Ladies and gentlemen, welcome to the BONESUPPORT Q3 Report 2018. Today, I am pleased to present CEO, Emil Billbäck, and CFO, Björn Westberg. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Please begin your meeting.
Well, thank you very much, operator. This is Emil Billbäck, the CEO of BONESUPPORT. I would like to welcome you all to the quarter three 2018 result call. I'm joined here today also by our CFO, Björn Westberg. This morning, we'll take you through around 20 minutes, run through the presentation, and we'll finish off with a Q&A session. I will cover the recent business progress, and then I will hand over to Björn, who will cover the financials in more details. We'll go to the next slide, and before starting the presentation, I would like to draw your attention to the disclaimers that is covering any forward-looking statements that we will make today. If I could be assisted to go to slide four, please.
I would like this call by quickly recapping on the key takeaways from the successful Capital Markets Day that we hosted in Stockholm and London in September. During the presentation at these events, we discussed in detail the key attractions of BONESUPPORT as an investment and the conclusions from our strategic review. We also spent time on the most important part of our strategy that we need to execute to successfully generate further shareholder value. With CERAMENT BVF, CERAMENT G, and CERAMENT V, we have a unique product offering, which is clearly differentiated and which delivers important benefits to patients, surgeons, and payers. As I said in my Capital Markets Day presentations, I'm confident that CERAMENT G could be a game changer in the management of bone voids. This is based on its potential to both manage and prevent bone infections.
Our attractive product line, gives access to a sizable growing market of about 650,000 procedures per year. To help us penetrate this market, we have built the industry's leading clinical data set. We also have more important clinical and health economic data to come, which will further pre-improve and provide our competitive position. We have a strong innovative pipeline, and this will allow us to launch a steady stream of new products overall the next several years. The strategic review identifies that we need to make significant changes and invest in our commercial platform. In the recent months, we have undertaken several important strategic initiatives, which have greatly improved our ability to accelerate market penetration of our product, both in the U.S. and in E.U.
With a short introduction, I would like to talk more about Q3 performance, as well as our strategic progress more in detail. Next slide, please. Turning to our results, it is clear that the major changes that we have made to our U.S. commercial platform and the investment that we have made in our European sales team have impacted the numbers that we are reporting today. Overall, the Q3 sales was SEK 14.2 million. This is a decline of 56% versus previous year. The key reason for this was that we had no sales in the U.S. following our decision to terminate our distribution agreement with Zimmer Biomet. In the segment, Europe and rest of the world, sales increased with 29% to SEK 14.2 million.
This much improved re- growth rate, comparison to quarter two, was driven by the success of our antibiotic-eluting products, which grew by 35% in the quarter. Over the summer, we also made some important changes to our senior management team with the appointment of Håkan Johansson as CFO, and the decision to place Michael Diefenbach in charge of R&D, in addition to his responsibilities for medical and clinical affairs. I would like now to turn also to some of the key strategic initiatives where we have made a lot of progress in quarter three. I believe that successfully implementing these initiatives is crucial to achieving our goal of becoming a global orthobiologics leader. In the U.S., our new distribution network is now actively selling CERAMENT BVF, supported by an enlarged and more capable BONESUPPORT U.S. commercial team.
In Europe, we're continuing to add sales reps in our key direct markets to ensure even further acceleration in sales growth. The quarter also saw sign an important deal with MTF Biologics, which will enable us to expand our U.S. product offering when we launch these products in first six months of 2019. We also gained approval for CERAMENT G in Canada, which we expect to launch in 2019. Next slide, please. I would like to provide you with some more details. Created a network of 25 distributors, which together employ 512 sales reps.
We have been able to attract these high-quality distributors due to the proven sales success of CERAMENT BVF and the significant potential of the CERAMENT platform, including CERAMENT G, a game-changing product that we plan to launch in the U.S. by 2021. We chose these distributors based on their success with hardware from industry majors, their understanding of the orthopedic supply market in their local area, the quality of their sales reps, and the relationships that they enjoy with key orthopedic surgeons. The sales reps of these distributors are in the operating theater with the surgeons every day, and this is a crucial factor in selling CERAMENT BVF successfully. With 512 sales reps now selling CERAMENT, we believe we are in a much better position than we were under the previous distribution agreement with Zimmer Biomet.
In parallel with building this strong distribution network, we have invested in expanding the BONESUPPORT commercial team, and this team now has the skill and the capacity to support our future sales target in the U.S. The team is currently focused on training the distributor reps and a much higher level of marketing activities to build the profile of BONESUPPORT brand in the U.S. orthopedic community. Finally, we have signed an important deal with Millstone Medical, who will handle all the logistics associated with getting CERAMENT BVF to our customers. Next slide, please, slide seven. I would like, again, to reiterate the factors that led us to the important decision and to create our own commercial platform in the U.S. We will benefit from gaining access to the whole of our targeted market.
Under the previous arrangement with Zimmer Biomet, CERAMENT BVF was only being sold to around 30% of the potential customers. We now also have a much better ability to drive sales as we establish our own direct surgeon relationships in all four of the key target indications we have, which is trauma, revision arthroplasty, foot and ankle surgery, and orthopedic oncology. We also have benefits to our reported sales and net margins. Importantly, we have achieved this better sales and margin even after providing an attractive commission structure to our distributors and their sales reps. The slightly longer-term benefit from our new platform are our ability to introduce new products to expand our offering to the surgeons, and having our own commercial capabilities in the U.S. was crucial to us signing recent deals with Collagen Matrix and MTF Biologics.
We plan to launch products from these portfolios that will be complementary to CERAMENT BVF in mid-year 2019, sorry, in the beginning of 2019. The final significant benefit from our new commercial platform is that we can now build a platform for the expected launch of CERAMENT G in 2021 by ourselves. We're believing that realizing the significant sales potential of CERAMENT G in the U.S. is crucial to BONESUPPORT achieving its ambition to become a leading global orthobiologics player. In summary, I am extremely pleased with the changes to our U.S. commercial platform that we have made in the last six months, and I'm very confident that we will see a significant increase in both the sales and profitability of our U.S. business in 2019. Next slide, please.
In Europe, we saw improved sales growth versus quarter two. The quarter three sales increase in Europe was 29%, driven by the success of our antibiotic-eluting product, which saw an increase of 35%. While this is a strong growth rate, geographically, there are still a significant number of larger cities and regions across Europe where our CERAMENT products generate limited or no sales. In addition, there are major indications, such as trauma, where, again, our market penetration is very low, providing a further important opportunity for growth. The investments we're making in our European sales team is designed to address these opportunities. A key focus for our sales force expansion has been Germany. In Germany, we have added three sales reps since the onset of the program, and we plan to add another three before end of this year.
The three salespeople that we recently added are displayed with gray figures on the map to the right. This is a map that I showed at the Capital Markets Day that we held in September. The investment that we're doing in Germany in the sales deployment reflect our desire to replicate the success we have already achieved in some of the major regions in Germany. We're also investing in other direct markets, such as the Nordics and the U.K. I would expect that we can deliver an uplift in sales growth in Europe during 2019 based on the sales force expansion. Alongside increased sales activities, we have continued to invest in high-profile key opinion leaders who practice at leading orthopedic hospitals across the region.
A key event for BONESUPPORT in quarter three was the European Bone and Joint Infection Society meeting in Helsinki in September. At this meeting, which is one of the most important meetings for surgeons who are involved in treating patients with bone infections, a large number of presentations were based on BONESUPPORT's antibiotic-eluting product. This reflects really the growing recognition of the benefit that our product delivered, both in the management of prophylaxis and in bone infections. A key presentation at this meeting covered the effectiveness of CERAMENT G and V across a wide range of bone infection indications, including trauma. More specific presentations focused on the bone remodeling properties of CERAMENT G, and display of significantly better bone healing achieved when using CERAMENT G in a comparative study. Next slide, please.
A further reason for improving our commercial platform is the upcoming important clinical data that we're generating with the CERTiFy and the FORTIFY studies. These data are designed to enhance the competitive positioning of our products even further. The first data we expect to announce is the top-line results from the CERTiFy study. That will come before the end of this year. CERTiFy is a very important study as it is the first randomized Level I clinical trial comparing a synthetic bone graft substitute, in this case, CERAMENT BVF, with autograft in a tibial plateau fracture. Autograft, as you might know, is seen as the standard of care. For this indication, particularly in the major European market, we hope to offer an alternative. In an autograft procedure, bone is taken usually from the patient's pelvic bone to fill the bone void.
If the CERTiFy study achieve its primary endpoint, meaning showing that CERAMENT BVF is non-inferior to autograft, this would open up a significant commercial opportunity for BONESUPPORT, as autograft still accounts for 25% of the procedures in the top European five markets and U.S. combined, as you can see on the chart. We plan a publication covering the full results from CERTiFy in quarter one of 2019. We believe that this publication, which will provide more detailed findings, could lead to a major shift in the standard of care in patients who currently receive autograft. Slide 10, please. The second major study that we're conducting is FORTIFY. FORTIFY trial is assessing CERAMENT G's ability to improve on the standard of care management of patients with open fractures in the tibia.
The primary endpoint here in the trial includes absence of deep infection at the fracture site and the lack of secondary procedures to promote fracture unions. BONESUPPORT intends to use positive data from the FORTIFY study to support a PMA, a Premarket Approval filing, for CERAMENT G to the FDA in 2020. The approval of CERAMENT G in the U.S. would be a major corporate milestone for the company, as this would allow BONESUPPORT to create a new prophylaxis market for patients with complex trauma at high risk of infection. Health economic data will also play a key role in unlocking this market for CERAMENT G, given the significant human and financial costs that arise when a patient with complex trauma develops a bone infection.
As you can see from the pie chart on this slide, positive data from FORTIFY will give access to a very significant opportunity. It's also important to say that this market opportunity is currently not being pursued by any competitor, given that no one else have a product with the same ability to deliver high concentrations of antibiotics directly into the bone void, and at the same time, have a bone remodeling. Next slide, please. On slide 11, we have outlined the three key areas where we are focusing to ensure that we can realize the significant sales and value potential of the current lineup of CERAMENT products. The first is continuing to gain market shares from other synthetic bone graft substitutes, and we expect to accelerate this based on the ease of use of our CERAMENT product and the key benefits that they deliver.
Benefits which are being supported by a growing body of clinical evidence, as more and more surgeons are looking to publish on their experiences of using CERAMENT product. The second is taking share from the autograft segment. As I discussed earlier, when I covered the CERTiFy study, positive data could provide us with compelling arguments to persuade surgeons to adopt a new standard of care for the treatment of these patients. The final opportunity, of course, is to create a new prophylaxis market for CERAMENT G for complex trauma patients that have a high risk of infection. These are all significant opportunities that require us to have the optimal commercial organization in place, and we're building the reach, and we're building the relationships with surgeons and payers that will allow us to leverage the clinical data that we're generating as effectively as possible.
The size of these three market opportunities is a key factor in the investment that we have made in our commercial organization over the recent months. I have now completed my operational review, and I would like to hand over to Björn, that will cover the quarter three financials in more details.
Thank you, Emil. Let us turn to slide 13. The reported sales in the quarter decreased by 56% to SEK 40.2 million, which led to decrease of 28% in the first nine months of 2018 to SEK 23.5 million. This outcome in the third quarter was the result of no sales in North America in Q3, and a return to much faster sales growth in Europe and the rest of the world. I will provide more information on these regional developments in the following segment slides. Slide 14. Reported no sales in North America in the third quarter. This was due to some buyer's decision to cancel its orders for the determination of our U.S. distribution agreement for CERAMENT BVF in May.
The first nine months of 2018 sales in North America declined 54% due to U.S. canceling our distribution agreement. To us, canceling our U.S. distribution agreement and the hardware supply issues that were bound to face early in the year. Slide 15. Sales in Europe and the rest of the world increased by 29% in the quarter compared to Q3 2017, and amounted to SEK 40.2 million. The growth in Europe was 29% in the third quarter, as our investment in our sales team allowed us to increase our rate of growth from the second quarter. The sales in our five direct sales countries in Europe accounted for 84% of the total sales in the segment. Sales in the rest of the world also grew by 29%.
Currently, segment D and segment B sales increased 35% in the quarter, and 27% in the first nine months of 2018. Overall sales in the region in the first nine months period increased 90% to SEK 43.6 million. Slide 16. In the third quarter, we reported a much higher operating loss of SEK 57.1 million. This was due to the absence of reported sales in North America, and a significant increase in cost in the third quarter. Sales and marketing costs increased significantly due to the investments we made in our commercial platform in both the U.S. and Europe. In North America, costs rose by 44%, driven by the growth in our sales organization and more marketing activities.
In Europe and the rest of the world, we reported an 18% increase in selling expenses. This is also an investment for the years to come, facilitating the strong growth in 2019 and beyond. Q3 R&D expenses amounted to SEK 15.4 million, a 28% increase, of which SEK 5.7 million were employee costs. This increase was due to a strengthening of our development function. North America R&D expenses increased by 34% to SEK 6.3 million, and are mainly related to costs connected to the FORTIFY study. Administration expenses amounted to SEK 17.5 million, an increase of 58%, for which employee costs amounted to SEK 11 million.
The employee cost consisted of SEK 4.1 million related to share incentive programs, SEK 2.6 million related to bonus and other salary costs for the resigning CFO, and SEK 4.3 million related to other personal costs. Other costs amounted to SEK 6.5 million, with the increase being due to various projects and in the structure in the U.S. Slide 17. There are two figures I'd like to draw your attention to. These are our gross margin, which was 91% in a quarter, despite the significant decline in sales we have reported in the third quarter. We are confident that we can maintain a high gross margin on a much higher level of sales we expect to generate in the future.
We also expect a sales growth of 40% per annum after 2019 and beyond, and an even much stronger growth in 2019. We are also a good position cash-wise, and we believe that this level will take us through to profitability. I would like now like to hand back to you, Emil, to conclude the presentation.
Yeah, thank you, Björn. We can please go to the final slide of the presentation, which is slide 19. On this slide I have set out the multiple value creating milestones that we expect to see over the next three years. The investments that we have made in the U.S. commercial platform is a crucial enabler for the journey ahead. It has put us in a strong position to deliver the sales of CERAMENT BVF, but also to launch successfully a number of new products in the first half of 2019. In Europe, we are confident that our expanding sales organization can continue to grow the sales of our antibiotic-eluting products by a combination of better geographic reach and increased penetration of important indications, such as trauma.
Our European sales team is well positioned to leverage the positive data from the CERTiFy study that we expect to announce before the end of 2018. Overall, the significant strategic initiatives that we have implemented in the last several months have put BONESUPPORT in a much stronger position to achieve our corporate goals. We expect to deliver, as Björn said, a significant sales increase in 2019, as we will see the benefits of our new U.S. commercial platform. In particular, we believe that we can grow after that 40% per year from 2020 and forward, as we successfully execute our strategy. We are well-funded to reach profitability, I'm confident that we can deliver significant shareholder value over the next 12-18 months.
Finally, as you know, this will be Björn's last quarterly conference call, as he's moving on to a new job. I would personally like to thank him for all the support he has provided me since I became the CEO. Without Björn's high level of commitment, we would not have been able to execute the multiple strategic initiatives that we believe are crucial to BONESUPPORT's future success. I would like to wish him well in his new job. Thank you so much, Björn. With that, we conclude our presentation. We would like to open the call for questions.
Thank you, ladies and gentlemen. If you have a question for the speakers, press zero one on your telephone keypad. There'll be a brief pause while questions are being registered. Our first question comes from the line of Kristoffer Lillieberg from Carnegie. Please go ahead. Your line is now open.
Yeah, thank you. Good morning. First, could I just ask you about slide number seven? You have the point there about the net margin, and you mentioned a figure 15%-20% of gross sales. Is that the improvement versus the previous agreement with Zimmer, or is that what you will pay to your new distributors?
Björn here, that's improvement compared to the [audio distortion]. Thank you for that c onfirmation.
Yeah, thanks. Is it possible, I guess it's still early days, but is it possible to say anything about, you know, the initial work here with the new distributors ramp up in sales? Anything you could say?
Yeah, what we can say is that we believe we have meticulously executed our plan. We have been somewhat more successful than anticipated in recruiting good people to our organization in the U.S., and also to identify and sign up very strong distributors. I think we have to realize that in the end of October, what took place was a very intense set of activities where we were traveling around the U.S., training, meeting the distributor reps, going through customer list, making sure that product kits were in place. I cannot report on any sales, of course, because it doesn't belong to quarter three. What I can share with you is that we're progressing very well, and that should be very promising for 2019.
These 25 distributor companies, have they all now started to sell?
All 25 distributors have reps that have started to sell. Not all of the reps have been fully trained in how to use the product. There are some states which are quite much less populated, and, in all the big metropolitan areas, we have held product trainings. Those trainings started with the first distributors, already in August, and they're ongoing, they keep going now until the end of the year.
Doctors that has been, you know, used, loyal to the product, how soon you think you will be able to capture that sales?
I don't want to speculate in that, Kristoffer, but what I would like to share with you is that the team we have in the U.S. consists, of course, of a central marketing function. We have eight regional business managers that have been working side by side with Zimmer Biomet's reps for more than a couple of years. They have a very good understanding on who the customers are. I think the key parameters on how quickly these physicians and surgeons will switch to BONESUPPORT depends on how much inventory they might have in the specific clinic, product on the shelf, or how many products are sitting in the inventory with the hospital, or possibly even at Zimmer Biomet.
Zimmer Biomet can continue to sell the product, but on a non-exclusive basis up until May next year.
Okay, and do you have any view or guess about this inventory situation?
I do not, but what we have displayed is that Zimmer Biomet haven't purchased anything since we terminated the contract in May.
Okay. Last question, and related to the U.S., are you willing to speculate how long time it will take until you are back at previous U.S. levels in sales?
I think anyone with experience of having done the moves that we're doing in the U.S. For me, it's the fifth or it's the sixth time that I'm doing such a move. We all know that sales in the beginning will be quite volatile. The securing factors here is that we get the right distributors, which we have, as well as that we have a very good understanding of the customer base. I'm not willing to give a time to when I think the sales will be back. It will be shown in due time.
Okay. Moving to Europe, we noticed that the sequential improvement in growth rate. Is there a typical seasonality in Europe in the third quarter due to the summer months, meaning we should see further acceleration in the fourth quarter?
What we can say about seasonality is that quarter three and quarter four are always a bit. They are the strongest quarter of the year, but that's the same for every year. Growth rate, of course, you compare to previous year. We also know that the summer months can have quite some volatility to them. We see very strong uptake of the antibiotic-eluting products. They continue very strong, especially with some major clinics that we have won. We're very pleased with this result, but think we can aim even higher going forward.
Okay. Then finally on the gross margin, I thought that the BVF product in the U.S. had a higher gross margin than CERAMENT G in Europe, but that doesn't appear to be the case. Can you confirm that? Also on Björn's statements about gross margin being higher going forward, should we look at this third quarter margin, the level in third quarter as a good estimate what it will look like, the gross margin you have?
I can comment on these two questions. Regarding the gross margin, I mean, 91% is a very high gross margin, and as you know, I said before, that we should be above 85%, and I'm going to split that, so there's something in between there, going forward. If you look on the Q3 gross margin, this is very high number. As you know, when we invoice this in the buying net, we invoice sort of already a price which is much lower than end user price. Therefore, the gross margin is still good, but not equally good compared to CERAMENT G and CERAMENT G in Europe. If you compare it to CERAMENT BVF in Europe, it's better that in U.S. anyhow.
The impact here, you see that is mainly due to the high level of sales of the antibiotic-eluting product.
The gross margin you will have now with new distributors in the U.S. will be lower than CERAMENT G in Europe?
No, no, no, I'm not talking about the current situation. Going forward, then we will account the gross, the growth rate in U.S. We will come close to these kind of numbers going forward.
Okay. What's the reason why should the gross margin not be as high then going forward?
Yeah, I think, as I mentioned, we'll be close to that gross margin, but we also have the effect of the new product coming in as well, in the next year. We haven't really specified the gross margin of these new products, so I would say close to that level.
Any other questions? Thank you. Our next question comes from the line of Franc Gregori from Trinity Delta. Please go ahead. Your line now open.
Thank you. Good morning, gentlemen. A couple quick questions. Obviously, the U.S. sales were not unexpected, but did you find anything that was unexpected, something like stock being returned or stock blocking your supply chain? The first question. The second one, following on from what Kristoffer was asking earlier, can you give a feeling for what your sales cycle looks like? What I'm trying to get a feel for is how long before the new reps in Europe are actually contributing fully, and importantly, in the U.S., for the new distributors, is this something that we should wait a couple of quarters before judging? Is it something that will take a year or so? The last question I have is, assuming that the clinical data is positive, when can you actually start using that in your marketing material?
Can you do it as soon as you publish the top-line data, or do you have to wait until it's published into a journal?
Yeah, thank you, Franc. I start in sequential order. Has there been any unexpected events over the last period in terms of ramping up in the U.S.? Not really, Franc. I would say the only experience, the only unexpected, probably, we attracted slightly better distributors than maybe we had hoped for, and also more distributors. There was a big attention for CERAMENT and high appetite and enthusiasm for the total potential, but there hasn't been any stock returns or any unexpected events that otherwise have changed our plan.
When it comes to cyclicity, when hiring orthopedic sales reps in Europe, if those are experienced and have an existing network, if they take over existing accounts, well, then you have of course, immediately you see traction. If you bring new accounts, it takes about six months to go through the approval process of the hospital and to have the physicians test and trial the product, and then make a summary of the results. In six months, you should start to see new accounts from new sales reps in new territories. In terms of the U.S., it's a very diverse picture, and as you know, when I introduced myself a couple months ago, I lived and worked four years in the U.S. and worked in the orthopedic field.
Some distributors will be able to pick up sales immediately, where they have big customers that are existing and that are using CERAMENT and maybe are buying hardware products or other products that the distributor is anyhow carrying. In other states, it will take a bit longer, and if you look at areas where we have historically had quite low penetration, such as populated states, such as Florida and California, it usually takes about six months, and then sales starts to ramp up. It's the same basic period of time before you start to convert customers that previously maybe haven't used CERAMENT. The final question you had, Franc, was on the clinical study CERTiFy.
We are meeting the principal investigators at the end of next week. After that, we will see what kind of top-line results that we can release. That will be most likely done in December. Immediately when we have released such material, it can be used by the salespeople in the material. The full picture, though, will be given in late quarter one when we publish the entire data set.
Thank you. Very, very clear.
Thank you. Our next question comes from the line of Jonas Peciulis from Edison Investment Research. Please go ahead. Your line is now open.
Hi, good morning. To follow up, a follow-up question on performance in Europe. I think you mentioned that there is some potential seasonality effect, but looking, you know, from historical perspective, the rebound, year-on-year rebound seems quite substantial, even though you mentioned that there's potential for an higher growth rate. My question, I guess, would be: Would you attribute this rebound in Q3 year-on-year to the changes you are implementing in the commercial organization in Europe? Those changes actually could have an effect in the future, additional effect in the future?
Yes. It's a good question. Thank you, Jonas. We have recruited quite a few salespeople since we announced we will start the program. Those effects are not really visible in quarter three yet. What we see in quarter three is rather some of short-term gains from much more intense market activity that we have. We have had several activities around Europe that have won a couple of new accounts, and that's the result you see in quarter three. The effects of the new sales reps is more anticipated to the beginning of 2019, as it has a slightly longer lead time before you see that effect kick in.
Okay, great. Thank you. That's clear. Second question on the product portfolio expansion. You mentioned that the new additions from Collagen Matrix and MTF partnership should basically come, you know, as soon as first half next year. I mean, when that is approaching, obviously, the question of the commercial potential of these new products will be sort of, you know, in the spotlight. Probably it's too early for you to guide on the actually, you know, commercial potential, you know, from high-level perspective, is your goal to offer to physician surgeons to basically the one-stop shop, you know, product offering, or you actually sort of want to have meaningful addition, you know, to, you know, your sales, just, you know, your use?
No, you're absolutely correct when you mentioned the one-stop shop. There are certain indications where the surgeon have many considerations to do on the trauma, for example, or on the wound, and the bone void. In such case, many different products are used, and we want to make sure that we can partner with the surgeon and offer him a package or a solution kit that fits the specific indication he's treating. It's way too early to say what will be the effect of these new products, but I can assure you that these products will have sales by themselves, but they will also facilitate the sales of CERAMENT in the U.S., so it's a synergistic package.
Okay. Yeah, that's clear. Thank you. Thank you, then.
Thank you. Our next question comes from the line of Sten Gustafsson from ABG. Please go ahead, your line is open.
Thank you. Yes, a few follow-up questions here on the U.S. First of all, have you identified all the old users at the various hospitals, and have you been able to reconnect with those orthopedic surgeons? That's my first question. The second one would be, if you expect the 25 distributors to sort of build up their own inventory now in Q4, or will you report end user sales only? If you could clarify that would be very helpful.
Then my last question is on your targets, do you think you will be able to reach the 40% sales growth CAGR on the existing products or do you need the new products that you just mentioned here from Collagen Matrix and MTF to contribute to that growth target? Thank you.
Okay. Yeah, thank you very much, Sten. I will answer your questions in the same order you addressed them. In the U.S., it's difficult for me to go into the exact details of what has happened now over the last couple of weeks, especially since this is the quarter three reporting. I really appreciate that all of you have a great appetite to understand what's going on in the U.S. The regional managers we have worked side by side with Zimmer Biomet for a couple of years, and they are very well aware of the key users.
There might be users also that we haven't visited on a regular basis, but we have for two years in the U.S., had a CRM system in place, a customer relationship management system in place, where we register our customers like any MedT ech company would do. We have a very good understanding of those. The distributors that we have signed up, they are very well connected, and within their region and within their state, they are, even before we signed them up, very well aware of which surgeons are heavy prescribers and heavy users of CERAMENT. Every distributor had to provide us with a marketing and sales plan, and we approved the plan before we signed a contract.
We have made a handshake and agreement on exactly what has to happen with which surgeon. That's probably as much as I can say on that topic. The 25 distributors will not build any inventory themselves. We are working with Millstone, which has distribution hubs across all of the U.S., and we will register sales when a surgeon orders a product or use the products. We will register end user sales, and you can see the distributors as promoters, but they will not build any inventory by themselves. The final question was regarding our target or the guidance that we have given to grow with 40% after 2019. The 40% is a combination of the CERAMENT product and as well as the new products we will launch.
We don't share that split. Of course, a clear majority of the focus and the clear majority of the growth will come from Cerament, and specifically the antibiotic-eluting products. I think you should see the new product more as complementing, a solution kit, almost as a service articles. We are very committed also to make a success with these products. Cerament is our core asset, and that's the product that we're pushing.
Thank you. Very clear. Thanks.
Thank you. Our next question comes from the line of Niklas Elmhammer from Jarl Securities. Please go ahead, the line is now open.
Yes, good morning. Most of my questions have been answered, I guess. I was just coming back to the new product launches in collaboration with MTF and Collagen Matrix. The strategy is to establish leading clinical evidence. Do you have the sufficient clinical evidence to support these launches, or is it something you need to work on? If possible, if you could provide us some maybe idea of positioning in terms of pricing of these new products. Thank you.
Sure. Thank you very much, Niklas. The product that we are bringing from MTF and Collagen has been done because the surgeons many times has a certain preference for which product he wants to use. These products are not new within their category. For MTF, the product is a demineralized bone matrix. This segment of DBM has an annual sales in total in the U.S. of about $150 million-$170 million dollars per year. The surgeons will be very well familiar with the technology and the category. What we add is, when our distributor rep is in the operating theater, they will have a full portfolio.
They will have a full bag, and they can service and help the surgeon in all the different steps of the procedure, and that's how it adds value. We don't have to do any clinical studies, or there's no further evidence that has to be generated specifically for these concepts. The products that we are sourcing and that we will launch in the beginning of, with the first six months of 2019, will be sold at a premium price. CERAMENT is a premium product, and our solutions are labeled as premium. We offer service and an augmented product well beyond only the technology, and that's why we are charging a premium for all our services and all our products.
Nevertheless, the gross profit or the margin for the new products will be, of course, slightly less than what we have on our CERAMENT product.
Okay, thank you. That's very helpful. Thank you.
Thank you. Our next question comes from the line of Lala Gregorek from Trinity Delta. Please go ahead. Your line is now open.
Good morning, gentlemen. I had a couple of questions for you, which are basically clarifications of things that have already been discussed. Firstly, on the European growth margin, am I correct in assuming that the current level is something that you believe to be sustainable? Secondly, looking at data reimbursement, et cetera, I note that the French osteomyelitis trial is not now going ahead, and that was something that I was aware was connected to reimbursement. I was wondering what your strategy now is in that territory. Lastly, coming up for very exciting times with the imminent publication of CERTiFy data before the end of the year. With respect to the fuller data set, is that something that you'd be looking to publish in a journal or present at a conference?
What are your plans for, you know, releasing the more complete data set there? You've mentioned previously how that will feed into, I guess the training and sales side of things. You also mentioned a number of KOL publications that would be coming through as case studies over the coming months.
Yeah, thank you very much, Lala. I think, Björn, if you address the gross profit, I will cover the French study on the CERTiFy.
Yes. Thanks, Lala. We believe this cost model in Europe is sustainable.
Perfect.
As you see that we have a very high growth rate of the gluteal products, and I think that, of course, is a major contributor to this cost model. The answer is yes.
Perfect.
Emil?
When it comes to the French osteomyelitis study, when we started the strategic review in March, April of this year, there were a lot of considerations that we took into the picture, and we fine-tuned and revised our strategy. Eventually, we come to the decision that when it comes to chronic osteomyelitis, we have an industry-leading data set. When we look at the French study, we felt that it was actually a bit repetitive to what we already had proven. In addition to that, the specific regulations and demands from the French authorities made this study, I would say, overwhelmingly big.
Mm-hmm.
We decided that it doesn't any longer fulfill our logic of return on investment. Why is we decided to stop that specific study? We have other data, both currently available as well as on the way, where we feel we can more or less leverage the same kind of argumentation. We will bring that forward instead to the French authorities in due time and apply for such reimbursement.
Great. Thank you.
The CERTiFy study is really the first of its kind. We will be very selective to find a high-quality journal, medical and scientific journal, that would be willing to publish these results. Once we have them, of course, this will be a major thing for us, that we will hold several local, regional, and national meetings to spread what we hope to be positive results. We can already share some of the results before the end of this year, and it will be immediately carried by some of the salespeople as well, to potential customers. There's a lot of physicians that is waiting for the results of CERTiFy because they have been aware that this study has been going on for quite a while, and it's completely unique in its kind.
Wonderful. Thanks very much.
Thank you, ladies and gentlemen. I'll remind you, if you wish to ask a question, please press zero one on your telephone keypad now. There'll be a further pause where questions are being registered. As there are no questions registered at this time, I'll hand the calls back to you, speakers. Please go ahead.
I would like to thank everyone for taking the time this morning to listen to our presentation of the quarter three results. As we mentioned, we made significant strategic inroads. We registered strong sales in Europe and rest of the world, and we are excited about the journey to come. Thank you, everyone, for today, and goodbye.
Thank you. Goodbye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.