Welcome back, everyone. Next presentation, my name is Sten Gustafsson. I work as a healthcare analyst here at ABG, and I'm happy to introduce the next speaker, Morten Henneveld, CEO of OssDsign, who will present the company. And then we'll have a short Q&A afterwards. So please go ahead, Morten.
Thank you very much, and thank you very much for having me. As always, when we do these presentations, the normal disclaimer on forward-looking statement. I want to take a little bit step back, for many of you may know OssDsign as the cranial patient-specific implant company, and that is true. That is what we were for the first 10 years of the company's lifetime. In 2020, we acquired a company that had a very exciting orthobiologics product, which we started commercializing in late 2021. And as you can see on this chart, this has fundamentally transformed the company, where the new business actually surpassed cranial within 18 months. So what has taken the company 10 years to build on cranial, we did in less than 18 months on our new orthobiologics franchise. Oh, sorry, that was the wrong way.
That new franchise has also meant that OssDsign has now sequentially, in each and every quarter, delivered very sustainable, high revenue growth numbers. You can see here the quarterly result, but for the last five, six quarters or so, we are sitting somewhere up there around 100%. It also means that the new business, which we have only launched in the US, has significantly catapulted our US business on an exponential growth journey. We just reported Q3 numbers earlier this week, and we now have six consecutive quarters with triple-digit growth in the US. It is a sustainable growth. We are seeing... We are now starting to win what's called IDNs, integrated delivery networks, large hospital systems. We see an underlying growth in the customer base.
We see more and more users becoming medium or larger users, so we have a deeper account penetration. Last, but certainly not least, three years ago, the company operated with a gross margin of around 40%. With our Q3 numbers, we just achieved 80%. So essentially, the new orthobiologics business that we acquired has generated a double gross margin in only three years. As a result of that, here by the end of September, we announced a strategy shift. We did that in combination with a directed share issue, where we managed to raise SEK 150 million in gross proceeds. But the strategy going forward for OssDsign means that we will become a pure-play orthobiologics company from January.
So in about six weeks from now, the company will no longer be in Cranial but will be a pure-play orthobiologics company. So, why is that? Well, basically, we will be targeting, as you can see, and we are succeeding in penetrating the spine business. Unfortunately, as many of us grow older, our spine will start to degenerate. Some of us will have what you call spinal instability and ultimately will need what's called a fusion surgery. In a fusion surgery, you're using some kind of metalware, screws and rods, a cage to stabilize the spine. In every single surgery, the surgeon will use some kind of bone graft. It can be the patient's own bone, called autograft. It can be a donor-based product, called allograft, or it can be what we promote, a synthetic solution, a regenerative solution.
So there is a very significant need. You can see one in five patients are actually not achieving a good outcome. So why do we believe that we can succeed with that? I think you saw the sales numbers. They speak for itself. We've reached a rolling 12-month of 45 million SEK only during the second year. But this is really the reason we acquired the company back in 2020. This is the best preclinical data we've ever seen. Many of us, including myself, some board members, and our entire U.S. team, all have a past life in spine and biologics. What we saw as we acquired the company was a product that outperform both the gold standard, where you see on the left, on the left side, called autograft.
This is still de facto the gold standard by the FDA, significantly outperforming that. The other one is a product probably selling at a $50-$100 million right now from Medtronic, significantly outperforming that. So some substantial, strong preclinical data that we have used successfully to take the product to market, where we've now been two years. The other thing, which is heavily overlooked, I can see the video for some reason is not playing here, is what's called handling qualities. So imagine you are a surgeon. This is a bone graft. It's a little bit like clay that our children play with. You need to take that, and you may need to mix it with the patient's own bone. Now-...
You need to trust that when you place the bone graft in the surgical site, that it stays exactly where it is, because you want-- You place the bone graft where you want bone to form around the spinal hardware between the vertebrae. There's a lot of products actually that doesn't deliver on that promise. Once a number of products are mixed with the liquid, which it tends to happen when you mix with the patient's own bone, you mix it with blood and other thing, you start to see what's called migration, so it starts to dissolve. So essentially, it means that the bone graft will dissolve, you're not going to get the bone growth where you want it to, and you may even have adverse events, where you start to have bone growth in places you don't want.
So what we have heard continuously, this is exceptionally hard to handle, but it is a very overlooked quality when you're dealing with surgeons. It has to work in the hands of the surgeons. They have to trust that once they actually use it intraoperatively, that it does the job. This product does the job. We hear it consistently across all our surgeons, and we heard it very much from day one. And my personal view is, a large part of the customer we've managed to get on board have actually come on board partly because of this or largely because of this. So we have a big medical need. We have an exceptional strong offering that which you can see in the sales numbers so far.
We are growing 297% year to date on this product. So we've had a very strong market acceptance. And then something extraordinary happened hence in September. We received an expanded clearance called an interbody clearance from the FDA. And essentially what you see here, over here, is that you have a cage that you use in every single surgery. For years and years, surgeons will be putting bone graft into that space, both around and also inside the cage. But no product have actually had a clearance to promote it. Surgeons have done it off-label, as is not unusual in the U.S. There's only two other companies that have it right now that actually got the clearance, two larger companies, and they got the clearance on clinical data.
We've deliberately not talked a lot about it. We wanted to stay under the radar, on it. But this makes OssDsign Catalyst now suddenly going from, I would say, one in many, it's a fairly competitive market, but to become this elite category synthetic bone graft. It's the first bone graft that is cleared intrinsically on the bone graft data alone. So not mixed with cages or anything. It's also of the only three products on the entire market that has this clearance. It's the only one of the latest generation. The other two products are older generation. And last but not least, when we compete, we tend to compete against the biologics-focused companies, the one that really have a, a strong latest generation offering. None of the other companies have this clearance.
The interbody space is expected to be about half of the market. So what it means now is that the surgeons will actually be able to use this product on label for all major spine procedures. So it puts us in an exceptional class already two years into the launch. But this is not only about sales in the short term, we are also building for the medium term. A week after we launched in the US, we started our first demand clinical study called TOP FUSION. That patient is fully enrolled. Everyone is up to one year, which is the gold standard to assess fusion. And then you will see these results coming out early in the next year, apologies.
And we also started PREPARE, which is a clinical registry, where we now have more than 200 patients in there. We own that registry, which means that we have real-time access to that. Our anticipation is also that we will start to see the first publications coming out towards the second half of next year. So while we're building for the short term, we are certainly also preparing ourselves for the midterm by making conscious and meaningful investments in clinical programs. So all this is setting us up for success, and it's setting us up for success in a large, very attractive market. So what you see here is the use of bone graft worldwide. It's about a $2.6 billion market, but we have a sole focus on the U.S. It's a $1.8 billion market.
It's growing by around 8%. We are targeting standard procedures. Contrary to what OssDsign used to be, which was the patient-specific per patient, per implant, one implant per patient, this is completely mass-produced, it's mass-sold, it's a consignment, and it's targeting standard procedures. Within that 1.8, you have different solutions, as I talked about in the beginning, there are different products that can solve the problem. Right now, we are blessed with a number of tailwinds in the market. Generally, which goes for all, we have the Second World War baby boomers, there is an aging population. Every five years, we grow one year older. Spinal degeneration is driven by age. So as we get older, as we have more people in the elderly population, there will be an increasing need for spine surgeries...
Specifically for us, where we have tailwind is, surgeons have different options to treat patients. Recently, over the last years, there's been more and more problems with what's called allograft. There's been some very bad tuberculosis cases that was harvested from a tuberculosis patient, passed on to 135, 8 patients died, et cetera. Surgeons are getting somewhat nervous of using donor-based products because they can't trust 100% that they're not transmitting diseases. The last hit, tailwind we're seeing right now is that the bone graft market has lots of old technology. There's an incredible abundance of products that were launched 20 years ago that technically are still on the market. All evidence points, not just to OssDsign Catalyst, but all evidence clearly shows that the latest generation is performing significantly better.
So there is a big switch from surgeons away from the old technologies into the new technologies. OssDsign is extremely well-positioned in this market to benefit from these tailwinds. The strategic shift will also impact our gross profitability going forward. I talked about in the beginning that we've managed to move basically double gross margin from around 40% in 2020. Now, we have a blended rate here after Q3 of about 80%. That's a mix of cranial and biologics. As we become a pure-play biologic company, we already and we also disclosed that we are seeing a gross margin at or above 90% on the biologics business. So that is what we will expect coming into the next year. As part of the strategy shift, we update our strategy, call it ASCEND 2026.
There's nothing out of the ordinary, very much a continuation of what we did before, because as you can see, it really works. We also updated our financial targets as part of that. So just to summarize the presentation, we are seeing so big potential, and we are seeing so strong traction, as you can see in the last 6 quarters, that we believe it is the right thing to create additional shareholder value to become a fully focused orthobiologics company. As I said, very large, attractive market, incredible scalability. What took Cranial 10 years, we did in 18 months. I think that speaks for itself. It's a very profitable, 90%+, gross margin.
It means we can operate with a lower cost base, which inevitably, over time, will result in reduced cash burn, and then we can throw all our time and effort, but also all our investment, into developing and really riding on the wave that we are seeing right now with our orthobiologics business. So ultimately, we, we see this as clearly having the potential for significantly increasing shareholder value, and that is why we made this strategic shift. So I think with that, Sten, that was, that was everything that I had, so I'm sure you have some questions.
I'm sure I do. So let's start with the market, and you talked about $1.8 billion opportunity.
Yeah.
I mean, it's a huge number. I guess that is, or it has been, driven by a shift from allograft and autograft into synthetic materials.
Yeah.
Would it be possible for you to quantify where we are today in terms of a breakdown of that?
Yeah, well, I mean, we have—we don't have perfect data, but the data we have right now says that of the $1.8 billion that we are seeing, we have about $600 million-$650 million, which is already the synthetic bone graft market. But what's happening is the... We can address all of it. We can go to a user of allograft today and saying, "Can you use this?
Mm.
Our strategic commercial tactical focus is, we are targeting the ones that have already made the decision to use a synthetic solution, because for us-
Yeah
... it's a much easier shift. It's just stealing market share. You put in the pink box, and you remove the-
Yeah
... the yellow box. But right now, from what we can see in some of the latest reports, about $6 million-$650 million, but we are seeing a big part of the other one moving into that. So it's growing, it's growing a lot more than the rest of the $1.8 billion market as far, simply because people are moving into more synthetic solutions.
I suppose it will continue to migrate into synthetic for the reasons you mentioned. And also, when it comes to autograft, it's a very painful procedure for the patient. So-
Yeah, in particular, particularly if you use it from, you know, the gold standard is still the iliac crest, you know-
Yeah
... where they harvest from the hips. It’s increased hospitalization. De facto, it is still the gold standard. It’s still where you teach people at med school that that-
Yeah
... that's how what you should be doing. Very few surgeons will say that today. Very few will do it, so-
Do you know the split between, I mean, in terms of the total number of spinal cases using autograft or allograft or synthetic?
No, because I think what we're seeing is you always... Most surgeons, almost all the time, will mix with the patient's own bone.
Okay.
The surgical shift has been that you've started to use some bone from the patients from the surgical site, what's called native bone.
Yeah.
Because you're already opening up, it's not an extra procedure.
No.
Less painful also, and then you take bone from there, and you mix it with our bone graft, and you put it back in.
Yeah.
So that's what we typically see right now.
Mm.
But yes, it's, it's not what the FDA says, but this is what all surgeons are doing, and-
Yeah. Okay, so, now you have, well, let's call it one product in one market.
Yeah.
If you're looking at a 3-5-year perspective, where do you think you are then? What do you want to become, and what do you aspire to? Would you be open to out-license your technology to someone else in another market, for example?
Yeah.
I mean, you have a relatively small team, and you can't conquer the world...
No, no
... on your own. So I mean, are you open for those discussions?
Yeah, I mean, I think it's still, it's still early days. Those are some very fundamental, big, strategic questions. Listen, right now, we are very happy with the U.S. focus. It's a, it's a very attractive market. It's high priced. We, we know the market. We all have past lives where selling spine and biologics in, in, in that market. So, and it's huge. I mean, you saw our-
Mm
... financial targets. To get to those target, we only need a fraction of the market, right? Then you can say I'm unambitious. I don't think I am, but, it's not like we need a double-digit market share or something like that to achieve those goals. It can be achieved with a lot less. I think there are interesting markets in the world to go into. As I said, repeatedly, I see some very big problems with the new MDR rules in,
Mm
... in Europe. It's very hard to see, as a manufacturer, what it takes to get a product approved. The cost of doing business there have gone up. We know bone graft prices are significantly below in Europe compared to US. So I struggle at this point in time. You may call me out three years from now, but at this point in time, I can't see the motivation for why we should spend time and money going into Europe. Then I would say more, there are other markets, kind of, if you move more east, that are probably easier to get into and more attractive, both from a market perspective and a pricing perspective. But I would say for the time being and for the foreseeable future, all our focus is on the US.
Yeah.
That is where we have strong traction, we have really good names. We've just signed on Yale as an account, some very noteworthy accounts. So, we've had a very strong market acceptance, and it's an attractive market. So I can't see why we would defocus from that. I think, as you say, we are a small company. We have the hands we have, we have the money we have, and I think getting a focus into the company is profound to success. And I actually think the last, the turnaround that we've done in the last three years, have actually is a testimony to that. We've been driving more and more focus over the time, and I think we are now starting to see the outcome of that hard work.
Yeah. Do you plan to expand your team in the US next year or in two years?
Yeah, I think there are things we need to do, as we also said when we did the strategy shift. The one of the reasons is we didn't see a sustainable future for the cranial business.
Mm.
We saw it being dilutive to growth, to margins, to cash burn. So, it's hard to see that as a standalone. But the other important reason is, because of the structural nature of the cranial business that requires production, it's tying up lots of structural costs. It's taking up lots of time in the organization. That has actually meant that there are things that we should have done on the orthobiologics business. We should have accelerated more on R&D. We should have produced more in automating our OssDsign Catalyst production lines. Maybe we also need to contemplate the next clinical study when the TOP FUSION is done.
None of these things we've been able to do in a very sensitive market, where you can't just spend money anymore, because cranial has been tying up all the resources.
Yeah.
So, you know, as we also said when we announced, we think SEK 30 million-SEK 40 million of OpEx would be reduced as cranial goes away. But of course, we need to take that money, and then we need to decide what do we invest in and what do we take as, as saving as a result of that.
Yeah.
So, yes, is the short answer. There are many, many things, as you would imagine, as a small company, that we could or should be doing, and we just need to prioritize.
Yeah. But we should not be surprised if you grow your team in the US?
No, I wouldn't be surprised. Right now, of course, the strategic shift also means that we'll be leaving the facilities in Uppsala.
Yeah.
As a natural part of that, we are moving a number of functions into the U.S. instead.
Yeah. When it comes to training doctors, how complicated is it for them to, I mean, to learn how to use your product? Does it take a long time to-
I was-
... to, or is it a relatively quick learning curve for them?
It takes about the same time as it would take for me to take a sip of the glass of water here.
Okay.
There is no change to procedures. Yes, they need to familiarize with the handling, as I talked about. Now, luckily, our handling seems to be better than what most people have worked with before, but that's the only thing. I mean, it essentially is just using a different bone graft. And then you can probably question, saying: "So is there no stickiness to the product?" And there is, as you can see with the preclinical data and now also the handling.
Mm.
Once they get used to this good handling interoperatively, that does create a level of stickiness to the product, but it requires literally no training. You take, you get rid of whatever product is being used today, you put in your boxes, you open that, and he will do exactly as he did yesterday, just with a different product. So it's very straightforward, and I think that is also one of the reasons we've been able to scale as fast as we have.
Yeah. Are you aware of any doctors who started using your product and said, "No, I'm going back to allograft again?
Yeah.
Or, uh-
As much as I would say, we win 100%, that's not the case. It's very few.
Yeah.
We had, to my knowledge, the first doctor, actually 3 weeks ago, who did a few cases, and he just couldn't get used to the handling, which was a little bit strange, because everyone else have said it was good. That was the first one.
Yeah.
But of course, we've had surgeons moving around. It's not like 100% that started have continued. But as you can see on the growth numbers-
Yeah
... we are certainly retaining more than we are losing, and we're stealing quite a lot of market shares right now from-
Yeah
... from competition. So, no, we are exceptionally pleased and overwhelmingly good feedback on the product how it works-
Mm
... in the hands of surgeons, and how it works in patients, which is ultimately the most important thing, that you have a strong offering.
Excellent. Time is up. Thank you very much, Morten, and best of luck-
Thank you very much for having me.
Yeah.
Take care.