[Foreign language] We're going to do this in English, because we have a Danish CEO presenting next. Morten Henneveld, CEO of OssDsign, please welcome.
Thank you very much.
Welcome back, I should say. So you'll do the presentation, and then I'll shoot some questions in the end if there's time for that.
Absolutely.
Please.
Thank you very much, Sten, and thank you very much for having me. And at least I see some familiar faces in here. As always, when we do these things, the normal disclaimer: if it changes, it doesn't. Here we go. Now, many of you may remember OssDsign as the cranio-patient-specific implant company. And that's true because that's where we found it. About a year ago, we made a significant strategy shift to become a pure-play orthobiologics company. As many of you may know, we acquired a company in 2020 and entered the orthobiologics space late 2021. And what we said a year ago is that this business is really attractive, it's really scalable, and therefore we see that it will drive significantly higher shareholder value in the years to come. A few weeks ago, we released our third quarter results.
This was by far the best quarter ever in the history of the company. We had 121% growth in the quarter, 145% growth in the first nine months. We also look at rolling 12th month. That momentum is up 163%. And that also means that we've now reported 10 consecutive quarters in the U.S. with triple-digit growth. We also hit almost 97% gross margin in the quarter, slightly helped by some release of some provision, but that's only about 100 basis points. And that also means that we've raised guidance on gross margin going forward to above 93%. So that was kind of the P&L, the top line and the margin. What was also very important in the third quarter is that we showed very, very significant operating leverage.
This was the first quarter where we showed a true picture without any overhang from the old cranial business that we have closed down, and we showed very significant operating leverage and a much reduced cash burn during the quarter, so I think the third quarter essentially showed everything we said about a year ago, what this business could look like, and as I mentioned, our rolling 12-month momentum is increasing. It's a strong trajectory. It's a strong momentum right now in the business, but let me just go a little bit step back, because I'll come back to it later, because our product is actually cleared much broader than in spine. But as you can see, we have a very strategic focus on spine. It's a $1.8 billion market. It's growing heavily, and we benefit from a number of tailwinds.
One is that the sheer volume of patients is increasing right now. It's going to increase even more in the years to come. The surgeon, if you look at the second pillar here, the surgeons have a number of options available to them. They can use the patient's own bone. That's the FDA gold standard still, even though very few surgeons are doing it. You can also use allograft products. They come with a risk of disease transmission, and there have been numerous cases in the U.S. Or you can use a synthetic solution where the latest generation, we are the absolute latest generation, has proven to be very efficient. And then last but not least, this is a very crowded market. We still compete against products that have been in the market for 20 years. And there's no doubt that the latest generation and OssDsign Catalyst performs much better.
So we're seeing a significant shift towards that. So, you know, all in all, we are placed really in the sweet spot as the latest generation synthetics, both now and in the years to come. But let's just take a little bit of a step back, because, you know, unfortunately, many of you may have seen this slide before. Many of us, unfortunately, will suffer from back problems. Some of us will have spinal instability and will need something called a fusion procedure. There's about 750,000 of those in the U.S. each year alone. Unfortunately, one in five doesn't have a good outcome, and that means approximately 150,000 patients each year that needs to be revised. So when you look at what is really the clinical goal, right, so let's try to take a step back. What is it we are trying to solve for?
We are trying to stabilize the spine and relieve the pain. That is ultimately the goal. And in any spinal fusion procedure, you're going to have some metal screws called pedicle screws and cages and rods, but you will need some type of bone graft in each because you need to stabilize the spine. And the way you do that is to create bridging bone throughout. If you look at the right side here, this is a very simplified model, but essentially, if you look at the end of the vertebrae, which is, among other things, where we place the bone graft, you're going to have bleeding surfaces, what we call a vascular environment. That means that the human body will help you stimulate bone growth, right, through blood cells. Not saying it's easy, but it's easier because the body is helping you.
The real clinical challenge is in the middle of the mass, or if you imagine between the vertebrae, where there is nothing inherent in the human body to help you, it's all down to the bone graft to show that bone growth, which is what we call endochondral bone formation. If you look at a traditional over here synthetic product, then what you will see is that it follows a pathway that essentially is called intramembranous, but essentially means that it forms bone from the outside in, where it has blood cells and then it has creeping bone formation towards the middle. Now, the problem is that it may never reach each other and therefore have what we call a bridging bone, or it may take so long that you're starting to see implant loosening, infections, or other adverse effects.
Adverse effects like infections and other things are not the problem because we don't do spine problems or spine surgeries if you have an infection, but it's a result of a bone formation not happening in a timely manner or not happening at all. If you look at the right side, this is actually something that we look specifically with OssDsign Catalyst, which is measuring bone formation in the middle of the mass. Here you see clearly that we grew four times as much bone in that endochondral bone formation. That basically means that OssDsign works in what we call a dual bone formation or dual pathway. It means that we are growing bone inside out and outside in at the same time.
This is something that we've seen again and again from the very first preclinical study where a lot of people actually looked at the 100%. If you look at this one, that's the real interesting one. We got to 80% at six weeks, autograft. The FDA gold standard only got to 40%, and the traditional synthetic we compared to only got to 20%. Similarly, in TOP FUSION, our first clinical study, yes, very nice 93% overall fusion rate. The real interesting thing is actually over here where you see that every single patient were either fully fused or had partial fusion at a very early time point at three months. Bear in mind, in spine surgery, we use 12 months as the gold standard for measuring fusion rates. Seeing this already at three is early.
We recently just published some of the first case reports from our PROPEL, our spinal fusion registry in the U.S., where you're seeing very fast fusion rates even in very challenging patients. What is it really that's causing this? Essentially, it's down to two things. When you think about how OssDsign Catalyst is differentiated, it's what you see here, and it's a handling, which I'll come back to in a second. First and foremost, what you see here is the evolution when we're talking nano. Essentially, the goal has always been to develop a synthetic solution that mimics the native bone. With OssDsign Catalyst, that is exactly what you've done. You see the micron levels here. You have a product that looks like native bone, that acts like native bone. Then we've added something called silicate ions.
You know, if you think about some of the other solutions, I don't know how many of you are familiar with the very expensive and risky drugs on the market called BMP-2. They're more like a drag racer. You're going to have a very instant release of inflammatory response. It's going to go very fast, but it's also very risky. It can go wrong. OssDsign Catalyst is more like a supercharged car. It starts, it accelerates fast, and it will keep going no matter speed you are at. And it's a much, much safer choice. So you kind of get the best of both worlds where you have a safe choice. You don't have this disease transmission risk, and we are seeing very solid bone growth. So that's kind of differentiating factor number one. Number two, it's really what we call handling.
This is a heavily overlooked quality in many medical devices. And handling means how does it work intraoperatively? How does it work in the hands of the surgeons? And for us specifically, irrigation when it comes to bone graft is a particular problem. Irrigation means that it runs, it washes out. And you can imagine if you're placing the bone graft anywhere in the surgical site, it's because you want bone formation to happen exactly where it is. If that starts to, once it hits liquid, blood, other type of liquids, if that starts to run or starts to dissolve, that's a problem because then the granules are going to spread out. You're not going to see the bone growth. This is something we've heard consistently from day one, I would say. Once our surgeons touch the product, they use it in the OR. This is what we hear.
It really brings them across the finish line to become permanent users. So all in all, even in a very crowded market, it's a very differentiated offering. And we've come a long way. We are still scratching the surface, I would say, but we actually already in a little more than two and a half years now have access to about 150 hospitals in the U.S. But as I said, we are only just scratching the surface. This is equivalent to just below 10% of the entire market. So there's 90% of the market that we're not even touching. You know, for us, and that's how the U.S. works, we work in a hybrid model. We work direct, but we also work with something called distributors. They're technically sales agents, but that's an extended arm of ours reaching in and maintaining accounts on a day-to-day basis.
Bear in mind, we still only have seven regional managers in the U.S. So we've come a long way on hospital approvals. We've built a solid distributor network. We have full military access. We just got the last one, the VA contract earlier this year. And we have now also won the first large GPO. So all in all, within two and a half years, this is very impressive commercialization, actually. And it's the fastest we've seen on any bone graft. We're also working a lot on clinical, you know, in medical devices, clinical is paramount. And this is something that never stops for us as a company. We will continue to build more clinical data all the time. But we've come a very long way. We already have four clinical peer-reviewed publications. We have four clinical white papers. One is published. The other three is not.
They are on file that we share with surgeons. And then we also have three preclinical publications and white papers, of which one is published. So we have about 11 white papers and publications at hand already, which we're using very, very actively. But as I said, it doesn't stop. We will continue. We have our spinal fusion registry called PROPEL that we own, and that allows us to generate a lot more data in the quarters and years to come. As we look into the future, I think it's also important to understand that actually the clearance we have in the U.S. already today, the 510(k), allows us to operate much, much broader than where we necessarily are playing today. Clearly, we have a strategic focus on spine. We're used everywhere in the spine, from the cervical to the lowest lumbar level.
We are also cleared for some pelvic surgeries where we are actually doing some of them already. It's done by spine surgeons, so it's a very, very simple, same core point. But we have also announced that we are soft launching slowly into extremities. Right now, we are doing cases in foot and ankle. We are collecting data, and we are creating ambassadors, surgeon ambassadors in that field so that once we hit the button at a later stage, we are ready to do that. Technically, we are also cleared for trauma. That's not something that we envisage to go into right now, at least. But it just goes to show that the clearance we have in the U.S. is very broad. So as we look into the future, there are really four priorities. We have a recipe that's working exceptionally well right now.
But of course, as I mentioned, there's still 90% of the market that's untapped. So we need to keep building access and coverage in the U.S. market. We also only have what we call one formulation, so one product today. We are moving on our R&D effort to make sure that we also have developed new products in the years to come. We will continue developing clinical data. And as I just mentioned, over time, you will also see us expanding into adjacent segments within the orthopedic industry. So those are the priorities for the company going forward. And I think that's all I had, Sten.
Excellent. Thank you very much. So obviously, I have a number of questions. Maybe we should start with the, you said you still have only started to address sort of 10% of the U.S. market.
So in order to get a hold of the other 90%, what do you need?
I think getting a hold of the entire 90% is going to take a long time, right? No, but I think, of course, you have our internal size, right? How many salespeople do we have? That's something that we can control. And right now, we are prioritizing really heavily where the potential is. Where do we have approvals? Where it makes sense? The other one is the distributor network. That is our extended arm. And you know, yes, we do pay a commission to them. But things have also changed during 2024. Now we are showing momentum. We are a recognized product in the U.S., a recognized company. And that means we also start to get a lot of inbound calls from distributors in geographies where we are not necessarily present.
So they will also certainly help us, allow us to expand without a significant cost increase, right? Because we only pay when sales are coming in.
And is there any element of training involved of the surgeon before they use it?
Not at all. I mean, technically not. Of course, you know, before they start using, we go through what we call mechanism of action, what I just showed you, how we are growing bone and why we are seeing the results. But in terms of training, absolutely not. I mean, if you're using the yellow product today and you have our white and pink box today, you just switch them and you go.
So you had amazing growth for a number of quarters. And obviously, there are limitations to what the current organization can sort of handle in terms of growth.
Should we assume that you expand your organization already next year?
Well, not necessarily. I think we'll do it, you know, with surgical precision, right? Where we see potential. I think what's important here is that everything we've achieved so far is through better sales force efficiency. So our sales per rep right now is more than 10x higher than it was in 2020 because of the entry into orthobiologics. And that's, of course, an average. We have some that are higher, and we have some that are lower than that. So we still see potential. But of course, we need to look if we are seeing, because the reality is we have opportunities right now that we can pursue, right? Because of our own limitations. But I think we'll do it, you know, we'll do it in a fairly moderated fashion as and when we need it.
But of course, we need to. We have a window of opportunity right now where we have potential in the market, right? But it's going to be some conscious decision. It's not just about sales force. It's also about, do you go after the short term or what about the mid to long term, the production efficiencies, the R&D effort, the clinical programs, right? So, you know, as a small company with somewhat limited funds, you're just going to have to make some conscious choices about what will bring most value to the company and to shareholders.
Yeah. And in terms of clinical trials, what type of trials? I mean, in a dream scenario, let's say money was not an object, what would you like to do? Would it help to have, you know, superiority studies? Superiority studies you don't get in our industry.
You know, you have too many factors at play. You have surgical technique. You have which procedure you're doing, which cages you're using, what's the graft window, what's the graft technology, GPO, etc. You just have too many variables to really show superiority. So, listen, this is something that we discuss right now. We have our PROPEL registry. We have almost 300 patients in that registry. We have more than 100 that have passed a one-year follow-up. So, as we said, we're going to publish that cohort in the first half of next year. So, I think right now we're going to see what come out of that. But of course, simultaneously, we are thinking about what the next clinical program should look like.
Okay. And how is the market developing?
I mean, in terms of the old gold standard everyone, you know, is using, or not everyone, but it's still a majority, I assume, the autograft.
No, absolutely not. I mean, if the gold standard is that you harvest from the hip or the iliac crest, no one does it anymore. I don't think I've come across more than a few surgeons that will do it because it's a second surgery, right?
Yeah, yeah.
I mean, we all know, and that's why autograft is a gold standard because what we're seeing in terms of our true bone formation, that you actually get from human bone, right? From native bone. So, there is a value in it, but it's a hip surgery. It means that you're going to have to put the patient through another surgery. It's very costly to the hospital. It's very painful to the patient.
It's an exceptionally painful procedure, and why would you do that when you can get as good or maybe even better results from, as you can see from our data so far, in a synthetic solution, right? Okay, so we're seeing when surgeons are using native bone, they no longer tend to take it from the hip. They will actually pick pieces when they have opened up anyway, you know, near where we're actually doing the procedure and use part of that bone. It's much less invasive for the patient, and you do it all in one surgery,
And you get enough bone material,
And then you just take enough to make sure that you can mix it. You know, we're cleared for one-to-one in terms of mixing, so.
Yep. Okay. Any other sort of dynamics happening in the industry? New competitors coming out?
I guess with your growth, you know, other people will start to pay attention to you, and.
Oh, they are. You know, we're not just playing offense anymore. We're also defending, of course. No, listen, when it comes to innovation, I mean, it's very incremental in this industry. You know, the big orthopedic giants, if you look at their products, they are somewhere between 10-20 years old that they are offering in the market. I don't believe there's been any since we launched it late 2021. I don't believe there's been actually some of our competitors have done new formulations, other types of products. But there hasn't actually been new introduction of new bone graft. And you know, bear in mind, it took 10 years to develop Catalyst, right? That was on the back of the same founder, Ian Gibson, who just spent 10 years developing ACTIFUSE.
So, there's a lot of science to go into it. You just don't do it overnight. But I think the most important thing to me is that this space is just not a strategic importance for many, many players in the orthopedic industry, more than a necessary evil, I would call it. And that just means that there's no innovation going into this space from the big players. They're focusing on the metal part. Well, historically, the metal part and now the robotics and the assisted navigation and all the tech. So, you know, this just, you know, I used to work for them, so I can say it honestly, it's just not a priority for them. But would it make sense for you to try to collaborate with any of the big players? I'm not so sure. I'm not convinced.
I know for many times here in Sweden, when a company announces a collaboration with a big one, we think it solves all the problems. The reality is, I mean, as you've seen with some other companies, you may get locked into one big player for whom this is not important. And then you're handcuffed, right? Then you can't navigate. I think our traction so far shows that we can do it. And we should be doing it ourselves because we do it a lot better than any other company right now.
Yeah, that's good. I agree. We've seen a few of those where it doesn't really work out. It looks good on paper, but the reality is very different, so. So, one of the last few slides you had, or maybe the last one was on other areas in the body where you can use your technology.
And sort of on a three- to five-year perspective, what can we expect in terms of expansion?
I think, yeah, I mean, to be perfectly honest, we are our own limitation right now in terms of size and people, right? And my concern is I don't want to spread ourselves too thin. We have a $1.8 billion spine market, and we haven't even touched 90%. So, there's a huge opportunity. I think you will see us very much into some of the new spine disciplines more aggressively within MIS and in the endoscopic spine, which is an upcoming area within spine. You will see us on the sacroiliac cases. Those are growing in the pelvic surgeries. But I think more importantly, you will see us into extremities much more full-on than what we're doing right now.
And what do you need to go in there? Do you need some sort of clinical?
I don't need anything. The second case we ever did in the U.S. was a foot and ankle case. So, we've been doing it. We just haven't talked about it. We've been doing foot and ankle from the very beginning. The product works as well as it does in spine, right? But the point is these are different core points. These are dedicated foot and ankle doctors, for example, right? And the market is, depending on how you define it, anywhere from $60 million-$100 million. So, still a decent market, but of course, smaller than spine. But it's a very tight-knit surgeon community. A lot of them know each other. So, if you get in there, you can get real traction.
But this is just, I see this more as once we are approved in the accounts, this is a way for us to expand within the accounts, right? We have the orthopedic spinal surgeons. We have the neurosurgeons that are different departments. And now we can also go to the foot and ankle. It's just a matter of prioritizing our time. But you will see us on that horizon you described. You will see us full-on in extremity, no doubt.
And it won't require any additional clinical documentation?
No, no, no. You leverage exactly what I mean. We're selling into foot and ankle today with the exact same data we're generating from spine. But of course, you know, the more you have specific for foot and ankle setting, the better, right? So, that's also why I say what we're doing right now is soft launching.
We are creating some ambassadors, surgeon ambassadors within foot and ankle. We have started to specifically look at some of the data that they have been generating so that when you press the button, you have ambassadors behind. You have clinical data specifically for foot and ankle.
Excellent. The last question, and I know you don't like to talk about guidance and outlook, but I need to ask, how's Q4 developing?
We are continuing the same strong trajectory as we've done. Of course, we had a few hurricanes in Florida. That's historically been one of our strongholds. But having said that, I think that actually shows the strength in the business where if this had happened, say, 18 months ago, we would have been hit pretty hard. But right now, we have spread our business across.
We have a very solid growing Northeast business in New York City, Boston, Connecticut, New Jersey, Pennsylvania. So, I think actually that shows the strength that we are also de-risking the business right now because our sales is just spread on many more hospitals as opposed to more than a year ago. So, yeah, I mean, in Florida, they had to stop surgery for obvious reasons for a period of time. So, of course, we also feel that. But having said that, the business keeps going strong.
Fantastic.
I think so. So, you got some guidance.
Excellent. I think time is running up. So, thank you very much, Morten, for presenting here today.
Thank you very much for having me.