of the bar is displaying the U.S.
The purple part specifically, which is visible after Q4 2018, shows sales achieved in the new distribution setup. The decline in the U.S. from Q4 2017 to Q3 2018, can be attributed by internal logistics struggles, certain inventory depletion, as well as the effect of our termination of the contract, which was done in May 2018. The chart confirms the steady growth in Europe and rest of the world, that even has an accelerating trend since the introduction of the new strategy in mid-2018. I believe this gives a good confirmation that the business is on the right track. All in all, our total sales are now back above the previous all-time high we had in the Q3 2017. Next slide, please.
Focusing a bit more on the details of segment Europe and rest of the world. I have already mentioned the strong momentum in this segment in total, but with a growing base of strong clinical data and the release of the top-line results from the CERTiFy study that we did at the end of last year, we are experiencing strong growth and accelerating acceptance of CERAMENT in favor of other treatment modalities, especially autograft. We are now awaiting the publication of the CERTiFy study in the well-reputed Journal of Bone and Joint Surgery American, so this is the JBJS magazine, where the study has been approved for publication. Due to a very strong European labor market, it has taken a bit longer than expected, but we have finally managed to fill all new territories in focus regions across.
In total, we have 25 salespeople in our own sales organization in Germany, the U.K., Switzerland, Sweden and Denmark. At the annual meeting for the European Bone and Joint Infection Society meeting in Antwerp, that was held in September, there were as many as 10 combined posters and podium presentations, in which the clinical benefits of the CERAMENT was presented. This congress is specifically focused on the issues with orthopedic infections, with over 600 European specialists on this subject participating. The rapid acceleration of acceptance of CERAMENT was clearly visible with this group. It was also at this congress that new and favorable health economic data was presented. I will cover more of that later in my presentation. Within Europe and rest of the world, 88% of the sales come from the direct markets where we have our own sales force.
We have started an effort to revitalize the current markets managed by distributors, with clear performance criteria for our selected partners, as well as more disciplined planning and execution of activities. We're also looking to partner up with distributors on new markets, with the ambition of seeing incremental sales materialize in 2020. If you look at the bottom right graph on slide 5, you see that in Europe, the third quarter is seasonally relatively weak, as there are fewer planned operations for example, chronic bone infection or osteomyelitis, and this is especially during the summer months. The comparative quarter sales from the previous year were relatively strong, despite this, sales rose by a robust 45% in quarter three, 2019. Next slide, please. Turning to North America, sales in the quarter were SEK 18.5 million, which is up 25% sequentially.
Our commercial team is making great progress on market access, and in the quarter, we closed a number of important GPO contracts. In this context, I would like to highlight the agreement closed with HealthTrust. HealthTrust is one of the most well-renowned medical organizations in the U.S., and for BONESUPPORT, it is one of the most important contracts we have signed. This will give us access to more than 1,600 affiliated hospitals. The contract goes into effect on December 1st of this year, and this will mean a step change in terms of market access for the year 2020. Since October last year, the new distribution network is up and running, now with 40 distributors, which together deploy more than 500 sales reps.
By having our own distribution network, we can capture historically under-penetrated territories, and we are succeeding in quickly establishing customers in areas where our former partner, Zimmer Biomet, was not successful. The average number of monthly orders has steadily increased during the year, as well as the number of accounts that are reordering the product. We see a pick-up in legacy accounts following the expiration of Zimmer Biomet's non-exclusivity period in May 2019. Our customer base year-to-date is about 50/50, between completely new accounts and legacy accounts. In the quarter, we recruited yet another regional sales manager for New England, and in total, we have now nine regional sales managers nationally.
To handle strong customer demand in a region that has been significantly under-penetrated under Zimmer Biomet, we have also hired a therapy specialist for direct sales promotion and customer training in the New York City area and New Jersey area. In our own commercial organization, we have now 22 people. Slide seven, please. As I have said on many previous occasions, strong clinical evidence and health economic data make up a cornerstone of our strategy. In 2013, the Nuffield Orthopaedic Centre started to use CERAMENT G in their treatment algorithm. CERAMENT G's unique ability to elute high concentrations of local antibiotics, together with the osteoconductive capabilities to form a scaffold to encourage new bone on growth and remodeling, is ideal for the management of osteomyelitis in a single-stage procedure.
In 2016, Professor Martin McNally presented the clinical outcomes from his first 100 treated patients, showing an impressive 56% reduction in reinfection rates compared to previously used treatment machine. The impressive clinical data led to questions about how such strong outcomes could translate into patient and societal benefits. To answer that, we partnered with Nuffield on a study using real-world data from the English NHS Hospital Episode Statistics database. This is called the HES. This database shows the entire care history and expenses for each patient diagnosed and treated under NHS. The study analyzed over 25,000 patients who had an osteomyelitis surgery during 2013- 2017. Patients were then followed two years after surgery.
A comparison was made of patients treated at Nuffield with CERAMENT G or CERAMENT V in a single-stage procedure, versus patients treated at all other hospitals in England. The first preliminary result of this study were presented at the European Bone and Joint Infection Society meeting in September. The data showed that the hospital admission in connection with osteomyelitis surgery was reduced by 1/3. This means a discharge of, on average, five days per patient. The first number communicated to the market by us was six days. This was due to a rounding error. We apologize. The correct number that we would like to state is five days. The data also revealed that patients treated at Nuffield spent on average 11 days less in hospitals in the following two years after surgery.
Less days in hospital means freeing up space and resources in the crowded public hospitals. With an average daily cost for hospital care of GBP 437 per patient, the calculated savings per patient between the two groups was around GBP 7,000. We're awaiting the publication with the final findings, but this preliminary, yet very high-quality data, shows that if all osteomyelitis patients in England would receive a single-stage procedure with CERAMENT, the potential and theoretical savings could be a stunning GBP 44 million for the UK healthcare system. With that brief update, I would like to hand over to Håkan, who will cover the financial overview.
Thank you, Emil. Let us move to slide nine, please. This is a slide and a graph that presents net sales by quarter as bars and the last 12-month net sales as a line. As you can see, net sales amounted to SEK 39.1 million. It could be compared with SEK 14.2 million, same period last year. It's an increase of 175%. Net sales for the last 12 months amounted to SEK 132 million, compared to SEK 101 million end of the third quarter last year. Increase of 32% and an increase of 23% compared to the second quarter this year. Next slide, please. Sales in North America for the period amounted to SEK 18.5 million, compared with no sales for the same period last year.
The contribution from the segment was -SEK 9.8 million, compared to - SEK 20 million last year. Reduced loss relates to increased sales. Sales and marketing expenses during the third quarter amounted to SEK 20.4 million, compared to SEK 13.9 million last year. The cost increase of SEK 6.5 million mainly relates to an increase of sales commission of SEK 6 million. Next slide, please. Sales in the segment Europe increased by 45% compared with the corresponding period last year and amounted to SEK 20.7 million. Sales in our direct markets amounted for 88% of the segment's sales, and sales of the antibiotic-eluting products, CERAMENT G and CERAMENT V, together increased by 44%. As already said, in Europe, the third quarter is seasonally relatively weak after a fewer planned surgeries during the summer months.
The contribution from the segment improved to SEK 0.6 million, compared to -SEK 3.9 million, same period last year. The improved contribution is an effect of increased sales and gross profits. Sales and marketing expenses increased by SEK 1.3 million compared to the corresponding period last year, and was mainly attributable to increased commercial activities. Next slide, please. This is a slide showing the quarterly profit and loss for the last eight quarters. As you can see, net sales continue to deliver all-time high for the second quarter on the row. The third quarter is seasonally relatively weak as there are few planned surgeries, and 2019 was no exception to this. U.S. continued to grow quarter by quarter, and with 25% compared with the second quarter this year.
Gross margin is continuing to show recovery with favorable effect from the sales growth in the U.S. Operating profit in the quarter was reported to SEK 32.7 million, a loss improvement of SEK 11 million compared to the same second quarter this year. BONESUPPORT remained funded to realize the commercial strategy and to reach profitability and positive cash flow. Next slide, please. This is a drill down on our operating expenses. Selling expenses in the last quarter is down by SEK 13.2 million compared with the previous quarter, as the quarter was charged with 11. Research and Development is remaining on a stable level, continuing to support our long-term aspirations.
Administrative expenses is stabilized on a lower level for the last four quarters, where a large cost-saving focus have enabled saving after slower spend on consultants. With this, I hand back to Emil.
Thank you, Håkan. Operator, if you will please take us to slide number 15. Since the introduction of the updated strategy, which was introduced in mid 2018, the business has adopted a stronger commercial discipline and commercial decisiveness. The results that we see today are confirming that the leverage of our effort is working. For the rest of the year and heading into 2020, we expect strong growth momentum as well. With the new U.S. commercial platform, we're able to pursue the full potential of CERAMENT. Our market access is improving gradually. The GPO contract signed with HealthTrust is a confirmation of our unique offering. In Europe, our expanded sales organization will continue to grow sales by a combination of better geographic reach and increased penetration of important indications in, for example, trauma.
With our new salespeople on board, we expect to increase the recruitment rate of new customers. In our mission to create a paradigm shift in the treatment standard of care, solid evidence is a key lever. With the upcoming publication of CERTiFy in the well-reputed journal JBJS, we believe that the benefits of CERAMENT will gain further recognition. Improved treatment outcome and reducing the consumption of scarce hospital resources should be the target of all innovative healthcare solutions. The data that we have presented in the quarter, while preliminary, shows a very large saving per patient using antibiotic-eluting CERAMENT in the management of osteomyelitis. We believe that we are well positioned to have a strong quarter four, and we can confirm our corporate target of an annual growth of 40% in year 2020 and forward.
We are funded to reach profitability, and I'm confident that we can deliver significant shareholder value on the journey ahead. Final slide, which is slide 16. On this slide, you can see the calendar of value-generating milestones, many of which I have mentioned today in this presentation. With that, we conclude our presentation and open up for questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now. Our first question comes from the line of Viktor Sundberg from ABG. Please go ahead.
Yeah, hello, congratulations on a good report. Just a question on CERAMENT G. Could you explain more in detail why we saw some slower growth in year-over-year in Europe for that product segment? Also for the trauma market in Europe, are you seeing increased penetration in that indication? Thank you.
Yeah, thank you, Viktor. The sales of the antibiotic-eluting products in quarter three, less match management's expectation. The chronic bone infections usually are scheduled surgeries, in contrast to trauma surgery, which happens if there's been, for example, an accident. Always during the summer months, July and August, if it's really warm and dry, nice weather, there are less planned surgeries for chronic bone infections, and this could, from year-to-year, influence the product. We had a strong 18. I believe that our growth rate of close to 45% on the antibiotic-loading product is to be considered a strong sign of the good recognition in the market. We are making good headways in trauma.
I think since we released the top-line results of CERTiFy is a trauma study made in Germany at the 20 biggest trauma centers. Since we came with the data from CERTiFy, we see that the penetration in the trauma segment is picking up gradually and we expect it to continue.
Okay, thank you. Just a follow-up also on the gross margin profile in this quarter, that was better than before. What is driving that?
I would say that primarily it's related to the geographical mix. The improvement in the U.S. having a high gross margin than we have in Euro is driving that.
Okay. Yep, thanks.
Our next question comes from the line of Niklas Elmhammar from Carlsquare. Please go ahead.
Yes, good morning. Thank you for taking my questions. Regarding the North American segment, good to learn about your progress with the major GPOs. I guess the contribution from that channel will increase going forward. Maybe if you can elaborate a little bit on how your sales to that GPO channel has been so far? Also, what, if any, contribution you have seen from BONIFY so far? Thank you.
Thank you, Niklas. Yes, and we're very happy, of course, to have landed the contract with HealthTrust. We see that clearly as a gold star appointment. I would say that in the U.S. market in total, the GPO contracts represent about 70% of the market, means that 30% is outside of GPOs. When it comes to our sales, year-to-date, it is significantly less with GPOs. The reason for that is that while we have been more successful winning GPO contracts than we anticipated, there is a time lag. The HealthTrust contract, for example, will go effective December first, but we expect the first sales only to be visible in quarter two.
That's why if you look at our sales year-to-date, there's a much higher proportion of outside GPO sales than what the market would represent. That number we haven't released. Just to give a feeling for it. Sales of BONIFY is still very small. Our sales people are not focusing specifically on BONIFY. We launched BONIFY as a service article, so that those orthopedic surgeons that have a procedure pending where they need and they want to use both CERAMENT and DBM, they do not have to request support from two different companies, but they can be speaking only the BONESUPPORT, and we can be a full service provider for those indications.
That's how I think BONIFY will continue to be, a service article that over time also will get some significant sales. Currently, the focus is, of course, on CERAMENT.
Okay, thank you. That's very helpful. Regarding the health economics study, obviously, the final results of the study has not yet been published, but how do you expect to use it going forward? I know you have stated before that you don't believe that CERAMENT is getting the proper reimbursements. Will this study sort of help you obtain any incremental codes for CERAMENT G in the major markets?
CERAMENT G has a very good person. I would like to correct whatever statement I've done before. I think that CERAMENT G presents such a unique treatment benefit that long term, it actually deserves its own reimbursement cost. Yes. I completely agree with you there. We have currently to accept how the healthcare system is constructed, and many times the reimbursement is defined by the specific indication that the patient has. The procedure, the surgical procedure would determine which code that is given. I think that the results that have come from this health economic study is very strong.
While I don't think that the study itself will be able to get a different and high reimbursement for CERAMENT G, I think it will be a very important piece of the puzzle of eventually getting there. How would we use it, Didier? We will use this study to discuss not only with the clinically responsible person at the department, the surgeon ultimately responsible for healing the patient, but we have now also strong ammunition to speak with department heads and speak with purchasing managers at the hospital and show them that the use of CERAMENT will not only bring them better treatment outcomes to the patient, but could also mean reduced cost for the department.
It gives us another layer or another dimension to our argumentation, which we feel is very up-to-date, being in 2019, where expenses for total healthcare system is constantly being debated. Okay, great. Thank you. Thank you.
I remind you that if you want to ask a question, you will have to press zero-one on your telephone keypad now. There are no further questions registered at this time. I hand back to the speakers for any closing remarks.
Thank you very much, operator. I would like to close this call. I would like to thank everyone for their participation and thank you for calling in this morning. We believe that we have released a strong report with very nice growth rates, both in Europe and in the U.S. We have registered our best quarter ever, and as you saw on the last 12 months development, again, a new all-time high. We believe this is a strong confirmation of the implemented strategy and that the company is right. Thank you, everyone. Bye-bye.